Business Studies

Answer 1

-Consumer good- goods and services sold to ordinary people rather than businesses.

-Producer goods- goods and services produced by one business for another.

Answer 2

Needs- basic requirements for human survival.

Wants- peoples desires for goods and services.

Question 3

Financial aims and objectives

Answer 3

Survival- high costs, strong competitors, lack of experience, shortage of supplies, low customers, failure of business

Profit- profit maximisation, for shareholders, dividends, keep shareholders.

Sales- low costs, larger market share, higher public profile, more money for owners, and shareholders

Market share- win customers from competitors, dominate the market, charge higher prices, easier to launch new products.

Financial security- profit satisfying, no extra responsibility, more time for personal life.

Question 4

Non-financial aims and objectives

Answer 4

Social objectives- improve human wellbeing

Personal satisfaction- more happier in their own work environment.

Challenge- more risks, and motivated by challenges, need to be hardworking, committed.

Independence and control- want to be ‘their own boss’ in control, independent and make all decisions.

Question 5

Multinational

Answer 5

Large production or service operating in at least 2 different countries.

Question 6

Features of multinational

Answer 6

-Huge assets/ turn over
-High quality/ experienced professionals
-Powerful advertising/ marketing
-Advanced technology
-Economies of scales
-Higher profile, more brand recognition, more customers

Question 7

Private enterprise:

Answer 7

Owned by individuals or groups of individuals. Their aim is to make profit.

Question 8

Social enterprise

Answer 8

These are non-profit making. For example charities.

Question 9

Public enterprise

Answer 9

These are owned by the government.

Question 10

Features of public corporations

Answer 10

• State owned
• Created by law: they are created by an act of parliament.
• Incorporation: they have a separate legal identity.
• State-funded: the government provides the capital needed by public corporations. This money comes from taxes.
• Provide public services: most public corporations do not aim to make profit. (Schools and hospitals).
• Public accountability: collecting tax.

Question 11

Advantages and disadvantages of public ownership

Answer 11

Advantages

-Avoid wasteful duplication
-Save jobs
-Fill gaps left by the private sector

Disadvantages

-Cost to government
-Difficult to control
-Taxpayers

Question 12

Stakeholders

Answer 12

people who have interest in the business.
Eg, Customers, Employees, Managers (run the business), Owners, Suppliers (provides raw materials), Financiers (lends money to businesss.

Question 13

The importance of clear objectives:

Answer 13

• Employees need something to work towards, objectives motivate people, higher productivity, higher levels of output
• Objectives decide where to take a business and what steps are necessary to get there.
• Makes it easier to assess the performance of a business.

Question 14

Entrepreneurs

Answer 14

• Innovators: introduces changes and new ideas.
• Organisers: buy or hire resources, give instructions and make arrangements.
• Decision makers: make decisions on how to raise finance.
• Risk takers: risk losing any money they put into a business.

Question 15

Unincorporated

Answer 15

No legal distinction between the owner and the business.
Everything is carried out in the name of the owner.

Question 16

Incorporated

Answer 16

Has a separate identity from that of its owners.

Question 17

Why are objectives change as businesses evolve?

Answer 17

Market conditions, competition, need to dominate them eg lower costs, customers are driven
Technology
Performance
Laws
Internal reasons ( changes inside the business)

Question 18

Sole trader

Answer 18

Business owned by a single person.

Advantages- The owner keeps all the profit, this is because they are the only person owning the business, as a result of this, they don’t have to share it to anyone. no coorporation tax
Simple to set up with no legal requirements. Flexibility.

Disadvantages- Unlimited liability.
Struggle to raise finance.
Long hours and hard work.
No continuity.

Question 19

Partnerships

Answer 19

Business owned by between 2 and 20 people.

Advantages- No legal formalities.
Job is shared, different partner skills / responsibilities, meaning more ideas shared, more options for customers, more consumer input, more profit.
More capital raised with more owners.
Financial information not published.

Disadvantages- Unlimited liability.
Profit is shared.
Partners may disagree, slow down decision making.

Question 20

Franchise:

Answer 20

Structure in which a business (franchisor) allows another operator (franchisee) to trade under their name.

Question 21

Franchisee

Answer 21

Advantages:
- Less risk , as its a tried and tested idea, no risk of failing, brand recognition
- Set-up costs are predictable.
- National marketing may be organized.

Disadvantages:
- Profit is shared with franchisor.
- Strict contacts have to be signed.
- Lack of independence.
- Expensive way to start a business.

Question 22

Franchisor

Answer 22

Advantages:
- Fast method of growth and cheaper method of growth as franchisees take some of the risk.

Disadvantages:
- Potential profit shared with franchisee.
- Poor franchisees may damage brands reputation.
- Cost of support for franchisees may be high.

Question 23

Limited liability

Answer 23

Business owner is only liable for the original amount of money invested in the business.

Question 24

Unlimited liability

Answer 24

Business that are responsible to pay all the debts.

Question 25

Market share

Answer 25

The percentage of a markets sales that it earned by a company over a specified time period.

Question 26

Private Limited Company (Ltd): 1 or more owners sells shares to only to only people known ( family and friends)

Answer 26

Advantages:
- Limited liability
- Business continues if shareholder dies, as its incorporated
- Details are hidden, meaning competitors cant access info
-appear more professional , wider pool of knowledge , skills and expertise .

Disadvantages:
- Costs money and takes time to set up
- Can’t raise more than PLCS, as shares arent sold to public
-more complicated, have to pay corporation tax

Question 27

Forming a limited company

Answer 27

2 main documents need to be sent to Registrar of Companies
-Memorandum of association- details, like name, address
-Articles of association- meetings, rights of shareholders.

Question 28

Cooperatives

Answer 28

company in which all people working there own an equal share of it.

Question 29

Limited partnership

Answer 29

Some partners provide capital but no part in managing the business.
The partner will have limited partnership.

Question 30

Public Limited Company (PLC): shares are shared in stock exchange market

Answer 30

Advantages:
- Large amount of capital raised.
- Limited liability
- Can exploit economies of scale.
- Dominate the market
- Very high profile in the media, increase reputation, increase status.

Disadvantages:
- Setting up costs are very expensive.
- More financial information has to be made public, stricter regulation, rivals have more access to info.
requires alot of paper work.
- Managers may take control rather than the owners.
-can lose control

Question 31

Privatisation

Answer 31

The transfer of public sector resources to the private sector.
Advantages- removal legal barriers, allowing more competition.

Question 32

Primary sector

Answer 32

-Production involving raw material extraction from the earth.

-Examples: argiculture, fishing, forestry, mining and quarrying.

Question 33

Secondary sector

Answer 33

-Production involving converting raw materials into finished and semi-finished goods.

-Example: metalworking, car production, energy utilities and shipbuilding.

Question 34

Tertiary sector

Answer 34

Production of services in the economy.

*Example: commercial, financial and household services.

Question 35

Factors influencing business location:

Answer 35

Proximity to the market- close to customers, to keep transport costs down, more money for different things.

• Proximity to labour- wage costs and labour skills, cheap labour depending on country
• Proximity to materials- close to their raw materials, cheap premises, or transport
• Proximity to competitors- less competition, less options to choose, more profit.
• Easy access to parking, less traffic, larger land for businesses

Question 36

Local location

Answer 36

Home-based businesses

• Internet: some online businesses have a website.
• Legislation: laws a business has to follow.

-Changing factors in costs: for example rent may increase or employees may ask for more money.

• New markets: when businesses start to offer new customers, their products and services.

Question 37

International location:

Answer 37

• Multinational businesses: sell goods and services around the world.
• Trade barriers: when countries block or charge money for you to operate in their countries.
• Financial incentives: when businesses offer money to countries to locate in their country.
• Cost of labour: cheaper for businesses to pay low wage in poorer countries.
• Proximity to markets and suppliers: getting suppliers from china.
• Political stability - Language barriers

trade bloc- group of countries in same region join together, and enjoy trade, free of barriers.

Question 38

Globalisation

Answer 38

growing integration of the worlds economies.

Question 39

Features Of Globalisation

Answer 39

-Free trade
-People are free to live, work, in any country they want
-Interdependence between economies
-Capital can flow freely between countries.

