key terms

Question 1

above the line promotion

Answer 1

Form of promotion that refers to any form of paid-for promotional technique through independent consumer media.

Question 2

accounting rate of return/average rate of return

Answer 2

this method of investment appraisal calculates the average annual profit of an investment project expressed as a percentage of the amount of invested.

Question 3

acid test ratio

Answer 3

this short-term liquidity ratio measures an organization’s ability to pay its short-term debts without having to sell any stock (inventories).

Question 4

accumulated depreciation

Answer 4

This refers to the accrued value of non-current assets, most of which fall in value over time due to depreciation.

Question 5

Acquired needs theory (HL only) - D. McClelland’s theory of motivation

Answer 5

based on three types of needs that must be satisfied in order to improve motivation: the need for achievement, power, and affiliation.

Question 6

adaptive cultures

Answer 6

A type of organizational culture that exists in organizations that are responsive and receptive to change. Organizations with adaptive cultures tend to be highly creative and embrace, rather than resist, change.

Question 7

adverse variance

Answer 7

This discrepancy in the budget occurs when profit is lower than expected, due to costs being higher than expected and/or revenues being lower than predicted.

Question 8

autocratic management

Answer 8

Management style that involves centralised and autonomous decision-making, without input from others in the organization.

Question 9

backwards vertical integration

Answer 9

A method of external growth that involves a company buying another company that is further away from the consumer in the chain of production.

Question 10

bankruptcy

Answer 10

Sometimes referred to receivership or corporate liquidation, this means a situation when a person or business declares that they can no longer pay back their debts, so the entity collapses (fails).

Question 11

batch production

Answer 11

Operations method that involves producing a set of identical products, with work on each batch being fully completed before production switches to another batch, which may have slightly different specifications.

Question 12

below the line promotion

Answer 12

Form of promotion that refers to all forms of advertising or promotion that do not use external media agents.

Question 13

benchmarking

Answer 13

The routine process of an organization comparing its products, processes (operations) and performance to that of its competitors or its own historical standards.

Question 14

break-even

Answer 14

This condition exists when a firm’s sales revenues cover all of its production costs.

Question 15

break-even analysis

Answer 15

This is a business management tool used to determine the level of sales volume needed to cover all the costs associated with the output of a particular good or service.

Question 16

break-even chart

Answer 16

This is a graphical illustration of an organization’s production costs, sales revenues, and profits (or loss) at given levels of output.

Question 17

break-even point

Answer 17

This is the point on a break-even chart where the firm’s total costs equal its total revenue, shown by the intersection of the TR and TC curves.

Question 18

break-even quantity

Answer 18

The quantity of sales (sales volume) required for a firm to reach break-even. It is found by using the formula: BEQ = Fixed costs / (Price – Average variable cost).

Question 19

break even revenue

Answer 19

This is the value of the output needed to break-even.

Question 20

branding

Answer 20

This is the practice of using an exclusive name (brand), symbol, or design which identifies a specific product or business.

Question 21

bulk-increasing industries

Answer 21

Describes the businesses that need to be located near to their customer as the final product (such as hand-made home furniture) is bulkier and heavier than the raw materials used to make it.

Question 22

bulk-reducing industries

Answer 22

Describes the businesses that need to be located near to the raw materials needed to produce a certain good, e.g., breweries should locate where there is a readily available supply of barley and water, as the weight of the final output is less than that of the raw materials.

Question 23

business angels

Answer 23

Wealthy and successful private individuals who risk their own money in a business venture that has high growth potential.

Question 24

bureaucracy

Answer 24

The administrative systems within an organization, such as the formal policies and procedures of the business. It includes the formal rules, regulations, and procedures of the organization.

Question 25

capacity utilisation

Answer 25

Refers to the extent to which an organization operates at its maximum level (known as the firm’s productive capacity).

Question 26

capacity utilisation rate

Answer 26

Measures a firm’s actual output as a percentage of its capacity (maximum potential output), at a particular point in time.

Question 27

capital employed

Answer 27

The value of the funds used to operate the business and to generate a financial return for the organization. It is the sum of non-current assets and equity finance.

Question 28

capital expenditure

Answer 28

An organization’s spending on the purchase or acquisition of non-current assets or capital equipment, e.g., spending on buildings (premises), machinery, equipment and tools.

Question 29

capital intensive production

Answer 29

This refers to the manufacturing of a good or provision of a service that relies mainly on the use of machinery and capital equipment, e.g., conveyor belts and automated production systems.

Question 30

capital productivity

Answer 30

This measures how efficiently an organization’s non-current assets are used to generate output for the business.

Question 31

cash

Answer 31

This refers to the money an organization has either “in hand” (at its premises) and/or “at bank” (i.e., in its bank account). It is the most liquid type of current assets.

Question 32

cash flow

Answer 32

The movement of an organization’s cash inflows (cash received from the sale of goods and services) and cash outflows (used to pay for the costs of running the business).

