Theme 2 LOAs

Question 1

Benefit of budgets

Answer 1

-Allow business to plan for the future

-plan their expenditure in advance

-reduces chance of overspending

-lower cash outflows

-postive net cash flow

-increase cash reserves

-better liquidity

-able to play day to day bills

Question 2

Drawback of budgets

Answer 2

-set limits on spending

-prevent businesses pursuing opportunities

-limits chance to expand

-leading to them producing lower output

-less like to gain EOS

-FC spread over less units

-increased FC per unit

-lower OP margins

Question 3

Benefit of zero based budgets

Answer 3

-constructed from scratch each year

-spending needs to be justified

-spending decisions are centralised

-lower chance of overspending

-reduced costs

-porters cost leadership strategy

-able to lower selling price

-increase demand

Question 4

Drawback of zero based budgets

Answer 4

-constructed from scratch each year

-spending needs to be justified

-requires market research to make predictions

-wages paid to researchers to prepare budgets

-increased cost of wages

-lower OP margins

-lower retained profit

-less capital to reinvest in…

Question 5

Benefit of historical budgets

Answer 5

-business will allocate each department a certain budget for year

• indicate that management trust employees as have responsibility to use funds as they see fit without supervision

-esteem needs met according to Maslow

-increasing motivation

-lower management labor turnover

Question 6

Drawback of historical budgets

Answer 6

-use previous years data

-may ignore changes in market

-opportunities for expansion may be missed

-restricting business scale

-lower output

-can’t gain EOS

-FC spread less

-increased FC per unit

Question 7

Benefit of job production

Answer 7

-one off personalised products are produced

• adapted to meet specific needs
• more likely to be differentiated

-price elastic

-charge higher price with significant fall in demand

-higher sales revenue and gross profit

Question 8

Job production drawback

Answer 8

-each product produced to customer specifications

-can’t produce in mass with automated machines

-can’t benefit from technical EOS

-lower productivity

-FC of production spread over less units

-higher unit FC

Question 9

Batch production benefit

Answer 9

-products made in batches

-develop broad product portfolio

-can create batches of products targeted at multiple segments

-spread risk

-less vulnerable to changes in trends and product can be adapted

-ensures sales remain consistent

Question 10

Batch production drawback

Answer 10

-products made in batches

-increased down time as business adapts machinery between batches

-low capacity utilisation during down time

-FC of production spread over less

-higher unit FC and OP

Question 11

Flow production benefit

Answer 11

-high volume of identical products made continuously

-through use of machinery

-can achieve technical EOS

-increased productivity and output

-FC of production spread over more units

-lower unit FC

Question 12

Flow production drawback

Answer 12

-high volume of identical products made continuously

-through use of machinery

-may damage businesses liquidity in short term

-significant investment required to purchase machinery

-reducing cash reserves in short term

-low current assets

-link to liquidity

Question 13

Cell production benefit

Answer 13

-involves employees coming together as teams to complete each part of production

-each team is set a target to work towards

-bringing each team together

-love and belonging needs met

-increased motivation

-increased productivity - EOS

Question 14

Cell production drawback

Answer 14

-involves employees coming together as team to complete each part of production

-employees will need to be multi skilled to work across production process

-business will need to invest into training

-increasing expenses

-reducing OP

-less retained profit

Question 15

Labour intensive production benefit

Answer 15

-involves using large proportion of labour compared to machinery

-if business recruits or trains high skilled workers

-labour may be multi skilled

-makes production process more flexible

-can adapt production to changing trends to better meet customer needs

• PED

Question 16

Labour intensive production drawback

Answer 16

-involves using large proportion of labour compared to machinery

-increasing number of employees compared to automated system

-increase in expenses

-lower OP and retained profit

-reduced total equity over time compared to capital intensive

-higher gearing making investment appear risky to investors

Question 17

Capital intensive benefit

Answer 17

-involves using large proportion of capital (machinery)

-provided that machinery is up to date and well maintained

-should be increase in productivity

-increased output per machine

-FC spread over more units

-lower unit FC

-opportunity to lower SP leading to increase in demand (purchasing EOS)

Question 18

Interpretation of stock control diagram

Answer 18

-gradient of stock level is falling more steeply

-stock level fallen below buffer stock

-may be due to…..