Question 40

Opportunities of Globalisation

Answer 40

Access to larger markets–> Increase sales, provides growth opportunities
Lower costs–> Makes business more competitive and larger market share, as they grow, can exploit economies of scale, cost reduction
-Access to labour–> If growing fast, shortage of employees
-Reduced taxation–> Locating office in a country where taxes are low.

Question 41

Reasons for Globalisation

Answer 41

Technology- internet to buy online, working
Tourism- More open to other cultures/ foods if travel more, more interested in products
Deregulation- Removal of barrier to trade, more countries allowed for international trade.
Transport- No. of flights/ destinations increases.

Question 42

Threats of Globalisation

Answer 42

Competition–> more companies, more competitive
International takeovers–> Taking over businesses
Events in 1 economy are likely to affect other economies.

Question 43

External factors

Answer 43

Social- things that affect people like fashion and changes in society, part time, more adaptive, consumer awareness, changes in demand patterns

Environmental- as economies grow, environmental damage increases, global warming, packaging more reuseable and recycled.

Political- government makes laws and regulations that all businesses should follow.

Technological- as technology improves and changes, the economy advances, reduces cost, less mistakes, quicker.

Question 44

Fiscal policy

Answer 44

• using changes in taxation and government expenditure to manage the economy.

Question 45

Taxes

Answer 45

Direct taxes: charges people on their salary.

Indirect taxes: charge people on spending.

Question 46

Measures of success:

Answer 46

• Revenue
• Market share
• Customer satisfaction
• Profit
• Growth
• Shareholder satisfaction
• Employee satisfaction

Question 47

Reasons for business failure

Answer 47

Cash flow problems:

• Investing too much in fixed assets
• Poor financial management
• Not competitive enough
• Ineffective marketing, doesnt reach target audience, cost too high

-Not adapting to customer changes

Answer 48

• Imports- goods and services bought from overseas.

-Exports- goods and services sold overseas.

Question 49

Downward communication

Answer 49

passing messages from top of the organisation to those at the bottom.

Advantages:
- Subordinates look to their managers for leadership.
- It allows the decisions made by management to be carried out by employees.
- It allows managers to command, control and organise.

Question 50

Upward communication

Answer 50

passing messages from the bottom of an organisation to those at the top.

Advantages:
- It helps managers to understand the views of subordinates.
- It may make managers aware of problems.
- It helps staff to feel that they’re valued.
- It provides managers with information to help make decisions.

Question 51

Horizontal communication

Answer 51

Exchange of information between parties on the same level in an organisation’s hierarchy

Question 52

Internal and External communication

Answer 52

Internal communication
- communication between people inside the business.
External communication
- communication between those outside the business such as customers.

Question 53

Formal and Informal communication

Answer 53

Formal communication
- use of recognised channels when communicating.
Informal communication
- use of non-approved channels when communicating.

Question 54

The effects of poor communication

Answer 54

• Mistakes occur
• Costs rise
• Decision making slows down
• Staff motivation suffers

Employees will have a clear understanding of what has to be done , this could mean that fewer mistakes will be made, leading to an increase in productivity of employees

Question 55

Face-to-face communication

Answer 55

Advantages
Allows immediate feedback.
Encourages cooperation.
Allow new ideas to be generated.
Saves time.

Disadvantages
Negative body language creates a barrier.
A record of the message may not be kept.
Some people may not listen

Question 56

Written communication

Answer 56

Advantages
Evidence of formal communication
Able to provide a lot of information in 1 document.
Everyone is able to be provided with the same information at once.

Disadvantages
Time consuming process
Can be lost
Easily destroyed

Question 57

Electronic communication

Answer 57

Advantages
Deliver to everyone at same time

Disadvantages-
Filled with junk emails
Anyone can hack and get the confidential info.

Question 58

BARRIERS TO COMMUNICATION IN BUSINESS

Answer 58

-Lack of clarity- ignored, misunderstood
-Technological breakdownn
-Poor communication skills
-Jargon words used by specific people but would be meaningless to outsiders
-Distractions
-Long chain of command
-Using the wrong medium
-Different countries, languages and cultures

Question 59

PROBLEMS OF INEFFECTIVE COMMUNICATION:

Answer 59

▪ High staff turnover – more absence because of low motivation.
▪ Poor customer service.
▪ Decision making slows down, might lead to missing out an important opportunity .

Question 60

OVERCOMING BARRIERS TO COMMUNICATION:

Answer 60

▪ Recruiting staff with good communication skills.
▪ Training in communication.
▪ Social events for staff to allow them to meet different departments.
▪ Shorter chain of command.
▪ Repair faulty technology.

Question 61

TYPES OF EMPLOYMENT:

Answer 61

▪ Full-time employment – full working week, more loyal and motivated, only do 1 job, cheaper cost.

▪ Part-time employment – work fewer hours than full time. Can give some flexibility, shift from different jobs, more efficient as sometimes demand is low, so cheaper, may need more workers compared to 1 full time, more uniform, costs, training.

▪ Job share – 2 part-time employees share the work and pay of a full-time employee.

▪ Casual employment – specific events.

▪ Seasonal employment – during busy periods like Christmas.

▪ Temporary employment – absent workers

Question 62

WHY MIGHT A COMPANY NEED TO RECRUIT?

Answer 62

1. Business is growing and expanding.
2. People are leaving.
3. People are promoted so a position becomes vacant.
4. Required to cover staff absence.

Question 63

RECRUITMENT DOCUMENTS

Answer 63

Job description – document that shows the tasks, duties and responsibilities, working hours of that job.

Person specification – experience, skills, attitudes, characteristics expected of a person.

Application form – standard document used to collect information from a job applicant in own words why they are applying and why they are the best person for the job

Curriculum Vitae (CV) – document used by a job seeker that lists personal details, education, work experience, references and other details.

Question 64

STAGES IN THE RECRUITMENT PROCESS:

Answer 64

Identify the type and number of staff needed.
Prepare a job description and person specification.
Advertise using appropriate media.
Evaluate applicants and select a shortlist for interview.
Carry out interviews.
Evaluate interviews and appoint best candidate.
Provide feedback for unsuccessful applicants.

Question 65

INTERNAL RECRUITMENT

Answer 65

– appointing workers from inside the business.

Advantages:
▪ Cheaper than external methods.
▪ The candidate knows the business and how it operates so does not need induction training.
▪ It motivates employees.
aware of candidates abilities and records.

Disadvantages:
▪ Fresh ideas are not brought into the company.
▪ Other employees may feel resentful, which could cause problems especially when a former colleague becomes a boss

Question 66

EXTERNAL RECRUITMENT

Answer 66

– appointing workers from outside the business.

Advantages:
- Brings in fresh and new ideas that drive the company forward.
- Increases innovation and productivity.

Disadvantages:

• Expensive process.
• De-motivates workers as they feel there is a lack of promotion.
• Higher risk

Question 67

LEGAL CONTROLS OVER EMPLOYMENT

Answer 67

Gender- wages should be the same, jobs and titles must be genderless, ads should not specify gender.

Race and religion- no discrimination, cant prevent employees from wearing ethnic/religious dress, religious holidays.

Disability- employees need to make adjustments to help disabled people, more time for training, providing wheelchairs.

Question 68

Advantages for business if banks reduce interest rates

Answer 68

If banks reduce interest rate, business wont be giving as much of their money to the bank, instead they could save the money and improve their business, leading to more chances of survival

Question 69

TRAINING

Answer 69

process that involves increasing the knowledge and skills of a worker to enable them to do their job more effectively.

Question 70

INDUCTION TRAINING

Answer 70

Training given to new employees when they first start a job: a complete tour of the workplace, health and safety training and company policies.
Many questions to ask about the job.

Question 71

ON-THE-JOB TRAINING

Answer 71

Training that takes place while doing the job.

• Watching another worker
• Mentoring- people with a lot of experience and knowledge help other people at work.
• Job rotation – employees alternate between different jobs during the course of their employment.

Question 72

OFF-THE-JOB TRAINING

Answer 72

Training that takes place away from the work area.

Question 73

BENEFITS AND LIMITATIONS OF TRAINING:

Answer 73

THE BENEFITS OF TRAINING:
▪ Keeping workers up to date.
▪ Improving labour flexibility.
▪ Improving job satisfaction and motivation, more secure doing job, no anxiety, frustration etc. no staff turnoever.
▪ New jobs in the business.

