Business 2 Flashcards

Question

Causes of cash flow and how to improve them

Answer 1

- poor inaccurate planning Long payment terms Over trading How to improve Cut stock level Increase sales Reduce cost (. Cut outflows) Increase trade credit from suppliers

Answer 2

an arrangement to buy goods and/or services on account without making immediate cash or cheque payments. The supplier is providing the business with finance for the period of the trade credit e. G . 30 days The business may lose out on discount offered for immediate or quick payment increasing cost

Answer 3

Forward looking statements that predicts cash inflows and cash outflow in the future - to identify timing and significant of any potential cash flow problem in advance- then find a way to overcome such as overdraft Help secure finance from potential investors or banks Give confident about short term survival

Answer 4

- demand may be under / overestimated= inaccurate - affected by external environment which is outside the entrepreneur control such s new competitors, supplier out of business, changes in consumer spending, changes in consumer taste - variables constantly changing- suppliers are free to change the price charge= difficult to estimate with the payment of variable cost - may be more difficult for the new business = high start up cost Only focus on cash and not other important variable like profitability and productivity

Answer 5

- net cash flow= inflows- outflows - opening balance- is what is in the account at the start of the month. Also the previous closing balance -closing balance = opening balance + net cash flow

Answer 6

Involves a business using range of techniques and info to predict sales volume trend on past sales figures Finance- help set a budget - predict sale volume and revenue - inform cash flow forecast Marketing - plan distribution - identify when promotional activity is needed Human Resources - plan workforce needs for sale team, seasonal staff Operations - capacity plan Stock management Forecast sales important as it a vital planning activity Useful part of regular competitor analysis, help focus on market research

Answer 7

- extrapolations - used trend established from historical data to forecast the future Advantages Simple method of forecasting Which and cheap Disadvantage - unreliable if there’s significant fluctuations in dsts Unlikely past trends will continue in future Ignored qualitative factors such as change in taste Correlation- Looked dry the strength between. 2 variables Best of line fit indicated strength of the correlation

Answer 8

Consumer trend Demand in many market changes consumer taste and fashion ‘Ale it diffuser it carry accurate sale forecast - also due to seasonal variation- sale fluctuates depending on season or shopping habit (. Technological change , online sales( Economic. Variable Demand is often sensitive to change in variable such as exchange rate, interest restrictions, taxation , unemployment ( disposable income ) -also economic growth, inflation = affects the level of spending, disposable income Actions of competitors Business likely to adjust its sales forecast based on the action of its competitor Such as competitors entering or exiting market , impact market share therefore sales Sales forecast should consider short term action of competitors like sale promotion as well like long term strategies such as product expansions

Answer 9

- unpredictable events If business is new = diffuse to forecast Rarely reflect the full range of external influences such as fashion trends Requires skill time and accurate use of data

Answer 10

Avoid cash flow problems= help business manage their production,staff , financial needs more effectively To employ more workers= if business has higher sales to a product or service = may need new employees to cope with demand

Answer 11

Sale volume is the amount of sales expressed in units Sale revenue / selling price Sales revenue is the amount of sales expressing as the total volume of sales made during a trading period. Also total name of money spent by consumers Sale revenue- is the money coming in from sale of goods or service. Increases with the amount of units sold Sale revenue = selling price x quantity sold

Answer 12

Fixed cost are those that client change with the level of output . They have to be paid regardless of output. Such as rent , insurance , intallments Variable cost are those that do change directly with the level of output or sales Such as raw materials, wage AVC x Q= TVC Semi fixed cost are for example rent space Can be enough for a certain period level of output until the pint at which the business needs to move somewhere bigger In long run all cost are variable as fixed cost will eventually change

Answer 13

Increase of product price If demand is high= increase quantity Advertising campaigns Give product USP Make product more available in more places such as as online , more stores

Answer 14

Cost are the amount that a business incurs in order to produce a product , drains away the profit made Total cost= FC+ VC = TC Average cost = Total cost/ output Problems either estimating n cost - could be external shocks which change cost - product refund

Answer 15

Is about at which a business is not making profit or a loss When total revenue = total cost Before reaching break even , business is operating at a loss , after reaching break even, each additional unit sold will contribute towards profit Formula Fixed cost/contribution per unit

Answer 16

- it looks at the profit made on individual products Contribution per unit= selling price- variable cost per unit Total contribution = sale revenue- total variable cost Total variable cost = variable cost per unit x quantity

Answer 17

Is the difference between actual output and brake even output Actual output- break even output Size of margin of safety will determine the risk of the business = should be high as possible

