FINANCIAL STATEMENTS - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER

6/5/2018

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FINANCIAL STATEMENTS - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER

Financial Statements
1. Trading account
2. Profit and loss account
3. Trading, profit and loss account
4. Balance sheet
Importance of the financial statements
Concept of trading period
Preparation of simple financial statements
Types of capital
1. Working capital
2. Borrowed capital
3. Capital owned
4. Capital employed
Calculating basic financial ratios e.g
1. Margins and mark-ups
2. Current ratio/ working capital ratio
3. Rate of stock turn-over
4. Return on capital
Importance of financial ratios

SPECIFIC OBJECTIVES

By the end of the topic, the learner should be able to:

identify the various financial statements
explain the importance of each of the financial statements
explain the concept of trading period
prepare simple Financial Statements
explain the various types of capital
calculate basic ratios from financial statements
explain the importance of each of the basic financial ratios.

Financial Statements

These are prepared at the end of a given trading period to determine the profit and losses of the business, and also to show the financial position of the business at a given time. They includes; trading account, profit and loss account, trading profit and loss account and the balance sheet. They are also referred to as the final statements.
The trading period is the duration through which the trading activities are carried out in the business before it decides to determines it performances in terms of profit or loss. It may be one week, month, six months or even a year depending on what the owner wants. Most of the business use one year as their trading period. It is also referred to as the accounting period.
At the end of the accounting period, the following takes place;

All the accounts are balanced off
A trial balance is extracted
Profit or loss is determined
The balance sheet is prepared

Determining the profit or loss of a business

When a business sells its stock above the buying price/cost of acquiring the stock, it makes a profit, while if it sells below it makes a loss. The profit realized when the business sell it stock beyond the cost is what is referred to as the gross profit, while if it is a loss then it is referred to as a gross loss.
It is referred to as the gross profit /loss because it has not been used to cater for the expenses that may have been incurred in selling that stock, such as the salary of the salesman, rent for the premises, water bills, etc. it therefore implies that the businessman cannot take the whole gross profit for its personal use but must first deduct the total cost of all other expenses that may have been incurred.
The profit realized after the cost of all the expenses incurred has been deducted is what becomes the real profit for the owner of the business, and is referred to as Net profit. The net profit can be determined through calculation or preparation of profit and loss account.
In calculating the gross profit, the following adjustments are put in place

Return inwards/Sales return: - these are goods that had been sold to the customers, but they have returned them to the business for one reason or the other. It therefore reduces the value of sales, and is therefore subtracted from sales to obtain the net sales
Therefore Net sales = Sales – Return inwards
Return outwards/purchases return: - these are goods that had been bought from the suppliers to the business and have been returned to them for one reason or another. It reduces the purchases and is therefore subtracted from the purchases to obtain the net purchases.
Drawings: - this refers to goods that the owner of the business has taken from the business for his own use. It reduces the value of purchases, and is therefore subtracted from purchases when determining the net purchases. It is different from the other drawing in that it is purely goods and not money
Carriage inwards/Carriage on purchases: - this is the cost incurred by the suppliers in transporting the goods from his premises to the customers’ business. It is treated as part of the purchases, and therefore increases the value of purchases. It is added to purchases to determine the actual value of purchases/Net purchases.
Therefore Net Purchases = Purchases + Carriage inwards – Return Outwards - Drawings
Carriage outwards/Carriage on sales: - this is the cost that the business has incurred in transporting goods from its premises to the customer’s premises. The cost reduces the business profit that would have been realized as a result of the sale, and is therefore treated as an expense and is subtracted from the gross profit, before determining the net profit.
Opening stock is the stock of goods at the beginning of the trading period, while the closing stock is the stock of the goods at the end of the trading period
Gross profit is therefore calculated as follows;
Gross Profit = Sales – Return inwards – (Opening stock + Purchases + carriage inwards – Return outwards – Closing stock)
Or
Gross profit = Net sales – Cost of Goods Sold (COGS)
COGS = Opening Stock + Net Purchases – Closing stock
Net Profit = Gross profit – Total expenses

Trading Account

This is prepared by the business to determine the gross profit/loss during that trading period
It takes the following format

The trading account is completed by the time the gross profit b/d is determined
For example
The following balances were obtained from the books of Ramera Traders for the year ending may 31st 2010

Sales 670 000
Purchases 380 000
Return inwards 40 000
Carriage outwards 18 000
Return outwards 20 000
Carriage inwards 10 000

Additional information:

During the year the owner took goods worth shs 5 000 for his family use
The stock as at 1st June 2009 was shs 60 000, while the stock as at 31st May 2011 was shs 70 000

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THE LEDGER AND THE CASHBOOK - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER

23/4/2018

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CONTENT
NOTES
Q & A

THE LEDGER AND THE CASHBOOK

CONTENT

Meaning and purpose of a ledger
Concept of double entry
Meaning and format of a ledger account
Rules of posting of various ledger accounts
a) Assets accounts
b) Liability accounts
c) Expenses accounts
d) Revenue accounts
e) Capital accounts
Recording business transaction in the ledger accounts
Balancing a ledger account
The trial balance
Purpose and limitations of a trial balance
Classification of ledger accounts
Types of ledgers.

THE CASH BOOK

Meaning and purpose of a cash book
Basic types of cash books
Contra entry
Preparation of a cash book
a) Single - column
b) Two - column
c) Three - column

THE CASH BOOKS AND THE LEDGER

The cash book
This is a special ledger which is used to record cash and cheque transactions.
It contains only the cash in hand and cash at bank (i.e. cash and bank) accounts
Nominal ledger
This ledger is used to record business expenses and incomes (gains). It contains all the nominal accounts.
Private ledger
This ledger is used in recording private accounts i.e. confidential and valuable fixed assets and the personal accounts of the proprietors such as capital accounts and drawing accounts.
The general ledger
The general ledger contains all other accounts that are not kept in any other ledger e.g. buildings, furniture and stock accounts.

Personal accounts of debtors or creditors who do not arise out of sale or purchase of goods on credit are found in the general ledger e.g. debtors as a result of sale of fixed asset on credit and expense creditors.
Private accounts
these are accounts that the business considers to be confidential and are not availed to everybody except the management and the owners.
These accounts may be personal or impersonal.
They include capital account, drawings accounts, trading, profit and loss accounts.

Types of ledgers

The following are the main types of ledgers that are used to keep the various accounts
The sales ledger (Debtors ledger)

This is the ledger in which accounts of individual debtors are kept.
It is used to record the value of goods sold on credit and the customers to whom the credit sales are made, hence contains the personal names of the debtors.
It is called a sales ledger because the accounts of debtors kept herein are as a result of sale of goods on credit. An account is kept for each customer to which is debited the value of credit sale. Payment made by the debtor are credited to the account and debited in the cash book.

Purchases ledger (creditors ledger)
The purchases ledger contains accounts of creditors i.e. contains the records of the value of goods bought on credit and the suppliers of such goods.
It is a record of the debts payable by the business due to credit purchases.
An account is kept for each creditor to the credit side of which is posted the value of.
Impersonal accounts
This category of ledger accounts includes all other accounts that are not personal in nature e.g. buildings, purchases, rent, sales and discounts received.
Impersonal accounts fall into two types

Real accounts
Nominal accounts

Real accounts:
These are accounts of tangible assets or property e.g. buildings, land, furniture, fittings, machinery, stock, cash (at bank and in hand) etc.
These accounts are also used to draw up the balance sheet.
Nominal account:
These are accounts of items that relate to gains and losses and whose balances at the end of the accounting period.
All expenses, revenues, sales and purchases are hence nominal accounts.
The main business expenses include:
purchases, sales, returns, insurance, stationary, repairs, depreciation, heating, discount allowed, lighting interests, printing, wages, rent, rates and advertising.
The value of losses is included in the same side as the expenses when drawing up the final accounts though it is not an expense.
The income (revenues) include sales, returns, claims out, interest receivable, dividends receivable and commission receivable. Profit is usually categorised together with these incomes when drawing up the final accounts.

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Classification of ledger accounts

Many businesses handle few transactions, hence they have few records to keep. Their accounts can thus be kept in a single ledger referred to as the general ledger
As a business grows the volume of transactions increases. This single ledger, therefore, becomes very bulky with accounts and it becomes difficult to make reference to it.
In order to simplify the recording of transactions and facilitate reference to the accounts, ledger accounts are usually classified and each category kept in a special ledger.
NOTE
(i) Since many transactions are cash transactions which are normally recorded in the bank and cash accounts a need arises to remove them from the main/general ledger to a separate ledger called the cash book.
(ii) The number of ledgers kept depends on the size of the business.
Classes of accounts
All accounts can be classified into either personal or impersonal accounts.
Personal accounts

These are account of persons
They relate to personal, companies or associations.
They are mainly accounts of debtors and creditors.

NOTE: capital account is the proprietor’s personal account, showing the net worth of the business hence it is a personal account.
The account balances of these accounts are used to draw up the balance sheet.
In the ledger, the trial balance total is not affected.
Purpose of a trial balance
The purpose of a trial balance include:

Checking the accuracy in the ledger accounts as to whether;
- The rule of double entry has been adhered to or observed/ complied with.
- There are arithmetical errors in the ledger accounts

Gives a summary of the ledger i.e. summary of the transactions which have taken place during a given period
Provide information (account balances) for preparing final accounts such as the trading account, profit and loss account and the balance sheet.
Test whether the ledger account balances have been posted to the right side of the trial balance.

Limitations of a trial balance

Even when the trial balance totals are equal, it does not mean that there are no errors made in the ledgers. This is because there are some errors that do not affect the trial balance.
A trial balance only assures the book keeper that the total of debit entries is equal to total credit entries.
The errors that do not affect the trial balances are:

Error of total omission; This occurs when a transaction takes place and nothing about it is recorded in the books of accounts i.e. it is completely omitted such that neither a credit nor a debit entry is made in the ledgers.
Error of original entry; this occurs where both the debit and credit entries are made using similar but erroneous figures. As the wrong amount is recorded in the two accounts.
Error of commission; This occurs where double entry is completed but in the wrong persons accounts especially due to a confusion in names e.g. a debit entry of shs.2000 was made in Otieno’s account instead of Atieno’s account.
Compensating errors; these are errors whose effects cancel out e.g. over debiting debtors account by sh.300 and under debiting cash account by sh.300.
Complete reversal of entries; This occurs where the account to be debited is credited and the account to be credited is debited e.g. the sale of goods to Lydia on credit may be recorded as follows;
Dr.sales a/c
Cr.Lydius a/c
Instead of;
Dr.Lydius a/c
Cr.sales a/c
Error of principle; this is where a transaction is recorded in the wrong account of a different class from the correct one e.g. repairs of machinery was debited in the machinery instead of debiting the repairs account.

Trial Balance

A trial balance is a statement prepared at a particular date showing all the debit balances on one column and all the credit balances on another column.
NOTE: A trial balance is not an account but merely a list of assets, expenses and losses on the left and capital liabilities and incomes (including profits) on the right.
The totals of a trial balance should agree if the double entry has been carried out correctly and there are no arithmetic errors both in the ledger as well as in the trial balance itself.
If the two sides of a trial balance are not equal, it means there is an error or errors either in the trial balance or in the ledger accounts or in both.

Errors that may cause a trial balance not to balance

Partial omission: A transaction was recorded on only one account i.e. a debit or a credit entry might have been omitted in one of the affected accounts.
Transferring (posting): a wrong balance to a trial balance.
Different amounts for the same transaction might have been entered in the accounts
Failure to post a balance to the trial balance (omission of a balance from the trial balance
Posting a balance to the wrong side of the trial balance
Recording a transaction on the same side of the affected accounts(partial reversal entry)
Arithmetic mistakes might have been made when balancing the ledger accounts
Arithmetic errors in balancing the trial balance

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NATIONAL INCOME - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER

21/4/2018

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OBJECTIVES
NOTES
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NATIONAL INCOME

NATIONAL INCOME CONTENT

Meaning of national income
The circular flow of income
Methods of measuring national income
Problems encountered in measuring national income
Uses of national income statistics
Factors which influence the level of national income

NATIONAL INCOME SPECIFIC OBJECTIVES

By the end of the topic, the learner should be able to:

explain the meaning of national income
describe the circular flow of income
explain the methods of measuring national income
explain the problems encountered in measuring national income
discuss the uses of national income statistics
discuss the factors that influence the level of national income.

NATIONAL INCOME

This is the total income received by the providers/owners of the factors of production in a given country over a given time period.
Terms used in national income

Gross Domestic Product (GDP). This is the total monetary value of all goods and services produced in a country during a particular year. Such goods and services must have been produced within the country.
Net Domestic Product (NDP). This is the GDP less depreciation. Depreciation is the loss in value of the assets such as machines used in the production of goods and services.
Gross National Product (GNP). This measures the total monetary value of all the goods and services produced by the people of a country regardless of whether they in or outside the country. It takes into account exports and imports. The difference between exports and imports is called net Factor Income from abroad. GNP therefore is the sum of GDP and net factor income from abroad.
Net National Product (NNP). This recognizes the loss in value of the capital used in the production of goods. Capital here refers to capital goods. NNP is the difference between GNP and the depreciation.
Per capita income. This is the average income per head per year in a given country. It is also the national income divided by the population of the country.