LIMITATIONS OF TRAINING:
▪ High costs of training courses and other resources.
▪ Learning by doing
▪ Loss of output
▪ Employees leaving

Question 74

Why is employee motivation important in business?

Answer 74

Higher labour productivity, more pride in work, complete tasks quickly, higher levels of output.

Less likely to leave job, as staff turnover recruitment and selection training costs are high, less profitable.

Question 75

HERZBERG TWO-FACTOR THEORY:

Answer 75

Motivators-
Factors that would help to give employees job satisfaction.
Achieving aims
Chance of promotion
Responsibility
Interesting work
Recognition
Personal development

Hygiene Factors-
Leave workers dissatisfied.
Pay
Working conditions
Job security
Quality of supervision
Staff relationships
Company policy

Question 76

METHODS OF MOTIVATION AT WORK: FINANCIAL

Answer 76

Time rates – payment system based on the amount of time employees spend at work.

Gross pay- is the pay before deductions such as tax. A worker’s net pay is what they take home.

Piece rates – payment system where workers receive an amount of money for each unit produced.

Performance-related pay (PRP) – payment system designed for non-manual workers where pay increases are given if performance targets are met.

Bonus payments – payment is addition to the basic wage for reaching targets or in recognition for service.

Commission – payment based on the value of sales, usually a percentage of sales made.

PROMOTION – getting a higher paid job at a higher level.

FRINGE BENEFITS – ‘perks’ over and above the normal wage or salary.

Question 77

NON FINANCIAL METHODS OF MOTIVATION

Answer 77

Job rotation- makes work more interesting, changes job from time to time, avoid feeling bored.

Job enrichment- jobs made more challenging and rewarding, as they require more responsibility and creativity, more interesting, making them feel more valued and trusted,leading to more job productivity.

Autonomy- given the authority to make more choices and decisions about the way they work, more control suggests they are trusted, gives them more confidence and motivates them, job productivity is high.

Question 78

Maslows Hierachy of needs

Answer 78

Self actualisation- develop skills, and develop as people
Esteem needs- recognised and respected, praised, rewarded
Love and belonging- comunication and friends
Safety and security- protection from harm, safe working conditions
Physiological needs- basic human needs, adequate pay

Question 79

Taylors theory of scientific management

Answer 79

Jobs should be broken down into simple tasks and workers should

-use specialist tools and equipment
-follow a strict working procedure
-receive proper training
-get breaks to recover from the physical strain of work
-be paid according to what they produce

Question 80

EMPLOYEES ROLES AND RESPONSIBILITIES:

Answer 80

▪ Directors run the business.
▪ Managers plan, control, organise motivate and make decisions. ▪ Supervisors monitor the work in their particular area. ▪ Operatives operate machines. ▪ General staff do not have any specific skills. ▪ Professional staff are skilled and highly trained like lawyers and doctors.

Question 81

Centralised

Answer 81

Type of organisation system where most decisions are made at the top of the organisation and then passed down the chain of command.

Advantages

-Senior management has complete control over resources. consistnecy and coordination
-Senior managers are trained and experienced in decision making.
Coordination & control is easier.

Disadvantages

Employees may be demotivated without any authority as less creativity and innovation

Question 82

Decentralised

Answer 82

Type of organisation system where decision making is pushed down the chain of command and away from the top.

Advantages
Workers have autonomy.
Takes pressure off senior managers.
Creativity and idea sharing.
More promotion opportunities.

Disadvantages
Senior managers lose control of resources. Higher costs. Slows decision making in times of crisis.
Some employees may not have the ability to make decisions.
Some employees may not welcome the extra responsibility.

Question 83

Why is motivation important for employees?

Answer 83

Will work harder, complete tasks quickly, will produce higher level of outputs.

Question 84

Organisation chart

Answer 84

business splits to functions and departments, roles of employees, responsibilities.

Question 85

FLAT AND hierarchical STRUCTURES

Answer 85

Flat
- communication is better, shorter chain of command.
Management costs are lower, as fewer layers of management.
Friendly and less formal, as more direct contact

Tall
- Communication can be poor as long chain of command, management costs high, less friendly and more formal, because of all layers in hierarchy.

Question 86

DEPARTMENTAL FUNCTIONS

Answer 86

HUMAN RESOURCES
FINANCE DEPARTMENT
MARKETING
PRODUCTION

Question 87

HUMAN RESOURCES

Answer 87

Recruitment, selection and dismissal
Training
Health and safety

Question 88

FINANCE

Answer 88

Financial transactions
Wages, salaries
Accounts

Question 89

MARKETING

Answer 89

Pricing
Market research
Advertisements
Customer service
Packaging

Question 90

PRODUCTION

Answer 90

Design
Purchasing
Research and Development

Question 91

Relationships and interdependence between Departments:

Answer 91

-Production may have to meet with marketing, to discuss changes to customers orders
- HR will need to communicate with financial, to discuss wages and salaries
-Finance have to communicate with production, to ensure designs for a new product are profitable.

Question 92

Short term finance

Answer 92

repaid within a year.
money borrowed for 1 year or less.
Start up, need alot of resources in beginning, to sell.
Expansion- expand and develop new products, diversify.

Question 93

Long term finance

Answer 93

money borrowed for more than a year.

Question 94

Short term finance

Answer 94

Overdrafts- business spends more money than it has in its account
Advantages- Very flexible, can be used for a day if business has a temporary cash flow problem
Disadvantages- interest rate can be high, hard to pay

Question 95

Long term finance

Answer 95

Personal savings- All money comes from owner of business.
Advantages- no interest needed, no loss of control
Disadvantages- wont have large amount of money, if lose that money, you lose both ur business and money

Loan capital-

Retained profit- Profit which is kept back by a business and used to pay for investment in the business.
Advantages- No interest, cheapest, no loss of control
Disadvantages- Owners may be sad, as not given to them , cause problems, staff turnover.

Venture capital- money invested by an individual or group that is willing to take the risk of funding a new business in exchange for profits.
Advantages- large sum of investments, no risk
Disadvantages- lose control and profit

Share capital- money raised by shareholders through the sale of shares.
Advantages- no interest rate, raise profile.
Disadvantages- more share holders mean loss of control, shared ownership and decision making

Bank loan- Borrowing a sum which has to be repaid with interest over a period such as 1-5 years.
Advantages- no loss of control
Disadvantages- no need to pay interest, may be high, require security.

Crowdfunding- involves a large number of people investing small amounts of money in a business, usually online/ internet.
Advantages- Can generate funds, and promote business
Disadvantages- Need to advertise to interest the people into investing, more costs.

Trade payables- pay the money back in 30 days
Advantages- make profit, before cost has to be paid. No interest,
Disadvantages- if they don’t pay supplier on time, risk by supplier.

Question 96

Stock market flotation

Answer 96

when private limited company can only sell shares to friends, is converting to public limited company to sell shares to public.
Investors gain more trust in public limited, gain improved reputation for floating.

Question 97

Importance of cash to business

Answer 97

• To pay suppliers, overheads, employees
• Prevent business failure, cant pay debts (insolvent) , business could lead to closing down.

Question 98

liquidity

Answer 98

if an asset can be easily turned into cash

Question 99

A business will have control over its cash flow by:

Answer 99

 Keeping up-to-date records of financial transactions.

 Keeping plans ahead by producing cash flow forecasts.

 Operate an efficient credit control system; which prevents late payments.

Question 100

Cash inflow

Answer 100

money comes into business
comes from income, sales, revenue, loans, interests and investment.

Question 101

Cash outflow

Answer 101

flow of money out of a business
when payments are made either to buy materials, wages and utilities.

Question 102

Cash flow forecast

Answer 102

is a financial document that shows the expected cash inflows and outflows over a future period. It also shows the closing cash balance at the end of each month.

Answer 103

It allows the business to predict its future inflow and outflows. It knows whether it can survive or not and whether it has sufficient funds to keep trading.

Lets them know if they need money, if outflows are more than inflows. And if its going to fail.

Question 104

CLOSING AND OPENING BALANCE

Answer 104

Closing cash balance (OPENING BALANCE + NET CASH FLOW )
amount of cash that a business expects to have at the end of each month taking into account the cash inflows and outflows.

