IGCSE Business Studies Revision
IGCSE Business Studies Revision
By Kushal Vyas
Chapter 1: living. purpose of business activity The A need is a good or service, which is essential for
A want is a good or service which people would like to have, but which is not essential for living, people s wants are unlimited Unlimited wants + Limited Resources Scarcity (The Economic Problem) Factors of production are the resources which are needed to produces goods or services. There are four main types of factors of production and all of them are limited in supply: Land The term is used to cover all the natural resources. Labour The term refers to the efforts of the workforce used as input into the business. Capital This term associates with all the finance, machinery and all equipment needed. Enterprise This term means the skill and risk taking ability of the person who brings the other resources or factors of production together to produce a good or service, e.g. Entrepreneurs. Opportunity Cost It is the next best alternative given up by choosing another item. Division of labour This is when the production process is split up into different tasks and each worker performs one of the tasks only. It is also known as specialization. Businesses combine factors of production to make products which satisfy people s wants. Business objectives are the aims or targets that a business works towards. The five most common objectives are: 1) 2) 3) 4) 5) To make a profit (sales revenue cost of goods sold) To increase added value (the difference between selling price & the cost of buying in those materials) To expand the business (growth) To achieve business survival To provide a service to the community.
A conflict of business objectives is when different groups of people have certain points of view which are against the business that has been set up. These people believe that needs are not being satisfied, as the business objectives are not valid and beneficial for anyone. A stakeholder is any person or group that is directly interested in the performance and activities of a business, e.g., owners, directors, workers, managers, consumers, government,, local community,
Deindustrialization is the process in which there is decline in the importance of the secondary manufacturing sector of industry in a company. A free market economy is the type of economy where there isn t any government control over the factors of production. It is also known as the market economy. A monopoly is a business which controls all of the market for a particular product. A command economy is the type of economy where there isn t a private sector since all resources are owned by the state. A mixed economy is the type of economy which contains both a public (state) and private sector. Privatization is the process in which national industries are sold out by the government to different individuals in the private sector. Capital is the money invested into a business by its owners. There are many groups who find it useful to compare the sizes of businesses:Investors Before deciding which business they would like to invest into Governments Often there are different tax rates for small and large businesses. Competitors They are interested to know where they stand in competition and importance with other firms. Workers To have some idea of how many people they might be working with. Banks To see how important a loan to a business is compared to its overall size. Business size is measured in three ways: - by number of employees - by value of output and sales - by capital employed Profit- It is the surplus that a business makes after total costs have been subtracted from the sales revenue. Internal growth is when business expands its existing operations. External growth is when a business takes over or merges with another business. It is also called integration. A merger is when two business agree to join their business together and make one big firm. A takeover (acquisition) is when one firms buys out the right or ownes of another business. Horizontal integration is when one firm merges with another which same sector of industry and as well as the same stage of production. Vertical integration is when one firm merges with another which is in the same sector of industry but at a different stage of production. It can be both forwards and backwards. Conglomerate integration is when one firm merges or takes over a firm with completely different industry. It is also known as diversification. A business remains small depending on: 1) 2) 3) The type of industry it operates in The market size The owner s objectives
Advantages of a sole trader There are a few legal regulations to worry about when the business is set up.
Disadvantages of a sole trader They have no one to discuss their business matters with as they are the sole owner of the business They do not have limited liability.
They have the freedom to choose their own holidays , hours of work, prices to be charged and also who to employ. They are easily able to keep close contact with their customers which helps to improve and progress on business relationships and as well as respond quickly to their needs and demands. They are able to keep all profits They do not have to give information about the business to anyone else other than the Tax Office
Advantages of a partnership
Disadvantages of a partnership
More capital can now be invested into the business from other partner s savings as well.
Partners may disagree on business decisions and consulting all partners consumes a lot of time.
The partners are now all motivated to work If one of the partners is inefficient or actually hard because they are all going to benefit from dishonest, then the other partners could suffer the profits made. by losing money in the business.
Shares can be sold to be a large number of people. It could sold only to friends and relatives .
The process of setting up a private limited company is long. Articles of association is the document which contains the rules under which the company will be managed. Memorandum of association contains information about the directors and company objectives as well as its registered offices. The shares in a private limited company cannot be sold or transferred to anyone else.
The people who started the company are able to keep control of it as long as they do not sell too many shares to other people.
The accounts are less secret in comparison to sole traders and partnerships. The company cannot offer its shares to the general public either.
It is an incorporated business and is a separate The legal formalities of forming such a legal unit. Its accounts are kept separately from company are quite complicated and time those of the owners and there is still continuity consuming. because of this even if one of the shareholders die.
There are many more regulations and controls over public limited companies in order to try to protect the interests of the shareholders.
There is now an opportunity to raise a large sum of capital to invest into the business. There is no limit to the number of shareholders that a public limited company can have.
Some public limited companies grow so large that they become difficult to control and manage. Therefore, then there is real danger that although the business might become rich by selling shares, they may even lose control over it when it goes public .
It is expensive to research and develop new products because they are not guaranteed to succeed. Small firms may not be able to afford the expenses of the investment needed. Businesses that do not develop new products tend to lose sales and market share. They may go out of business, causing employees to lose their jobs. New production methods with robots and computers are expensive. Small firms, in particular, may have to continue to use traditional methods. Workers will need retraining. This may be expensive and workers may be reluctant to learn new skills. They may have fear of losing their jobs or not being able to operate the new production methods could lead to a fall in motivation. Depending too much on IT and E-commerce may take away direct personal contact with customers, though many consumers still prefer this approach.