Question 33

centralisation

Answer 33

The situation where decision-making is predominantly made by a very small group of senior managers at the top of the organizational hierarchy.

Question 34

chain of command

Answer 34

The formal lines of authority in an organization. It can be seen via an organizational chart, which shows the formal path through which commands and decisions are communicated from senior managers to subordinates.

Question 35

circular business models

Answer 35

are strategies and approaches that prioritize sustainability and environmental responsibility by minimizing waste and maximizing resource efficiency.

Question 36

circular supply models

Answer 36

A type of circular business model that focus on replacing virgin natural resources with renewable, recyclable, and/or biodegradable resource inputs

Question 37

clustering

Answer 37

This occurs when businesses choose to locate near other firms operating in related industries in order to benefit from passing trade and demand for products in complementary markets.

Question 38

cost-centre

Answer 38

A section or division of a business that has responsibility for its own operational costs. It is held accountable for its departmental expenditure.

Question 39

cost to buy

Answer 39

In a ‘make or buy decision’, this method calculates the total cost of subcontracting production to a third-party supplier.

Question 40

cost to make

Answer 40

In a ‘make or buy decision’, this method calculates the total cost of producing the product in-house, instead of using a third-party provider.

Question 41

collateral

Answer 41

Refers to the financial guarantee, using a firm’s non-current assets, for the purpose of securing loan capital.

Question 42

competitive pricing

Answer 42

This pricing method involves a business setting the price of its products at the same or similar level charged by competitors in the market.

Question 43

contribution pricing

Answer 43

A pricing method that involves setting the price of a product at a level higher than the direct costs. Hence, the sale of each product earn the firm a positive contribution towards paying its indirect costs

Question 44

consumer panel

Answer 44

A focus group comprised of people who belong to the firm’s target segment(s), referred to in order to gather their expert feedback.

Question 45

copyrights

Answer 45

These intangible assets give the registered owner the legal rights to creative pieces of work, such as the works of authors, musicians, conductors, playwrights (scriptwriters) and directors.

Question 46

companies (corporations)

Answer 46

this refers to any business organisation that is owned by its shareholders, who have limited liability. They comprise of privately held companies and publicly held companies.

Question 47

corporate social responsibility

Answer 47

This is an organization’s decisions and actions that impact society in a positive way.

Question 48

cooperatives

Answer 48

These are for-profit social enterprises owned and run by their members (usually employees, managers or customers). Their primary goal is to create value for their member-owners.

Question 49

corporate culture (organisational culture)

Answer 49

Refers to an organization’s set of core values and beliefs, which shape the firm’s attitudes, behaviour, and norms.

Question 50

cost-plus pricing (or mark-up pricing)

Answer 50

Adds a profit margin to the costs of production, thereby ensuring that each unit sold contributes towards the profits of the firm.

Question 51

cowboy products

Answer 51

Goods or services that are perceived by customers to be of low quality but high price.

Question 52

cradle to cradle

Answer 52

This lean approach to waste management involves design and manufacturing that is sustainable and waste-free. All material inputs can be recycled or reused or are consumable or compostable.

Question 53

creditor days ratio

Answer 53

The efficiency ratio that measures the average number of days an organization takes to repay its creditors (suppliers who the business has bought products from using trade credit, so have yet to pay for these).

Question 54

creditors

Answer 54

Also known as trade creditors, this refers to the suppliers that allow a business to purchase goods and/or services on trade credit.

Question 55

credit control

Answer 55

The process of monitoring and management of debtors, such as ensuring only suitable customers are given trade credit and that customers do not exceed the credit period.

Question 56

current ratio

Answer 56

A short-term liquidity ratio used to calculate the ability of an organization to meet its short-term debts (within the next twelve months of the balance sheet date).

Question 57

current liabilities

Answer 57

These are the short-term debts of a business, which need to be repaid within twelve months of the balance sheet date. Examples include bank overdrafts, trade creditors, and other short-term loans.

Question 58

decentralisation

Answer 58

The situation in an organization where decision-making authority is delegated throughout, rather from a central authoritative group

Question 59

digital Taylorism

Answer 59

The management approach that relies on management information systems to improve productivity by managing employees and the tasks they perform in the most systematic and methodical ways.

Question 60

delayering

Answer 60

his occurs when an organization removes one or more layers in its hierarchical structure, i.e., the number of layers of management is reduced, or made flatter.

Question 61

delegation

Answer 61

The act of line managers entrusting and empowering employees with authority to successfully complete a particular task, project, or job role.

Question 62

demerger

Answer 62

This occurs when a company sells off a part of its business, thereby separating into two or more separate entities. This often happens due to conflicts and inefficiencies of two or more firms previously in a merger agreement, such as culture clashes.

Question 63

depreciation

Answer 63

The fall in the value of a non-current asset over time, mainly due to wear and tear (usage) and obsolescence.

Question 64

diseconomies of scale

Answer 64

Growth that is excessive results in inefficiencies and higher average costs of production, perhaps due to problems such as miscommunication, misunderstandings, and poor management of resources.