Notesale: Turn your study into money

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Production and Finance
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Machines V Labour
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Mechanisation – Machinery is used but labour is still required to work the machines (e
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Farm work)
Automation – Just machines, the workers are still employed to programme and supervise the work that machines do (e
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Cash machine)

Types of Technology
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CAD – (Computer Aided Design) = Use of computers to design products
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CAM – (Computer Aided Manufacture) = The machines used to make the product are controlled by computer
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g
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g
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Just In Time Stock Production (JIT) – Buy stock when you need it
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Production and Finance
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Sales Revenue:
Sales revenue is the money a business receives for selling the foods or services it produces
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The money a business
earns in sales revenue depends on how much it sells and at what price
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E
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If I buy ingredients to bake 1 cake it will cost £4
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Diseconomies Of Scale:
Diseconomies of Scale occurs when average costs start to rise with increased output
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If they rise, a firm is said to experience “diseconomies of scale”
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Borrowing Money
Short Term
Medium Term
Long Term
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Time Frame
Under 1 Year
1-3 Years
Over 3 Years

Possible Usage
Working on Capital
Capital Expenditure (Vehicles, refurbishments etc)
Major Capital Expenditure (Buildings, land etc)

Venture Capitalist – A Person or company who buys shares in a business that they hope will grow fast
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Bank Overdraft – The bank allows the business to draw more money from their bank account than they actually have in it
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Business Studies
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Trade Credit – When a supplier allows you a period of time (such as 30 days) to pay for goods and services
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However, your customers may also expect trade credit so the advantages of this can be cancelled out
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This method is not used much nowadays
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The company sells a debt it is owed to a debt factoring company who pay the business a smaller sum than they
were owed
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Business Studies
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Managerial – Occurs when a large firm can employ specialist workers to complete tasks and can spread the cost
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Technical – Occurs when a business invests in new technology and is able to increase production
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Risk-Bearing – Occurs when a business produces a range of products, which means it is not dependant on just one product
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Production and Finance
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External Finance – Outside the business
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g
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Source of Finance
Lease
Sale of assets
Bank loan

Retained profit

Share Capital

Mortgage
Grants

Hire Purchase

Taking on a new partner

Owner’s investment

Definition
These are known as rental agreements
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Selling off and turning into cash something that
the business owns
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Money kept in a business by owners
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Sold to an individual or another business
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Long term loan provided by a bank in order to
buy property
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Used to help finance new projects
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Obtaining items in return for monthly payment
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Partnerships can obtain additional finance by
selling off parts of the business to a new partner
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Usually a sole trader
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 Easy
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 Easy
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 Easy
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Left without that asset
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It’s there if you need it
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

Can get assets if you can’t
afford it
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Good if you can’t afford it
at the time
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Less control
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

Payback with interest
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Can pay for it in small
amounts
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Payback with interest
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

Good control
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Less control
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Left without money
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Business Studies
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Businesses use information about revenues and costs to calculate the break-even level of output
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This means that the business does not make any profit or loss
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Margin of safety = Actual sales – break even sales
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Dividends = That part of a company’s profit paid out to shareholders of limited companies
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Drawings = Business profits paid out to the owners of a sole proprietor or partnership
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Return on investment = The amount that a person or business receives for providing finance to business
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This is sometimes expressed as a percentage
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Business Studies
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Calculating Break Even:
Break Even Output = Total fixed costs / selling price – variable costs
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g
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Whenever a business has to decide between alternatives an opportunity cost is involved in that there is a price to be paid for not having something
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g
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Cash Flow Forecast:
Any surplus money which is left over at the end of the month is carried forward to the start of the next month and is shown as the balance brought forward
= POSITIVE CASH FLOW
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Business Studies
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Negative figures are usually shown in cash flow
forecasts in brackets e
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(10,000)
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The profit which is kept by the business is called “retained profit”
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It does not have to be paid back – unlike a bank loan or mortgage
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There is no interest rate
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A cash flow forecast is an attempt to predict what could happen in the future
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Cash Flow = The money coming in and going out of the business
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Business Studies
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Expenditure = Going out of a business
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Requires the business to obtain additional finance in the form of an overdraft
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Results in the business being unable to buy equipment until its cash position improves
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To help the business plan for the future
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If employees don’t reach their targets then the business might run into cash –flow
problems
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2
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4
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6
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The prices of goods sold and for the cost of materials may be different to the forecast
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The tastes of customers may change meaning that fewer goods are sold
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The figures in the cash-flow forecast are only estimates
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The forecast will need updating at regular intervals
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Production and Finance
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It is important to forecast cash flows and plan ahead
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The longer the time between cash outflows and cash inflows the greater the reserve required
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How much the business must borrow off the bank or other lenders to avoid insolvency
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Cash Deficit = Periods when cash outflows are likely to exceed cash inflows
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Expanding too quickly
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Borrowing too much
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Price inflation
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Good practise:
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Improve cash inflow
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Secure short-term finance
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Debt factoring
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Business Studies
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Business Studies
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Budgetary Control
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Budgeting will help a business examine the likely impact of unforeseen events
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Through budgeting, an organisation can present information on anticipated revenues, spending and profits
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A business can monitor its performance
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2
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4
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Agree business objectives and targets
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Prepare key operating budgets for production and sales
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Produce master budget
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In Law a monopoly exists when a business has a market share of at least 25%
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Perfect competition – Competition exists when there are many firms, all with a small share of the market
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Business Studies
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g
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Business Studies
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Advantages:
Business – Global/successful business
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Disadvantages:
Business – Can change every week
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Cartels
A Cartel exists when a numbers of firms work together to fix the price of a product and to share out work between them
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Business Studies
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Business Studies
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How competition
in a market can
be decreased?

