Endorsed by

University of Cambridge
International Examinations
Contents
Introduction IV
Unit 1 The purpose of business activity 1
Unit 2 Types of business activity 5
Unit 3 Forms of business organisation 10
Unit 4 Government and economic infuences on business 14
Unit 5 Other external infuences on business 19
Unit 6 Business costs and revenue 23
Unit 7 Business accounting 27
Unit 8 Cash flow planning 32
Unit 9 Financing business activity 36
Unit 10 Organisational structure 41
Unit 11 Managing a business 45
Unit 12 Comn1unication in business 49
Unit 13 Motivation at work 52
Unit 14 Recruitment, training and human resources 56
Unit 15 Employee and employer associations 60
Unit 16 The 1narket and n1arketing 64
Unit 17 Market research 67
Unit 18 Presentation of information 70
Unit 19 The n1arketing mix: product and packaging 72
Unit 20 The marketing mix: price 76
Unit 21 The marketing n1ix: promotion 79
Unit 22 The marketing mix: place 83
Unit 23 Factors afecting production 87
Unit 24 Factors afecting location 91
Unit 25 Business in the international con1n1unity 95
Answers 99
Index 110
iii.
I ntroduct i on
How to use the study guide
This text has pritnarily been written to support students in their
study of Business Studies to I GCSE. It has been designed to
complement the IGCSE Business Studies textbook (Barrington
and Stimpson) . The units in this guide follow the chapters in
the textbook.
Please be aware, however, that the order of the units in the
textbook and this study guide and the order of the sections of the
curriculum content are diferent. Teaching progran1n1es do not
have to follow the order of either the curriculun1 content in the
syllabus or the textbook. Teachers may have used the schen1e of
work provided on CIE' s website, so again the order of the units in
this study guide will not be the same as the order of topics �n the
scheme of work, or the scheme of work provided on the CD-ROM
which supports the textbook.
IGCSE Syllabus - Curriculum Content IGCSE Study Guide Units
Busi ness and the envi ronment i n whi ch i t operates:
A - Busi ness acti vity
B - The organi sati on
C- Changi ng busi ness envi ronment
D - Economi c envi ronment
Units 1 , 2
Uni ts 1 , 2
Uni ts 4, 5
Units 1 , 2, 25
Busi ness structure, organi sati on and control :
A - Ownershi p and i nternal organi sati on
B - Fi nanci ng busi ness acti vi ty
Units 3, 1 0, 1 1 , 1 2
Uni t 9
Busi ness acti vity to achi eve obj ecti ves:
A- Marketi ng
B - Producti on (Operati ons management)
Uni ts 1 6, 1 7, 1 8, 1 9, 20, 2 1 , 22
Uni ts 6, 23, 24
C - Fi nanci al i nformati on and deci si on-maki ng Uni ts 7, 8
Peopl e i n busi ness:
A - Human needs and rewards
B - Manpower
Uni t 1 3
Unit 1 4
Regul ati ng and control l i ng busi ness acti vi ty:
A - Reasons for regul ati on
B - I nfl uences on busi ness acti vi ty
• iv
Uni ts 4, 5
Uni ts 4, 5, 1 5, 25
The IGCSE Business Studies exanlination has two question papers.
Paper 1 contains short-answer questions and structured questions based
on short pieces of information. The sklls being tested are n1ainly
knowledge with understanding and application, with fewer n1arks
awarded for analysis and evaluation. The questions on this paper carry
up to 8 marks, but most of the questions have 2, 3, 4, 5 or 6 n1arks
allocated. You will see in the diferent units in the study guide there
are these types of shorter-answer questions for you to practise.
Paper 2 has 9 business situation or probletn with questions
arising fron1 the case study. The skills being tested on this paper are
analysis and evaluation, but the questions will be asking for the
answer to be applied to the business in the case study. The
questions on this paper often carry 8, 10 or 12 1narks. Again, there
are questions in the diferent units in this book, which will help
you to practise answering these types of questions.
Introduction
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Section
Key objectives
Key defi niti ons
Sampl e questi ons and answers
Common mi sconcepti ons
and errors
Try thi s
Each unit in the study guide has the following fve sections :
What the secti on covers
Outl i nes the key objecti ves, whi ch
specify what you shoul d understand
or be abl e to do i

the exami nati on.
Summari ses the mai n terms or
defi niti ons you shoul d know for
the exami nati on.
Gi ves exampl es of student
answers, outl i ne mark schemes and
exami ner's marks and comments.
Gi ves some common mi stakes
made by students i n exams.
Has exami nati on questi ons for
you to answer.
How to use the section
These l i sts can serve as a checkl i st of
your progress in each topi c.
These are onl y summari es ( i n the
form of a tabl e or di agram) and for
more detai l ed expl anati on you
shoul d add to these from your
textbook or cl ass notes.
Cover up the exami ner' s marks and
comments and see what mark
you woul d have gi ven the answer
before you l ook at the actual mark
that was gi ven. Thi s wi l l hel p you
understand what i s requi red for
ful l marks.
Answer the questi ons. The answers
secti on at the back of thi s revi si on
gui de wi l l hel p you to check the
marks your answer woul d have
recei ved.
This study guide contains the necessary support for the
attainment of the highest grade. I t can be used on its own or in
combination as follows:
• to con1plen1ent the I GCSE textbook and CD-lZOM
• at the end of each topi c, to provide reinforcetnent and
assessn1ent
• to prepare for the I GCSE exan1ination.
If you want to get the maximum value fro1n this book, it is
strongly advised that you attempt to answer all the questions on
paper and not in the book. Then you can repeat the exercises at
intervals throughout the course.
We hope you fnd this book a useful resource in your study of
IGCSE Business Studies and that it assists you in gaining a
commendable grade.
What examiners are looking for
Most Business Studies exan1ination papers are testing four diferent
skills . These are:
• knowledge with understanding
• application
• analysis
• evaluation.
Knowledge with understanding. This is tested with the type of
question that asks you to explain a particular tern1, for exatnple,
' What is 1neant by market segn1ent?' These are the type of questions
where you will need to have revised the tem1s or defnitions of the
ve
INTRODUCTION
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
e vi
diferent topics. You need to be able to write down what they n1ean
clearly and accurately if you are to gain n1axin1un1 nurks. With
thorough revision of the defi nitions section and supporting notes it
will be relatively easy to acquire n1ost of the n1arks for these
questions. Unfortunately, ony about a quarter of the marks across
the whole papers will be for knowledge with understanding.
The type of command words which are testing this area are:
Describe . . . , State . . . , List . . . , Outline . . . , What is tneant by . . . ,
Give . . . , Defne . . . , Identif . . . , Name . . o
Application. This means the exanuner is testing whether you can
apply your answer to the business given in the examination, for
example, 'What do you think the business in the case study could do
to increase sales?' Your answer must not just be a general explanation
of how a business could increase sales, but how this specifc business
could increase sales. If you don' t try to think in tem1s of the business
given, you will lose a quarter of the marks across the whole
examination papers. So this is a very important skill .
When you look at the revision questions in this book, you will
see that there are many mini case studies outlined before the
questions themselves so that you can practise this skill of answering
in the context of the particular business.
The type of command words which are testing this area are:
Explain how this business . . . , Why might company x . . . , Give an
example from the case study to . . . , Why n1ight cotnpany Z. . u , Fron1
the case study outline . . .
Analysis. The skill of analysis involves being able to select
information from text, tables, graphs, diagran1s or drawings. You
should be able to arrange information in order to 1nake sense of it, for
example, this could involve graphing infom1ation provided in a table.
You must be able to analyse what information is being shown, for
example, if the information shows an upward trend in the business
performance. Or you must be able to exanune the implications of a
suggested idea or strategy.
There are

evision sections thoughout this book that contain
questions that give you practice of this skill .
The type of command words which are testing this area are:
Analyse CO factors . . . , Explain why . . . , Using accounting ratios,
analyse .. . , Examine why the business . . .
Evaluation. This skill requires you to draw conclusions, n1ake
judgements or make recommendations, but they must be justifi ed
to ensure the marks are achieved, for exan1ple, ' Which would be
the best form of fi nance for this business to use to pay for the
expansion of its factory?' The question does not just test evaluation
but also tests knowledge with understanding, application and so1ne
analysis . The mark scheme will refl ect the diferent skills being
tested and reward then1 accordingly.
Revision sections throughout this book contain questions that
give you practice of this skill. Exanuner's tips will also indicate
where you need to include evaluation in your answers.
Introduction
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
The type of con1mand words which are testing this area are:
Discuss . . . , Justif . . . , Consider. . . , Decide . . . , Which . . . , Evaluate . . . ,
Why do you think . . . , To what extent . . . , Do you agree . . . ,
Advise . . . , Assess . . . , Recomn1end . . .
Î
As you work through the questions in this study guide, try to think
about which skills the examiner is testing. For example, if the
examiner is testing evaluation by asking if you agree with a
particular proposal, then you must make judgements in your
answer, so you should agree or disagree and explain why, otherwise
you will not gain the higher marks.
Preparing for the examination
Duri ng the course
Preparing for an external examination is a continuous process
throughout the course. Al the activities, lessons, homework and
assignn1ents are major factors in detennining your fnal
examination grade, so the frst piece of advice is to suggest that you
work steadily throughout the one or two years of the course. It is
essential that you prepare thoroughly for internal school
examinations then, as you approach the I GCSE exan1ination and
start your revision programme, the topics will be familiar and the
learning process will be less stressful and more productive.
Revision should be what it says, refreshing your men1ory of what
you need to know and be able to do for the exan1ination; it should
not be learning something for the frst time.
Make sure that your notes are up to date. If you n1iss work
through absence either copy it from a friend or leave û con11nent
in your notes that will remind you to refer to the topic in a
textbook. Similarly, look at any hon1ework you have missed and if
it involves the reinforcement of skills or concepts, then it would be
a good idea to complete i t.
In sun1mary:
• work throughout the course
• ensure that your work is both complete and accurate
• learn the topics for tests and internal exan1inations
• seek assistance if you fi nd an aspect of the course difcult.
Revi si on ti ps
• Divide your time so that you revise a section or topic at a ti1ne.
You could do one unit from this guide at a tin1e or you could
group units together into the topic areas, for exa1nple, n1arketing
would include Units 1 6 to 22.
• Learn the terms, concepts, facts, etc. thoroughly. Precise and
clear answers are more likely to gain full nurks . Vague answers
may get son1e credit, but they are more likely to lose you n1arks .
• When you have learnt a particular topic practise answering the
questions at the end of the units to test if you have learnt all the
vii e
INTRODUCTION
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• viii
information thoroughly. Pay particular attenti on to n1aking sure
you explain in detail .
Revi si on techni ques
Well in advance of the examination, produce a revision tin1etable for
all your subj ects. Be realistic - you must include time for relaxation
and socialising. Then create a more detailed timetable for Business
Studies to cover al the topics . Ideally, you ought to go through the
complete course twice. Keep a checklist of the topics studied - it is
encouraging to have a visual record of your progress.
It is useful to have a syllabus, but not essential as this book
includes all the inforn1ation required for I GCSE Business Studi es.
You will need a quiet room at a co1nfortable ten1perature, plenty
of paper and a pencil or biro. Some students fnd using highlighter
pens helpful. On occasions revising with a friend 1nakes a welcon1e
and useful change. You will have to discover for yourself the
length of time for which you can proftably study. This is a very
individual characteristic and can vary fro1n person to person - it
may be as little as 30 minutes or over an hour. Do not exceed your
optimum study time, break up the available time into study
sessions and breaks. I ntroduce ' rewards' - when I have fnished this
section of work I will . . .
Revision must be active, s o do not believe that just looking at a
book is an efective way of learning. Your eyes can go over the
words but the meaning never enters your brain! You can nuke
fash cards that have bullet lists of essential points. You can study
the topic for several minutes and then close the book and write out
what you can ren1ember - do not take great care over presentation
- then check your account against the book. Repeat until you
have most of the i nformation correct, then move on to another
section of the work.
This is the 'look, cover, write and check' technique and it is very
efective for the majority of students. It is crucial that you repeat this
technique on the same topic at least once, but preferably twice, soon
after your frst attempt, i . e. either later the san1e day or the next day.
Once you have acquired a reasonable knowledge of the course, it
is time to extend the revision to practising on past papers. This is a
n1ost valuable form of preparation because not only does it provide a
test of the efectiveness of your revision but it also provides an
insight into what to expect in the ' real' examination. You need to
practise the skills of application, analysis and evaluation. This requires
you to look at case studies to answer questions. Paper 2 practice
questions, in particular, will develop these skills but Paper 1 will ask
questions in a business context and also develop these skills.
How to approach the exami nati on
I f your Centre or school has provided a detailed exan1ination
tin1etable, highlight your examinations and put this ti1netable in a
pro1ninent place in your home. Ask one of your parents to check
with you each day so that you don' t n1iss an examination.
Introduction
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Collect together the correct equipn1ent the night before -
pencil, pencil sharpener, eraser, ruler, calculator (are the batteries
OK?) and two blue/black pens (in case one runs out) .
