1.1 The Nature and Purpose of Business (AQA A Level Business): Flashcards
Exam code: 7132
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What is the purpose of business activity?
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What is the purpose of business activity?
To organise human, physical and financial resources to produce goods or services that meet customer needs while adding value.
What is the difference between goods and services?
Goods are tangible physical items that can be stored (e.g. cars); services are intangible, cannot be stored, and are provided when needed (e.g. hairdressing).
By meeting customer needs, businesses can build customer , increase brand awareness and generate revenue.
By meeting customer needs, businesses can build customer loyalty, increase brand awareness and generate revenue.
Define the transformation process.
The transformation process is where businesses take inputs and transform them into outputs that customers want to buy.
Give two types of input used in the transformation process.
Financial, human and physical resources, as well as enterprise.
Besides finished goods and services, what other outputs can the transformation process create?
By-products and waste.
How do businesses add value during the transformation process?
Through branding, quality, packaging and appearance or taste.
Name the four sectors of industry.
Primary, secondary, tertiary, and quaternary.
What does the primary sector do?
It is concerned with the extraction of raw materials from land, sea or air (e.g. farming, mining, fishing).
What does the secondary sector do?
It is concerned with the processing of raw materials and the manufacture of goods (e.g. oil refining, vehicles).
What does the tertiary sector do?
It provides a wide range of services for consumers and businesses (e.g. leisure, banking, hospitality).
What does the quaternary sector do?
It provides knowledge-focused services, often related to IT, consultancy or research and development.
Since the early 1980s, the UK economy has become -based, with many manufacturers moving production abroad.
Since the early 1980s, the UK economy has become service-based, with many manufacturers moving production abroad.
True or False?
Services are tangible and can be stored.
False.
Services are intangible — they cannot be touched or stored, unlike goods.
True or False?
The primary sector employs the largest share of UK workers.
False.
Over 81% work in the tertiary and quaternary sectors, while less than 1% work in the primary sector.
Define a mission statement.
A mission statement outlines the fundamental purpose and reason for an organisation's existence.
Define a corporate objective.
A corporate objective is a specific, quantifiable performance goal set by senior management, usually short- to medium-term.
What does 'SMART' stand for in objectives?
Specific, Measurable, Agreed, Realistic, and Time-specific.
Corporate objectives are usually set for the short- to -term.
Corporate objectives are usually set for the short- to medium-term.
Name two reasons businesses set objectives.
To clarify direction, guide decisions, motivate and focus employees, and measure progress (any two).
How do objectives help a business measure progress?
SMART objectives give clear numbers to track, so managers can review what is working and make changes.
How do objectives guide decision-making?
They prevent the business wasting time or money on activities that don't move it closer to its goals.
Define a financial objective.
A financial objective is a specific goal related to the financial performance, resources or structure of a business.
Name four common financial objectives.
Survival, profit (including profit maximisation), cash flow, and growth.
What is profit maximisation?
Making as much profit as possible — the difference between total revenue and total costs at its greatest.
Why might survival be a key objective for a business?
It is a focus during challenging conditions or strong competition — e.g. a new business's first year, or an economic downturn.
Define social and ethical objectives.
Social and ethical objectives are targets not directly connected to making money, e.g. improving well-being or the environment.
Give an example of a business pursuing a social objective.
TOMS Shoes donates one pair of shoes for every pair sold.
Growth can help a business increase profit through economies of .
Growth can help a business increase profit through economies of scale.
True or False?
A mission statement sets out specific, measurable targets with deadlines.
False.
A mission statement gives the overall purpose; objectives (especially SMART ones) set the specific, measurable targets.
True or False?
Social and ethical objectives are often the main focus of public sector and third sector organisations.
True.
Achieving social and ethical objectives is often the main focus of public sector and third sector organisations.
Give one reason profit is important to a business.
It is a financial reward for risk, a source of finance (retained profit), and an indicator of success.
Retained can be used to fund assets, pay bills and invest in research and development.
Retained profit can be used to fund assets, pay bills and invest in research and development.
Why is profit described as a reward for risk?
It is the financial reward entrepreneurs receive for the time, money and effort they risk in the business.
What is the formula for revenue?
Revenue = selling price × quantity sold.
Define fixed costs.
Fixed costs are costs that do not change as output changes (e.g. rent, salaries, insurance).
Define variable costs.
Variable costs are costs that vary directly with output (e.g. raw materials, production wages).
What is the formula for total costs?
Total costs = total fixed costs + total variable costs.
How do you calculate total variable costs?
Total variable costs = variable cost per unit × quantity.
How do you calculate the average total cost (unit cost)?
Average total cost = total costs ÷ quantity.
True or False?
Total costs can fall to zero if a business produces nothing.
False.
Total costs cannot be zero — all organisations have some fixed costs to pay even at zero output.
What is the formula for gross profit?
Gross profit = revenue − cost of sales.
What is the formula for profit from operations (operating profit)?
Operating profit = gross profit − operating expenses.
How is profit for the year (net profit) calculated?
Profit for the year = operating profit − (net interest + exceptional costs).
Gross profit is the difference between revenue and the costs directly related to .
Gross profit is the difference between revenue and the costs directly related to production.
A firm sells 39,264 packs at £8.75 and 4,280 tonnes at £123.95. What is total revenue?
(39,264 × £8.75) + (4,280 × £123.95) = £343,560 + £530,506 = £874,066.
True or False?
A telephone bill is an example of a variable cost.
False.
A telephone bill is a fixed cost — it does not vary directly with output.
Besides private firms, who else may aim to make a profit?
Public corporations and social enterprises — their 'surpluses' are reinvested into services or social objectives.
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