Competitive-Cost Analysis: Scale and Utilization Calculations

7 Pages Posted: 21 Oct 2008 Last revised: 25 Aug 2018

See all articles by Timothy M. Laseter

Timothy M. Laseter

University of Virginia - Darden School of Business; Emory University - Goizueta Business School; University of Navarra, IESE Business School; London Business School; New York University (NYU) - Leonard N. Stern School of Business

Ken Heckel

University of Virginia - Darden School of Business

Angela Huang

University of Virginia - Darden School of Business

Abstract

This final note in the three-part series provides detailed guidance on calculating scale curves and utilization effects.

Excerpt

UVA-OM-1256

Rev. Aug. 9, 2018

Competitive-Cost Analysis: Scale and Utilization Calculations

An understanding of the factors that drive the microeconomics of a business provides the insight needed for strategic and tactical improvements in operational effectiveness. Competitive-cost analysis, a method for analyzing the cost structure of a company, represents a strategic application of cost modeling. The first note in this three-part series on competitive-cost analysis (see also UVA-OM-1254 and UVA-OM-1255) identified the basic framework and principles for developing accurate and comprehensive cost models. The second note discussed tools that can be used to analyze cost drivers. This final note provides detailed guidance on calculating scale curves and utilization impact.

Scale-Curve Calculations

The term “economies of scale” has a precise meaning as well as a precise form of measurement, the scale curve. Technically, a scale curve measures the slope of the logarithmic curve plotted by a set of points representing cost per unit for variously sized facilities operating at the same level of “full” capacity utilization. In layman's terms, the slope of the scale curve defines the new cost base achievable by doubling facility capacity.

. . .

Keywords: scale curves, utilization effects

Suggested Citation

Laseter, Timothy M. and Heckel, Ken and Huang, Angela, Competitive-Cost Analysis: Scale and Utilization Calculations. Darden Case No. UVA-OM-1256, Available at SSRN: https://ssrn.com/abstract=911493

Timothy M. Laseter (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://www.darden.virginia.edu/faculty/laseter.htm

Emory University - Goizueta Business School ( email )

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University of Navarra, IESE Business School ( email )

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Barcelona, 08034
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London Business School ( email )

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London, London NW1 4SA
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New York University (NYU) - Leonard N. Stern School of Business ( email )

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New York, NY NY 10012
United States

Ken Heckel

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Angela Huang

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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