theme 2 key terms

Job production

Production of one off items to meet the needs of each individual customer

Batch production

Identical items produced in groups, each item passing through the production process at the same time

Flow production

Technique that moves products along an assembly line in a continuous process

Cell production

A form of flow production whereby the production line is split into a series of self-contained cells

Productivity

A measure of the efficiency in the production process

Efficiency

A production process is most efficient when the unit costs are as low as possible

Capital intensive

When a large percentage of total costs are tied up in purchasing and machinery

Labour intensive

When labour costs form a high percentage of total costs.

Capacity

The maximum amount of output achievable if all recourses are fully utilised

Capacity utillisation

The percentage of total capacity that is actually being used in production, indicating how efficiently resources are being utilized.

Stock control

The process of managing inventory levels to ensure that a business has the right amount of stock at the right time, minimizing costs and maximizing efficiency.

Buffer stock

Inventory held to prevent stockouts and ensure smooth production.

Reorder level

The predetermined inventory level at which a new order should be placed to replenish stock before it runs out, helping to maintain production continuity.

Lean production

A strategy that aims to minimize waste and maximize productivity by optimizing the production process, focusing on efficiency and quality.

Muda

The Japanese term for waste, particularly in manufacturing processes.

Just in time

A production strategy that involves receiving goods only as they are needed in the production process.

Kaizen

A Japanese philosophy that focuses on continuous improvement in all aspects of life, particularly in business and manufacturing processes.

Quality

The ability of a product or service to meet customers expectations

Quality assurance

Checking of a good or service at each stage of production

Quality control

Checking of a good or service before it’s delivered to the customer

Quality circles

Informal groups of workers who meet to discuss issued regarding quality

Total quality management

Quality assurance technique where quality is seen as the responsibility of all employees

Sales volume

The amount of sales expressed as a number of units sold

Sales revenue

The amount of sales expressed as the total sum of money spent by consumers

Fixed costs

Costs that do not vary with production volume, such as rent or salaries.

Variable costs

Costs that vary directly with production volume, such as materials and labor.

Total costs

The sum of both fixed costs and total variable costs

Break even point

The production level at which total revenues equal total costs, resulting in no profit or loss.

Break even output

The number of items that a business must sell to reach break even point

Contribution

The amount of money each unit sold contributes towards fixed costs and once break even point has been achieved, it contributes to profit

Margin of safety

How much actual output is above the break even level of output

Break even analysis

A financial assessment that determines the level of sales needed to cover total costs, resulting in neither profit nor loss.

Rent

A tenant’s regular payment to a landlord to use a property

Business rates

A local tax charged on most non-domestic properties

Wages

A fixed, regular payment earned for work or services

Interest payments

The cost of borrowing money, usually expressed as a percentage of the amount borrowed, paid periodically.

Commission

A payment made to an employee based on the sales they generate, often calculated as a percentage of the sales amount.

Cash flow

The movement of money into and out of a company over a certain period of time

Cash flow forecast

A projection of future cash inflows and outflows for a business over a specific time frame, helping to manage liquidity and financial planning.

Cash flow statement

A financial document that provides a summary of the cash inflows and outflows for a company over a specific period, detailing how cash is generated and used.

Cash inflows

The money received by a business from various sources, such as sales, investments, or financing activities, during a specific period.

Cash outflows

The money spent by a business on expenses, investments, or financing activities during a specific period, impacting overall cash management.

Trade credit

A financing arrangement where a buyer can purchase goods or services on account and pay the supplier later, typically without interest.

Sales forecasting

The process of estimating future sales revenue based on historical data, market trends, and economic conditions, helping businesses plan their operations and budgets.

Budgets

Estimate of income, expenditure and profit over a set period of time.

Income budget

A detailed plan outlining expected income from various sources over a specific period, helping to manage financial resources effectively.

Expenditure budget

A plan that details the expected costs and expenses over a specific period, aiding in financial management and allocation of resources.

Profit budget

A financial plan that outlines expected profits by comparing projected income and expenditure over a set period. It helps businesses assess their financial performance and set profit-related goals.

Historical budgeting

A method that involves reviewing past budgets and financial performance to inform future budgeting decisions, enabling more accurate forecasting and resource allocation.

Zero based budgeting

A budgeting method where all expenses must be justified for each new period, starting from a "zero base," rather than using prior budgets as a baseline.

Variance

The difference between projected and actual financial performance, indicating how well a business adheres to its budget.

Adverse variance

Occurs when actual financial results are worse than budgeted or expected outcomes, indicating a negative performance.