Answer 18

Higher selling price= higher contribution per unit= lower BE output ( price skimming) Higher variable cost= lower contribution per unit= higher BE output Increase fixed cost= no change = higher BE output

Answer 19

Benefits Is flexible - shows different levels of profit arising from various level of output Is a useful guideline to help business make decision Calculation quick and easy to complete = simple use Weakness Cost are rarely constant- break even presumes that cost stay the same over various level of output Info may be unreliable- maybe conducted by someone with low experience If simplifies what can be very complex process- most busies sell multiple products, which makes break even more difficult

Answer 20

Is a financial plan that a business sets about cost and revenue in future Purpose - planning and monitoring- business setting budgets are planning ahead / problems and their solution may be consumed and solved in advance Communication- Budget may be communicated throughout organisation to provided framework for decision making and communication - able to control level of spending

Answer 21

Historical figure budget Budget can be based on info or historical data such as sales from previous years Adjusted based on future events, estimation, inflation Zero based budgeting Require all spending to be justified which means that many unnecessary cost will be eliminated = efficient It can be time consuming as evidence to support spending decisions need to be collected= requires skilled employees to make persuasive case

Answer 22

- budget variance is the difference between figure budget and the actual figure achieved by the end Variance analysis compared forecast data to actual figures = analysis accuracy Favourable variance = actual figure achieved is better than the budgeted figure In a revenue or profit budget , actual figure is higher than budget In cost budget. , actual figure is lower than budget Adverse variance Actual figure achieved is worse than budget figure

Answer 23

Where adverse cost variance identified=. Business may seek alternative supplier or investigate ways to improve efficiency May review its marketing activities Where favorable sales variances occur= business may reward client facing staff with before and based incentives

Answer 24

inaccurate data= budget useless=Data must be up to date, unbiased and accurate Budget takes time, skill to set , monitor and review = demotivating Unexpected changes in process such as commodity price, Impact on motivation However budget encourages managers to focus on short term rather than long term success of business as budgets usually set year on year

Answer 25

- production occurs when raw materials or component are changed into products. . Factors of production are brought together Productivity measures the rate of production over a given time periods. Is the amount of output g that can be produced within the given input period time period Productivity =. More competitive at it enables lower cost = able to reduce price to increase demand

Answer 26

Labour productivity measures the output per employee in a certain time period Labour productivity = total output in a time period / numbers of employee

Answer 27

Motivating workers = happy workers work harder Education and training= improve skills of workforce Cell production= increase labour productivity Buying machinery= increase output = introduction to new technology Specialization = specialize in a specific role

Answer 28

Stress plus burnout= low quality Or using machinery may be better

Answer 29

Involves maximizing output achieve from the given input - when business is running efficiently there minimum waste Unit cost will also be increased at their lowest Unit cost= total cost/ total output

Answer 30

- increasing capacity utilization - low waste Increasing labour productivity Lean production Using technology Outsourcing Benefits of improved efficiency - unit cost fall Profit margin increase Labour productivity increase Ability to charge Lowe price= increase competitiveness

Answer 31

Labour intensive is production relies on using labour resources( workers) Such as food processing , hotels , restaurants, coal mining Capital intensive is production relies using capital resources Such as car manufacturing , oil extraction

Answer 32

Lowest cost per unit at which production can take place This is important as More efficient business will produce lower cost good than competitors May generate more profit possible at lower price

Answer 33

The proportion of a business capacity that is being used over a specific period if business cannot increase its output = full capacity Capacity is a measure of how much output it can achieve in a given period Calicut can change : When machine is having maintenance = capacity is reduce Working more production shift= increase in capacity

Answer 34

Actual level of output/ maximum possible output x 100

Answer 35

- is a useful measure of productive efficiency since it measures whether there are unused resources in business Higher utilization can reduce unit cost = making business more competitive Profit margin can increase high level of CU may be required if business had a high break even output due to significant fixed cost of production

Answer 36

Benefits of working at high capacity - unit cost lower Gain economies of scale Profit margin could increase Drawback of working at high capacity Rushed production Workers over worked

Answer 37

- increase in sales/ usage More staff redundancy to lower cost Increase demand through promotion Have seasonal staff

Answer 38

Buffer stock is the quantity of good / raw material kept in case of stock shortages Advantages Stability of supply= ensures a stable supply of food which is able to respond to unexpected customer demand Raw material security= business that are dependent on raw material avoid disruption to their supply Competitive advantage- having reliable supply of good = business can gain a reputation for always being able to meet the demand of the customer If supplier cannot deliver on time , production will not be affected Disadvantage Cost- can be expensive as it requires storage facilities and inventory management system Risk of obsolescence- buffer stock can become obsolete if demand for a particular product or input declines Opportunity cost- holding buffer stock ties up capital that could be invested in other areas of the business

