Theme 2- managing business activities Flashcards

Question

How is a simple budget statement is set out by?

Answer 1

``` Income Variable costs Fixed costs Total expenditure Profit ```

Answer 2

The difference between the budget and actual values Variance is the amount by which the actual result differs from the budgeted figure, it is usually measured each month. Variances are referred to as adverse or favourable, not positive or negative. These regular variance statements provide an early warning. If the sales are slipping then the manager might respond by increasing marketing support.

Answer 3

Is one that leads to higher than expected profit (revenue up, costs down)

Answer 4

Is one that reduces profits (costs being higher than budgeted level)

Answer 5

- to provide direction, efficiency - to control income and expenditure, establish priorities - to monitor performance, motivation - to enable spending power to be delegated to local managers, local managers know what is best for the individual firms, allows for motivation and speeds up decision making

Answer 6

- determining sales is outside the control of the managers in some cases, e.g. Chessington’s sales are weather dependant - businesses need to decide whether designing and implementing a budgeting system will cost more in terms of time and money that it could save, assess the opportunity costs - budgets need to be changed as circumstances change, economic cycle - department rivalry results possibly in short term decisions rather than the right long term decisions

Answer 7

it is the financial gain of a business through trading and can be found by deducting expenditure from revenue

Answer 8

Revenue - cost of sales

Answer 9

Gross profit - fixed overheads

Answer 10

Operating profit - net financing and costs

Answer 11

1) revenue (sppu x q) 2) costs of sales 3) gross profit (revenue - COS) 4) fixed overheads 5) operating profit (gross profit- fixed overheads) 6) corporation tax 7) net profit (operating profit - financing and tax)

Answer 12

Using gross profit margin, operating profit margin and profit of the year (net profit) margin Profitability- states profit as a % of sales

Answer 13

Gross profit / sales revenue x 100

Answer 14

Operating profit / sales revenue x 100

Answer 15

Net profit / sales revenue x 100

Answer 16

Increase revenue | Decrease costs

Answer 17

- cutting the costs without damaging the quality in any way this can be done by: - better bargaining with suppliers - better ways of producing may lead to higher profits per sale, automation? - restructuring, delayering and redundancies - when decreasing the costs the company needs to be careful to ensure that reducing costs does not lead to a deterioration of the service or quality of the product

Answer 18

- this would increase the profit by sale, but the danger is that the sales overall may fall so much that the overall business profits are reduced - the impact of your increase in price depends on the price elasticity of demand, the more price elastic it is, the greater the fall in demand will be

Answer 19

Cash is the money available, the money circulating round a business at any time, this would not include part of a loan Profit is the money generated by selling products, revenue - costs - profit is recorded straight away but cash will not be recorded until it is paid out or received which could be in a different trading year - a business can trade for many years without a profit but a profitable business may go bust if it runs out of cash to pay a supplier or staff - to improve profitability a business must either increase revenue or reduce costs but if owner introduce cash via savings or a loan this will not affect the profit figure

Answer 20

- revenue is not the same as money in. Revenue is the value of sales made over a specific period - whereas revenue comes from just one source (customers), cash inflow can come from many sources and is not limited to trading (could be from loans) - taking out a bank loan could not be classed as revenue but it does put cash into your bank account - so cash inflows can be a part of the revenue, but they don’t have to be

Answer 21

costs are the sums of money that are paid out in the whole product life cycle. there are lots of reasons for cash outflow. Paying for the business costs is only one of them. It also includes dividends or paying out a bank loan.

Answer 22

The way in which profit is used, I.e, spent between how much is distributed to shareholders and how much is reinvested back into the business, known as retained profits

Answer 23

Measure of whether profit is sustainable in the long run. High quality is one that continues and low quality arises from exception circumstances

Answer 24

It measures the ability for a firm to find the cash to pay its bills. The cash needs to be available in a current bank account I’d close to being available, such as a payment promised for next week.

Answer 25

The first thing he to identify the bills, these are the liabilities. Then you must measure the assets. If the amount of assets is higher than liabilities then their liquidity is sound.

Answer 26

This looks at the relationship between current assets and current liabilities. it shows the liquidity of the business. The desired ratio is 1.5:1. A low current ratio means that they may struggle to repay their debts.

Answer 27

Current assets / current liabilities

Answer 28

This examines the business’ liquidity position by comparing the current assets and liabilities but omits the stock from the total current assets. The ideal result is 1:1

Answer 29

(Current assets - inventories) / current liabilities

Answer 30

- selling under-used fixed assets - raising more share capital - increasing long-term borrowings - postponing planned investments - improving the management of working capital

Answer 31

it is the finance available for the day-to-day running of the business. They need money in order to buy equipment and to pay staff’s wages. Managing working capital is about ensuring that cash is sufficient to meet the cash requirements at any one time. If bills cannot be paid on time then they have serious problems.

Answer 32

Managing working capital is a continuous process. When a business starts up, it takes time to generate income. As the business cycle gets going, income from customers will be available to pay for expenditure. the business needs to make sure that there is always sufficient cash to meet daily requirements.

Answer 33

Whilst capital is being injected into the business: Sell to customers in credit, customers pay up, buy materials and produce goods This process is then repeated

Answer 34

- dividend payment - shows the business' liquidity - important short term and long term as it means business’ can survive and grow - for manufacturing companies, they can incur costs many years before receiving payments, e.g. 2012 olympics

Answer 35

- poor control of inventories/stock - unexpected events - overtrading = a business expanding too quickly without financial reluctancies to support it - too many short-term loans and overdrafts

Answer 36

- negotiate prices and terms with suppliers - sell long term assets for cash - manage stock levels well, e.g. have enough materials for uninterrupted production and minimise re-ordering costs - cash flow forecasting to plan ahead to know how much cash is needed in the future

Answer 37

The inability to keep the business going, either because of inability to keep up with the bills/liabilities or because the profits being made are too meagre to be worth continuing

Answer 38

1) not really in touch with customers through deep dialogue 2) no real differentiation (lacking a unique value proposition) 3) failure to communicate your unique proposition in a concise and compelling way 4) leadership breakdown at the tip (a dysfunctional leader) 5) inability to nail a profitable business model with sufficient revenue streams

Answer 39

1) a marketing failure- businesses must foresee threats and find a marketing solution, finding new products or services to meet the needs of today’s customers, failure to adapt to a new trend 2) a financial failure- this could be done by over-expanding too much in new machinery at a time of declining sales, businesses collapse due to bad management of finances. 3) a systems failure- if a new IT system causes confusion, the result can be disastrous. Stock ordering may go wrong, leaving some empty whilst others overflow.

Answer 40

1) a fundamental change in technology- a rival gets a competitive advantage that is too great to be matched 2) the arrival of a competitor- these competitors may be offering something that you are not and so sales may plummet as they steal all your customers 3) economic change- in 2009 during the recession, the production of cars plummeted, this threatened the future of major car companies due to the lack of sales 4) the behaviour of banks- some banks have been accused of making a profit from client companies in financial difficulties. There are cases of forced closure so that the banks can sell their assets to make a profit.

Answer 41

There are two triggers to financial failure: the one is the inability to pay bills and the other is the result of a big investment going spectacularly wrong. Most financial collapses, though, are due to running out of cash, this can be because of: 1) the business may have been running below break-even for some period. If the business cannot be returned to profit, cash will run out at some point. 2) a cash flow crisis may occurs, perhaps unexpectedly. If a company manages to get distributed by a big company and then they decide to stop selling their products then the company may have to turn for finance but if the banks are insisting that an overdraft needs to be payed within 24 hours then they may be forced to close down 3) overtrading- if a rise in demand encourages a business to pursue rapid sales growth, the strain on cash flow can prove too great, causing the company to collapse

Answer 42

The two main causes are a suffer lurch in sales towards competitors or a steady loss of sales as the business loses its long-term competitiveness 1) poor management of people or operations as this can lead to IT failures and poor customer service from unhappy employees 2) thriving competitors and steady sales decline

Answer 43

1) Non current assets 2) Current assets 3) Current liabilities 4) Working capital (CA-CL) 5) Non current liabilities 6) Net assets (NCA+WC-NCL) 7) Financed by 8) Total equity (should balance with net assets)

Answer 44

- it sets out the revenues generation in the year together with all the costs incurred - PLCs and LTDs need to publish their accounts every year by law - as part of those financial accounts they need to show their profit and loss and this appears in their SOCI

Answer 45

Own for a short period - assets that are quickly and easily turned into cash e.g. cash and stock

Answer 46

Owe within a year Short term loan, customer deposits

Answer 47

own for more than a year Machinery Property

Answer 48

owe for more than a year Long term loans mortgages

Answer 49

net profit | - see if their wages go up

Answer 50

profit before tax | - see how much the business should pay in tax

Answer 51

net profit | - see their dividends

Answer 52

operating profit/net profit | - see if high costs are limiting the business, see how much they will have to spend

Answer 53

net profit | - see if the business has the funds

Answer 54

net profit | - see if theres a steady stream of money coming in

Answer 55

operating proft / capital employed (total equity + NCL) - the higher the better - measure firms efficiency - investors can look at likely returns it is improved by: - increasing operating profit - reducing capital employed

Answer 56

it can provide the numbers that help managers to make better decisions, and it can count what is happening and what has happened.

Answer 57

the money that is left for the day-to-day running of the business

Answer 58

1) How much will it cost to get a business idea to opening the doors on the first day 2) How much the running costs will be, they need a solid understanding of the fixed and variable costs 3) How much revenue can you expect from the customers you serve?

Answer 59

bank overdraft | trade credit

Answer 60

bank loan | leasing

Answer 61

owners' savings sales of shares reinvested profits venture capital loans

Answer 62

By investing in many businesses with great potential, some may disappoint but as along as successes have a big upside, they can be sold off for profits big enough to cover the disappointment.

Answer 63

- purchase materials - pay staff - R and D - innovate

Answer 64

this is money that comes from inside the business retained profit sales of assets owners capital: personal savings

Answer 65

- any profit left in the business after the cost of sales, fixed costs, tax and financing costs have been paid. It is often used to re-invest in the business. - this is the profit made by the business in earlier years. It is the money kept in the business rather than paying it out as dividends. - it is the best way to finance investment into a firm’s future - logically then, the higher the profit the more likely it is that it can finance its expansion from within

Answer 66

- This is using a business’ assets and selling them off. They may say buildings, land, vehicles and machinery that is no longer needed - It is a way of upgrading and is a quick way to earn cash at 0% interest - This may cause future problems if you need it later

Answer 67

- This is the money put into a business by its owner or owners. This is often used when a business is first set up - This is limited as not many will have the sufficient fundings in order to successfully rely solely on this

Answer 68

