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CH 1 Homework Solutions (All)

CH 1 Homework Solutions (All) - Chapter 1 The Business...

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Chapter 1 The Business Environment Review of Concepts A. Business is the process of producing and distributing goods and services to those who desire them, whereas a business refers to one enterprise. B. Profit is the reward to owners of a for-profit business, whereas it is the excess of revenues over expenses that can be used to advance organizational goals in a not-for-profit enterprise. C. The four factors of production (natural resources, human resources, physical capital, and entrepreneurship) are interrelated because most business endeavors and economies require all four factors to operate. All economic activity requires entrepreneurial behavior to combine the other three factors into business activity. Sometimes government serves as the entrepreneur in an economy, often lacking the creativity and willingness to accept risk necessary to have a successful economy. D. A business plan details a firm's business goals and its action plan to achieve those goals and contains the following information: 1. statement of purpose; 2. description of the business and the type of business activity; 3. marketing plan including information on competition; 4. operations plan including information on personnel and insurance coverage; and 5. financial plan including many types of accounting information. E. Manufacturing activity converts raw materials into usable products. Merchandising activity sells products to other businesses for use in manufacturing or for sale to final consumers. Service activity provides specific work or a job function as its major operation. A hybrid company performs more than one of these activities. For example, a bakery manufacturers products (cakes), sells them to customers, and caters wedding parties (service). 1
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2 Chapter 1: The Business Environment F. The three basic forms of business organization are sole proprietorship, partnership, and corporation. Advantages of a sole-proprietorship include its ease of formation, and dissolution, total control and ownership, and simple taxation on profits. Disadvantages include unlimited personal liability, limited availability of capital and managerial talent, life of the organization limited to the owner's life, and a significant time requirement. Advantages of a partnership include the ease of formation, simple taxation on profits, help with time requirements, and availability of capital and managerial talent. Disadvantages include unlimited personal liability, sharing of profits, difficulty of dissolution, maintenance of partner cohesiveness. Advantages of a corporation include the availability of capital and managerial talent, limited personal liability, and an unlimited life. Disadvantages include double taxation, difficulty of formation and dissolution, and absentee ownership.
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