Production, Finance and the External business environment Flashcards
Define mechanisation
When machinery is used, but labour is still required to work the machinery
Define automation
When machinery is used and a computer controls it
What are the advantages of using technology?
Large amounts economies of scale
Higher productivity
Quality increase machines make less mistakes
Repetitive/dangerous jobs done by machines
Flexible production-machines programmed to produce variety
What are the disadvantages of technology?
Workers become redundant
Business have to recruit new staff to operate machinery
Existing staff need retraining
Break down stops all production
Define job production
Involved producing each product individually
What are the advantages of job production?
High quality items as more time spent on them
Tailored to customers individual needs
Motivated workers as task aren’t repetitive
What are the disadvantages of job production?
Cost of production is higher
Labour costs higher due to skilled labour needed
Define batch production
Set stages that the production process needs to go through. One process has to be completed before the next, products are similar but can vary
What are the advantages of batch production?
Needs of customers met as different batches can be made
Possible to use machinery which will save costs
Produce larger quantities
What are the disadvantages of batch production?
Takes time to switch production of batches
Repetitive tasks for workers
Lots of ‘work in progress’ as batches have to complete one stage before the next
Define flow production (mass)
Continuous movement of items through production progress. Next task must start immediately after the next
What are the advantages of flow production?
Large amounts made
Costs are low Benefit from economies of scale
Improvement in technology means a variation in design can be programmed
Machinery used keeping costs low
What are the disadvantages of flow production?
Mass produced- lower quality
Large stocks of material have to be kept to keep production line going- expensive
Repetitive jobs
Expensive to set up production line
If one part breaks down the whole process stops
Define division of labour
Organisation of production into a number of specialised repetitive processes
Define specialisation
Occurs where workers specialise in carrying out simple production tasks
Define process production
Method of production involving a series of automated processes, which when applied to a variety of raw materials which results in a large quantity of finished products
what are the advantages of process production?
large amounts can be made
most processes can be automated, keeps costs low
what is the disadvantage of process production?
expensive to set up an automated system of production
what is added value?
the increased worth that a business creates for a product. difference between the cost to produce and the price it is sold at
what are the six possible ways value could be added to a product?
quality design and formula convenience speed and quality of service branding unique selling point
define quality in terms of added value
product that is of high standard compared to those of the competitors
define design and formula in terms of added value
product or service may contain distinctive features. e.g shoe may be more comfy due to a special built in feature
define convenience in terms of added value
customers pay more for products they can have straight away
define speed and quality of service in terms of added value
customers pay more for products that can be delivered more quickly
define branding in terms of added value
a distinctive product that stands out from competitors e.g nike vs tesco
define unique selling point in terms of added value
characteristic which makes a product or service diffeent from a similar one
define efficiency
achieving maximum productivity with minimum wasted effort/expense
define just in time (JIT) as a method of increasing efficiency
stock of materials and components are not stored but used immediately when they arrive at a factory
define total quality management (TQM) as a method of increasing efficiency
process where all workers are responsible for quality throughout the process of production. this ensures faults are found early
why is good quality important to a business?
may be unable to sell poor quality goods
price of poor quality goods may be reduced
customers unhappy with quality giving a bad rep
why might a business need to raise money?
start up business invest in business growth develop a new product buy new equipment solve cash flow problems move location
define grants
money given by government or council for specific purpose. doesn’t need repaying but can’t be spent on whatever you want
define owner investment
existing owners invest money, used for a takeover or long term debt pay off. structure of business may change
define cash in bank
money owned by a business built up over time. used for day to day operations e.g purchasing assets
define share issue
used by limited companies to raise finance in return for a share in the business. dividends may be paid on shares
define retained profit
profit made by business kept back for own use. can pay for dividends
define sale of assets
selling off, turning into cash something the business owns. e.g to buy new equipment
define mortgage
borrowing money to help fund purchase of a property. money paid back with interest
define overdraft
business can draw more money from bank account than it actually has. helps overcome short term shortage of fund
define bank loan
money borrowed from bank, can be used to fund development. has to be paid back with interest
define leasing/renting
monthly or annual pay on an item that’s returned to the owner (cars,lorries)
define hire purchase
obtaining item in return for monthly payment. item becomes yours once all is paid (company cars, lorries)
define taking a new partner
sell off part of business to new partner
define trade credit
business allows another business to take goods without paying. goods are paid for within an agreed period of time
define internal finance
comes from within the business
define external finance
comes from outside the business
which internal sources of finance are short term? (up to 12 months)
cash in bank
which internal sources of finance are medium term? (1-3 years)
retained profit
sale of assets
which internal sources of finance are long term? (3+ years)
retained profit
owners investment
which external sources of finance are short term? (up to 12 months)
overdraft
trade credit
which external sources of finance are medium term? (1-3 years)
bank loan
lease
hire purchase
grant
which external sources of finance are long term? (3+ years)
bank loan mortgage new partner share issue lease hire purchase
define opportunity cost
the cost of missing out on something else e.g
if business pays for new product they cant pay for new premises
define price elasticity of demand
sensitivity of a product to change in price
what might effect the sensitivity of a change in price to a product?
