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68 Cards in this Set

  • Front
  • Back

Meaning and types of budgets

Financial plan for the future

* Income
* Expenditure
* Profit

Variances formula and how answer is expressed

Actual - Budgeted

Fav = More profit

Adv = Lower profit

What ways can budgets be set

* Historical budgeting - Update from previous year
* Zero based budgeting - plan from nothing, based on new proposals and more accurate.

Budgeting ADV/DIS

* Control in & out
* Delegate to departments = motivated
* Staff motivated to meet targets
* Restrictive decisions
* Time consuming - updating
* Does not focus on issues e.g. product
* Rivalry of departments

Causes of cash flow problems

* Low profit
* Too much stock
* Too much production capacity
* Seasonal demand
* Allowing too much Cr
* Growing fast
* Unexpected changes in the business

Methods of improving cash flow ST & LT


* Debt factoring
* Lower costs
* JIT stock
* CL - Overdraft (delay payments)
* Sell surplus NCA or sale and leaseback
* Improve efficiency & productivity
* Increase LTL & Equity
* Reduce spend on NCA
* Better credit control on TR (e.g T&C, Cr check, disc for early)

Debt factoring

* Third party buys TR at a discount (usually 5%)
* They chase the debts
* Short term inflow

Net Profit Margin

Net profit/Revenue x 100

How profitable business is high = better


Net profit/Capital employed x 100

Return on investment

Ways to improve profit

* Increase quantity sold D/O demand
* Raise prices D/O price elasticity of demand
* Reduce VC D/O quality
* Reduce FC D/O quality & output decrease?
* Increase output (economies of scale) D/O spare capacity, demand?


Levels where each level is responsible for level below

Tall hierarchy

* More layers
* Narrow span of control
* More control
* Less delegation
* Longer communication
* More staff = Higher cost

Flat hierarchy

* Few layers
* Wide span of control
* More delegation
* Faster communication
* Less staff = Less cost

Span of control

No of people who report directly to a manager


* Less
* Monitor more closely
* Could de-motivate
* More
* Good for routine tasks
* Indepandance



* Senior staff make decisions
* Delegate more responsibility


Removing layers of management from the hierarchy.

* Faster communication & decisions
* Lower costs
* Redundancies could demotivate
* Less opportunity for promotion



Delegation - assign tasks to workers

Empowerment - enabling employees to make decisions once reserved for managers e.g. deal with customer complaints (links to decentralisation)

Delegating ADV/DIS

Assignment of responsibility to others to carry out specific activities.

* Reduce management stress
* Managers can focus on key tasks
* Subordinates motivated
* Potentially better decisions
* Some businesses should not delegate
* Depends on quality/experience of workforce
* Could increase workload/stress on subordinates

Workforce roles

* Director
* Manager
* Team Leader
* Supervisor

Labour Productivity

Output per period/No of employees

Staff Turnover

No of staff leaving/no of staff employed x100


No of staff absent/Total number of staff x100

Recruitment process

* Vacancy
* Job description (Responsibility & Job title)
* Person specification (qualifications, perso)
* Advertise job
* Process applications
* Shortlist
* Interview

Internal Recruitment

Job given to staff already employed, involves promotion or reorganisation.

* Cheap & quick
* Familiar with business
* Limits new ideas
* Resentment from employees not chosen
* Creates another vacancy

External Recruitment

Employed from outside the business

* New ideas
* More workers to choose from
* Wide range of experience
* Longer process
* Expensive (ad's & interviews)
* Still may not find a good candidate


* Interviews
* Assessment centres
* Tests

On-the-job Training

Training in the workplace (Demonstration, shadow, mentor)

* Easy
* Cost effective
* Productive
* Meet colleges
* Trainer quality?
* Bad habits could be passed

Off-the-job Training

Training away from workplace (courses, webinars)

* Specialist skills
* Intensive
* Expensive
* Lost working time & output
* May still need induction

What is motivation and the advantages of it?

The will to work

* Better productivity
* Better quality & customer service
* Lower absenteeism & staff turnover
* Lower training and recruitment costs

Financial Motivation

Used more in tall structure

* Salary
* Bonuses
* Commission
* Perks

Non-Financial Motivation

Used more in flat structure

* Empowerment
* Promotion
* Better communication
* Better working environment
* Teamwork
* Job enrichment (challenging & interesting tasks)
* Job enlargement (more tasks of similar complexity)


Hierarchy of needs
People need basics first and have specific needs.

Hierarchy of needs

People need basics first and have specific needs.