-either increased demand or problem I’m supply chain

-explain impact

-damage to brand reputation

Question 19

Benefit of just in time stock management

Answer 19

-JIT mean business order just enough stock to meet customer orders

-order just enough to fulfill customer demand

-means if trends change quickly they can easily adapt to reflect this

-less likely to have excess stock that becomes waste

-reducing expenses associated with holding excess stock

-increasing OP

-more retained profit

Question 20

Drawback of just in time stock management

Answer 20

-JIT means business order just enough stock to meet orders

-likely ordering smaller volumes each time

-as will not have large amounts of buffer stock

-not ordering in bulk means they are less likely to receive discount

-variable costs likely to be higher

-lower GP

Question 21

Lean production benefit

Answer 21

-if business adopts lean approach e.g JIT or Kaizen

-help become more efficient

-as will be reducing waste within production process

-help business adapt a low cost strategy according to porter

-lower costs allow business to reduce SP

-increase demand

-increase SR

Question 22

Lean production drawback

Answer 22

-if business adopts lean approach e.g JIT or kaizen

-reuiqre highly skilled staff

-as will either be tasked with identifying areas for continuous improvement or being able to adapt quickly to trends

-require business to invest heavily into staff training

-increasing expenses

-reducing OP

-less retained profit

Question 23

Quality control benefit

Answer 23

-checking and reviewing sample of work already done

-sample of finished products compared against set of standards at end of production

-only few employees rather than everyone needs to be trained to check quality

-reduced cost of training

-lower FC

-opportunity to lower SP and increase demand

Question 24

Quality control drawback

Answer 24

-only sample of products checked

-more defective products get sold as not every product reviewed

-increased number of product returns as not fit for purpose

-negative brand image of poor quality

-price elastic pressure to keep prices low

-lower GP

Question 25

Quality assurance/TQM benefit

Answer 25

-quality is responsibility of every employee -employees are trusted and trained to check quality themselves rather than team of inspectors -improved motivation as esteem needs are met -less mistakes made in production process -less defective goods -brand recognized for having reliable and durable goods

Question 26

Quality assurance/TQM drawback

Answer 26

-each employee needs to be skilled to check quality -higher wages to attract skilled employees and more training required -increased cash outflows - reduced net cash flow -reduced cash reserves and current assets -reduced liquidity -may not be able to pay day to day bills forcing sale of NCA -production process disrupted

Question 27

Quality circles benefit

Answer 27

-group of employees meet regularly -to identify potential improvements + resolve quality issues -task culture is developed as employees working as team -love and belonging needs met as employees feel part of group -employees more motivated (Maslow) so will stay within company and develop skills -ensure they can make effective improvements to quality -PED

Question 28

Quality circles drawback

Answer 28

-employees involved in groups need to be highly skilled -to make appropriate suggestions to improve quality -high skilled workers require higher wages to recruit + train -significant increasing costs -forcing prices to be high to avoid losses -reducing competitive advantage in price elastic market -reduce sales

Question 29

Continuous improvement kaizen benefit

Answer 29

-kaizen is culture where all employees make small improvements -e.g improvements in efficiency -as all employees involved they feel trusted to make important decisions -esteem needs met increasing motivation -improved suggestions on how to reduce waste time in production process -reduced waste leads to reduced costs and lower prices which increases demand

Question 30

Continuous improvement kaizen drawback

Answer 30

-employees need to be highly skilled -to make appropriate suggestions to improve efficiency or quality -highly skilled workers require higher wages to recruit + train -significantly increasing costs -forcing prices to be high to avoid losses -reducing competitive advantage in price elastic market -lower sales