if there are substitutes
if the product was already cheap
whether competitors change prices
if there are any competitors
how do you calculate revenue?
quantity sold X selling price
define revenue
the money a business receives from selling goods and services
define variable costs
costs that can as output changes
define fixed costs
costs which remain the same regardless of output
define average cost
all the costs of producing a particular product or service divided by the number sold
define total costs
all the costs of producing a particular product or service
how do you calculate average cost?
total cost/amount sold
how can a business reduce their average costs?
reduce amount paid for materials
reduce wages
increase efficiency of production (change from batch to flow)
define break even
the point at which the sales are exactly the same as the costs
how do you calculate break even?
total fixed costs/(selling price -variable cost)
define margin of saftey
the difference between the actual level of output and the break even output
how do you calculate margin of saftey?
actual sale-break even sales
why is break even useful for a business?
can set minimum sales target
can be useful when trying to get a bank loan
can use to make a decision to increase prices
can use to make a decision to reduce cost
what are the limitations of break even
forecast figures may turn out to be different to actual figures
the figures only usually relate to one product
assumes all output is sold
how do you calculate total cost?
variable + fixed cost
define cash flow
the movement of money in and out of a business bank account
define inflows/income
the amount of money received by a business
define outflows/expenditure
money that goes out of a business
how do you calculate net cash flow
inflows-outflows
define positive net cash flow
where the inflows are greater than the outflows
define negative cash flow
inflows are not enough to cover outflows
define opening/closing balance
the amount of money in a business account at a particular time
whats the difference between a cash flow forecast and a cash flow statement?
cash flow forecast= prediction
cash flow statement=what actually happened
how do you improve your cash flow position?
lower costs
increase sale revenue
consider a loan or putting more money of their own in
how do you calculate closing balance?
net cash flow+opening balance
what does a positive net cash flow mean in a cash flow forecast?
it means the flow of money into the account that month just so happens to be greater than the outflow
does a positive cash flow mean a business is making profit
no
what will happen to a business if it consistently has a negative net cash flow
may go out of business as it doesn’t have enough money to pay for the day to day running- doesn’t always mean it is unprofitable
how can a business prevent having a negative cash flow?
get a loan
cut costs
sell more products
what are the benefits of cash flow forecasts?
- enable business to asses their ability to meet debts
- identify cash flow problems and enable business to to plan in advance to prevent cash shortage
- secure external finance as bank can asses their ability to meet payments
- help business make key decisions e.g invest in additional resoruces
- control a business by setting targets relating to cash flow
what are the limitations of cash flow
- figures may be different to actual one if they’re based on inadequate research/info
- difficult to do accurately as external factors out of business control can have an effect
why would a business want to make a profit?
reward for risk taken by shareholders or owners
re-invest in the business for growth
what options can increase income?
increase revenue
invest own money
apply for a bigger loan
what options can decrease expenditure?
cut wages
cut expenses
ask suppliers if payment can be delayed
define gross profit
amount of profit made by a business as a result of buying and selling goods or services but without paying for any of the day to day running
define net profit
takes into account the profit made as a result of buying and selling goods,but also makes an allowance for the costs involved in running the business
how do you calculate gross profit?
revenue- costs of buying goods
how do you calculate net profit?
gross profit- expenses
define expenses
cost of running a business that occurs as part of a company’s operating activity
define accounting
process of keep financial records
why is keeping financial records important?
know whether the business is making profit or not
be prepared for external organisations such as auditors and inland revenue
able to use records to plan for the future
define profit margin
ratio of profit over revenue. mainly an idication of a company to control costs
how do you calculate gross profit margin?
gross profit/revenue X100
how do you calculate net profit margin?
net profit/revenue X100
why is calculating net profit and gross profit margins important?
profit can be compared with competition
compared over time
define exchange rate
the value of one currency in terms of another
what is a strengthening exchange rate?
pound increases in value
can buy more foreign currency
what is a weakening exchange rate?
pound decreases in value
buy less foreign currency
where does the money go when goods are imported?
out of the uk
where does the money go when goods are exported
in to the uk
what is the acronym for exchange rates?
Strong Pounds Imports Cheap Exports Dear (expensive)
in what three ways do interest rates effect a business?
cost to business of borrowing money
cost to customer of borrowing money
reward for saving
what could a weakening pound mean for toms toys?
has to give up more pounds to buy stock from EU supplier= increase costs
what could toms toys do to stop costs increasing from the weakening pound? what could happen as a result?
could increase prices
may not be effective- could reduce price competitiveness
will all of toms toys costs increase as a result of the weakening pound
only 30-40% are stock costs
not all costs will increase
will all of toms toys stock costs to be negatively effected by the weakening pound?
no only 40% stock fro EU
rest unaffected
how do a rise in interest rates effect a business?
loads to expand cost more
less people will be buying goods and services
what are the positives of unemployment for Bowton?
more workers available
employ workers more cheaply
What are the negatives of unemployment in Bowton?
people stop buying toys
shop at cheaper shops
workers are demotivated
to what extent is it good news Bowton are giving grants to new businesses?
more employment should lead to increase spending but:
1-parts time low paid work (less disposable income)
2-no figures to indicate how much employment increased
3-businesses selling luxury products might not see benfit
What will higher levels of employment in Bowton due to grants mean? (2)
higher rates of income tax
less well-fare payment
How does the council and area of Bowton benefit from grants?
