Notesale: Turn your study into money

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Exam Marking Scheme
Paper 1
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) 2K (2m)
b
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) 2K, 2Ap (4m)
d
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) 1K, 1Ap, 2An, 2Ev (6m)

2
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a
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) 3K, 2Ap, 3An, 4Ev (12m)
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) or lower cost
of material

Chapter 2: Classification of Business
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Primary Sector: Extract natural resources & turn it to raw materials
Secondary Sector: Manufacture goods using raw materials
Tertiary Sector: Provide service to consumer & other sectors
Deindustrialization: Decline in importance of secondary sector
 Causes: natural resource depletes, growth of service sector
Mixed Economy: Has both private & public-sector businesses
Private Sector: Business owned by private individuals, keep all profit
Public Sector: Business owned by government, profit used in organization
Privatization: the sale of public sector business to private sector
 Pros: more capital, higher quality due to competition, profit motive
 Cons: increase unemployment (cut cost), focus less on social objective

Chapter 3: Enterprise, Growth & Size
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Entrepreneur: Person who organize, operates & takes risk of new business
 Characteristics: Creative, Hard-Working, Risk taker, Independent etc
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help: Increase competition, create jobs, increase output
 How Gov
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 How it helps: bank loans, set objectives, reduce risk (plan future)
Comparing Business Size
 Number of employees: but some business uses more machines
 Value of Capital Employed: but some business uses more workers
 Value of Output: but don’t take in account quantity of product sold
Why Business Growth: more profit, larger market share, status, Econ of Scale
Internal Growth: business expand its existing operation (slow but easy)
External Growth: business takes over or merge with another business
Takeover: business buys out the owner of another business
Merger: owner of businesses agrees to join their firms to form one business
Horizontal Integration: firm merge with another firm from same industry & same stage
of production
 Pros: reduce competitor, increase market share

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Vertical Integration: firm merge with another firm from same industry but different stage
of production
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Require partnership agreement
 Pros: loss shared, responsibility shared
 Cons: unlimited liability, potential conflict, profit shared
Private Limited Company: incorporated business
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 Pros: Limited liability, high capital, original owner retain control
 Cons: legal formalities, shares hard to transfer
Public Limited Company: incorporated business that offers share to public
 Pros: limited liability, high capital, easy to transfer shares, high status
 Cons: legal formalities, no secrecy
Joint Venture: 2 or more business start a project together
 Pros: cost & risk shared, local knowledge
 Cons: profit shared, conflict
Franchise: business based upon existing brand/business
 Pros (Franchisor): grow faster, pay to use brand name, status
 Cons (Franchisor): franchisee keeps profit, bad image in one outlet affects business
 Pros (Franchisee): less risk fail, training provided, advertising done by franchisor
 Cons (Franchisee): need to pay to use brand name, less independence
Public Corporations: public sector business, owned & controlled by the government
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Gives clear target to
workers, compare performance with objectives and encourage unity
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Breaking even in short run
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Public Sector: create jobs, customer service, social, financial

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Stakeholders: a person with direct interest with the performance of business
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W Taylors’ Theory: money is the main motivator
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 Cons: too simplistic, not everyone motivated by money alone
Abraham Maslow’s Theory: Hierarchy of Needs

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Herzberg’s Two Factor Theory:

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Financial Rewards
 Time Rate Wages: payment of work by the hour
 Pros: easy to calculate
 Cons: clock-in-system, good & bad workers paid the same
 Piece Rate Wages: payment of work by products sold/produced
 Cons: quality of product ignored, some jobs not usable
 Salary: payment of work monthly
 Extra Pros: commission (pay/unit sold) , profit-sharing, bonus, share ownership
Non-Financial Rewards
 Fringe Benefits/Perks: non-financial rewards given to employees
 Job Rotation: workers swap duties after some time, so they won’t get bored &
increase in efficiency
 Job Enlargement: extra task that does not increase responsibility and at similar level,
so workers won’t get bored & increase in efficiency
 Job Enrichment: Adding task requiring more skill, so worker can be motivated as he
achieves self-actualization
 Autonomous Workgroups: a group given complete responsibility on a task
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 Pros: workers feel part of company, how roles are linked, who they should report to
Line Managers: have direct responsibility over people below them
Staff Managers: provide support/assist line managers
Chain of Command: Structure that allow instruction to be passed down
Span of Control: number of subordinates directly under a manager
 Pros (short COC, long SOC): Communication quick, more delegation
 Cons (short COC, long SOC): delegation cause more errors, destroy brand image
Roles of Manager: Planning, Organizing, Co-ordinating, Controlling, Commanding
Delegation: giving subordinate authority to perform some task
 Pros: less work for manager, motivate worker, train worker
Leadership Styles:
 Autocratic: superiors take all decisions and have all orders followed
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 Pros: subordinate feels trusted & motivated
 Cons: conflict, confusion
Trade Union: group of workers join to ensure their interest are protected
 Why Join: strength in numbers, strikes more effective, support workers