Favourable variance

Occurs when actual financial results are better than budgeted or expected outcomes, indicating a positive performance.

Source of finance

Where the finance is coming from

Method of finance

How the finance is provided

Loans

A sum of money given to a business that is expected to be paid back with interest

Share capital

The amount of finance raised through selling shares to shareholders

Grants

A fixed amount of money given by the government to a business on the condition that they meet a certain criteria

Leasing

Renting an asset that the business requires

Overdraft

An agreement with the bank that a business can make payments exceeding the available cash balance in their bank account

Savings

When the business sets aside money for emergencies, future growth or as a financial cushion

Cash

The physical money a business has

Family and friends

Investment from people known to the entrepreneur

Banks

Financial institutions that are licensed to take deposits and provide loans

Owner’s capital

The funds that an entrepreneur invests in their own business from personal savings or other resources.

Government or council

An organization that provides funding, support, or regulations to businesses, often through grants or loans.

Sales of assets

The process of selling property or resources owned by a business or individual to raise funds or reduce debt.

Peer to peer funding

A method of raising capital where individuals lend money directly to other individuals or businesses, often through online platforms, bypassing traditional financial institutions.

Business angels

Experienced high net individuals or businesses providing finance to businesses with whom there is no relationship or contact

Crowd funding

The practice of raising small amounts of money from a large number of people, typically via the internet, to fund a project, venture, or cause.

Retained profit

The portion of a company's earnings that is reinvested in the business instead of being distributed as dividends to shareholders.

Private equity firms

Investment companies that provide capital to private companies or buyouts of public companies, often seeking to improve profitability before selling the companies at a profit.

Suppliers

Entities that provide goods or services to businesses, often playing a critical role in the supply chain.

Economic growth

The increase in the production of goods and services in an economy over time, typically measured by the rise in GDP.

GDP

Gross Domestic Product, a monetary measure that represents the market value of all final goods and services produced in a country during a specific period.

Economic cycle

The natural fluctuation of economic activity over time, characterized by expansion and contraction phases.

Economic boom

A period of significant economic expansion characterized by increased production, employment, and consumer spending. It often precedes a recession in the economic cycle.

Economic decline

A significant decrease in economic activity, often marked by a rise in unemployment and a drop in consumer spending.

Trough

The lowest point in the economic cycle, representing a period of decline before recovery begins. It is characterized by low production, high unemployment, and reduced consumer spending.

Economic shocks

Events that cause sudden and significant changes in economic activity, typically disrupting normal market function and can lead to recessions or recoveries.

Interest rates

The cost of borrowing money, expressed as a percentage of the loan amount. Interest rates influence consumer spending, investment, and overall economic activity.

Government spending

The total expenditures by the government on goods and services meant to influence the economy, including infrastructure, education, and social services. Government spending can stimulate economic growth and affect employment levels.

Direct tax

A tax levied directly on individuals or organizations' income or profits. Direct taxes include income tax and corporate tax, and they are used to generate revenue for government services.

Indirect tax

A tax imposed on goods and services rather than on income or profits. Indirect taxes include sales tax and VAT, which are usually passed on to consumers.

Exchange rates

The value of one currency in relation to another, influencing international trade costs and foreign investment.

Appreciation

An increase in the value of a currency relative to others, making imports cheaper and exports more expensive.

Depreciation

A decrease in the value of a currency relative to others, making imports more expensive and exports cheaper.

International trade

The exchange of goods and services between countries, influenced by factors such as exchange rates, trade agreements, and tariffs.

Imports

Goods and services brought into a country from abroad, typically for sale in the domestic market.

Exports

Goods and services sold to other countries, contributing to a nation's economy and trade balance.

Inflation

The rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power.

Legistlation

Rules or laws enacted by a governing body to regulate behavior and practices of a business within a society.

Consumer protection

Laws and regulations designed to ensure the rights of consumers, providing them safety and information regarding products and services.

Employee protection

Laws and regulations that ensure safe working conditions, fair wages, and the rights of employees in the workplace.

Environmental protection

Laws and regulations aimed at preserving natural resources and safeguarding ecosystems from pollution and destruction.

Competition policy

Laws and regulations that promote fair competition among businesses, preventing monopolies and encouraging market access.

Health and safety

Laws and regulations designed to ensure the physical and mental well-being of employees and customers in the workplace.

Income statements

Financial reports showing a company's revenues and expenses over a specific period, reflecting profitability.

Direct costs

The direct costs attributable to the production of goods sold by a company, including materials and labor.

Indirect costs

Costs not directly tied to production, such as overhead, administration, and selling expenses.