Cambridge IGCSE Business Studies (0450) Flashcards

24 sample cards from the Business Studies (0450) deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What is the difference between above-the-line and below-the-line promotion?

   Above-the-line: paid advertising through mass media (TV, radio, newspapers, internet ads). Below-the-line: other promotion the firm controls directly (sales promotions, direct mail, personal selling, sponsorship).

2. Compare job, batch and flow production.

   Job: one unique product made at a time (e.g. wedding cake). Batch: groups of identical items made together moving through stages (e.g. bread batches). Flow: continuous mass production of identical items on a production line (e.g. cars).

3. What is lean production and one method used to achieve it?

   Lean production aims to reduce all forms of waste (time, materials, labour) while maintaining quality. Methods include Just-In-Time (JIT) stock control, Kaizen (continuous improvement), and cell production.

4. What is the difference between quality control and quality assurance?

   Quality control: inspecting/checking products for faults at the end of production. Quality assurance: building quality into the whole process so faults are prevented at every stage, with all workers responsible for quality (e.g. TQM).

5. How is productivity (labour productivity) calculated?

   $$\text{Labour productivity} = \frac{\text{Total output}}{\text{Number of workers}}$$ It measures output per worker over a period of time.

6. Define fixed costs, variable costs and total costs with a formula.

   Fixed costs do not change with output (e.g. rent). Variable costs change directly with output (e.g. raw materials). $$\text{Total cost} = \text{Total fixed costs} + \text{Total variable costs}$$

7. How is the break-even level of output calculated?

   $$\text{Break-even output} = \frac{\text{Fixed costs}}{\text{Selling price per unit} - \text{Variable cost per unit}}$$ The denominator is the contribution per unit.

8. What is contribution per unit, and how is total contribution found?

   Contribution per unit is selling price per unit minus variable cost per unit: $$\text{Contribution} = P - VC$$ Total contribution = contribution per unit $\times$ number of units sold; it contributes to covering fixed costs and then profit.

9. What is the margin of safety?

   The amount by which actual/current output exceeds the break-even output: $$\text{Margin of safety} = \text{Actual output} - \text{Break-even output}$$ It shows how far sales can fall before the firm makes a loss.

10. Distinguish internal from external sources of business finance, with examples.

    Internal: from within the business — retained profit, sale of assets, owner's savings. External: from outside the business — bank loan, overdraft, share issue, debentures, trade credit, leasing, grants.

11. Distinguish short-term from long-term sources of finance.

    Short-term (repaid within ~1 year) covers day-to-day needs: overdraft, trade credit, short loans. Long-term funds large/permanent investment: bank loans, mortgages, share issue, debentures, retained profit.

12. What is working capital and how is it calculated?

    Working capital is the finance available for day-to-day running of the business. $$\text{Working capital} = \text{Current assets} - \text{Current liabilities}$$

13. What does a cash flow forecast show, and what is the closing balance formula?

    A cash flow forecast predicts the flow of cash into and out of a business over future months. $$\text{Closing balance} = \text{Opening balance} + \text{Net cash flow}$$ where net cash flow = cash inflows − cash outflows.

14. What does an income statement (profit and loss account) show? Give the gross and net profit formulas.

    It shows revenue, costs and profit over a period. $$\text{Gross profit} = \text{Revenue} - \text{Cost of sales}$$ $$\text{Net profit} = \text{Gross profit} - \text{Expenses (overheads)}$$

15. What does a statement of financial position (balance sheet) record?

    A snapshot of a business's assets (non-current and current), liabilities (non-current and current) and capital/equity at a particular point in time, showing what the business owns and owes.

16. State the formula for the gross profit margin and the net profit margin.

    $$\text{Gross profit margin} = \frac{\text{Gross profit}}{\text{Revenue}} \times 100$$ $$\text{Net profit margin} = \frac{\text{Net profit}}{\text{Revenue}} \times 100$$

17. State the formula for Return on Capital Employed (ROCE).

    $$\text{ROCE} = \frac{\text{Net profit (operating profit)}}{\text{Capital employed}} \times 100$$ It measures how efficiently the capital invested is generating profit.

18. State the formulas for the current ratio and the acid test (quick) ratio.

    $$\text{Current ratio} = \frac{\text{Current assets}}{\text{Current liabilities}}$$ $$\text{Acid test ratio} = \frac{\text{Current assets} - \text{Inventory}}{\text{Current liabilities}}$$

19. What is inflation and how does it affect a business?

    Inflation is a sustained rise in the general price level over time. It raises costs of raw materials and wages, can reduce consumer spending power and demand, and creates uncertainty for planning.

20. How can a rise in interest rates affect a business?

    Higher interest rates increase the cost of existing and new loans, reduce business investment and borrowing, and lower consumer demand because consumers spend less and save more (and have higher loan/mortgage repayments).

21. How does the exchange rate affect importers and exporters? (Use SPICED/WPIDEC logic.)

    A strong (high) domestic currency makes imports cheaper and exports dearer; a weak (low) currency makes exports cheaper and more competitive abroad but imports dearer. Remember: Strong Pound = Imports Cheap, Exports Dear (SPICED).

22. What are the main reasons a government intervenes in/regulates business activity?

    To protect consumers (safety, fair pricing), protect employees (employment laws), protect the environment (pollution controls), and ensure fair competition. Firms must comply with relevant legislation.

23. What does it mean for a business to be socially and environmentally responsible?

    Acting in ways that benefit society and the environment beyond legal requirements — e.g. reducing pollution and waste, ethical sourcing, treating workers fairly, and supporting the local community (Corporate Social Responsibility).

24. What are the potential benefits and drawbacks of globalisation for a business?

    Benefits: access to larger global markets, cheaper labour/materials, economies of scale. Drawbacks: greater foreign competition at home, exchange rate risk, cultural/legal differences, and reliance on global supply chains.

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