Opening cash balance –
the opening cash balance is same as the closing cash balance of the previous month.

Question 105

Why are cash flow forecasts important?

Answer 105

 When business needs to borrow cash, if overdraft is needed, helps identify cash shortage.

 Help when planning the business, aims and improve performance.

 Compare predicted figures in forecast to real, to see where problems have occurred, investigate why figures were different.

Question 106

Fixed and variable costs

Answer 106

Fixed cost- Costs don’t vary with level of output eg rent, advertising
Variable- costs that change when output levels change eg, raw materials, packaging, fuel, labour

Question 107

Average cost

Answer 107

total cost / quantity produced

Question 108

Revenue

Answer 108

price x quantity

Question 109

Break even

Answer 109

When a businesses’ total costs and total revenue are exactly the same.
At this point the business does not make a profit or a loss.

Break even point= fix cost / selling price - variable cost

Question 110

break even point

Answer 110

total cost and revenue intersect.

Question 111

A break-even chart shows:

Answer 111

 How much output a business has to produce in order to break even.

 The costs, revenue and profit at different levels of output.

 The margin of safety.

Question 112

Limitations of a break-even chart:

Answer 112

The accuracy of the break-even chart depends on the data accuracy. If the data is poor and inaccurate, the conclusions drawn will be wrong.

TC and TR are shown as straight lines, in reality they aren’t, as business might offer discounts so revenue falls.

Question 113

Statement of comprehensive income

Answer 113

is a financial document that shows a firm’s income and expenditure ( profit and loss ) it had made at the end of a financial year.

Question 114

A STATEMENT OF COMPREHENSIVE INCOME CONTAINS THE FOLLOWING INFORMATION:

Answer 114

Revenue- Money the business receives from sales

Cost of sales- Cost of producing a product or service

Gross profit - The cost of sales subtracted from the revenue

Administrative expenses - General expenses of the business like telephone bills or office salaries.

Operating expenses - Expenses for producing a product

Selling expenses (not in all accounts) -Expenses related to the selling of the product like advertising.

Operating profit - Profit after expenses have been subtracted

Finance costs - Interest paid by a business on loans

Finance income- Interest received by the business on deposit accounts.

Profit for the year- Operating profit – cost of finance

Profit for the year after taxation - Amount of money left when all expenses including tax are subtracted .

Question 115

USING THE STATEMENT OF COMPREHENSIVE INCOME IN DECISION MAKING:

Answer 115

 Investment decisions – decide how much money to invest in the business.

 Cost analysis – statement of comprehensive income shows what happens to costs during the year. For example if costs increased, the business will identify the reasons for this and take measures to bring costs under control.

 Basis for future forecasts – businesses forecast the future performance of a business. This gives shareholders an idea of what earnings to expect. Business can use a statement of comprehensive income as a basis on which to make forecasts.

 Making comparisons – deciding where to invest their funds.

Question 116

STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)

Answer 116

a financial statement which shows the assets, liabilities and capital of a business on a particular date.

Question 117

Assets

Answer 117

resources owned by the business.

Fixed assets: assets that last for more than 1 year.

Current assets: assets that are likely to be changed into cash within 1 year.

Net current assets/working capital= current assets - current liabilities

Question 118

Liabilities

Answer 118

debts of business.

Current liabilities: debts that have to be repaid within a year.

Long-term liabilities: debts that are payable after 1 year.

Question 119

Capital employed

Answer 119

money put into business

Question 120

PURPOSE OF A STATEMENT OF FINANCIAL POSITION:

Answer 120

 Shows the value of the businesses’ assets, liabilities and capital.

 (asset structure of a business) Shows how the money raised by the business has been spent on different assets.

 (capital structure of a business) Shows an analysis of the different types of funding the business has used.

 It shows the value of net current assets indicating whether a business has enough liquid resources to pay bills.

 Shareholders and managers use it to see the financial position of a business and how successful it is.

Question 121

WORKING CAPITAL

Answer 121

Money you use to run your business.
current assets – current liabilities

Question 122

Ratio analysis

Answer 122

– mathematical approach to investigating accounts by comparing two figures.

Question 123

PROFITABILITY RATIOS

Answer 123

Measure the performance of the business. It focuses on revenue, profit and capital.

Gross profit margin, Net profit margin, Mark-up, Return on capital employed

Question 124

LIQUIDIDTY RATIOS:

Answer 124

measure how easily a business can pay its short-term debts.

Current ratio- (current assets and current liabilites)

0.5, only have assets to pay half your debts
1.5 and 2, enough liquid resources to pay immediate bills, below 1.5, running short of liquid assets, above 2, too much money is tied up.

Acid test ratio- (liquidity)
less than 1, assets cant pay off debts

Question 125

USING RATIOS TO MAKE COMPARISONS

Answer 125

Ratios can be used to assess the performance and liquidity of a business at a particular time, monitor business overtime.

Ratios can also be used to make comparisons between businesses in the same industry. This will help judge the performance of a business compared to its closest rivals. However, care is required when doing this because businesses might have different product lines.

Question 126

Using financial documents to assess the performance of a business:

Answer 126

Managers and employees:
For example if the company does well, managers will ask the owners for higher rewards or wages. They might also make comparisons with competitors to see how their performance compares with that of rivals. Managers might be more motivated as they see their company performing better. Employees may look at accounting information to see whether their jobs are secure.

Owners and shareholders:
Owners might look at the profit the business makes to see if the targets they set were reached at the end of the financial year. Shareholder may look at the size of dividends they will get.

External stakeholders:
Banks – to decide whether to lend money to a business by seeing if it can repay debts. Suppliers – assess the creditworthiness of a business that buys resources from them using trade credit.

Question 127

Using financial documents to inform decision making:

Answer 127

 Funding decisions – predict when more money will be needed by a business.

 Reducing costs – analyse costs and see whether they are under control.

 Increasing profitability – for example if gross profit margins are small, prices can be raised or new suppliers can be found for cheaper raw materials. Wage costs can also be controlled.

 Investment decisions – predicts if the business has enough cash and not very high debts to be able to invest this cash to generate more profit.

Question 128

Other users of financial documents:

Answer 128

 Government
 Competitors
 Media
 Tax authorities

Question 129

Margin of safety

Answer 129

amount of output needed to be sold above break even to make a profit

Question 130

Net cash flow

Answer 130

The difference between cash inflows and outflows.
A successful businesses’ net flow would probably be positive; which means that more cash flows in than flows out.

Question 131

Market research

Answer 131

finding out customers needs and wants.

Question 132

The purpose of market research:

Answer 132

• To identify customer needs, more successful if they supply products to meet their needs, gather info to identify those needs, eg color, design etc, keeping ip with changes quickly, more profit.
• To identify gaps in the market, gain competitive edge, high levels of revenue before competitor arrives, research helps identify a problem, saves time, selling latest trends
• To reduce risk of failure, as markets get larger, competition gets more, and launching becomes even riskier, knowing ur audiences needs, it’ll be easier to launch and be successful.
• To inform business decisions and pricing decisions, many info to improve decision making and make certain, as they cant predict future outcomes.

Question 133

Primary research

Answer 133

Gathering of new information that does not already exist.

Questionnaires- closed and open questions, multiple people at the same time, quick and gets opinions to make it better quickly and efficieny, as its past customers, however, if too long they wont answer and just pick random ones, not accurate for businesses

Surveys- quantitative and qualitative data, customer satisfaction, cost efficient if online, many people at same time, however might contain data from unhappy customers, ruin reputation, poor data.

Focus groups- group of ppts selected, and discuss and comment on personal experience of products/ service. many info and opinions gathered, can talk about a new idea proposed. However, hard to persuade ppl to take part, views of small people might not reflect everyone, time consuming and expensive and hard to set up.

Observations- choose to gather data from observation of buyer behaviour. Don’t know they are being observed, naturally behave, greater accuracy, greater insight on customers, however, data might be bias/ subjective, to own opinions, time consuming as u have to watch for long hours, customers are not asked reasons for behaviour.

Test marketing- wants to find out what customers think of product by making it available to limited audience before launching . reduces risk of failure, to make sure marketing mix is correct, however competitor gets opportunity to see product and make their own, and test market may not correctly represent whole market, delays launch will reduce revenue.