Answer 39

1Holding too much stock Means using up cash that can’t be used elsewhere Risk of shrinkage will increase = stock being stolen , damage or lost Storage cost will be higher than necessary =. Extra cost if sales are low Stocks can be wasted 2. Little stock Orders can’t be met= leads to unhappy customers and loss of sales Business may run out of stock = production stoppages

Answer 40

A system of management based on quality being the priority throughout the organizations How quality is everyone responsibility no matter the role Principle - quality policies— clear on expectation of employees , how to achieve Teamwork = help solve problems Feedback form customers taken into account Advantages - more satisfied customers Enhance reputation More involved workers Disadvantage Some staff may be resultant to change Cost to train staff

Answer 41

Quality specialists are employed to check standards Refers to the traditional method of checking that the product are of a good enough quality standard This approach to quality makes production process faster / inexpensive As bad quality= damage brand image= less sales and rejection of finish good is significant waste of resource

Answer 42

A group of employees who meet on a regular basis to talk about quality problems that are relevant to the part of production they work on - makes the use of workforce knowledge to identify and solve problems = pass into management Brings together staff and management so staff feels empower which leads to more motivation ❌ support is needed of management who must be willing to listen to the workers ideas and implement them Meeting must be organized regularly

Answer 43

The processes that ensure production quality meets the requirements of customers This is an approach that aims to achieve quality by organising every process to get the product 'right first time' and prevent mistakes ever happening. This is also known as a 'zero defect' approach. Advantages of quality assurance include: Costs are reduced because there is less wastage and re-working of faulty products as the product is checked at every stage It can help improve worker motivation as workers have more ownership and recognition for their work (see Herzberg) It can help break down 'us and them' barriers between workers and managers as it eliminates the feeling of being checked up on Less waste = sustainable = business has a produce reputation

Answer 44

Everyone in the organization needs to be fully committed to the ideas to identify areas of improvement across organizations Elements are TQM, team working , high level of automation

Answer 45

Is a feature. Of a product that satisfy needs of customer Example of poor quality Product fails – e.g. a breakdown or unexpected wear and tear Product does not perform as promised (or what the customer thought was promised!) Product is delivered late Poor instructions/directions for use make using the product difficult or frustrating

Answer 46

Quality is a significant route for a business to add value to its products Achieving high level of quality allows a business to charge premium price = ensure customer are highly satisfied Business must continually aim to improve quality and adapt to needs of cutler did they are to maintain any competitive advantage Unit cost likely to be low = can reduce selling price Quality consist of good design , consistency in the method, consistent equipment

Answer 47

Benefits Improved image & reputation, which should result in Higher demand, which may in turn mean Greater production volumes (possibly providing better economies of scale) Lower unit costs because of less waste and rejected output Potentially higher selling prices (less need to discount) Negative of poor quality Lost customers (expensive to replace – and they may tell others about their bad experience) Cost of reworking or remaking product Costs of replacements or refunds Wasted materials

Answer 48

Is a process in which raw material are not store onsite. , but ordered as required and deliver by supplier’ just in time’ for production Supply of product and raw material triggered by demand from customers

Answer 49

Advantages Stockholding cost including storage cost are minimised Cost working relationships are developed with small number of trusted suppliers Cash flow improved = money not tied up in stock No wastage = only created when needed Stock less likely to go out of date Disadvantage Business won’t be able to meet unpredictable surge in demand Unreliable suppliers such as late or poor quality deliver= can quickly halt production= costly

Answer 50

Lean production involves the minimization of the resource used in production Focus on cutting waste (. Use fewer materials ) Less labour is used as lean production typically capital intensive Space required for production is reduce as a result of JIT stock management Competitive advantage from lean production Lower unit cost achieve due to minimal wastage = price may be lower than those offered by competitors Better quality of output due to supplier reliability = carefully managed production process

Answer 51

Waste considered anything that does not add value to product Key factor that influence efficiency of business Wastage in business can occur due to -too much stock= perishable stock not used will need to be thrown away Stock damage due to poor storage condition = not be suitable for use in production process This will increase cost of production = reduce efficiency Way to solve= store inventory appropriately like perishable food in refrigerator = protect from damage - have effective security (storage) Pricing strategies = adjust price to Lean stock through sale promotion= increase purchase Planning :Staff training, computerized stock control = reduce areas

Answer 52

- invest in technology Have a clear understanding of customer needs Train employees Work with high quality supplerys