- encourage new businesses
- businesses create jobs
- increase corporation tax + business rates
- visitors attracted
What does the success benefit of the council depend on?
- amount of jobs created
- if theres increase in income tax
- whether there’s a reduction on benefit spending
What is the European Union?
political and economic union of 28 member states
What is the Eurozone?
group of countries in the EU that share the same currency
what are the advantages of being in the EU?
access to single market access to greater amount of potential employees increase market size common standards grants and subsidies
what is the single market?
based on four freedoms, free movement of: people goods services capital
What is a tariff?
a tax paid on imports
what is a quota?
limit on the amount of product that can be supplied to a market
What are the advantages to Toms Toys of being in the single market?
- tariffs aren’t paid on 40% of their imports
- if they wanted to export in the future they would not be subject to EU tariffs
what are the opportunities to Tom’s Toys of brexit?
encourage more domestic trade
new trade deals with non Eu countries- Australia,New Zealand, Canada and USA
what are the problems of being an EU member?
environmental standards
minimum wage
social charter
How do common standards apply to GG toys?
georgie doll-safety checks
what are common standards?
standards on safety, quality and labelling.
Benfit because means don’t have to make different products to fit different regulation standards
How do grants and subsidies apply to GG toys?
grants for robots
what are environmental standards?
new standards on waste recycling and pollution.
adds costs to a business
how does environmental standards apply to GG toys?
pollution transporting from China to UK
What is globalisation?
Process by which business activities in different countries become more connected with each other
what are the advantages of globalisation for the UK?
increase choice for customer
lower price
larger market
economies of scale
what are the disadvantages of globalisation for the UK?
lower profits
lower sale(increase competition)
business closures + job losses
Why might China not benefit from GG toys locating it’s factory there?
exploiting workers
pollution
local culture lost
why might China benefit from multinationals such as GG toys?
creates jobs
pays higher wages than local businesses
what is inflation?
when prices of goods and services are generally rising
why does inflation occur?
excess demand in economy
if costs are increasing businesses will increase prices
what happens if inflation is too high?
bank of england will raise inerest rates to reduce the demand
What is income tax?
- tax on persons income.
- In Bowton central government will collect income tax if employment increases
- sole trader + partnerships pay it
what is national insurance?
- supports NHS and state pensions
- In Bowton central government will collect if employment increases
- Sole traders + partnerships pay it
what is corporation tax?
- Tax that limited companies will pay
- In Bowton, central government will collect if GG toys make higher profits
what are business rates?
- tax paid on property business uses
- If more businesses open Bowton council will collect
what is council tax?
- paid by homeowners
- In Bowton local council will collect
what is VAT?
tax on spending- 20%
How can we compete with counties such as China and India? (5)
- innovative products+services
- prices low by increasing productivity through machinery
- create a brand
- add value through quality
- recruit the right people`
How will recruiting educated workers help to compete globally?
highly skilled workforce who can compete in global environment
How will recruiting low skilled workers help compete?
hard working individuals who do not demand very high wages
How does cutting corporation tax help to improve international competitiveness?
lower prices/encourages inward investment
How does cutting income tax help to improve international competitiveness?
productivity will increase as people work harder as they have more disposable income
How does investing in infrastructure help to improve international competitiveness?
goods can be distributed more efficiently
How does investing in education+training help to improve international competitiveness?
workforce becomes more skilled
How do grants to a business help to improve international competitiveness?
invest in growth and innovative product offerings
what is inward investment?
when foreign firms set up in the UK, leading to the need for other businesses in the UK to supply raw materials
what is happening to the UK’s population?
its becoming more ethnically diverse and is ageing
what does the change in population mean for the type of products being demanded?
- ageing=more retirement villages
- more ethnically diverse=polish supermarkets
What is a monopoly market?
A market dominated by one seller
What is perfect competition?
Market in which there are a larger number of sellers
What are the features of a competition market?
Lots of firms
Lots of product choice
Low prices
What are the features of a monopoly market?
Few firms
Few products
High prices
How can GG toys be better than their rivals? (4)
Reduce costs to lower prices
Improve quality of products
Better customer service
Larger product range
What are the pressures for GG toys operating in a highly competitive market?
Pressure to keep prices low
Pressure for on time delivery
What is the equation for calculating market share?
(Sales of the business/ total sales in the market) X100
How can competition be increased?
New businesses entering the market
Selling new product
Cutting rices
Increase advertising
How can completion be decreased?
Takeover/ merger
Internal growth
Does the government prefer competition?
Yes it means more choice and lower prices for customers
Are monopolies illegal?
No but anti-competitive behaviour can lead to an investigation
What is the CMA?
Competitive markets authorities
Have the power to stop mergers/ takeovers and fine businesses
How can monopolies benefit customers?
If profits are reinvested to improve service and economies of scale savings are passed on