If a business is first to market with a new idea for a product, it will have a competitive advantage over it competitors. New high tech production leads to higher efficiency and productivity, hence lowering average costs, making the business competitive Fewer workers will be needed on the production line, there will be fewer to recruit and manage, hence saving costs
New production methods will lead to quick adaptation of methods very quickly to make a wide range of similar products and this gives businesses more flexibility to meet consumer needs E-commerce
Diseconomies of scale are the factors which lead to an increase in average costs ass a business grows beyond a certain size. 1) 2) Low morale Poor communication
Forecasts are predictions for the future, for example, likely future changes in the size of the market. A trend is an underlying movement or direction of data over time, for example, the trend of sales data may be increasing. A line of best fit is drawn through a series of points, foe example, sales data, which best shows the trend of that data. It can be used to forecasts results in the future. Budgets are plans for the future containing numerical or financial targets.
Advantages of Break-even charts Managers are able to read off from the graph the expected profit or loss to be made at any level of output of production.
Disadvantages of Break-even charts Break-even charts are constructed assuming that all goods are sold the graph is not able to show the possibility that stocks may build up if not all goods are sold. Fixed costs only remain constant if the scale of production does not change, which may change as a factory might expand over time and figures of scale of production may vary.
The impact of profit or loss of certain business decision can also be shown by redrawing the graph. The new situation according to the market can be shown on another break-even chart. It gives a good idea of how many sales can made realistically to check whether they are at-least breaking even. It provides them to analyse their current situation with the graph s figures
Break-even charts only look at the break-even level of production, but there are many other aspects of the operations of a business which need to be analyzed by managers, for example how to reduce wastage or how to increase sales. The simple charts used in this section have assumed that the costs and revenues can be drawn with straight lines. The actual costs and revenues do not exactly condemn to go up in linear, straightforward patterns.
The break-even chart helps to calculate the safety-margin, which is the amount by which sales exceeds the break-even point. It tells us how much they can still reduce sales until they reach break-even. The formula for the safety
Medium-term finance is the finance available between three to ten years. It is usually used needed to purchase machinery and vehicles, which often have useful lives for this period. The three most common examples of medium-term finance are: 1) 2) 3) Bank loans Hire Purchase Leasing
Long-term finance is available for more than 10 years. Usually taken to buy long-term assets: 1) 2) 3) Issue of shares Long-term loans or debt finance Debentures
Advantages of an organisation chart The chart shows how everybody is linked together in the organisation. Every individual can see their own position in the organisation. It shows the relationship between different departments. Everyone is in a department which gives them a sense if belonging.
Advantages of short chains of command Communication is quicker and more accurate within the organisation. Top managers are less remote from the lower level of the hierarchy. Spans of control will be wider. This will mean that each manager will be responsible for more delegates. There will be less direct control of each worker due to the reason above and they will feel more trusted. They will be able to take more decisions by themselves. They may obtain more job satisfaction.
Managers cannot do all the jobs The work becomes more interesting and themselves. By delegating they are able to more rewarding. find more time to do the jobs that he considers should be left to him. Managers are less likely to make mistakes The employees feels more important and if some of the tasks are being performed believes that trust is being put into them by their subordinates (those to whom the to perform a job well. tasks are being delegated). Managers can easily measure the success of their staff by this method. They can see how well their subordinates have performed by being the tasks delegated to them. Delegation helps to train workers and they can then make progress in the organisation. It gives them career opportunities.
The four barriers to communication are: 1) Problems with the sender 2) Problems with the message 3) Problems with the receiver 4) Problems with the feedback
Advantages of verbal communication Information can be given out quickly. Higher efficiency.
Disadvantages of verbal communication In a big meeting, there is no way to confirm whether everyone is listening or has understood the message that was put across by the speaker.
It can take longer to use verbal methods when feedback occurs than to use a form of communication
When an accurate and permanent record of the message is needed, such as a warning to a worker, a verbal method is inappropriate.
Advantages of written communication There is hard evidence of the message which can be referred to in the future.
Disadvantages of written communication Direct feedback is not always possible, unless electronic communication is used. With written messages, the two-way communication process is much more difficult
It is essential for certain messages involving complicated details which might be understood if, for example, a telephone message were given.
It not so easy to check that the message has been received and acted upon as with verbal messages.
A written message can be copied and sent to many people. This could be more efficient than telephoning all of those people to give the same message verbally.
The language used can be difficult for some receivers to understand. If the written message is too long it may be confusing and lose the interest of the reader.
Electronic communication is a quick and cheap way to reach a large number of people.
Advantages of visual communication These methods can present information in an appealing and attractive way. People are often more prepared to look at films or posters than to read letters or notices because of the interesting way they communicate messages.
Disadvantages of visual communication There is no feedback and the sender of the message may need to use other forms of communication to check that the message has been conveyed properly and understood. For example, training videos are often followed by a written test for the new staff to check their understanding.
They can be used to make a written message clearer by adding a chart or diagram to illustrate the point being made.
Charts and graphs are difficult for some people to interpret. The overall message might be understood if the receiver is unsure of how to read values of a graph or how to interpret a technical diagram.