Leave hon1e in plenty of ti1ne. If you are late, you will not be
given extra tin1� and under certain circun1stances you will not be
allowed to enter the examination room. The regulations vary
depending on the Examination Board. Do not put yourself at a
disadvantage.
Advi ce for when you are about to take your
external exami nati ons
• Make sure you know t he examination instructions. Read then1
on the front cover and obey then1. Answer all the questions in
the examination as there is no choice given.
• Read each question carefully and pay particular attention to the
command words. Highlight or underline the key words i n the
question. Make sure you obey the con1n1and word, for exan1ple,
if the question says ' state two examples' then don't explain
them, but if it says ' explain . . . ' then n1ore than a si1nple
statement is needed.
• Make sure you read a case study carefully and apply your
answers i n the context of the case study. This is especially
important in questions where you are specifcally asked to do so.
• Use all the information provided i n the case study. Read the
information carefully and underline key points.
• Do not repeat the sa1ne answer i n diferent sections - you do
not usually gain double credit.
• Use the nun1ber of n1arks available for a question as a guide to
the nun1ber of points needed if you are not told how 1nany to
include. Do not write a detailed answer to a question which is
only worth 2 marks. However, if 1nore marks are available then
a detailed explanation will be needed. For questions using the
comn1and words for analysis and evaluation then fewer points
will be required, but more in-depth discussion will be needed
for the highest marks.
• Make sure you understand how to achieve the higher levels OI a
question where a level response 1nark schen1e is used. These are
usually the ones that are using the con1n1and words for analysis
and evaluation and carry a relatively large nutnber of marks, tor
exatnple, 6, 8, 1 0, 1 2 marks. (Your teacher can explain this to you. )
• Be aware of the time available. Use your tin1. e wisely and don't
spend a lot of time trying to answer questions you are not sure
about. Answer the questions you are n1ore confdent in
answering and go back to the other questions at the end of the
examination. Also, if you have fnished the exan1ination before
the end then re-read your answers and t1y to add to then1. If
you run out of space then fll any space underneath the question
or answer on spare paper.
• Make sure the correct equipn1ent is brought to the ex�u nination,
such as pen, rul er, pencil , eraser and cal cul ator.
ix •
INTRODUCTION
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
ex
After the exatnination the papers are sent to the exatniner allocated
to your Centre. This exatniner will be part of a teatn headed by a
Principal Exan1iner. All the n1en1bers of the exatnining teatn will
look at a sample of their scripts and assess the range of candidates'
responses to each question. About a week after the examination,
the team will meet to co-ordinate the marking for each question
and decide the range of responses that are acceptable. During the
n1arking period, the Principal Examiner will sample the marking of
each examiner, at least twice, to ensure con1parability of n1arking
across the team. The scripts and the marks are returned to the
Examination Board where the minin1um mark for each grade is
decided. A few weeks later you are informed of your grade.
How to i mprove your grade
Here are a few tips:
• Use this book. I t was written to help students attain high grades.
• Learn all the work. Low grades are nearly always attributable to
inadequate preparation. If you can recall the work, you will
succeed and if you cannot, you will fail. Harsh, but true.
• Practise the skills necessary to be successful including calculations
and interpretation of graphs.
• Make sure you can explain your answers in detail and do not
make simple statements unless a question asks you for a simple
statement.
• Use past papers to reinforce revision, to become fatniliar with
the type of question, and to gain confdence.
• Answer the question on the examination paper - do not regard
a question as an invitation to write about the topic.
Finally, good luck!
NI T 1 The pu r pose of
bus i ness acti vi ty
Key objectives • To understand what is n1eant by scarcity
Key definitions
Unl i mited human wants
e To know what is meant by the economic problem
e To apply the idea of opportunity cost to a nu1nber of diferent
situations
e To explain why specialisation is important in modern businesses
e To understand the nature of business activity and the groups
involved in it
The economic problem i s caused Scarcity of factors of
by the scarcity of resources producti on: l and, l abour,
..
(factors of production) compared � capi tal and enterpri se
Scarci ty results i n opportuni ty
cost. When choi ces are made,
the next best thi ng gi ven up i s
cal l ed the opportunity cost
1
You have $ 1 0 and want to buy
both a DVD and a j acket. I f you
buy the j acket, the DVD i s your
opportunity cost
Term
Speci al i sati on
Di vi si on of l abour
Busi ness objectives
Val ue added
Stakehol ders
to human wants
Defi niti on
Where resources are used to
concentrate on produci ng one
parti cul ar product.
Each worker does one speci al i sed job.
The targets or ai ms that a busi ness i s
worki ng towards.
The di fference between the sel l i ng
pri ce of a product and the cost of
the bought-i n materi al s needed to
make it.
Groups of peopl e with a di rect
i nterest in the performance of a
busi ness.
Land- i ncl udes al l natural
resources
Labour- the number of peopl e
abl e to work
Capital- man-made resources
such as machi nes that ai d
producti on
Enterpri se- peopl e prepared to
take ri sks by starti ng busi nesses
Exampl es
Countri es speci al i se, e. g. Qatar
i n oi l producti on. Labour wi thi n
a fi rm can speci al i se, too.
I n a computer assembl y factory each
worker wi l l perform a speci al i st task.
I ncrease profits, i ncrease sal es,
survi ve. Objectives can di ffer
between busi nesses. The obj ecti ves
of any one busi ness can change over
ti me, e. g. survival at start- up and
profits once i t i s establ i shed.
I f a fi rm sel l s a product for $ 1 5, but
the materi al s that were bought i n
from other fi rms onl y cost $6,
then the val ue added is $9.
Workers, customers, consumers,
sharehol ders, resi dents, government,
banks. These groups often have
di fferent objecti ves for the busi ness.
1 •
UNIT 1
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Sample questions and answers
• 2
Satnple question The ARC Cotnpany produces and sells costnetics for won1en and
girls. The con1pany is owned by a brother and sister. They wanted
to tnake more n1oney than they were earning in their old j obs.
Although profi table, business sales have fallen in recent years. This
is causing nuny stakeholder groups to worry about the future of
the business. The owners are very keen for the business to
continue. Sales are falling due to new con1petition in the n1arket
with exciting new products, so ARC tnust cut production costs to
survive. The con1pany has bought expensive new tnanufacturing
equipment which is very specialised. Fewer workers are needed
and they perform the same tasks each day and some workers have
left because they are bored. Production has fallen as a result of this
and ARC cannot supply all of the shops.
Marks
Student's answer
Examiner's marks
and comments
The marketing director is keen to increase the value added of
the cosmetics. One product - the ' Bella' perfun1e - currently sells
for $7. It is made from soap bought in by the business at a cost of
$2 per item. The director believes that by designing new luxury
packaging for the product, value added could be increased.
a) How do the business' s obj ectives seetn to have changed
recently?
[5 tnarks]
1 mark for explaining what a business objective is; 2 marks for identifying
and explaining the original objective; 2 marks for idetztifying and
explaining the more recent objective.
Most businesses have obj ectives that they ain1 for. The objective of
this business is to survive. It has a lot of new cotnpetitors and sales
are £1lling. Stakeholders are worried that the business n1ight not
survive so this is now the business' s obj ective.
The student understands that objectives are tmgets to ai m for - 1 mark.
The answer states that the latest objective is probably survival a11d explains
why - 2 marks. However, there is no attempt to identify or explain the
oriinal objective that seems to have been prof it. 3 I 5 marks.
b) Explain the advantages and disadvantages of using division of
labour for this business. [7 marks]
Marks 1 mark for explaining division oflabour; 3 marks for explaining two or
more advantages for this business (maximum 2 marks i no rierence to this
business); 3 marks for explaining two or more disadvantages for this
business (maximum 2 marks if no rierence to this busi11ess).
Student's answer Division of labour is where a product is n1ade by workers
specialising on one stage of production each. The new machinery
that ARC bought allowed the business to use division of labour.
This n1eans that each worker does what they are best at. This
should increase output and itnprove quality. ARC should benefi t
from lower costs and this will help the business survive. However,
division of labour does have its problems. The work can be boring
as workers are only doing one j ob all the tin1e .
The purpose of business activity
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Tr to mark this yoursel - the examiner's marks a11d COI/11/lCilfs arc 011
page 99.
c) Assume that the marketing director bought in new packaging
for the Bela 1erfun1e. This costs an extra $1 per uni t. She
increases the selling price by 20%. Calculate the new value
added of this product. [ 3 marks]
Marks If the candidate calculates the correct answer of$5.40 ¯ 3 marks even with
no working; i new bought-in costs of$3 is stated ¯ 1 mark; if uew selli11g
price of$8.40 ¯ 1 mark; i formula o value added is correctly given ¯ 1
mark.
Student's answer Value added ¯ selling price less bought-in costs
¯ $7 7 20% less $3
¯ $8. 40 less $3
¯ $5. 40
Examiner's marks 3 marks - well done!
and comments
d) Evaluate any one alternative method that the nurketing director
could use to increase the value added of this product. lS n1arks]
Marks 1 mark for identiying one other method; 2 marks for cxplai11ing hou' it
might increase value added; 2 marks for evaluatil lg this method.
Student's answer To increase value added, the nurketing director could keep the
price the san1e but lower bought-in costs. Cheaper rnaterials could
be bought in for the perfun1e so that it does not cost so n1uch to
make. This will mean that value added fron1 each bottle of
perfume will rise.
However, cheaper materials rnight lead to lower quality. I t
n1ight n1ake the perfume sr11ell diferently. This could lead t o fewer
sales of the product. If consumers are looking for a quality product
in this market then sales could be hit badly.
Tr t o mark this answer yoursel - the examiner's marks and comments
are on page 99.
Common misconceptions and errors
Error
' More money wi l l solve the
economi c probl em. '
' Stakehol ders are the same
as sharehol ders. '
'Val ue added i s the profit made
on each uni t. '
Why it i s wrong
The economi c probl em results from
scarci ty of resources rather than
money.
Sharehol ders are j ust one group of
stakehol ders - there are other
groups, too.
Val ue added i s not profi t as onl y the
cost of bought-i n materi al s/
components have been subtracted
from the sel l i ng pri ce.
3 .
UNIT 1
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 4
e Try thi s A new pl asti cs factory i s t o be bui lt i n your country. I t wi l l empl oy many
workers and wi l l export some of i ts output to other countri es. I t wi l l be bui lt
on farml and several ki l ometres away from the mai n city. Other pl astics
busi nesses are worried about the competiti on i t wi l l bri ng. I t coul d lead to
l ower pri ces for pl asti c products. Local resi dents have mi xed feel i ngs about
the pl an. The factory wi l l use speci al ised equi pment to al l ow for di vi si on of
l abour.
a) I denti fy four stakehol der groups that wi l l be affected by the pl an to
bui l d thi s new factory. [4 marks]
b) Di scuss how two of these groups mi ght be affected by the new factory.
[8 marks]
Examiner's tip
/ You ought to try to think of how stakeholders might be affected in
both positive and negative ways.
c) Assess the effect on workers of usi ng di vi si on of l abour i n the
new factory.
Examiner's tip
/ Define division of labour and consider both advantages and
disadvantages to workers .
[8 marks]
NI T 2 Types of bus i ness
acti vi ty
Key objectives • To know the diference between the three stages of
production: primary, secondary and tertiary
e To understand the diference between the private and public
sectors of industry
e To explain the diferences between horizontal , vertical and
congl omerate mergers and takeovers
e To understand the diferent ways of measuring business size
e To explain why some businesses remain small
Key definitions Types of business mergers and takeovers (integration) - an exan1pl e
from the oi l industry:
Horizontal i ntegrati on
wi ll offer more
economi es of scale and
reduces average costs
Conglomerate
i ntegrati on i s also
known as di versifi cati on
Term
Pri mary producti on
Secondary producti on
Tertiary producti on
De-i ndustri al i sation
Verti cal i ntegration backwards is
wi th a busi ness in the same
i ndustry but at a di fferent stage of
producti on: towards the raw
materi al, e. g. i ntegrati on wi th
Asi a Oil Fi elds pic
Acme Oil pic could
i ntegrate wi th other
busi nesses in the
followi ng ways:
Verti cal i ntegrati on forwards i s
wi th a busi ness i n the same
i ndustry but towards the
consumer, e. g. i ntegrati on with
Egypt Petrol Stati ons pic
Defi niti on
I ndustri es that extract and exploi t
the natural resources of the earth.
I ndustri es that manufacture goods
made from the raw materi als
provi ded by the pri mary sector.
I ndustri es that provi de servi ces to
consumers and other sectors
of i ndustry.
Relati ve decl i ne in the i mportance
of a country's secondary
( manufacturi ng) sector.
Exampl es
Congl omerate
i ntegrati on is wi th fi rms
i n a di fferent i ndustry,
e. g. i ntegrati on wi th
Nami bi a Dri nks pi c
Hori zontal i ntegrati on
i s wi th a busi ness i n the
same i ndustry at the
same stage of
producti on, e. g. Astra
Oi l pi c
Mi ni ng, agri culture, forestry and
fi shi ng.
Car producti on, computer assembly,
food canni ng and steel maki ng.
Travel agents, banki ng, i nsurance,
health servi ces and transport.
