1.1 Understanding the nature and purpose of business

Question 1

Why do businesses exist?

Answer 1

• To provide goods and services
• Develop a good idea (enterprise)
• Provide help and support for others (charities)

Question 2

Mission statement

Answer 2

A mission statement is a declaration of a business’s core purpose and focus.

Question 3

Purpose of a mission statement

Answer 3

• Bring focus and meaning to a business
• Acts as a guide when making critical decisions

Question 4

What is an objective?

Answer 4

An objective is a goal to help a business achieve its mission.

Question 5

What are common business objectives?

Answer 5

• Survival
• Growth
• Profit
• Customer service
• CSR (Corporate social responsibility)

Question 6

What is CSR?

Answer 6

CSR refers to the commitment of business to behave ethically towards their workforce, the local community and society at large.

Question 7

What is the relationship between mission statement and objectives?

Answer 7

• Mission statement outlines the bigger picture and establishes the core values and principles
• Objectives are set to achieve the mission
• Objectives differ to the mission as they are actionable and measurable
• Without the mission, objectives have no direction
• Without the objectives, the mission is unachievable

Question 8

Objectives should be SMART

Answer 8

S pecific
M easurable
A chievable
R ealistic
T ime based

Question 9

Why do businesses set objectives?

Answer 9

• Objectives will be measurable and time based - can be used to evaluate performance
• Realistic and achievable - provides motivation but also should have an element of challenge
• Specific - gives meaning to planning and ensures a business remains focused on its mission

Question 10

Profit

Answer 10

Profit is the amount of money remaining once all costs have been deducted from the revenue

Question 11

Revenue

Answer 11

Revenue is the money received from sales and is calculated by multiplying the units sold by the price of each unit. Also known as turnover, sales turnover and sales revenue.

Question 12

Variable costs

Answer 12

Variable costs are costs that vary as a direct result of changes in the level of output.

Question 13

Fixed costs

Answer 13

Fixed costs are costs that do not change as a result of changes in the level of output.

Question 14

Total cost calculation

Answer 14

Total costs = Fixed costs + Variable costs

Question 15

Profit calculation

Answer 15

Profit = Total revenue - Total costs