Expand product range
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Take over most of market
share
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Business Studies
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Ethics is concerned with many areas of business activity
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Examples:
Lush – no animal testing
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Ethical Issues:
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Bribing others to buy from you or sell to you
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Discriminating against workers because of their gender, age or race
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Spying on workers
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Ethical decisions:
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Employers – Have a right to make fair profit
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Workers – Have the right not to be exploited
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Customers – Have the right not to be exploited
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Government – Has the responsibility to protect and provide for its citizens
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Increases customer satisfaction
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Production and Finance
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Disadvantages:
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Increases stress levels
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Ethical Producer:
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Good reputation
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Environment issues:
Land use
Genetic Engineering

Deforestation

Environmental issues

Climate Change
Nuclear issues

Fishing
Air pollution

Production and Finance
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Short term effects of making newspapers:
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Deforestation
Landfill waste – increased waste
Traffic congestion
Air pollution
Noise pollution
Smell pollution
Water pollution

Long term effects of making newspapers:
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Ozone
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Recycle
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Producing goods with less packaging
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Business Studies
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Become a paperless office
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8 Ways To Go Green:
1
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3
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5
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7
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Recycle using brown, green and blue bins
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Reduce the amount of resources we use
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Reuse bags
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Plants – Plant more
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Government laws are used to protect the environment
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Grants are available to encourage firms to locate on brownfield sites, run down areas in need of regeneration
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More productivity
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Increase work rate
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Retain services
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How important is demand to business?
It influences how much businesses sell
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Production and Finance
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The Bank of England and the government can influence the level of demand in the economy
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The government can increase or decrease government spending on taxes
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To provide goods and services
– Street lighting, the police and armed forces
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2
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3
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Taxation:
The government makes us pay taxes for several reasons:
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It uses the money raised from taxation to pay for the goods and services it provides
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g
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Taxes paid on income:
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Income tax – tax on money you earn
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National Insurance Contributions – workers’ pay this on their wages; it provides health services, sick pay, state pensions and other social security
benefits
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Taxes on spending:

Production and Finance
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1
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Zero rate for most food and children’s clothes
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Excise duties – Special rates of taxes on goods that you buy such as petrol, cigarettes and alcohol
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Business rates – tax paid to the local council by businesses on the property that they use
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Such
companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global
management
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Inward investment = Inward investment is the injection of money from an external source into a region, in order to purchase capital goods for a
branch of a corporation to locate or develop its presence in the region
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Globalisation:
Globalisation is the integration and the interaction between companies, people and countries
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People can earn higher wages
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People are living longer
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Children are used as workers
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Production may harm the environment
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TNC’S = Trans National Corporations (Many branches throughout the world)
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Creates jobs
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Exploit the need of jobs in third world countries
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LEDC – Less economically developed country
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Other advantages:
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The wages from the TNC’s help the economy of LEDC’s
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Other disadvantages:
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TNC’S often do not care about their workers and pay them low wages
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Business Studies
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Business Studies
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An American business buying from a
UK seller must buy pounds with its dollars so it can pay the seller in pounds
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Businesses prefer a stable exchange rate
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e
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High for exporters but low for importers
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e
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High exchange rate is good for importers but bad for exporters – person buying pays less
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The Eurozone:
There are currently 28 countries in the European Union which aim to co-operate on trade, social affairs and certain laws
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Common standards
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Free movement of goods
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Grants and subsidy
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Production and Finance
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Minimum wage (£6
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Adds costs to business
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Advantages of using the euro:
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No exchange costs
Reduced uncertainty
Comparing prices – easier
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Production and Finance
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Developing Countries – BRIC countries have a lot of cheap labour
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They are also improving their education systems which will help them to grow even more
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Developed Countries – From Europe, North America and Japan also have manufacturing businesses which compete with UK firms and are competing with
the developing countries
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e
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Competition in financial services such as banking, insurance, pensions and savings
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g
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How UK firms can succeed – compete to supply the goods and services
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They have to use the following strategies:1
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They are looking
for innovation from research and development
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Producing at the right price – need to keep costs low
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Productivity can be improved by investing in new technology and improving the skills of their workers
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Good marketing – create a strong brand image for their products
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Deliver the goods and services at the right time – plan production carefully and efficiently so goods are delivered on time
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Outsourcing or moving production abroad when necessary – some UK businesses may survive by having some parts of their work done abroad to
reduce their costs
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High value – added – take materials and components and make them worth much more
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These are “low value added” goods
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e
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Production and Finance
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7
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e
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They are still competition for
UK owned businesses but they create jobs, and help other businesses i
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British firms might construct the factory and supply catering services and
cleaning – multiplier effect – when inward investment takes place
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Many small firms depend on credit such as bank loans and overdrafts to help finance their business activities
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The interest rate is the percentage rate charged on a loan or paid on savings
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An increase in interest rates can affect a business in two ways:

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Customers with debts have less income to spend because they are paying more interest to lenders
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Firms with overdrafts will have higher costs because they must now pay more interest
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Firms that make luxury goods are hit hardest when interest
rates rise
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The Trade Cycle = Periods of economic growth and recession
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Calculation:
Amount Borrowed x Interest Rate / 100 = INTEREST PAID
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Business Studies

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