Business objectives — Edexcel A-Level Business
Test yourself on Business objectives with PEARSON EDEXCEL A-Level practice questions.
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Business objectives explained
This is the objective a business adopts when running out of cash is a live possibility, typically in the first two years of trading or in a sharp downturn, and it rewrites the rules.
Read the full explanation
Such a firm will accept an order priced below full cost provided the price beats variable cost per unit, because the difference is contribution towards fixed costs that have to be paid anyway. It will chase debtors, delay capital spending and take an overdraft a comfortable firm would refuse. The numbers that matter are liquidity ones: contribution per unit is selling price minus variable cost per unit, break-even output is fixed costs divided by contribution per unit, and the margin of safety is current output minus break-even output. Evaluation is about the price of buying time, since deep discounting teaches customers the lower price and postponed investment reappears as weak competitiveness later.
b) Profit maximisation
Making the gap between total revenue and total costs as wide as possible sounds like the default aim, and for a listed company it usually is, but it remains a choice with consequences. Total revenue is price multiplied by quantity sold, so the pursuit runs through price rises where demand is price inelastic, through volume where demand is elastic, and through cost control everywhere. Markers expect the measures: operating profit margin is operating profit stated as a percentage of revenue, and return on capital employed is operating profit stated as a percentage of capital employed. The evaluation lives in the time frame and in Porter's five forces, because fat margins attract new entrants and invite buyer and supplier pressure that squeezes tomorrow's profit, while widening the margin by squeezing pay risks labour turnover and reputational damage costing more than the gain.
c) Other objectives: sales maximisation; market share; cost efficiency; employee welfare; customer satisfaction; social objectives
Each alternative aim answers what the business is for, and each carries a measure examiners reward. Chasing volume builds the scale that lowers unit costs, which is why loss-making platforms keep growing. Market share is the firm's sales as a percentage of total market sales, the axis the Boston matrix uses to tell a star from a question mark, though it is blind to why the share was won. Efficiency shows in unit cost, total cost divided by output, and in capacity utilisation, actual output as a percentage of maximum possible output. Staff aims show in labour turnover, leavers as a percentage of average staff, and Herzberg warns that pay removes dissatisfaction without motivating. Customer aims show in repeat purchase and social aims in the triple bottom line. These aims pull against each other, since the cheapest operation and the happiest workforce rarely arrive together.
Your focus
- a) Survival
- b) Profit maximisation
- c) Other objectives: sales maximisation; market share; cost efficiency; employee welfare; customer satisfaction; social objectives
Business objectives exam tips
Marking Points
- State that this is a short-term objective driven by cash flow rather than profit, and identify what in the case threatens the cash position.
- Use break-even language accurately: contribution per unit is selling price minus variable cost per unit, and break-even output is fixed costs divided by contribution per unit.
- Name a concrete tactic from the extract, such as cutting price while keeping contribution positive, negotiating longer credit from suppliers or arranging an overdraft.
- Judge the cost of that tactic, for instance that a deep discount protects cash now and damages brand positioning later.
- Define the aim as the largest positive difference between total revenue and total costs, and state the period, since short-run and long-run maximisation pull in opposite directions.
- Show the route taken: raise price where demand is price inelastic, raise volume where it is elastic, or cut unit costs, choosing whichever the case data supports.
- Quantify using a ratio such as operating profit margin, which is operating profit divided by revenue as a percentage, or return on capital employed, which is operating profit divided by capital employed as a percentage.
- Evaluate against stakeholder conflict and against the threat of new entrants in Porter's five forces.
- Pair each aim with its measure: share as a percentage of total market sales, unit cost as total cost divided by output, capacity utilisation as actual output over maximum possible output, labour turnover as leavers over average staff.
- Explain why the business in the case chose that aim instead of profit, using evidence from the extract such as a new entrant or a recruitment problem.
- Show a conflict between two aims, for example that cost efficiency achieved through insecure contracts raises labour turnover.
- Bring in a model where it fits, such as the Boston matrix for market share or Herzberg for staff welfare, and say what the model leaves out.
Examiner Tips
- 💡This usually appears alongside a cash flow forecast or break-even chart, so quote the month the balance turns negative rather than describing the problem in general terms.
- 💡Assess items often ask whether survival or profit should be the priority now, and the answer turns on the time frame and the state of the cash balance.
- 💡Two developed points with figures beat five undeveloped ones, so calculate one liquidity number and build the paragraph around it.
- 💡This is a standard assess or evaluate item, usually set against another objective from the extract, and the best conclusions name the condition under which each objective wins.
- 💡If the extract gives two years of figures, calculate the margin for each year and comment on the direction before judging the objective.
- 💡Look for elasticity clues in the text, such as customers switching to a cheaper rival, because they decide whether a price rise raises profit at all.
- 💡Questions often ask you to assess whether a non-profit aim is right for a named business, so structure the answer as benefit, cost and the condition that decides it.
- 💡Objectives answers reward SMART thinking, so say how the aim would be measured and by when.
- 💡Where the extract supplies capacity or staffing data, calculate one figure and use it as evidence rather than describing the aim in words alone.
Common Mistakes
- Confusing profit with cash, so the answer claims a profitable firm cannot fail, when firms fail with full order books because customers pay late.
- Recommending cost cutting without saying which costs, and ignoring that cutting marketing can accelerate the fall in sales.
- Pricing below variable cost and calling it survival, which adds to the loss on every unit sold.
- Confusing profit with revenue, so a price cut that raised sales volume is presented as automatically raising profit.
- Assuming every business pursues the maximum, when owners who satisfice, social enterprises and firms buying market share do not.
- Ignoring the time frame, so a short-run price rise is written up as a strategy with no mention of lost loyalty or entry by rivals.
- Confusing volume goals with profit goals, when more units sold at a lower price can reduce total contribution.
- Quoting a share figure without saying share of which market, since the market definition changes the number completely.
- Treating social aims as free public relations, when they carry real costs that have to be weighed against the loyalty they earn.