Question 134

Secondary research

Answer 134

Collection of data that already exists.

Internet- many websites containing info in internet, cost free and availability, look at influencers and spot trends, however may be out of date, difficult to know when website was written, too much info needed and might not be needed.

Government report: demographic info on range of markets and industries, freely available, competitors have access too, out of date, not useful as not specifically for them.

Market reports: already collected, analysed and submitted, quick for decision making, important for competition marketing, as insights to market and actions of competitors and trends. however might be outdated, and expensive, as not specifically designed for the company, useless info, and competitors have access to info too.

Question 135

Market and Marketing

Answer 135

Market
Buyers and sellers to communicate and sell in goods and services.

Marketing
Identifying customer needs and satisfying them profitably.

Question 136

Social media

Answer 136

broad reach
ability to target specific people
free
allows to communicate with individuals
info can be collected fast and is easy as no high level of it skills needed.

Question 137

Importance of marketing

Answer 137

• Satisfying customer needs, as producing goods and services that they are prepared to buy, more successful, latest trends, leading to customer relationship and loyalty.
• Building customer relationships. This happens by building trust, connecting regularly and saying thank you, satisfied customers, online interaction increased the probability to make a purchase.
• Keeping customer loyalty. retain to make purchases in future, by first class service, effective communication, responding to changes, etc if strong brand name, more loyalty.
• Product and market orientation-
• Product orientated – where a business focuses on the design and manufacture of the product itself, quality.
• Market orientated – where a business focuses on the needs of consumers when developing products.
• Market share and market analysis-
• Market share – If a firm can dominate market, they may be able to charge at higher price. Market analysis – Features and characteristics of a market, businesses can adapt to market.

to show they are responding to changes in the market:
* Changing customer needs.
* Changing consumer spending patterns.
* Increased competition.
* Competition puts business under some pressure.
*Income changes, Trends change, Technology.

• Niche and Mass marketing- so they can see who they are targeting, some businesses sell products to mass markets, large quanitity at lower unit cost. lots of competition and spend alot of money to market these products

Question 138

Responding to changes in market

Answer 138

Customers needs and wants change, become more educated and sophisticated , fasion, technology etc changes.
Changing customer spending patterns, competition, need to efficetively market and products need to be more advanced, puts businesses under pressure, by lowering prices, different to others, better quality products, advertising, quality customer service.

Question 139

Market segmentation

Answer 139

Part of a whole market where a particular customer group has similar characteristic.

Market segmentation helps identify target market by targeting the right ‘type’ of customer.

Also, it analyses different markets to see trends and provide what the customers want.

Question 140

Methods of market segmentation:

Answer 140

• Location (geographical) segmentation – different customer groups are likely to have different needs depending on where they live.
• Demographic segmentation – Age, gender, income, social class, ethnic origin and religion.
• Lifestyle (psychographic) segmentation – Lifestyle, personality traits, social status and values and attitudes.

Question 141

Benefits of market segmentation

Answer 141

-Increase revenue and sales, as they can charge higher to different customer groups.
-Customers may be more loyal to a business as its specifically made for them
-Businesses may avoid wasting promotional resources by targetting to target audiences who really want.
-Businesses can market at a wider range of goods to different customer groups.
-Better serve the needs of customers
Improve company’s competitive position.

Question 142

Marketing Mix

Answer 142

Place
Promotion
Product
Price

Question 143

Good marketing strategy

Answer 143

-design and produce high quality products.
-charge at a price that is acceptable to consumers.
-let consumer know about products through promotion.
-make products available at right place and time.

Question 144

Product

Answer 144

Product development:
1. Generating ideas- like analysing products of rivals and might try to copy or improve their product.
2. Analysis- if marketable possible or fit current portfolio and legal
3. Development- samples, testing, modifying, changes
4. Test marketing-small section of market to represent whole, gather info about the product opinions
5. Communication and launch- final touches and launch

Factors that may affect the choice of packaging:

• Information – adding labels, law, ingredients
• Cost effective – less weight and shape to reduce costs.
• Environment (recyclable).
• Convenience – easy to handle, open and use.
• Protection – strong packaging to provide protection in storage.
• Design- appealing, quality

Question 145

Product life cycle

Answer 145

Development- R&D, tested

Introduction- launched, promotion,

Growth- Increasing sales, Reducing costs, some profits

Maturity- Constant sales, Reducing costs, Increasing profits.

Decline- Reduce sales, constant costs, reduce profit, as consumer tastes change.

Question 146

Extension strategies
(Methods used to lengthen the life of a product)

Answer 146

• New markets for the product.
• New uses for a product.
• Change packaging.
• Product range variety
• Change target audience
• Advertising

Question 147

Boston Matrix

Answer 147

STARS – popular most at the time and most money making.

QUESTION MARKS – you’re not sure where the product is going to go.

CASH COWS – mature products. They generate a steady flow of income for the business.

DOG – product is killed and replaced with new products.

Question 148

Price

Answer 148

1. Cost-plus pricing:
   percentage of profit you want to make on a product.
   Advantages- covers all costs, helps calculate break even and margin of safety, flexible, adjust profits
   Disadvantages- The business may have been able to charge a higher price and does not take other factors into account such as level of demand (was it sold too cheaply?). Difficult to be accurate with all costs
2. Penetration pricing:
   marketing strategy to attract customers to new products or services.
   low price beginning, then price increases
   Advantages- A good way for a business to establish a product or a brand as a market leader. Word-of-mouth recommendations quickly spread . Prices can be slowly raised after the launch or promotion is over
   Disadvantages- Low profit margins.
   No way to tell if customers would have bought the product at a higher price anyway
3. Competition-based pricing:
   setting the price of the product based on what the competition charges.
   Advantages- Matches the prices that the competitors charge reducing the number of customers switching to alternative brands.
   Prevents price wars. Customers see brands as comparable if the prices are the same.
   Disadvantages- A higher price may have been possible. Does not take into account the demand. Rising costs will have to be absorbed by the business .
4. Skimming pricing:
   setting a high price, then lowering it later.
   Advantages- Very profitable pricing method
   Price suggests quality will help to support the brand. Helps to recoup expensive R&D costs.
   Disadvantages- Early customers may delay purchase due to the high price at launch.
   High prices may put customers off
5. Promotional pricing:
   discounts, low price, psychological pricing eg 99.99 dhs
   Advantages- Will increase sales.
   Can be useful when stock is old or out of season and needs to be sold off. Appeals to price sensitive customers
   Disadvantages- Lower prices do not communicate quality to the customer.
   Reduces profit margins.
   Customers may not buy once the product returns to normal prices.

Question 149

Factors affecting price

Answer 149

-price has to fit in with other elements in the mxi
-costs have to be covered
-consumers perceptions
- pricing can be used to achieve certain aims
-taxes
-competition, less control of price

Question 150

Place

Answer 150

location where people can buy products.

Question 151

Distribution channel

Answer 151

A distribution channel is the route taken by a product from the producer to the customer

An example of a distribution channel would be

Producer → Wholesaler → Retailer → Consumer

A wholesaler is a person or business that buys goods from manufacturers and sells them in smaller quantities to retailers

Retailers- businesses that buy goods from manufacturers /suppliers and sell them to the consumer. eg grocery

Question 152

Identify 2 benefits of retailers

Answer 152

Bulk Breaking – they buy large quantities from wholesalers or manufacturers and sell in small quantities to customers

Added value – retailers may include delivery, repair services, gift wrapping etc. as part of their service which adds more value to the product

Convenient locations for customers

Question 153

E-tailing or E-commerce

Answer 153

The use of electronic systems to sell goods and services, online selling.

Question 154

Main types of e tailing

Answer 154

Business to consumers (B2C): selling online from business to consumers. This can involve home delivery or may be ‘click & collect’. Other examples of B2C e-commerce are tickets for travel, sport events, cinema’s, concerts, hotels, online audio and film, sites such as eBay, financial services like banking.

Business to business (B2B): businesses selling to other businesses.