Most advanced i ndustri ali sed
economi es are experi enci ng thi s.
5 .
UNIT 2
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Term
Publi c sector
Private sector
Free market economy
Planned economy
Mi xed economy
Privati sati on
Capital -i ntensi ve
busi nesses
labour-i ntensi ve
busi nesses
I nternal growth.
External growth
Defi niti on Exampl es
The sector of the economy i n whi 'h I n most mi xed economi es, heal th
organi sati ons are owned and servi ces and rai l way servi ces are i n
control l ed by the state (government) . the publ i c sector.
The sector of the economy i n whi ch
organi sati ons are owned and
control l ed by i ndi vi dual s.
Al l resources are privatel y
owned. Pri ces are determi ned by
suppl y and demand.
Al l resources are owned by the
government, whi ch al so takes
al l maj or economi c deci si ons.
Has both a pri vate and a
publ i c sector.
The sal e of state-owned assets such
as publ ic corporati ons to the
pri vate sector.
Use a hi gh proporti on of capi tal
equi pment to produce thei r output.
Use a hi gh proporti on of l abour
to produce thei r output.
Busi ness growth achi eved by
expandi ng the exi sti ng busi ness.
Busi ness growth achi eved by mergi ng
wi th or taki ng over other busi nesses.
I n most mi xed economi es, retai l i ng
and farmi ng busi nesses are i n the
pri vate sector.
There are no ' pure' free market
economi es but the USA and South
Korea, for exampl e, have very l arge
pri vate sectors compared
to the whol e economy.
Former communi st countri es i n
Eastern Europe had pl anned (or
command) economi es.
Nearl y al l countri es have mi xed
economi es, but the bal ance
between pri vate and publ i c sectors
is not al ways the same.
I n many countri es, for exampl e, the
UK and Germany, water, tel ephone
and el ectri ci ty i ndustri es have
been pri vati sed.
Nucl ear power pl ants, l arge
automated car factori es.
Fruit pi cki ng, private school s,
cal l centres.
Retai l er openi ng a new shop, car
factory extendi ng to rai se capacity.
Hewl ett Packard taki ng over
Compaq computers, Chrysl er
mergi ng wi th Dai ml er.
Sample questions and answers
• 6
Sample question The main airline in Country X, Airco, is owned and 1nanaged by
the central government.
Marks
Student's answer
Examiner's marks
and comments
a) The government decides to privatise this airline. Explain what
this means. [2 n1arks]
Up to 2 marks for brief explanatio11 .
This means that the government will sell the public sector airline
to the private sector, perhaps to an existing private sector airline
company.
Full marks for clear understanding - there was no 11eed to add 'erhaps to
a11 existing pritJate sector airline company' but it was a good development.
b) Which sector of industry is this business in? Justif your answer.
[2 111arks]
Marks 1 mark for tertiary a11d 1 mark for brief explmwtion .
Types of business activity
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Student's answer The airline is in the secondary sector as it produces fights for
passengers .
Examiner's marks
and comments
Marks
Student's answer
Examiner's marks
and comments
Marks
Student's answer
Examiner's marks
and comments
No, this is wrong so no marks. Airlines provide trmz�port services to people
and businesses so it is in the tertiar sector.
Ï
c) Briefy analyse one argument for and one against the
privatisation.
Up to 2 marks for each mument.
[4 tnarks]
By privatising the airline, the government will force it to becon1e
more efcient. It will have to cotnpete with other airlines and will
no longer be supported by the governn1ent. However, son1e fl ights
rnight be stopped if they do not make enough proft. This will be a
problem for the people afected.
Full marks as there are two clear arguments - one for and one a, �ainst.
The student has not wasted any time - the explanations are short and clear.
d) An existing private sector airline, Airgroup, is i nterested in
buying Airco from the government. This integration would
make a much larger business. It would be one of the largest i n
the industry. The government is asking a high price for Airco
and some staf do not want to leave the public sector.
i) If this integration went ahead, would it be vertical,
horizontal or conglon1erate? Explain your answer. [3 n1arks]
1 mark for horizontal and up to 2 marks for explanation.
This would be horizontal integration. This is because the two frms
both provide services and are in the satne industry.
2 marks for this answer because the explanation lacked detail - i t should
have gone on to say cthey are at the same stage of providing airline serices'.
ii) Do you think it is likely to be a good idea for Airgroup to
integrate with Airco? Justif your answer. [8 rnarksl
Marks Up to 3 marks each for two explained advanta, �es applied to this lmsilzess
(maximum 1 mark each if not applied) plus 2 marks for some jlldjement
or evaluation.
Student's answer Airgroup might beneft in several ways frorn this takeover. It will
reduce the number of competing airlines. This will reduce
competition. Airgroup might be able to increase its prices because
of this. Also, it might be able to buy aircraft more cheaply as there
might be economies of scale because the frn1 is now much larger
than before. So Airgroup will, therefore, defnitely beneft frotn
this takeover.
Tr to mark this yoursel - the examiner's marks and comments are on
page 99.
7 .
UNIT 2
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 8
Common mi sconcepti ons and errors
Error
' Organi sati ons in the publ i c sector
i ncl ude publ i c l i mited compani es. '
'There i s both backward and forward
hori zontal i ntegrati on. '
' Profits are a good way of
compari ng the si ze of busi nesses. '
Why i t i s wrong
Publ i c l i mited compani es are i n the
private sector of i ndustry (see Unit 3).
Hori zontal i ntegrati on i s j ust
between two fi rms at the same stage
of producti on i n the same i ndustry;
verti cal i ntegrati on can be ei ther
backwards or forwards.
Profit l evel s can vary greatl y between
compani es even i f they are of si mi l ar
si ze i n terms of workers, capital, etc.
Profits are not a good way of
compari ng busi ness si ze.
e Try thi s The tabl e bel ow shows some data for three shoe manufacturers i n 2005.
Sales turnover (Sm) Capital employed ($m) Workers employed
Company X 1 60
Company Y 1 00
Company Ï 50
a) Whi ch is the l argest busi ness:
i) i n terms of sal es?
i i) i n terms of capital empl oyed?
35
4
1 0
1 , 500
2, 500
700
[ 1 mark]
[ 1 mark]
b) How woul d you expl ai n the hi gh number of workers empl oyed by
Company Y yet the rel ati vel y l ow sal es compared to Company X?
[4 marks]
c) Company Z has not expanded i n recent years. Expl ai n any two possi bl e
reasons why thi s busi ness remai ns quite smal l . [ 4 marks]
d) The di rectors of Company X are pl anni ng to take over a l eather suppl i er.
Thi s wi l l cost $ 1 Om. The di rectors expect the busi ness to gai n great
advantages from thi s i ntegrati on.
i) What type of i ntegrati on i s thi s? Expl ai n your answer. [3 marks]
i i) Analyse two possi bl e benefits to Company X from thi s i ntegrati on.
[4 marks]
e) The di rectors of Company Y are pl anni ng a merger wi th a chai n of retai l
s hoe shops. These shops currentl y s el l a wi de range of shoes from
different manufacturers. Whi ch sector of i ndustry do the fol l owi ng
busi nesses operate i n?
i ) The shoe manufacturer, Company Y.
i i) The retai l shoe shops.
I n each case, expl ai n your answer bri efl y . [4 marks]
Types of business activity
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
i i i ) Anal yse one possi bl e benefi t to Company Y resul ti ng from thi s
i ntegrati on. [ 5 marks]
f) Do you thi nk shoe retai l ers shoul d be in the publ i c or pri vate sector
in your countr
¥
? J ustify your answer. [5 marks]
Examiner's tip
/ Define both sectors and then explain your opinion.
ge
NIT 3 Forms of bus i ness
orga n i sati on
Key objectives • To understand the diferences between lilnited and unlin1ited
liability businesses
e To know the reasons why business owners choose to use
diferent forms of business organisation
e To explain the diferences between organisations in the private
sector and organisations in the public sector
e To explain the advantages and disadvantages of all of these
diferent forn1s of business organisation
e To evaluate these forms ofbusiness organisation in diferent
circumstances
Key definitions
Sole trader: a busi ness owned and Partnershi p: a busi ness owned by
operated by one person 2-20 peopl e
I
Types of busi ness organi sati ons
I
Publ i c l i mi ted company: a busi ness Pri vate l i mited company: a
owned by sharehol ders that can busi ness owned by sharehol ders
sel l shares to the publ i c through
Publ i c corporation: a busi ness
whi ch cannot sel l shares thro. ugh
the Stock Exchange.
owned and control l ed by the
the Stock Exchange
Remember: publ i c l i mited
state - al so known as
compani es are in the private
nati onal i sed i ndustry.
sector
Term
Li mited l i abi l ity
Arti cl es of Association
Memorandum
of Associ ation
Annual General
Meeti ng (AGM)
Co¯operati ve
Franchi se
• 10
Remember: publ i c corporati ons
are i n the publ i c sector
Defi niti on
The l i abi l ity of the owners for the debts
of the busi ness i s l i mited to the owners'
i nvestment.
A l egal document that must be
compl eted before a busi ness i s given
company status. I t provi des detai l s of the
i nternal rul es of the company.
A l egal document that must be
compl eted before a busi ness i s gi ven
company status. I t provi des i mportant
i nformati on for sharehol ders.
Compani es must hol d these each year.
An organi sati on run by a, group of
peopl e, each of whom has a fi nanci al
i nterest i n i ts success and a say i n how
i t i s managed.
A busi ness that uses the name,
promoti onal l ogos and tradi ng methods
of an exi sti ng successful busi ness.
Exampl es
Sharehol ders i n al l compani es have l i mi ted
l i abi l ity.
The i ssui ng of shares and the ri ghts and
duti es of di rectors.
The name, address, regi stered offi ce and
i ssued capi tal of the busi ness. The obj ectives
of the busi ness are al so stated.
Al l sharehol ders have t he ri ght t o attend and
vote on whi ch di rectors shoul d run the
company.
Farmers i n many countri es operate as a
co-operati ve to sel l thei r produce.
McDonal ds, Pi zza Hut and Body Shop - most
of thei r outl ets are franchi ses owned by
di fferent peopl e .
Forms of business organisation
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Sample questions and answers
Sample question Rashid has j ust left school. He wants to set up his own business as
a gardener. Rashid wants to be able to control his own working
life. He has very few savings - just enough to buy tools. He
believes that he will need extra fnance.
a) Briefy explain two benefts that Rashid could gain from setting
up his own business . [4 marks]
Marks 1 mark for each beneit plus a further 1 mark each for some explmzation.
Student's answer If Rashid set up his own business, he would be working for
hin1self He could take all of his own decisi ons and vvould be
independent. This seems to be important to hin1.
He could keep all of the profts from the business. This will
encourage him to work hard to n1ake his business a success .
Examiner's marks Full marks - two points made with brie explanation.
and comments
b) What forn1 of business organisation would you recon1n1end
Rashid to use? Explain your answer. [5 n1arks]
Marks 1 mark for corect identication ofappropriate b11siness fonn (or example, sole
trader but accept partnership and private limited company i these are
explained); 2 ? 2 marks for two points well developed a1Ul applied to Rashid.
Student's answer I would advise hin1 to beco1ne a sole trader. These businesses are
easy to set up with no expensive legal costs. There are no other
owners, so all decisions can be taken by the owner.
Examiner's marks
and comments
1 mark for referring to sole trader plus 2 marks for two adIaltages ,�ivcn.
However, these are not applied to Rashid at all. For example, the sfl/{lent
could have reerred to Rashid's lack offinance (he may want to avoid legal
costs) and his wish to take his own decisions. Theriore, no applicatio11
marks. Total ¯ 3 I 5 marks.
c) Outline two other sources of fnance that Rashid could use apart
fron1 his own savings. [4 n1arks]
Marks 1 nwrk for each appropriate source plus 1 extra mark j{>r each ex
p
lanation
in the context of Rashid's business.
Student's answer If Rashid does set up as a sole trader, he will have few sources of
fnance. He could ask a bank for a loan, but he will need to
convince the bank that his business plan for gardening services is a
good one. Once he has started working, he could use any profts
that he nukes to fnance the business, but at the start there would
not be any.
Examiner's marks
and comments
Full marks as two sources arc identiied and explained in terms '�{Rashid's
new business.
1 1 •
UNIT 3
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 1 2
d) After several months, Rashid has too much work! His business
has been very successful in attracting new custon1ers. He also
has much work to do in his ofce such as keeping accounts and
ordering supplies. A friend of Rashid' s, Sahnan, is keen to
become a partner and is taking accounting examinations, but he
does not enjoy manual work. Salman has ofered to invest some
of his savings into the business so that sotne tnodern garden
machinery can be bought. This would save Rashid a lot of titne
on some j obs.
Would you advise Rashid to take Salman as a partner in his
business? Justif your answer. [8 n1arks]
Marks 2 marks for content ofadvantages/disadvantages ofpartnership; 2 marks
for applying to Rashid's case; 2 marks for analysing at least one point in
detail; 2 marks for discussion showing judgement.
Student's answer If Rashid took Salman as a partner, he could share some of the
work of running the business . Salman could do the accounts and
Rashid could concentrate on the gardening. Sahnan could also put
capital into the business. This would allow Rashid to buy
equipment which would help him in his work.