Hygiene Factors:

* Working conditions
* Policy
* Pay
* Job enrichment & empowerment
* Personal achievement & growth


Scientific management

People are in it for the money

(should be paid on a piece-rate basis)


Human relations

More productive & motivated if:

* Interaction
* Teamwork
* Socialising
* Democracy

Unit costs

Total cost/output

Capacity utilisation

Output/capacity x100

* 100% = low quality & cant produce more
* 90% good (economies of scale & low unit cost)
* Can increase capacity by buying new machine

How to add capacity to cope with extra unexpected demand

Should predict demand but can add capacity by:

* Subcontract
* Overtime
* Temporary
* Part time staff
* Manage stocks more effectively
* Rationalisation

Ways to improve productivity

* Training (disrupt prod in ST)
* Motivation
* More/Better capital equipment
* Better quality raw materials = less waste

Quality and how it affects a business

Meets needs and expectations of customers

High quality:

* Lower costs (less waste, ads & complaints)
* More revenue (rep, USP = charge more)
* More profit
* Cheaper
* More complaints/wastage
* Loose customers to competitors

Quality control & assurance

Quality control:

* Errors are unavoidable,
* Inspectors check at end (high cost)
* Quality built into production process
* The whole organisation works toward it
* Motivated employees


* Whole workforce working towards the highest possible quality
* Committed
* Training to improve
* Costly
* Extra work could demotivate, but could offer staff rewards.
* Better reputation, customer loyalty, USP, charge more, higher profits.

ISO 9000

* Quality standard which proves quality
* Can be used as a marketing tool

Kaizen continuous improvement

Cell production


* Continuously examining ad improving quality and productivity
* Teams responsible for doing part of prod process, motivate
* Reduces cost, need reliable suppliers

Customer service and how it affects the business

The way a business looks after its customers

Good customer service

* Charge more
* Repeat purchase & loyalty
* More competitive
* More sales
* Word of mouth
* Marketing tool

Factors choosing supplies and how they can improve operational performance

* Price (lower costs)
* Quality (satisfy customers, less waste)
* Payment terms (improve cash flow)
* Reliability (No delays)
* Flexibility & Capacity (meet unexpected demand & JIT)
* Few suppliers = economies of scale but dangerous

Types of technology and ADV


* Fast
* Better productivity & quality
* Less waste
* More efficient, better decisions, lower admin cost
* Faster internal/External
* With customer online, loyalty card, direct marketing.

Technology DIS

* Constant updates
* Staff training to operate (cost)
* Higher initial cost
* Redundancies
* Could de-motivate

Marketing & Marketing Mix

Marketing identifies, anticipates and satisfies customers needs and wants.


Marketing mix can be influenced by finance, technology and market research

4P's need to work together

Niche and mass marketing


* Small segment of larger market with specific needs and wants
* Target particular customers
* Less production
* Charge more, high margins
* General targeting
* Majority of market
* High production
* Success from low cost operation or leading brands

B2B marketing

Requires relationships and after sales to succeed


* Innovate (High risk, £R&D, High rewards. USP)
* Replace existing product
* Imitate

Can be Influenced by Technology, competitors actions & skills of managers and owners.

Product Life Cycle

Product extention could involve a new market, re-design or promotion.

Product extention could involve a new market, re-design or promotion.

Boston Matrix

Price (7 types)

Skimming - High price to maximise profit

Penetration - Low price to gain market share

Leader - Powerful brand that sets price

Taker - Buyers dictate price (milk prod to Tesco)

Predatory - Sell at loss to kill competition

Loss Leader - Loss to attract to other products

Psychological - high price = high quality, 99p

Price elasticity of demand

* PED 0 = Perfectly Inelastic (demand does not change at all)
* PED less than 1 = Inelastic (Demand barely changes)
* PED more than 1 = Elastic (demand changes)

(However other factors also affect demand e.g. ads, season)

Price elasticity of demand formula

% Change in demand/% Change in price

Place (types of selling & distribution)

* Direct selling
* Indirect selling
* Can use several e.g. online
* Choose to suit needs and maximise profit
* Depends on product e.g. high quality = exclusive stores, milk = everywhere.
* Each party (e.g. retailer) called an intermediary

Promotional mix

The promotional techniques a business uses

* PR - media
* Branding - image that is recognisable
* Merchandising - POS, Logo
* Sales promotion - BOGOF
* Direct selling - salesman
* Advertising
* Depends on lifecycle e.g. intro = more, competition, budget and product.

Competitiveness depends on

Perfect competition



Perfect competition

Methods of improving competitiveness

* Marketing
* Differentiate
* Reduce costs
* Customer service
* Quality
* Training
* Better reputation = lower marketing costs & loyal customers = higher sales & profit

Work out percentage changes

Difference/Original x100

Exam tips

* Think how and why when analysing

* Always keep in context and use calculated figs when you can

* Should lead back to point after analysed

* Think about how it will affect other functional



Efficiency - resources used in production (e.g. materials) to get low cost per unit.

Productivity - how much is produced in a certain amount of time, relation between inputs and outputs



Cash flow

Measuring and increasing profit


Organisational structure

Recruitment selection and training






Customer service



Niche and mass