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Business theme 2 > 2.3/2.4 > Flashcards

2.3/2.4 Flashcards

1
Q

percentage change in profit (eq)

A

Current years profit-previous years profit / previous years profit

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2
Q

gross profit (eq)

A

Total revenue - cost of sales

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3
Q

Operating profit (eq)

A

gross profit - other operating expenses

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4
Q

Net profit (eq)

A

operating profit - interest

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5
Q

Statement of comprehensive income

A

shows how much money has been into the business (revenue) and how much is going out of the business (costs) over a period of time

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6
Q

What should a statement of comprehensive income include (3 things)

A

-Cover one whole accounting year
-Should also contain previous years data for easy comparison to see what’s changed
-PLC’s must publish accounts

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7
Q

GPM

A

Gross Profit / revenue x100

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8
Q

OPM

A

Operating profit / revenue x100

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9
Q

NPM

A

Profit for the year / revenue x100

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10
Q

profit (def)

A

the money the business has left from revenue once costs have been paid

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11
Q

cash (def)

A

the money the business has now to pay its bills.

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12
Q

Statement of financial position

A

Shows the value of business’ assets and it’s current liabilities as well as showing the value of its capital

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13
Q

non-current assets

A

assets the business is likely to keep for more than a year e.g property or land

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14
Q

current assets

A

assets the business is likely to exchange for cash within the accounting year

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15
Q

current liabilities

A

debts which need to be paid off within a year

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16
Q

non-current liabilities

A

debts a business can pay off over several years

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17
Q

liquidity of an asset

A

how easily it can be turned into cash

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18
Q

Current ratio (eq)

A

Current assets / current liabilities

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19
Q

What is the ideal current ratio

A

Between 1.5-2

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20
Q

Acid test ratio

A

(current assets - inventory) / Current liabilities

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21
Q

Working capital (def)

A

the amount of cash the business has to pay off day-to-day debts

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22
Q

Working capital (eq)

A

current assets - current liabilities

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23
Q

Internal factors that cause business failure (financial)

A
  • poor management of working capital- not enough finances to pay day-today debts
    -poor efficiency- costs aren’t as low as they could be (makes business less competitive)
  • Bad decisions about how a firm is financed. e.g reliance on overdrafts will mean costs may be high in the long term
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24
Q

Internal factors that cause business failure (non-financial)

A
  • poor communication between different departments reduces efficiency. Problems don’t get solved quickly
  • Inadequate market research means the business fails to monitor changes to the market e.g change in customer needs
    -poor marketing means demand for product is decreased leading to less sales of the product
    -failure to innovate
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25
Q

External factors that cause business failure (financial)

A
  • economic recession means consumers have less money to spend
    (can hit luxury items harder as more elastic)
  • Exchange rates e.g if the pound strengthens then foreign firms exporting goods to the uk will have cheaper prices then firms in the uk. Demand falls for domestic products
26
Q

external factors (non-financial)

A
  • Actions of competitors e.g selling a similar quality of product at lower price
  • change in consumer trends
    -poor communication outside the business e.g failure to communicate with suppliers
27
Q

Job production

A

One-off items produced by skilled workers

28
Q

Advantages of job production

A

Charge higher prices as product is handmade or unique

29
Q

Disadvantages of job production

A
  • Higher staffing wages
  • decreased productivity
    -time consuming
    -can’t benefit from economies of scale
30
Q

Flow production

A

-Uses an assembly line to produce lots of identical products
-e.g chocolate bars

31
Q

Advantages of flow production

A
  • benefit from economies of scale
  • more automated as half process is machinery (saves wages)
    -can produce and sell large volumes
32
Q

Disadvantages of flow production

A

-machinery may brake
-high set up costs of machinery
- human workers may be bored as it is repetitive ( a solution could be to give financial incentive of being paid per item)

33
Q

Batch production

A

Same equipment is used to make smaller batches of different products.