``` family and friends banks peer-to-peer funding business angels crowd funding other businesses ```

Answer 69

``` loans share capital venture capital overdrafts leasing trade credit grants ```

Answer 70

- they can provide share capital (through the selling of shares) or can lend money - a sole trader or partnership may find that their family want to contribute to the business. this may be for interest, a share of the profits or maybe even an interest free loan amongst family - the majority of businesses start with a combination of owners' capital and family and friends pros: - loans from family and friends will probably be offered without the need for security and at lower rates and over longer terms - they are unlikely to need a business plan and so can save the time of not wiring one cons: - You may feel pressure on the relationship, what happens to the friend or member of family will affect them - they may demand their money back at short notice

Answer 71

- banks may lend a loan to a business to start-up or when a business wants to grow and expand - borrowing a large sum of money to pay interest on the money you owe - banks may also provide a business with an overdraft to help hen they have cash flow problems pros: - repayment plans available to suit the business - banks will allow the business to continue running in their own way, not interfere, owners retain control of the business (unlike business angels) cons: - if it is a start-up business then the owner may need to use their own assets as security for the loan (e.g. their house) - loans can be very expensive compared to other sources, interest must be paid back on time

Answer 72

- matches businesses that need funding with investors who are looking for a good return on their investment - this was very popular after the 2009 recession when banks were reluctant to lend money - lending marketplaces such as funding circle have gained the trust of consumers by offering lower rates than banks to business owners who want to borrow money pros: - businesses can't access to funding within a week once approved - investors can expect returns of 6-7% whereas a savings account might only give them 3% cons: - if there are not enough individuals interested or willing to invest in your loan, you may not be able to acquire the entire amount that the business needs - the money for the loan comes from several investors, it is classified as a private business loan so you are tied up with several companies

Answer 73

- Individuals who invest in the early stages of a riskier business and take an equity share in return for providing finance, advice and guidance - an angel investor offers to lend their personal disposable income, normally in exchange for shares in the business - angel investors take huge risks in the hope of an occasional blockbuster success - usually smaller loan amounts than a venture capitalist pros: - the owner gets access to angels' mentoring and management skills - the owner will have no repayments or interest on the money lent cons: - owner needs to give a share fo the business - not suitable for investments below £10,000 or above £500,000

Answer 74

- a way of getting small investors to put money into a new product over the internet - the three ways to fund are through: 1) donate- no money back but rewards like tickets or free samples 2) lend- gets money back with interest and satisfaction of contributing to success of a small business 3) invest- invest tin the business in exchange for equity or shares which may go up in value - it is more successful when the sponsors use social media to promote their firm pros: - the business can generate funds and also promote the business at the same time - good alternative to loans for small business owners cons: - the firm will need to showcase their idea to investors and may need to put together a video and other promotional material, cost - takes much longer to happen than a loan, is not always successful

Answer 75

- some large MNC's are willing to invest in innovative start-ups, the companies hope to get the occasional winner among a number of duds - In Silicon Valley, USA, this type of investment is common, but not in the UK

Answer 76

if the business is unable to generate sufficient funds from internal sources then it may need to look to external sources. there are two sources of external capital: loan capital (debt) and share capital (equity). - loan capital carries interest rates and must be repaid in a specific time schedule - share capital is usually rewarded by annual dividend payments, but the directors have the flexibility to cut or scrap those payments in a difficult year

Answer 77

- loaning money from a bank is like 'renting' money - banks will lend to small businesses but may not lend when they first start-up as there is no track record or history of them making money - The loan is set for a period of time, either being short, medium or long term. It can be paid in instalments or at the end of the period. The bank will ask for collateral to provide security if the loan cannot be repaid. - loans are affected by interest rates- if they go up then the cost of borrowing will go up too Positives: - Easy to do and repayment plans available to suit the business - as the loan is fixed for a certain length of time, the firm can produce a successful cash flow forecast, they know when and how much money will go out the business Negatives: - They may ask for collateral- an asset belonging to the business so is risky - if interest rates go up then it can become an expensive source of finance

Answer 78

- this is when a PLC makes money from the selling of shares - If the business is a limited company, it may look for additional share capital, it can come from private investors or venture capital funds. - Once it has become a public limited company, the firm may consider floating on the stock exchange. Positives: - investors are often prepared to provide extra funding as the business grows - it can bring wise heads into boardroom Negatives: - the more shares sold, the more the profits have to be divided up and paid out to investors as dividends - potential investors may require a great deal of background information before the buy the shares

Answer 79

- Venture capitalists invest in smaller, riskier companies with a large sum of money but in return they demand a substantial part of the ownership of the company. - they will look for a high rate of return in a specific time period - it is good for any start-up or early stage business that is unable to raise finance through the stock markets or from banks - they will invest at least £50k but this can rise into millions of pounds Pros: - useful if the business is looking to raise a large amount of money in a short space of time, banks would not offer this - Venture capitalists can provide advice, expertise and contacts Cons: - venture capital firms typically want a 20-30% stake in the business - venture capital firms look for a strong business plan and a proven track record, making it difficult for start-up firms

Answer 80

- When a business obtains goods and services from another business but does not pay for these immediately - Suitable for businesses buying raw materials and stock, the buyer will have time to sell their goods in their own shop before they have to pay for them - the wholesaler may give the buyer a discount when they use cash instead Pros: - no interest has to be paid on trade credit - businesses that pay regularly on time build relationships with their supplier and secure better deals Cons: - if the business doesn't pay on time then they risk being refused further credit by the supplier in the future - not all stock is available to buy on trade credit, only applies to certain industries

Answer 81

- they are hand-outs to small firms who are making a positive difference in the community, they are given to encourage a start-up or a relocation that is considered as valuable - they are only available to businesses that qualify, e.g. if they are providing jobs in an area of high unemployment or helping people develop skills Pros: - the business will not have to pay back the grant, no interest - can be used to aid growth and increase revenue - they will get funds without any loss of control of the business Cons: - there's a lot of competition for grants, difficult to obtain one, need a successful proposal - Often just a one-off payment, short-term

Answer 82

- Leasing an asset means agreeing to pay a fixed monthly rental for a fixed period, such as three years, an asset is rented rather than purchased - You end up paying more than what the product is worth but at least you have kept the cash in your bank account at the start of the period - In the long term, leasing is more sensible than buying the asset in terms of your cash flow pros: - improves cash flow as it comes out in small amounts, not a shock for the business - allows you to buy more expensive equipment due to the repayment plans negatives: - pricey, in the long term it is more expensive - needs to hope that they continue earning enough to repay

Answer 83

- An overdraft is a very short-term loan, where depositors can go into a negative balance in the bank account, it is 'extra cash available' - it may be organised by the bank which is short term lending of smaller amounts of money - once it is arranged, it is an account business can dip Inyo or pay it back as they see fit Positives: - seen as a quick fix method to help a business over a difficult month of trading, very flexible, suited to the difficult cash flow position of start-ups - the business will only pay interest on the amount of money that they are overdrawn, easily pay back the overdraft Negatives: - very risky, banks can cancel them at any time, often leading to the business not being able to repay the negative balance, leading to administration - very expensive source of finance, higher interest rates than loans, high charges

Answer 84

When a business and its owner are the same legal entity. In this case the debts of the business are the debts of the owners, and personal property can be sold to pay the debts of the business - If the business goes into a lot of debt and they cannot repay, the owner may be forced to sell their houses, cars, etc. - If the owners cannot pay, they can be made personally bankrupt - The two types of business organisation with unlimited liability are sole traders and partnerships