Question 31

Impact of inflation on cost of sales

Answer 31

-increase inflation -increase in cost of goods and services -increased cost of raw materials -increased cost of sales -lower GP -lower OP -pressure to increase prices -fall in demand for business goods

Question 32

Impact of inflation on cost of sales - however

Answer 32

-if business sells a price in elastic good -the increase in price caused by increase in cost -will lead to insignificant fall in demand -therefore GP won’t fall significantly or at all -reducing impact of inflation

Question 33

Impact of inflation (using income elasticity)

Answer 33

-increase inflation -increased consumer spending on necessities -e.g milk,fuel -lower disposable income for luxury and normal goods -such as fashionable clothing -customers switch to inferior goods -lower demand for luxury and normal goods -lower sales revenue leading to lower GP

Question 34

Impact of inflation (using income elasticity) - however

Answer 34

-if wages rise by more than inflation -real wages will rise -rise in income rather than fall in income -increased demand for luxury and normal goods -such as fashionable clothing

Question 35

Stronger pound benefit

Answer 35

-pound buys more foreign currency -less pounds required to buy foreign currency -therefore less pounds required to buy foreign goods -cheaper to import raw materials -lower cost of sales -can lower SP

Question 36

Strong pound drawback 1

Answer 36

-foreign currency buys less pounds -more foreign currency needed to buy pounds -therefore price of uk goods increase for foreigners -uk exports dearer and less competitive -fall in demand for uk goods -pressure to lower prices

Question 37

Strong pound drawback 2

Answer 37

-the pound buys more foreign currency -less pounds required to buy foreign currency -therefore less pounds required to buy foreign goods -foreign competitors products appear cheaper -customers switch to foreign imports -fall in demand for domestic businesses

Question 38

Weak pound benefit 1

Answer 38

-foreign currency buys more pounds -less foreign currency needed to buy pounds -therefore price of uk goods falls for foreigners -uk exports are cheaper and more competitive -rise in demand for uk goods -EOS

Question 39

Weak pound benefit 2

Answer 39

-pound buys less foreign currency -more pounds needed to buy foreign currency -foreign goods become more expensive as more pounds required to purchase them -foreign competitors unable to compete on price -increase demand for domestic business

Question 40

Weak pound drawback

Answer 40

-pound buys less foreign currency -more pounds needed to buy foreign currency -foreign goods become more expensive as more pounds required to purchase them -increased cost of raw materials if business relies on foreign goods -increasing cost of sales -lower GP margin

Question 41

High interest rates drawback

Answer 41

-increased cost of borrowing -increased cost of loans and mortgages to individuals -lower spending on luxury and normal goods -lower demand for luxury and normal but higher demand for inferior -reduced revenue for luxury and normal goods -low GP leading to low OP -reduced retained profit limiting long term investment

Question 42

High interest rates benefit

Answer 42

-if wages rise by more than rise in interest rates and inflation -will be increased income -reducing impact of increased mortgage and loan costs -consumers continue to buy luxury and normal goods -demand remains stable

Question 43

Low interest rates benefit

Answer 43

-reduced cost of borrowing -reduced cost of consumer loads and mortgages -higher spending on luxury and normal goods -higher demand for luxury and normal but lower for inferior -increases revenue for luxury and normal goods -increased GP leading to increased OP -increased retained profit increasing long term investment in staff training or r&d

Question 44

Low interest rates drawback

Answer 44

-low interest rates means there will be low returns on savings -customers who use savings as source of income will have low return -lowering their income -reduced demand from those customers -reducing positive impact of rising sales from borrowers -therefore reducing potential benefit of EOS

