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IB Business and Management BUSINESS ORGANISATION AND ENVIRONMENT 1.1 The Nature of Business Activity I


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IBBusinessandManagement.com IB Business and Management The IB Diploma Business and Management course delivered IN STYLE, ONLINE. ©

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z Business organization & environment Topic 1

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z Nature of business activity 1.1

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What is a Business? a decision-making organization involved in the process of using inputs to produce goods &/or provide services (outputs) z resources (e.g. labour, capital & raw materials) used in the production process The provision of final goods & services (i.e. the product) inputs processes outputs

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A business provides goods & services z Physical products Intangible products Intangible products Can’t touch them Banking Retailing Concerts!!

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The market place a place or process where buyers (customers) and sellers (businesses) meet to trade. z Customers buy a product Consumers use a product Using the example of a school uniform, make this distinction clearer

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Types of goods & services consumer goods are products sold to the general public z Capital goods (producer goods) are products purchased by businesses& then used to make other goods & services

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Value added All businesses must add value in the production process z Value added allows businesses to sell its products for more than the production costs Value added is the difference between the value of inputs (costs of production) & the value of outputs (i.e goods & services sold to customers) It is how profit is made (sales revenue less costs of production) Question: 1.1.1, p. 6

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Opportunity cost in business Definition: The best alternative forgone when making a decision z Emma is employed as a pharmacist and is earning a salary of $90K. She will quit this job, invest her savings of $500K & open her own pharmacy. She forecasts she will be able produce $100K profit per annum – that’s 20% return on investment, right? Opportunity costs involved in the decision, include: Salary given up Interest on her savings $500K x 6% time involved (extra hours? less holidays?) Business people have to weigh the opportunity costs when making decisions, all of the time. The opportunity cost of increasing the marketing budget to boost sales may be not being able to hire an extra salesperson The opportunity cost of developing product X may be not being able to develop product y The opportunity cost of reducing costs by opening a Philippine call centre may be losing 5% of your customers who are unhappy with the experience Question: 1.1.2, p. 7

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The role of profit profit: total revenues (sales) less the total costs of production being positive z $40,000 in sales revenues & $30,000 in costs leaves a profit of $10K $30,000 in sales revenues & $40,000 in costs leaves a loss of $10K Functions of profit: Incentive to produce Reward for risk takers Encourages invention & innovation An indicator of growth A Source of finance

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