Question 155

Benefits and disadvantages of Online Selling & Distribution to consumers

Answer 155

Advantages-
Often it is cheaper as online retailers do not have expensive rent on store fronts
open 24/7
everyone has internet
huge variety

Disadvantages-
Cannot touch or see goods before buying – wrong size
May be poor sales service – delivery may be slow
Need internet
Risk of fake sites

Question 156

Benefits and disadvantages of Online Selling & Distribution to businesses

Answer 156

Advantages-
No store front costs
Lower start up costs
Digital paper work
open 24/7

Disadvantages-
More competition as its cheap method other businesses will do it too.
lack of human contact, not suit other customers, may lose customers
Website may crash, hack, stolen, damage reputation.

Question 157

Other Distribution Methods

Answer 157

Direct Selling – including: telephone sales, mail order catalogues (Argos), door-to-door selling, direct response adverts, direct mail etc.

Wholesalers- buy from manufacturers and sell to retailers.

Agents – including: estate agents, financial services such as insurance or banking, travel agents etc.

Door to door selling

Newspapers

Internet

Direct mail

Question 158

Choosing appropriate distribution channels

Answer 158

Nature of product- some sold directly, high quality products in malls etc, some products need demonstration and explanation

Cost- cheapest distribution channels and direct channels.

Market- mass markets use intermediaries, whereas smaller target customers directly, overseas use agents

Control- complete control over distribution, don’t want to be seen in “down market” ruin image.

Question 159

Retailer

Answer 159

sells goods directly to a consumer
Customer service-

Question 160

Advantages and disadvantages of retailer

Answer 160

Advantages-
-Going shopping is an enjoyable experience that customers can do with their friends or family.
-Customers can have the product as soon as they have bought it – instant satisfaction.
-Retailers win when a customer needs to see, touch, try or test a product first.
-For more expansive items like a caravan or jewellery a customer will want the help of a sales person

Disadvantages-
-Retailers are only open during the day and customers may be too busy with work or family.
-Customers may have to wait in a queue or carry heavy bags of shopping.
-Customers may find it embarrassing to buy some personal items.
-May charge higher prices than the e-tailers.

Question 161

Promotion

Answer 161

Businesses have to communicate with their customers in order to sell their products or services

Question 162

Two methods of promotion that are used by businesses are:

Answer 162

Above-the-line promotion – This approach is used to advertise using the media.
Examples include, newspapers, television, radio and websites.

Below- the-line – This is any other form of promotion that does not involve using the media.
Examples include, merchandising and direct mailing.

Question 163

Why promote?

Answer 163

-Tell consumers about a new product.
- Improve, develop image of business.
- Remind about existing product.
- Show rivals isn’t that good
-Reach a huge target audience.

Question 164

Above the line production

Answer 164

TV
Advantages- Reach big audience.
Creative ads get customer response. can demonstrate use of product.
Disadvantages- Expensive
Viewers avoid ads, short video

Newspapers
Advantages- national and local reach, reader can refer back, cheap
Disadvantages- no movement or sound, rivals products may be advertised too.

Cinema-
Advantages- Big impact, as big screen, national and local advertising, specific age groups, sound and movement.
Disadvantages-Limited audience
Message may only be seen once

Radio-
Advantages- Sound, cheap
Disadvantages- may be ignored
Not visual, impact is hard

Poster-
Advantages- May be seen repeatedly
Short sharp messages
Disadvantages- Limited info
Hard to evaluate the impact

Internet-
Advantages- updated regularly, hits and response, cheap and easy
Disadvantages- Technical problems

Question 165

Below the line promotion

Answer 165

Sales promotions- examples include free gifts, coupons, loyalty cards, competitions, buy one get one free

Direct mailing- send leaflets or emails directly to customers

Merchandising + packaging- eye catching to increase sales

Exhibition or trade fairs- test products out before a full launch into the market, overseas, demonstrated, attract media, face to fare promoting.

Direct selling- sales people selling directly to customers. sales occur at home, work , online.

Question 166

Public relations

Answer 166

Maintaining and improving image of a business for its products

Press release- media, makes people want more info.

Press conference- verbal, questioning and other feedback, invited for product release.

Sponsership- popular, name of brand is projected globally on tv

Donations- donations to charities or local community to improve image

Question 167

Using technology in promotion

Answer 167

Online targetted advertising- targetted to specific people, avoid waste of misdirected ads.

Viral advertising- any strategy that encourages people to pass on messages / advertising materials about a business electronically (such as sharing on social media or through email)

Social Media: allows businesses to target their adverts more effectively. It is cheap and can allow for better customer service.

E-Newsletters: online newsletters sent to customers who have previously purchased a product or have expressed an interest, maybe signing up online

Question 168

Branding

Answer 168

Branding can involve giving a product a name, slogan,sign,symbol, design or any feature that allows consumers to instantly recognise the product + differentiate it from competitors

Advantages of branding:
Differentiate the product
Create customer loyalty (repeat sales)
Help recognition + develop an image (increase customer base)
raise prices if brand becomes strong.

Question 169

The use of promotion strategies in different market segments:

Answer 169

Advertising- mass markets - tv ads, social media.
Niche markets- specialist magazines, websites

Sponsership- sponser specific events as they can be targeted directly at people attending. pay them to wear a certain clothing etc.

Product trials- subscription pricing, and see if it meets their needs

Special offers- price discounts to clear old stock and quick cash flow and create interest in new product.

Branding- Branding will be popular in all market segments.

Question 170

Advantage of sole trader

Answer 170

Sole traders have full control of their business
This means they can run the business how they want
As a result of this they don’t have to consult with anyone when making decisions .

Question 171

one benefit to a business of using the Boston Matrix

Answer 171

The Boston Matrix helps a business to balance its product portfolio, showing if they have too many similar products and can lead to identifying when they need to introduce a new product

Question 172

Advantages of branding

Answer 172

Differentiates from its competitors.advertising is easier as customers recognize the brand name and quality.

Helps customers recognize its own logo that’s in all products. Likel to buy branded product than unbranded when they see logo.

Question 173

Economies of scale

Answer 173

When production levels increase, average cost per unit decreases.

Question 174

Diseconomies of scale-

Answer 174

When production levels increase, average cost per unit increases.

Communication, costs, demotivation

Question 175

Internal economies of scale

Answer 175

Cost benefits that an individual firm can enjoy when it expands due to modern technology.

Question 176

Examples of internal economies of scale-

Answer 176

• Purchasing economies- lots of resources get cheaper rates. Suppliers offer discounts to firms that buy raw materials in bulk.
• Marketing economies- Average marketing costs smaller for large firm.
• Technical economies- large company can afford to invest in faster and more advanced machinery. Increase productivity, and lower costs
• Financial economies- Large firms can put pressure on banks to decrease price of loans (interest rate), they are more likely to pay it back
• Risk bearing economies- larger firms are more likely to have More wider range of product and larger variety of markets.
• Managerial economies- can afford specialists so they can be responsible for finance, human resources, marketing and production. Efficiency improves and average costs falls.

Question 177

External economies of scale-

Answer 177

Cost benefits that all firms in industry can enjoy, because of external factors.

Question 178

Examples of External economies of scale-

Answer 178

Skilled labor- skills and experience required by the industry, training costs will be lower.

Infrastructure- when a particular industry dominates a region, road, railways, building etc., it will be shaped to a suit industry’s needs. E.g. Easier to go to Oman as better roads.

Ancillary and commercial services- Established industry in region will encourage ancillary suppliers in the industry to set up close by. Specialist marketing, cleaning, banking suppliers are likely to be attracted to the area. All firms in industry will benefit from their services.

Cooperation- when firms in same in industry are located close to each other they are likely to cooperate with each other so that they can all gain. Example they might work together to share the cost and benefits of R & D center.

Question 179

Examples of Diseconomies of scale

Answer 179

Bureaucracy- large number of departments and officials, meaning too many resources are used in administration, too much time may be sent filling forms or reports, decision making slows down and communication channels are too long, if resources waste in administration, average costs will start to rise.

Labor relations- if firm becomes too big, relations between workers and managers may argue and disconnect, management may fail to understand workers and become demotivated, conflicts may occur, and resources may be wasted resolving them

Control and coordination- A large business may be difficult to control and coordinate, employees all over the world may need more supervision, which will raise costs.

Technical Diseconomies: Where a business has hired too many employees this can lead to staff getting in each other’s way or arguments. As a result, staff morale and motivation is low and hence become inefficient. This causes average costs to rise.