Circular Flow of Income

This is the continuous movement of income between the households (providers of factors of production) and the firms (producers of goods and services).
The factors of production are received from households.
The firms pay the rewards of such factors to the households (expenditure to the firms and income to the households).
The households in turn use the income to buy the goods and services produced by the firms (expenditure to households and income to firms).

Assumptions/features of circular flow of income

Existence of two sectors only. It is assumed that the economy has only two sectors that is households and firms. The households provide the factors of production while firms are involved in the production of goods and services.
Total spending by households. It is assumed that the households spend all their income on the goods and services produced by the firms i.e. no savings.
Total spending by the firms. It is assumed that the firms spend the money received from the sale of goods and services to pay for the rewards of production factors.
Lack of government intervention. The government does not influence how the firms and households carry out their activities. Such interventions are in the form of taxes, price controls among others.
Closed economy. Exports and imports do not exist in such an economy.

Factors affecting the circular flow of income

The factors can either lead to increase in income and expenditure (injections) or lead to a reduction in the volume of flow (withdrawals).

The factors include the following:

Savings. This takes place when the households do not spend all their income on the purchase of goods and services. This reduces the income to be received by firms hence savings is a withdrawal from the circular flow of income.
Taxation. Taxation reduces the amount of money available for spending therefore it is a withdrawal/leakage from the circular flow of income.
Government expenditure. The government may buy goods from the firms or provide subsidies. This will translate in to an injection into the circular flow of income.
Investments. When firms put more capital into the production, output will increase hence an increase in income (injection).
Imports. When goods and services are bought from other countries, money will be spent hence a reduction in the circular flow of income (withdrawal).
Exports. Through exports, a country is able to receive money from other countries (injections)

Injections

Investments
Government spending
Exports

Withdrawals

Savings
Taxation
Imports

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Approaches Used In Measuring National Income

Expenditure Approach
National income is arrived at summing expenditure on all final goods and services (that have reached the final stage of production). Such expenditure is divided into:

Expenditure on consumer goods ( C)
Expenditure on capital goods (I)
Expenditure by government (G)
Expenditure on net exports (X – M)

Therefore national income = C+I+G+(X – M)
Problems associated with expenditure approach

Lack of accurate records particularly in the private sector
Approximation of expenditure of the subsistence sector
Difficulty in differentiating between final expenditure and intermediate expenditure
Double counting may exist
Fluctuating exchange rates may cause problems in the valuation of imports and exports.

Income approach

In this method, the national income is arrived at by summing all the money received by those who participate in the production of goods and services.
Such incomes are in the form of rewards to the production factors (wages, rent, interest and profits).
Public income is also taken into account i.e. it is the income received by the government from its investments (Parastatals, joint ventures).
Transfer payments are excluded since they represent a redistribution of incomes from those who have earned them to the recipient’s e.g. National insurance schemes.

Problems related to this method

Determination of what proportion of transfer payments constitute in the income of a country.
Inaccurate data may exist since business people may not tell the truth about their income in order to evade tax.
Price fluctuations may make national income determination difficult.
Income from illegal activities is not captured.
Valuation of income from subsistence economy may be difficult e.g. housewives.

Uses of National Income Statistics

Indicators of standards of living. If the national income is equitably distributed, then the standards of living will be high.
Measuring economic growth. The statistics of one year are compared with previous year to show whether there is improvement or not.
Inter country comparison. They are used to compare the economic welfare among countries hence knowing which country is better off and by how much. However, the following challenges may be faced when carrying the comparisons: different in currencies, different goods and services, disparity in income distribution and difference in tastes and preferences.
Investment decisions. They assist the government and other investors to know the sectors to put their money. The statistics provide relevant information concerning the performance of each sector.
Basis of equitable distribution of income. The statistics can be used to spread income to the hands of majority of the citizens in case a few individuals control the economy.
Planning purposes. The statistics will show the contribution of each sector thus helping the government in allocating the funds to the various sectors.

Factors which influences the level of national income.

Quantity and quality of production. If the factors are more in terms of quantity of good quality, the output will be high hence increasing in national income.
State of technology. A country with high level of technology will produce goods in large volumes hence high national income.
Political stability. Countries which are relatively stable politically experience high production hence high national income level.
Accuracy of accounting systems. If the methods used to gather data are accurate, then the overall statistical figures will the accurate hence reliable.
Proportion of the subsistence sector. Subsistence sector’s output is not normally included in the statistical figures. If it represents a large proportion, therefore the national income level will be low.

Reasons why high per capita income is not an indicator of a better living standard in a country

Statistical problems. The collection of the national income data may be inaccurate meaning that the national income figures might be incorrect hence wrong per capita income.
Changes in money value. If the currency has been devalued, there can be change in the value of money without necessarily representing any changes in the welfare of the people.
Income distribution. The per capita may be high even though the income is in the hands of very few people thus it is not a representative of the majority.
Nature of products. If the products are not meant to satisfy immediate wants of the people, then an increase in per capita income may not lead to a higher economic welfare.
Peoples’ hard work and attitude. Increased national income may mean less sleep and more worries. People have no time to enjoy what they produce and their welfare may be low despite the rise in national income.
Social costs. People may migrate from rural areas to urban areas straining family relationships while an increase in industries may create pollution, congestion and other environmental disruptions.

questions and answers session

Outline four reasons why an increase in per capita income may not necessarily lead to a rise in the standard of living of the citizens
State four factors that affect the circular flow of income in an economy
Identify four factors that may be contributing to income disparity between the rich and poor citizens in Kenya
Account for the difference between the gross National Income figures between Kenya and Uganda
Name three approaches for measuring national income
Highlight four problems associated with income approach
Highlight four problems associated with the output approach in computation of National income
Highlight four uses of National Income statistics in any given country
Outline four circumstances under which per capita income would be a good indicator

answers

QUESTION 1

Collection of data of the national income may be inaccurate.
Changes in per capita income may be due to change in the value of money.
Income may be in the hands of only a few.
The products produces may not satisfy immediate wants of the people.
Increased national income may mean less sleep and more worries.

QUESTION 2

Savings
Investments
Foreign trade
Taxation (government interference)

QUESTION 3

Individual talents and personal endowment
Inheritance from parents

QUESTION 4

Differences in natural resource endowment
Difference in stock capital equipment
Differences in entrepreneurial cultures in the two countries
Differences in stock of man power
Differences in general attitude of people towards work
Availability and states of technology

QUESTION 5

Income approach
Output approach
Expenditure approach

QUESTION 6

Problem of inaccurate data
Price fluctuations make it difficult to calculate national income
Problem of handling illegal and unrecorded yield income to recipients
Transfer payments pose a problem
Income disclosures aren’t true because people and firms like evading tax

QUESTION 7

Problems of valuation due to unavailability/inaccuracy of output figure especially in the private section
Problem of deciding on the goods/services to include eg. Whether the output of a house wife should be included or not
The problem of valuing output in the subsistence sector
Problem of frequent changing process
Problem of valuing government output since many of its services are not sold in the market
Problems of differentiating primary inputs from intermediate inputs
Valuing illegal activities like drug trafficking.

QUESTION 8

It shows average standards of living of the people
It determines the economic development of a country
It shows the country’s network or actual income
It is used for economic planning
Helps to know the contribution of different sectors of the economy
Used to compare economic performance of different countries- Used to compare economic performance of a country over the years

QUESTION 9

When the national income is equitably distributed among the people
When statistics obtained consider price changes in the economy
When population size of the country is real and not more projections
When statistics of output is based essential commodities consumed by the messes/large number of people

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CHAIN OF DISTRIBUTION - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER

20/4/2018

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CONTENT
NOTES
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CHAIN OF DISTRIBUTION

SPECIFIC OBJECTIVES

By the end of the topic, the learner should be able to:

explain the meaning of distribution
describe the various channels of distribution
discuss the role of intermediaries in the distribution chain
discuss the factors which may influence choice of a distribution channel.

CONTENT

Meaning o f distribution
Channels of distribution
Intermediaries in the distribution chain
Distribution of various products
Choosing a distribution channel

Introduction

Channels of distribution are the paths that goods and or services follow from the producers to the final users.
The persons involved in the distribution of goods from the producer to consumer are called middlemen or intermediaries.
There are different channels that different products follow. Some of the channels include the following:

Producer to agent to wholesaler to retailer to consumer.
Producer to co – operative society to marketing board to wholesaler to retailer to consumer.
Producer to marketing board to wholesaler to retailer to consumer.
Producer to wholesaler to retailer to consumer.
Producer to wholesaler to consumer
Producer to retailer to consumer
Producer to consumer

Costs incurred by middlemen while distributing goods

Buying costs. They incur this cost by paying for them from the producers or other middlemen.
Transport cost. Some middlemen do transport goods from the producer to other middlemen or to the final users.
Storage costs. Middlemen do keep the goods until their demand arises. This will therefore require them to hire or construct their own warehouses.
Advertising or marketing costs. Some middlemen do carry out marketing of goods on behalf of the producers and other middlemen. In the process, they pay for such services.
Insurance costs. Middlemen do insure the goods they are trading in to ensure compensation in the event of loss.
Operation costs. Middlemen just like other businesses do incur operating costs such as salaries to employees, electricity, maintenance among others.
Preparation costs. Some middlemen to prepare goods before they are sold to the consumers. Such activities include packing, assembling and blending. They have to meet such costs on behalf the producer, other middlemen and consumers.

Roles of Middlemen

The following are some the roles performed by middlemen in the chain of distribution

Bulk accumulation (assembling). They similar goods from different producers in small quantities and then offering the large amount gathered to buyers who may want to buy in large volumes.
Reducing transactions. The interactions between the producers and the consumers will be reduced since the middlemen are the ones who will be communicating to the consumers.
Bulk breaking. They buy in large quantities and then sell in small quantities as desired by the consumers.
Risk taking. They assume all the risks related with the movement of goods from the producers to the consumers. Such risks include theft, damages, loss due to bad debts.
Finance provision. Middlemen provide finance to the producers by buying goods in large quantities and paying for them in time.
Provision of information. Middlemen gather market information from the consumers then pass to the producers who in turn produce goods in line with the tastes of consumers.
Marketing/product promotion. Middlemen are involved in marketing of goods hence stimulating the interest of consumers.
Provision of transport. Middlemen do transport goods from the producers up to the where the consumers can access them. Both the producers and consumers are hence relieved of transport costs.
Storage
Variety provision
Availing goods to consumers

Factors to Consider Before Selecting a Distribution Channel

Factors that influence the choice of a distribution channel include the following:

Product nature. Perishable products should be sold directly to the consumers because delays may result to losses since they go bad fast. In addition, bulky products need direct selling in order to reduce transportation and stock handling costs.
Nature of the market. Where the market is concentrated in one area, direct selling is appropriate. A longer channel of distribution is preferred where the market is widely spread.
Role of intermediary. The channel chosen should be able to perform the services related to the product being sold e.g. for technical goods, the middleman should be able to offer technical support to the customers.
Resources and size of the firm/producer. If the producer is small, then direct selling would be appropriate. Large firms with sufficient financial resources can opt for long channels of distribution.
Channels used by competitors. If a firm wants its products to compete with those of the competitors, then is it prudent to use similar channels. A firm that wants to avoid competition should use a different channel of distribution.
Government policy. The channel chosen should be able to meet government regulations such as all middlemen distributing pharmaceutical products must be recognized by the relevant government bodies (Pharmacy and Poisons Board).
Marketing risks. In the event the firm wants to avoid risks related to distribution, it will opt for middlemen.
Questions

Question and Answer

1. Identify the type of utility created in the following circumstances

2. State four roles played by intermediaries in the chain of distribution
3. Highlight four consequences of eliminating a wholesaler from a chain of distribution
4. Outline four factors used to determine the distribution of Omo, as a common household detergent in Kenya
5. State four circumstances under which it would be advisable for a manufacturer to sell directly to consumers
6. Dady a traders at Kibigori trading centre wishes to import goods from Brand kamp , a Germany. Describe four channels of distribution that Dady’s goods are likely to take to reach his consumers at Kibgori
7. Kenya co-operative creameries (KCC) sell its dairy products directly to retailers. Highlight four factors that were considered in the choice of this channel of Distribution

aNSWERS

QUESTION 1

ACTIVITY	UTILITY
Carpentry	Form
Selling bread to students	Possession
Warehousing of goods imported	Time
Carriage of cargo to the market	Place

QUESTION 2

Reducing transaction between producers and consumers
Breaking bulk
Accumulating bulk
Taking of holding goods
Providing finance to producers
Product promotion
Transporting goods
Storage goods

QUESTION 3

Reduces the range of goods offered to the retailers
Reduces the cost of goods acquired by retailers
Lowers the price of goods because of reduction in the length of distribution

QUESTION 4

Preparing to meet customers/locating prospective customers
Opening sale/presenting the product
Handling objections
Closing of sales

QUESTION 5

Where the commodity is perishable
Where the commodity is a service
Where the use of the commodity requires demonstration
Where the quantity of the commodity is small
Where technical advice is required
Where immediate feed back is required
Where the law requires to be done so

QUESTION 6

Brand Kamp/ Exporter - Consumer
Exporter / Brand Kamp-Government agent –Wholesaler- Consumer
Exporter/ Brand Kamp-Government Agent – Wholesaler- Retail – Consumer
Exporter / Brand Kamp-Wholesaler- Consumer
Exporter / Brand Kamp- Import agent – Consumer

QUESTION 7

Nature of products - perishable
Availability of the channel
The cost of the channel
Channels used by competitors
Market concentration not in use area
Spread of the risk

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PRODUCT MARKETS - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER

18/4/2018

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CONTENTS AND OBJECTIVES
NOTES
Q & A

PRODUCT MARKETS - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER

SPECIFIC OBJECTIVES

By the end of this topic the learner should be able to:

explain the meaning of a market
explain the meaning of product market
discuss the features of various types of product markets.

