Chapter 12 - Management activities 3: Controlling

Question 1

What are the 4 steps of controlling?

Answer 1

1. set the standard
2. measure performance
3. compare performance with standard
4. take corrective action if necessary

Question 2

What is controlling?

Answer 2

a management activity that measures how well an organisation achieves its goals and objectives that it has set

Question 3

What is stock control?

Answer 3

activity that aims to keep optimum stock levels so that the organisation doesnt have too much or too little stock

Question 4

What are the 4 main types of stock a business holds?

Answer 4

1. raw materials - materials used to make products
2. work in progress - stock of goods that are partially completed
3. finished goods - goods that are finished and have not been sold yet
4. merchandise - goods bought by the firm to sell to consumers

Question 5

What are the 3 methods of managing stock levels?

Answer 5

1. manual stock taking - employees physically count and record all stock in the business. counted stock is compared to the firms computer system to identify differences
2. EDI (electronic data interchange) - edi enables firms to communicate information like invoices electronically rather than on paper.
3. just in time (jit) - business holds the minimum amount of stock and receives regular deliveries from suppliers

Question 6

What are 2 advantages of jit?

Answer 6

1. helps to reduced business costs such as storage, insurance, security
2. all finished goods are completed just in time for delivery to consumers

Question 7

What are the benefits of stock control?

Answer 7

increased efficiency - computers are more accurate than humans
feedback - instant feedback on all stock levels, easy to identify what is selling and what is not
reduced costs - avoids having too much stock or too little stock
theft - easy to identify theft

Question 8

What does optimum stock level means?

Answer 8

the ideal level of stock that a business should have

Question 9

What does maximum stock level mean?

Answer 9

the largest amount of stock that should be held

Question 10

What does minimum level of stock mean?

Answer 10

the lowest amount of stock that should be held

Question 11

What does re-order level mean?

Answer 11

the level of stock at which a new order should be placed at

Question 12

What does lead time mean?

Answer 12

the time from when an order is placed to when the stock arrives at the firms stockroom

Question 13

What are 4 consequences of having too much stock?

Answer 13

1. lower profits
2. obselete stock (increased risk of it going outdated)
3. theft
4. inefficient use of cash

Question 14

What are 4 consequences of having too little stock?

Answer 14

1. loss of sales
2. loss of economic scale (may not receive discounts)
3. storage costs
4. production delays

Question 15

What does economic of scale mean?

Answer 15

a firm benefits by buying products in bulk as it can receive a discount

Question 16

What is quality control?

Answer 16

a set of procedures used to check work completed to ensure it meets the standards set

Question 17

What is the purpose of quality control?

Answer 17

1. detect - identify quality issues in the products
2. prevent - set up procedures to prevent quality issues
3. correct - take corrective actions to prevent problems in the future
4. improve - the business should strive for improvements in the future

Question 18

List 4 ways a business can achieve quality control.

Answer 18

1. inspections
2. quality circles
3. quality awards
4. total quality management

Question 19

Explain the 4 ways a business can achieve quality control

Answer 19

1. inspections - use trained inspectors to carry out tests on finished goods. sampling
2. quality circles - a group of people volunteer to test the product in order to identify issues, they can offer solutions to the issue
3. quality awards - awards given to an organisation for achieving agreed quality standards
4. total quality management - a system where the whole business seeks to improve quality

Question 20

Name 3 quality awards.

Answer 20

1. Q mark - awarded for continually trying to improve the quality of products awarded by eiqa
2. bord bia quality mark - awarded to foods in ireland that reach the quality standards needed
3. iso 9000 series - an international award system to rewards very high quality standards

Question 21

What are 4 benefits of quality awards?

Answer 21

1. consumer trust
2. marketing
3. exports
4. pricing

Question 22

What is credit control?

Answer 22

a person who ensures that customers who use credit facilities pay their bills in full and on time

Question 23

What is a bad debt?

Answer 23

when a debtor fails to pay the amount owed for goods or services

Question 24

What is a debtor?

Answer 24

a customer who owes the business money

Question 25

Name and explain the 4 steps involved in setting up a credit control system.

Answer 25

1. set credit limits - the maximum amount of credit a customer can get
2. check customers creditworthiness - checks the customers ability to repay the credit they get
3. efficient administration - important documents must be filed and sent to customers on time
4. debt collector procedure - ensure there is an effective debt collector procedure so that the business doesnt lose money

Question 26

What is liquidation?

Answer 26

when an organsation is wound up because it is unable to pay their bills on time

Question 27

What is bankruptcy?

Answer 27

when an organisation is declared by law that it is unable to pay its debts

Question 28

What are 3 benefits of credit control?

Answer 28

1. Lower risk of bankruptcy
2. reduces bad debts
3. increases sales and profits

Question 29

What is financial control?

Answer 29

aims to ensure that the business is profitable and liquid

Question 30

What are the 3 methods of financial control?

Answer 30

1. cash flow forecast
2. ratio analysis
3. budget allocations (sets budget for each department)

Question 31

Name 4 reasons why control is important?

Answer 31

1. business goals
2. maximises resources
3. employee motivation
4. increases sales and profits