Theme 2 LOAs Flashcards
Benefit of budgets
-Allow business to plan for the future
-plan their expenditure in advance
-reduces chance of overspending
-lower cash outflows
-postive net cash flow
-increase cash reserves
-better liquidity
-able to play day to day bills
Drawback of budgets
-set limits on spending
-prevent businesses pursuing opportunities
-limits chance to expand
-leading to them producing lower output
-less like to gain EOS
-FC spread over less units
-increased FC per unit
-lower OP margins
Benefit of zero based budgets
-constructed from scratch each year
-spending needs to be justified
-spending decisions are centralised
-lower chance of overspending
-reduced costs
-porters cost leadership strategy
-able to lower selling price
-increase demand
Drawback of zero based budgets
-constructed from scratch each year
-spending needs to be justified
-requires market research to make predictions
-wages paid to researchers to prepare budgets
-increased cost of wages
-lower OP margins
-lower retained profit
-less capital to reinvest in…
Benefit of historical budgets
-business will allocate each department a certain budget for year
- indicate that management trust employees as have responsibility to use funds as they see fit without supervision
-esteem needs met according to Maslow
-increasing motivation
-lower management labor turnover
Drawback of historical budgets
-use previous years data
-may ignore changes in market
-opportunities for expansion may be missed
-restricting business scale
-lower output
-can’t gain EOS
-FC spread less
-increased FC per unit
Benefit of job production
-one off personalised products are produced
- adapted to meet specific needs
- more likely to be differentiated
-price elastic
-charge higher price with significant fall in demand
-higher sales revenue and gross profit
Job production drawback
-each product produced to customer specifications
-can’t produce in mass with automated machines
-can’t benefit from technical EOS
-lower productivity
-FC of production spread over less units
-higher unit FC
Batch production benefit
-products made in batches
-develop broad product portfolio
-can create batches of products targeted at multiple segments
-spread risk
-less vulnerable to changes in trends and product can be adapted
-ensures sales remain consistent
Batch production drawback
-products made in batches
-increased down time as business adapts machinery between batches
-low capacity utilisation during down time
-FC of production spread over less
-higher unit FC and OP
Flow production benefit
-high volume of identical products made continuously
-through use of machinery
-can achieve technical EOS
-increased productivity and output
-FC of production spread over more units
-lower unit FC
Flow production drawback
-high volume of identical products made continuously
-through use of machinery
-may damage businesses liquidity in short term
-significant investment required to purchase machinery
-reducing cash reserves in short term
-low current assets
-link to liquidity
Cell production benefit
-involves employees coming together as teams to complete each part of production
-each team is set a target to work towards
-bringing each team together
-love and belonging needs met
-increased motivation
-increased productivity - EOS
Cell production drawback
-involves employees coming together as team to complete each part of production
-employees will need to be multi skilled to work across production process
-business will need to invest into training
-increasing expenses
-reducing OP
-less retained profit
Labour intensive production benefit
-involves using large proportion of labour compared to machinery
-if business recruits or trains high skilled workers
-labour may be multi skilled
-makes production process more flexible
-can adapt production to changing trends to better meet customer needs
- PED
Labour intensive production drawback
-involves using large proportion of labour compared to machinery
-increasing number of employees compared to automated system
-increase in expenses
-lower OP and retained profit
-reduced total equity over time compared to capital intensive
-higher gearing making investment appear risky to investors
Capital intensive benefit
-involves using large proportion of capital (machinery)
-provided that machinery is up to date and well maintained
-should be increase in productivity
-increased output per machine
-FC spread over more units
-lower unit FC
-opportunity to lower SP leading to increase in demand (purchasing EOS)
Interpretation of stock control diagram
-gradient of stock level is falling more steeply
-stock level fallen below buffer stock
-may be due to…..