However, Rashid would no longer be in full control and that is
what he wanted. He would probably have to ask Saln1an before
making big decisions, which would slow the process down.
I think that Rashid should take Sahnan as a partner. · The
business will then expand, but they should sign a Deed of
Partnership to reduce the chance of argutnents.
Tr to mark this yoursel- the examiner's marks and comments are on
page 1 00.
Common mi sconcepti ons and errors
Error
' Sol e traders can never empl oy
other workers. '
'Al l partners have to work i n
the busi ness. '
'A l i mi ted company can sel l shares
through the Stock Exchange. '
' Publ i c l i mited compani es
are in the publ i c sector of i ndustry. '
Why i t i s wrong
The ownershi p and busi ness control
are i n the hands of one person -
thi s does not stop the sol e trader
from empl oyi ng additi onal staff.
Some partners can choose to take
an acti ve part i n control of the
busi ness - thi s wou l d need to be
made cl ear in the Deed of
Partnershi p. You can al so have
sl eepi ng partners.
Onl y publ i c l i mi ted compani es (pi c)
can do thi s; private l i mited
compani es (Ltd) are restri cted i n
who they can sel l shares to.
Al l pri vate and publ i c l i mi ted
compani es are in the pri vate
sector owned by pri vate i ndi vi duals;
publ i c corporati ons are owned by
the government and are i n the
publ i c sector .
Forms of business organisation
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
e Try thi s The growth of Onyema' s cl eani ng busi ness had surpri sed hi m. Starti ng j ust
three years ago wi th a bucket and some sponges, he had offered cl eani ng
servi ces to l ocal shops and offi ces. Withi n two months he had taken on
three staff and hi s si ster, Olena, as a partner. Further orders came fl oodi ng
in from a wi de range of busi nesses. Onyema and hi s si ster deci ded one year
ago to set up a private l i mi ted company. L and L Cl eani ng Ltd sounded
i mpressi ve and i t meant that the busi ness woul d survi ve the death of ei ther
Onyema or Ol ena. They were keen to control thei r own busi ness. However,
they had further expansi on pl ans. They wanted to set up franchi sed
busi nesses i n al l regi ons and woul d suppl y the company name, l ogo,
trai ni ng and some cl eani ng equi pment. Thi s woul d need additi onal fi nance.
The company accountant advi sed that the busi ness shoul d become a publ i c
l i mi ted company. Onyema and Ol ena had come a l ong way i n three short
years - were they ready for thi s huge step?
a) Outl i ne two possi bl e reasons why Onyema encouraged hi s si ster to
become a busi ness partner. [4 marks]
b) Expl ai n what you understand by 'franchi si ng' . [2 marks]
c) Onyema and Ol ena deci ded to expand the busi ness by offeri ng
franchi ses. Do you thi nk thi s was a wi se deci si on? Expl ai n your answer.
[6 marks]
Examiner's tip
/ Give the advantages and disadvantages of franchising before deciding.
d) I magi ne that you pl an to open an ´L and L Cl eani ng' franchi se. Expl ai n
the advantages of thi s pl an rather than setti ng up a new cl eani ng
busi ness. [6 marks]
e) Outl i ne two di fferences between a pri vate l i mited company and a publ i c
l i mi ted company. [4 marks]
f) Woul d you recommend Onyema and Ol ena to convert thei r company
i nto a publ i c l i mited company? J usti fy your answer. [8 marks]
Examiner's tip
/ Explain the advantages and disadvantages before making your
recommendation.
1 3 •
NIT 4 Gover n ment a nd
economi c i nfl uences
on bus i ness
Key objectives • To explain why and how governn1ents control business activity
e To explain why and how governments support business
Key definitions
Unempl oyment: When peopl e
who want a j ob cannot fi nd one.
Hi gh unempl oyment reduces
peopl e' s i ncomes
Economi c growth: An i ncrease i n a
country's Gross Domestic Product
(GDP) . GDP is the val ue of total
output in a country in one year
e To know the econon1ic objectives of govenunents
e To understand the n1easures that governtnents can take to
control the econon1y

e To understand the impact of business activity on society
Economi c I nfl ati on: I ncreases i n average
i nfl uences on ,� pri ces, e. g. i n 2004 the rate of .
i nfl ati on i n Argenti na was 5. 6% but
i n Hong Kong i t was onl y 0. 2%
Trade cycl e: The regul ar upswi ngs and
downswi ngs that occur i n a country's GDP
Boom
The bal ance of payments: Records the
di fference between a country's exports
and i mports. A bal ance of payments
defi ci t exi sts if i mports are greater than
exports, e. g. i n the USA i n 2004
O
C
\
Term
Exports
I mports
An i ncrease in real i ncome
Recessi on
Economi c boom
Exchange rate
• 14
Defi ni ti on
Goods and services sol d by a country
to other countri es.
Goods and servi ces bought by one
country from other countri es.
When i ncome ri ses at a faster rate
than i nfl ati on.
A peri od when a country's GDP
i s fal l i ng.
A peri od of very fast economi c
growth whi ch can l ead to
hi gh i nfl ati on.
The pri ce of one currency i n
terms of another .
Years
Exampl es
Cotton goods are one of Egypt's
major exports.
Argenti na has to i mport oi l and gas.
If an i ndi vi dual ' s i ncome ri ses by 5%
per year and pri ces ri se by 3% then
real i ncome has i ncreased by 2%.
Japan's GDP (after i nfl ati on) fel l by
1 % in 2002.
Chi na's economy grew by 8%
i n 2003.
1 US$: 1 euro.
Government and economic influences
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Term Defi niti on Exampl es
Exchange rate depreci ati on A fal l i n the exchange rate of
a currency.
I f the exchange rate for the US$ fel l
from 1 US$ : 1 euro t o 1 US$: 0. 6 euro
then the US$ has depreci ated.
Di rect taxes
I ndi rect taxes
Import tariff
Import quota
Pai d di rectl y from �ncomes.
Taxes on goods and servi ces.
A tax on i mported goods to
di scourage thei r sal e.
A l egal l i mit on the quanti ty of a
product that may be i mported.
I ncome tax, company profits tax.
Val ue added tax, duti es on petrol
and al cohol .
Mal aysi a has a 200% tari ff on
i mported cars.
The EU used to pl ace quotas on
i mported J apanese cars.
Consumer protecti on l aws Laws desi gned to protect consumers
from unfai r acti ons by producers
UK Consumer Credi t Act 2004.
Monopol y
or retai l ers.
A busi ness that has no competiti on
i n i ts market - i t i s the sol e sel l er.
Mi crosoft has 95% of the market for
computer operati ng systems.
I l l egal di scri mi nati on Unfavourabl e treatment of someone
on speci fi c grounds, unrel ated
Not recr uiti ng a person because of
thei r age, gender, race, rel i gi on,
sexual ity, or because they have to thei r abi l ity to do the j ob.
Ethical deci si on A deci si on taken on moral· grounds.
a di sabi l ity.
A soft dr i nk firm deci di ng to stop
adverti si ng di rectl y to chi l dren as
the dr i nks coul d be one of the
causes of tooth decay i n chi l dren.
Contract of empl oyment A l egal agreement between workers
and empl oyers l i sti ng the ri ghts and
responsi bi l iti es of empl oyees.
I t wi l l i ncl ude hours of work, hol i day
al l owance, expected l evel s of
behavi our, pensi on benefi ts.
National mi ni mum wage The l egal mi ni mum hourl y wage rate. I n the UK i n 2004 thi s was set at
£4. 85 per hour.
Sample questions and answers
Sample question Fogla' s is a supermarket that sells a variety of food and household
products. It pays most of its workers the national minin1un1 wage.
The company imports many food products fron1 other countries.
The n1anager of Fogla' s decided to open a cafe within the
supern1arket, which is proving to be popular. It sells quite
expensive n1eals and drinks, but the average incotne of local
residents is high.
Marks
Student's answer
Examiner's marks
and comments
a) Explain one likely reason why the governn1ent insists on a
national minimun1 wage. [4 1 narks]
1 mark for sugesting a likely reason; 1-3 marks for detailed development.
The government might have wanted to protect workers. When
there are not many j obs, en1ployers 1night try to pay workers as
little as possible. They could take advantage of workers and onl y
pay thetn very low wages. Workers would have to accept t he jobs.
The government wants to prevent workers fron1 bei ng exploi ted.
This is a Jood answer. A clear reason is given. This is then dcJJelopcd mul
explained in enough detail. 4 marks.
1 5 •
UNIT 4
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 1 6
Marks
Student's answer
Examiner's marks
and comments
Marks
Student's answer
Examiner's marks
and comments
b) The governn1ent plans to increase the national n1inin1un1 wage
by 20%. Discuss the likely efects of this decision on Fogla' s.
[8 tnarks]
2 marks for knowledge oftwo ifects; 2 marks for applying these to this
business; 2 marks for analysis ofthese ifects; 2 marks for some discussion
and judgement.
Fogla' s will have to pay higher wages to n1any of its workers. This
will raise the frn1' s costs. The con1pany' s profts could fall . The
manager of the supennarket tnight even tnake son1e workers
redundant to save costs, so the efect is likely to be bad. Workers
in other businesses will also have higher wages and tnore tnoney to
spend though.
2 marks awarded for knowledge (higher costs for Fog/a 's and hiher incomes
for other workers); 1 mark for some application; 1 mark for explaining the
impact ofhigher costs (ossibly lower profits). Total ¯ 418 marks. The
student did not analyse the second point and there was no evaluation of the
possible positive impact of higher wages on the business. For example,
hiher wages could increase incomes for workers in other busi1zesses mz d this
could lead to higher spending and increased sales for Fogla 's.
c) Analyse the likely efect on Fogla' s of a depreciation in the
country' s foreign exchange rate. [6 tnarks]
Up to 3 knowledge marks for good understmz ding ofexchange rates and
depreciation; up to 3 analysis marks for explaining the impact on this
business.
A depreciation of a country' s exchange rate means that its currency
is worth less. For example, if the value of $1 falls from £2 to
£1 . 50 then the $ value has depreciated. The exchange rate is the
price of one currency measured against another. This depreciation
will make imports more expensive. Goods bought fron1 other
countries will be more expensive. Fogla' s prices tnight be higher
than other supermarkets that do not in1port.
Tis shows real understanding. The student also analyses the ifect ofa
depreciation on Fogla 's accurately. Full marks.
d) Fogla' s manager is worried when he sees the following
newspaper headline:
INTEREST RTES SET TO RISE TO
SLOW DOWN INFLATION
Discus the likely efects of higher interest rates on Fogla' s
profts.
[8 n1arks]
Marks Up to 2 marks for knowledge shown about interest rates and infation;
2 marks for analysing the if ects 0/ 1 business; 2 marks for applyirzg these
�fects to Fogla 's; 2 marks for some discussion/judgement .
Government and economic influences
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Student's answer Infation is when prices rise, and interest rates are the cost of
borrowing money. Higher interest rates will afect Fogla' s in
several ways . It will cost the frn1 n1ore to borrow. This could
mean that it decides not to expand. Also, higher interest rates will
mean that consumers will have less to spend. They n1ight not go to
Fogla' s cafe so often, especially because it is quite expensive. On
the other hand, Fogla' s might not be much afected. It mainly sells
food, and consumers will still need to buy this no matter how high
interest rates are. Also, if infation does fall because of higher
interest rates then the frm' s costs will not rise so qui ckly. There
will, therefore, be some positive and son1e negative efects.
Tr t o mark this yoursel - the examiner's marks and CVIIIIHCIIfs are 0/l
page 1 00.
Common mi sconcepti ons and errors
Error
' Economi c booms are al ways good
for the economy. '
' I nfl ati on means the economy
i s expandi ng. '
' A recessi on wi l l l ead to a fal l i n
demand for al l goods. '
'An exchange rate depreci ati on
means the val ue of the country's
currency has ri sen. '
' An exchange rate appreci ati on
wi l l make exports cheaper. '
Why i t i s wrong
They can l ead to hi gher i ncomes,
but ' booms' can lead to hi gh
i nfl ati on and l ower l evel s of output
eventual l y.
I nfl ati on i s the measure of the rate
of pri ce i nc
r
eases.
A recessi on l owers consumers'
i ncomes - they coul d switch to
buyi ng cheaper goods so the
demand for these coul d ri se.
No - i t has fal l en i n terms of other
currenci es.
Exports ri se i n pri ce after an
appreci ati on of the currency.
e Try thi s Mi m Chul Ltd produces soft dr i nks based on fresh frui t. The company has a
monopol y in Country X. The dr i nks are adverti sed to consumers wi th the
sl ogan ' Dri nk Mi m Chul ' s j ui ces and you wi l l never be i l l ' .
a) Expl ai n the term ' monopol y' . [2 marks]
b) Expl ai n why the government mi ght deci de to protect the consumers of
soft dri nks i n Country X. [ 6 marks]
Examiner's tip
7 You could write about the firm's monopoly position and the
advertising it uses.
