Theme 2 Flashcards
What are the three types of budgets?
Income budget, expenditure budget, and profit budget
What is an income budget?
The amount of revenue entering the business
What is an expenditure budget?
Total costs per year
What is profit budget?
Income- expenditures budgets
What is historical budgeting?
Comparing budgets to last year’s data
What the benefit of historical budgeting for a small business?
Base on previous year
More likely to know they won’t overspend
Easier to manage cash
Higher chance of good liquidity
What is zero based budgeting?
Departments pitch ideas and ask for certain budgets based on why they need it
How can historical budgeting lead to increase motivation?
Set targets for departments
Incentivise to meet them
Increase motivation
What is variance analysis?
The difference between budgeted and actual figure
What is a favourable variance?
Where there is more actual profits than budgeted
What is an adverse variance?
When there are less actual profits than budgeted
How do you calculate variance?
Actual-budgeted
What are the four methods of production?
Job, flow, batch, cell
What is job production?
One off specific products
What is the benefit of job production?
The products are specialised so can become differentiated being more price inelastic
What is the drawback of job production?
No eos
What is batch production?
Making different products in batches. E.g. Jean sizes
What are the advantages of batch production?
Downtime for machines
Change products to keep up with changing trends
Have multiple products for changing trends spread risk
Drawback of batch production
No eos due to lower output
What is the disadvantage of batch production?
Lower output meaning no eos
What is flow production?
Large volumes of one type of product
What is the advantage of flow production?
High levels of output achieve eos
What is the disadvantage of flow production?
No downtime for machines
Staff have same job may be demotivated
What is cell production?
A team doing one part of production at a time together
What are cell production advantages?
Task culture
Teamwork means motivation mayo
What is the disadvantage of cell production?
Employees need skills across production process increasing training cost
What is labour intensive production?
Over 50% of production done by people
What are the benefits of labour intensive production?
More flexible to adapt product as don’t have to adapt machines increasing differentiation
Put handmade on product get a usp
What is the drawback of labour intensive production?
Less units made than if used machine so less eos
What is capital intensive production?
Over 50% of production done by machines
What is the benefit of capital intensive production?
Machines produce more and spread fixed costs over more units
What is the drawback of capital intensive production?
Invest in machines worsen liquidity
What is a limitation of a stock control diagram?
Based on historical data (sales forecast) to predict demand. If pestle economic factors change demand will change so reorder level wrong. Order wrong amount of stock
What is lean production?
Minimising waste to become more efficient during production
What is just in time management?
Business keeps as little stock as possible to reduce waste
What is the advantage of just in time management?
Lower cash outflows to suppliers
More positive net cashflow
Good liquidity
What is the drawback of just in time management?
Don’t bulk buy so no discount for bulk buying. No purchasing eos
What is quality control?
Testing product at the end of production
What is the advantage of quality control?
Less training so less expensive
What is the disadvantage of quality control?
More time consuming to remake product when there’s defects
Can’t test all products so defects slip through
What is quality assurance?
Checking quality throughout production
What are the advantages of quality assurance?
Employees have more responsibility so feel more trusted increasing motivation
Catch problems early so less time fixing product
What is the disadvantage of quality assurance?
If employees miss a fault it stays in end product
More cash outflows on staff training
What is a quality circle?
Meet and discuss how to improve quality
What are the benefits of quality circles?
Adopt a task culture increasing ideas
Teamwork motivates through mayo or maslows love and belonging
What is a disadvantage of quality circles?
Must be highly skilled
What is kaizen?
Making continuous improvements to the production process
What is the best culture for kaizen?
Person as employees have freedom to develop new ideas
What culture won’t work with kaizen?
Power as employees need to be highly skilled and have freedom to make decisions
What is total quality management?
Getting the product right the first time by improving quality at every stage
What are the best cultures for total quality management?
Task as high skilled employees work in teams to check for defects
Role as there are rules and regulations to keep quality
What is a drawback of total quality management?
High levels of bureaucracy to make sure things are highest possible quality
What are the disadvantages of high interest rates?
Increased cost of loans/ mortgages. Lower disposable incomes. Less spending on luxury and normal.
Increase cost of borrowing. Increased loan repayments. Increased fixed costs. Lower op
What are the benefits of low interest rates?
Cheaper to borrow money. Products look more affordable. Increase incentive to spend. Increase demand for luxury/normal.
Less mortgage repayments. Higher disposable incomes. Increase spending on luxury/normal
What is demand pull inflation?
When increase demand raises the prices
What is cost push inflation?
Increasing costs to make product means higher prices charged
What is the drawback of high inflation?
Increase cost of raw materials. Increase cost of sales. Increase selling price higher than cost of sale. Fall in demand
What is the advantage of low inflation?
Prices stable. Wages increase more than inflation. Increase spending on luxury/normal
What is exchange rate appreciation?
Rise in pound against foreign currency
What is exchange rate depreciation?
Fall in pound against foreign currency
What is the affect of exchange rate appreciation?
Higher imports
Lower exports
What is the affect of exchange rate depreciation?
Lower imports
Higher exports
What is fiscal policy?
Tax and government spending
What are business legislation?
Laws set by the government that have an impact on business
What are the five business legislations?
Consumer protection
Employee protection
Environmental protection
Competition policy
Health and safety
What is consumer protection legislation?
Making sure consumers get a fair exchange for their money
What is an advantage of consumer protection legislation?
Increase confidence in the brand
What is the drawback of consumer protection legislation?
Might need to improve quality management ti make sure product fit for purpose
What are the five types of employee protection legislation?
Minimum wage
Right to contract of employment
Sick/maternity/paternity leave
Redundancy
Trade union rights
What is the advantage of employee protection legislation?
Employees feel more secure in job and according to maslows safety needs increase motivation