Unit 1

Question 1

What are the six reason businesses exist?

Answer 1

• Profit
• Growth
• Survival
• Cash Flow
• Social
• Ethical

Question 2

What is Profit?

Answer 2

To achieve sales revenue higher than total costs.
profit = SR - TC

Question 3

What is Growth?

Answer 3

To increase size by value of sales or volume of sales
Can be organically or externally

Question 4

What is Survival?

Answer 4

To continue to exist as a business
Could be first objective

Question 5

What is cash flow as a definition or as a objective?

Answer 5

Cash flow is the flow of cash into and out of a business.
To ensure sufficient cash is available for day to day expenses

Question 6

What is a social objectives?

Answer 6

To behave in a way which benefit society. Could be create employment, help local community or improve educational standards.

Question 7

What are ethical objectives?

Answer 7

To behave in a way that is considered morally correct.

Question 8

What is the meaning of SMART objectives?

Answer 8

• Specific
• Measurable
• Achievable
• Realistic
• Timed

Question 9

What is a mission statement?

Answer 9

A brief written statement about the purpose of a company or organisation.

Question 10

What is the relationship between mission and objectives?

Answer 10

1) Mission statement
2) Corporate aims
3) Corporate objectives
4) Corporate strategy
5) Business tactics

Question 11

Why do businesses set objectives?

Answer 11

• Common sense of purpose
• Motivate employees (e.g. reward systems)
• Measure and review performance
• Inform decision making

Question 12

What is revenue?

Answer 12

The money coming into a business from the sales of goods and services
Revenue = selling price x quantity sold

Question 13

What is fixed costs?

Answer 13

Stay the same regardless of output.

Question 14

What is variable costs?

Answer 14

Change in relation to the number of items produced.

Question 15

What is total costs?

Answer 15

Fixed costs + variable costs

Question 16

What are the business forms?

Answer 16

• Sole trader
• Partnerships
• Private limited companies
• Public limited companies
• Not for Profit

Question 17

What is a Sole Trader?

Answer 17

Individual who runs and owns their own business
- legally required to record all income and expenses for tax.
- Profits made are taxable though income tax.
- Sole trader has unlimited liability

Question 18

What are the pros of a Sole Trader?

Answer 18

Pros:
- cheap and easy to set up
- Get all profits.
- Autonomy in decision making
- Financial records remain private.
- Motivation is high as success of the business and individual is the same.

Question 19

What are the cons of a Sole Trader?

Answer 19

• Unlimited liability
• Limited capital for investment
• Little specialist skills as the owner is a jack of all trades.
• Difficult to find cover when ill.

Question 20

What is a limited company?

Answer 20

Limited companies are their own separate legal identities. Therefore finances are separate from the owner’s personal finance.
- They have limited liability

Question 21

What are the pros of a Private limited company?

Answer 21

Pros:
- Limited liability
- Separate legal identity
- More flexible than a PLC
- Financial records remain private
- More capital can be raised through sale of shares

Question 22

What are the cons of a Private limited company?

Answer 22

• More complex to set up
• Loss of control as shareholders have voting rights
• Unable to sell shares to the public
• May have to sell shares at decreased value

Question 23

What are the pros of a Public limited company?

Answer 23

Pros:
- Limited liability
- Separate legal identity
- Large amount of capital can be raised by selling to public
- More prestigious to be a PLC

Question 24

What are the cons of a Public limited company?

Answer 24

Cons:
- Financial performances are needed to be published
- More complex to set up due to increased legal requirements
- Some loss of control as shareholders have voting rights.
- Risk of hostile takeovers.

Question 25

What is a private sector business

Answer 25

• Sole traders
• PLC
• LTD
• Partnership

Question 26

What is a public sector Organisation?

Answer 26

• NHS
• State education

Question 27

What can the external environment affect?

Answer 27

• Costs
• Demand

Question 28

What are the effects of competition on costs and demand?

Answer 28

Costs
- More competitors increase supplier power. Therefore can push costs up. However could attract more suppliers driving costs down.
Demand
- Compete on price therefore lower prices overall and increasing demand in the market.
May spread demand between firms and market size may stay the same.

Question 29

What are the market conditions effect on costs and demand?

Answer 29

Costs
- Affect demand for supplies therefore impact costs.

Demand
- The level of demand will be a clear indicator of market conditions.

Question 30

What are the incomes effect on costs and demand?

Answer 30

Costs
- Rising incomes may be a result of higher wages which are a cost to a business. This may be due to government increasing wages
(type of business will matter as high wage businesses won’t be affected)

Demand
- Incomes directly affect consumer’s spending power. Higher incomes could lead to a rise in demand as consumers have higher discretionary incomes.

Question 31

What are the Interest rates on costs and demand?

Answer 31

Cost
- affect cost of borrowing. If up fixed costs may go up. May try to pass on costs to consumers.

Demand
- If interest rates rise then consumers may not spend to save money. Luxury and needed goods may come up in questions.

Question 32

What are the Demographic factors on costs and demand?

Answer 32

Cost
- Rising net migration increased the size of the workforce this has driven wage costs down.

Demand
- migration has seen an increase in demand for a wider range of goods and services.

Question 33

What are the environmental issues and fair trade on costs and demand?

Answer 33

Costs
- Fair trade may increase costs. However not doing it may make fines

Demand
- Increase demand as consumers like it.