Unit 1

Exploring Business Purposes

Mrs Gazi

17th September

Unit 1In this unit you will need to:

Understand the nature of business and ownership

Understand the classification of business activities

Understand business aims and objectives in different sectors

Know the main functional areas that support business organisations

The Assignment:

Four PASS tasks

Three MERIT tasks

One DISTINCTION task

Business Purposes

• Describe the purpose of different businesses

• Explain the general purpose of different business activity

• Classify business into the categories of profit, free goods / services, and at cost of below cost

By the end of this session you will be able to:

Task 1

• List down all the different purposes of a business that you can think of . . .

What is the purpose of a business?

Business Purposes

Definition

“All businesses do something and have areason for doing it. They produce or supplygoods, offer services or do both.”

Carysforth, C., and Neild, M., 2006BTEC First Business 2nd Edition, Heinemann

Now a business has a reason to exist, they must now decide what they will charge for their goods or services – these fall into 4 categories . . .

4 purpose categories

• At profit

• At cost

• Free goods or services

• Below cost

For Profit Organisations

• A business or other organization whose primary goal is making money (a profit).

• Most companies considered to be businesses are for profit organisations

• This includes anything from retail stores to restaurants to insurance companies to real estate companies.

Business Purposes

Sold at cost• A price placed on a product or service

that is the same as the seller paid to create or buy it.

• A company might engage in this sort of pricing in order to increase market share at the expense of profitability.

• They might also use this tactic to off load stock that won’t sale at a profit

• Another example is a local drama society who charges a small ticket price to cover their overheads. They can do this as the people involved usually work for free. A commercial theatre group couldn’t do this as they need to pay wages.

Business Purposes

Below cost• A price placed on a product or

service that is less than the seller paid to create it.

• A company might engage in this sort of pricing in order to increase market share at the expense of profitability.

• Another example is NHS prescription drugs. The charge per item to the consumer is £7.20 but the cost to the NHS who supplies the consumer can be much more. The NHS is subsidising the consumer.

Business Purposes

Free• Free goods or services are provided

when they are considered to be essential to everyone

• This includes health care, the bin collection, road maintenance and social services provided by your local council; and emergency services such as the police, ambulance and fire services.

• Voluntary organisations such as Oxfam and Save the Children provide medical assistance and essential supplies free of charge.

Business Purposes

Task 2

• In small groups complete the “at profit” handout

• You have 10 minutes . . .

At Profit

Profit is the difference between the revenue raised from sales minus the costs involved with making and or supplying the good or service

Sales revenue – costs = PROFIT

This profit can then be reinvested into the business

Task 3

• In your groups complete the second handout on “at cost” and “free goods and services”

• You have 10 minutes . . .

At Cost

The business makes enough to cover the cost of the product or service but does not make any profit

For example:

A local drama group may sell tickets at a low price, which just covers the cost of the production, to attract customers. This is possible because all the members are volunteers and do not receive a salary, unlike a commercial theatre, which has to pay wages and must therefore make a profit to survive.

Free Goods and Services

Some businesses provide free goods or services. Generally the goods or services provided are considered essential for everyone and so they are delivered for free by governments or councils.

The NHS, refuse collection, street lighting, Fire Services and Ambulances.

Examples:

Task 4

Now in the same groups as before complete the final handout on ‘Below Cost’

When you have finished try to think of

examples that you can discuss with the class.

Below Cost

Some businesses decide to sells their goods or offer their services at a price that does not cover all of the costs involved.

They make a loss on each unit sold.

Why would a business do this?

Discussion

Large businesses, like supermarkets, can sell goods cheaply and still make a profit because they buy them at a discount and sell huge quantities.

Superstores often sell goods cheaply as ‘loss leaders’ or as BOGOF (buy one get one free) deals.

How do these items link to prices and profits? Compareyour ideas as a group.

Famous loss leaders . . .

Today’s Session

• Describe the purpose of different businesses

• Explain the general purpose of different business activity

• Classify business into the categories of profit, free goods / services, and at cost of below cost

By the end of this session you will be able to:

You can find this lessons slides and additional information on Alhikmah girl’s website