Unit 1

Question 1

Explain the term ‘mission statement’

Answer 1

A written declaration regarding a business’ purpose for existence and core focus

Question 2

What is the purpose of a mission statement?

Answer 2

Clear focus and guidance throughout the development of a business

Question 3

Explain the term ‘business objective’

Answer 3

Objective is a goal to help a business achieve its mission

Question 4

List common business objectives

Answer 4

Survival
Growth
Profit
Customer service
Corporate Social Responsibility (CSR)

Question 5

___ are the goals set out to achieve the ___ ___ of a business

Answer 5

Objectives are the goals set out to achieve the mission statement of a business

Question 6

Objectives should be ____

Answer 6

SMART

Question 7

Explain the term ‘Profit’

Answer 7

The amount of money remaining once all costs have been deducted

Question 8

Explain the term ‘Revenue’

Answer 8

Money received from sales of products

Question 9

Who is a business’s mission statement intended for?

Answer 9

Investors
Customers
Employees
Banks (to grant a loan)

Question 10

What is the difference between a business aim and objective?

Answer 10

A business aim is a long-term goal the business wants to achieve.
A business objective is the short term steps required to meet its aim.

Question 11

Explain the term ‘variable cost’ and give an example

Answer 11

Costs that change/vary as output changes

• Raw materials
• Wage

Question 12

How is profit calculated

Answer 12

Total sales - total costs

Question 13

Explain the term ‘fixed cost’ and give an example

Answer 13

Costs that remain the same even though output changes

• Rent
• Salary

Question 14

The private sector falls into what categories?

Answer 14

Incorporated and Unincorporated

Question 15

Describe a private sector business?

Answer 15

A business is controlled by individuals or groups of individuals

Question 16

Describe a public sector business?

Answer 16

Owned and controlled by the government

Question 17

Explain the difference between an Incorporated and Unincorporated businesses

Answer 17

Incorporated: owners have limited liability, legal difference between the business and and the owners.

Unincorporated: owners have unlimited liability, no legal difference between the business and the owners.

Question 18

Explain the difference between unlimited and limited liability

Answer 18

Unlimited liability: owners of the business are liable for debts that the business owes, no separate legal identify, business and owners are viewed as one

Limited liability: owners have separate legal identity from the business, preventing the owners from being responsible for business debt.

Question 19

State two types of incorporated businesses

Answer 19

Public limited (PLC)
Private limited (LTD)

Question 20

Describe the characteristics of the two types of incorporated businesses

Answer 20

PLC: shares can be sold on the stock market, rich in capital, financial statements must be published, expensive as minimum capital of 50,000 is required at all times

LTD: shares cannot be sold on stock market and cannot be sold without agreement of other shareholders, relatively smaller and family run

Question 21

State the two types of non-corporate businesses

Answer 21

Sole trader
Partnership

Question 22

What does a PLC and LTD have in common?

Answer 22

Limited liability

Question 23

Describe the characteristics of the two types of unincorporated businesses and give examples

Answer 23

Sole trader: owned by a single individual, could have a small number of employees - plumbing, hair dresser
Partnership: between 2-20 owners, dentists, accountants

Question 24

What does a sole trader and partnership form of business have in common

Answer 24

Unlimited liability

Question 25

Identify the benefits of a sole trader

Answer 25

+ simple + cheap + individual receives all profits + respond quickly to change + control over all decisions + financial statements are not required for publishing

Question 26

Identify the benefits of a partnership

Answer 26

+ wide range of skill and knowledge + risk of unlimited liability is reduced as its shared amongst the partners + generate greater profit than sole trader

Question 27

Identify the benefits of a PLC

Answer 27

+ shareholders benefit from limited liability + raise finance through share capital + growth and expansion possibilities

Question 28

Identify the benefits of a LTD

Answer 28

+ shareholders benefit from limited liability + complete control over business + required to publish minimal financial statements

Question 29

Identify the drawbacks of operating as a sole trader

Answer 29

- difficulty in raising investment for expansion - unlimited liability - long working hours

Question 30

Identify the drawbacks of operating as a partnership

Answer 30

- profit shared between partners - unlimited liability - complicated to sell/leave - difficulty in raising finance

Question 31

Identify the drawbacks of operating as a PLC

Answer 31

- required to publish a great amount of financial statements - dividends to be payed at the end of the year - greater risk for hostile take over (business cannot control who and how many shares are bought) - expensive to set up

Question 32

Identify the drawbacks of operating as a LTD

Answer 32

- dividends - time consuming to set up - conflict between friends and family

Question 33

Describe the characteristics of a 'non for profit' business

Answer 33

an organisation that has other business objectives than making profit

Question 34

What factors need to be considered when choosing a business form?

Answer 34

Size, risk, expenses, objectives, owners

Question 35

What reasons could be provided for changing business form?

Answer 35

Circumstances, capital, takeover

Question 36

Explain the term shareholder

Answer 36

Shareholders are part owners of a limited company that own at least one share

Question 37

Explain the term 'ordinary share capital'

Answer 37

The money invested in a business by the shareholder

Question 38

Explain the term 'dividends'

Answer 38

A financial reward given to shareholders from the accumulated profits earned at the end of the year.

Question 39

A shareholder has the right to play a role in major ___ within the business. These ___ need to be approved by the shareholders at a general meeting called by the directors.

Answer 39

A shareholder has the right to play a role in major decisions within the business. These decisions need to be approved by the shareholders at a general meeting called by the directors.

Question 40

Why would an individual invest in shares?

Answer 40

Source of income as dividends is received. Capital growth - hope that the value of share will increase

Question 41

Describe what factors influence share price

Answer 41

- Business performance (low performance = low value) - Changes within the market (trends) - External world uncertainties - Expectation of better or worse profit performance

Question 42

Explain the term market capitalisation and provide its formula

Answer 42

The value of all a business's shares, calculated by multiplying the share price by number of shares issued. Share price x number of shares issued

Question 43

What aspects in the external environment affects cost and demand?

Answer 43

P olitical E conomical (interest rate, incomes) S ocial (trends) T echnological L egal E nvironmental (population, age)

Question 43

Explain the term 'interest rate'

Answer 43

A reward for saving and the cost for borrowing expressed as a percentage of money saved or borrowed.

Question 44

Describe what GDP measures

Answer 44

Gross Domestic product: measures the economic growth of a country by identifying the value of output produced by a country

Question 45

Explain the term 'market demand'

Answer 45

Measures how much of a good a consumer wants

Question 46

What factor depends on interest rates

Answer 46

Consumer spending depends of interest rates as a high interest rate encourages saving, low interest rate encourage spending

Question 47

Explain how a high interest rate effects consumers spending

Answer 47

A high interest rate makes borrowing more expensive reducing consumers disposable income encouraging consumers to save.