.
c) The company pl ans to bui l d a new factory to make the dr i nks. I t wants
to bui l d on a site cl ose to houses and school s. The government has
pl anni ng control s over the bui l di ng of new factori es. Mi m Chul Ltd has a
poor reputati on for heal th and safety in its factori es.
1 7 •
UNIT 4
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 18
Outl i ne one possi bl e reason why the government has pl anni ng control s
for the bui l di ng of new factori es. [4 marks]
d) The government has offered Mi m Chul ' s busi ness a grant for the new
factory i f i t i s bui lt i n another area. From the fol l owi ng l i st, pl ace a ti ck
al
o
ngsi de the two most l i kel y reasons for thi s. [ 2 marks]
Possi bl e reason for
government grant
To i ncrease i mports
To create more jobs
To i ncrease i nfl ati on
To i ncrease demand for the
products of l ocal suppl i ers
e) Di scuss whether Mi m Chul Ltd shoul d spend money on i mprovi ng heal th
and safety i n its factori es. [8 marks]
Examiner's tip
/ Think about the disadvantages of not having good working conditions .
NI T 5 Other exter na l
i nfl uences on busi ness
Key objectives • To understand the other external constraints that afect business
activity
e To recognise how technology can afect businesses
e To know why the environment is of increasing concern to
most businesses
e To understand how cost beneft analysis can be used to measure
the full social costs and benefts of business decisions
Key definitions
Term Defi niti on Exampl es
Technol ogi cal change Changes i n products or the ways
products are made resul ti ng from
research i nto new i deas.
Mobi l e phones wi th cameras.
Robots used to make cars.
Pressure groups
Private costs
External costs
Private benefits
Groups of peopl e who share a
common i nterest and take acti on
to achi eve the changes they are
seeki ng.
The costs to producers and
consumers of an economi c acti vity.
The costs of an economi c acti vity
pai d for by the rest of soci ety, not
the producers/consumers.
The benefits of an economi c acti vity
to producers/consumers.
Trade uni ons, Greenpeace, Worl d
Wi de Fund for Nature.
The costs pai d for by a chemi cal fi rm
when produci ng products.
Pol l uti on from a chemi cal factory
whi ch harms the envi ronment and
may damage the heal th of l ocal
resi dents.
The benefi t to a dri ver of usi ng
a car.
External benefits The benefits of an economi c acti vi ty
recei ved by the rest of soci ety other
than producers/consumers.
A new ai rport may encourage
touri sts to a regi on, whi ch wi l l bri ng
j obs to fi rms other than the ai rport.
Cost benefit analysi s An anal ysi s, usual l y carri ed out by
the government, i nto the overal l
costs and benefits (pri vate and
external ) of a l arge new proj ect.
An anal ysi s of the i mpact of a new
motorway on users, resi dents, road
safety, etc.
Sample questions and answers
Sample question Norris Cars Ltd manufactures hand-built sports cars. The business
has a huge custon1er waiting list. The directors have decided to
make a new model of a car using the latest production technology.
Workers who have used the san1e rnethods for 111any years wi ll
have to learn new skills. The new n1achines \ill cut do\vn on
waste materials and pollution from the fctory. R.esidents have
often con1plained to the local gover11111ent about No¡ri S Cars and
the external costs caused by the fctory.
a) Using ar exan1ple, explain what is n1eant by the tern1 ' external
costs ' . [ 3 n1arks]
1 9 •
UNIT S
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 20
Marks Up to 2 marks for an understanding ofthis term plus 1 mark for an
appropriate example.
Student' s answer External costs are when people other than the producer or
consumer of a good or service have to pay the costs of producing a
product. An example is the pollution from a factory that society
has to pay to be cleaned up.
Examiner' s marks Full marks - good ditnition and relevant example.
and comments
b) The following list gives the possible efects of the decision by
Norris Cars to purchase the latest technology equiptnent.
Identif with a PC, EC, PB or EB whether they are private or
external costs or benefts. [ 4 n1arks]
Cost or benefit
Hi gher profits i f producti on costs
are l owered
J obs may be l ost i f the machi nes
are much more effi ci ent
Pol l uti on and waste wi l l be reduced
Trai ni ng costs wi l l be hi gh
Private or external cost/benefit
Marks 1 mark for each correct answer.
Student' s answer
Cost or benefit
Hi gher profits i f producti on costs
are l owered
Jobs may be l ost i f the machi nes
are much more effi ci ent
Pol l uti on and waste wi l l be reduced
Trai ni ng costs wi l l be hi gh
Private or external cost/benefit
PB
EC
EB
PC
Examiner' s marks 4 marks for correct answers .
and comments
c) Do you think that the workers at Norris Cars Ltd would think
the purchase of the new machinery was a good idea or not?
Explain your answer. [8 n1arks]
Marks Up to 2 marks for identifying relevant factors; up to 2 marks for applying
these to this business; up to 2 marks for analysing at least one i these
points; up to 2 marks for some judgement/evaluation.
Student' s answer The case tells us that workers will need to be retrained. Some will
be afaid of this. They may have done the san1e job for years and this
could tnean they do not want to lear new skils, or they n1ight be
slow learers. This uncertainty could reduce their job security and
motivation so that they do not work as hard as they could. It is
likely, therefore, that they will not think that it is a good idea .
Other external influences on business
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Examiner's marks
and comments
1 mark for content as only one factor was mentioned; 1 mark for application}
.
2 marks for analysis as the impact on motivation is eXplaiUed; 1 hark for
ver limited evaluation. The answer could have been iUpDÌvtd by
considering one other factor - workers ttJil/ now be multi-skilled and l l 'ill he
more able to find pther jobs i they wanted to. Total ¯ 5 I 8 marks
.
Common mi sconcepti ons and errors
Error
' New technol ogy al ways l eads to
unempl oyment. '
'Workers wi l l al ways be opposed to
technol ogi cal change. '
' Cost benefi t anal ysi s measures the
profit of a proj ect. '
Why i t i s wrong
New technol ogy can create j obs, as
peopl e need to make and servi ce
the new machi nery. New
technol ogy al so creates new
products and new markets.
Some workers wi l l become more
ski l l ed, whi ch wou l d i ncrease thei r
chances of gai ni ng other jobs.
Technol ogy coul d make j obs more
secure i f the fi rm becomes more
effi ci ent.
Cost benefi t anal ysi s tri es to assess
both pri vate and external costs and
benefits (soci al costs and benefits) -
it is not concerned wi th profi t.
e Try thi s Here i s a recent newspaper arti cl e:
GOVERNMENT PLANS NEW AIRPORT
IN NORTH WEST
Central Government intends to allow a large new airport to be
built in the North West. This is an area of high
unemploy1nent and more fights into the area will lead to n1ore
tourists and increased exports . I t is also hoped that new
companies will be set up as the North West will now be
cheaper for the transportation of goods. Many local residents
are totally opposed to the idea of the new airport. They have
formed a pressure group called ' SANW' (Stop Airport i n
North West) . Most local fn1s have welcon1ed the new airport
plan. However, some business people in the area are worried
about increased con1petition and a possible shortage of skilled
labour. The local government authority is hoping that its tax
revenues will rise fro1n airport charges, but it is worried about
the efect on local pollution levels .
a) What do you understand by the term ' pressure group' ? [2 marks]
b) Li st A (bel ow) shows the stakehol ders affected by the government's
deci si on. I denti fy the major i mpact on each group from Li st B. [9 marks]
21 •
UNIT S
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 22
list A
Central Government
Local workers in empl oyment
Local government authority
list B
I ncreased local tax payments
Noi se from ai rcraft
More choice of jobs for ski l l ed workers
Residents l ivi ng cl ose to the new ai rport I ncreased competition from ai rl i nes
Local unemployed workers More chance of fi ndi ng a job
Busi nesses i n the North West
Ai rl i nes
Trai n compani es
Envi ronmental ists
Easi er to i mport and export goods
I ncreased exports from the economy
Destruction of nature sites
I ncreased fl i ghts mean expansion
c) I magi ne that you are either a member of the SANW pressure group or a
North West busi ness owner. Wri te a l etter to the Government expl ai ni ng
why you either oppose or support the new ai rport pl an. [ 1 0 marks]
Examiner's tip
v Try to explain three separate points in your letter.
NI T 6 B us i ness costs a n d
reven ue
Key objectives • To know the diference between diferent kinds of costs
e To understand what ' break-even level of production' means
e To draw and analyse simple break -even charts
e To calculate the break-even point from data
e To know what a budget is and why budgeting is important
e To understand how economies of scale arise
Key definitions
Term
Fixed costs
Vari abl e costs
Total cost
Total revenue
(Sal es revenue)
Break-even chart
Break-even poi nt
Di rect costs
I ndi rect costs
(al so known as
overheads)
Average costs
(al so known as
unit costs)
Contri buti on
Budget
Forecast
Defi niti on
These costs do not vary wi th the
number of i tems sol d or produced.
These costs vary di rectl y wi th the
number of i tems sol d or produced.
The additi on of fi xed and
vari abl e costs.
The i ncome of a busi ness duri ng a
ti me peri od from the sal e of output.
Thi s i s a graph whi ch shows the
costs and revenue of a busi ness and
the l evel of sal es that must be made
to break even.
The l evel of sal es or output at whi ch
Total costs = Total revenue.
These are costs that can be di rectl y
rel ated to a parti cul ar product
or department.
These are costs that cannot be
di rectl y rel ated to a parti cul ar
product or department.
These are the costs per uni t
of output.
The contri buti on of a product i s
sel l i ng pri ce l ess vari abl e cost.
Thi s is a pl an for the future contai ni ng
numeri cal or fi nanci al targets.
Thi s i s a predi cti on of the future,
for exampl e, sal es forecast.
Exampl es/ ca l eu l ati on Di agram
Rent of bui l di ng
I nterest on l oans
Managers' sal ari es
S �FC
Cost of raw materi al s
El ectri city used for machi nery
Producti on l abour costs
Total cost = Fi xed costs
¬ Vari abl e costs
Total revenue =
Quanti ty sol d ? Pri ce
Ou\pu\
Ou\pu\
Ou\pu\
� •i
Û�E DOI
¯K
� � �::
Ûf0ðk-0V0D OUIDUI
See di agram above.
I n a factory maki ng cl othes, l eather used
for maki ng one styl e of coat i s a di rect cost.
I n a factory maki ng cl othi ng, el ectri city costs
woul d be very di ffi cult to ' di vi de' accuratel y
between products and departments.
C I I t d b
T ota I costs
a cu a e y:

Total output
For exampl e, i f costs = $30, 000 and total output
= 1 0, 000 units, then average cost = $3.
I f a computer costs $ 1 00 i n materi al s and l abour
(vari abl e costs), but i s sol d for $250, then
contri buti on i s $ 1 50.
A budget for the marketi ng department mi ght
be ' $ 50,000 to be spent on promoti on over the
next 12 months' .
A fi rm forecasts that i t wi l l sel l 200 uni ts
per month over the next year.
23 •
UN/T 6
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Term
Economies
of scal e
Di seconomi es
of scal e
Defi niti on
These are the cost advantages of
produci ng on a l arge scal e.
These are the di sadvantages of
produci ng on a l arge scal e.
Exampl es/cal cul ati on
Purchasi ng, marketi ng, and fi nanci al ,
manageri al and techni cal economi es.
Poor communi cati on, l ow moral e amongst
workers.
Sample questions and answers
• 24
Sample question The Cairo Tyre Con1pany has asked you to help with sotne
costing problems . The manager, Mr Shah, does not know if the
factory has reached break-even point. He is also unsure of the
likely benefts that could be gained from expanding the business .
He gives you the following infonnation:
Annual fxed costs:
Labour cost per tyre:
Variable cost per tyre:
Selling price to customers:
$50, 000
$1
$2
$5 per tyre
Last year, the marketing department spent n1uch more than
Mr Shah expected them to. This was one of the reas�ns why the
company made a loss last year. Despite this, Mr Shah has plans to
expand the factory as he believes that this would increase the
chances of making profts in the future.
a) For this business, are labour and materials variable costs?
Explain your answer. [ 4 marks]
Marks 1 mark for knowledge: Wat is meant by a variable cost? 1 mark for
application to this business; 2 marks for explanation ofwhy these costs are
variable and not fixed costs.
Student' s answer Yes, labour and material costs are variable costs for the Cairo Tyre
Company because they will change with the nun1ber of tyres
made. The more tyres that are made, the more labour and
materials will be needed to produce them. Therefore, as output of
tyres increases, these costs will increase.
Examiner's marks T1e first sentence shows understanding that variable costs vary with output
and comments and the student also applied it to the case by mentioning the number o tyres
made (2 marks). Te second sentence explains clearly that these costs increase
as the number o tyres produced increases (2 more marks). Total ¯ 4 marks.
b) Calculate the break-even level of output for this business -
show all workings. [4 marks]
Marks 1 mark for break-even formula; 1 mark for contribution calculation; 1 mark for
attempted break-ev�n result (incorrect); 2 marks for correct break-even result.