Chapter 8- Recruitment, Selection & Training Workers
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Recruitment: identify need for new employee & encourage people to apply for vacancy
 Job Description: Duties & responsibilities of job
 Job Specification: Requirements, qualification & experience needed
 Advertising Vacancy: Can be Internal or External recruitment
 Pros (Internal): Business already know worker, easy & fast
 Cons (Internal): No new ideas, jealousy & rivalry
 Contract: Chosen candidates given contract can be full-time or part-time
 Pro (Part-Time): flexible, cheaper
 Con (Part-Time): less committed, difficult to communicate
Training: improve worker efficiency, skill, knowledge and motivation
 Induction: introduction to employee
 Pros: settle in quicker, less likely to make mistakes
 Cons: waste time, wages paid but no work done
 On-the-job: Trained by watching more experienced worker
 Pros: work done while training, cheaper the off-the-job
 Cons: bad habits of trainer passed down, trainer less productive
 Off-the-job: trained away from work place, usually in classrooms
 Pros: more skills taught, taught be experts, no time wasted
 Cons: expensive, easier for employee to leave company
Workforce Planning: deciding size of workforce needed for the future
Downsizing: reduce number of workers
 Dismissal: worker told to leave due to unsatisfactory work/behavior
 Redundancy: worker asked to leave as business don’t need the worker anymore
 Factors: age, relevance of job, salary, performance/mistakes, length of service
Legal Controls: minimum wage, health & safety, unfair dismissal/discrimination

Chapter 9- Internal & External Communication
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One-Way Communication: receiver does not reply/give feedback
Two-Way Communication: there is reply/feedback, both parties involved
Internal Communication: between people inside the organization
External Communication: between other organization/individuals
Verbal Communication
 Pros: quick, immediate feedback
 Cons: no record, might get lost & forgotten
Written Communication
 Pros: quick & cheap, evidence, reach many people
 Cons: no direct feedback
Visual Communication
 Pros: appealing & attractive, make message clear
 Cons: no feedback, other methods need to be used alongside
IT-Based Communication
 Pros: quick, allows feedback, used widely
 Cons: too many message limits effective communication
Communication Barriers: factors that stop effective communication
 Sender Problem: ask for feedback, make message clear
 Method Problem: ask for feedback, use shortest channel
 Receiver Problem: ask for feedback, change sender
 Feedback Problem: change method
Effective Communication: avoid DisEcons of Scale, clear objective, better decision
making, exchange ideas, inform customers, good relations with suppliers/customers

Chapter 10- Marketing, Competition & Customer
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Marketing: identifying & satisfy customer needs
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 Adaptation: new product, keep cost low, improve current products
 Competitive: globalization, transportation improve & e-commerce
Market Share: proportion of total markets sales held by one business
Market: group of consumers & organizations that are interested in a product
 Mass Market: standard product that appeal to many people
 Pros: sales high, risk spread, Econ of Scales
 Cons: competition high, advertising cost high, no segmentation
 Niche Market: Specialized sub-section of market with specific needs
 Pros: less competitive, can be more expensive, specific needs meet
 Cons: sales low, risk not spread, no Econ of Scale
Market Segmentation: market Is broken down into sub-groups which contains
consumers of similar characteristics
 Segments: age, geographical, socio-econ group, gender, lifestyle
 Pros: specific needs meet, effective marketing, customer loyalty
 Cons: need market research, expensive, segment may be too small