Answer 85

1) Owners’ capital- in the case of a partnership, an agreement may be drawn up basing the proportionate ownership of the business on the amount of capital invested by each partner 2) Bank finance, either loan or overdraft- it is easier for them to obtain bank finance because even if the business fails, the bank can recoup its cash form the personal assets of the owners 3) Leasing- signing an agreement to rent a specific asset for a specific period, therefore avoiding the cash drain caused by purchase 4) Trade credit- supplier companies wold often prefer a deal with a sole trader or partnership as they know they can recoup any debts from the individual owners if the business fails

Answer 86

When a business is a separate legal identity to its owners, which means that if the business goes bankrupt the owners only lose what they originally put into the business, and not their personal belongings if the company has lots of debt the courts can force them to sell all their assets (computers, cars) and if there is still not enough money, the company is closed down but the owner/shareholders have no personal liability for the remaining debts

Answer 87

- Limited liability can give owners the confidence to push their business to the next level, financed by bank loans to give security - However these are a huge scope to fraud. They can start a business, take customers’ money, enjoy a fantastic lifestyle and then go into liquidation before the customers receive the services they paid for

Answer 88

1) Share capital- part of it may be under the control of the founder and part sold onto family and friends or more publicly to the general public 2) Bank finance through bank loans and overdrafts- will have to be backed by specific collateral, especially for small companies. It is highly likely that a bank would demand a personal guarantee by the founder shareholder 3) Angel or venture capital investment- the founder suffers dilution of control over the business and they will find that loan capital is at a much higher interest rate than a regular bank loan 4) Peer-to-peer or crowdfunding- both these sources tend to keep control more effectively in the hands of the founder 5) Leasing and trade credit

Answer 89

- The business plan helps the entrepreneur to focus on what she or he is trying to achieve. - The plan will help the outsider understand the risks and rewards involved in the proposal - The financier will want to see a carefully prepared plan with a well-considered proposal for the sums of money needed. Without a business plan the financier won’t trust the business’ objectives as they cannot see evidence that shows that it is likely to succeed, after all you are borrowing money from them to then eventually be able to repay

Answer 90

it should be based on competitive advantage which means identifying the features of your product that will make it succeed against competitors It includes: 1) Executive summary: short and compelling to make the busy banker read on, needs to tell what you want and how you will ‘relieve’ it 2) The product/service: explain it from the customers’ point of view, what is different about your idea compared to competitors 3) The market: analysis of competitors, focus on market trends rather than market size 4) Marketing plan: who your market is, how you will advertise, the cost 5) Operational plan: how will the product be produced and delivered 6) Financial plan: CASH FLOW FORECAST, projections on revenue, costs and profits 7) Conclusion: ideas of the longer-term plans for the business

Answer 91

A cash flow forecast is carried out by estimating all the money coming into and out of the business. - it shows where the business will have a shortfall of cash 1) Opening balance 2) Cash inflow 3) Cash outflow 4) Net cash flow (inflows - outflows) 5) Closing balance

Answer 92

these are the sums expected to arrive each month - this is normally the sales revenue - it appears on the top of the cash flow forecast

Answer 93

the planned payments each month, this includes both fixed and variable costs - this is known as expenditure - this will be bills such as wages, insurance and advertising

Answer 94

the closing balance is the opening balance plus the net cash flow, the closing balance shows the overall state of the bank account at the end of the month The opening balance is how much money a business has in the bank at the start of the time period

Answer 95

- Production and distribution should be as efficient as possible to get the goods to the market in the shortest amount of time - Get paid more quickly, early payment should be encouraged by offering incentives - Keeping stocks of raw materials to a minimum, use just-in-time stock management - Find new sources of cash inflows to generate money

Answer 96

- Managers can identify times the business may be short of cash, arrange suitable finance, e.g. an overdraft - Managers can take suitable actions to avoid cash shortages becoming a major problem, cut costs - A way of measuring performance at the end of the year, comparisons between predicted inflows and outflows with what actually happened - it may help the owner to secure a better deal on their finance, e.g. lower rate loan

Answer 97

- only a 12 month snapshot which is very short-term to make any concrete decisions about the business, they may need longer term finance - it is only a forecast, they are only as good as the raw data put in, entrepreneurs need to be optimistic by nature and so they may overestimate sales and underestimate operational difficulties (and therefore cash outflows) - they risk giving the impression of certainty where none exists, as a start-up you can’t predict how long business customers will take to pay, can be risky for an investor to make decisions about the business on just the cash flow forecast alone, need a balance sheet - it is vital to allow for contingencies- things that can go wrong. A clever cash flow forecast includes a planned overstatement of costs, to allow for unexpected problems

Answer 98

1) avoid cash flow problems- accurately forecasting the sales can help a business to manage their production, staff and financing, avoid unforeseen cash flow problems 2) start promotional activity- if they are forecasted to have low sales then they may decide to try and increase sales through promotional activity if they are not in the decline phase of the product lifecycle 3) production capacity- use their sales forecast to decide whether to increase or decrease production, plan for changes in the industry, see if they have enough production capacity to meet demand (may need to buy or rent new premises), run more efficiently by selling excess inventory 4) frees up management time- by having a well-constructed sales forecast they can spend more time developing their business rather than responding to developments in sales, focus on other sectors of the business, increase customer service and therefore profits

Answer 99

consumer trends economic variables actions of competitors

Answer 100

- Consumer tastes and habits change over time and these changes can be quite dramatic - A natural way for a forecaster to deal with this is to plot the past trends and then consider what the likely future pattern will look like - The factors that affect medium-to-long term consumer trends include: the changing tastes and habits, demographics, globalisation and the affluence of a population - documents like intel can help a business to identify an upcoming trend - trade fairs are also ways that a business can research what might be new popular products

Answer 101

- Some products are highly sensitive because their income elasticity is high, their sales are heavily dependent on changes in consumers’ real incomes - Variable that can affect a sales forecast include: interest rates, inflation, unemployment and GDP - some sales contracts may not be renewed due to inflation and the rising costs of the products for the business - if the UK economy is in the recovery phase then low cost retailers like poundland may need to forecast lower sales

Answer 102

- It is very difficult to predict the actions of competitors and so this is a barrier to making successful sales forecasting - The arrival of competitors can majorly alter the sales of a business - hard to predict but often significant reason why sales forecasts prove over-optimistic - if a business has products with declining sales perhaps due to a competitor's superior product then they might decide to produce less of those products

Answer 103

assuming that the pattern of future sales will continue to follow recent trends

Answer 104

1) no guarantees - just because a sales forecast has been written by a business, there are no guarantees that sales will meet these levels - this could be down to a number of uncertain factors: the economic climate, the impact of terroism on tourism in some countries 2) dynamic markets - most markets are constantly changing (technology) and so it is difficult to produce an accurate sales forecast - the arrival of a new competitor or a change in consumer trends would majorly impact sales, cannot predict 3) sales of products may change depending on weather and seasons and we cannot predict what the weather will be like and so it is hard to forecast sales, e.g. chessington

Answer 105

the value for total sales made by business within a period, usually a year

Answer 106

the expenses incurred by a firm in producing and selling is products, such as wages and raw materials

Answer 107

by volume and value - Sales volume is simply the number of units sold. - Sales revenue is what those units were sold for, volume x price - It is hard to calculate sales revenue as many products are sold on credit, scope for uncertainty

Answer 108

The revenue received by a firm as a result of trading activities is a critical factor in its success. Entrepreneurs start their financial planning by assessing the revenue they are likely to receive. - Those seeking to increase their revenue can plan to sell more or aim to sell at a higher price. - Another way to boost revenue is to charge a low price in attempt to sell as many units as possible, this may lead to high revenues and profits. This is often done when there are lots of competitors selling very similar products. - Online purchasing makes variable pricing more common by being able to raise and lower prices depending on supply and demand conditions. This is a way to maximise revenue.