Fixed costs
Student' s answer The break-even level of output ¯
Contribution per unit
Contribution per unit ¯ Selling price tninus variable costs
$5 - $3
$2
Business costs and revenue
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Examiner's marks
and comments
$50, 000
The break-even level of output ¯
$2
¯ 25, 000 tyres
Full marks again for a correct answer - note lw1 v tlz e working is clearly laid
out, so even i a mistake had been made the examiner could still have
given some marks for a correct method.
c) Use the break-even chart below.
i) Identif the break-even level of output on the graph and
state what it is. [2 marks]
ii) What is the level of proft at an output level of 50, 000 tyres?
[2 n1arks]
iii) Explain what would happen to the break-even level of
output if the price of tyres was raised to $7. State one
0
C
¯ C
L �
0 ¯
M
M
W
¯ D
~ L
L 0
7
W
&
assumption that you make. [6 marks]
400
300
200
1 00
1 2. 5 25 37. 5
Output of tyres ( i n OOOs)
}SR
�Profit of
$50, 000
VL
50
Marks 1 mark for appropriate assumption; 1 mark for correct new revenue line;
2 marks for correct new break-even point; 2 marks for �orrect new profit fgure.
Student's answer i) The break-even level of output is 25, 000 tyres - I have shown
this with a dotted line.
Examiner's marks
and comments
ii) The proft made is $50, 000 at an output of 50, 000 tyres - I
have shown this on the graph. It is the diference between sales
revenue and total cost.
iii) The new revenue line is the dotted line I have added (SR?) .
The break-even point falls to 1 2, 500 tyres. I have assun1e
d
that
sales remain the same.
This answer gained full marks. The student correctly answered all
parts o the question. Te assumption about sales is important - i the price
is raised and sales fall then the frm might not reach the break-even point.
d) Explain briefy two economies of scale that the con1pany n1ight
beneft from if it expanded. [ 6 rnarks]
Marks 1 mark for each correct example ofan economy <?f scale; 2 marks for each
economy that has been explained and applied to the case study.
Student's answer Econon1ies of scale reduce average costs as 0 fnn expands . Two
exan1ples are purchasing or bulk-buying econon1ies and n1anagerial
25 •
UNIT 6
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 26
Examiner' s marks
and comments
econon1ies. The tyre factory 1night be able to buy rubber n1ore
cheaply if it bought greater an1ounts, as it would receive a discount
when placing bulk orders. Also, specialist 1nanagers could be
recruited to n1anage the business n1ore efciently, for example, a
specialist marketing manager to oversee the marketing of the tyres.
Full marks - two good sugestions and both were accurately explained
and applied.
Common mi sconcepti ons and errors
Error
'Vari abl e costs vary over ti me. '
' Fi xed costs never change. '
' Economi es of scal e reduce total costs. '
' Break even i s t he t i me i t takes
for a fi rm to cover al l costs. '
' Budgets are forecasts of what wi l l
happen i n the future. '
Why i t i s wrong
Very common error. Vari abl e costs
vary with the l evel of output not
with ti me.
Fi xed costs may change i n the l ong
run i f the fi rm expa.nds i ts total
capacity.
No - they do not reduce total costs.
As a fi rm expcmds, total costs are
l i kel y to ri se, but economi es of scal e
coul d reduce average costs of
producti on.
The break-even poi nt i s measured i n
units of output/sal es not ti me.
Forecasts are predi cti ons, but
budgets are plans. A company needs
to pl an for the future and budgets
are pl ans wi th fi nanci al targets.
e Try thi s a ) I ndi cate whether the fol l owi ng costs of a bakery busi ness are di rect or
i ndi rect costs by ti cki ng the correct col umn. [ 4 marks]
Costs Di rect I ndi rect
Fl our
Sal ary of offi ce manager
Wages of bakery workers
Rent of the bui l di ng
b) Referri ng to the Cai ro Tyre Company case above, expl ai n to the manager
the possi bl e benefits to hi s busi ness of usi ng budgets for each department.
[6 marks]
c) Outl i ne one possi bl e di seconomy of scal e that the Cai ro Tyre Company
mi ght experi ence i f i t expanded. [3 marks]
d) Do you thi nk that break-even charts are a useful techni que for managers
to use? Expl ai n your answer. [8 marks]
Examiner's tip
/ As well as explaining two advantages, also consider two possible
drawbacks to break-even charts.
NI T 7 B us i ness accou nt i ng
Key objectives • To understand why businesses keep accounting records and how
Key definitions
Term
Profit and l oss account
Tradi ng account
Sal es turnover
(Sales revenue)
Gross profit
Net profit
Corporation tax
Divi dends
Depreciation
liquidity
Current ratio
Acid test rati o
Return on capi tal empl oyed ( %)
they use then1
e To analyse the needs of the diferent users of business accounts
e To understand the construction of simple balance s
h
eets
e To understand the construction of simple proft and loss accounts
e To analyse business accounts using ratios
Defi niti on Exampl es
An account that records busi ness sal es ABO Tra0ers Ì0 profit and l oss account
revenue, al l costs and expenses, and for year endi ng 31 /9/04 ($)
any l oss/profit made duri ng the year.
(N. B. Brackets round a number mean
that it i s a mi nus fi gure).
The part of the profit and l oss
account that records revenue,
cost of sal es and gross profit.
The val ue of sal es in a certai n
ti me peri od.
Profit after subtracti ng the cost
of sal es from sal es turnover.
Profit after subtracti ng al l expenses/
overheads from gross profi t.
Tax on company net profits.
Annual payments from company
profits to sharehol ders.
The fal l i n the val ue of fi xed assets
over ti me.
The abi l ity of the busi ness to
convert its assets i nto cash and pay
off short-term debts.
Current assets
Current l i abi l iti es
Current assets - Stock
Current l i abi l iti es
Net profit
�"" ? 1 00
Capital empl oyed
Sal es turnover 1 2, 000
Costs of goods sol d (4, 000)
Gross profit 8,000
Overheads (3, 000)
Net profit 5, 000
I f 1 200 items were sold for $ 1 0
each then the fi rm' s sal es revenue
i s $ 1 2, 000.
I f goods costi ng the fi rm $4, 000
were sold for $ 1 2, 000 then gross
profi t = $8, 000.
I f gross profit = $8, 000 and the fi rm' s
expenses/overheads are $3, 000
then net profit = $ 5, 000.
I f thi s i s at 40% and net profits
are $ 5, 000 then the company wi l l
pay $2, 000 i n corporati on tax.
Machi nes and vehi cl es fal l i n val ue
each year.
Cal cul ated by usi ng the next two
rati os.
Usi ng the bal ance sheet on page 28:
2, 500
= 1 . 47
1 , 700
Usi ng the bal ance sheet on page 28:
1 , 500
= 0. 88
1 , 700
Usi ng the accounts above and the
bal ance sheet:
5, 000
1 9, 800
? 1 00 = 25. 3 %
27 •
UN/T l
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Term
Retai ned profit
(Reserves)
Gross profit
margi n ( %)
Net profit
margi n ( %)
Bal ance sheet
Defi niti on
Profit made afer payment
of tax and divi dends. It i s
rei nvested back i nto
the busi ness.
Gross profit
Sal es turnover
? 1 00
Net profit
? 1 00
Sal es turnover •
Exampl es
Usi ng the accounts on page 27:
8,000
1 2, QQQ

1 00 ~ 66. 7 %
Usi ng the accounts on page 27:
5, 000
1 2, QQQ

1 00 ~ 41 . 7 %
The account records al l busi ness ABD Traders Ltd bal ance
assets and l i abi l iti es and the sheet for year endi ng
val ue of sharehol ders' funds. 3 1 /9/04 ($) (see bel ow) .
Worki ng capi tal The capi tal needed by a
busi ness to fi nance its
day-to-day needs.
Usi ng the bal ance sheet
bel ow: 800 ¯ it is the same
as the net current assets.
Bal ance sheet:
Fi xed assets Assets owned by a busi ness Bui l di ngs, machi nery and Fi xed assets:
that i t expects to keep and motor vehi cl es.
Ì ¬¬¬¬¬¬~=¬=~
Bui l di ngs
use for more than one year.
Machi nery
Current assets Assets that the busi ness wi l l Stocks, debtors, cash.
Current assets:
use up or turn i nto cash withi n
Stocks
one year.
Debtors
Cash
Current l i abi l iti es Loans and debts of the busi ness Bank overdraf and creditors.
Current l i abi l ities:
that wi l l be repai d withi n one Overdraf
year.
Creditors
Net current assets
Long-term The money val ue of debts that Long-term l oans and
Total assets l ess
l i abi l iti es do not have to be repai d i n one debentures. current l i abi l i ti es
year.
Long-term l i abi l ities:
Sharehol ders' Fi nance provi ded by Share capi tal i s from sal e of
Loans
funds sharehol ders - share capi tal or shares. Retai ned profi ts are Sharehol ders' funds:
retai ned profits. cal l ed reserves.
Capital
Capital empl oyed Total val ue of busi ness's Long-term l i abi l iti es pl us
Reserves
l ong-term fi nance. sharehol ders' funds. Capital empl oyed
Sample questions and answers
Sample question Tabl e 1: Fi nanci al i nformati on about City Cafe Ltd ($000)
2004 2005
Sal es revenue 200 250
Net profit 25 1 5
Current l i abi l iti es 20 20
Current assets 50 20
Capi tal empl oyed 300 300
..=...~=.
1 3, 000
6,000
1 9. 000
1 , 000
1 , 000
500
2. 500
1 , 200
500
1 .700
800
T V.öÛÛ
1 2, 000
5, 000
2, 800
T V.öÛÛ
a) State and explain two ways in which the owners of City Cafe
• 28
Ltd might use the net profts of the business . [ 4 1narks]
Business accounting
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Marks 1 mark each for identiying the uses ofnet profit and 1 mark each for
briily explaining each use.
Student' s answer The owners of this business could use the net profts either to pay
dividends or to keep in the business. Shareholders will expect some
dividends as they have invested in the business. If proft is left in the
business, it is called retained proft. This could be used for expansion.
Examiner' s marks Ver good answer - 4 marks. Two uses are identiied and briily explained.
and comments
b) Using fgures from Table 1 and a ratio, analyse the liquidity of
the company. [5 n1arks]
Marks 1 mark for correctly writing down the current ratio; 2 marks for
calculation (both years); up to 2 marks for explaining what the result
shows about liquidity.
Student' s answer The current ratio is a liquidity ratio and uses this formula:
Current assets
Current liabilities
50 20
In 2004 the result was:
20
¯ 2. 5 and in 2005 the result VJS .
20
¯
1
This shows that the liquidity of the business is i1nproving as 1 is a
better result than 2. 5. The frm will fnd it easier to pay its short­
term debts.
Examiner's marks The student makes a good start by accurately stating the formula for the
and comments current ratio. The two calculations are correct. The rest of the answer is
wrong, as the student does not understand what the current ratio result
shows about liquidity. Liquidity has, ofcourse, got worse from 2004 to
2005 and i this continues, the business will find it difcult to pay ofits
short-term liabilities. 3 marks.
c) Using the fgures in Table 1 and ratio analysis , eval uate the
performance of the City Cafe Ltd between 2004 and 2005.
[1 0 1narks]
Marks Up to 2 marks for correctly stating two relevant ratios, for example, Het
profit margin and retur on capital employed. Up to 4 marks for
calculations (oth years). Up to 4 marks for discussion which a1alyses the
results and draws a conclusion about the peiormance ofthe business.
Student's answer
Net profit
Net profit margi n ~ ? 1 00
Sal es
Net profit
Return on capital empl oyed ~ ? 1 00
Capi tal empl oyed
2004 2005
1 2. 5% 6%
8. 3% 5 %
These results show that the proftability of the business i s flling.
The frm is making less proft per $ of sales , perhaps because costs
are rising faster than pri ce.
29 •
UNIT 7
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 30
Return on capital employed has fallen which 1neans that the
money invested in the business is making less of a return.
Both of these fgures are poor, but it would help if we had results
from other cafe businesses to see if City Cafe is better or worse at
making profts than they are.
Try to mark this yoursel- the examiner's marks and comments are on
page 1 01 .
Common mi sconcepti ons and errors
Error
Not rememberi ng the rati os.
. Putti ng sal es revenue i n the
bal ance sheet.
'Any current rati o result bel ow 1
means the fi rm is bankrupt. '
' Gross profit i s al ways l ess than
net profi t. '
'Credi tors owe the fi rm money. '
Why i t i s wrong
Obvi ous! Use the l i st above to hel p
you.
Thi s is a profit and l oss account i tem
- onl y assets and l i abi l i ti es appear i n
the bal ance sheet.
A resul t of 1 i s acceptabl e - it means
that al l short-term debts are covered
by current assets. Even bel ow 1 , a
fi rm may be l i qui d enough as it i s
unl i kel y that i t wi l l have to repay all
short-term debts at the same ti me.
Net profit i s gross profi t after
expenses have been taken away, so
net profit is al ways l ower.
Debtors are customers who have not
yet pai d - they owe the fi rm money.
The firm owes money to its creditors.
e Try thi s The 2005 accounts for Titan Tankers pi c have j ust been publ i shed.
Groups of stakehol ders i n the busi ness have been waiti ng to analyse these.
a) I denti fy two of the mai n accounts that wi l l appear i n these publ i shed
accounts.
