Unit 1: Nature and Purpose of a Business

Question 1

Why do businesses exist?

Answer 1

To satisfy our wants and needs for a range of goods and services

Question 2

define a want

Answer 2

something you can survive without, but would like to satisfy a need

Question 3

define a need

Answer 3

something that you need in order to live

Question 4

give and example of a want and need (beverages)

Answer 4

I need water to survive but I want orange juice to satisfy that need

Question 5

why would we be unable to provide what businesses provide, for ourselves?

Answer 5

• we do not have the skills/time to source them
• costs of supplying them ourselves would be prohibitive

Question 6

define a good

Answer 6

a physical product e.g. a house or designer suit.

Question 7

define a service

Answer 7

an intangible item such as insurance or decorating

Question 8

define a product

Answer 8

a more general term which includes goods and services

Question 9

what 4 reasons are businesses so important for a country

Answer 9

• create employment
• creates wealth
• creates new products
• enhances a country’s reputation

Question 10

what are the 4 functional areas of a business?

Answer 10

HR, operations, finance, marketing

Question 11

what do businesses do?

Answer 11

businesses transform resources into goods and services that are in demand from individuals and other businesses

Question 12

what process do inputs (resources) need to undergo to form outputs (products)

Answer 12

the transformation process

Question 13

what is the transformation process?

Answer 13

adds value by turning inputs into outputs

Question 14

list 6 inputs

Answer 14

• people
• finance
• capital / equipment
• land
• natural resources
• materials

Question 15

list 3 outputs

Answer 15

• goods
• services
• waste products

Question 16

what are the three types of business

Answer 16

• business to business
• business to consumer
• consumer to consumer

Question 17

give an example for each type of business

Answer 17

B2B - Samsung

B2C - Tesco

C2C - Ebay

Question 18

what are the 3 sectors in which businesses can operate in? define each

Answer 18

Primary : obtaining raw materials

Secondary : manufacturing raw materials to create something

Tertiary : supplying a service (selling the products)

Question 19

give at least one example for each sector of businesses

Answer 19

Primary - Farming, collecting wood to create furniture

Secondary - BMW mini plant, IKEA factory

Tertiary - IKEA store, hairdressers, ASDA

Question 20

why are outputs worth more than inputs

Answer 20

The transformation process adds value to inputs creating outputs.

Question 21

list the order of downward communication (top to bottom)

Answer 21

mission statement, corporate aims, corporate objectives, functional objectives.

Question 22

define mission statement

Answer 22

sets out a businesses overall purpose to direct and stimulate the entire organisation

Question 23

defines aims

Answer 23

long term plans of the business from which its corporate objectives are derived

Question 24

define objectives

Answer 24

medium to long term goals established to coordinate the business

Question 25

SMART objectives: what does SMART stand for?

Answer 25

Specific Measurable Agreed Realistic Time Specific

Question 26

how must an objective be Specific?

Answer 26

they must outline clearly what is being measured, such as sales or profits

Question 27

how must an objective be Measurable?

Answer 27

must include a quantifiable target, such as a 20% increase

Question 28

how must an objective be Agreed?

Answer 28

must be inclusive of everyone to encourage commitment to the target, not just imposed

Question 29

how must an objective be Time Specific?

Answer 29

Employees must know how long they have to achieve the target

Question 30

what are profit business objectives?

Answer 30

making as much profit as possible but also considering reputation and not exploiting the customer.

Question 31

what are diversification business objectives?

Answer 31

producing an increased range of unrelated goods and services?

Question 32

what are growth business objectives?

Answer 32

focus on increasing customer numbers as opposed to profit; secure the growth today and the profits will follow

Question 33

what are cash flow business objectives?

Answer 33

making sure they stay in positive cash figures, being able to pay debts on time - can be more important for small businesses

Question 34

what are survival business objectives?

Answer 34

the business to continue to trade over a defined period of commercial pressure (new startup, COVID)

Question 35

when are times when survival objectives can become key?

Answer 35

- periods of recession - intense competition times of crisis such as during a hostile takeover bid

Question 36

what are social and ethical business objectives?

Answer 36

ethical - based on moral principles social - related to the interactions of individuals

Question 37

what are the 5 benefits of setting objectives

Answer 37

- gives everyone a common goal - motivates employees - provides analysis which can help track progress - can compare themselves to competitors - see what is going wrong and make adjustments

Question 38

What would a business maximising profit in the short run lead to in the future?

Answer 38

In the long run, it would leave themselves vulnerable to being in a weaker position.

Question 39

How will investing in long run objectives effect the business in the short run?

Answer 39

It'll affect the profit in the short run when investing in things such as training employees or other expenses

Question 40

define fixed costs

Answer 40

costs that stay the same regardless of output

Question 41

define variable costs

Answer 41

costs that fluctuate with output

Question 42

define business costs

Answer 42

any expenditure that a business has due to trading

Question 43

list 3 examples of fixed costs

Answer 43

rent salaries maintenance costs

Question 44

list 3 examples of variable costs

Answer 44

ingredients raw materials fuel

Question 45

define semi-variable costs

Answer 45

characteristics of both fixed and variable costs, increases with output but at a slower rate.

Question 46

give an example of a semi-variable cost

Answer 46

electricity - the more units you make... may exceed base rate or need new premises

Question 47

what is the equation for total costs

Answer 47

total costs = fixed costs + variable costs

Question 48

what does total costs assume however?

Answer 48

that all costs faced by a business are either fixed or variable

Question 49

define average costs

Answer 49

cost of producing one single unit

Question 50

equation for average cost per unit

Answer 50

average cost per unit = total cost / level of production

Question 51

what will knowing the costs help a business do?

Answer 51

it'll help them set the price in order to get the desired level of profit

Question 52

why is finding average costs in real life hard?

Answer 52

some equipment may be used for a range of products

Question 53

define revenue

Answer 53

the income a business receives over a period of time

Question 54

what are the three other terms that revenue is also known as?

Answer 54

sales income turnover sales revenue

Question 55

what is the equation for revenue

Answer 55

revenue = quantity sold x selling price

Question 56

what is the equation for profit?

Answer 56

profit = total revenue - total costs

Question 57

what two factors does profit depend upon?

Answer 57

profit margin quantity/volume of sales

Question 58

define profit margin

Answer 58

the amount or percentage of the final selling price that is profit

Question 59

what 4 reasons are profits important?

Answer 59

Attractive for investment Attractive to customers Easier to make agreements Confidence from suppliers, longer trade credit

Question 60

what is the equation for variable costs?

Answer 60

variable costs = variable cost per unit x quantity produced