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Hotspur & Wren Ltd - Business Studies Case study

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Hotspur & Wren Ltd Business Studies Case study Questions 2003 Chirag Sequeira 11M SECTION 1 - BUSINESS ACTIVITY AND THE CHANGING ENVIRONMENT 1.1 OBJECTIVES (a) All business have objectives or targets to meet which are set out by the people who lead or control the business. Two possible business objectives of Hotspur & Wren could be survival, profit maximisation and expansion. Survival is required when trading becomes difficult, periods of recession and threats of takeover. Profit maximisation is producing a level of output which generates the most profit for a business. (b) (i) To communicate the objective with Shareholder's, the business could produce circulars which would be mailed to the customers. A forum might also be held to receive feedback about the proposed changes. Shareholders will be interested in the changes as they receive a dividend. (ii)To communicate with their customers however, the business might need to adopt other methods such as various media advertising methods, advertising agencies etc. 1.2 TYPES OF ORGANISATION (a) (i) Hotspur and Sons were a partnership. (ii) Wren & Co is a private limited company. (iii) Hotspur & Wren Ltd is also a private limited company. (b) Mergers and takeovers take place when firms join together and operate as one organisation. "Hotspur & Sons" and "Wren & Co" merged in 1967 and there are many reasons why businesses merge. Firstly, mergers are a quick and easy way to expand the business compared to opening and building new sites. Secondly, buying a business is usually cheaper than growing internally. Thirdly, firms can also lower their costs by joining with another firm and gaining economies of scale. Also, growth of the business might be one of its main objectives and the size of the business can be increased with a merger. Lastly, mergers can also take place for defensive reasons and to consolidate its position in the market. (c) (i) ...read more.


2. An asset is a resource owned by the business used in production. It must earn revenue for the business. 3. Current assets are short term assets which are expected to be converted into cash within one year. An example of a current asset would be stock or debtors. Fixed assets are long term resources of a business such as office equipment or machinery. 4. Depreciation is the falling in value of an asset. Depreciation can occur due to wear and tear or technical and commercial outdating. 5. Drawings are money withdrawn by a sole trader from the business for personal use. It is not classified as an expense as expenses are costs incurred in earning revenue. Therefore drawings are a negative proprietorship. 6. A balance sheet is a summary at a point in time of business assets, liabilities and capital. Balance sheets have to be prepared by limited companies for its shareholders as it is a legal requirement. Balance sheets also provide useful information to investors and potential investors to help them valuate the business. 7. The current ratio shows the relationship between the current assets and the current liabilities: 8. The acid test ratio is similar to the current ratio, but it excludes stock from current assets in the calculation. Stock is the least liquid of the current assets, since they have not been sold: 9. The return on capital employed (ROCE) expresses the profit of the business as a percentage of the capital invested in it: Question 2 10. (i) Cash received and profits earned might be different as some transactions are done on credit and therefore does not lead to cash flow into the bank at that time. The owner might also take drawings from the business, which is not an expense. A loan could also be taken by the business which brings in cash to the business but not necessarily revenue. ...read more.


Batch Production - Method of production where a product is made in stages, with a particular operation being carried out on all products in groups or batches. In batch production can be monitored and there is flexibility in the amount produced. Little machinery is required. Flow Production - Method of production where a product is made continuously, often through the use of an assembly line. Mass produced goods are most suitable for this type of production. This process has a small unit cost and the use of computer can reduce the labour requirements. The production method is capital intensive and costs a lot to set up. 5.3 PRODUCTIVITY 5. Production is the transformation of resources into goods and services, whereas productivity is the ratio of output to inputs in a production process. 6. Hotspur and Wren Ltd would benefit from an improvement in productivity as they could increase the efficiency of the business. Generally as a business increases its efficiency, profitability also increases. 7. The introduction of more machinery 8. Just in time production is a production system where stocks are only delivered when they are needed by the production system. This minimises stock levels in a business. 9. Electronic payment 10. CAD allows designers, engineers and architects to manipulate a 3D image. An image can be altered on-screen so the effects of any changes are seen instantly. This represents a huge saving in time and costs as a prototype need not be built at each stage. Customers can even design their own products and email them to the business. The products can then go straight into production. 5.4 QUALITY 11. Total Quality Management (TQM) is a method for a business to focus on quality by making it an important aim of every department and worker. If Hotspur & Wren Ltd uses TQM in tits production process it will have a competitive edge over others as customers will be happier to purchase their goods as they are more likely to be free of defects. The product will also meet customers needs and ...read more.

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