Meaning of a market
Meaning of product market
Features of various types of product markets

PRODUCT MARKET

The term ‘market’ is usually used to mean the place where buyers and sellers meet to transact business. In Business studies, however, the term ‘market’ is used to refer to the interaction of buyers and sellers where there is an exchange of goods and services for a consideration.
NOTE: The contact between sellers and buyers may be physical or otherwise hence a market is not necessarily a place, but any situation in which buying and selling takes place. A market exists whenever opportunities for exchange of goods and services are available, made known and used regularly.

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Definition of Product market

It is a particular market in which specific goods and services are sold and with particular features that distinguish it from the other markets. The features are mainly in terms of the number of sellers and buyers and whether the goods sold are homogeneous or heterogeneous. Product market is also referred to as market structure. Markets may be classified according to the number of firms in the industry or the type of products sold in them.

TYPES OF PRODUCT MARKET

The number of firms operating in a particular market will determine the degree of competition that will exist in a given industry. In some markets there are many sellers meaning that the degree of competition is very high, where as in other markets there is no competition because only one firm exists.
When markets are classified according to the degree of competition, there are four main types, these are;

Perfect competition
Pure monopoly (monopoly)
Monopolistic competition
Oligopoly

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QUESTIONS ON PRODUCT MARKETS

Explain five characteristic of a monopolistic market.
By use of a diagram, explain how price and output are determined in a collusive oligopoly (centralized cartel) market situation
Highlight five differences between perfect competition and monopolistic competition
Using a well labeled diagram, explain how a monopolist enjoy a supernormal profit in both short and long run
1. With the aid of a diagram, explain how a firm under monopolistic competition is at equilibrium in the short run
2. With the aid of a diagram, explain the difference between perfect competition and monopoly revenue curves

ANSWERS

QUESTION 1

To check on the quality of goods produced by monopoly.
Ensure there are a variety of goods in the market.
Monopolist may resist emergence of new ideas or technology due to lack of competition.
Monopolies tend to be inefficient in their operation due to lack of competition.
The consumers may not enjoy quality goods and services because they can only consume what his monopolis produces.
To control the prices charges by the monopolies
Make sure monopolies operate at optimum capacity so as not to charge high prices.

QUESTION 2

Price Determination under Oligopoly: Non-Collusive and Collusive

QUESTION 3

PERFECT COMPETITION

Sellers deal in homogeneous products
Are not involved in promotion of products.
It’s a price taker
Large number of sellers
Activities of one firm does not influence the activities of other firms

MONOPOLISTIC COMPETITION

Sellers deal in differentiated products
incur heavy expenses in promotion of products
it’s a price setter /giver
Large number of sellers operating independently.
Activities of one firm are closely monitored by the rest in the industry.

QUESTION 4

When the product is a necessity
When the product is the only one in the market
When the consumers are not aware of the market changes
When the price of the product makes an insignificant figure of the consumers income

QUESTION 5.1

QUESTION 5.2

THEORY OF THE FIRM - KCSE BUSINESS STUDIES NOTES, SCHEMES OF WORK, OBJECTIVES, QUESTIONS AND ANSWERS

31/3/2018

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OBJECTIVES
NOTES
OTHER RESOURCES

THE THEORY OF THE FIRM

At the end of this topic, the learner should be able to:

Describe the meaning and distinction between firm and industry;.
Discuss factors that influence the decision on what to produce.
Discuss the various costs of production and their derivation.
Differentiate between small and large firms
Discuss the various factors influencing location of firms; reasons for localization and delocalization.
Explain meaning of economies and diseconomies of scale and how they influence production decisions of the firm.
Explain the reasons for continued existence of small firms despite economies enjoyed by large scale firms.
Discuss environmental implications on production activities.

THE THEORY OF THE FIRM COURSE OUTLINE

The concepts of a firm and industry
Decision on what goods and serves to produce
Costs of production:
Fixed costs and variable costs, Direct costs and indirect costs, Total costs, average costs and maral costs,
Determining the size of a firm
Location of a firm
Economies and diseconomies of scale
Localization and delocalization of firms in an economy.
Existence of small firms in an economy
Implications of production activities on the environment and community health

THEORY OF THE FIRM Definition:

(i)A firm;

This is a single unit of business organization that brings together the factors of production to produce any given commodity.
A firm may also be defined as a business enterprise under one management and control.

Example; Mumias sugar factory, Bata Shoe Company etc.

Firms may be sole proprietorship, partnerships or companies. They may therefore be small e.g. an artisan or mechanic working in her/his garage or large like a multinational limited company producing many different products e.g. coca-cola company.
A firm even though under one management and control may have several branches/plants.

(ii)An industry;
This refers to all those firms producing the same product for a specific market/a group of related firms that compete with one another i.e.

Firms that produce the same product e.g. the firms operating as sugar manufactures as Mumias Sugar Company, Sony Sugar Company and Miwani Sugar Company.
Firms that extract the same raw materials e.g. the salt mining firms, Magadi Soda Company and other firms which mine salt at the North coast Region near Malindi.
Firms that provide similar services e.g. the transport industry such as Akamba Bus service, coast Bus Company and Easy Coach Company.

NOTE: In the definition of the firm, we assume that a firm in a unit that makes decision with respect to the production and sale of goods and services in the regard, we assume that

All firms are profit-maximisers i.e. they seek to make as much profit as possible.
Each firm can be regarded as a single consistent decision making unit.

The life of all business enterprises/firms are therefore characterized by several decision-making processes which are all aimed at facilitating realization of the objectives(profit maximization) such decisions may include; what to produce and how much, where and when to produce, how much to invest and how much to price goods/services etc.

DECISION ON WHAT GOODS AND SERVICES TO PRODUCE

A firm makes a number of important production decisions. Some of the decision may involve;

What to produce
How production is to take place e.g. what raw materials and machinery should be utilized
Where a production plant should be located
When to produce
The scale of production e.g. how big should the factory
When and where to invest
How the production can be improved and controlled
What type of business activity to engage in

NOTE: One production decision may lead to a series of decisions requiring to be made e.g.

For a firm to decide on what goods and services to produce, market research to evaluate the likely success of the product is necessary.
After establishing the viability of the product in the market, other activities like product design are carried out (the firm may consider redesigning existing products, introducing a product similar to the one in the market or developing a completely new product.
production may then follow

Factors that influence decisions on what goods and services to produce

Certain factors have to be considered before committing a firm into production of either a new product, adopting or redesigning the existing product.
These factors include;
Whether the firm is product-oriented or market-oriented
Product oriented firms: This is when the nature of the product itself (its functions and unique qualities) are enough to make sure that the product sells e.g. when cars were first developed, its uniqueness sold it
Market oriented firms; these are firms that produce products that are meant to meet the consumer needs e.g. over time cars are being developed to suit consumer needs.
Level of competition
In order to survive in a competitive market, firms must come up with products that consumers prefer.
Firms may therefore develop products which are not currently available or copy rivals ideas and improve on them
Level of available technology
The level of technology has a strong influence on the product that a firm produces
New inventions and innovations often result in new products or improved products
Improved technology may also reduce the costs of production. This means the same output maybe produced using less factors of production or more output may be produced using the same factors of production.
Management role
Senior management have the sole responsibility of deciding on what product to produce. A wrong decision may ruin rather than bailed the enterprise. The manager’s ability to design a viable product is therefore a vital factor in product development
Financial viability
In order to determine whether a product will be viable or not, the cost of production and the expected returns should be considered. Funds may only be approved for the product that promises long term benefits to the firm. So if the benefits of the product outweigh the costs, then such product will be developed and if not so, it will be dropped.
Amount and type of capital in the firm
Capital refers to machines, equipment, factories, plants and other human made aids to production.
Both financial and physical capital facilitates the production process. The amount of capital in a business will therefore influence what goods it can produce and in what qualities i.e. a firm with physical capital that is very specific may not be able to produce other type of products e.g. a clothing factory may not be able to produce any other goods such as cement.
Other factors may include;

Need of the consumers
Need for better quality or more fashionable product
Need for an easier to market product
Unmet needs
Need for a product for which factors of production and technology are easily available

COST OF PRODUCTION

Cost:
This is a payment made to the factors of production for their services. Production costs thus refers to the expenses incurred in acquiring factors of production (inputs) The sum total of all payments to the factors of production engaged in its production.
Types of production costs:
Opportunity costs;
These are values of any alternatives forgone. The cost forgone when the choice of one thing requires the next best alternative to be abandoned
Example:
A student with only sh.50 may have to decide on whether to buy a textbook or a pair of shoes. If she decides to buy a textbook, the pair of shoes will have to be forgone because it’s not possible to buy both with only sh.500.
The opportunity cost of buying a text book in this case is the cost of the pair of shoes which was abandoned.
Fixed and variable costs
Costs may be classified according to their behavior in relation to various levels of output as follows:

Fixed costs
Variable costs
Semi-variable costs

i) Fixed costs
These are expenses which do not change with changes in levels of output/quantity of output. These costs therefore remain the same whether the firm is producing anything or not i.e. whether production is maximum or zero.
Examples:

Rent for premises/buildings
Depreciation charge on physical facilities
Salary of administrative staff
Interest paid on loans (borrowed capital)
Licence fees etc.

OUTPUT	FIXED COST (SH)
100	200
299	200
300	200
400	200
500	200

This may be represented graphically as:

the theory of the firm questions on topic

Highlight five reasons why a firm may be located near the market for its products
Explain five reasons why the government may adopt the delocalization policy of locating
Discuss five factors that may account for the existence of small firms in an economy
Explain five factors that determine the size of a firm
Explain five factors that determine the decision of a firm on what goods and services to produce
Explain five circumstances under which a firm may be located near the source of raw Materials
Outline any five reasons that account for the popularity of small scale retails in Kenya
Explain five factors that may account for the survival of small firms in an industry.

BUSINESS STUDIES TOPICAL QUESTIONS FOR REVISION

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ADVANTAGES AND DISADVANTAGES OF PUBLIC RELATIONS

5/12/2017

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Advantages of public relations

May be used to correct the dented image of the firm
It informs the public about the activities of the firm
Assist in upholding the good image of the firm
It improves the relationship between the firm and its customers

Disadvantages of public relations

It is costly in terms of time and finance involved
The customer may make premature buying arising from the picture created by the firm
Effects may take long before they are actually realized
It may be difficult to evaluate the impact of the message, since the customers are not obliged to respond to it

5. Point of purchase (Window) display

This is where the items are arranged in the shops strategically, allowing the customers to see them easily. The arrangement is meant to attract the customer’s attention and induce them to buy goods as they pass close to the shop

Advantages of Point of purchase display

May induce the customer to buy the product due to their arrangement
As the customers get in to the shop, they are likely to buy including the other goods that were not being displayed
The customers are able to determine the features of the product with ease
It is relatively a cheaper method of promotion

Disadvantages of point of purchase

The method only work well with the potential customers who are near the shop and not far away
They may also attract thieves especially if the product displayed is of high value
In case the arrangement does not appeal so much to the customers, they may not get into the shop
It may be expensive setting up the display area

6. Direct mail Advertisement

A form of advertisement which is sent to the potential customers directly in the form of a mail, for example the pricelist being sent to the potential customers.

Advantages of direct mail advertisement

It is able to reach the targeted group as they are sent to the potential customer directly
The message may be made to suit the requirement of the specific customer to be
There may be an immediate respond on the message
The potential customers incurs no cost to acquire the information

Disadvantages of direct mail advertisement

Some mails may not get to the intended customers in time
The prospective customer may ignore the advertisement
May not be effective where the customer needs to examine the product
This method may be expensive especially in terms of material and money
It may only appeal to the literate group only

7. Catalogue

A booklet that gives information about the product that the organization deals in. It gives the description about the product, the picture as well as the prices of the product.

