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Business AS Level > Unit 1: Nature and Purpose of a Business > Flashcards

Unit 1: Nature and Purpose of a Business Flashcards

1
Q

Why do businesses exist?

A

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

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2
Q

define a want

A

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

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3
Q

define a need

A

something that you need in order to live

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4
Q

give and example of a want and need (beverages)

A

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

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5
Q

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

A
  • we do not have the skills/time to source them
  • costs of supplying them ourselves would be prohibitive
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6
Q

define a good

A

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

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7
Q

define a service

A

an intangible item such as insurance or decorating

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8
Q

define a product

A

a more general term which includes goods and services

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9
Q

what 4 reasons are businesses so important for a country

A
  • create employment
  • creates wealth
  • creates new products
  • enhances a country’s reputation
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10
Q

what are the 4 functional areas of a business?

A

HR, operations, finance, marketing

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11
Q

what do businesses do?

A

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

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12
Q

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

A

the transformation process

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13
Q

what is the transformation process?

A

adds value by turning inputs into outputs

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14
Q

list 6 inputs

A
  • people
  • finance
  • capital / equipment
  • land
  • natural resources
  • materials
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15
Q

list 3 outputs

A
  • goods
  • services
  • waste products
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16
Q

what are the three types of business

A
  • business to business
  • business to consumer
  • consumer to consumer
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17
Q

give an example for each type of business

A

B2B - Samsung

B2C - Tesco

C2C - Ebay

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18
Q

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

A

Primary : obtaining raw materials

Secondary : manufacturing raw materials to create something

Tertiary : supplying a service (selling the products)

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19
Q

give at least one example for each sector of businesses

A

Primary - Farming, collecting wood to create furniture

Secondary - BMW mini plant, IKEA factory

Tertiary - IKEA store, hairdressers, ASDA

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20
Q

why are outputs worth more than inputs

A

The transformation process adds value to inputs creating outputs.

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21
Q

list the order of downward communication (top to bottom)

A

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

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22
Q

define mission statement

A

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

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23
Q

defines aims

A

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

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24
Q

define objectives

A

medium to long term goals established to coordinate the business

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25
Q

SMART objectives: what does SMART stand for?

A

Specific
Measurable
Agreed
Realistic
Time Specific

26
Q

how must an objective be Specific?

A

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

27
Q

how must an objective be Measurable?

A

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

28
Q

how must an objective be Agreed?

A

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

29
Q

how must an objective be Time Specific?

A

Employees must know how long they have to achieve the target

30
Q

what are profit business objectives?

A

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

31
Q

what are diversification business objectives?

A

producing an increased range of unrelated goods and services?

32
Q

what are growth business objectives?

A

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

33
Q

what are cash flow business objectives?

A

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

34
Q

what are survival business objectives?

A

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

35
Q

when are times when survival objectives can become key?

A
  • periods of recession
  • intense competition times of crisis such as during a hostile takeover bid
36
Q

what are social and ethical business objectives?

A

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

37
Q

what are the 5 benefits of setting objectives

A
  • 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
38
Q

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

A

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

39
Q

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

A

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

40
Q

define fixed costs

A

costs that stay the same regardless of output

41
Q

define variable costs

A

costs that fluctuate with output

42
Q

define business costs

A

any expenditure that a business has due to trading

43
Q

list 3 examples of fixed costs

A

rent
salaries
maintenance costs

44
Q

list 3 examples of variable costs

A

ingredients
raw materials
fuel

45
Q

define semi-variable costs

A

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

46
Q

give an example of a semi-variable cost

A

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

47
Q

what is the equation for total costs

A

total costs = fixed costs + variable costs

48
Q

what does total costs assume however?

A

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

49
Q

define average costs

A

cost of producing one single unit

50
Q

equation for average cost per unit

A

average cost per unit = total cost / level of production

51
Q

what will knowing the costs help a business do?

A

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

52
Q

why is finding average costs in real life hard?

A

some equipment may be used for a range of products

53
Q

define revenue

A

the income a business receives over a period of time

54
Q

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

A

sales income
turnover
sales revenue

55
Q

what is the equation for revenue

A

revenue = quantity sold x selling price

56
Q

what is the equation for profit?

A

profit = total revenue - total costs

57
Q

what two factors does profit depend upon?

A

profit margin
quantity/volume of sales

58
Q

define profit margin

A

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

59
Q

what 4 reasons are profits important?

A

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

60
Q

what is the equation for variable costs?

A

variable costs = variable cost per unit x quantity produced

Business AS Level (5 decks)

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