Answer 109

- They need to know the cost of production to assess whether it is profitable to supply the market at the current price - They need to know actual costs to allow comparisons with their forecasted figures

Answer 110

any costs that do not vary directly with the level of output. - They are linked to time rather than to level of business activity and exist even if a business is not producing any goods or services. - Fixed terms can alter over time, expansion may lead to an increased need of factory space and so rent would go up - examples include: rent, utility, management salaries

Answer 111

those costs which vary directly with the level of output. - They represent payments made for the use of inputs such as raw materials, fuel and labour - A doubling of the sales would of led to the doubling of the raw materials used - It is not always the case that variable costs rise in proportion to the output. This could be due to the use of economies of scale.

Answer 112

fixed costs + variable costs

Answer 113

when the complete task is handled by a single worker or group of workers. This is a bespoke service and is tailor-made to suit the specific requirements of the customers.

Answer 114

- e.g. designer products - unique - labour-intensive - high-skilled - high value

Answer 115

this requires that the work for any task is divided into parts or operations and produces a set of identical items. it usually involves division of labour whereby tasks are divided between employees.

Answer 116

- used in the production of electronics - concentrate skills (specialisation) - e.g. food industry - better use of equipment

Answer 117

It is the continuous production of a single standardised product method where the task is worked on continuously or where the processing of material is continuous and progressive. it is the most efficient way to produce an idea with predictable, high-volume sales

Answer 118

- very quick and efficient - e.g. car industry - highly automated - economies of scale - identical products

Answer 119

this is flow production but split into a number of self-contained units. each team or 'cell' is responsible for a significant part of the finished article leading to flexibility. They can product a range of different products more quickly than job production allows. team members are skilled at a number of roles. the teamwork often leads to higher productivity and higher output levels.

Answer 120

- team work - communication-based - specialisation - high productivity - division of labour

Answer 121

measures the amount a worker produces over a given time. | output per period/no. of employees

Answer 122

outputs / inputs per time period

Answer 123

- a firm can improve its competitiveness by either selling their products at a lower price or keep the price as it was and enjoy a high profit margin however they need to make sure that with increased productivity that they are maintaining the same quality

Answer 124

- nature of the product - volume needed - degree of competitive rivalry - expectation of consumers/quality

Answer 125

- the level of investment in modern equipment - the ability level of those at work (training) - improve employee motivation - labour shift organisation of workers (having right number on peak times will improve productivity, stretched staff are demotivated by being overloaded

Answer 126

by investing in modern and sophisticated machines then it would be easy to improve output per worker. - make it more efficient and produce more goods per hour, boosting productivity - machinery/capital investment is expensive and may take years to recoup the costs so is a very long-term strategy to improve productivity

Answer 127

a skilled and well-trained workforce is likely to produce more and make fewer mistakes. employees should be ablate complete tasks faster and will not need as much supervision or advice. however training isn't liked by all companies as there is great risk that once they are trained they leave for another business and so it will be costly or that the training will not provide the sufficient gains to justify the initial investment. there is also a loss in productivity whilst they are being trained.

Answer 128

Professor Herzberg beliebe that it was important to design jobs that contained motivators to help improve their productivity. a motivated sales force may achieve many more sales than one that is unmotivated. overall business performance swill be boosted if they are motivated.

Answer 129

the role of management - productivity has never been a central focus for directors, they are more focused on profits - perhaps the key management role is to identify productivity as a main objective. - it is harder by far to re-organise the workforce in order to make production more effective. managers whose main focus is on the short term will focus on production not on productivity

Answer 130

as productivity gets lower it causes higher costs per output which makes UK producers less competitive. an increase in productivity means that they can become more competitive due to the fact they will producing more goods and so can compete by price. the business will enjoy E.O.S and can therefore charge a competitive price. they can gain a competitive advantage through lower prices. they can become market leader through lower prices or enjoy high profits due to lower production costs. fortunately, competitiveness is not just about costs. it can be determined by the demand in a certain product. if the price elasticity goes down it means that people are more likely to buy more expensive products.

Answer 131

No. productivity is output per worker per time period. this ignores other features of efficiency, notably waste. one fast worker may produce a lot of output but in a wasteful manner. a decorator may paint quickly but messily, wasting 20% of the point. so productivity may be high but overall efficiency no better than average. products emitting pollution are also not efficient.

Answer 132

the level at which total production levels are as low as possible.

Answer 133

- level of wastage in the production process - the quality and age of the machinery - level of employee motivation - skills and experience of workers

Answer 134

positives: - motivation up - make them feel more valued - share new skills with others negatives: - takes a lot of time and money for the business - may not be specific to the job - risk of them living after

Answer 135

positives: - better productivity leading to lower costs per uni - Lower levels of staff turnover - if they have the will to work then will be faster and do it at a higher quality negatives: - you must always review your incentives, see if they are working - short term, hard to motivate everyone - not only sustainable, they get used to it

Answer 136

positives: - perhaps offer a better quality - may provide quicker service, more productive - creates greater value of assets negatives: - very costly - more training, they need to be trained up on the new equipment - dynamic market, they may need to constantly change their machines to keep with technology

Answer 137

- When production mainly uses labour, rather than machines or automation - means that labour costs form a high percentage of total costs - china and India have access to cheap labour so favour these production methods - has low financial barriers to entry because it is cheap to start up production - has the avantage for being highly flexible, making it possible for a small firm to operate successfully without direct competition from a large one. - makes it necessary for management to focus on the cost of labour

Answer 138

- This is when production is mainly focused around machinery and automation - the UK have high labour costs so favour these production methods - has a large percentage of its total costs tied up in the fixed costs of purchasing and operating machinery - has high financial barriers to entry - can be inflexible, both in terms of switching from one product to another and in the ability to tailor a product to an individual customer - may be able to keep producing in a high-cost country because labour costs are such a small proportion of the total costs - allows the business to produce goods at the minimum average cost

Answer 139

it depends primarily on the level of value added. - top-price products have a very high profit margin and so an increase in productivity of 10% might only have a marginal effect on profits and virtually none on the competitiveness. - in competitive markets, high productivity is very likely to be essential for survival.

Answer 140

purchasing economies of scale technical economies of scale specialisation economies of scale

Answer 141

- negotiating - as output rises, costs per unit decreases - when large businesses often receive a discount because they are buying in bulk - this is often done for large shops rather than small corner shops

Answer 142

- large-scale businesses can afford to invest in expensive machinery - it will improve stock control but may not be cost-efficiency for small corner shops

Answer 143

- larger companies split complex production methods into smaller, separate tasks. boost productivity - by specialising they are able to produce more in the same amount of time

Answer 144

communication co-ordination motivation/managerial

Answer 145

- it is difficult to maintain good communications flow between departments, becomes slower to get the key message - the timeless in the flow of info creates problems in the speed of response to changing market conditions, this would increase costs

Answer 146

- find it harder to co-ordiante its operations than a smaller firm - it is easier to co-ordinate small amounts of staff/activities than a large firm with thousands of employees - this means costs will go up as it is harder to control the business and so mistakes can occur which can be very costly - larger supply chain

Answer 147

- senior managers become more remote (not engaging with staff) - as the business becomes bigger it is harde to give attention to all staff members

