8311924
Description
Flashcards by Humza Mahmood, updated more than 1 year ago
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Created by Humza Mahmood
about 7 years ago
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| Question | Answer |
| Why would SOA want to buy additionalo stock? | Demand for products during this time will increase This will also avoid situations of stockout which can result in lost sales |
| Why may there not be additional demand for SOA's products? | - 22 other specialist retailers will be present - They can sell their products at cheaper prices |
| Why may customers still buy from SOA? | Price is not the only factor a customer will take into account. Quality of SOA's outdoor pursuits gear may be greater so people may be willing to pay a higher price. |
| Why is there a problem in how SOA will fund the buying of additional stock? | Finance should come from additional sales but there will be a period of cash shortfall as the money from sales take some time to come through. |
| Give two examples of short-term sources of finance to fill the gap. | Trade credit and overdraft. |
| Give a description of trade credit. | Securing an interest free period in which to pay for goods / services received. The typical credit period is between 30 to 70 days. |
| Give a description of an overdraft. | Arrangements between a firm and its bank / building society to withdraw more money from its account than that deposited in it, up to an agreed limit. |
| What are the advantages and disadvantages of 'trade credit'? | ADV: It is interest free DIS: you may not be able to receive a discount for prompt payment |
| What are the advantages of an 'overdraft'? | ADV: It is simple quick and easy to arrange ADV: It is flexible and convenient ADV: It may be a good short-term source of finance as interest is charged daily |
| What are the disadvantages of an 'overdraft'? | DIS: Costs increase because of interest payment DIS: Expensive if used regularly and for large payments DIS: Overdraft facility can be withdrawn without notice. |
| What are the advantages of buying additional stock? | SOA can access discounts for buying in a larger quantity (economies of scale) This will allow SOA a greater profit margin if sales also increase. |
| What is the first of the five costs associated with holding stock? | 1. Cost of storage - e.g. purchase/ rent storage capacity, labour (security), Insurance (against fire) |
| What is the second of the five costs associated with holding stock? | 2. Cost of finance - temporary source of finance may have to be used, e.g. bank loan |
| What is the third of the five costs associated with holding stock? | 3. Theft, damage etc. - if employees know there is a lot of additional stock, they may take less care when handling items |
| What is the fourth of the five costs associated with holding stock? | 4. If additional stock is not sold, it may become obsolete, outdated and unfashionable |
| What is the fifth of the five costs associated with holding stock? | 5. Opportunity cost - money tied up in stock cannot be released until stock is paid for The money used to but this additional stock could have been used to buy something else |
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