Nature And Purpose Of Business

Question 1

Why do businesses exist?

Answer 1

Businesses create employment
Businesses create wealth
They create new products and services
Can enhance a country’s reputation

Question 2

What does a business do?

Answer 2

Production:

The process of resources being converted into a product or service that is intended to satisfy the needs of consumers

Question 3

What does added value mean?

Answer 3

The process of modifying resources with the intent to add worth to them. Generally businesses develop their Unique Selling Point.

Question 4

What are factors of production?

Answer 4

C - capital- goods that are made in order to produce other goods services
E - enterprise -the act of bringing all the factors of production together in order to provide a product or service
L- land- all the natural resources that could be used for production
L- labour- describes the mental and physical effort involved in production

Question 5

What is mission statement?

Answer 5

It is the overall purpose or main corporate aims, intended to make stakeholders aware of what the business does and why, encouraging employees to work towards its aims

Question 6

What is a corporate objective?

Answer 6

The goals of the business as a whole, it will depend of the size of the business.

Question 7

What are functional objectives?

Answer 7

The objectives of the departments, they are more detailed than corporate objectives, they help the business work towards the corporate objectives.

Question 8

A functional objective must be SMART, what does this stand for?

Answer 8

Specific
Measurable
Agreed
Realistic 
Timely

Question 9

What are the four main objectives that businesses will produce and follow?

Answer 9

Profit objectives
Growth objectives
Survival objectives
Cash flow objectives

Question 10

What are social objectives?

Answer 10

They relate to benefiting society or people in need

Question 11

What are ethical objectives?

Answer 11

Based on moral principles about how businesses treat people and the environment

Question 12

What type of businesses set and work towards social and ethical objectives?

Answer 12

Non profit organisations such as charities or social enterprises

Question 13

What is the difference between short term and long term objectives?

Answer 13

• long term objectives tend to set the direction of a business, such as long term growth
• short term objectives includes survival and making short term profit

Question 14

What is revenue?

Answer 14

The value of sales - amount of money generated by sales of a product before any deductions are made.

Question 15

How would you work out the revenue?

Answer 15

Revenue = selling price per unit x quantity of units sold

Question 16

What is the definition of fixed costs? Give examples?

Answer 16

They are costs that don’t change with output, such as rent on a factory and senior managers salaries

Question 17

What is the definition of variable costs? Give examples.

Answer 17

They are costs that rise and fall as output changes. Examples of variable costs would be hourly wages, raw material costs and packaging costs.

Question 18

How would you work out total variable costs?

Answer 18

Total variable costs = variable cost per unit x number of units sold

Question 19

What are semi variable costs?

Answer 19

They have fixed and variable parts. Telephone bills are semi variable costs.

Question 20

How do you workout total costs?

Answer 20

Total costs = fixed costs + variable costs

Question 21

How would you workout profit?

Answer 21

Profit = total revenue - total costs

Question 22

Explain how large scale production help keep costs low?

Answer 22

The more a business produces, the lower the cost per unit produced. This is because the fixed costs are shared out between more items.

Question 23

Give three reasons why profit is important?

Answer 23

Profit can motivate people
Profit is a good source of finance
Profit can be used to attract investors

Question 24

Describe the difference between an romanisation being in the public sector compared to being in the private sector?

Answer 24

Public sector organisations are run by the government -they usually aim to provide a service rather than making a profit and they’re funded by the UK tax system.
Private sector organisations are owned and run by private individuals, they mostly aim to make a profit.

Question 25

Non profit organisations such as charities, are they in the private or public sector?

Answer 25

Private sector

Question 26

What does it mean for a business to have unlimited liability?

Answer 26

The business and the owner are seen as one under the law. This means the business debts become the personal debts of the owner, which is a huge financial risk.

Question 27

What does it mean for a business to have limited liability?

Answer 27

Owners aren’t personally responsible for the debts of the business. The shareholders of the business will only lose their investment into the business in limited liability company

Question 28

Describe what a sole trader business is?

Answer 28

It is an individual trading in his or her own name, they are self employed. They have full responsibility for the financial control of the business and meeting running costs and capital requirements.

Question 29

What is capital requirement?

Answer 29

The money invested to set up a business or fund growth

Question 30

What are the advantages of being a sole trader?

Answer 30

Freedom - their own boss
Profit - they get to keep all the profits
Simplicity -book keeping is less complicated
Savings on fees - no legal costs for ownership agreement

Question 31

What are the disadvantages of being a sole trader?

Answer 31

Risk - no one to share the responsibility
Time - long working hours
Expertise - limited skills on their own
Finance - limited to the money they can access
Venerability - no cover for illness
Unlimited liability - responsible for all the debts

Question 32

What is ordinary share capital?

Answer 32

Money raised by selling shares

Question 33

What is the market capitalisation?

Answer 33

The total value of all the ordinary shares issued by a company

Question 34

What formulae would you use to find the market capitalisation?

Answer 34

Market capitalisation = number of issued shares x current share price

Question 35

Why are new businesses not usually set up as PLC’s?

Answer 35

Because they need at least 50,000 of share capital to start with, and most new businesses usually cannot raise that sort of money.