Businesse theme 2

What is batch production?

A manufacturing process in which components or goods are produced in groups (batches).

What term describes production where output is mainly through machinery and capital relative to labour?

Capital-intensive production.

What is cell production?

A method of manufacturing where employees are organised into multiskilled teams, with each team responsible for a particular part of the production process.

What describes the ability to minimise waste and reduce costs by making the best use of resources?

Efficiency in production.

What is continuous production?

The manufacture of an item/product in a continuous process.

What is job production?

The production of a single good/service that is tailored to customer requirements (one at a time).

What is labour-intensive production?

A production method that requires a higher proportion of labour than capital or machinery.

What is standardisation in production?

Using uniform resources and activities or producing a uniform product.

What is capacity utilisation?

Current output as a percentage of maximum possible output.

What is downsizing?

Involves reducing capacity, such as making employees redundant, to cut costs.

What is full capacity?

The point where a business cannot produce any more output.

What is overutilisation of capacity?

The position where a business is running at full capacity and straining.

What is underutilisation of capacity?

The position where a business is producing at less than full capacity.

What is buffer stock?

Stock held as protection against reductions in supply; a minimum level of stock kept in reserve.

What is the minimum level of stock kept as a buffer called?

Buffer stock.

What is inventory (stock) in a business context?

Raw materials, work-in-progress (WIP) and finished goods held by a business.

What is Just-in-Time (JIT)?

A stock control system where items arrive just before they are needed, with little or no buffer stock.

What is lean production?

An production approach focusing on waste minimisation, often incorporating KTotal Quality Management (TQM) and Just-in-Time (JIT).

What is Economic Order Quantity (EOQ)?

The optimum quantity of stock to hold to minimise total costs.

What is reorder level?

The level of current stock at which new orders should be placed.

What is order quantity?

The amount of stock ordered when an order is placed.

What is inventory?

Materials, WIP and finished products held by a business for future sale or production.

What is equity?

Share capital plus retained profit minus drawings; represents owners’ stake in the business.

What is working capital?

Current assets minus current liabilities; indicates liquidity.

What is liquidity?

The ability to pay short-term debts as they fall due using current assets.

What are current assets?

Assets that can be converted into cash within 12 months (e.g., inventories, trade receivables, cash).

What are current liabilities?

Debts that must be repaid within one year.

What are long-term liabilities?

Debts owed by the business for more than one year (e.g., loans).

What is net profit margin?

Net profit divided by sales revenue times 100.

What is operating profit?

Profit from core business activities: total revenue minus operating costs (excluding interest and tax).

What is a profit and loss account?

A document showing income and expenditure of a business over a financial year.

What is tax?

A charge by governments on activities, earnings and income.

What are external failure conditions?

Factors outside a business that might cause failure (competition, legislation, consumer tastes, economic conditions).

What are internal causes of business failure?

Causes within the business such as poor decision‑making or loss of key staff.

What is overtrading?

Growing too fast and exhausting cash resources, leading to cash flow problems.

Economic variables

Features of an economy which have effects on business and consumers e.g unemployment, inflation and exchange rate.

Internal finance

The raising of capital form within/inside the business. e.g owners capital, personal savings and retained profit.

Personal savings/owners capital

A source of internal finance provided by the owner of the business/personal money from the owner.

Sales of assests

A type of internal finance/money borrowed from a bank paid back with intrest.

Business Angels

individuals who invest in a business in exchange for shares/ stake in a business.

Crowdfunding

Where a large number of individuals can provide direct funding for a business or project often through a website.

retained profit

Profit re-invested back into/kept by the business which is not paid as a dividend. It is an internal source of finance.

Bank loan

An external method of finance/ money borrowed from a bank paid back with interest.

External finance

Money raised from outside the business

Grant

A sum of money given by the government or other organization and does not be to be repaid

Loan

An external source. An amount of money borrowed, usually repayable after a fixed term of more than 12 months

Leasing

A contract to acquire the use of resources such as property or equipment.

Overdraft

When a business has a negative bank balance because the amount with drawn is greater than the current balance

Peer to peer funding

When a person lends money to other individuals or businesses vai online transactions

Share capital

The finance raised a business issuing/selling of new shares.

Trade credit

Where a firm receives stock/inventory/raw materials from a supplier, which does not have to be paid until later

Venture capital

External source of fiance when the business isuses shares to a small number of investors in return for a capital injection into the company

Liability

A liability is an obligation to pay another person/lender/supplier

Limited liability

The obligation of a shareholder for the debts of a business is limited to the value of their investment

Unlimited liability

The obligation of a business owner to cover all of the debts of the business

Business Plan

A document giving details of a variety of aspects about the business in order to provide strategic look at the business and to attract investors. It contains details such a the product, costs, revenues and cash flow forecasts

Cash flow

A document which details how the business is going to develop over a period of time. It includes elements like a forecast of cash flow into and out of a business overtime.

Cash inflow

The flow of cash into a business

Cash outflow

The flow of cash out of a business

Cash flow forecasts

The predicted flow of cash into and out of a business over a period of time

Closing balance

Cash left in the account at the end of the month. Net cash flow + opening balance

Net cash flow

The difference between the cash flowing in and out of a business over a period of time. Cash inflows - cash outflows.

Opening balance

Cash in the bank on the first day of the month

Consumer trends

Habits or behaviour of those involved in the use of good and services

Economic uncertainty

Where firms/consumer are unable to predict their future sales/ incomes and costs

Sales forecast

A prediction of expect levels of sales volume/revenue for a business for a future period

Average cost

The cost of producing one unit. Total costs/output

Fixed costs

Costs that do not change when output/sales change

Revenue

The amount of income for a business generated from its sales. Selling price x quantity sold

Total costs

Total fixed costs + total variable costs

Variable costs

Costs that vary according to the level of output

Break even

The level of output where the total revenue is equal to the total cost. Foxed costs / unit contribution

unit contribution

selling price - variable cost per unit

Margin of safety

The difference between the current or planned level of output/sales and the break even level of output

Adverse variance

Higher costs than the budget

Budget

A financial plan of income and expenditure prepared/agreed in advance

Favourable variance

Lower costs than budget

Historical budgeting

A budget based upon previous financial figures

Variance analysis

Shows the difference between budgeted and actual figures and can be calculated at the end of a financial period, once the actual figures are known

zero based budget

A type of budget where no money is allocated for spending unless it has been justified

Cash

An asset of a business which can come from investors lenders or customers

Cost of sales

The cost of inventory bought or produced

Gross profit

Revenue - cost of sales

Gross profit margin

Gross profit / sales revenue x 100

Operating profit

Gross profit - other operating expenses