Answer 148

- having a mission statement - manage by objectives - use appraisals to review progress and increase individual's involvement (one on one meetings) - communicate regularly

Answer 149

The maximum output it can achieve in a period e.g. if the stadium is full, we can host 50,000 people the concept of capacity is to use their RESOURCES

Answer 150

it measures a firms's output level as a percentage of the firm's maximum output level. maximum capacity is when the firm is making full use of all the buildings, machinery and labour available. this is 100% capacity utilisation.

Answer 151

actual level of output/maximum possible output

Answer 152

- in growth markets, capacity may need to be increased regularly. if a firm decides against increasing their own capacity, it will lose its market share if it cannot bee the demand. - clever businesses make sure that they anticipate changes in demand, so that capacity issues are managed

Answer 153

when the business is producing significantly below what they are capable of. during this time the fixed costs remain the same. if utilisation is low then fixed costs per unit are high. - fixed costs per unit are high - profits down, not full potential

Answer 154

when demand is greater than what you are capable of producing. - this means that if demand was to rise further you will gave to turn it away, enabling your competitors to benefit - it is possible to have a capacity utilisation rate of 110% in the service sector. if the business was a hotel then it would be overbooked, leading to problems

Answer 155

positives: - allows you to meet additional demand - take on additional orders - limited costs negatives: - distribution costs - risk to reputation - trust - risk of change in demand

Answer 156

- link capacity to demand (seasonality) - impact on staff - impact on machinery (repair and manufacturing) - quality control

Answer 157

increase demand | cut capacity

Answer 158

- demand can be boosted by extra promotional spending, price cutting or devising a new strategy to reposition the products in the growth sector - another approach is to innovate new products which can be highly effective but implies long-term planning and investment

Answer 159

- if your factory is capable of producing more than is needed then the company may cut their capacity by removing a night shift. this would remove the disruption caused by the alternative that being moving to a smaller premises

Answer 160

- sudden surges of demand cab. encoded with in the short run by increasing output, or downtime can be used for maintenance.

Answer 161

any period when machinery si not being used in production, some downtime is necessary for maintenance bur too much may suggest incompetence

Answer 162

reorganising in order to increase efficiency. this often implies cutting capacity to increase the percentage utilisation.

Answer 163

raw materials and components work in progress finished goods

Answer 164

these are the stocks the business has purchased from outside suppliers, they will be held by the firm until it is ready to process them into its finished output

Answer 165

at any moment, a manufacturing firm will have some items it has started to to process, but that are incomplete. this may be because they are presently moving through the production process, it may be because the firm stores some unfinished goods to give it some flexibility to meet consumer demand

Answer 166

once a product is complete, the firm may keep possession. of it for some time, this could be because it sells goods in large batches or no buyer has yet come in for the product. this is the case for producers of seasonal goods, pre-christmas

Answer 167

- supermarkets - retailers - wholesalers

Answer 168

- food | - expensive cars/luxury products

Answer 169

- demand - nature of the product - finance available - seasonality

Answer 170

using a stock control chart. the 4 parts of a stock control chart are the stock levels, maximum stock level, re-roder level and the minimum stock level

Answer 171

this shows the largest amount that the firm is either willing or able to hold in stock

Answer 172

this is a 'trigger' quantity. when stocks fall to this level, a new order will be sent to the supplier. the re-order level is reached some time before the delivery and is because the supplier will need some 'lead time' to process the order and make the delivery

Answer 173

this is also known as the buffer stock. the firm will want to keep a certain minimum level of stock so that it will have something to fall back on if supplies fail to arrive on time or if there is a side increase in demand.

Answer 174

an amount of stock held as a contingency in case of unexpected orders so that such orders can be met and in case of ant delays from suppliers

Answer 175

- opportunity cost: holding the firm's wealth in the form of stock prevents it from using its capital for things like innovation and investing in new machinery, this may dent its competitiveness - cash flow problems: holding the firm's wealth as stock may cause problems if it proves slow moving, there may be insufficient cash to pay suppliers - increased storage costs: the higher the stock value, the higher the cost of insurance against fire and theft - increased wastage: the more stock that is held, the greater the risk of it going out of date

Answer 176

- lost orders, if urgent customer orders cannot be met because there is too little finished goods - worker downtime, if essential components have been delayed in arriving from suppliers - the loss of the firm's reputation and any good will it has been able to build up with its customers

Answer 177

the overall objective is to maintain stock levels so that the total costs of holding stock is minimised

Answer 178

A Japanese system whereby no buffer stocks are held, and stocks are ordered as and when they are needed

Answer 179

- less storage costs - minimise wastage - better liquidity

Answer 180

- surge in demand - risky if it doesn't go well - no economies of scale - put pressure on managers to provide much higher quality standards and increased efficiency, demands a good relationship with suppliers

Answer 181

holding stock just in case there is a delay from suppliers or an unexpected surge in demand. they order less often but in larger quantities

Answer 182

- economies of scale | - can meet sudden increases in demand so an increased reputation

Answer 183

- high storage costs | - could lead to wastage, increases costs

Answer 184

an approach to production to minimise waste, whilst ensuring quality. It is a collective term for a range of techniques designed to eliminate waste, such as JIT, Kaisen, TQM and cell production

Answer 185

- maximises the input from staff - focuses attention upon the quality of supplies and production - minimises wasted resources in stock through JIT - focuses upon the competitive advantage represented by speed

Answer 186

- creates higher levels of productivity therefore uses less labour - requires less stock, less factory space and less equipment so has substantial cost benefits - creates substantial marketing advantages: about to meet to growth in demand, develop new product quickly - increased efficiency, waste less, unit costs down, price down, more customers

Answer 187

- equipment or labour failure, you have little margin for error, if equipment breaks down you my fall behind and lose your optimised efficiency - missed deliveries: this can harm your primary customer relationships - unlikely to benefit from EOS

Answer 188

It is the collective name given to the costs directly associated to making a product/service e.g. Raw materials, cost of fixing machinery

Answer 189

Costs that have to be paid no matter how well the business is doing, such as rent and cost of cleaning (Same as fixed costs)

Answer 190

Interest received from deposits in the bank, interest on loans and overdrafts Used in formula for net profit

Answer 191

A document produced by plcs that show revenue, gross profit , net profit and operating profit

Answer 192

pros: - no interest, cheap cons: - may not be possible if you are a start up, not enough funding

Answer 193

pros: - no need for collateral - no interest cons: - can be hard to find a business angel - very risky for the business angel

Answer 194

pros: - fast way to raise finance without any upfront fees - pitching a project on an online platform can be a valuable form of marketing and can produce media awareness cons: - it is hard to obtain crowdfunding, hard to get the sufficient amount - takes a lot of time

Answer 195

a document setting out a business idea, how it will be financed, marketed and put into place - it is how a business owner will explain how they will turn their idea into a successful business - the owner may then show the plan to a bank to ask for finance to help the business grow

Answer 196

a cash flow forecast | - this will give an idea of the bank balances over the start-up period, and therefore the financing needs

Answer 197

the general path that a variable takes over a period of time

Answer 198

the changing tastes and habits demographics globalisation affluence of a population

Answer 199

Demographics are the characteristics of the population in an area. This could be by age, gender or income. - The ageing population that is expecting to see a double in the amount of over 80s in Britain by 2025 create huge new business opportunities. This can lead to sales forecasts rising considerably.

Answer 200

Globalisation is the increased interconnectivity between different countries, allowing for the increased ease of flow of people. - As globalisation increases, it leads to a change in forecasts through the increased sales from to the influx in foreign markets appearing, thus benefiting forecasts.

Answer 201

Affluence is the state of having a great amount of money. The increasing affluence seen throughout the world has led to the thriving of several markets. The idea of buying water was unthinkable in the past but is now a £750 million market

Answer 202

Income elasticity refers to the extent to which demand is affected by a change in consumers’ real incomes. If the income elasticity is high and the economy faces growth then sales will begin to boom due to the higher incomes as they are luxury goods. If the income elasticity is low then they will be largely proof against changes in the economy. These are goods such as toothpaste and chocolate and are not affected much.

