Theme 2

Question 1

Historical budget

Answer 1

Set current financial figures based on historical performance

Question 2

Zero based budget

Answer 2

Set by using figures based on potential performance

Question 3

Current assets

Answer 3

Stock (least liquid)
Debtors
Bank
Cash (most liquid)

Question 4

Non-current assets

Answer 4

Machinery
Buildings

Question 5

Current liabilities

Answer 5

Trade payables
Bank overdraft

Question 6

Non-current liabilities

Answer 6

Mortgages
Bank loans

Question 7

Job production

Answer 7

Custom made products for each customer

Question 8

Batch production

Answer 8

Producing a set number of identical products at a time

Question 9

Flow production

Answer 9

Continuous production on an assembly line

Question 10

Cell production

Answer 10

Self-contained units for specific product production

Question 11

Consumer protection law

Answer 11

• customers have legal rights if the item bought is damaged, unusable or not what was advertised.
• businesses must not give false or misleading info about products

Question 12

Internal sources of finance

Answer 12

• Owner’s capital
• Retained profit
• Sales of assets

Question 13

External sources of finance

Answer 13

• Family and friends
• Banks
• Peer-to-Peer funding
• Business Angels
• Crowd funding
• Other businesses

Question 14

External methods of finance

Answer 14

• Loans
• Share capital
• Venture Capital
• Overdrafts
• Leasing
• Trade credit
• Grants

Question 15

Source of finance

Answer 15

This is where the finance has come from e.g., a bank.

Question 16

Method of finance

Answer 16

This is the use of a finance - or what use it would be suitable for e.g., loan to buy computer equipment for the business.

Question 17

Business Plan

Answer 17

• A document which sets out the future plans for a business.
• USES: To help the business raise finance and set objectives.

Question 18

Cash flow forecast

Answer 18

• The day-to-day running of a business budget.
• USE: Shows where the likely cash surplus and shortfalls are so a business can arrange suitable finance.
• LIMITATION: Risky for an investor to make decisions about the business on just the cash flow forecast alone.

Question 19

Sales forecasts

Answer 19

• estimates the volume or value of future sales using the market research or past sales data.

Question 20

Factors effecting sales forecasts

Answer 20

1. Consumer trends
2. Economic variables
3. Actions of competitors

Question 21

Difficulties of sales forecasting

Answer 21

• No guarantees
• Dynamic markets
• Short term thinking

Question 22

Examples of fixed costs

Answer 22

• Rent
• Mortgage payments
• Loan payments
• Insurances
• Lease of machinery/van
• Salaries of managers

Question 23

Examples of variable costs

Answer 23

• Costs that DO vary with level of output
• Cost of stock sold
• Raw materials
• Fuel
• Packaging
• Wages of staff

Question 24

Variance Analysis

Answer 24

Favourable = underspending or more sales than predicted
Adverse = overspending or less sales than predicted.

Question 25

Pro and con of budgeting

Answer 25

Pro: it ensures resource availibility. Con: inter-department rivalry as some departments get more money than others.

Question 26

Distinction between profit and cash

Answer 26

Profit - recorded straight away and a business can trade for years without profit. Cash - will not be recorded until it is paid out or received which could be in a different trading year. - A profitable business may go bust if it runs out of cash to pay suppliers or staff wages.

Question 27

Liquidity

Answer 27

The ability of the business to turn its assets into cash to pay its current liabilities.

Question 28

Acid test ratio conclusions

Answer 28

- less than 1:1 then its current assets (-stock) do not cover its current liabilities - However, some retailers with strong cash flow and fast-moving stocks may have an acid test ratio of 0.4:1 and be fine, depends on the industry.

Question 29

Working capital

Answer 29

The day-to-day finance needed in a business.

Question 30

Internal causes of business failure

Answer 30

- Poor efficiency - Poor marketing - Failure to innovate - Bad management of working capital (most common if inability to measure cashflow)

Question 31

External causes of business failure

Answer 31

- Economic recession - Strong pound (SPICED) - Weak pound (WPIDEC)

Question 32

Labour intensive production

Answer 32

Makes products using mostly human effort (or labour)

Question 33

Capital intensive production

Answer 33

Goods are produced using mainly machinery or equipment.

Question 34

Capacity utilisation : Under-utilisation

Answer 34

- higher fixed costs per unit - unmotivated staff - impact on brand image

Question 35

Capacity utilisation: Over-utilisation

Answer 35

- Damage reputation of the business. - In manufacturing can put strain on resources. - Staff do too much overtime + have accidents when tired. - No time to maintain machinery or train staff - Quality suffers

Question 36

Just-in-time delivery

Answer 36

means that a business does not keep stocks of parts in a warehouse - they order parts and get them the same day from the supplier = close links with supplier.

Question 37

Quality control

Answer 37

detecting faulty output (inspection, testing, sampling)

Question 38

Quality assurance

Answer 38

Quality built/designed in

Question 39

Total quality management (TQM)

Answer 39

- reducing waste - improves process and profits of a business - PRO: Not paying for inspectors. - CON: will cost to train staff

Question 40

Exchange rate

Answer 40

the price of one currency in exchange of another

Question 41

Appreciation

Answer 41

- there is a rise in the £ against other currencies so the £ can buy more foreign currency - Strong pound (SPICED)

Question 42

Depreciation

Answer 42

- there is a fall in the £ against other currencies - Uk tourist's money will be worth less abroad. - Weak pound (WPIDEC)

Question 43

Competition

Answer 43

1. Nature of business ownership e.g., PLC 2. Nature of products or services provided. 3. Nature of the product range e.g., 'free from' range to meet demand. 4. Pricing strategies used. 5. Marketing methods used.