Paper 2 - Gaps in my knowledge Flashcards
What are two benefits of holding buffer stock?
- Able to meet customer needs especially in a mass market
- Purchasing economies of scale from buying in bulk
What are 4 drawbacks of holding buffer stock?
- Storage costs - rents for warehouses
- Perishable goods can become damaged
- In dynamic markets, consumer needs are constantly changing so goods become out of date
- Too much capital tied up in stock
What is the sole aim of lean production methods?
- Minimising waste such as through recycling, re-using etc
What are 3 main benefits of just in time?
- Storage costs are reduced and cash flows are improved
- Less waste: less perishable, out-of-date and out of demand goods stored
- More flexible to changes in consumers needs
What are 3 main drawbacks of Just in time?
- Too reliant on frequent deliveries from suppliers
- Excludes supply chain issues which could result in changes in demand
- Unable to benefit from purchasing economies of scale
What are the 3 main benefits of having a sales forecast?
- Producing a cash flow forecast - which can manage finances
- Marketing - if sales fall
- Resources - more labour or raw materials if demand is expected to rise (allows the business to cope with higher demand)
What are the benefits of budgeting to a business?
- Can be motivating - they give targets to employees
- Can help control income and expenditure - manage cash flows
- Help some departments to coordinate their spending
What are some drawbacks of budgeting?
- Restrictive which could be demotivating if people feel they can’t fully spend on goods and services
- They can be time-consuming to create
- They are based on past data and so they may be unrealistic for future purposes
What are the 3 different budgets and what do they set budgets for?
- Income - How much a business will sell, what price it will sell it at etc
- Expenditure - prediction of a businesses total costs and then sets a budget on their limit
- Profit Budget - The income budget minus the expenditure budget
What is the difference between zero-based budgeting and historical budgeting?
Historical - uses past data when producing budget and then takes into account how much of the budget was used and then determines whether it should increase or fall
Zero-based budget - starts at 0 every year and then all a business activities are prepared a year in advance and they have to be requested
How can a business improve their GPM?
Increasing prices or reducing direct cost of sale
How can a business improve their OPM and NPM?
Increased prices, reducing direct cost of sale or reducing operating expenses
How could a business reduce capacity temporarily?
- Shutting down/deactivating part of a production line
- Closing part of a factory making products not currently in demand - move to a smaller premises
- Temporarily making staff move into part-time contracts instead of full-time contracts
How to calculate re-order quantity?
Maximum stock level - minimum stock level
What are the benefits of a mission statement?
- Can motivate stakeholders and motivate employees or encourage them to work for the business if they agree with the values
- Differentiates the business from its competitors
What are the drawbacks of a mission statement?
- Could damage business reputation if they don’t share the same values
- Doesn’t include the same corporate strategies
Effect of strategic and tactical decisions on human, physical and financial resources
Physical - May need new machinery
Human - how skilled staff are to carry out the decisions,
Financial - Consideration on how to fund the finance
What are the benefits of porters strategic matrix?
- Gain a competitive advantage
- Prevents a business from being ‘stuck in the middle’
Drawbacks of porters strategic matrix?
- Oversimplifies market structures
- Doesn’t include businesses who have successfully done both
- Only tells a business where they are in the matrix and not how to improve their position
What is overtrading?
- Increased growth means they demand more raw materials etc which reduces working capital needed to pay for day-to-day expenditure
What are average cyclical variations?
- The difference between the actual sales figure and the moving average for that year
What are the benefits of a short-termism approach?
- Shareholders will gain higher dividends
- Managers bonuses are usually based upon short-term financial performance and so could lead to more productive workers to gain etter bonuses etc
- Could benefit new or small businesses aiming to grow
What are the drawbacks of a short-term approach?
- Could lead to a sacrifice of little to no investments in the long-run which could limit competitiveness and future profits for the business
Benefits of a business using a long-term approach?
- Investing in R&D, training and staff etc could lead to better long-run profits and long run growth of the business
Drawbacks of a business using a long-term approach?