Answer 203

- incorrect choices in recruitment, they may be recruiting at one point and firing at the next, demoralises staff, overestimating demand - the impact on shareholders, they will invest based on the sales forecasts of the business, inaccurate forecasting can lead to your stock price plummeting - the impact on stock, if you over estimate your sales and you have excess stock then this can lead to wastage within the business, reducing efficiency

Answer 204

- increased competition - economic factors - over optimistic managers

Answer 205

because stock is the most illiquid current asset (the hardest to turn into cash without a loss in its value). it can take a long time to convert stock into cash.

Answer 206

because if a company is unable to repay its bills then it can be at risk of business failure

Answer 207

advantages: - product usually high quality, premium price - greater job satisfaction, involved in all stages of production - meets individual customer needs, loyalty disadvantages: - cost per unit is high - labour intensive, may need motivational incentives - requires investment in skills and training

Answer 208

advantages: - producing in batches reduces unit costs, higher profits - use of specialist machinery and skills can increase output and productivity - companies only focus on a small group of products, leading to greater quality control and product expertise disadvantages: - time lost between batches, machinery may need to be reset - potentially de-motivating for staff due to the lack of variety - each batch must be tested for quality and uniformity before future batches, loss of time

Answer 209

advantages: - very low costs per unit due to economies of scale - output can be produced very quickly, high efficiency and productivity - production speed can vary according to demand as it is capital intensive disadvantages: - very high set up costs due to the large amount of machinery - workers motivation can be very low due to repetitive tasks - lacks differentiation, all the same, often lower quality

Answer 210

advantages: - workers become multi-skilled and more adaptable to the future needs of a business - greater work motivation, arising from a variety of work, team working and more responsibility - quality improvements as each cell has 'ownership' for quality on its area disadvantages: - the culture needs to encourage trust and participation as otherwise they can feel that they are being constantly pushed for more - may not allow firms to use their machinery as intensively and so output will be lower - there may be rivalry between different cells and conflict may arise if one cell is let to wait for output from another

Answer 211

Using machines or computers to complete tasks instead of humans

Answer 212

Output per unit of input over a time period (labour productivity is output per unit of labour over a time period, or output per worker hour). It is a measure of efficiency

Answer 213

If you hire more employees then output will rise however productivity may not. Similarly, it is possible to have lower production but higher productivity because of a fall in employees

Answer 214

The extent to which production resources generate output without wastage, resulting in producing at the lowest unit cost. efficiency is maximised when goods are produced at the minimum unit or average production cost.

Answer 215

Raw materials, semi-finished good, and finished goods

Answer 216

The amount of stock that is ordered when the re-order level is reached

Answer 217

The amount of time between when the stock is ordered and when it is received

Answer 218

- if the suppliers don't deliver on time | - surge in demand

Answer 219

- surge in demand | - in the case that machinery breaks they need spare stock

Answer 220

An aspect of lean production that focuses on reducing waste in production e.g. wasted time, labour or stock/raw materials

Answer 221

- no buffer stock means that there is no risk of wastage of goods, from overproduction - no wastage of time, producing too much

Answer 222

Management and workers on minimising the use of the key business resources: materials, manpower, capital, floor space and time

Answer 223

when a product meets the specifications that the firm has set out, they meet the customer requirements, 'fit for purpose'

Answer 224

a system to prevent quality problems from arising, quality is checked after each stage of production, emphasis on 'self-checking' used in the food industry to check for contamination, chocolate

Answer 225

checking output to remove any faulty goods at the end of the production process used in the food industry, checking kit Kats every 200

Answer 226

it is a philosophy, considers quality in every part of the business process- from design right through to sales, an attitude to quality are the aims are zero defects and total custom satisfaction

Answer 227

pros: - inspection is intended to prevent faulty items from reaching the customer - inspectors may be better placed to find widespread problems across a firm - they have specially trained inspectors meaning time isn't lost among workers cons: - individuals are not necessarily encouraged to tea responsibility for the quality of their work - rejected products are expensive to a firm, only at the end is it changed - if defect levels are high then costs are very high, efficiency down and a loss of resources

Answer 228

pros: - costs are reduced as theres less waste, efficiency up - can help to improve motivation as workers have more ownership and recognition for their work (Herzberg) - help firm gain marketing advantages from its consistent level of quality cons: - takes time to check quality at every stage, efficiency - costs of training staff

Answer 229

pros: - leads to better products manufactured at lower cost, reduces wastage - leads to increased employee involvement, greater motivation cons: - requires deep commitment - very expensive - hard to follow, not concrete programme of QC and QA

Answer 230

a group of employees who meet regularly for the purpose of identifying problems and recommending changes to the working processes in order to improve quality standards used in big corporations with high production, Toyota

Answer 231

pros: - it improves staff morale through employee involvement - allows the firm to identify changes to improve quality, long term benefits - it takes advantage of the knowledge of operators, labour productivity cons: - time consuming - conflict of opinions, time for decision making increases - who is part of the quality cycle? demotivate others?

Answer 232

- find out what the customer wants - specify what the product does - make sure the specifications are achieved

Answer 233

- brand/customer loyalty, satisfaction - charge premium prices - reduces the amount of returns, increased sales and a decrease in defective products - staff retention, increased motivation, association of high quality brand

Answer 234

a continuous improvement that aims to constantly introduce small changes in a business in order to improve quality and/or efficiency - a firm that uses this has to have a culture that encourages and rewards employees for their contribution to the process

Answer 235

pros: - improved teamwork, tool driven by teamwork - waste reduction - builds leadership skills, there will need to be a team leader - improves employee satisfaction, retention up, it involves the employees when implementing changes giving them a sense of worth cons: - change is disruptive, altering current management systems so dependant on efficient communication - training requirement, they must adopt the philosophy and may need to take out for training - difficult to do, takes time and money, some may be reluctant to change, management may be reluctant to implementing as they feel it is expensive

Answer 236

a rise in the aggregate price level over time which causes a lower purchasing power, calculated as a percentage

Answer 237

- less investment due to uncertainty 2) cost of borrowing- leads to an increase in borrowing costs for businesses with loans, less investment 3) falling real incomes- millions encounter a cut in their wages or a pay freeze leading to a fall in incomes, means businesses will see a fall in profits

Answer 238

inflation would mirror the economic cycle however not directly due to the time lag

Answer 239

refers to the state of production and consumption of goods and services in a country

Answer 240

it is measured by consumer price index (CPI) it is measured by monthly but is given as a year-on-year figure. - it is measured by looking at the price of the things in the basket of goods (650-700 goods) in different stores and then is translated into the index in order to be easily understandable

Answer 241

financial services, staple items (bread), property, utilities, vehicles

Answer 242

- helps you understand trends more easily | - they enable direct comparisons to be made between different data series

Answer 243

interest rates. during high inflation if they put interest rates then inflation will go down. less spending takes place and so inflation goes down

Answer 244

inflation- too much money in the economy deflation- too little money in the economy if there is a prediction that inflation will occur then they will adjust interest rates higher so they save more and things become more expensive and if there is a previewed deflation then they will put interest rates lower (this increases sales, less people are saving)

Answer 245

- businesses are able to make long term plans, the cost of loans will go down and so the amount of innovation can increase - increased disposable incomes meaning revenue will be higher for a firm - improved return for assets, those are rewarded for saving, increased spending, high profits strategy: focus on innovation, take risky decisions

Answer 246

the cost of a currency in terms of another

Answer 247

Appreciation is when the when the currency becomes stronger, means one unit is capable of buying more foreign currency than before. Depreciation is when the currency becomes weaker, it can buy less

Answer 248