34
Q

Advantages of batch production

A
  • benefit from economies of scale
    -higher productivity levels then job production as can make more then one product
    -sell products at lower prices
35
Q

Disadvantages of batch production

A
  • Between each product, equipment has to be adjusted therefore productivity is lower than if flow production was used
    -cost and inconvenience of storing raw materials
36
Q

Cell production

A

When a flow is divided in set of tasks, each task being completed by a work group.

37
Q

Advantages of cell production

A
  • prevention of boredom in workers as they will be completing different tasks.
  • this can motivate the employee and increase their productivity
  • Workers therefore may deliver a higher quality product
    -easier to customise certain parts to meet customer needs
38
Q

Disadvantages of cell production

A
  • dependant on staff being well trained in their specific role
  • can increase costs for staff training
  • product removed from flow decreases productivity
39
Q

Productivity

A

Measured as the output per unit of input, per unit of time.
Rate of production from each input.

40
Q

Benefits and drawbacks of a capital intensive work force

A
  • machinery, set up costs can be high but after this a machine can be more productive than a human as it can work faster and work more hours in a day - However, it will cost to maintain the machines which increases overall time taken to produce the products
  • More difficult to alter production than a human as it will need to be re-programmed
  • ## more precise
41
Q

Benefits and drawbacks of a labour intensive workforce

A

+ easily adaptable
- training costs and time
- ambitious targets can demotivate
+ can solve problems

42
Q

Efficiency

A

When production happens at an overall minimum average cost.

43
Q

Ways to increase efficiency

A

-increasing productivity
-cutting costs in the production of a product
-reconsider a products design mix so its easier and cheaper
-lean production

44
Q

Capacity

A

Maximum output they can produce in a given time period

45
Q

Capacity utilisation (eq)

A

Current output / maximum possible output x100

46
Q

Drawbacks of 100% capacity

A
  • difficult to work at max capacity and keep quality levels high
    -may have to turn customers away because it can’t increase capacity anymore
    -no downtime can reduce lifetime of machines
    -mistakes more likely if working flat out
    -can’t rest to large increases in demand for one-off orders
47
Q

Ways to increase capacity

A
  • work more in the working week e.g bank holidays
    -more machinery
    -increase staff levels e.g seasonal staff
    -outsourcing
48
Q

How firms deal with under-utilisation

A
  • stimulate demand e.g more promotion
    -fill spare capacity with outsourced work
    -reduce length of working week
    -close down parts of production facilities
49
Q

Benefits of buffer stock

A
  • avoid running out of stock therefore can react to surges in demand this is especially crucial in the mass market
    -benefit from economies of scale if bought in bulk
50
Q

Drawbacks of buffer stock

A

-Storage costs
-Wastage costs e.g perishable goods
-capital tied up in stock is unproductive and can be used elsewhere

51
Q

Lean production benefit

A

Improved rate of output and quality
Less waste, more efficient, lower costs= competitive advantage

52
Q

Benefits of JIT stock

A

-reduced storage costs and improved cash flow as money isn’t tied up
-less waste
- business is more flexible as can cope with surges in demand

53
Q

Drawbacks of JIT stock

A
  • reliant on frequent deliveries from suppliers
    -unreliable supplier
  • no economies of scale
54
Q

Quality

A

Meeting or exceeding customer expectations of what a product should do.

55
Q

Quality control

A

Assumes that errors are unavoidable
Detects errors and puts them right
Inspectors are responsible for quality

56
Q

Quality assurance

A

Assumes errors are avoidable
Prevents errors and gets it right first time
Employees check their own work

57
Q

Total quality management

A

Means quality is at the centre of everything the business does. Every employee and department focuses on quality in order to improve overall quality

58
Q

Benefits and drawbacks of TQM

A

+ helps build bonds as a team as everyone is involved
+enhances brand image
+Leads to fewer faulty products
- time consuming to introduce
-demotivate staff due to more effort needed
-expensive

59
Q

Quality circles

A

Discuss at regular intervals to discuss quality control issues
aim to identify an solve problems that occur with quality

60
Q

Kaizen

A

Lean production, employees should be improving their work all the time. Improves efficiency
Makes workers feel more involved with quality assurance

Business theme 2 (4 decks)

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