Advantages of catalogue

It may be used to advertise all the products in the organization
The owner/organization has the total control over the catalogue
It gives detailed information about the product
Its colourful nature makes it an attractive promotion tool

Disadvantages of catalogue

It is expensive to produce increasing the cost of production
Change in price may affect the whole catalogue

8. Guarantee (warranty issue)

An assurance given to the customer that the product will serve as expected if used according to the instructions given by the manufacturer. For the guaranteed period the seller will be willing to maintain repair or replace the product for the customer

Advantages Guarantee

The confidence built in the customer by the guarantee to the customers makes them to buy more products.
It may create the customers loyalty to the product of the firm
The fact that the product can be replaced if it gets spoilt within the period is an advantage to the customer

Disadvantages of guarantee

Repairing or replacing the product may be very costly to the organization
The method may only be suitable for the durable goods
The customer may be tempted to mishandle the good during this period

9. Discount

This is a reduction in price of the commodity, allowing the buyer to pay less than what he would have paid the goods.

Types of discount

Quantity discount: - Allowed by trader to encourage him/her to buy more quantity of the product being offer
Trade discount: - Allowed to another trader who is buying products for resale to the consumers
Cash discount: - Allowed to the customer to enable him pay promptly for the goods bought

10. Loss leaderSelling the price below the market price to entice the customer to buy
11. Psychological sellingPlaying with the customer’s psychology in terms of pricing by quoting odd prices such as 999, 199, 99, etc. to convince the customer that the price has been reduced
12. Credit facilitiesWhere the customer is allowed to take a product for his consumption and pay for it later. This entices the customer to buy more of the product
13. After sales serviceThese are services offered to the buyer after the goods have been bought. They may be in terms of packaging, transportation or installation which may be offered to the customers free of charge. This makes the customer to buy more goods with confidence

Sales promotion

These are activities carried out to increase the sales volume of a business. They are activities out of the ordinary routine of business that is carried out by the seller to increase his sales volume.
The methods of carrying out sales promotion includes all the methods of carrying out product promotion as discussed earlier, that is, shows and trade fair, showrooms, free gifts, free sample, personal selling, advertisement, window display, credit facilities, after sales services, etc.

Factors to consider when choosing a promotion method

The cost of the promotion that is whether the company can afford it or not, for some promotion methods are very expensive that may not be easily affordable to the company.
The nature of the product being promoted especially whether it requires demonstration or not. Products which requires demonstration are best promoted through personal selling
The targeted group for the advertisement, on whether they can be reached by that method or not. The promotion method must reach the targeted group, if it has to be effective
The objective that the firm would like to achieve with the promotion, and whether the method is helping them to achieve that particular objective
The method used by the competitor in the market to enable them choose a method that will enable them compete favourably
The requirement of the law concerning product promotion, to enable them not use what the law does not allow

Ethical issues in product promotion

These are rules and regulations to be followed when carrying out promotion to avoid violating other people or businesses right. They include;

Cheating on performance of the product to attract more customers by given them wrong and enticing information about what the product can do.
Cheating on the ingredients of the product by telling them that the product contains a suitable type of ingredient which does not exist just to lure them to buy the product
Not telling them the side effects of the product which may affect them should they continuously use the product due to fear of losing customer
False pricing, especially a case where they overprice their and later on reduce them slightly just to lure the customer, yet exploit them
Not caring about the negative effect of the product on the environment, which may include littering of the environment by the posters used for advertisement
Social cultural conflict, especially putting up some forms of advertisement which are considered a taboo buy the community leaving around, such as hanging a billboard of a female advertising inner wears next to a church

Trends in product promotion

The following are some changes that have taken place to improve the product promotion activities

Use of website/internet to advertise product worldwide, which has increased the coverage
Encouraging gender sensitivity and awareness in product promotion to bring about gender balance
Use of electronic billboards in advertisement to increase their visibility even at night
Intensifying personal selling by the business to reach more customers
Development of promotion convoys to move from one place to the other with music and dancers to attract more prospective customers
Catering for the rights of the youths when carrying out product promotion and even involving them in carrying out the promotion
Catering for the interest of those with special needs when carrying out advertisement
Advertisement through mobile phones by sending them sms about the product

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PRODUCT PROMOTION - KCSE BUSINESS STUDIES NOTES, SCHEMES OF WORK, OBJECTIVES, QUESTIONS AND ANSWERS

5/12/2017

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OBJECTIVES
NOTES
QUESTIONS
PRINTABLES

PRODUCT PROMOTION (12 LESSONS)
TOPIC/ SUB-TOPIC OUTLINES

Meaning of a product
Meaning and importance of product promotion
Methods of product promotion
Advantages and disadvantages of each method of product promotion
Choice of promotion method
Ethical issues in product promotion
Trends in product promotion

SPECIFIC OBJECTIVES

By the end of the topic, the learner should be able to:

explain the meaning of a product
explain the meaning and importance of product promotion
explain the various methods of product promotion
explain the advantages and disadvantages of each method of product promotion
discuss factors which influence choice of promotion method
recognize the need for ethical practices in product promotion
discuss trends in product promotion.

introduction to Product Promotion.

Product is an item or service offered to the consumers at a price. Therefore, product promotion is the communication or any activity undertaken to inform the consumers, persuade and remind them to buy the product from the market.

The purpose/Importance of product promotion

It informs the customer of the availability, price, and where to obtain the product to satisfy their wants
It persuade the buyer to buy their products a head of their competitors’ products in the market
It reminds the customers of the continued existence of a given product in the market
It educate the consumers of the usage of the product to satisfy their needs fully
It informs them on any improvement that has been made on the product
It stimulates the demand of the product being promoted in the market
It brings out the positive features of the product
It opens new market for the product in the environment

Methods of product promotion

Product promotion may be carried out in the following ways:

Personal selling
Advertising
Sales promotion
Publicity

1. Personal selling

This is a method of promotion where there is an oral presentation in the conversation with the prospective customer. It is done by with the use of salesmen who informs the prospective buyer of all the aspects of the product

Methods of personal selling

Personal selling can be carried out in the following ways;
Through sales person approaching the customers
A case where the sales person approaches the prospective customers after drawing their attention, explaining details of the product and even demonstrating how the product works in order to persuade the customer to buy.

Steps involved in personal selling through sales person

Identify prospective customers who could possibly require the product
Preparing the presentation by gathering all the possible information about the product , as well as designing an appropriate methods that he will be used to present to the customer
Establishing the customers contact, as well as choosing an appropriate time to meet the customer to be. That is the time when the customer may receive him
Arousing the consumers interest in the product by attracting his/her attention through approach and languages, as well as making the prospective customer develop interest in the product
Dealing with the objections on the product which may have been brought about by the customer to be
Closing the sale by inquiring whether the prospective customer will be interested in the product or not. This should be done in a polite manner
Offering after sale service to the customer on the product that has been sold

Shows, trade fairs and exhibitions

This is where the manufacturer of a given product gets a chance to display publicly to the prospective customer to inform them about the product. The prospective customers’ attention is then drawn to the product and more information is given to him about the product at the point where it is displayed.

Advantages of shows, trade fair and exhibitions

It gives the customer an opportunity to compare various products before making a decision on what to buy
It gives the sales person an opportunity to explain in fine details the features of the product to the prospective customers
The manufacturers of the product gets a chance to receive immediate feedback from their customers through interactions during the shows
The number of people visiting their stall to assess their products will help them determine their potential market size for the product

Disadvantages of shows, trade fairs and exhibitions

It is expensive to hire a stall for the exhibition of the product
The sales person may have to explain over and over again for the prospective customers as they may not enter into the stall at the same time
The trade fairs are not frequently organized, therefore an organization rely on it as the only means of product promotion may not succeed

Showrooms

These are large rooms where goods are displayed, especially bulky and durable goods like cars, furniture’s, etc. for the customer to see and be informed about them to stimulate their interest in them
The room allows the customer to get more information about the product from the sales person in the showroom

Advantages of showrooms

They enables the seller to get immediate feedback on the product
They enable the customers to get clarification on the product they need to purchase
It is a cheap method of production
It provides an opportunity for the usage of goods to be demonstrated
The information the prospective customer get from the show room is more reliable

Disadvantages of showrooms

They are usually located away from the town centers, making them not be accessible by many
It is expensive to hire showrooms
They require security to protect the goods inside them which may be very expensive
Some prospective customers may tamper with goods in the room while trying to operate them

Free Gifts

A gift is an item given to the customer free of charge after buying a product which it is pegged on or buying products of a given value. The gift may not necessarily be the same as the product bought, but they are meant to encourage the customer to buy more or give the customer opportunity to explore the product given as a gift.

Advantages of free gifts

It enable the customer to enjoy the product given as a gift without paying for it
It persuades the customer to buy more of the product in order to get the gift
It is an additional product, and therefore increases the customers satisfaction
It may help in creating loyalty in the product being promoted

Disadvantages of free gifts

It makes the customer buy including products they didn’t require in order to the said gift
The cost of the product may be very expensive for he customer
Some middlemen may remove the gift and keep or even sell to the customer to maximize profit

Free Sample

This is a product on trial given to the customers freely to influence their demand towards the product. It mainly used when the product is new and the customer may have not known about the existence of the product

Advantages of free sample

It enables the customer try the product before making a decision to buy it
The customer is able to enjoy the product that otherwise he may have not enjoyed
The organization is able to get immediate feedback from the customer about their new product
It enables the organization to acquire more customers for their product

Disadvantages of free sample

Some of those receiving the sample may not come back to buy
It may be an expensive method of promotion especially where many samples are to be given
Goods given for free may reduce the value of goods that may have been sold to earn profit
It is not suitable for expensive products

Circumstances under which personal selling is appropriate

When launching a new product in the market which requires a lot of awareness to the prospective customers to enable them make a choice
When a product is tailored to meet the customer’s needs, as different consumers have different needs, taste and preferences to be addressed.
When demonstration is required on how the product works, especially the technical products
When the organization has the capacity to finance the sales force carrying out the personal selling.
Where the market is concentrated within a given region that can easily be accessible by the task force.

Advantages of personal selling

It is more flexible than any other method for the marketer is able to meet the needs of different people
It enable the prospective customer to know more details about the product before making a decision
The sales person is able to demonstrate the use of the product
The seller is able to get immediate feedback on the product
The seller is able to obtain the personal contact of the prospective buyer
It gives the buyer an opportunity to negotiate the terms of purchase
It takes care of both literate and illiterate prospective customer
The seller is able to persuade the prospective buyer to buy the product

Disadvantages of personal selling

It is labour intensive and therefore very expensive when the area to be covered is wide method
It is time consuming as it involves explanation and demonstration
It may only target a particular group of people
The seller has to meet the travelling and other expenses involved which may be very expensive
Salespersons may misuse the resources allocated for them, making the target not to be achieved
The process may inconvenience the prospective buyer’s program
It may only cover a given region which may not be wide enough

1. Advertising

This is the presentation of information about a product through public media such as newspapers, radios, billboards, etc.

Types of Advertising

Product advertising: - this is a form of advertisement meant to promote a given product or a particular brand of product
Institutional advertising: - this is a form of advertisement meant to improve the image of the institution or organization and not a particular product. It is meant to create confidence in the customers about the institution
Primary demand advertising: - a form of advertisement meant to a new product that has been introduced in the market for the first time. It is mainly to create awareness of the existence of that particular product
Celebrity advertising: - a form of advertisement where a famous/popular person is used to promote a particular product. It is meant to convince those who identify themselves with that personality to buy the product
Informative advertising: - a form of advertisement meant to give the customer more information about the product to enable them make an informed decision
Competitive/persuasive advertising: - a form of advertisement carried out with organizations producing similar product to persuade the customers to buy their products ahead of their competitors
Corrective advertising: - a form of advertising meant to correct a misleading information that may have been given out about the product
Reminder advertising: - a form of advertising meant to remind the customers that the product still exists in the market and is still capable of satisfying their needs.

Advantages/Importance of advertising to the business

It maintain the sales of an already existing product
It create awareness in the customers about a new product in the market
It informs the customers about the changes that may have been made in the product
It helps in building image or reputation of the selling organization
It may increase the volume of the existing sales of a product
It reaches peoples who may have not been reached by the sales person
It complements the effort of the sales person to enable them achieve their sales objectives
It clears the customers misconception and prejudice about the product
It opens up new markets for the products.

Disadvantages of advertising to the business

It may be costly to the business in terms of money and other resources
It leads to increase in cost of production if at all it has to be done frequently
The cost of the advertisement will always reduce the profit margin of the business
Poorly planned advertisement may negatively affect the business
Misleading advertisement may reduce the level of business operation

Advantages of advertising to the customer

They educate them on the usage of the product
They inform them on the products availability
They guide them on where to get the product
The outlines all the features about the product including prices to the customer
Competitive advertisement may lead to improved quality of goods to benefit the customer
Information on different prices through competitive advertisement makes the customer to benefit from the reduced prices

Disadvantages of advertising to the consumer

The advertisement may not disclose the side effect of the product
The advertising cost may be passed to the consumers through increased price
Some advertisement may persuade customers to buy what they do not require leading to impulse buying
Some customers may buy substandard goods due to misleading advertisement

Advertising media

These are channels or agents through which an advertisement message is conveyed to the target group. They includes both the print and electronic media which includes; newspapers, journals, magazines, posters, billboards, brochures’, radio, television, neon signs, etc.

Newspaper

These are daily or regularly publications which contains advertisement. They includes, Daily nation, Standard, Taifa Leo, citizen, star, etc.