``` strong pound imports cheap exports dear ```

Answer 249

- cheaper for imports through the strong pound, increased profit margins - they may look to change suppliers to ones in foreign countries, impact on suppliers - can lead to problems with customer service as they are relying on the fast delivery of the suppliers e. g. outsourcing in foreign markets, bigger cooperations - car businesses importing

Answer 250

- exports become more expensive, decreasing profit margins - it is more expensive to access foreign markets, harder for growth - they may have to raise the price of their products which could negatively affect sales figures - America is an important export market for morgan cars

Answer 251

- if they have suppliers abroad then it will be more expensive to import them in, greater costs of production - harder for connectivity within businesses due to the lack of foreign market - may have to put the price up on goods which could decrease their sales revenue - Sports direct has faced higher prices which has led to lower profits - Car businesses will face higher costs from importing their materials

Answer 252

- beneficial as it is cheaper to export goods abroad, access foreign market, higher sales - if there is a thriving foreign market in your services then you can locate there - profits will be overall higher and will facilitate growth for the business

Answer 253

high interest rates leads to low disposable income and lower consumer spending high unemployment, low disposable incomes and therefore low consumer spending

Answer 254

the amount if money you have to spend after buying essentials (homes, cars)

Answer 255

the cost of borrowing and the reward for saving

Answer 256

- risk of falling demand for high-price products, people would rather save and so revenue will decrease - the higher the interest rate, the higher the cost of running an overdraft, reducing the profit for the business - bank loans cost more and so innovation may become lower, reducing competitiveness strategy: to reduce costs to the maximum as loans are expensive and production is more expensive

Answer 257

- bank loans are not as expensive, fund business growth and increased profitability - sales will go up as people will be spending instead of saving strategy: do lots of innovation through cheaper loans

Answer 258

£821 billion

Answer 259

control demand by increasing/decreasing interest rates (now controlled by the bank of England) INTEREST RATES

Answer 260

control demand by increasing/decreasing taxes or increasing/decreasing government spending TAXATION

Answer 261

- improve healthcare - reduce poverty - become more globalised

Answer 262

tax on income/profits national insurance, corporation tax, income tax

Answer 263

tax on goods and services VAT, business rates, excise duties

Answer 264

tax on individual products such as cigarettes

Answer 265

it is a tax on the profits made by companies. in the UK the main rate is 19% and is mean to fall to 17% by 2020. - if corporation tax increases then it means that retained profit will be lower, leading to lower profit margins - if corporation tax decreases then retained profit will be higher - businesses who pay this include a limited company, any foreign company with a UK branch or office or a club, co-operative or other unincorporated association, e.g. a community

Answer 266

The pattern of economic growth, followed by a boom, recession, recovery and back to growth an economy follows

Answer 267

tow consecutive quarters of negative growth

Answer 268

- low unemployment - high inflation and GDP - high re-investment - high confidence business strategies: - expansion - high innovation and differentiation - increased prices + eages - high inflation

Answer 269

- falling inflation rates - rise in unemployment - lower consumer spending - cut back on investment business strategies: - discounting - minimise costs - low recruitment - less innovation depends on: - demand for inferior goods increase - necessities see sustained demand

Answer 270

- high unemployment - very low consumer spending - low profits - many business failures business strategies: - focus on core product - costs to a minimum - low levels of stock - very low recruitment depends on: - PED - nature of the product

Answer 271

- growing consumer spending - higher profits - growing interest rates business strategies: - marketing posiitioning - increase recruitment - looking into innovation

Answer 272

Measures the sensitivity of demand to a change in income – negative income elasticity means that as incomes rise, demand falls, and positive income elasticity means that as incomes rise, demand rises

Answer 273

boom- When economic growth is high, employment is high, and inflation may also be high recession- When economy growth is negative, unemployment is high and inflation is usually low recovery- The period immediately after a recession, when there is positive growth, but this is slow

Answer 274

loans become cheaper, higher spending

Answer 275

- lower innovation, the risk of business failure - costs kept to the minimum - less amount of risk taking

Answer 276

pros: - lower wage growth - lower staff turnover - demand for inferior goods rise - large 'pool' of labour to choose from cons: - people have lower disposable income, falling sales - low morale and uncertainty in workforce - social problems such as shoplifting will occur

Answer 277

pros: - higher sales through increased disposable income - people will be more skilled/variety of skills and so the workforce will be more efficient cons: - wages have to be increased due to the decreased availability - harder to recruit - high staff turnover

Answer 278

- consumer protection - employee protection - environmental protection - competition policy - health and safety

Answer 279

supply of goods and services act- entitled to work done with reasonable skill, in a reasonable time and at a reasonable price trade description act- goods and services must perform in the way advertised, avoid misleading info consumer credit act- this protects the consumer when borrowing money or buying on credit, must be TRANSPARENT distance selling regulation- same rights online/on phone than in store, same protection sale of goods act- fit for purpose, as described, if they are not they can be rejected weights and measures act- must be the weight they say it is

Answer 280

- imposes additional costs as they need to comply with the laws - if they don't obey them then they risk a fine, loss of customers - means the business cannot gain an unfair competitive advantages by taking short-cuts, create a 'level playing field'

Answer 281

- minimum wage - right to a contract of employment - increased right to sick, maternity and paternity leave - redundancy - trade union rights

Answer 282

Positives: - employees may be more motivated by a fair wage satisfying basic needs Negatives: - increased labour costs - increase automation in the longer term and increased unemployment

Answer 283

positives: - meets employees' security needs negatives: - can reduce flexibility for the employer in how they use their staff

Answer 284

positives: - they may feel more valued as they feel well treated - lower staff turnover levels which saves the costs of recruiting new staff negatives: - increased cost of paying for cover for these staff

Answer 285

negatives: - reducing capacity becomes expensive due to statutory payments to staff made redundant - negative impact on cash flow in the short-term as they can close factories

Answer 286

employers can be forced to deal with a trade union if enough staff are members, this does bring benefits as well as drawbacks

Answer 287

equal pay act- the right to for men and women to be paid the same national minimum wage+living wage- aged 25 or over for living wage redundancy law- must be given a certain amount of time and money depending on how long you've worked there for trade union and labour relations act- right to start a trade union race relations act- it is unlawful to discriminate on race, religion, colour, ethnicity

Answer 288

environmental protection act 1990 environment act 1995 (which established the environmental agency)

Answer 289

- emissions - discharge of waste - use of substances - packaging - discharges of wastewater

Answer 290

- sets out the structure of waste management and emissions control - requirement for risk assessments - focuses on the manufacturing and secondary sector - has helped in the significant reduction of river pollution in the UK - emissions, use of substances, waste discharge

Answer 291

- introduced the agencies: environment agency, Scottish environment protection agency (SEPA), the national parks authorities - businesses are assessed by these organisations, this takes lots of time and money

Answer 292

positives: - means that firms can't get away with wrong-doings, they should be acting for the greater good of society - equal playing ground, no discrimination negatives: - may need to adapt their production methods, very expensive - take lots of time and money to make sure that they are abiding to the laws

Answer 293

the amount of funding in a business which is lean from a bank, versus funding which has been acquired from shareholders

Answer 294

an estimate of the volume or value of future sales using market research or past sales data

Answer 295

1) to attract potential investors to the business - the better the financial info in the business plan, the more confident they will be in investing, reduce the risk - a BP may help the business to negotiate a lower rate of interest on a bank loan - a BP should include a cash flow forecast and sales forecasts, show they can make a profit 2) to give owners some direction, once a plan is written down it is more likely to be followed 3) to set targets (smart) and objectives that can be followed - it can show how a business aims to achieve its goals - it should show investors what amount of sales and profit the business aims to achieve - may show how they aim to grow and develop in the future 4) to assess performance, check progress 5) to identify early on any problem areas that the business may face

Answer 296

this can be done by: - having a sale, reduce the prices - advertise more - promote the products more - improve distribution channels however they need to make sure this isn't accompanied by rising costs.

