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business > A293 - Finance > Flashcards

A293 - Finance Flashcards

1
Q

How can you increase sales revenue?

A

Higher retail price
Decrease price
Stimulate demands - adverts, USP

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2
Q

What is the difference between a price elastic and inelastic product?

A

Price elastic -demand will be affected by change in price, inelastic - demand not affected

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3
Q

What does price elasticity depend on?

A

Number of competitors
What competitors do in price
Necessity or luxury product

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4
Q

What is the equation for SR?

A

SR = sold * selling price

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5
Q

What are fixed costs?

A

Costs that stay the same no mater how much a business sells e.g. rent, insurance, interest rates

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6
Q

What are variable costs?

A

Money spent on items directly linked to products e.g. materials

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7
Q

What is total cost?

A

Fixed + variable

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8
Q

What is average cost?

A

Total / units

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9
Q

Why do average costs fall with increasing output?

A

Fixed costs spread over more units

Using fixed assets efficiently

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10
Q

What does competition mean in terms of production costs?

A

Have to be low

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11
Q

How could Holden reduce material costs? (4)

A

1) Compare supplier prices
2) Bulk buying
3) Reduce stock held - JIT
4) Cheaper alternative to latex

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12
Q

How could Holden reduce wage costs? (5)

A

1) Cutting hours / staffing levels
2) Minimise overtime pay
3) Training - less supervision
4) Relocate
5) Automation

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13
Q

How could Holden reduce energy bills? (4)

A

1) Use at night - off peak
2) Turn off unused machines
3) More efficient equipment
4) Alternative sources e.g. solar panels

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14
Q

What is profit?

A

Money left over from sales when all costs paid (SR-TC)

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15
Q

What is gross profit?

A

Profit made without paying for day to day expenditure (only buying + selling goods) (SR- cost of sales)

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16
Q

What is profit margin?

A

What % of sales is profit
(gross/buying price * 100)
Buying price = all variable costs (cost of sales)

17
Q

What is net profit?

A

Takes into account all expenditures (gross-expenses or SR-TC)

18
Q

What is an opportunity cost?

A

Cost of having to miss out on an alternative use for money

19
Q

What is break even?

A

Where SR = TC - no profit or loss, units sold required to cover costs (FC/contribution (contribution = selling price - variable cost))

20
Q

What are the advantages of break even analysis? (3)

A

1) Assess profitability
2) Makes decisions about prices
3) Calculates production levels

21
Q

What are the disadvantages of break even analysis? (3)

A

1) Assumes all output sold
2) Assumes all sold at one price
3) Assumes variable costs constant - ignores economies of scale + exchange rates

22
Q

What is cash flow?

A

Analysing money coming into a business (inflows) and money going out of a business (outflows)

23
Q

What are advantages of a cash flow forecast? (4)

A

1) Help bank loaners decide
2) Plan for short-comings
3) Business decisions e.g. new products
4) Help set targets

24
Q

What are limitations of a cash flow forecast? (3)

A

1) Based on sales assumptions
2) Doesn’t include external factors
3) Mistakes - incorrect action

25
Q

Why could Bromley Furnishings’ sales be lower than expected? (4)

A

1) New competitor
2) Lack of advertising
3) Recession
4) Rise in interest rates

26
Q

How could Sunil overcome the cash short-fall in March?

A

Overdraft - may not solve problems of falling sales, high interest rates
Increase advertising - expensive
Lower costs - less short-fall, not solve problem
Ask for trade credit

27
Q

What is share issue?

A

Selling part of a business
+ Quick
- Dividends + control

28
Q

What is hire purchase?

A

Not owned until final payment
+ Don’t need all cash at once
- May include interest

29
Q

What is trade credit?

A

No immediate payment, can sell
+ Interest free
- Paid back even if not sold

30
Q

What is retained profit?

A

Money a business already has
+ Used when/where ever needed
- Opportunity cost

31
Q

What sources of finance could Holden use for £1 million machinery?

A

Hire purchase

Bank loan

32
Q

What sources of finance could Holden use for factory?

A 
Grant
Loan (mortgage)
Retained profit
Shares
Sale of assets
33
Q

What costs could Holden have when relocating?

A 
Land
Maintenance
Business rates
Transport
Redundancy
34
Q

Should Holden lease a factory?

A 
Annual payments of £68,000
\+ £12,000 cheaper annually - invest
\+ Can move whenever - external influence
- More maintenance - always pay
- Never own - asset as security not possible
35
Q

Should Holden use a mortgage to build a new factory?

A 
Annual repayments of £80,000
\+ Own property - modify freely
\+ Exactly what they need, lower maintenance
- Time consuming
- Short term expenses
36
Q

What should Holden do about their factory if they move to Bowton?

A

Mortgage

  • Asset - secure loans
  • Construction - local community

business (3 decks)

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