Advantages of newspaper

The can reach areas that other means may not reach
Many people can afford them as they are relatively cheap
They cover a wider geographical area, leading to a wider market
The message on the newspaper can last for a longer period of time, making it to reach more customers
The advertisement appearing in the newspaper is readily acceptable by the reader
Colored print makes the advertisement to be more attractive to the reader who in turn gets the information

Disadvantages of the newspaper

Many of them are written in English or Kiswahili, making them to only target those who can read and understand the language
It discriminate against the illiterate group who cannot read the information
They have short lifespan as they may be read only on the day it is circulated
It cannot be used to focus on a specific target as they are read by almost everybody
Some of the prospective customers are always in a hurry to read the newspaper and may not pay attention to the advertisement

Magazines and Journals

These are periodic publications meant to target a particular class or group of people. They may be published monthly, quarterly, annually, etc. The information reaches the targeted group as they read them

Advantages of magazines and Journals

The specific information for the targeted people can be published
They can be read and re-read before the next publication may the information to last longer and plead with the prospective customer
Their publication is of high quality and colourful, making them to draw the attention of their targeted group easier and passing the information to them
The quality material they are made of makes them to last longer and can be accessed even by those who may have not been around during their publication

Disadvantages of magazines and journals

If the time gap between the publication time and circulation time is wide, the advertisement may fail
They are a bit expensive which makes some of the potential customers not to afford them
The cost of advertising on them may be expensive for the organization
Their circulations may be limited to a small geographical region
The publications may not be available in the vernacular language to reach those who are not able to read either English or Kiswahili

Posters and Billboards

A form of advertising that may contain the information about the product either in words, pictures or both for the customer to see and read.

Advantages of posters and billboards

They are able to convey the information to the large audience, as they are placed in strategic position
Posters are cheap and easy to prepare
The use of different colors makes them to be more attractive and appealing to more audience
It can be used by both literate and illiterate group
The message may last for a longer period of time
Billboards are conspicuous and hence attractive to the audience

Disadvantages of posters and billboards

May be affected by adverse weather condition, especially rain
If not placed strategically, it may not reach the targeted group
Incase destroyed by the passersby, the information may not meet the targeted group
Bill boards are expensive to make and maintain

Transit/transport advertising

A form of advertisement whereby vehicles such as trailers, matatus, buses, etc are used to carry and convey the advertisement message.

Advantages of transit advertisement

The message reaches most of the people in the environment
They message last long as the paints always last on the vehicle
Transit vehicles may carry the message a long way to their final destination
It is captivating to the members of the public especially the promotion convoy, hence can easily reach the target

Disadvantages of transit advertisement

During the rush hour, the crowd may hinder some from getting the information
It mainly relay the information to those served by the vehicles
The noise produced by the promotion convoy may be a nuisance to some members of the public

Brochures

These are small pamphlets carrying message and pictures about product being advertised.

Advantages of Brochures

They are easy to carry around as they are small in size
They are effective in meeting the targeted group
Their cost of production is not very high
They can be distributed at different places to meet the targeted group
Can be made attractive by the use of different colours
They have a long life and therefore can be used repeatedly
They can be used to direct others on where to get the product

Disadvantages of Brochures

The information may not reach the illiterate group
They may be ignored by the intended users
They may require frequent updating if many changes are made on the product making it expensive

Radio

This is a channel that allows for the advertised messages to be conveyed through sound to the listeners, with some background music accompanying the message

Advantages of Radio

Different languages may be used to reach different people
It is accessible even to the remote areas that is not covered by other media
One can choose the time to advertise to reach the targeted group
Able to serve many people at the same time
It can be used for both literate and illiterate members of the group
The advertisement can be repeated over and over again according to the advertisers needs
The music accompaniment may attract many people to listen to the information
Can reach even the blind as they are able to hear
The message can be conveyed in different languages

Disadvantages of Radio

Their advertisement does not have any reference
It may be more expensive than the print media
Poor timing may make the message no to reach the targeted group
It may interrupt some programmes to the annoyance of the listener
It short and brief advertisement may be missed by the listeners
It is difficult for the listener to visualize the product

Television (T.V) and Cinema

Television is a form of media advertisement where the written words are combined with motion pictures and sound to pass the information
Cinema is where the advertised messaged is conveyed during film shows in the cinema halls. It may be before or after the movie.

Advantages of Television (T.V) and Cinema

It appeals to most people as it is entertaining
It makes it possible for the demonstration of the use of the product
It is able to reach both the literate and illiterate viewers
The advertisement can be aired over and over again to meet the targeted group
The advertisement may be modified when need arise
It has wide appeal to many people
The message can be conveyed in different languages

Disadvantages of Television (T.V) and Cinema

The cost of advertising through this media is high
The television sets are expensive to acquire, hence many people may not have them
Their uses are limited to places with electricity
The advertisement may not last longer
The time for airing the information may not suit the targeted audience

Neon Signs

This is a form of advertisement where the message is passed to the public through the use of electrical signals transmitted through neon lights. They are usually common in the banks, airlines, jewel shops, etc.

Advantages of Neon Signs

The use of different colours makes them very attractive and catch attention of different people
They can be put strategically making them to be visible to many people
Can be used both at night and day
They direct the customer on where the goods are to be found

Disadvantages of Neon Signs

Can only be used where there is electricity
They are expensive to buy and maintain
The message may not easily reach the illiterate

Advertising Agencies

These are businesses that specialize in advertising work and are hired to carry out the functions for other businesses. They are paid a commission for this

Functions of Advertising Agencies

They help the organizations in designing their trademarks, logos and advertising materials
They book space and airtime for their clients in various media
They offer advisory services to their client on selling techniques
They advertise on behalf of their clients
They choose on behalf of their clients the appropriate media to be used

3. Publicity

This is the mentioning of the product or the organization in the mass media to make it be known to many people. There two types of publicity, that is free publicity (where the payment is not required) and Special featured publicity (where there is payment, for example sponsoring an event in the public)

Advantages of Publicity

It saves the organization money in case of free publicity
It is likely to cover a wider region as the publicity is in the media
The organization may earn credibility due to positive publicity
The information may be received positively by the customers as the message is likely to be more objective
It may improve the competitiveness of the firm

Disadvantages of Publicity

Unfavourable information about the organization may reach the public especially in free publicity
It is irregular and short lived
Might require special occasion or event in order to attract the mass media
The firm does not have control on how the information will appear in the media and the extend of the coverage

4. Public relations

A process of passing information with an intention of creating, promoting, or maintaining good will and a favourable image of the organization in the public. It involves informing the public about the firm’s achievement and how it is contributing to the community welfare and development, to get more approval of the public

Next Page ...

product promotion topical questions

1. 1995 P1
The following are types of advertising

Product advertising
Competitive advertising
Information advertising
Institutional advertising

In the table below, match each type with its appropriate description. (4 marks)
Description Type
a) Create awareness about a product
b) Promotes the name of the manufacturer
c) Persuades a particular brand of a product
d) Promotes a particular brand of a product
2. 1995 P2
Abdullah, a manufacturer, exhibited his goods in a local trade shows. However his sales did not increase significantly thereafter. Outline five reasons that may have led to lack of significant sales increase. (10 marks)
3. 1996 P1
State four ways in which consumers benefit from advertising by business people. (4 marks)
4. 1996 P2
Describe the procedures involved in personal selling methods of sales promotion. (10 marks)
5. 1997 P1
Give three reasons why manufacturer may offer after sales services to his customers (3 marks)
6. 1997 P2
Outline five ways of attracting customers that traders may put into use. (10 marks)
7. 1998 P1
Outline four steps involved in personal selling process. (4 marks)
8. 1998 P2
Explain five benefits that a trader would get by advertising his goods through the radio. (10 marks)
9. 1999 P1
State four circumstances under which a trader would advertise his products over the radio instead of the television. (4 marks)
10. 1999 P2
Explain the reasons why the firms with popular products find it necessary to continually advertise the same products. (10 marks)
11. 2000 P1
Identify four disadvantages of advertising through television in Kenya. (4 marks)
12. 2000 P1
List four disadvantages of advertising through television in Kenya. (4 marks)
13. 2000 P2
A multinational company is planning to launch its products in the local Kenyan market. Highlight the factors that should be considered by the company when choosing the appropriate media through which to advertise the products. (10 marks)
14. 2001 P1
Highlight four limitations of after sales services as a method of promoting products.
15. 2001 P2
Explain the role of a sales department in a business firm (10 marks)
16. 2001 P2
What are the benefits accruing to a seller who uses personal selling methods to promote her products. (10 marks)
17. 2002 P1
Outline the advantages of after sales services as a method of sales promotion to a customer. (4 marks)
18. 2003 P1
Highlight three reasons why traders may engage in sales promotion. (3 marks)
19. 2004 P1
State four advantages of personal selling method of promoting sales. (4 marks)
20. 2004 P2
Advertising in the newspaper is one way of promoting sales of goods. Highlight five limitations of advertising goods in newspapers. (10 marks)
21. 2006 Q6 P1
What are the advantages of personal selling as a method of sales promotion? (4 marks)
22. 2007 Q4 P1
A firm wishes to introduce a new product into the market. Outline four factors that should be considered in choosing an appropriate medium for promotion.
23. 2008 Q15 P1
State four reasons why ethical practice is necessary in Product promotion (4 marks)
24. 2009 Q3 P1
Amboseli Enterprises has been spending heavily on promotion of its products though its sales have consistently declined. Outline four measurers that the company may take to reverse the trend. (4 marks)
25. 2012 Q22 P1
Highlight four advantages of promoting sales through the internet. (4 marks)

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INSURANCE - KCSE BUSINESS STUDIES NOTES, SCHEMES OF WORK, QUESTIONS, ANSWERS AND OBJECTIVES

4/12/2017

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OBJECTIVES
NOTES
QUESTIONS
PRINTABLES

INSURANCE (12 LESSONS)
TOPICS / SUB-TOPICS OUTLINES

Meaning and concept of insurance
Importance of insurance
Terms used in insurance
Principles of insurance
Classes of insurance
Re-insurance and co-insurance
Obtaining an insurance policy
Making an insurance claim

SPECIFIC OBJECTIVES

By the end of the topic, the learner should be able to:

explain meaning and concept of insurance
discuss the meaning and importance of insurance
explain terms used in insurance
explain the principles of insurance
distinguish between the classes of insurance
explain the meaning of reinsurance and coinsurance
describe procedures of obtaining an insurance policy
describe the procedure of making an insurance claim.

Definition of Insurance

Insurance is an undertaking or contract between an individual or business and an insurance on occurrence of risk(s) (i.e. against events whose occurrences are unforeseen but causes financial losses or suffering to the affected parties.
Risks are also referred to as contingencies, hazards or perils and include:

Fire outbreak
Accidents
Thefts
Deaths
Disabilities

Risks are real and unforeseen. Methods to eliminate such risks has achieved very little and thus has necessitated the need for insurance.

Importance of insurance

1. Continuity of business
Every business enterprise is exposed to a variety of risks e.g. fire, theft etc. The occurrence of such risks often result in financial losses to the business. Insurance provides adequate protection against such risks in that, if a trader suffers losses as a result of insured risk, she/he is compensated, thus he/she is able to continue with business operations.
2. Investment projects
Insurance enables investors to invest in profitable yet risky business projects that would otherwise avoided.
Not all the money received as premiums (by the insurance companies) is used up for compensation to those who have been exposed to risk and suffered losses. The rest of the money is invested in other businesses to earn profits.
3. Creation of employment
Insurance does provide employment opportunities to members of the public.
4. Government policy
The profits earned are a source of revenue for the government i.e. insurance companies are profit-making organizations which generate revenue to the government through payments of taxes
5. Credit facilities
The insurance industry have also established credit or lending facilities which the business community uses by borrowing. Loans are made available to the public for different investment projects in different sectors of the economy and also for personal requirements.
6. Development of infrastructures
The insurance industry plays a crucial role in the development of urban facilities in major towns. Both residential and office buildings have been developed by insurance firms. The firms also participate in development projects in the areas where they operate. They contribute to development of a region by constructing and infrastructural facilities

Life policies can be used as security for loans from either the insurance company or other financial institutions.
Provision of life and general insurance policies encourages Kenyans to plan ahead for their dependents thereby reducing the number of needy future students.
Loss prevention-The insurance companies encourage the insured not to cause accidents thus channeling the unclaimed resources into the economy.

The Theory of Insurance

The insurance business relies on the law of large numbers in its operations. According to this law, there should be a large group of people faced with similar risks and these risks spread over a certain given geographical area.
Every person in the group contributes at regular intervals, small amounts of money called premium into a “common pool”. The pool is administered and controlled by the insurance company.

The fact that risks are geographically spread ensures that insurance does not have a concentration of risks in one particular area.
The law of large numbers enables the insurance to accurately estimate the future probably losses and the number of people who are likely to apply for insurance. This is done in order to determine the appropriate premiums to be paid by the person taking out insurance.