Answer 297

profitability (as opposed to 'profits') is a relative term. it is mainly measured using the operating profit margin. to increase profits in relation to sales they could: - increase the price - decrease costs

Answer 298

1) price fixing and rigging not allowed, e.g. collusion on pricing - you cannot agree prices with competitors - you cannot cut prices below cost in order to force a smaller or weaker competitor out of the market - you cannot share markets or limit production, markets, technical development or investment to raise prices - you cannot impose minimum prices on different distributions such as shops 2) abuse of a dominant position (50% market share or more) - predatory/discriminatory pricing - making customers but products they don't want - treat customer differently, e.g. higher prices to competitors - imposing unfair trading terms such as exclusivity - refusing to supply or provide access to essential facilities

Answer 299

they try to avoid monopolistic activity, ensure that prices are kept fair and that there are no price fixing they are responsible for: - investigating proposed mergers and takeovers - investigating allegations of anti-competitive practises - taking legal action against those who collude to maintain high prices within a market, such as cartels

Answer 300

- regulate the rights and duties of people carrying out business in order to ensure fairness - ensure the treatment of employees is fair and undiscriminatory - ensure a level playing field for competing businesses - protect people dealing with businesses from harm caused by defective sources

Answer 301

- when businesses compete with one another, they tend keep prices at a sensibly low level, provide a good service and generate new innovative products and services - with no competition, prices can be pushed up high, service standards can slip and innovation can dry up

Answer 302

a group of companies operating in the same market who make agreements to control supply and thus prices

Answer 303

- wider consumer choice in markets for goods and services - technological innovation which promotes gains in dynamic efficiency - effective price competition between suppliers - investigating allegations of anti-competitive behaviour within markets which might have a negative effect on consumers

Answer 304

- up to 10% of annual turnover - criminal prosecution - disqualification as directors - civil action by those affected

Answer 305

it is about preventing people from being harmed at work or becoming ill, by taking the right precautions and providing a satisfactory working environment 1) the physical conditions in which staff are required to work 2) precautions that firms are required to take when planning their work 3) how hazardous substances should be treated in the workplace

Answer 306

- employees working at the business premises, from home, or at another site - visitors to premises such as customers or subcontractors - people at other premises where the business is working, e.g. construction site - members of the public- even if they're outside the business premises - anyone affected by products or services the business designs, produces or supplies

Answer 307

It places the major burden on employers. they have to provide a safe working environment for their staff. the job of the health and safety executive is to identify and prosecute any breaching of the laws by companies

Answer 308

``` food processing- hygiene hotels- hygiene, guest and safety chemical production- dangerous processes, waste disposal air travel- passenger safety tour operators- holidaymaker safety ```

Answer 309

it is when a market is dominated by a single business called a monopoly. it is bad because: - consumers have little choice - prices tend to be high - there is little incentive for the dominant firm to innovate or provide great customer service government regulates gains monopolies and near monopolies that exploit consumers by abusing their dominant market position

Answer 310

it is when businesses build barriers to entry that prevent new firms entering the market. these include: - technical innovations - incredibly strong brands and high advertising budgets - heavy spending on infrastructure this is often seen for water and gas where there is often a single supplier

Answer 311

it features intense rivalry between producers of a similar good or service. firms operating in a competitive market try hard to minimise competition, perhaps by creating a USP or using predatory pricing

Answer 312

it is the name given to a market dominated by just a few major suppliers, e.g. banking, chocolate bars - here rivalries are intense as it is clear that in most causes one firm can only gain market share by directly taking it from just a handful of rivals - they rarely compete on price due to fears of a price war, leading to lower PM, competitors would respond by lowering prices also, creating a costly price war in which no firm winds - they tend to focus on non-price competition through focusing on branding, advertising, product features and innovation

Answer 313

where many small businesses are competing with one another, often on the basis of price - many of these markets tend to be for commodity products where it is hard to differentiate - the main strategy here is to keep prices as low as possible to try and undercut rivals' prices and still make profits - a business that is able to find an effective method of differentiation within this market will stand a far better chance of success

Answer 314

markets tend to grow or shrink in size over time. this will affect competition. growing markets will attract new entrants seeking the higher profits on offer. e.g. wizz air came in after the high success of easyjet. to enter a big market you must form a niche shrinking markets see established firms exiting as profitability tends to be low and thus unattractive as there is less competition to enter a small market there often quite a few barriers to entry.

Answer 315

1) perfect competition - many firms producing or selling homogenous goods 2) monopolistic competition - competition between many firms producing differentiated goods, e.g. restaurants 3) oligopoly - competition between a small number of suppliers, e.g. banking 4) monopoly - single supplier, e.g. water or gas

Answer 316

there are four sections of the gird. power of customers, power of suppliers, threat of market entry and threat from substitutes. these strategies could be used to gain a competitive advantage.

Answer 317

1) price cutting - if the competition can be under-cut then consumers will hopefully stay loyal - unless it is accompanied by a fall in costs of production then they will see LPM. it is not a long-term solution. - if PM are tight and costs have been cut then this would not be a feasible option 2) increased product differentiation - an increase in PD means consumers are less likely to switch, helps a firm insulate from competitive pressure - cutting prices may hinder their brand image - methods include: branding, product features, product design, advertising, technical innovation 3) collusion - this is when two or more rival businesses agree to fix supply or prices in their market. this is ILLEGAL. - they get in touch to fix prices, cut promotional activity expenditures or find any other way to boost profitability - the strength of anti-pollution legislation in UK means its difficult to work this in the long term. there are strong incentives to 'rat' on the others. the one to whistle blow gets 100% immunity of fines and any form of punishment

Answer 318

it is the degree to which consumers perceive a brand to be different from, and in some way superior to, other brands of the same type of product. this can be done by: - branding - product features (must-have technology, e.g. hybrid) - product design (good looking design may be its USP) - advertising - technical innovations

Answer 319

- the ability of a business to add more value for its customers that its rivals and attain a position of relative advantage - a situation where a business has an advantage over its competitors by being able to offer better value, quality and/or service

Answer 320

- a way to differentiate - dont have to compete on price - higher profitability it is something that sets a product apart from its competitors in the eyes of customers, both new and existing

Answer 321

- the possibility of newcomers entering the market is an important aspect competition within a market - high profits will tempt newcomers to enter a market, driving down prices - therefore, the maintenance of market power depends upon erecting and maintaining barriers to market entry

Answer 322

the ability of business to deliver better value to customers than competitors

Answer 323

- labour productivity - labour turnover - capacity utilisation

Answer 324

- measure performance and set targets - streamline production process - invest in capital equipment - invest in employee training - improve working conditions

Answer 325

- potential trade off with quality. higher output must still be of the right quality - potential for employee resistance, depending on the methods used (e.g. introduction of new technology) - employees may demand higher pay for their improved productivity

Answer 326

Philip Crosby believed that 'quality is free; and that getting things right can save a huge amount of time and money. - selling high quality products can lead to added value and a competitive advantage as people are willing to pay the price as they associate the brand with high quality - when the consumer has choice, quality is vital. a reputation for good quality brings competitive advantages. a good quality product will: - generate a high level of repeat purchase and therefore a longer product life cycle - allow brand building and marketing benefits that can spread from one brand to others. e.g. Cadbury twin benefiting from the rep of Cadbury dairy milk quality leads to brand loyalty and a very good reputation, charge premium prices

Answer 327

- ensures the protection of staff, higher productivity, less time lost due to their healthy and safe workforce, reduces absence and sick periods - it improves reputation with clients and staff, this results in good public relation which would help to increase sales and generate more leads

Answer 328

- takes a lot of time and money to update and implement | - if they do not abide to the correct laws then they can see very high costs for the business, affect their reputation

Answer 329

the health and safety executive

Theme 2- managing business activities Flashcards

(356 cards)