1.1 the nature and purpose of business

Question 1

what are wants and needs

Answer 1

wants: a product you can survive without
needs: a product that is essential to your life

Question 2

what are goods/ services/ products

Answer 2

good: a physical product (e.g. house/ designer suit)
service: an intangible item (e.g. insurance/ decorating)
product: includes goods/ services

Question 3

why are businesses important for a country?

Answer 3

• create employment
• create wealth
• create new products
• enhance a country’s reputation

Question 4

what do businesses do?

Answer 4

Inputs –> Transformation process (adds value) –> Outputs

Question 5

what are the 3 types of businesses?

Answer 5

B2B- (samsung)
B2C- (tesco)
C2C- (ebay)

Question 6

what are the 3 sectors in which businesses can operate in?

Answer 6

Primary- obtaining raw materials
Secondary- manufacturing raw materials to make something
Tertiary- supplying a service (selling the products)

Question 7

mission statement triad

Answer 7

mission statement    
corporate aims       
corporate objectives    
functional objectives
> downward communication from MS

Question 8

what is a functional objective?

Answer 8

> objectives that relate to the specific functions of a business (e.g. marketing, operations, HRM, finance)
designed to make sure the corporate objectives are met
businesses may divide its activities into several business functions.

Question 9

what is a corporate objective?

Answer 9

objectives that relate to the business as a whole

usually set by top management

Question 10

what is a corporate aims?

Answer 10

the long term targets + plans to fulfil the mission statement

Question 11

what is a mission statement?

Answer 11

a statement of the company’s purpose- what it wants to accomplish
takes an aim statement and makes it sound motivational and meaningful.

Question 12

what is a business aim?

Answer 12

what it hopes to achieve as a result of its work. Aims are usually general.

“Example - ‘Tesco’s aim is to broaden the scope of the business to enable it to deliver strong, sustainable long term growth.”

Question 13

what is a business objective?

Answer 13

the targets that businesses set themselves in order to achieve the aims
must be: specific, have targets + deadline dates, are measurable

Question 14

why do businesses use aims and objectives?

Answer 14

to monitor its success. e.g. profit, jobs created (from expansion), market share, growth, ethics

Question 15

what are the SMART objectives?

Answer 15

Specific
Measurable
Agreed
Realistic
Time specific

Question 16

how do you make SMART objectives?

Answer 16

• Must have a quantifiable target (such as a 20% increase)
• Employees must know how long they have to achieve the target.
• Inclusive- to encourage commitment to target, not just imposed.

Question 17

SMART objectives: Specific?

Answer 17

must outline clearly what is being measured

such as sales or profits

Question 18

SMART objectives: Measurable?

Answer 18

must include a quantifiable target

such as a 20% increase

Question 19

SMART objectives: Agreed?

Answer 19

inclusive of everyone to encourage commitment to the target, not just imposed.

Question 20

SMART objectives: Realistic?

Answer 20

must be seen as attainable (doable) in order for workers to be motivated to achieve the target.

Question 21

SMART objectives: Time specific?

Answer 21

Employees must know how long they have to achieve the target.

Question 22

what are some common business objectives:

Answer 22

• profit
• diversification
• growth
• cash flow
• survival or break even
• social + ethical
• market share
• developing relationships

Question 23

Short run vs Long run

Answer 23

SR: look to maximise profit short term- leave themselves vulnerable to being in a weaker position in the future.
OR
LR: training employees/ investing in other expenses which will affect profit long term

Question 24

what are variable costs?

Answer 24

fluctuate with output, e.g. ingredients, raw materials, fuel

Question 25

what are fixed costs?

Answer 25

stay the same regardless of output e.g. rent, salaries, maintenance costs

Question 26

Types of business costs:

Answer 26

• labour
• fuel + ingredients
• raw materials

Question 27

what are semi-variable costs?

Answer 27

characteristics of both variable/fixed

• increases with output but at slower rate
• e.g. electricity, the more units you make… may exceed base rate / need new premises

Question 28

what are total costs? (formula)

Answer 28

assumes all costs:

Total costs = fixed costs + variable costs

Question 29

what are average costs? (formula)

Answer 29

costs of producing 1 single unit

average cost per unit = total cost / level of production

Question 30

what is revenue? (formula)

Answer 30

The income a business receives over a period of time
(Known as sales income, turnover or sales revenue)

revenue = quantity sold x selling price

Question 31

what is the formula for profit?

Answer 31

Profit = Total revenue - Total costs

Profit depends upon 2 factors:

1. Profit Margin - the amount/ % of final selling price that is profit.
2. Quantity/Volume of sales - selling a greater quantity of products will make more profit.

Question 32

why are profits important?

Answer 32

• attractive for investment
• attractive to customers
• easier to make agreements
• confidence from suppliers, longer trade credit

Question 33

Q: A business produces 10,000 units which it sells for £5 each. Its variable costs are £25,000 and its fixed costs are £10,000. What is the profit?

Answer 33

Profit: total rev - total costs
Total revenue: units sold x price per unit
Total costs: variable costs + fixed costs

Rev = 10,000 x £5 = £50,000
Costs = £25,000 + £10,000 = £35,000

Profit = £50,000 - £35,000 = £15,000