Theme 2 AO1 Flashcards
What is the gross profit calculation?
Total revenue - Total variable costs
What is the operating profit calculation?
Gross profit - Total fixed costs
What is the net profit calculation?
Operating profit - interest - exceptional expenses.
What is flow production?
Continuous manufacturing of standardised products on a production line.
What is job production?
Producing a good one at a time as ordered by the customer.
What is cell production?
Workers are divided into specialised teams who are each responsible for a part of production.
What is batch production?
A group of the product is produced before the next group is produced.
What is capacity utilisation?
The measure of the extent to which the productive capacity of a business is being used.
How can a business improve capacity utilisation?
Increase workforce hours, Outsourcing, Reduce machine maintenance.
What is the capacity utilisation calculation?
(Current output/ max potential output) x100
What is lean production?
An approach to management where waste is cut but quality is ensured
How is competitive advantage gained from lean production?
Better efficiency, improved quality.
How do exchange rates affect businesses?
Businesses who export will have a n increased sales volume when a depreciation of the domestic currency occurs.
How does consumer protection affect businesses?
By trying to uphold quality, in line with the consumer act, costs are likely to rise.
What is a business plan?
A document that provides forecasts of sales, costs and cash flow.
What is the aim of a business plan?
Reduce risk when starting a business as it forces the owner to think about every aspect of a business.
How does a business plan relate to investments?
A business plan shows investors that the business has done research which makes it more likely for the business to receive investment.
How does a business plan relate to the success of a business?
It allows the business to be informed about potential problems that they may face.
What are three advantages of using a cash flow forecast?
Help with applying for loans, identify cash shortages and surpluses, help with planning to avoid mistakes.
What are 3 disadvantages of cash flow forecasts?
They are usually based on estimates and may be incorrect, time consuming and intensive to create, can be affected by external factors.
What is a budget?
A financial plan that a business sets out about costs and revenue.
How do budgets help with planning and monitoring?
Budgets make the business plan ahead, problems may be solved in advance.
How do budgets help with control?
Monitoring the budget allows managers to precisely control their functional area.
How do budgets help with coordination and communication?
Budgeting requires different parts of the business to work as a whole, they are communicated through a business to help with decision making.
How do budgets help with motivation and efficiency?
Budgets can be used as a target and allow for a measure of success, they also spread decision making across the business which motivates managers.
When are budgets set and monitored?
Budgets are set annually and monitored monthly.
What are the two type of budgets?
Historical figure and zero based.
What are historical figure budgets?
Budgets based on historical figures such as sales, costs, and economic data.
What is a zero based budget?
Where every purchase that is part of the budget needs to be justified allowing for all unnecessary costs to be eliminating.
What are 2 disadvantages of zero based budgets?
It is time consuming presenting as to why a purchase is necessary, it requires skilled and confident employees to present why purchases were made.
What are 4 disadvantages of using budgeting?
It is time consuming and skill intensive, the data must be up to date, they encourage managers to focus on the short-term, unrealistic budgets can cause a lack of motivation.
What is a budget variance?
The difference between the budgeted figure and the actual figure achieved.
What is meant by legislation?
Laws and regulations from the government that businesses and individuals must follow.
What are the 5 areas of legislation that affect businesses?
Consumer protection, Employee protection, Environmental protection, Competition policy, Health and safety.
What is the goal of consumer protection legislation?
To ensure that consumers are treated fairly by companies that they interact with.
How does complying with consumer legislation affect a business?
Increased costs which may reduce profitability.
What does consumer protection cover?
The safety and quality of products, customer rights if they are unhappy, correct product information.
What are the goals of employee protection laws?
To prevent the exploitation of workers.
What does employee protection cover?
Pay, working conditions, equality, the right to join a trade union, contracts.
How does employee legislation negatively impact a business?
Higher labour costs, penalties is laws are broken, time consumption from training and rest breaks.
How does employee legislation positively impact a business?
Law compliance will likely result in increased staff retention and motivation.
What is the goal of environmental legislation?
To hold businesses responsible for their environmental impact.
What does environmental legislation cover?
Pollution, Destruction of wildlife, Traffic congestion, Air quality, Resource depletion.
How does environmental legislation affect a business?
Failing to adhere leads to penalties and fines.
What is the goal of competition legislation?
To protect consumers and businesses from anti-competitive practises.
What does competition legislation cover?
Abuse of market power, Anti-competitive acquisitions, Collusion.
How does competition legislation affect a business?
Mergers may be blocked by the CMA, subsidiaries may be disposed.
What is the goal of Health and safety legislation?
It protects the physical and mental wellbeing of employees.
What does health and safety legislation cover?
Breaks and rest periods, temperature and noise, safety equipment, hygiene, preventing stress.
What may a business have to do to maintain health and safety policy?
Training, change working hours, safety documentation, purchase safety equipment.
How does health and safety affect a business?
Increased costs, time consuming, possible fines.
What are 3 advantages of flow production?
Rapid, Can be automated, EOS.
What are two disadvantages of flow production?
Customisation is difficult, Capital may be expensive.
What are 3 advantages of job production?
High quality, Motivated workers, Easily customisable.
What are two disadvantages of job production?
Slow, High labour costs.
What are two advantages of batch production?
Workers can specialise, production can take place as soon as the previous batch starts running out.
What are two disadvantages of batch production?
Requires coordination to avoid shortages, low liquidity as products need to be stored.
What are two advantages of cell production?
Efficient as works share their skills and expertise, Teamwork leads to more motivation.
What are two disadvantages of cell production?
Weaker workers may slow the teams, Requires extensive reorganisation of production process which is time consuming.
What is meant by labour-intensive production?
Using physical labour for production.
What is meant by capital-intensive production?
Using machinery and technology for production.
What are three advantages of using capital-intensive production?
Low cost per unit, Machines are usually consistent, Machines do not need breaks.
What are two disadvantages of using capital-intensive production?
High set-up and maintenance costs, Breakdowns can delay production.
What are two advantages of labour-intensive production?
Low cost per unit when labour costs are low, Provides opportunities for worker to be creative.
What are three disadvantages of using labour-intensive production?
Workers may be unreliable and need breaks, Incentives may be needed to motivate staff, Training costs may be significant.
How does the standardisation of the production process affect efficiency?
Training is minimised, allows for bulk buying, lead time is reduced.
What is meant by standardised production?
All staff use the same components and techniques in production.
What is one disadvantage of standardised production?
Customisation is not usually possible.
How does relocation or downsizing affect efficiency?
Lower wage locations, Lower rent locations
What is one disadvantage of relocation or downsizing?
It is disruptive and may cause high costs in the short term.
What is meant by relocation or downsizing?
Moving production to a cheaper or smaller location.
How does investment in capital equipment affect efficiency?
Purchasing machinery can increase the rate of production and lower fixed costs.
What is meant by organisational restructuring?
Reducing the level of staff or reorganising staff.
How does organisations restructuring improve efficiency?
Delayering reduces labour costs, Redeployment can increase motivation.
What is meant by outsourcing?
When tasks are given to other specialist businesses at lower costs.
How does outsourcing affect a business’ efficiency?
Outsourcing makes a business focus on their core functions.
How does adopting lean production techniques affect efficiency?
Improvements are made constantly, JIT minimises storage costs
