Section 1 - What Is Business?

Question 1

What are 8 aims that businesses may have (other than profit)?

Answer 1

To provide the highest quality:
- Goods/services
- Diverse range of products
- New products ahead of competitors
- Customer service
- Image and reputation
- Sustainability (environmental impact)
- Investing in the local community or social projects

Question 2

What is a mission statement?

Answer 2

• A written description of the business’ main corporate aims.
• Intent to make all stakeholders aware of what the business does and why.
• Encourages all employees to work towards its aims.

Question 3

Why do businesses write mission statements?

Answer 3

• It includes information such its values, standards, strategy, who the customers are and what makes the business unique.
• It gives clues to the company’s beliefs (e.g if ethical practice is important) and can encourage employees to work towards common goals.
• Mission statements can lie and say what consumers want to hear, however it is bad practice and can damage their reputation if not reflecting the values shown.

Question 4

What are corporate and functional objectives?

Answer 4

• Corporate objectives are the goals of the business as a whole e.g. to survive or to diversify and expand.
• Functional (departmental) objectives are the objectives of each department. More detailed and specific obj. for each department that will help them achieve corporate objectives.
• There are also employee objectives which can be set by team managers to help achieve functional objectives.

Question 5

what does SMART objectives stand for?

Answer 5

Specfic
Measurable
Agreed
Realistic
Timely

Question 6

What are some different types of objectives?

Answer 6

• Profit Objectives: To increase profits by minimising costs and increasing sales
• Growth Objectives: To use its larger position in the market to earn higher profits by increasing revenue, market share or expanding a business.
• Survival Objectives: To continue to stay on the market and keep trading when there’s strong competition or when the economy is declining/in a recession
• Cash Flow Objectives: Improving cash flow to increase chance of survival by increasing business

Question 7

What is Revenue?

Answer 7

Value of sales or turnover:
Revenue = selling price per unit x quantity of units sold

Question 8

What are fixed, variable, semi-variable and total costs?

Answer 8

• Fixed costs don’t change e.g rent on a factory, business rates, cost of new machinery are fixed costs.
• Variable costs rise and fall as output changes e.g hourly wages, raw material costs, packaging costs.
• Semi-variable costs have fixed and variable costs e.g telephone bills have a fixed amount plus a variable amount depending on the number of phone calls made.
• Total costs = Fixed Costs + Variable Costs

Question 9

What is profit?

Answer 9

Profit = total revenue - total costs.

Question 10

How can profit be spent?

Answer 10

Most businesses will give it to the shareholders as dividend payments or re-invest back into the business.
They could also pay staff bonuses, invest in a bank, donate to charity or fund projects in the local community.

Question 11

[example] how does large-scale production keep costs low?

Answer 11

The more a business produces, the lower the cost per unit produced as fixed costs are shared out between more items. For example,
MicroDave makes microwave ovens.
- The fixed costs of running MicroDave are £200,000 a year
- The variable costs of materials and labour are £15 per microwave.

1.) 5000 Microwaves a year means total production costs are £200,000 + (£15 x 5000) = £275,000. £275,000 ÷ 5000 = £55.
2.) 20,000 Microwaves a year means total production costs are £200,000 + (£15 x 20,000) = £500,000. £500,000 ÷ 20,000 = £25.

Question 12

What’s the difference between the organisations in the public sector and the private sector?

Answer 12

Public sector: owned and funded by the government, aims to provide services to the public more than profit, e.g NHS hospitals. Provides services available to everyone and don’t charge for their services (funded by UK tax system)

Private sector: owned and run by private individuals, ranging from sole traders to huge organisations. Most aim for profit, some are non-profit

Question 13

What is unlimited liability?

Answer 13

• The business and the owner is seen as one and the same under the law.
• Business debts become the personal debts of the owner (may be forced to sell personal assets to pay off business debts).
• Huge financial risk

Question 14

What is limited liability?

Answer 14

• Owners aren’t personally responsible for the debts of a business
• Limited liability means the company has a separate legal identity from its owners
• Shareholders can only lose what they invested in the company

Question 15

Advantages and disadvantages of being a sole trader?

Answer 15

Pros:
- Freedom (own boss)
- Controls all profits
- Simplicity
- Savings on fees (no legal costs)

Cons:
- Risk
- Unlimited liability
- Lack of expertise
- Finance
- Vulnerability (if trader can’t work)

Question 16

Advantages and disadvantages of being a sole trader?

Answer 16

Pros:
- Freedom (own boss)
- Controls all profits
- Simplicity
- Savings on fees (no legal costs)

Cons:
- Risk
- Unlimited liability
- Lack of expertise
- Finance
- Vulnerability (if trader can’t work)