Question 180

Limits to growth

Answer 180

Lack of finance- needs investment in new resources, machines, too risky

Nature of the market- businesses in this market will struggle to grow into very large organizations.

Lack of management skills- don’t have skills to run large business, need vision, good leadership skills, communication, responsibility

Lack of motivation- Want to make enough profit to satisfy needs and not want responsibility of taking on more workers. Want to remain small business

Question 181

Production

Answer 181

Converting resources into goods and services.

Question 182

Job production

Answer 182

*Job production is making 1 product at a time

*Products are made for a specific client or customer so are likely to be different

*Used when orders are small, such as “one-offs”

*Products made are often high quality

Advantages-

*Very motivated workers who can see one item made from start to finish

*Motivated workers are normally more productive and have lower rates of absenteeism

*Higher prices can be charged to the customers, as its custom made, more unique.

• can be individuated and tailored for a customer, meet their demands, increase customer satisfaction

Disadvantages-

*Skilled labour and craftsmen are expensive

*Wide range of tools may be required

*Hard to speed up if demand increases

*However, the production process can be slow and labour intensive.

Question 183

Batch production

Answer 183

This is where a business makes a number of products to the same design or specification and then switches production to another product with a different specification.

Goods are made in batches, and can be switched over to make something different on the same production line.

Advantages-

• Production can be changed to meet customer needs or fluctuations in demand
• Employees specialise so become good at their job
• Lower skilled workforce means lower wages can be paid
• Batches are small, unit costs may still be quite high, more money tied up.

Disadvantages-

• Workers may be less motivated with repetitive work
• Can be wasted, if not sold

Question 184

Flow production

Answer 184

Each operation on a unit is performed continuously one after the other.

Many mass-produced products are made this way such as; cola, cars and toothpaste

Advantages-

• A business can make larger quantities which means they can bulk buy raw materials and save money (economies of scale)
• Automated and computerised production means improved quality and more complex designs can be made in shorter times

Disadvantages-

• High costs to buy the factory and machinery
• Low motivation of staff due to repetitive tasks

Question 185

Productivity

Answer 185

Output per input per hour.
more produced, more productive.

Question 186

Labour intensive production

Answer 186

Labour intensive production- is production that makes use of more labour relative to machinery

The nature of the product will determine if it is suitable for labour intensive production e.g. can make cars by hand but to produce in volume requires machines

Can be retrained, taught other things
Cheaper for small scale production
When labour is cheap
People are creative, solve problems, improve.

More difficult to manage
unreliable, can get sick or leave
People need breaks, holidays.
People need to be motivated sometimes to improve production

Question 187

Capital intensive production

Answer 187

In capital intensive production- goods are produced using mainly machines and equipment.

Production in developed countries tends to be more capital intensive

This can be because labour costs are sometimes high relative to the work being done

Capital intensive production can help in achieving economies of scale

More cost effective if large quantities are produced.
More precise and consistent.
Operate 24/7
Easier to manage than people.

Huge set up costs
Long delays, if a breakdown occurs.
People will feel less sense of security, and leave workforce

Question 188

Factors influencing productivity

Answer 188

Quality of inputs

Quantity (the right quantity so that staff are not overworked or underworked) and quality of labour (skills)

Investment in new technology

Question 189

Link between productivity and competitiveness

Answer 189

If a business is more productive then it can produce goods more efficiently and can achieve economies of scale

They can therefore charge more competitive prices for their products helping them to attract customers and increase revenue

Question 190

Ways to improve labour productivity

Answer 190

Governments invest more in schools to improve quality of workers in the future and equally businesses can invest in training of current staff to improve existing methods

Motivating people at work – can be achieved through financial and non-financial methods of motivation

Organising and managing labour more effectively

More flexible workforce, e.g. training them to do different jobs so they switch tasks at short notice.

Question 191

Ways to improve capital productivity

Answer 191

New technology – the introduction of new technology is likely to make firms more efficient

Downsizing – this involves reducing capacity by laying off workers and closing unprofitable divisions. This cuts costs and therefore can increase profits

Relocating to areas or regions where resources are cheaper

Outsourcing this is the contracting out of work to another business. Usually the business we outsource to given to a specialist firm who can perform the task more efficiently and therefore at a reduced cost.

Question 192

The Impact on Business of Productivity Improvements

Answer 192

Competitive advantage

Productivity makes a business more efficient

This can make the business more competitive, for example in terms of price or service provided

Business might then be able to increase its market share

Financial Impact

Improving productivity can mean producing more output with the same resources

This leads to lower average costs (economies of scale)

Improves the profitability of the business

However, investing in new tech or training to improve productivity costs money and large investments might require borrowings

Workforce

Example financial and non-financial methods of motivation will impact the workers as they could earn more money or have more interesting jobs

However, introduction of new machinery may result in some workers losing their jobs and this may have a negative impact on the workforce

Customers

Customers are likely to benefit if a business improves productivity

For example increased efficiency might result in lower prices being charged to customers

Additionally, improved productivity may make for a better quality product or service

Question 193

Lean Production

Answer 193

Its aim is to use fewer resources in production, less waste

As a result of Lean production it helps to;

Raise productivity
Reduce costs
Reducs the number of defective products
Improve reliability

Question 194

Types of lean production

Answer 194

JIT (Just in Time)
Kaizen

Question 195

JIT (Just in Time) –

Answer 195

Businesses do not want to hold large amounts of stock (inventory) then money is tied up in the stock and is not doing anything.

Stock is only ordered when needed, instead of holding huge quantites.

Therefore, many businesses have adopted JIT production:

Enables businesses to not have to hold any stocks at all (either of supplies or finished goods). This means that:
Suppliers have to deliver resources straight to the production line at regular intervals
Businesses only produce goods when they have been ordered

Minimise waste, maximise efficiency

Advantages

No waste (out of date or damaged stock), not holding too much, use resources efficiently, save costs.
Space is released (no need for storage), as no costs of storage
Fewer suppliers and better relationships with those suppliers, Better cash flow (money not tied in stock)

Disadvantages
Higher ordering and admin costs as system must be very efficient
Hugely reliant on suppliers
May lose advantage of bulk buying
Hard to cope with changes in demand (sudden increase)
Vulnerable to shortages for the supplier

Question 196

Kaizen

Answer 196

A Japanese word which means continuous improvement .

Workers are encouraged to create ideas to help improve quality, reduce waste or increase efficiency, employees do this as they know their work best.

Firms that adopt Kaizen train workers to look for waste
It is about employees being actively involved in implementing improvements

Kaizen requires a clean and well organized workplace to be successful, one method is the 5S:
Sort: Only necessary items in a workspace
Set in order: organize the work area to easily find what is needed
Shine: work area and equipment to be kept clean
Standardise: best practices should be used by everyone
Sustain: system to ensure the other 4Ss are always utilised

Kaizen is likely to be supported by a wide range of techniques, principles and practices

Standardisation – carrying out all business operations to a specific, established formulae that everyone follows
Team working – small groups focusing on a particular area
Empowerment – giving employees more control over their own work
Multi skilling – training workers in a variety of skills to become more useful and improve flexibility
Quality circles – small group of workers in same production line who meet regularly to discuss ways to improve

Question 197

Importance of using resources effectively

Answer 197

1. Financial benefits – if fewer resources are used costs will be lower (e.g.) if JIT is used there will be lower amounts of stock required
2. Improved competitiveness – Businesses that use their resources most effectively will be able to lower their prices (e.g.) Toyota, who use Kaizen are now the worlds leading car manufacturer
3. Improved customer service – Lean production often results in shorter waiting times which means customers will get their products more quickly
4. Positive environmental effects – if a business makes better use of resources they will make a more positive contribution to the environment. Also, if a business uses recycled materials they will help reduced resource depletion

Question 198

Design and manufacture

Answer 198

CAD- Computer aided design- use software programs to help design your product.
CAM- Computer aided manufacture- use software to help you manage production

Large amount of finance to design and set up
Complex- skill needed to set up and manage are very specific

Only if needed, complex products, high quality, large quantities

Question 199

Impact of new technology on the primary sector

Answer 199

The primary sectors uses tractors, machines and automatic feeding systems to help increase productivity in agriculture.

