Theme 2

Question 1

What is a LTD?

• Pros and Cons

Answer 1

A business limited by shares owned by a small number of people.

+ Only liable for initial investment

• Annual financial reports

Question 2

What is a PLC?

• Pros and Cons

Answer 2

A business limited by shares available to public.

+ Access to capital

• Expensive to set up (min £50,000)

Question 3

Limited vs Unlimited Liability

• Which type of business is which

Answer 3

Limited (separate entity)
- Shareholders liable for initial investment
- LTD, PLC

Unlimited
- Owners liable for all financial obligations of business
- Sole Trader, Partnership

Question 4

Name 3 things on a business plan

Answer 4

Executive summary
- Short overview of purpose and opportunity

Market Research
- Market and competitors

Sources Of Finance
- Loans & investment

Question 5

• 2 ways to speed up inflows
• 2 ways to slow down outflows

Answer 5

Speed up
- Incentivise early payment (discount)
- Sell stock at reduced price

Slow Down
- Delay payments to suppliers
- Increase trade credit with suppliers

Question 6

What is contribution and the formula?

Answer 6

Returns a business makes per unit

• Difference between the variable costs of one unit and its selling price.

= revenue - Variable costs

= (revenue - Variable costs) / revenue

Question 7

What is a margin of safety? And the formula

Answer 7

Difference between break even and current level of output

Current output level - break even level

Question 8

Historical budgeting +/-

Zero based budgeting +/-

Answer 8

Historical
-> Using prev data
+ Reliable if operating for long time
- Cant adapt

Zero based
-> All spending must be justified
+ Eliminates unnecessary costs
- Time consuming

Question 9

What is variance and the formula?

Answer 9

Difference between budgeted figures and actual figures
Budgeted figure - Actual figure

Question 10

What is a statement of comprehensive income?

Answer 10

Shows income and expenditure over time whilst calculating profit.

Question 11

Whats the difference between gross profit and operating profit?

Answer 11

• Gross profit is after direct costs deducted
• Operating profit is after indirect operating costs are deducted (Overheads)

Question 12

What is profitability

Answer 12

A measure of profit against expenses

Question 13

What is a Statement of financial position? (Balance Sheet)

Answer 13

A document recording assets and liabilities of a business

Question 14

What is liquidity? What is the most ‘liquid’ asset?

Answer 14

Ability of a business to pay its debts when they fall due

• Cash as fastest to turn into cash

Question 15

What is current ratio and formula?

Answer 15

Determines If business has sufficient working capital to pay short term debt

Current assets / current liabilities

Question 16

What is acid test ratio and formula?

Answer 16

More severe test of liquidity as inventory might not be very liquid

(Current Assets - Inventory) / Current Liabilities

Question 17

What is working capital? and formula

Answer 17

Money to pay for day to day running costs (bills, wages, stock etc)

Current assets - current liabilities

Question 18

4 methods of production?

Answer 18

Job Production
- Producing single unique units

Batch Production
- Group of similar products produced simultaneously

Flow Production
- Continuous, uninterrupted flow of production

Cell Production
- Teams responsible for different parts of production

Question 19

+/- of Job Production and Batch Production

Answer 19

Job Production
-> Producing single unique units
+ High margins, bespoke and unique
- High costs, labour intensive

Batch Production
-> Group of similar products produced simultaneously
+ Felxibility whilst achieving EOS
- High storage costs

Question 20

+/- of Flow Production and Cell Production

Answer 20

Flow Production
-> Continuous, uninterrupted flow of production
+ Very low costs & high productivity
- Low motivation & huge setup costs

Cell Production
-> Teams responsible for different parts of production
+ Motivated as in team
- Bottleneck for machine breakdown

Question 21

What are 3 factors effecting productivity?

Answer 21

• Education and training of workforce
• Motivated workers
• Capital available (Automation)

Question 22

3 ways to add value

Answer 22

• Features & UI (User Interface)
• Improve packaging
• Offer expert advice

Question 23

What is capacity utilisation and formula?

Answer 23

The use a business makes of its resources.

(Existing Output / Maximum Possible Output) x 100%

Question 24

How to increase capacity utilisation?

+/- of high capacity.

Answer 24

-> Sub contract
-> Overtime pay to workers

+ EOS
- Employees overworked and unhappy
- mistakes more likely

Question 25

How to decrease capacity utilisation? +/- of low capacity.

Answer 25

-> Rationalisation (Redundancies and sale of assets) -> Sub contract work from other businesses + Easy to grow - Idle resources (machines not be used)

Question 26

What are 3 costs of poor stock management?

Answer 26

- Opportunity Cost (Overstocking causes cash to be tied up) - Shrinkage (Stock damaged or stolen) - Too little stock (Customers unhappy - loss of sales)

Question 27

2 ways to minimise waste

Answer 27

- Rotate stock - old stock sold first - Pricing strategies / promotions - Clear old stock

Question 28

What is Kaizen? + / -

Answer 28

constantly introducing small changes in a business to improve quality / efficiency. + Improved quaility - May not satisfy stakeholders as no immidiate results

Question 29

What is quality? 2 ways to improve quality

Answer 29

Extent to which a product matches the customers requirements - Invest in technology - High quality suppliers

Question 30

What is TQM (Total Quality Management) 3 principles of TQM

Answer 30

Management strategy based on quality being prioritised throughout the production process. Whilst limiting waste to increase profits - Quality Chains (supply chains) - Teamwork (teams identify opportunities and solve problems) - Customer Views (Improve on feedback)

Question 31

Define Boom and Recession and features of both.

Answer 31

Boom -> High economic growth and production - High Profits - Low unemployment - High inflation Recession -> Output starts to fall and growth declines - Production declines as demand falls - Governments use policies to stimulate growth

Question 32

Define Slump and Recovery and features of both.

Answer 32

Slump -> Prolonger period of economic decline - High levels of unemployment - Low interest rates Recovery -> Economy starts to pick up after a period of decline - Spare capacity is used - Employment rates increase

Question 33

What is the business cycle?

Answer 33

Fluctuation of GDP over time

Question 34

What are the 5 areas of legislation that have significant impacts on a business?

Answer 34

- Consumer Protection (Safe product) - Competition Policy (Abuse of market power - unfair conditions for suppliers) - Employee Legislation (Exploiting workers) - Environment Protection (Pollution & Wildlife) - Health & Safety Legislation (Hygiene, noise, temperature etc)