Less quantity costing more can occur in certain situations due to various factors:
1. Economies of Scale
In many manufacturing processes, the cost per unit decreases as the quantity produced increases. This is known as economies of scale. Manufacturers can optimize their production and distribute fixed costs over a higher quantity, resulting in a lower cost per unit. When producing smaller quantities, these economies of scale might not be fully realized, leading to higher costs per unit.
2. Setup Costs
Some manufacturing processes have significant setup costs that are incurred regardless of the quantity produced. These costs can include equipment setup, tooling, preparation, or even design and development. When producing a smaller quantity, these setup costs are spread over fewer units, leading to a higher cost per unit.
3. Material Costs
Suppliers often offer volume discounts for purchasing larger quantities of materials. When ordering smaller quantities, these volume discounts might not be available, resulting in higher material costs per unit.
4. Operational Efficiency
Industrial processes are often designed for efficient production at higher volumes. Producing smaller quantities can lead to less efficient production lines or processes, requiring more manual handling or adjustments, and impacting the overall production efficiency. This can contribute to increased costs per unit for smaller quantities.
5. Transportation and Handling
Shipping and handling costs might remain relatively fixed regardless of the quantity being transported. Therefore, when shipping smaller quantities, these costs can make up a larger proportion of the total cost per unit.
Overall, less quantity costing more can be a result of factors such as reduced economies of scale, higher setup costs relative to the quantity produced, fewer opportunities for volume discounts, less operational efficiency, and relatively higher transportation and handling costs.