Chapter 11- Market Research
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Market Research: process of gathering, analyzing & interpreting information about a
market
 Product-Oriented: focus is on product, not the market for it
 Market-Oriented: market research is done before developing a product
 Importance: set price, check competitors/customer needs, find gap in market
Primary Research: collecting original data, direct contact with customers
 Questionnaire: set of questions to be answer for data collection
 Pros: quantitative & qualitative data be gathered
 Cons: expensive, time-consuming, response rate low
 Interviews: interviewer ask prepared question for interviewee
 Pros: question can be explained, quantitative & qualitative data gathered
 Cons: time-consuming, expensive, interviewer bias
 Focus Group: group representing target market provide information through
discussion
 Pros: quantitative & qualitative data gathered, quick feedback
 Cons: time-consuming, expensive, people opinion influenced
 Observation: market researcher watch & observe how consumer act
 Pros: cheap, fast
 Cons: qualitative data not gathered
Secondary Research: taking information already collected by others
 Sources: internet, government, newspaper/media, research agents
 Pros: fast & cheap
 Cons: less accurate, not up to date, available to competitors
Accuracy of Data: affected by sample selected, sample size & age of data
Presentation of Data: raw data converted into a form easier to understand
 Table: record data in its original form
 Bar Chart: show total number of 2 or more sets of data
 Pie Chart: shows percentage of 2 or more sets of data
 Graph: shows relation between 2 sets of data

Chapter 12- Product
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Product: most important element in marketing mix
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 Cost-Plus Pricing: cost of manufacture plus mark-up
 Pros: easy to apply, assured profit per product
 Cons: ignored competitors’ price
 Competitive Pricing: priced same or lower than competitors
 Pros: sales good, not under or over price
 Cons: time-consuming, expensive
 Penetration Pricing: price set very low, usually entering new market
 Pros: sales good at low price
 Cons: profit per unit low
 Price-Skimming: price set very high, usually for technology
 Pros: make consumer think quality is good, improve brand image
 Cons: may lose some potential customers due to high price
 Promotional Pricing: sold for lower price for certain amount of time
 Pros: renew interest, get rid of unwanted stock
 Cons: revenue low
 Dynamic Pricing
 Pros: high profit as price follows demand, ensure all products sold
 Cons: high cost for constant price change, troublesome for customers
Price Elasticity of Demand: measure of change in demand (sales) to a change in price
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 Occurs when there are many close substitutes
 Price Inelastic: small change in price  small change in sales
 Occurs when there are not many close substitutes

Chapter 14-Promotion
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Promotion: raise customer awareness, generate sales, create brand loyalty
Target Market: consumer groups that are potential buyers of product
Marketing Budget: financial plan for marketing a product over a certain time
 Other factors: stage of product life cycle, nature of product, culture
Advertisements: paid-for communication with customers
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Producer  Retailer  Consumer
 Pros: sell in large quantities, lower distribution cost
 Cons: no direct contact with customer
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Producer  Agent  Wholesaler  Retailer  Consumer
 Pros: agent has local knowledge
 Cons: adds cost level, less control over product

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Retailers: companies who sell to consumers in small quantities
Wholesaler: companies that buy in bulk & breaks it into smaller quantities & sell them to
retailers
Agent: appointed to deal with distribution of products, often foreign
E-Commerce: buying & selling of products using computer linked to internet
 Pro (Business): larger market, promotion cheaper, target specific markets
 Con (Business): competition high, delivery cost high, no direct contact
 Pro (Consumer): convenient, easy to compare, products cheaper
 Con (Consumer): cannot be tried on, hacks, must have internet

Chapter 16: Marketing Strategy
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Marketing Strategy: plan with appropriate marketing mix for a product to achieve a
marketing objective
 Must Consider: objectives, target market, budget, market research
 Objectives: increase sales/market share, new product, develop brand
Questions to ask on each element:
 Product: new or existing, type of product consumers like, does change meet
consumer taste
 Price: price customers be willing to pay, price competitors charge
 Promotion: methods competitors use, budget, type of promotion to attract customers
 Place: where customers buy product, where competitors sell, distribution channels
to use, distribution channels competitors use
Legal Controls: weights & measures, description of goods, safety, consumer rights for
faulty products, illegal products
 Pros: reassure customer, more confident to buy, have rights to return
 Cons: increase cost of business (redesign to meet requirements)
Foreign Market: join venture, licensing, international franchise, localize existing brand
 Pros: potential high sales/growth, lower trade barriers, home market saturated
 Cons: lack knowledge, exchange rates, transport cost, language, import controls