[2 marks]
b) Expl ai n what one of these accounts contai ns. [3 marks]
c) Tabl e 1 contai ns a l i st of stakehol ders i n Titan Tankers pi c who want to
use and analyse the company accounts. Copy the tabl e and fi l l i n the
' Useful for' col umn with one of the opti ons bel ow:
Tabl e 1 : The users of publ i shed accounts
Stakehol ders: Useful for:
Sharehol ders
Trade uni on
Government
Credi tors
Opti ons:
i) seei ng what the l evel of di vi dends wi l l be thi s year
Business accounting
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
i i ) anal ysi ng whether the busi ness has suffi ci ent l i qui dity
i i i) seei ng whether the busi ness pl ans to expand or reduce the l abour
force
iv) assessi ng whether the busi ness seems to be maki ng excess profi ts.
[4 marks]
d) Usi ng the fi gures in Tabl e 2 and rati o analysi s, eval uate the performance
of thi s company over the l ast year. [1 0 marks]
Tabl e 2: Fi nanci al i nformati on from Titan Tankers pic 2005 accounts
( $000)
2004 2005
Sal es revenue 300 350
Gross profit 60 60
Net profit 30 25
Capital empl oyed 200 240
Examiner's tip
v Explain what your results indicate about the company's performance.
Should these results be compared with any others?
3 1 •
NIT 8 Cas h fl ow pl a n n i ng
Key objectives • To understand what is meant by cash infl ows, cash outfl ows and
Term
Key definitions
Cash i nfl ow: The amount of
cash recei ved by a busi ness i n
�ach ti me peri od
Cash fl ow forecast
Openi ng bal ance
Cl osi ng bal ance
Cash fl ow cycle
li qui dity cri si s
• 32
net cash fows
e To analyse a simple cash fow forecast
e To understand why such forecasts are helpful to businesses
e To explain how a busi ness might deal with a cash fow problem
Al l fi gs
i n $000
Cash i nfl ow:
Cash from sal es 5,000
m
Cash outflow:
Materi al s 1 , 000
Labour 1 , 500
Total cash outfl ow 2, 500
m
Openi ng bal ance 1 , 000
Net cash fl ow 2, 500
Cl osi ng bal ance 3, 500
Defi ni ti on
A tabl e showi ng the esti mated cash
fl ows of a busi ness over a ti me
peri od. Such forecasts hel p to
i denti fy future fi nance probl ems
and hel p the fi rm to pl an for its
cash needs.
The amount of cash the busi ness
hol ds at the start of a ti me peri od.
The amount of cash hel d by a
busi ness at the end of a ti me peri od.
Thi s shows the stages between a
busi ness payi ng out for materi al s,
l abour and other costs and
recei vi ng cash from the sal e of goods.
The cash fl ow cycl e
Cash outfl ow: The amount of
cash pai d out by a busi ness over
a peri od of ti me
Exampl e
See Tabl e 1 on page 33.
For the busi ness i n Tabl e 1, the
openi ng bal ance i n October
i s $3, 000.
Openi ng bal ance $ 1 5, 000.
Monthl y net cash fl ow $4, 000.
Cl osi ng bal ance ~ $ 1 9, 000.
See the cash fl ow cycl e fi gure
bel ow.
1 Cash needed to 2 Materi al s,
3 Goods produced
pay for wages, rent, etc.
I 1-
5 Cash payment
4 Goods sol d
L
·recei ved for M
goods sol d
When a busi ness does not have If a fi rm is short of cash, it may
enough cash to pay i mmedi ate debts. have to arrange a bank overdraft
or other l oans to meet
i mmedi ate debts.
Cash flow planning
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Sample questions and answers
Sample question Zippo Printers Ltd publishes a range of books, calendars and
birthday cards. The directors are planning an expansion progra1nn1e
by buying new printing machines. Den1and is ver high and stocks
have been very low. The managers plan to build up stocks,
especially before the end of the year when most calendars are sold.
The fnance director allows retail customers a long time to pay
Zippo' s for supplies. She said 'By giving shops more credit we can
gain extra orders ' . The fnance director is constructing a cash fow
forecast for the next three months. She sees real problems arising for
the business. The three month cash fow forecast is shown below:
Tabl e 1: Zi ppo Pri nters Ltd three month cash fl ow forecast ($)
Cash i n: October November December
Cash from sal es 8,000 1 2, 000 1 5, 000
Loans recei ved 1 4, 000
Total cash i n: 22, 000 1 2, 000 1 5, 000
Cash out:
Materi al s 3,000 4, 000 6,000
Labour 4, 500 5, 000 5, 500
Overheads 1 , 000 1 , 000 1 , 000
Purchase of fixed assets 8,000 6, 000 8,000
Total cash out: X · 1 6, 000 20, 500
Openi ng bal ance 3, 000 8, 500 Z
Net cash fl ow 5, 500 Y {5, 500)
Cl osi ng bal ance 8, 500 4, 500 ( 1 , 000)
a) Calculate the fgures missing as shown above as X, Y and Z.
[ 6 marks]
Marks 2 marks for each correct answer - 1 mark for good attempt at calculation.
Student' s answer The total cash out in October ¯ $3, 000 7 $4, 500 7 $1 , 000 7
$8, 000 ¯ $1 6, 500. So X should be $1 6, 500.
Examiner' s marks
and comments
Net cash fow ¯ cash in - cash out. In Noven1ber thi s ¯ $1 2, 000 -
$1 6, 000 ¯ $4, 000 so y ¯ $4, 000.
The opening balance in December will be the sarne as the closi ng
balance in November, so Z ¯ $4, 500.
X is correct so 2 marks. 1 mark for Y because although t he number is
correct, the net cash fow is negative and should be shown as ($4000). Z is
correct so 2 marks. Total ¯ 5 I 6 marks.
b) Explain one beneft to Zippo' s fnance director of this cash fow
forecast. [ 4 tnarks]
Marks 1 mark for identiying a beneit; 1 mark for applying to Zippo 's forecast
and 2 marks for explaining why it is a beneit.
33 •
UNIT B
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 34
Student' s answer
Examiner' s marks
and comments
The cash fow forecast helps fm1s plan for future loans. It looks as
though Zippo' s will need a loan in Decen1ber as the cash fow
forecast is negative. By producing this forecast, a bank is n1ore likely
to ofer a loan as it shows that the company is planning carefully.
This is correct. The student has explained one use ofcash flow forecasts
well, and takctt informatiott from Zippo 's forecast. 4 marks.
c) What could be done to improve the cash fow of this business?
I dentif two ways of improving Zippo' s cash fow frotn the
list below. [2 tnarks]
• Reducing sales
• I ncreasing material purchases
• Paying suppliers more slowly
• Obtaining a loan
• Ofering less credit to retail shops
Marks 1 mark for each correct point idetttiied.
Student' s answer Obtaining a loan, ofering retail shops less credit.
Examiner's marks 2 marks - both correct.
and comments
d) Using the two ways you have identifed, explain to Zippo' s
fnance director the advantages and disadvantages of these two
ways of improving cash fow. [ 6 marks]
Marks 2 marks for applyittg points to Zippo; 2 marks for explainittg in detail and
2 marks for evaluation.
Student' s answer A loan will give the company more cash. It could ask the bank to
pay this loan in December so that cash fow does not becotne
negative. The frm will have to pay i nterest on the loan, which
will add to the overheads of the business .
Examiner' s marks
and comments
Ofering less credit to retail shops will mean fewer debtors,
thereby turning customer debts into cash and improving cash fow.
Brii, but accurate. 3 marks for the first paragraph - all skills are shown.
2 marks for the second paragraph - there is no evaluation. The student
could have said that shops may stop buying cards from Zippo 's and buy
cards from a firm that of ers more credit. 5 I 6 marks.
Common mi sconcepti ons and errors
Error
' New busi nesses do not need cash
fl ow forecasts as they have onl y
j ust started. '
Why i t i s wrong
They need cash fl ow forecasts more
than most fi rms ! They need them to:
a) appl y for start-up l oans from
banks
b) encourage peopl e to i nvest i n
the busi ness
c) mdndg� c��h fl ow� tt t v�ry
expensi ve ti me in a busi ness' s
l i fe cycl e .
Cash flow planning
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Error
Confusi ng cash fl ow wi th profi t:
' I f a fi rm i s maki ng a profit i t wi l l
have a good cash fl ow. '
Forgetti ng the negati ve si gns - put
fi gures i n brackets.
Why i t is wrong
Cash and profit are very different. A
profitabl e busi ness can run out of
cash. A l oss- maki ng busi ness coul d
have pl enty of cash, for exampl e,
ACE Sui t Co. Ltd in March 2005:
Sal es = 200 suits at $75 = $ 1 5, 000
Vari abl e costs = $25 per suit = $ 5, 000
Fi xed costs = $3, 000
Profit in March = $7, 000
BUT i f hal f of the suits were sol d on
credit and al l costs were paid in cash:
Cash i n = $7, 500
Cash out = $8, 000
Net cash fl ow = ( $500)
Mi stakes wi l l be made with mi nus
addi ti ons if the mi nus si gns are not
shown.
e Try thi s Ri shav and Abdul l ah are fri ends who want t o set up thei r own radi o
stati on. They wi l l need a l arge amount of equi pment. The fi nance wi l l come
from i nvestors and the bank and they a l so pl an to sel l adverti si ng space. I t
wi l l take several weeks for fi rms to pay for adverti sements so the fri ends
wi l l have to attract many l i steners fi rst. Thei r accountant has constructed a
cash fl ow forecast for the fi rst three months:
($)
May June Jul y
Cash i n from adverti sements 0 1 , 500 3, 000
Capi tal and l oans 4, 000
Cash out:
Purchase of equi pment 5, 000 2, 000 0
Sal ari es 500 500 500
Overheads 1 , 000 1 , 000 1 , 000
Total cash out: 6, 500 3, 500 1 , 500
Openi ng bal ance 0 (2, 500) (4, 500)
Net cash fl ow (2, 500) X 1 , 500
Cl osi ng bal ance (2, 500) (4, 500) (3, 000)
a) Cal cul ate the val ue of net cash fl ow in J une. [ 1 mark]
b) What i s meant by the term ' cl osi ng bal ance' ? [2 marks]
c) Use the cash fl ow forecast and the case to expl ai n why the cl osi ng
bal ance i s negati ve at the end of J ul y. [4 marks]
d) Expl ai n why it was so i mportant to Ri shav and Abdul l ah to have thi s
cash fl ow forecast before they started thei r busi ness. [6 marks]
Examiner's tip
/ Explain how a cash flow forecast helps with planning the finance needs
of a new business - use the figures in the table to help you.
35 .
NIT 9 F i na nci ng bus i ness
acti vi ty
Key objectives • To understand why businesses need fnance
Key definitions
e To explain the advantages and disadvantages of diferent sources
of fi nance
e To understand which sources of fnance are most suitable in
diferent situations
Sources of fi nance can be
I NTERNAl fi nance: Rai sed from
/ either I NTERNAL or EXTERNAL
wi thi n the busi ness
EXTERNAl fi nance: Rai sed from
i ndi vi dual s or i nsti tuti ons
I
Retai ned profi t: Profits kept i n
outsi de the busi ness
I
the busi ness after payments to loans: Fi nance obtai ned from
owners (di vi dends), e. g. : an i nstituti on, e. g. bank, that
Net profi t after tax $ 5, 000 must be repai d at some ti me in
Di vi dends $2, 000 the future
Retai ned profit $3, 000
I
Sal e of shares: A share is a
Sal e of assets: Rai si ng fi nance
by sel l i ng off assets the busi ness
no l onger needs
I
Control of worki ng capi tal :
Sel l i ng off stocks and aski ng
debtors to pay more qui ckl y
document gi vi ng part
ownershi p of a company.
Sel l i ng more shares rai ses
addi ti onal capital
I
Debentures: A l ong-term l oan
to a busi ness - the l ender
recei ves a certi fi cate i ndi cati ng
date of repayment
I
Overdraft: When the bank
agrees for the busi ness to
borrow up to an agreed
amount. The amount borrowed
can be vari ed, but i nterest rates
are often hi gh
• 36
Financing business activity
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Term
Debt factori ng
Leasi ng
Hi re purchase
Trade credit
Busi ness pl an
Start-up fi nance (capital)
Capital expendi ture
Revenue expenditure
Defi niti on
Thi s i s the sal e of debt i nvoi ces
(money owed to a busi ness by its
customers) to a speci al ist fi nance
organi sati on.
Obtai ni ng the use of an asset i n
exchange for regul ar l easi ng charges
i nstead of buyi ng i t outri ght.
Thi s al l ows a busi ness to purchase an
asset by maki ng monthl y payments
over a peri od of ti me.
Credi t gai ned from suppl i ers.
A report that gi ves detai l s of the
marketi ng, producti on and fi nanci al
pl ans of a new busi ness start-up.
The capi tal needed to set up a
new busi ness.
Spendi ng on fi xed assets that wi l l
l ast more than one year.
Spendi ng on day-to-day expenses,
not fixed assets.