Pooling of risks

The insurance operation is based on the theory that just a few people out of a given lot may suffer a loss. There is therefore a “pooling of risks” i.e. the loss of the unfortunate few is spread over all the contributors of the group, each bearing a small portion of the total loss. This is why the burden of loss is not felt by the individuals because it is “shared” by a large group.

Benefits of the “pooling of Risks” to insurance company

Pooling of risks enables an insurance company to create a common pool of funds from the regular premiums from different risks.
It enables the insurance company to compensate those who suffer loss when the risks occur
The insurance company is able to spread risks over a large number of insured people
Surplus funds can be invested in for example, giving out loans or buying shares in real estates
It enables the insurance company to meet its operating costs by using the pool funds
It enables the insurance company to calculate to be paid by each client
It enables the company to re-insure itself with another insurance company.

Terms used in Insurance

Insurance
This is a written contract that transfers to an insurer the financial responsibility for losses arising from insured risk.
Premium
This is the specified amount of money paid at regular intervals by the insured to the insurer for coverage against losses arising from a particular risk.
Risk
These are perils or events against which an insurance cover is taken. It is the calamity or problem a person or business faces and results into losses.
Note: The calculation of premiums depends upon the type of risk insured against. The higher the probability of the risk occurring, the higher the premium. The more the risks the business or person is exposed to the more the premiums payable.
Pure risk
This is a risk which results in a loss if it occurs and results in no gains if it does not occur. For example, if a car is involved in an accident, there will be a loss and if the accident does not occur there will be no gain or loss
Speculative risk
This is a risk which when it occurs, may result in a loss or a profit. For example, a person may buy shares at ksh.50 each, one year later the shares may be valued at ksh40 each meaning a loss of ksh.10
Alternatively, their value might not have changed or might have increased to ksh.45 each. Speculative risk lures people to venture into business in the first place.
Insured
This is the individual or the business that takes out the insurance cover and therefore becomes the policy holder
The insured pays premiums to the insurance company to be compensated should the risk insured against occur or cause loss.
Insurer
This is the business company that undertakes to provide cover or protection to the people who suffer loss as a result of occurrence of risks
Actuaries
These are people employed by an insurance company to complete expected losses and calculate the value of premiums.
Claim
This is a demand by the insured for payment from the insurer due to some loss arising from an insured risk.
Policy
This is a document that contains the terms and conditions of the contract between the insurer and the insured. It’s issued upon payment of the first premium.
Information contained in a policy includes;

Name, address and occupation
Policy number of the insured
Details of risks insured
Value of property insured
Premiums payable
Other special conditions of the insurance, for example nominees

Actual value
This is the true value of the property insured
Sum insured
This is the value for which property is insured, as stated by the insured at the time of taking the policy.
Surrender value
This is the amount of money that is refunded to the insured by the insurer in case the former (i.e. the insured) terminates payment of the premiums before the insurance contract matures. The policy holder is paid an amount less than the total amount of the premium paid.
Grace period
This is term allowed between the date of signing the contract and the date of payment of the first premium. During this period the insurance contract remains valid. This period is usually a maximum of thirty (30) days.
Proposer
This is a person wishing to take out an insurance cover (prospective insured)
Cover note (Binder)
This is a document given by the insurance company to an insured on payment of the first premium while awaiting for the policy to be processed. It is proof of evidence that the insurer has accepted to cover a proposed risk.
Annuity
This is a fixed amount of money that an insurer agrees to pay the insured annually until the latter’s death. It occurs when a person saves a lump sum amount of money with an insurer in return for a guaranteed payment which will continue until he/she dies.
Consequential loss
This is loss incurred by a business as a result of disruption of business in the event of the insured risk occurring.
Assignment
This is the transfer of an insurance policy by an insured to another person. Any claims arising from the transferred policy passes to the new policy holder called an assignee
Beneficiaries
These are people named in a life assurance policy who are to be paid by the insurer in the event of the insured
Nomination
This is the act of designing one or more people who would be the beneficiaries in the event of death of the insured. These people are called nominees

Average clause
This clause is usually included in policies to discourage under-insurance. The clause provides that the insured can only recover such proportions of the loss as the value of the policy bears on the property insured. It is usually included in marine or fire insurance policies.
The amounts recoverable are arrived at using the following formulae:

Example:
If a house worth kshs.800,000 and insured against fire for kshs.600,000 was damaged by fire to the tune of kshs.400,000,the insured would be compensated;

Double insurance
This is taking of insurance policies with more than one company in respect to the same subject matter and the risk. It is significant because if one of the insurers is insolvent at the time the claim arises the insured can enforce his/her claim against the solvent insurer or if both insurers are solvent then they share compensation.
(Insolvency is a state where a business is not able to pay all its liabilities from its existing assets)
Co-insurance
This is an undertaking by more than one insurance company to provide insurance cover for the same risk for an insured. This will usually occur for properties that have great value and face great risk exposures that an insurer cannot successfully make compensation for e.g. value of aeroplanes, ships etc.
Co-insurance help spread risks to several insurers, each insurer covering only a certain proportion of the total value. The insurance company with the largest share is called the “leader” and acts on behalf of all the participating insurance companies’ e.g. in collecting premiums from the insured and carrying out documentation work, making claim after collecting each insurers premium contribution etc.
Note: Co-insurance is different from double-insurance in that in co-insurance company approaches another insurance company to help in covering the insured property while in double-insurance; it’s the insured who decides to approach different insurance companies to insure the same property against the same risk.
Re-insurance
‘Re-insurance’ means insuring again. This is a situation where an insurance company insures itself with a bigger insurance company called re-insurer for all or part of the risks insured with it by members of the public
Re-insurance indirectly insure an individual’s risks. Re-insurance helps to reduce the burden on an insurance company when the loss is too high for a single insurer. When such losses occurs, the claim is met by both the insurer and re-insurer(s) proportionately (according to agreed percentages)
Note: Re-insurance deal with the protection of insurance companies only, while insurance companies protect individuals and business organizations.

Factors that may make it necessary for an insurance company to Re-insure

Value of property - When the value of property is great, such as ship, the risk is too high to be borne by a single insurer
High risk of loss - When chances of loss through the insured risks are high, it becomes necessary to re-insure.
Number of risks covered - When the insurance company has insured many different risks, it would be too costly to compensate many claims at once, hence the need for re-insurance
Need to spread the risk - When the insurance company wishes to share liability in the event of a major loss occurring
Government policy - The government may make a legal requirement for an insurance company to re-insure

Under-insurance
This occurs when the sum insured as contained in the policy is less than the actual value of the property e.g. a property of shs.500, 000 can be offered for insurance as having a value of shs.400, 000
Over-insurance
This is a situation where the sum insured is more than the correct value of property e.g. a person insures property of shs.300,000 for shs.600,000.If total loss occurs, he is compensated the correct value of the property i.e. that which he has lost
Agents
These are people who sell insurance policies on behalf of the insurance company. They are paid on commission that is dependent upon the total value of policies sold
Insurance Brokers
These are professional middlemen in the insurance process. They connect the people wishing to take insurance with the insurers. They act on behalf of many different insurance firms, unlike agents.
Their activities include:

Examination of insurance market trends
Correspondence between the insured and his clients
Advising the insured and would be policy holders on the best policies for their property etc.

He receives a commission (reward) known as brokerage.

Principles of Insurance

Principles of insurance provide guidance to the insurance firms at the time they are entering into a contract with the person taking the cover. These insurance principles include:

Help to determine whether a valid insurance contract exists between the two parties at the time claims are made.
Provide checks and controls to ensure successful operations of insurance for the benefit of both the parties

It is therefore important that a prospective insured (person wishing to take insurance policy) has basic knowledge of these principles as stated in the insurance law.
The insurance principles include;
1. Insurable Interest
This principle states that an insurance claim cannot be valid unless the insured person can prove that he has directly suffered a financial loss and not just because the insured risk has occurred.
Going by this principle one cannot insure his parents or friends or other people’s property since he/she has no insurable interest in them. If such properties are damaged or completely destroyed, he/she will not suffer any financial loss.
For example, Mr. X has no insurable interest in the property of his neighbours. He does not suffer any financial loss should they be destroyed. This principle ensures that people are not deliberately destroying other people’s properties/life in order for them to receive compensation.
In life insurance (life assurance) it is assumed that a person has unlimited interest in his/her own life. Similarly it is assumed that one has insurable in the life of spouse and children e.g. a wife may insure the life of her husband, a father the life of his child because there is sufficient insurable interest.
2. Indemnity
The essence of this principle is that the insurer will only pay the “replacement value” of the property when the insured suffers loss as a result of an insured risk.
This principle thus puts the insured back to the financial position he enjoyed immediately before the loss occurred.
It is therefore not possible, then, for anybody to gain from a misfortune by getting compensation exceeding the actual financial loss suffered as this will make him gain from a misfortune.
This principle does not apply in life assurance since it is not possible to value one’s life or a part of the body in terms of money. Instead, the insurance policy states the amount of money the insured can claim in the event of death.
3. Utmost good faith (uberrima fides)
In this principle the person taking out a policy is supposed to disclose the required relevant material facts concerning the property or life to be insured with all honesty. Failure to comply with this may render the contract null and void hence no compensation.
e.g.

A person suffering from a terminal illness should reveal this information to the insurer.
One should not under-insure or over-insure his/her property.

4. Subrogation
This principle compliments the principle of indemnity. It does so by ensuring that a person does not benefit from the occurrence of loss.
According to this principle, whatever remains of the property insured after the insured has been compensated according to the terms of the policy, becomes the property of the insure.
Example:
Assuming that Daisy’s car is completely damaged in an accident and the insurance compensates for the full value of the loss, whatever remains of the old car (now scrap), belongs to the insurance company
Scrap metal can be sold for some values and should Daisy take the amount she would end up getting more amount than the value of the car which will be against the principle of indemnity.
Note: This principle cannot be applicable to life assurance since there is nothing to subrogate.
5. Proximate cause
This principle states that for the insured to be compensated there must be a very close relationship between the loss suffered and risk insured i.e. the loss must arise directly from the risk insured or be connected to the risk insured.
Example

If a property is insured against fire then fire occurs and looters take advantage of the situation and steal some of the property, the insured will suffer loss from ‘theft’ which is a different risk from the one insured against, so he/she will not be compensated.
However if the property burns down as a result of sparks from the fire-place, the proximate cause of the loss is sparks which are directly related to fire. So the insured is entitled for compensation.

Classes of Insurance

Insurance covers are mainly classified into two,

Property (non-life) general insurance
Life assurance

1. Life Assurance
The term assurance is used in respect of life contracts. It is used to mean that life contracts are not contracts of indemnity as life cannot be indemnified i.e. put back to the same financial position he was in before the occurrence of loss.(life has no money value, no amount of money can give back a lost or injured life)
Life insurance (assurance) is entered by the two parties in utmost good faith and the premiums payable in such life contracts depend on:

Age; The higher the age the higher the premiums as the age factor increase the chances of occurrence of death.
Health condition; A person with poor health i.e. sickly person pays higher premiums as opposed to one in good health.
Exposure to health risks; the nature of a person’s occupation can make him susceptible to health problems and death.

Types of policies

Whole life assurance - In whole life assurance, the assured pays regular premiums until he/she dies. The sum assured is payable to the beneficiaries upon the death of the assured. Whole life assurance covers disabilities due to illness or accidents i.e. if the insured is disabled during the life of the policy due to illness or accidents, the insurer will pay him/her for the income lost.
Endowment policy/insurance - This is whereby the insured pays regular premiums over a specified period of time. The sum assured is payable either at the expiry of the period (maturity of policy) or on death of the insured, whichever comes first.
The insured, at expiry of policy is given the total sum assured to use for activities of his own choice. (Ordinary endowment policy)
Where the insured dies before maturity of contract, the beneficiaries are given these amounts.

Note; the assured person may be paid a certain percentage of the sum assured at intervals until the expiry of the policy according to the terms of contract. Such an arrangement is known as Anticipated
Endowment policy.
Advantages of Endowment policies

They are a form of saving by the insured, for future investments
Premiums are payable over a specified period of time which can be determined to suit his/her needs e.g. retirement time
Where the assured lives and time policy matures, he receives the value of sum assured.
Policy can be used as security for loans from financial institutions.

Differences Between a whole life policy and an Endownment policy

Whole life	Endownment
Compensation is paid after the death of the assured	Compensation is paid after the expiry of an agreed period
Premiums are paid throughout the life of the assured	Premiums are paid only during an agreed period
Benefits go to the dependents rather than the assured	The assured benefits unless death proceeds the expiry of the agreed period
Aims at financial security of dependants	Aims at financial security of the assured and dependants

Term insurance- The insured here covers his life against death for a given time period e.g. 1yr, 5yrs etc. If the policyholder dies within this period, his/her dependants are compensated. If the insured does not die within this specified period, there is no compensation. However, a renewal can be taken.
Education plan/policies - This policy is normally taken by parents for their children’s future educational needs.
The policy gives details of when the payments are due.
Statutory schemes - The Government offers some types of insurance schemes which are aimed at improving/providing welfare to the members of the scheme such as medical services and retirement benefits.
A member and the employer contribute, at regular intervals, certain amounts of money towards the scheme.