Chapter 17: Production of Goods & Services
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Production: managing resources efficiently to produce goods & services
Productivity: output measure against input used to create it, e
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labour
 Improved by: train/motivate workers, use technology, improve layout
 Pros: lower average cost, use less workers (lower wage cost), increase wage of
worker (motivation), increase profit, more competitive
Inventory: materials, work in progress/complete goods held by business ready for sale
 Why hold: give consumer choices & good availability, keep production supplied with
resources, provide cover in case suppliers fail to deliver
 Hold too much: illiquid, storage cost, may go out of date-waste
 Buffer level: inventory held to deal with unexpected changes
Lean Production: cutting out waste & inefficiency in the production process (reduce cost)
 Pros: production faster, less storage space, less wastage, better use of equipment
 Kaizen: continuous improvement though elimination of waste
 Pros: increase productivity, motivate workers, improve quality/communication
 Just-In-Time (JIT): reducing need to hold inventories of materials & finished goods
 Pros: products sold quicker, cuts storage space/cost, more fresh products
 Cons: risk if suppliers fail to deliver
 Cell Production: production divided into cells, each cell makes different parts
 Pros: motivate workers, more efficient

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Methods of Production:
 Job: single product made at a time, for personal/specialized products
 Pros: meets exact requirement, can sell at higher price, worker more variety
 Cons: need skill labour, high cost, slow
 Batch: a group of one product is made, then a group of another item will be produced
 Pros: higher output, flexible, variety to workers/customers
 Cons: high inventories, machines reset after each product (waste time)
 Flow: large quantities of products are produced in continuous process
 Pros: high output, low average cost, Econ of Scale, can use automation
 Cons: workers get bored, need high capital, one machine breaks production stops
Technology in Production: CAD, CAM, CIM, EPOS, EFTPOS
 Pros: increase productivity/quality, faster communication, machines do boring jobs
 Cons: expensive, unemployment, employees unhappy with change

Chapter 18: Costs, Scale of Production & Break-Even Analysis
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Fixed Cost: cost that do no change with output in the short run
Variable Cost: cost that change directly with output
Total Cost: Fixed Cost + Variable Cost
Average Cost: Total Cost divided by output (aka cost per unit)
Contribution: Selling Price per unit – Variable Cost per unit
Use of Cost Information: make pricing decisions, calculate profit/loss, compare options
Economies of Scales: factors that lead to lower average cost as business grows
 Types: Purchasing, Marketing, Financial, Managerial, Technical
Diseconomies of Scales: factors that lead to increase average cost as business grows
 Types: poor communication, low morale/motivation, slow decision making
Break-Even: total cost=total revenue
Break Even Chart: graph that shows how cost & revenue change at different outputs
 Uses: find break-even, influence bank decisions for loans, make comparisons
 Limitations: cost/price changes, assumes product sold, linear thinking

𝐁𝐫𝐞𝐚𝐤 𝐄𝐯𝐞𝐧 𝐏𝐨𝐢𝐧𝐭 =

𝐓𝐨𝐭𝐚𝐥 𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭
𝐒𝐞𝐥𝐥𝐢𝐧𝐠 𝐏𝐫𝐢𝐜𝐞 𝐩𝐞𝐫 𝐮𝐧𝐢𝐭 − 𝐕𝐚𝐫𝐢𝐚𝐛𝐥𝐞 𝐂𝐨𝐬𝐭 𝐩𝐞𝐫 𝐮𝐧𝐢𝐭

Chapter 19: Achieving Quality Production
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Quality: good or service produced which meets customer expectations
 Importance: brand image/loyalty/reputation, increase sales, attract new customers
Quality Control: checking of product standard at the end of production process
 Pros: eliminates faults before it reaches customer, less training required
 Cons: expensive to hire worker to check product, doesn’t know how fault occurs, high
cost if batch is scrapped
Quality Assurance: checking standard of product throughout production process
 Pros: eliminates faults before it reaches customers, fewer complaints, reduced cost
if product not scrapped
 Cons: high training cost, relies on workers to follow standard instructions
Total Quality Management (TQM): continuous improvement of process & product by
focusing on standard at each stage of production
 Pros: quality built into each part of production, eliminates all faults, no complaints,
waste removed, efficiency increased
 Cons: high training cost, relies on workers following TQM ideology

