Business Theme 2 Flashcards
What is working capital?
Money available for the day-to-day operating of the business
What is an example of a fixed cost?
Salary
What is an example of a variable cost?
Raw materials
What is venture capital?
Providing higher risk investments through loans and shares for return in equity
What are three reasons why personal sources are so important to start-up businesses
- Cheap (no interest)
- Entrepreneurs keep more control over the business
- The more the founder puts in, the more others will invest (added confidence)
What one positive and one negative of a Bank loan?
- Usually less interest than Overdrafts
- Not a lot of flexibility
What is one positive and one negative of Bank Overdrafts?
- Flexible - in the sense that only used when needed
- Can be withdrawn at a short notice
What are three evaluation points of Venture Capital?
- Brings better discipline to business management and strategy
- Business benefits from investor support
- Loss of control
What are 4 external sources of finance?
- Venture Capital
- Crowdfunding
- Trade Credit
- Ban Loans/Overdrafts
What are three Internal sources of fincance?
- Retained Profit
- Sale of Assets
- Working capital
What are two advantages and one three of Job production?
- Associated with higher quality
- Can motivate employees
- However it is often labour intensive meaning high labour costs
- Have to have close relationship with customer
- Usually reliant on high skill
What are three things that could effect sales forcasts?
- Consumer trends
- Economic variables
- Competitor actions
What are three evaluation points of extrapolation?
- Quick and cheap
- Not much data required
- Unreliable if their are fluctuations in historical data
What is the contribution Formula?
Total sales - total variable costs
What is the contribution per unit formula?
Selling price per unit - variable cost per unit
What are three evaluation point of Break-Even analysis?
- Focuses on keeping fixed costs down to a minimum
- Focuses on what output is required before reaching profitability
- Unrealistic assumptions - products are not sold at the price at different levels of output
What are two approaches to budgeting?
- Zero-based budgets
- Historical budgets
What are two negative evaluation points of Budgeting?
- Can result into short-term decision making to keep within budget
- Take time to complete and manage
What is a budget?
A financial plan for the future concerning the revenues and costs of a business
What is a balance sheet?
A snapshot of what the business owns and what the business owes
What is the calculation for the Acid Test Ratio?
Current Assets - inventory divide by Current Liabilities
What is the calculation for Current Ratio
Current Assets over Current Liabilities
What are two external causes of business failure?
- Change in technology
- New competitor
What are two internal causes of business failure?
- Marketing failure
- Financial failure
What are three evaluation point of Batch production?
- Cost saving can be achieved by buying in bulk
- Tasks may become boring and demotivating
- Still allows customers some choice
What are three evaluation points of Flow production?
- Less need for training and skills
- Goods are mass produced - goods are less differentiated for the customer
- Production is shut down if flow is stopped
What is unit costs formula?
Total production costs in period over total output in period
What is labour intensive?
Production relies on using labour resources
What is capital intensive?
Production relies on capital recourses
What are three evaluation points of Labour intensity?
- Greater risk with employee relationship
- Potentially high cost of labour turnover
- Labour is a flexible recourse - through multi-skilling and training
What are three evaluation points of Capital intensity?
- Greater opportunities for economies of scale
- Lower labour costs
- significant investment
What is the formula for capacity utilisation?
Actual level of output over maximum possible output
What are three reasons why most businesses operate under 100% capacity?
- Lower than expected market demand
- Change in demand due to season
- Recent increase in capacity
What is quality control?
Inspecting products to ensure they meet quality standard
What are two problems with quality control?
- Costly
- Often at the end of production - could be too late
What is quality assurance?
Ensuring that production quality meets the requirements of the customer
What is TQM?
Focusing on continuous improvements of product and services with the involvement of the entire workforce
What are two advantages of TQM?
- Motivating as workers feel more involved
- Eliminates cost of inspection
What is a disadvantage of TQM?
- Requires strong leadership
