Chapter 1 new Flashcards
Why do businesses exist?
Creates employment
Creates wealth
Create new products and services
can enhance a country’s reputation
What is production?
The process whereby resources (factors of production) are converted into product that is intended to satisfy the requirements of potential customers. e.g. a haircut a toy
Define adding value and its calculation
The process of increasing the worth of resources by modifying them.
It can be calculated by the following formula:
Added value = selling price – the cost of bought in materials, components and services
How can a firm add value
Custmer service (providing teh service)
after-sale service
USP
What is USP (Unique selling point)
USP: A feature of a product or service that allows it to be differentiated from other products.
The factors of production(remember as CELL)
Capital - Goods that are made in order to produce other goods and services, e.g. machinery, lorries, computer systems, shops
Enterprise - The act of bringing the other factors of production together to create goods and services; making decisions and providing the finance.
Land - All the natural resources that can be used for production, e.g. coal, oil, livestock
Labour - Describes the physical and mental effort involved in production, e.g. manual effort in producing finished goods or individuals providing a service i.e. accountant
Types of business
Primary-the extraction of raw materials from the earth, e.g. farming
Secondary -transforming or refining the raw materials e.g. construction
Tertiary -e.g. restaurants hotels
Define mission statement
Mission statement: a qualitative statement of an organisation’s aims which describes the general purpose of the organisation.
Define Corporate vision
Corporate vision: What the company aspires to be.
Difference between corporate aims and objectives
Corporate aims: the long-term statement of what the business intends to achieve.
Objectives: More precise and detailed goals or targets that must be achieved in order to achieve the corporate aims and mission.
SMART Objectives
Specific – They should be clear and easily defined
Measurable – Objectives must be quantifiable, e.g. 15-20 per cent in 2 years
Agreed – Managers and subordinates involved in setting should agree on objectives, where possible, to ensure all are motivated to work towards them.
Realistic – Achievable and not conflicting with other objectives. Unrealistic targets do not motivate workers.
Time bound – Based on explicit timescales, e.g. over 3 years
Common business objectives
Survival – During the early years of trading or during difficult economic or market conditions.
Break even – Ensuring all costs are covered by the firm’s revenue.
Sales growth and maximisation
Profit growth and/or maximisation
Growth and expansion – Nationally through increases in store numbers, product lines, workforce, etc. or internationally by operating in more countries.
Reducing risk – By releasing more products or operating in more countries.
Diversification – Establishing a USP, launching new products in new markets.
Why set objectives?
A clear set of guidelines sense of direction co -ordinate business activity motivate workers emphasis what is important influence the action of workers
What is revenue and calculation
Revenue (also known as turnover and sales) is the money received from sales of goods or services
Total revenue = selling price x number of items sold
Define fixed costs
Fixed costs: Costs that do not change directly with the level of output.