Quality Control

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QA/TQM

Focus on product
Focus on process
Detect problem & fix it
Prevent problem & improving process
A group of people responsible for quality
Everyone responsible for quality
Quality Marks: label that shows that a product has met a standard
 Pros: give customer confidence to buy, higher sales
 Cons: expensive, difficult to reach, increase cost to reach

Chapter 20: Location Decisions
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Infrastructure: physical systems of a business/nation (e
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transportation, water, power)
External Econ of Scale: cost benefits to business resulting from locating in a region with
other business operating in same industry
Location Decisions (Mains: competitors, price, parking, space needed)
 Manufacturing: production methods, weight, perishable goods, labour,
transport/communication, government, power/water, external Econ of Scales
 Service: customer location, technology, labour, near competitors, rent/taxes
 Retail: shoppers, nearby shops, parking, rent/taxes, security, vehicle access, laws
 Overseas: new market, cheaper resources, labour, rent/taxes, grants, trade barriers
Government Influence on Location Decisions:
 Encourage: businesses to set up in high unemployment areas, provide grants &
subsidies
 Discourage: businesses from locating in overcrowded areas, make laws for it to be
illegal for certain business activities to be in certain areas

Chapter 21: Business Finance: Need & Resources
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Why need Finance: start-up capital, expansion, increase working capital
 Factors: amount needed, size/type of business, gearing, purpose, long or short term
Start-Up Capital: money needed to start a new business (buy assets) to start trading
Working Capital: money, in short term, to pay for day-to-day expenses
 Working Capital= Current Assets – Current Liabilities
Capital Expenditure: money spent on non-current assets, lasting for more than 1 year
Revenue Expenditure: money spent on current assets/day-to-day expenses
Internal Finance: finance/money from within the business itself

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 Owners Savings (for non-limited business: sole trader, partnership)
 Pros: available quickly, no interest
 Cons: may not be enough, increase risk of owner(s)
 Sale of Inventory
 Pros: reduce storage cost, less capital tied to inventories
 Cons: inventory too low may disappoint customers as demand not quickly met
 Sale of Assets
 Pros: better use of old/unused assets, debts not increase
 Cons: takes time to sell assets, new business does not have assets to sell
 Retained Profit
 Pros: not repaid, no interest
 Cons: not suitable for new business, limited amount, reduce payment to owners
External Finance: finance/money from source outside of & separate from business
 Long Term: money needed for more than 1 year
 Issue of Shares (for limited companies: private/public)
 Pros: not repaid, no interest
 Cons: dividends expected, ownership could be loss, only for companies
 Bank Loans
 Pros: quick to arrange, vary repayment period, big companies pay less interest
 Cons: repaid with interest, security/collateral needed
 Leasing
 Pros: large cash outlay not needed, maintenance paid for by leasing company
 Cons: total payment (maybe) higher than purchase price
 Hire Purchase
 Pros: large cash outlay not needed
 Cons: interest paid, asset not owned until last payment made, may need deposit
 Grans & Subsidies
 Pros: not repaid
 Cons: may have conditions
 Selling Debentures (for public limited companies)
 Pros: raise finance for long time (e
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25 years), large amount raised
 Cons: repaid with interest
 Short Term: money needed & paid back within 1 year
 Trade Credit
 Pros: no interest, improve cash flow
 Cons: need to be paid or goods not supplied
 Factoring Debt
 Pros: immediate cash available, no risk of debt not being repaid
 Cons: receive less than full amount of debt
 Overdraft
 Pros: interest only paid on amount borrowed, flexible than loans
 Cons: interest rate higher than loan, banks can ask for repay in very short notice
 Microfinance
 Pros: small amount borrowed, available to poorer groups, no security needed
 Cons: repaid with interest

Chapter 22: Cash Flow & Working Capital
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Cash Flow: Cash inflows & outflows over a period of time
 Inflows: sale of product/assets, borrow money, investors’ money
 Outflows: buy goods/raw material, pay bills, buy assets, repay loans, pay creditors
Cash Flow Cycle: stages between paying out cash (outflow) & receiving cash (inflow)
 cash  pay for expenses  produce goods  goods sold  cash