Question 45

Drawback of increasing national insurance

Answer 45

-increase in national insurance -increases tax for all workers -proportionally greater for lower income workers -leading to reduced disposable income for all income demographics -fall in demand for luxury and normal goods -fall in sales revenue for businesses such as supermarkets -reduce capacity -loss of EOS (business) -falling GDP (country)

Question 46

Benefit of increasing national insurance

Answer 46

-increase in national insurance -increases tax available for fiscal spending -increased government spending on education -increased number of people attending university as now cheaper to attend -increase skill level within population -meaning business will have an increase supply of skilled labour -improve business productivity as result of increased skilled labour -decrease unit costs - reduce prices -EOS (business) -increased exports (country)

Question 47

Recession drawback

Answer 47

-falling demand for goods and services in an economy -falling production of goods and services in an economy -falling GDP -business reduce capacity by making staff redundant and selling NCA such as factory space -increased unemployment -fall in average incomes -increased demand for inferior goods but falling demand for luxury and normal goods -fall in sales revenue (business) -fall in tax revenue (country)

Question 48

Recession long term benefit

Answer 48

-presents an opportunity -if business has high cash reserves they may be able to sustain losses -caused by falling revenue -during this time competitors (who have lower cash reserves) may go out of business -reducing PED in market (long term) -due to lower buyer power as will be less choice -can increase prices when economy recovers -increase in long term sales revenue

Question 49

Boom benefit

Answer 49

-increase demand for goods and services in an economy -increased production of goods and services in an economy -increase GDP -businesses increase capacity by recruiting staff and buying NCA e.g factory space -increased employment and wages -rise in average incomes -increased demand for luxury and normal goods but falling demand for normal goods -increase in sales revenue (business) -increase in tax revenue (country)

Question 50

Boom drawback

Answer 50

-boom leads to increase in average incomes cause by business demand increasing -rise in wages (more bonuses and pay rises) -increased demand in economy -demand pull inflation -if inflation is higher than rise in wages -consumers spending more on necessities -fall in real wages -potential falling demand for luxury and normal goods

Question 51

Consumer protection benefit

Answer 51

-consumer protection legislation -ensures businesses must sell products that are fit for purpose -and advertised truthfully -mean customer can trust the products -making them more likely to purchase -leading to increase sales -increased revenue -increased GP and OP -increased retained profit

Question 52

Employee protection benefit

Answer 52

-employee protection legislation e.g sick pay -ensures businesses meet employee basic needs -by giving them minimum wage and adequate rest -employee hygiene factors are met -prevent demotivation according to hertzberg -increased productivity -increased output per worker -FC spread -lower unit FC

Question 53

Environmental protection benefit

Answer 53

-environment protection legislation e.g landfill tax -prevent businesses causing excess pollution and large amounts of waste -if business follows legislation -appear environmentally friendly -seem more ethical -strong brand image -PED

Question 54

Competition policy benefit

Answer 54

-competition policy -prevents businesses suppliers from colluding or forming monopolies -more choice between suppliers -reduced bargaining power of suppliers -suppliers unable to charge high prices -reducing cost of raw materials -lower variable costs -increase GP and OP

Question 55

Health and safety benefit

Answer 55

-health and safety legislation -businesses responsible for ensuring employees kept safe from danger -employees training and safe working conditions -ensuring safety needs met (Maslow) -increasing motivation -increasing productivity -FC spread -low unit FC -increased OP

Question 56

Drawback for all legislation

Answer 56

-legislation leads to increased bureaucracy -as processes need to be implemented to ensure legislation is followed -experts will be hired into to ensure its followed -increasing cost of wages -increased FC -reduced OP -reduced RP -reduced capital to reinvest

Question 57

Owners capital benefit

Answer 57

-if owner uses own capital -not incur any debt -not need to make capital or interest repayments -reduced outflows -if outflows less than inflows -positive net cash flow -keep up with payments to suppliers -won’t have to sell NCA to generate cash

