2.3 managing finance

Question 1

gross profit formula

Answer 1

sales revenue-cost of sales

Question 2

operating profit formula

Answer 2

gross profit-sales

Question 3

net profit formula

Answer 3

operating profit - interest and taxation

Question 4

what is profit ?

Answer 4

the difference between revenue and all costs involved in generating the revenue

Question 5

what are dividends ?

Answer 5

annual payments made to shareholders

Question 6

gross profit margin formula

Answer 6

gross profit/sales revenue x100

Question 7

operating profit margin

Answer 7

operating profit/sales revenue x100

Question 8

net profit margin

Answer 8

net profit/ sales revenue x100

Question 9

gross profit definition

Answer 9

The amount of profit remaining once direct costs (cost of sales) have been paid by the business.

Question 10

operating profit definition

Answer 10

The amount of profit remaining once direct costs (cost of sales) and indirect costs (expenses) have been paid by the business.

Question 11

fixed overheads definition

Answer 11

the indirect costs that have to be paid regardless of the business performance. e.g rent and salaries

Question 12

name the 2 ways to increase profits

Answer 12

-increase revenue
-decrease costs

Question 13

Current ratio formula

Answer 13

Current ratio = current assets ÷ current liabilities.

Question 14

Acid test ratio formula

Answer 14

(current assets-stocks) /current liabilities

Question 15

When does business failure occur?

Answer 15

Business failure usually occurs when there is insufficient cash available to sustain the usual levels of trading.

Question 16

Name 2 internal reasons for business failure.

Answer 16

-Poor cashflow management
-Lack of experience with business management

Question 17

Name 3 external reasons for business failure.

Answer 17

-Government regulation change
-Lower consumer spending
-Intense competition

Question 18

Name 2 financial reasons for business failure.

Answer 18

-Poor cashflow management
-Unsustainable levels of cost

Question 19

Name a non-financial reason for business failure

Answer 19

Political and legal changes

Question 20

what determines quality ?

Answer 20

-The quality of the materials that are used.

-The quality of the production process.

-The style of a product.

-The durability, speed and quality of a service.

Question 21

The two main aspects of a product or service that customers use to make decisions are p……. and q……..

Answer 21

price + quality

Question 22

name the 3 main consequences of poor quality

Answer 22

-product recalls
-lost customers
-high costs due to processing returns

Question 23

what are the 2 main ways of measuring quality of a product/service ?

Answer 23

-customer feedback
-customer surveys

Question 24

What can businesses do to measure and identify quality?

Answer 24

-Check quality in production process

-Customer service and complaints

Question 25

what does TQM stand for ?

Answer 25

total quality management

Question 26

what is TQM?

Answer 26

Total Quality Management (TQM) is a set of management principles that places quality at the heart of everything a business does.

Question 27

3 main Benefits of Maintaining High Quality (business)

Answer 27

-avoid product recalls
-higher price of product=more revenue
-good image/reputation

Question 28

what are the 3 main costs of maintaining high quality as a business (internal)

Answer 28

-inspection costs
-staff training
-provision services

Question 29

what is kaizen ?

Answer 29

Kaizen is an approach to innovation. It involves lots of small and continuous improvements being made to a process so that over time the process becomes more efficient.

Question 30

what does the kaizen approach require? (employees)

Answer 30

-kaizen approach requires the support of employees
-employee must feel passionate about helping business to improve

Question 31

name 2 advantages of kaizen

Answer 31

-improvements are likely to not demand high level of investments
-improvements are mostly supported by employees (cost effective method)

Question 32

name 2 disadvantages of kaizen

Answer 32

-managers may shy from making fundamental changes
-employees may not like constant pressure to improve
-kaizen depends on democratic leadership style

Question 33

what is job production ?
e.g

Answer 33

the production of “one off” (bespoke) items to meet the needs of each individual customer

e.g wedding dresses

Question 34

2 positive and negative for job production

Answer 34

+cheap and easy to set up
+businesses can charge more
-expensive to produce
-time consuming as its specific to customers wants and needs

Question 35

true or false.

job production requires hight skilled workers

what does this mean ? (expenses)

Answer 35

true.
this means that the method is more expensive as higher skilled workers tend to be paid more

Question 36

what is batch production?

Answer 36

where small quantities of identical products are made-each item passing through the production process at the same time

Question 37

2 positive and negative for batch production

Answer 37

+ allows for quicker and cheaper production
+more uniform products
-worker may be less motivated (repetitive)
-time consuming