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Cash Flow Problems: too little cash, production stops, forced into liquidation
 Short-Term: delay payment to suppliers, ask debtors pay quickly, borrow money
 Long-Term: attract customers, cut cost, increase efficiency/sales, new product
Cash Flow Forecast: Estimate of future cash in/outflows of business (monthly)
 Importance: shows cash available/whether need loan/holding too much cash
Components of a Cash Flow Forecast:
 Cash Inflow: sums of money received by business during a period of time
 Cash Outflow: Sums of money paid out by business during a period of time
 Net Cash Flow: Cash inflow – Cash outflow
 Opening Balance: Closing Balance of previous month (cash held at start of month)
 Closing Balance: Opening Balance + Net Cash Flow (cash held at end of month)
Working Capital: money, in short term, to pay for day-to-day expenses
 Working Capital = Current Assets – Current Liabilities
 Importance: measure of success, shows investors & bank efficiency, shows
financial strength, business cannot run without working capital

Chapter 23: Income Statements
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Accounts: financial record of a business’s transactions
Final Accounts: shows profit/loss & worth of business at the end of the year
Accountants: qualified professionals that keep accurate & produce final accounts
Profit: Surplus after total cost have been subtracted from sales revenue (Sales – Cost)
 Importance: rewards risk taking/enterprise, source of finance, attract investors
 How to Increase: increase sales (increase selling price/units sold), cut cost
 Profit vs Cash: business make profit but not paid yet, so no cash (sell on credit)
Income Statement: document that shows revenue & expenses over a period of time
 Importance: shows profit/loss, compare with previous years/other companies
 Uses: check cost rise/fall
Components of an Income Statement:
 Gross Profit: Sales Revenue – Cost of Sales
 Sales Revenue: selling price per unit x quantity sold
 Cost of Sales: cost per unit x quantity sold
 Net Profit: Gross Profit – Expenses (fixed cost)
 Depreciation: fall in value of non-current assets over time
 Retained Profit: Net Profit – Corporate Tax - Dividends
 Dividends: annual payments from company to owners

Chapter 24: Balance Sheet
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Balance sheet: shows value of a business’s assets & liability at a given point of time
 Shows: value of business rise/fall, liquidity of business to pay short term debts
 Analyse: how expansion is paid for, business performance using ratios
Components of a Balance Sheet:
 Assets: items of value owned by a business
 Current: used within 1 year (e
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inventory, cash, trade receivables)
 Non-Current: for more than 1 year (e
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buildings, vehicles, equipment)
 Liabilities: Debts owed by a business
 Current: repaid within 1 year (e
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trade payables, overdraft)
 Non-Current: for more than 1 year (e
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bank loan, debentures)
 Owner’s Equity: Total Assets – Total Liabilities
 Owner’s Equity = Share Capital + Retained Profits

Chapter 25: Analysis of Accounts
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Use of Accounts:
 Manager: make decisions, identify which part is perming well/poor, compare ratios
 Shareholders: profit/loss made, dividends, check ratios before deciding to invest
 Banks/Trade Payables: liquidity, whether company is able to pay back
 Government: profit/loss, how much tax to charge, loss of jobs
 Workers: whether company is secure
 Competitors: compare company performance with their own
Liquidity: ability of a business to pay back its short-term debts (current liabilities)
 Illiquid: assets are not easily convertible into cash
Capital Employed: non-current liabilities + owner’s equity
Ratio Analysis of Accounts
Profitability Ratios
Return on Capital Employed (ROCE)
𝐑𝐎𝐂𝐄 =

x 100

Gross Profit Margin
𝐆𝐫𝐨𝐬𝐬 𝐏𝐫𝐨𝐟𝐢𝐭 𝐌𝐚𝐫𝐠𝐢𝐧 =

x 100

Net Profit Margin
𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭 𝐌𝐚𝐫𝐠𝐢𝐧 =



x 100

Liquidity Ratios
Gearing Ratio
𝐆𝐞𝐚𝐫𝐢𝐧𝐠 𝐑𝐚𝐭𝐢𝐨 =

x 100

Current Ratio (ideally 1
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