Question 58

Owners capital drawback

Answer 58

-if uses own capital -likely to be limited in amount they can raise -limit potential expansion -reducing scale -limiting ability to achieve EOS -FC spread less -increased FC per unit -reduced OP margin

Question 59

Retained profit benefit

Answer 59

-if uses retained profit -will not incur any debt -won’t need to make capital or interest repayments -reduced outflows -if outflows are less than inflows -positive net cash flow -keep up with payments to suppliers -won’t have to sell NCA to generate cash

Question 60

Retained profit drawback

Answer 60

-if uses retained profit -likely to be limited in amount they can raise -limits potential expansion -reducing scale -limiting ability to achieve EOS -FC spread less -increased FC per unit -reduced OP margin

Question 61

Sale of assets benefit

Answer 61

-if business sells NCA as source of finance -will not incur any debt -won’t need to make capital or interest repayments -reduced outflows -if outflows less than inflows -positive net cash flow -keep up with payments to suppliers -won’t have to sell NCA to generate cash

Question 62

Sale of assets drawback

Answer 62

-if business sells NCA as source of finance -no longer have use of asset e.g machine -limiting scale -reducing ability to achieve EOS -FC spread over less -increased FC per unit -reduced OP margin

Question 63

Family and friends benefit

Answer 63

-if uses family and friends are source of finance -likely to be able to negotiate longer repayment times -or lower interest rates -due to existing relationships -reducing outflows -if outflows are lower than inflows -positive net cash flow -won’t have to sell NCA to generate cash

Question 64

Family and friends drawback

Answer 64

-if uses family and friends -likely to be limited in amount that they can raise -limit potential expansion -reducing scale -limiting ability to achieve EOS -FC spread less -increased FC per unit -reduced OP margin

Question 65

Peer to peer funding benefit

Answer 65

-allows business to source finance without having to give up equity of business -owner has full control over decision making -can continue investment into r&d -to focus on long term -develop differentiated products -without pressure to keep costs low so shareholders can receive dividends -inelastic LOA

Question 66

Peer to peer funding drawback

Answer 66

-is a form of debt financing -meaning business will need to repay borrowed capital -with interest -increasing outflows -if outflows exceed inflows -negative net cash flow -placing strain on cash reserves -may have difficulties meeting current liabilities

Question 67

Business angels benefit

Answer 67

-angel will likely have experience -meaning they can provide support with finance -can give comp adv -porter differentiation -increased sales volume -purchasing EOS LOA

Question 68

Business angels drawback

Answer 68

-need to give up high % of business -high share of profits -less profit can be retained -lack of capital reinvesting to r&d -cannot fund wages of researchers -struggle to create differentiated product -price elastic LOA

Question 69

Crowd funding benefit

Answer 69

-doesn’t require interest and capital to be paid -lead to reduced outflows -increased cash flow -ensuring business can pay suppliers -avoiding forced sale of NCA such as a store -avoiding disruption to operations -can effectively meet needs -keeping sales high and avoiding losses

Question 70

Crowd funding drawback

Answer 70

-business will need to give rewards to the investor -in return for investment -lead to increased outflows -lower net cash flow -reduced cash -may not be able to pay suppliers -forced to sell NCA

Question 71

Loan benefit

Answer 71

-doesn’t need to give up share of business -can retain more profit -not be required to pay dividends -have more capital available in long term to invest in… -explain impact of investment EOS/PED

Question 72

Loan drawback

Answer 72

-requires regular repayments -of interest and capital -increased outflows -may cause negative net cash flow -may lack cash to pay suppliers -forcing sale of NCA -disruption to business operations -lower SV unable to benefit from EOS

Question 73

Share capital benefit

Answer 73

-doesn’t require interest and capital to be paid -reduced outflows -increased net cash flow -ensuring business can pay suppliers -avoiding sale of NCA -avoiding disruption to operations -can effectively meet needs -keep sales high and avoid losses

