Business Exam Today Flashcards
(14 cards)
What is definition of overdraft
A business going into negative balance because more has been withdrawn from the account than what was originally in the account
What is fixed costs?
Costs where the amount doesn’t change regardless of change in sales
Formula for operating profit margin
(Operating profit/revenue) x 100
Formula for gross profit
Revenue - cost of sales
What is buffer stock
Minimum level of stock held by a company
Pros of buffer stocks
Less cash tied up in stocks leading to lower cash outflow and therefore overtime an increase in net cash flow
Cons of buffer stocks
It requires efficient supply chain which may not be possible to achieve by distributors at times of high demand
Chance of running out of stock meaning customers go to rivals
Define working capital
The difference between a business’ current assets and current liabilities
What does poor working capital cause?
Lack of flexibility
Inability to invest
Impact on business reputation
Benefits of reducing buffer stocks held by a company
Reduced storage costs
Improved cash flow as less cash is held up in stocks
If business chooses lean production or Just in Time production then they will be efficient ad they are two production methods that encourage eliminating waste
Pros of increased capacity utilisation
Reduced unit costs
Improving profitability
More stocks = more capable of meeting an increase in demand
Pros of a PLC
Limited liability
Quicker decision making due to less shareholders
