3.1.1 Understanding the Nature and Purpose of a Business. Flashcards
Why do businesses exist?
To supply goods and services to consumers and other businesses.
What is an objective?
A specific intended outcome of business strategy and activity.
What is the relationship between mission and objectives?
A mission is a businesses overall goal, objectives are a series of targets to help a business meet its aims.
What are the main functions of a business objective?
State what needs to be achieved.
A focus for all activity.
Targets for individual and group achievement.
A way to measure performance.
What are some common business objective examples?
Sales Revenue. Profit. Return on investment. Growth. Market share. Cash flow. Value of the business. Corporate image & reputation.
Outline what is meant by “SMART”.
Business Objectives should be “SMART”.
Specific - State exactly what is to be achieved.
Measurable - Capable of measurement.
Achievable - Should be realistic.
Relevant - relevant to the people responsible for achieving them.
Time bound - set with a time-frame in mind.
What is price?
The amount paid by a customer for goods or a service.
What is total revenue and what is the formula to calculate it?
Total revenue is the income received from an organisations activities.
TR = Price per unit x Units sold (TR = P x Q).
Why is setting price a difficult task?
Define what is meant by an ideal selling price.
A business must cover costs and leave surplus for profits, but the higher the price the less customers. Business must find the ideal selling price (the price that makes the most profit).
What can total revenue also be referred to as?
Income. Revenue. Sales revenue. Sales turnover. Turnover.
What must we assume when calculating how changes in sales volume will affect total revenue?
That selling price remains the same.
Variable costs change by the same % as the change in output.
These calculations are estimates.
Fixed cost example, definition and formula.
Costs that do not change no matter the output of goods and services.
E.g. Rent.
Formula: (Total cost of production - variable cost per unit) x number of units produced
Variable costs example, definition and formula.
Costs that vary directly with the level of output.
E.g. costs of goods sold (COGS), raw materials etc.
Total Variable costs formula:
Variable costs per unit x number of units sold.
Total costs definition and formula.
The total cost is the amount of money spent by a firm on producing a given level of output.
Formula: Fixed costs + variable costs.