- Could lose focus on short-term changes to market and trends and so could lose customers from new competitors entering etc or miss opportunities etc
Factors that affect how a corporate culture is formed?
- A businesses founders
- History and nature of the business
- Environment recruitment and promotion
What do shareholders look at in the statement of comprehensive income?
- The trends in profits - if the profit is fluctuating it may not be worth investing in
- If the amount of dividends it pays to shareholders is fluctuating it may not be worthwhile
What do managers look at in the statement of comprehensive income?
- Revenues and expenditures
- It may compare this to competitors and see if there’s is worsening, how they can improve it
- Look at ways to increase revenues and reduce costs for businesses
What are trade debtors or trade recievables?
It is a current asset because it is someone who owes u money
What are trade creditors?
It is a current liability because it is someone that you owe money too
What are the benefits of cell production?
- Closeness of members could lead to improve relationships (MAYO THEORY) - increased motivation could increase productivity of workers
- Team working
- Quality improvements
What are the drawbacks of cell production?
- Culture clashes between employees could lead to demotivation and then less productivity
- Use machinery and capital intensive
What is peer-to-peer lending?
This is through an online platform where individuals online willingly lend money to businesses - an individual will state how much money they are willing to lend with how much interest
What is a business angel?
Wealthy individuals who invest money into new or innovative business and in return they get a share of the business
What are the benefits and drawbacks of business angels?
B: they have good business knowledge and useful contacts - advice and guidance to the business too
C: Difficult and time consuming to find one and a share of the business has to be given up
The benefits and costs of a firm leasing?
B: The business doesn’t have to pay a large up front cost and less need to pay for maintenance and repair
C: could be more costly in the long run
What are 3 ways a business can deal with cash shortages?
- Reducing cash outflows - switch suppliers and reducing budgets etc
- Increasing cash inflows - raise prices to increase revenues
- Arrange a source of finance such as overdraft
What are the benefits of break-even analysis?
- Be used to persuade sources of finance
- Can help a business to increase MOS by reducing costs or increasing sales
- It is easy to use and necessarily in a business plan
What are the drawbacks of break-even analysis?
- Assumes that TS and TC go up in a straight line which is not always true - markets are dynamics
- Doesn’t tell a business how much are ACTUALLY going to be sold only what it SHOULD
- Only used for a single product but businesses sell multiple products
Internal financial causes of business failure
- Poor management of working capital - unable to pay of current debts
- Poor efficiency means higher costs leading to higher prices - less sales
- Large amounts of overdraft
Internal non-financial causes of business failure
- Poor communication in a business
- Lack of market research or analysis on trends in the market
- Lack of marketing
External financial causes of business failure
- Recessionary periods
- Changes in exchange rates or interest rates
Benefits of cell production?
Greater motivation if they are working in teams
- Improved communication - more output - EOS
- Workers become multi-skilled - less absenteeism
Drawbacks of cell production?
- Productivity lower than flow production
- Clash between cultures in the group could lead to demotivation
What is efficiency to a business?
- When production happens at an overall minimum average cost
Ways a business can improve productivity?
- Cutting costs
- Reconsiders a design mix to it is easier and cheaper to make
- ## Lean production approach
What are the benefits to a business of having a distinctive capacility?
It can make a business have a competitive advantage against competitors which an add value to the product
What are the three different distinctive capabilities and explain them?
- Architecture - the relationship that a business has with its stakeholders
- Reputation - if a business is able to provide high quality and provide a good customer service than it will gain a competitive edge to other businesses
- Innovation - how much a business invests into its resources
2 benefits of quality circles?
- Could bring people from around the business - teamwork could lead to an increase in motivation - human relations theory
- Improve quality
- Minimise waste so fewer costs could increase profits to the business
2 Drawbacks of quality circles to the business?
- Could lead to a clash of cultures due to employees being from around the business
- Less productivity in the time that the employees are having their meetings