Question 74

Share capital drawback

Answer 74

-shareholders may request dividends to be paid -reduced retained profit -less investment into NCA -reduced scale of operations -lower sales volume -FC of marketing spread over less -high unit FC -making advertising less affordable -less advertising reducing brand awareness in comparison to competitors

Question 75

Overdrafts benefit

Answer 75

-doesn’t require regular monthly repayments -as overdraft can be paid of when business chooses -means they can reduce payments and therefore outflows when inflows are low -avoid negative net cash flow -ensure they can pay suppliers -avoiding sale of NCA -avoiding disruption to operations -can effectively meet needs -keep sales high and avoid losses

Question 76

Overdrafts drawback

Answer 76

-interest is much higher on overdrafts compared to loans -overdraft will have increased cost -for the time that capital is borrowed -increase expenses -reducing OP -less profit can be retained -leading to reduced long term investment into r&d -harder to differentiate -elastic LOA

Question 77

Leasing benefit

Answer 77

-have use of NCA without high initial outflow -lower outflows in short term -higher net cash flow in short term -higher current assets -improved liquidity -more attractive to investment -raise more capital to build scale -EOS

Question 78

Leasing drawback

Answer 78

-regular leasing payments -increase expenses as leasing payments may cost more than NCA in long term -reducing OP in long term -lower retained profit -reduced r&d investment -impact - EOS or PED

Question 79

Trade credit benefit

Answer 79

-can receive raw materials without immediate outflows -opportunity to sell them -inflows of cash from sale -without outflow for the goods -increased net cash flow in short term -increased current assets -improved liquidity in short term -impact

Question 80

Trade credit drawback

Answer 80

-available for limited amount of time -potential cash flow problems in future -when payment is due -if business can’t make payment -supplier will have penalties e.g fines -leading to increased expenses -lower OP in long term

Question 81

Grants benefit

Answer 81

-doesn’t require interest and capital to be paid -reduced outflows -increased net cash flow -ensuring business can pay suppliers -avoiding forced sale of NCA -avoiding disruption to operations -can effectively meet needs -keep sales high and avoid losses

Question 82

Grants drawback

Answer 82

-business only have access to grant if used for specific purpose -e.g from case study -meaning business is limited in what it can use capital for -either unable to invest into r&d or can’t invest into NCA -PED or EOS LOA

Question 83

Limited liability benefit

Answer 83

-if business has any debt or owes supplier due to trade credit -and is unable to pay debt through sale of assets -then debt doesn’t need to be paid by owners/shareholders -means that investment in limited company is low risk as owners aren’t risking personal possessions -product/service inelastic -inelastic LOA

Question 84

Limited liability drawback

Answer 84

-owners aren’t risk personal possessions -so if business is unable to pay debt through sale of assets -then supplier or bank lose the owed amount -increases risk of lending cash to business -or increased risk of offering trade credit -making banks and suppliers less likely to lend -struggle to get trade credit or loan -limiting expansion -can’t benefit from EOS

Question 85

Benefit of business plan in obtaining finance

Answer 85

-involves carrying out market research -e.g questionnaires -which if based on large sample size -improves validity of results -develop reliable sales predictions -create cash flow forecast -convince bank that they can make loan repayments -investment more attractive -raise more capital -EOS

Question 86

Drawback of a business plan in obtaining finance

Answer 86

-business plan can quickly become out of date -e.g may be unexpected change in social trends -causing unexpected change in demand -making market research in plan invalid -resulting in unreliable forecasts -inaccurate cash flow forecast -any financial predictions will be unreliable making the loam or investment application unreliable

Question 87

Cash flow forecast benefit

Answer 87

-business many experience fluctuations in sales -may mean they experience a reduction in cash inflows at certain times -so if they can accurately forecast cash flow they may be able to plan accurately -such as reducing staff members if forecast lower inflows during these periods -allowing them to reduce their wages and cash outflows -improving net cash flow during off peak seasons and ensuring they have sufficient levels of cash to keep up with essential payments