Technological developments in agriculture significantly reduced the need to employ large numbers of workers.

Similarly, genetically modified crops now aim to increase the nutritional value of plants which will benefit consumers.

In the mining industry, new technology has helped improve productivity and the safety of workers.

Question 200

Impact of new technology on the secondary sector

Answer 200

They can be divided into 3 categories:

Material handling robots used for transport of goods, part or stock throughout the factory or warehouse.

Processing Operations Robots used for a specific task such as spray painting vehicles.

Assembly line robots used for a specific task also but on an assembly line, such as fitting a cap to a bottle.

Inspection robots can even be used to check quality of finished products.

Question 201

Robots

Answer 201

Robots – Advantages:
They are quicker in speed than humans, this is because they do not take breaks, and can perform repetitive tasks without needing motivation. As a result of this, increase in level of output.

They are more accurate than workers, this means increase in efficiency and reduce waste, leading to less mistakes, saving costs.

Robots - Disadvantages
Some staff may lose jobs to robots

They’re expensive to purchase

Products being made have to be standardized, cannot be individualized / tailored

Question 202

Impact of new technology on the Tertiary sector

Answer 202

Financial Services – ATMs and EFTPOS (Electronic Funds Transfers at point of sale) means that plastic cards and others electronic methods are reducing the need of cash.

Marketing – Use of technology makes market research easier. Increases the amount of data available.

Advertising - The internet is used to promote products and service much more than ever before. Websites and social media profiles for almost every business.

Retailing - Goods and services are recorded at the point of sales through use of technology supporting stock control and many benefits.

Question 203

Retailing

Answer 203

EPOS technology records the sale of goods and services when purchased. When products are scanned at point of purchase technology produces receipts, updates current stock details and records customers purchases. This saves time, reduces queues, improves stock control and can be used for marketing purposes based on purchases made by a consumer.
Leisure industry – travel without physical ticket, make bookings and amendments online.
Reduce administrative and communication costs – e.g. automatically produce receipts and invoices, store data electronically instead of physically.

Question 204

E-commerce

Answer 204

The use of electronic systems to buy and sell products. Mostly online. e.g. Spotify / Netflix where even the product purchased is online. However, a lot of e-commerce still requires a physical product to be delivered such as clothes and groceries. When these goods are ordered online but delivered home it is called e-tailing

Question 205

Benefits of new technology

Answer 205

New products provide more choice.
Higher productivity, lower costs.
Less waste of resources
Task is easier for workers

High set up of costs.
Technology breakdowns can be expensive.
Job losses, lose sense of confidence and community.
Existing staff may need to be retrained

Question 206

Balancing the cost, productivity, quality and flexibility of technology

Answer 206

The cost of introducing technology such as robots, CAD and CAM is usually very expensive. In addition, the technology may often replace humans which means people have to be made redundant (also expensive) and this can negatively impact the workforce.

Also, while these technologies can help to increase the level of production significantly, that is only useful if the business is confident of selling the extra products produced.

Product quality is also a consideration. Handmade or custom made products are often seen as higher quality than mass produced items. Additionally, automated systems mean that products must be standardized and cannot be tailored to customers needs.

However, as technology today has become more sophisticated quality and flexibility are less likely to be affected negatively. For example, cars produced on a production line can be adapted to many different specifications.

Therefore, businesses must weigh up the costs of technology plus the gains of producing extra output. They must also consider impacts on quality and flexibility for the business.

Question 207

These four factors of production are the resources that are used to produce the economy’s goods & services:

Answer 207

These four factors of production are the resources that are used to produce the economy’s goods & services:

Land
Labour
Capital
Enterprise

Question 208

Land

Answer 208

All businesses need land to create their products

They may use the land, build on the land or extract from the land

Land includes natural resources, coal, oil, iron, ore etc.

Question 209

Labour

Answer 209

Businesses need to employ people to make and market their products

Manual workers, skilled workers, managers are all part of a nations workforce.

Each worker is unique, and has different abilities, skills, knowlledge.

Question 210

Capital

Answer 210

To make their goods or to provide their services, firms need to invest money in machinery, buildings, vehicles and other major resources.

Working capital- raw materials, finished goods, components used up in production.
Fixed capital- factories, offices, shops, machines, components used in production to convert working capital o goods and services.

Question 211

Enterprise

Answer 211

The entrepreneur owns the business and is prepared to take the chance that his or her product will be a success

Question 212

Sepcialisation

Answer 212

Specialisation within companies – departments specialise in different activites; marketing; production; finance etc.

Production of limited range of goods by a business eg Toyota specialises in cars, coca cola, soft drinks.

Question 213

Division of Labour

Answer 213

Workers will also specialise in certain tasks and skills.
It allows people to concentrate on a limited range of tasks.
It increases productivity because..
-Workers concentrate on the task that they do best.
-Workers’ skills improve as they regularly repeat the same task.
-Time is saved because workers are not switching from one task to another.
-The organisation of production is easier.

However work can be boring and repetitive, workers will be frustrated.
If 1 stage of production depends on another there may be delays if 1 stage breaks down or is delayed.

Question 214

The changing relationships Between Enterprise, Capital and Labour

Answer 214

The type of resources used by business and the way they are used is likely to change, as technology is developing, changes in market etc.

Question 215

Quality

Answer 215

feature of product that allow it to satisfy customers needs.

Question 216

Features of quality

Answer 216

-Customer service
-Physical appearance
-Reliability and durability- will it last for 10 years?
-Special features
-Suitability- can it seat 6 people comfortably?
-Repairs- how much does it cost to maintain the car?

Question 217

Importance of quality

Answer 217

Consumers are more aware, as the info through media and internet, meaning, they have higher expectations than ever

-Increased competition has forced businesses to improve quality, can charge higher prces

-Government legislations forced businesses to improve quality.

-Faulty products are expensive for business as machinery that breaks down constantly or needs to be repaired is expensive. This will lead to late delivery and productivity, poor quality may ruin brands reputation.

Question 218

Traditional Quality Control

Answer 218

In the past it involved quality controllers or inspectors

Today, this standard is not ‘acceptable’. As this method is a ‘poor’ in finding faults due to human error
Time consuming.
Can result in more problems.

Question 219

Quality Assurance

Answer 219

Poor quality production can be prevented before production is complete.
This is known as TQM (total quality management)
Their aim is to stop problems before they occur rather than finding them after they occur.

Question 220

Total Quality Management Features

Answer 220

designed to prevent errors, poor quality products

Everyone is responsible for quality
Teamwork – everyone is involved
Zero defects – no products broken or with problems
Customer focused – responding to changes in peoples needs and expectations.
Quality audits – monitor quality standards, to measure and monitor standards

Question 221

Advantages and Disadvantages of TQM

Answer 221

Advantages-
-Focus is on customer needs
-Quality improved in allaspects of business
-Waste and inefficiencies are removed
-Improved communication and problem solving.

Disadvantages-
-High training costs
-Will only work if everyones committed
-Focus is on process, not product.

Question 222

Quality Standards

Answer 222

Meeting quality standards means you can have certification;
You can build a reputation
Recognised to have consistently high standards
Be the best in your industry
Helps build on the success of your business
Businesses can earn a reputation for quality by following the code of practice or gaining quality awards. E.g ISO 9000
These can improve employee motivation.

Question 223

Quality and Competitive Advantage

Answer 223

Will have good reputation.
If any business can develop and produce high quality products, this could serve as a unique selling point.
This will give them a competitve edge in market.
People are often willing to pay higher prices for quality, profits raise.

Quality can help reduce costs associated with returns, repairs, and customer complaints.
can improve a company’s brand reputation, build trust with customers, more loyal
Customer loyalty, will return and repeat purchases, as it creates positive customer experience, increasing their satisfaction. More likely to recommend to others.

Question 224

Public relations

Answer 224

building and maintaining a favourable image of business for its products.

Question 225

Market segments

Answer 225

part of a market where consumers have similar characteristics.

Question 226

Branding

Answer 226

unique logo/ design to differentiate business products from other products.

Question 227

Insolvency

Answer 227

when a person/ business cant pay their debts.

Question 228

Decrease in bank interest rates

Answer 228

descrease in sales, people with more debt will have less income to spend on luxury items, as they have more money to give back.