-either increased demand or problem I’m supply chain
-explain impact
-damage to brand reputation
Benefit of just in time stock management
-JIT mean business order just enough stock to meet customer orders
-order just enough to fulfill customer demand
-means if trends change quickly they can easily adapt to reflect this
-less likely to have excess stock that becomes waste
-reducing expenses associated with holding excess stock
-increasing OP
-more retained profit
Drawback of just in time stock management
-JIT means business order just enough stock to meet orders
-likely ordering smaller volumes each time
-as will not have large amounts of buffer stock
-not ordering in bulk means they are less likely to receive discount
-variable costs likely to be higher
-lower GP
Lean production benefit
-if business adopts lean approach e.g JIT or Kaizen
-help become more efficient
-as will be reducing waste within production process
-help business adapt a low cost strategy according to porter
-lower costs allow business to reduce SP
-increase demand
-increase SR
Lean production drawback
-if business adopts lean approach e.g JIT or kaizen
-reuiqre highly skilled staff
-as will either be tasked with identifying areas for continuous improvement or being able to adapt quickly to trends
-require business to invest heavily into staff training
-increasing expenses
-reducing OP
-less retained profit
Quality control benefit
-checking and reviewing sample of work already done
-sample of finished products compared against set of standards at end of production
-only few employees rather than everyone needs to be trained to check quality
-reduced cost of training
-lower FC
-opportunity to lower SP and increase demand
Quality control drawback
-only sample of products checked
-more defective products get sold as not every product reviewed
-increased number of product returns as not fit for purpose
-negative brand image of poor quality
-price elastic pressure to keep prices low
-lower GP
Quality assurance/TQM benefit
-quality is responsibility of every employee
-employees are trusted and trained to check quality themselves rather than team of inspectors
-improved motivation as esteem needs are met
-less mistakes made in production process
-less defective goods
-brand recognized for having reliable and durable goods
Quality assurance/TQM drawback
-each employee needs to be skilled to check quality
-higher wages to attract skilled employees and more training required
-increased cash outflows
- reduced net cash flow
-reduced cash reserves and current assets
-reduced liquidity
-may not be able to pay day to day bills forcing sale of NCA
-production process disrupted
Quality circles benefit
-group of employees meet regularly
-to identify potential improvements + resolve quality issues
-task culture is developed as employees working as team
-love and belonging needs met as employees feel part of group
-employees more motivated (Maslow) so will stay within company and develop skills
-ensure they can make effective improvements to quality
-PED
Quality circles drawback
-employees involved in groups need to be highly skilled
-to make appropriate suggestions to improve quality
-high skilled workers require higher wages to recruit + train
-significant increasing costs
-forcing prices to be high to avoid losses
-reducing competitive advantage in price elastic market
-reduce sales
Continuous improvement kaizen benefit
-kaizen is culture where all employees make small improvements
-e.g improvements in efficiency
-as all employees involved they feel trusted to make important decisions
-esteem needs met increasing motivation
-improved suggestions on how to reduce waste time in production process
-reduced waste leads to reduced costs and lower prices which increases demand
Continuous improvement kaizen drawback
-employees need to be highly skilled
-to make appropriate suggestions to improve efficiency or quality
-highly skilled workers require higher wages to recruit + train
-significantly increasing costs
-forcing prices to be high to avoid losses
-reducing competitive advantage in price elastic market
-lower sales
Impact of inflation on cost of sales
-increase inflation
-increase in cost of goods and services
-increased cost of raw materials
-increased cost of sales
-lower GP
-lower OP
-pressure to increase prices
-fall in demand for business goods
Impact of inflation on cost of sales - however
-if business sells a price in elastic good
-the increase in price caused by increase in cost
-will lead to insignificant fall in demand
-therefore GP won’t fall significantly or at all
-reducing impact of inflation
Impact of inflation (using income elasticity)
-increase inflation
-increased consumer spending on necessities
-e.g milk,fuel
-lower disposable income for luxury and normal goods
-such as fashionable clothing
-customers switch to inferior goods
-lower demand for luxury and normal goods
-lower sales revenue leading to lower GP
Impact of inflation (using income elasticity) - however
-if wages rise by more than inflation
-real wages will rise
-rise in income rather than fall in income
-increased demand for luxury and normal goods
-such as fashionable clothing
Stronger pound benefit
-pound buys more foreign currency
-less pounds required to buy foreign currency
-therefore less pounds required to buy foreign goods
-cheaper to import raw materials
-lower cost of sales
-can lower SP
Strong pound drawback 1
-foreign currency buys less pounds
-more foreign currency needed to buy pounds
-therefore price of uk goods increase for foreigners
-uk exports dearer and less competitive
-fall in demand for uk goods
-pressure to lower prices
Strong pound drawback 2
-the pound buys more foreign currency
-less pounds required to buy foreign currency
-therefore less pounds required to buy foreign goods
-foreign competitors products appear cheaper
-customers switch to foreign imports
-fall in demand for domestic businesses
Weak pound benefit 1
-foreign currency buys more pounds
-less foreign currency needed to buy pounds
-therefore price of uk goods falls for foreigners
-uk exports are cheaper and more competitive
-rise in demand for uk goods
-EOS
Weak pound benefit 2
-pound buys less foreign currency
-more pounds needed to buy foreign currency
-foreign goods become more expensive as more pounds required to purchase them
-foreign competitors unable to compete on price
-increase demand for domestic business
Weak pound drawback
-pound buys less foreign currency
-more pounds needed to buy foreign currency
-foreign goods become more expensive as more pounds required to purchase them
-increased cost of raw materials if business relies on foreign goods
-increasing cost of sales
-lower GP margin