Examples

N.S.S.F
N.H.I.F
Widows and children pension scheme (W.C.P.S)

1. Annuity

Characteristics of life Assurance

It is a cover for life until death or for a specified period of time
It may be a saving plan
It is normally a long term contract and does not require an annual renewal
It has a surrender value
It has a maturity date when the assured is paid the sum assured bonuses and interests.
A life assurance policy can be assigned to beneficiaries
The policy can be any amount depending on the assureds’ financial ability to pay premiums
The policy can be used as security for a loan

1. General insurance (property insurance)

This type of insurance covers any form of property against the risks of loss or damage. A person can insure any property he has an insurable interest in
General insurance is usually divided into;

Fire insurance/department
Accident insurance/department
Marine insurance/department

Accident insurance

This department covers all sorts of risks which occur by accident and includes the following;
Motor policies

These provide compensation for partial or total loss to a vehicle if the loss results from an accident.
The policy could either be third party or comprehensive.
Third party policies cover all damages caused by the vehicle to people and property other than the owner and his/her vehicle. This includes pedestrians, fare-paying passengers, cows, fences and other vehicles

In Kenya, a motor-vehicle owner is required by law to have this policy before the vehicle is allowed on the roads. One can also take a third party, fire and theft policy.
Comprehensive policy covers damages caused not only to the third party but also to the vehicle itself and injuries suffered by the owner. Comprehensive policies include full third party, fire, theft and malicious damage to the vehicle.

Personal accident policy

These policies are issued by insurance companies to protect the insured against personal accidents causing;

Injury to the person
Partial or total physical disability as a result of the injury
Loss of income as a result of death

If death occurs due to an accident, the insured’s beneficiaries are paid the total sum assured.
In case of a partial or total disability as a result of accident, the insured can be paid on regular periods, e.g. monthly as stipulated in the policy.
Compensation for injuries where one loses a part of his/her body can be done on a lump sum basis.
The insured is also paid the value of hospital expenses incurred if hospitalized as a result of an accident.

Cash and / or Goods in Transit policies

These are policies that specifically provide cover for loss of cash and goods in transit between any two locations.
E.g. Goods and cash moved from business to the markets, from suppliers to business etc.

Burglary and Theft policies

These policies cover losses caused by robbers and thieves
Burglary policies are enforceable only if the insured has met the specified safety and precautionary measures for protection of the insured items.
E.g.

How much money should be maintained in different kinds of safety boxes?
Positioning of each of the cash boxes is also an important precautionary measure.

NB: The control measures are aimed at reducing both the extent and probability of loss occurring

Fidelity Guarantee policies

These policies cover the employers against loss of money and/or goods caused by their employees in the cause of duty.

The losses may be as a result of embezzlement, fraud, arithmetical errors e.t.c
The policies may cover specified employees or all the employees

Workmen’s compensation (Employer’s Accident liability)

These policies provide compensation for employees who suffer injuries in the course of carrying out their duties.
The employer insures his employee against industrial injuries i.e the employer is only liable for the compensation of workers who suffer injuries at work.
Public liability
This insurance covers injury, damages or losses which the business or its employees cause to the public through accidents.
The insurer pays all claims from the public up to an agreed maximum
Bad debts
This policy covers firms against losses that might result from debtor’s failure to pay their debts.
Marine Insurance
This type of insurance covers ships and cargo against the risk of damage or destruction at the sea. The main risks sea vessels are exposed to include; fire, theft, collision with others, stormy weather, sinking etc.

Types of Marine Insurance policies

The marine insurance covers are classified as Hull, cargo, freight and ship owners’ liability.
Marine Hull
This policy covers the body of the ship against loss or damage that might be caused by sea perils.
Included here are any equipment, furniture or machinery on the ship.
A special type of marine hull is the part policy, which is for a specified period when the ship is loading, unloading or at service.
Marine Cargo
This type of policy covers the cargo or goods carried by the ship
The policy is taken by the owners of the sea vessels to cover the cargo being transported. It has the following sub-divisions.

Voyage policy - Here cargo and ship are insured for a specific voyage/journey. The policy terminates automatically once the ship reaches the destination.
Time policy - Here insurance is taken to cover losses that may occur within a specified period of time, irrespective of the voyage taken
Fleet policy - This covers a fleet of ships, i.e. several ships belonging to one person, under one policy.
Floating policy - This policy covers losses that may occur on a particular route, covering all the ships insured along that route for a specified period
Mixed policy - This policy provides insurance for the ship and cargo on specified voyages and for a particular period of time. No compensation can be made if the ship was on a voyage different from the ones specified even if time has not expired
Composite policy - This is where several insurance companies have insured one policy of a particular ship especially when the sum insured is too large to be adequately covered by one insurer.
Construction policy/builders policy - This covers risks that a ship is exposed to while it is either being constructed, tested or being delivered.
Freight policy - This is an insurance cover taken by the owner of the ship for compensation against failure to pay hiring charges by a hirer of the ship.
Third parties liability - This is an insurance policy taken by the owner of the ship to cover claims that might arise from damage caused to other people’s property.

Description of marine losses

The following are some of the losses encountered in marine insurance.
Total loss,
This occurs where there is complete loss or damage to the ship and cargo insured. Total loss can be constructive or actual.
In Actual total loss, the claims are as a result of the ships and/or cargos complete destruction. It could also occur;
When a ship and its cargo are so damaged that what is salvaged is of no market value to both the insurer and the insured.
When a ship is missing for a considerable period of time enough to assume that it has sunk.
Constructive total loss occurs when the ship and/or cargo are totally damaged but retrieved. It may also occur;
Where a ship and its cargo are damaged but of market value. This could be as a result of decision to abandon the ship and cargo as the probability of total loss appears imminent.
If the cost of preventing total loss may be higher than that of the ship and its cargo when retrieved e.g. many lives may be lost in the process of trying to prevent total loss.

General average - This is a loss that occurs as a result of some of the cargo being thrown into the sea deliberately to save the ship and the rest of the cargo from sinking. The losses made are shared by the ship owners and the cargo owners proportionately as the effort was in the interest of both.
Particular average - This occurs where there is a partial but accidental loss to either the ship or the cargo. When this happens each of the affected party is solidly responsible for the loss that has occurred to his property. A claim can, however be made if the loss incurred amounts to more than 3% of the value insured.

Fire insurance

This type of insurance covers property damage or loss caused by accidental fire. Cover is offered to domestic commercial and industrial premises, plant and machinery, equipment, furniture fittings stock etc.
In order to claim for compensation as a result of loss by fire, the following conditions must be fulfilled;

Fire must be accidental
Fire must be immediate cause of loss
There must be actual fire.

There are several types of types of fire insurance policies. These include;

Consequential loss policy; (profit interruption policy)

This covers or compensates the insured for the loss of profit suffered when business operations have
It is offered to protect future earnings of an enterprise after fire damage.

Sprinkler leakage policy - This provides cover against loss or damage caused to goods or premises by accidental leakages from firefighting sprinklers
Fire and Related perils policy - This covers buildings which include factories, warehouses, shops, offices and their contents. The policy does not cover loss of profit arising from fire damage.

Characteristics of General Insurance

It’s a contract of indemnity
It cannot be assigned even to ones relatives
The insured must have an insurable interest in the property to be insured
Premiums charged depends on the degree of risk, the higher the premium charged.
Compensation for loss can only be up to a maximum of the value of the insured property or the sum insured in case of under insurance.
It has no surrender value
It’s normally a short term contract which can be renewed periodically, usually after one year.

Factors to be considered when Determining Premiums to be charged

Health of the person
Frequency of occurrence of previous losses
Extent of the previous losses
Value of the property insured
Occupation of the insured
Age of the person or of the property in question
Location of the insured(address and geographical location)
Period to be covered by the policy
Residence of the insured.

Procedure for taking a policy

Filling a proposal form
Calculation of the premium to be paid
Issuing of cover note (Binder)
Issuing of the policy

Procedure of claiming compensation

Notification to the insurer - The insurer has to be notified about the occurrence of any incident immediately.
Filling a claim form - The insurer provides the insured with a claim form which he fills to give details of the risk that has occurred
Investigation of the claim - The insurer arranges to investigate the cause of the incident and to assess the extent of the loss incurred. The insurer is then able to establish whether the insured is to be compensated and if so, for how much.
Payment of claim - On receipt of the report of the assessor, the insurer pays the due compensation to the insured. (Payment of the compensation shows that both the insurer and the insured have agreed on the extent of the loss and the payment is the settlement of the claim)

Insurance and Gambling

In most cases, insurance is erroneously taken to be the same as gambling in that small amounts are contributed by many people into a common fund which later benefits just a few people. They are however different and their differences include;

Insurance

The insured must have insurable interest
Reinstates the insured back to the financial position just before loss
The insured is expected to pay regular premiums for the insurance cover to remain in force
Insurance involves pure risks
The event of loss might never occur

Gambling

A gambler has no insurable interest
Aims at improving the winners financial position
Gambling money is paid only once
Gambling involves speculative risks
The event of bet must happen to determine the winner and the loser.

insurance questions on topic

1. 1995 P2
Describe the procedures that should be followed when taking an insurance policy. (10 marks)
2. 1996 P2
Explain four ways in which the insurance industry promotes the growth of business enterprises. (5 marks)
3. 1997 P2
Explain four ways in which the insurance industry contributes to the development of Kenya’s economy. (10 marks)
4. 1998 P2
Discuss various insurance policies under which an insurance company would not compensate the insured in the event of the loss. (10 marks)
5. 1999 P2
Discuss various insurance policies that the owner of a supermarket may find it useful for the business. (12 marks)
6. 2000 P2
Explain four benefits of the ‘pooling of risks’ to an insurance company. (8 marks)
7. 2001 P2
Explain the factors that may make it necessary for an insurance company re-ensure.
8. 2002 P2
Explain the meaning of the following terms as used in insurance (10 marks)
i) Uberrimae fidei
ii) Indemnity
iii) Third party motor vehicle insurance
iv) Contribution.
v) Subrogation
9. 2003 P2
Discuss four circumstances under which an insurance contract may be terminated. (8 marks)
10. 2004 P2
Explain five benefits that could be enjoyed by a person who decided to take out an endowment policy. (10 marks)
11. 2006 Q2 P1
Outline four risks against which a shopkeeper may insure. (4 marks)
12. 2007 Q3 P1
Outline three features of a Re – insurance company
13. 2008 Q22 P1
Elephant Enterprises acquired a building valued at sh 1 000 000 on 1 January 2007. The building was insured with two insurance Companies. Zebra and Simba for sh. 600 000 and Sh.400 000 respectively. In May 2007, fire damaged the building, causing Elephant Enterprises to suffer a loss of 20% of the building value. Determine contribution made by Simba and Zebra to cover the loss. (4 marks)
14. 2009 Q25 P1
KAMAT owned a motor vehicle, valued at sh 1,000,000. He comprehensively insured the car at Sh 800,000. The motor vehicle was involved in an accident and declared a write off. Calculate the amount KAMAT should get from the insurer. (4 marks)
15. 2010 Q11 P1
Outline four differences between insurance and assurance. (4 marks)
16. 2012 Q4a P2
(a) Explain five characteristics of property insurance. (10 marks)

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warehousing - kcse business studies notes, objectives, syllabus, schemes of work, questions, answers and more

1/12/2017

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OBJECTIVES
NOTES
Q & A
APA REF.
OTHERS

WAREHOUSING (6 LESSONS)

SPECIFIC OBJECTIVES
By the end of the topic, the learner should be able to:

explain the meaning and importance of ware housing to business
discuss the essentials of a warehouse
identify the various types of warehouse
explain the advantages and disadvantages of each type of warehouse.

TOPICS / SUB-TOPIC BREAKDOWN

Meaning and importance of warehousing
Essentials of a warehouse
Types of warehouses
Advantages and disadvantages of each type of warehouse

Introduction

Definition
A warehouse is a building for storing goods and services until the need for them arises. A warehouse is also usually referred to as a go down, silo or depot.
Warehousing is the process and the systems for relieving goods, protecting them against all types of hazards and ensuring their availability to those who need them. Therefore, it involves three main processes:

Receiving goods into a warehouse;
Storing them
Releasing them to the users.

Thus, warehousing helps to create time utility and is therefore classified as an ‘aid to trade’.

warehouse/godown

Importance of Warehousing to Business

It enables a steady flow of goods into the market as the producers store their commodities and regulating their supply as needs arise;
It stabilizes the prices by reducing the supply of goods when the market is faced with surplus and increasing the supply whenever there is shortage;
It protects the goods from adverse weather conditions thereby upholding their quality until they are sold;
It facilitates the bridging of time between when the goods are manufactured and when they are demanded. This is especially so for goods with seasonal demands;
It acts as a reserve that can meet a sudden unexpected demand, for instance cereals can be stored in a warehouse just in case a draught strikes;
It enables ample time and opportunity for such practices like blending, branding, packaging, grading and sorting out of goods before they are sold.
Warehousing ensures that goods are protected from loss through theft or pilferage;
It enables buyers to inspect the goods before they buy them;
Warehousing allows time for some goods to ripen or mature before they are sold, for instance ripe bananas or tobacco leaves;
It encourages specialization in production and distribution. Producers concentrate on producing while distributors store the goods for sale to the consumers;
By allowing manufacturers to buy raw materials in bulk as they await their needs to arise, warehousing ensures a continuous production schedule;
It allows importance ample time to look for a market.

