IB-Dec 2012 Answers

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The Association of Business Executives

QCF

Introduction to BusinessSuggested Answers

Unit Title: Introduction to Business

Unit Code: 4IB

QCF Level: 4

Session: December 2012

STRUCTURE OF PAPER: Answer BOTH sections

SECTION A: Answer ALL SIX questions Q1 –Q6 14 markseach

SECTION B: Answer ONE question Either Q7 or Q8 16 marks

TOTAL MARKS AVAILABLE FOR THE PAPER 100 marks



SECTION A

Candidates must answer ALL SIX questions in this section.

Section A is worth 84% of the total marks available for the paper.

Question 1

Q1

(a)

Distinguish between the corporate objectives and corporate strategies of a business.

Corporate objectives are the goals established for the whole organisation such as“appropriate example”

Corporate strategy is the plan devised in order for the organisation to achieve a specificobjective.

Maximum Marks for (a) 6 marks

Q1

(b)

Identify and explain four ways in which the commitment of a business to itsshareholders might conflict with its commitment to staff.

Candidates are expected to focus upon the overriding shareholder objective of profitmaximisation and how this might clash with other obligations. Rather than simplyproduce an exhaustive list a number of examples might include any of the following:

Profit ‘v’ Wages/Salaries paid Profit ‘ v’ Working Conditions Profit ‘ v’ Health and Safety Profit ‘ v’ Pension provisions/Fringe benefits

Maximum Marks for (b) 8 marks

Total Maximum Marks for Q1 14marks



Question 2

Q2

(a)

Define the term ‘primary sector ’.

Primary sector Involves the extraction and production of raw materials, such as coal,wood and steel.


Q2

(b)

Explain one advantage and one disadvantage for a business of operating as a soletrader.

Possible advantages include:

Total control of the business by the owner. Cheap and easy to start up – few forms to fill in and to start trading the sole

trader does not need to employ any specialist services, other than setting up a

bank account and informing the tax offices. Keep all the profit – as the owner, all the profit belongs to the sole trader. Business affairs are private – competitors cannot see what you are earning, so

will know less about how the business works and how it succeeds.

Possible disadvantages include:

Unlimited liability – a sole trader is responsible for all of the debts of thebusiness and their personal possessions may be at risk if the business fails.

Can be difficult to raise finance , because they are small, banks will not lendthem large sums and they will not be able to use any other form of long-termfinance unless they change their ownership status.

Can be difficult to enjoy economies of scale , i.e. lower costs per unit due tohigher levels of production. A sole trader, for instance, may not be able to buy inbulk and enjoy the same discounts as larger businesses.

There is a problem of continuity if the sole trader retires or dies – whathappens to the business next?




Q2

(c)

Identify and explain two differences between the services provided by the public sectorand those provided by the private sector. In each case, give reasons for your answer.

Candidates may take the following approach:

Example 1

Public sector organisations seek to provide services cheaply or free of charge whilstprivate sector organisations will look to charge a price that will enable them to make aslarge a profit as possible. This is because it needs to ensure that , rather than fulfil asocial objective for the wider community, it can maximise returns to its shareholders.

Maximum Marks for (c) 8 marks




Question 3

Q3

(a)

Define the term ‘business cycle’.

The business cycle shows the regular pattern of upturns and downturns of the level ofoutput in an economy over time.


Q3

(b)

Outline three effects upon a business of a downturn in the business cycle.

In a recession we would expect businesses that are adversely affected to observe thefollowing:

Falling demand due to consumers cutting back on expenditure. Low levels of capacity utilisation. Falling profit levels/losses being incurred. Falling levels of investment. Increased redundancies. Increased number of businesses closing down.


Q3

(c)

Identify and explain three external influences on a business.

Possible influences include: Interest rates; Exchange rates; Inflation; Unemployment; Government legislation; Technology; Environmental; Cultural; Moral; Ethical

Example – interest rates will affect a business because if they rise then it will increasethe amount of interest that they pay on loans and may reduce the profits of theorganisation.







Question 5

Q5

(a)

Define the term ‘primary market research’.

Primary market research is the gathering of ‘new’ data , which has not been used before.


Q5

(b)

Identify and explain one advantage and one disadvantage to a business associated withthis form of market research.

Possible advantages of PMR: Data can be collected that directly applies to the issue being researched Only that business can access that data which might give it marketing

advantages over rival firms

Possible disadvantages of PMR: It can be expensive to collect and may take longer than desk research The sample taken might not be representative

If the research method is flawed, the findings will also be flawed.


Q5

(c)

Explain how each component of the marketing mix might change between theintroductory stage and t he maturity stage of a business’s life cycle.

A possible approach to this question might be:

Introduction: For example, at the birth stage of a product the accent will be on productdevelopment as market research identifies any changes needed. Promotion willconcentrate on developing product awareness among the identified target market.Pricing strategy will be either "skim" pricing if the product is seen as innovative orluxurious or "penetration" pricing in order to gain rapid market share. Initially the productwill be "placed" in a limited geographical area or among a limited number of retail outletsin order to gain essential market feedback.

Maturity: Similarly at the mature stage the mix will change again as it seeks toencourage repeat sales from its loyal customers. Price discounts and special promotionsmay be used to hold on to market share and existing distributors. Firms will start toconsider extension strategies which might include developing a wider product range,entering new markets or changing the packaging. Once it is no longer profitable tocontinue production, advertising will cease and prices will be reduced to clear remainingstocks.





Question 6

WD Caravans Ltd makes mobile holiday homes and rents a factory on an industrial site in Cardiff.Each mobile home sells for £20,000. The production costs are as follows:

Rent = £260,000 Salaries = £200,000 Business insurance = £50,000 Advertising = £90,000 Materials = £2,000 per mobile home Labour = £6,000 per mobile home

Q6

(a)

Calculate how many mobile homes WD Caravans Ltd would need to produce to breakeven. Show your workings.

FC/(Selling Price – VC per unit)£600,000/(£20,000 - £8,000)BEP = 50 caravans

Maximum Marks for (a) 4 marks Q6

(b)

Calculate how much profit/loss would be made if 80 mobile homes were sold. Show yourworkings.

TR = £20,000 * 80 = £1,600,000 TC = £600,000 + (£8,000 * 80 ) = £1,240,000 Profit = £360,000


Q6

(c)

Identify and explain three potential problems that could lead to lower levels of sales that

those needed to break even.

Possible Reasons might include : Selling Price of the product – if the price of the product is deemed too expensive

at the market price then it might struggle to sell sufficient units to recoup theinitial financial outlay.

Change in economic conditions – if the product is a luxury item and the economytakes downturn then consumers might cut back on expenditure of a particularproduct, thereby preventing it from achieving its BEP.

Ineffective market research – if market research is inaccurate then the actualdemand for a particular product may be insufficient to recover the costs ofproduction.







There is doubt about whether performance-related pay actually does anything tomotivate employees. This may be because the performance element is usuallyonly a small percentage of total pay.

Merit payments are effectively permanent increases in salary, yet the quality ofperformance in future years may not justify this payment.

They are dependent on the quality of appraisal which can be arbitrary, subjectiveor inconsistent, especially when the appraisers have not been adequately trained

Maximum Marks for (b) 12marks




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IB-Dec 2012 Answers