Question 88

Cash flow forecast drawback

Answer 88

-can quickly become out of date -may be unexpected change in social trends -causing an unexpected change in demand -making market research in plan invalid -resulting in unreliable sales forecasts -inaccurate cash flow forecasts -result in business being over or understaffed or over or under stocked

Question 89

Sales forecasting benefit

Answer 89

-accurate forecast will appropriately predict sales volume -ensure business can order correct amount of stock -reduce waste as business will avoid over ordering -reduced waste will decrease outflows -improve net cash flow -ensuring business can pay suppliers OR invest in r&d -impact

Question 90

Sales forecasting drawback

Answer 90

-accurately compiling a sales forecast requires significant investment into market research -to accurately quantify demand -to ensure data is valid it must be collected from large sample -may require recruiting specialist researchers to collect and analyze data -their wages will increase outflows -placing strain on cash reserves -less cash available to pay current liabilities -may be forced to sell NCA

Question 91

Calculating break even benefit

Answer 91

-by calculating break even -business can identify number of units they need to sell to cover costs -compare this with sales forecast -identify whether they are likely to make a loss -can therefore take action to reduce break even point -e.g switching to cheaper supplier/ increasing SP -in order to increase CPU -and prevent losses

Question 92

Calculating break even drawback

Answer 92

-break even assume prices and costs remain constant -as sales volume increases business will need to buy more raw materials -may be able to benefit from purchasing EOS -gain discount for bulk buying -leading to variable cost per unit falling as output rises -increasing CPU -break even ignores this so may be inaccurate

Question 93

Benefit of high capacity utilisation - manufacturing

Answer 93

-through improving worker motivation or advancements in production technology -increase productivity -increase output -Improved capacity utilisation -FC of production spread over more units -lower unit FC -increase OP margin or opp to decrease SP

Question 94

Benefit of high capacity utilisation- service

Answer 94

-through exceptional customer service or high differentiation -business will have high sales volume -increase number of seats filled -improved capacity utilisation -FC of providing service spread over more -lower unit FC -increased OP or opp to decrease SP

Question 95

Drawback of high capacity utilization - manufacturing

Answer 95

-operating with high capacity utilization -means that machines are working for long periods -to produce high levels of output -increased chance of machine failure -disruption to production process -increased expenses as business will need to spend on repairs -OR poor customer service as longer lead time

Question 96

Drawback of high capacity utilization - service

Answer 96

-operating with high capacity utilization -means that employees may be working for long periods of time -to ensure business has strong brand reputation -and high % of seats full -employees may feel overworked -safety needs will not be met (Maslow) -employees become demotivated -may look for employment elsewhere which increases labor turnover -increase expenses

Question 97

Benefit of low capacity utilization - manufacturing

Answer 97

-operating with low capacity utilization -will mean that business has time to service machinery in between production -to reduce chance of machine failure -as machinery won’t need to be constantly in operation -reduce expenses -as less likely to need to repair machinery -OR retain positive reputation as no delay in production process - differentiated

Question 98

Benefit of low capacity utilization- service

Answer 98

-operating with low capacity utilization -will mean employees won’t be working for long periods -as service may not be busy -improving working conditions -ensuring safety needs are being met (Maslow) -ensuring employees remain highly motivated -and deliver exceptional customer service -inelastic LOA

Question 99

Drawback of low capacity utilization - manufacturing

Answer 99

-operating with low capacity utilization -will mean business is not fully utilizing resources -low levels of productivity -reduced output -FC of production spread over less units -increased unit FC -lower OP margin -less profit to retain and reinvest

Question 100

Drawback of low capacity utilization - service

Answer 100

-operating with low capacity utilization -will mean that business is not fully utilizing resources -low % of seats filled -lower sales volume -FC or providing service spread over less -increasing unit FC -lower OP margin