Essentials of a warehouse

In order to be as effective as possible, warehouses require some features and resources. These include:

Proper buildings suitable to house various types of goods;
They should be conveniently located to enhance accessibility by the users;
Proximity to a good transport network system to ensure smooth movement of goods in and out;
The warehouse should be equipped with appropriate protection equipment to keep the goods safe from water, sunshine, human animals, excess heat and such factors;
It should be spacious enough to enable both storage of goods and movement of goods and personnel;
It should be equipped with proper facilities for handling goods like forklifts and an necessary working materials and tools to facilitate operation;
It should be equipped with adequate facilities to care for goods for instance coldroom facilitates for perishable goods;
It should be manned by well trained staff for efficient delivery of services;
The warehouse should be equipped with an efficient communication network.
A warehouse should conform to the law of the land.
It should have proper recording system to monitor movement of goods.

Types of Warehouses

Warehouses are usually categorized on the basis of ownership or types of goods stored.

I. Warehouse Types Based on Ownership

Private Warehouses
These warehouses are owned by individuals for storing goods. They include:

Wholesalers warehouse – they enable the wholesalers to buy goods from the producers in bulk and prepare them so that they will be ready whenever the retailers need them;
Producer’s warehouses – they store producer’s goods before the goods are released to the market. They are most conveniently located near the producers or their clients.
Retailers – they are commonly owned by some large scale retailers like the chain store and supermarkets to suit the purchase of goods in large quantities and sell them gradually.

Advantages of private warehouses

They enable the manufacturers more control over the manufacturing operations. They enable for instance coordination between the manufacturing process and delivery to the market
They are usually flexible enough to adapt to the different requirements for different goods by offering special facilities not accessible in public warehouses;
The owner can custom make the warehouse to suite any need;
The owner does not incur the cost of hiring space unlike in public warehouse;
Decision making is independent and therefore quick since the owner does not have to consult;
The owner is not ted down by procedures of receiving and issuing the goods unlike in public warehouses;

Disadvantages of public warehouses

When there is low volumes the resources may become underutilized;
High initial cost of production;
The owners may suffer some problems associated worth small scale firms like lack of enough funds to employ adequately qualified personnel.

Public warehouses
The term public implies that these warehouses can be used any member of the public to store his/her goods whereby the owners of the premises lend parts or the entire warehouse to any individual. To enhance versatility and suitability, the owners site the warehouses strategically near ports. This is because they are most commonly used by importers or exporters.
Many public warehouses offer some additional services like packaging, clerical services, market reports, preparing export samples and insuring the goods. Ownership of the goods in the warehouse is usually proved and transferred from one owner to another through a document known as a warehouse warrant. This enables the owner of the goods to sell goods in the warehouse without having to physically transfer them from one place to another.

Advantages of Public Warehouse

Public warehouses enable various small scale owners of goods to come together and sell their commodities together thus enjoying the economies of scale;
The owner does not have to construct his/her own warehouse;
Very convenient to traders since the goods can be sold while still in the warehouse;
Goods are insured against some risk like damage by fire and theft;
Traders can rent space to store their goods;
The warehouse can offer additional services;
The trader can access short term loans with the goods in the warehouse as collateral.
The goods in the warehouse can be used as a collateral for a loan;

Disadvantages of Public warehouse

Hiring space can eventually be more costly than constructing premises in the long run;
Space allocation is not a guarantee, it depends on availability;
The hirer may lose customer contact since they purchase directly from the premises;
The presence of other suppliers in the warehouse brings in some competition;
The presence of several hirers may lead to a complication and prolonged documentation and receipting process;
Inconveniences emanate from the distant location of the warehouse from the hirer’s presence;

ii. Warehouse Types Based on Goods Stored

These types of warehouses are categorized on whether they house goods awaiting tax or tax free goods.
Bonded Warehouses
They store imported goods prior to payment of the duties. The warehouse owner’s offers cash guarantee to assure that the goods will not be released before clearing the duties. Goods under transit to another country may not attract duties, including those that are packaged outside the warehouse. The goods may be sold inside the warehouse and the new owner undertakes the payment of the taxes. Once cleared, the owner is issued with a warrant of release.

Features of Bonded Warehouses

Goods can be sold while inside the warehouse;
Goods are released only upon production of the warrant of release;
Storage charges are made on all the goods under storage;
Goods can be bonded till custom duty is paid;
Goods can be inspected or prepared for sale while still in the warehouse;
Goods can be re-exported while in the warehouse.

Advantages of using Bonded Warehouses to the importer

Relieves the importer the burden of securing the goods;
Some goods lose weight while in the warehouse an advantage to those whose amount of tax depends on the weight;
It offers an opportunity to prepare the goods for sale;
Some goods improve in quality while in the warehouse due to maturation duration;
The importer transfers the burden of paying the duty onto a buyer who buys the goods while still in the warehouse;
The importer can look for the market of the goods even before paying the tax.

Disadvantages of using Bonded Warehouses

The importer pays rent for the space of goods;
In case the importer fails to pay the duty, the custom authorities may be auction the goods;
Withdrawing goods from the warehouse in bits ends up with a higher total tax than a one off fee.

Free Warehouses
Goods in these types of warehouses are not under the control of the custom authorities. The goods do not have any pending tax. These include locally manufactured goods or imported goods whose duty has been cleared.

Advantages of Free Warehouse

Cheaper than bonded warehouse since no duties charges;
Goods do not risk auctioning since there are no taxes charged;
The warehouses are usually conveniently located for the goods’ owners;
Release of goods cannot be not delayed by complicated protocols of having to produce signed release warrants

Disadvantages of Free Warehouse

Inspection of goods is relaxed and therefore it is susceptible to habour illegal goods;
The storing activity does not earn the government any revenue since no tax is paid;
Hoarding of goods can occur in these uninspected warehouses.

Current Trends and Emerging Issues in Warehouses

Driven by technological inventions, warehouses are undergoing revolutions such as:

Computerised monitoring systems are tracking the goods inside and outside the warehouses;
Conveyor belts and other mechanisms are replacing manual movement of goods in the warehouses;
Newer designs with improved storage capacities are coming up;
Better storage facilities like the use of racks is being employed in the warehouses;

warehousing kcse questions and answers

1.         1995 P1
Outline four features of a bonded warehouse (4 marks)
2.          1995 P2
Explain five ways in which warehousing facilitates trade.
3.         1996 P1
Highlight four ways in which a warehouse is useful to a trader. (4 marks)
4.         1997 P1
List three advantages of warehousing to a manufacturer. (3 marks)
5.          1997 P2
Lobo Traders intends to consult a warehouse. Explain five measures that
Lobo would take to ensure smooth functioning of the warehouse
6.         1998 P1
Outline four benefits that consumers get from a warehousing (4 marks)
7.         1999 P1
Outline four factors that a trader would consider in locating a warehouse. (4 marks)
8.         2000 P1
State four benefits that a government gets from a bonded warehouse. (4 marks)
9.          2000 P2
In what ways does warehousing facilitate trade in a country?
10.       2001 P1
State four features of a bonded warehouse (5 marks)
11.       2002 P1
State four advantages of public warehouse to retailers. (4 marks)
12.       2003 P1
The table below contains descriptions relating to some types of warehouse. In the space provided, write the type of warehouse to which each description refers.

13.       2004
In which four ways are consumers likely to suffer in a situation where there is no warehousing?
14.          2007 Q13 P1
Outline four benefits to a business that uses its own warehouse. (4 marks)
15.          2007 Q6a P2
a) Explain five features that you would consider in establishing a warehouse for   imported goods. (10 marks)
16.          2008 Q3 P1
State four ways in which a warehouse is of importance to a manufacturer. (4 marks)
17.   2010 Q3 P1
Name the types of warehouses associated with each of the statements given below: (4 marks)

18. 2012 Q21
Outline four conditions under conditions under which a warehouse may be considered to operating efficiently. (4 marks)

latest business studies notes

FINANCIAL STATEMENTS - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER

CONTENTS

​SPECIFIC OBJECTIVES

Financial Statements

Determining the profit or loss of a business

Trading Account

financial statements questions & answers

THE LEDGER AND THE CASHBOOK

​CONTENT

​THE CASH BOOK

THE CASH BOOKS AND THE LEDGER

Types of ledgers

​Classification of ledger accounts

Limitations of a trial balance

Trial Balance

Errors that may cause a trial balance not to balance

QUESTIONS AND ANSWERS

reader's digest

NATIONAL INCOME

​NATIONAL INCOME CONTENT

​NATIONAL INCOME SPECIFIC OBJECTIVES

NATIONAL INCOME

Circular Flow of Income

Approaches Used In Measuring National Income

Uses of National Income Statistics

questions and answers session

answers

reader's digest

CHAIN OF DISTRIBUTION

SPECIFIC OBJECTIVES

​CONTENT

Introduction

Costs incurred by middlemen while distributing goods

Roles of Middlemen

Factors to Consider Before Selecting a Distribution Channel

Question and Answer

aNSWERS

READER'S DIGEST

PRODUCT MARKETS - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER

SPECIFIC OBJECTIVES

cONTENTS

PRODUCT MARKET

Definition of Product market

TYPES OF PRODUCT MARKET

QUESTIONS ON ​PRODUCT MARKETS

ANSWERS

reader's digest

​THE THEORY OF THE FIRM

​THE THEORY OF THE FIRM COURSE OUTLINE

THEORY OF THE FIRM Definition:

DECISION ON WHAT GOODS AND SERVICES TO PRODUCE

Factors that influence decisions on what goods and services to produce

COST OF PRODUCTION

the theory of the firm questions on topic

reader's digest

​Advantages of public relations

​Disadvantages of public relations

5. Point of purchase (Window) display

​Advantages of Point of purchase display

​Disadvantages of point of purchase

6. Direct mail Advertisement

​Advantages of direct mail advertisement

​Disadvantages of direct mail advertisement

7. Catalogue

​Advantages of catalogue

​Disadvantages of catalogue

8. Guarantee (warranty issue)

​Advantages Guarantee

​Disadvantages of guarantee

9. Discount

​Types of discount

Sales promotion

Factors to consider when choosing a promotion method

Ethical issues in product promotion

Trends in product promotion

​PRODUCT PROMOTION (12 LESSONS)TOPIC/ SUB-TOPIC OUTLINES

​SPECIFIC OBJECTIVES

introduction to Product Promotion.

The purpose/Importance of product promotion

SPECIFIC OBJECTIVES

CONTENT

THE CASH BOOK

Classification of ledger accounts

NATIONAL INCOME CONTENT

NATIONAL INCOME SPECIFIC OBJECTIVES

CONTENT

QUESTIONS ON PRODUCT MARKETS

THE THEORY OF THE FIRM

THE THEORY OF THE FIRM COURSE OUTLINE

Advantages of public relations

Disadvantages of public relations

Advantages of Point of purchase display

Disadvantages of point of purchase

Advantages of direct mail advertisement

Disadvantages of direct mail advertisement

Advantages of catalogue

Disadvantages of catalogue

Advantages Guarantee

Disadvantages of guarantee

Types of discount

PRODUCT PROMOTION (12 LESSONS)
TOPIC/ SUB-TOPIC OUTLINES

SPECIFIC OBJECTIVES

Methods of personal selling

Steps involved in personal selling through sales person

Shows, trade fairs and exhibitions

Advantages of shows, trade fair and exhibitions

Disadvantages of shows, trade fairs and exhibitions

Showrooms

Advantages of showrooms

Disadvantages of showrooms

Free Gifts

Advantages of free gifts

Disadvantages of free gifts

Free Sample

Advantages of free sample

Disadvantages of free sample

Circumstances under which personal selling is appropriate

Advantages of personal selling

Disadvantages of personal selling

Types of Advertising

Advantages/Importance of advertising to the business

Disadvantages of advertising to the business

Advantages of advertising to the customer

Disadvantages of advertising to the consumer

Advertising media

Newspaper

Advantages of newspaper

Disadvantages of the newspaper

Magazines and Journals

Advantages of magazines and Journals

Disadvantages of magazines and journals

Posters and Billboards

Advantages of posters and billboards

Disadvantages of posters and billboards

Transit/transport advertising

Advantages of transit advertisement

Disadvantages of transit advertisement

Brochures

Advantages of Brochures

Disadvantages of Brochures

Radio

Advantages of Radio

Disadvantages of Radio

Television (T.V) and Cinema

Advantages of Television (T.V) and Cinema

Disadvantages of Television (T.V) and Cinema

Neon Signs

Advantages of Neon Signs

Disadvantages of Neon Signs

Advertising Agencies

Functions of Advertising Agencies

Disadvantages of Publicity

INSURANCE (12 LESSONS)
TOPICS / SUB-TOPICS OUTLINES

SPECIFIC OBJECTIVES