Exampl es
If a customer owes a busi ness
$60,000 to be pai d i n three months'
ti me, the busi ness coul d sel l thi s
i nvoi ce to a debt factor for
i mmedi ate cash, but at a di scount.
Many computers are l eased to
busi nesses - they become outdated
qui ckly, so purchasi ng them can be
a di sadvantage.
Thi s i s an al ternati ve to usi ng cash
to buy the asset outri ght.
A suppl i er del i vers goods val ued at
$2, 000, but these wi l l be pai d for i n
two months' ti me.
See page 1 39 i n I GCSE textbook
(2nd edi ti on).
Fi nance wi l l be needed for such
assets as bui l di ngs and stocks before
tradi ng can begi n.
Bui l di ngs, machi nery and vehi cl es
Wages, purchase of materi al s and
el ectri ci ty
Sampl e questions and answers
Spendi ng pl an
Sample questions 1) Heathwood Engineering plc needs additional fnance. The
business has three spending plans . Select one source of fnance
from the list below for each plan. State one reason for the source
of fnance selected i n each case.
Suitabl e source of fi nance Reason for choi ce
New computers for the office
Takeover of a ri val busi ness
Temporary i ncrease in stocks
Sources of fnance: Issue of shares
Leasing
Trade credit
Long-term loan [6 n1arks]
Marks 1 mark for each appropriate source plus 1 mark for relevant reason.
37 •
UNIT 9
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Student' s answer
Spendi ng pl an Sui tabl e source of fi nance Reason for choi ce
New computers for the office Leasi ng As computers wi l l become out of
date qui ckl y, Heathwood does not
actual l y want to own them.
Takeover of a ri val busi ness I ssue of shares The takeover i s l i kel y to be
expensi ve and i ssues of shares can
rai se a l ot of capi tal . A l ong-term
l oan wi l l l ead to hi gh i nterest
payments.
Temporary i ncrease in stocks Trade credit No need for a l ong-term l oan i f the
i ncrease in stocks i s temporary.
• 38
Examiner' s marks Full marks - correct choices and good reasons given.
and comments
2) Jill and Zuki are two friends who want to open a new beauty
salon. They are both skilled hairdressers, but they have not
owned their own business before. They are applying for a large
bank loan to help with ' set-up' costs.
i) What ' set-up' costs will need t o be paid before the business
starts to trade? State two examples. [� n1arks]
Marks 1 mark each for appropriate costs identifed.
Student' s answer Rent of premises, purchase of hairdryers .
Examiner' s marks and 2 marks.
comments
ii) State three questions that the bank manager is likely to ask
Jill and Zuki before giving the loan. Briefy explain why
each question is important. [ 6 marks]
Marks 1 mark for each relevant question; 1 mark for each relevant reason.
Student' s answer Qt. Where are you setting up your business?
Reason: So that he can tell whether it is a good area for this
type of business .
Q2. Have you done any market research?
Reason: So that he can tell whether the two friends have
looked into the possible demand.
Q3 . How much money are Jill and Zuki going to i nvest?
Reason: So that the bank n1anager can see that the bank will
not be taking all of the risk.
Examiner' s marks Full marks again - three good questions plus relevant reasons .
and comments
3) i) What do you understand by a business plan?
N
Marks 2 marks for good understanding; 1 mark for some understa11ding.
[2 n1arks]
Student' s answer A business
p
lan contains details of a new business start-u
p
includin
g
market research and aims of the business.
Financing business activity
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Examiner' s marks There is enough understanding shown for 2 marks.
and comments
ii) Jill and Zuki decide to draw up a business plan. Will this
convince the bank n1anager to give a loan? Explain your
answer. ¸ [ 6 nurks]
Marks 2 marks for explaining what a business plan would contain for this business
(knowledge and application); 2 marks for analysing how it could iriluence
the decision; 2 marks for evaluating its impact on the decision.
Student' s answer I n their business plan, Jill and Zuki will present useful information
about their idea for the beauty salon. They should include market
research about other salons, details of their experience, where the
salon will be located and how much fnance they will need. This
will defnitely mean that the bank manager will lend then1 all the
money they need. The manager will see that they have thought
about the business and so will be prepared to lend the money.
Tr to mark this yoursel- examiner's marks and comments are on page 1 02.
Common mi sconcepti ons and errors
Error
'Al l l i mited compani es can sel l more
shares on the Stock Exchange. '
' Sel l i ng more shares i s an exampl e
of i nternal fi nance. '
' Shares are a form of l ong-term l oan. '
' An overdraft i s a l ong-term l oan. '
Why i t i s wrong
Onl y publ i c l i mited compani es can
do thi s - pri vate l i mi ted compani es
cannot do thi s.
Even though sharehol ders own a
company they are ' outsi de'
provi ders of capi tal - the company i s
a separate l egal unit. Sal e of shares
i s external fi nance.
No - shares do not have to be
repai d by the company. Al l l oans
have to be repai d eventual l y.
No - an overdraft can be cal l ed back
by a bank at short noti ce. A l ong­
term l oan i s for an agreed peri od,
usual l y more than ten years.
e Try thi s a) The tabl e bel ow l i sts three sources of busi ness fi nance. Copy the tabl e
and bri efl y expl ai n LÎÜ advantage and LÎÜ di sadvantage of each source.
[6 marks]
Source of fi nance Di sadvanta

e
I ssue of new shares by a company
Overdraft
Long-term l oan
b) Use the fol l owi ng tabl e to i ndi cate wi th a ti ck whether the fol l owi ng
sources of fi nance are i nternal or external : [ 4 marks]
39 •
UNIT 9
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 40
Source of fi nance I nternal External
Debenture
I ssue of shares
Retai ned profit
Sal e of bui l di ngs
c) The di rectors of a publ i c l i mited company are pl anni ng to doubl e the
si ze of the exi sti ng factory. Thi s wi l l cost $5m. The company al ready has
substanti al l ong-term l oans. The di rectors sti l l control j ust over 50% of
the shares between them. They are consi deri ng four possi bl e sources of
fi nance: new share i ssue, l ong-term l oan, overdraft, retai ned profits.
Advi se the di rectors on the most sui tabl e method of fi nanci ng thi s
expansi on. Gi ve reasons for your answer. [8 marks]
Examiner's tip
/ Think about how long they will need the finance for.
Term
NI T 1 0 Orga n i sati ona l
str uctu re
Key objectives • To explain
w
hat is meant by ' organisational structure' and why
businesses need one
e To understand how organisati onal structure can be shown on a
diagram and why it changes as frms expand
e To analyse the diferent ideas connected to organisational
structure
e To understand the impact of decentralisation on a business
Key definitions The diagram below shows the typical organisational structure of a
business. This structure shows how the business is organised
internally with levels of responsibility:
Human
Sal es resources
manager manager
� �
| l I Ì Ì
�����
Chi ef
executive

|
Admi n Accounts
manager manager
� �
Defi niti on
Promoti ons
manager

| Ì I
�����
The verti cal l i nes show the
chai n of command - the l i nks
through whi ch i nstructi ons are
passed down from managers to
subordi nates
The hori zontal l i nes show the
l evel s of hi erarchy ¯ the
managers on each l evel have
equal authority
The span of control is the number
of staff who report to each
manager. The span of control of
the sal es manager i s fi ve
Exampl es
Delegation Gi vi ng a subordi nate the authority
to do certai n tasks.
A marketi ng manager may del egate
the task of gatheri ng market data
Hi erarchy
Tal l structure
Functi onal departments
Line managers
Staff manager
The di fferent l evel s of authority
in the organi sati on.
Thi s type of organi sati on has many
l evel s of hi erarchy and smal l spans
of control .
Departments i n an organi sati on that
have responsi bi l ity for one part of
the busi ness ..
Have di rect responsi bi l ity for
deci si ons and for the work of staff.
Speci al i st advi sers who support the
l i ne managers and di rectors.
to a worker i n hi s or her department
The chart above shows the hi erarchy
of the busi ness.
Marketi ng
Accounti ng
Producti on
Marketi ng manager, accounts
manager.
I T speci al i st, economi st.
41 •
UNIT 1 0
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Term Defi niti on Exampl es
Decentral i sation Taki ng deci si ons away from the
centre of an organi sati on - away
from Head Offi ce.
The Egypti an di vi si on of the German
car fi rm Mercedes may take many
deci si ons wi thout referri ng back to
di rectors in Germany.
Sample questions and· answers
• 42
Sample question Yuan's business has grown rapidly in three years. Setting her flower
business up as a sole trader, Yuan had nude all of the in1portant
decisions. Now she has three fower shops and a home delivery service.
She employs an accountant, managers for the shops, and a transport
manager. The current organisational stn1cture is shown below:
Yuan
Shop
manager A
Shop
manager Û

|
a) What is the span of control of shop manager A?
Marks 1 mark for correct answer offour.
Student' s answer Four people report to this manager.
Examiner's marks Good! 1 mark.
and comments
[1 mark]
b) How many levels of hierarchy are there in this business?
Marks 1 mark for correct answer ofthree.
Student's answer There are four levels of hierarchy.
Examiner's marks No - there are only three levels including Yuan hersel 0 marks.
and comments
[1 mark]
c) If shop A expands and four more staf are employed, the
manager' s span of control will increase.
i) Explain one advantage of this .
ii) Explain one disadvantage of this .
[3 tnarks]
[3 marks]
Marks 1 mark for identiying each factor and up to 2 marks for explaining each m1e.
Student' s answer i) A wider span of control will mean that the manager will have
v
to delegate more authority to each worker. This could n1ean
that their jobs become n1ore interesting.
Examiner's marks Full marks for an accurate and well explained answer.
and comments
. I
I
f
I
I
I
I
I
Organisational structure
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Student's answer
Examiner's mark�
and comments
ii) A wider span of control 1neans a longer chain of con1n1and, so
messages will take longer to reach the staf
No marks here - a wider span ofcontrol does not create lll ore levels of
hierarchy and thereore does not make the chail ofconunand lo1 1._ �er. The
student could havlexplained the reduced control that the tnanager will have
with a wider span ofcontrol.
d) How do you think the organisational structure of Yuan' s
business might change if it continues to grow? Explain
your answer. [8 n1arks]
Marks 2 marks for identiying possible changes; 2 marks for applying them to this
business; 2 marks for explaining I analysing changes and 2 marks for
evaluation.
Student' s answer If Yuan' s business grows, it will need a new structure. More
departments will be need
e
d, for exan1ple, marketing and human
resources . Yuan might need to recruit some n1ore senior n1anagers,
as she will not be able to take all of the decisions herself A
marketing director would help her to advertise the fl ower shops .
The chain of command will get longer so that staf in the shops
will have to wait longer for messages from the top. The structure
will depend on the span of control that Yuan wants and whether
she decides to decentralise the business . If she decides to grow
fowers as well as sell them, a new division will be needed.
Tr to mark this for yoursel The examiner's 1narks and comments are on
page 1 03.
Common mi sconcepti ons and errors
Error
' Del egati on i s gi vi ng al l responsi bi l ity
to workers. '
'Staff managers control the staff.'
'A wi der span of control means that
more managers are needed. '
Why it i s wrong
Del egati on gi ves authority or power
to workers to do a job - the
manager sti l l has the fi nal
responsi bi l ity.
Staff manages are speci al i st advi sers
- they do not control the l i ne
workers in the busi ness.
A wi der span of control means that
more workers report to each
manager - so fewer managers mi ght
be needed.
e Try thi s Ahmed Cl othi ng Ltd i s a cl othi ng manufacturer. I t has three factori es i n
three di fferent countri es. Each factory i s control l ed by a factory manager
who i s hel ped by three producti on supervi sors. Each supervi sor control s the
work of fi ve producti on l i ne workers.
a) Sketch the organi sati on chart for one of Ahmed' s factori es. [4 marks]
43 .
UNIT 1 0
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 44
b) The company has three l evel s of management at Head Offi ce. The
busi ness i s control l ed by Abadul l ah Ahmed. He bel i eves i n taki ng al l of
the i mportant deci si ons hi msel f. The factory managers have to ensure
that Abadul l ah's desi gns of cl othes are fol l owed. Each factory pays i ts
workers exactl y the same wages. Methods of producti on are decided on
by Abadul l ah and hi s Head Offi ce managers.
i ) Expl ai n one probl em that coul d result from havi ng many l evel s of
hi erarchy.
[4 marks]
i i) Woul d you descri be Ahmed Cl othi ng Ltd as bei ng a central i sed
busi ness? Expl ai n your answer. [4 marks]
i i i ) Di scuss whether Abadul l ah shoul d decentral i se his busi ness. [ 8 marks]
Examiner's tip
7 You should try to define decentralisation, give advantages and
disadvantages and then make a decision.
NI T 1 1 Ma nag i ng a bus i ness
Key objectives • To explain the role of managers in business
Key definitions
e To understand the qualities needed for a good 1nanager
e To outline the diferent management responsibilities within
diferent departments
Pl anni ng: Setti ng ai ms and
targets for the organi sati on,
e. g. to i ncrease market share
by 2%
A manager has
responsi bi l ity for
� resources and deci si on
maki ng. The rol e of
managers i ncl udes:
Control l i ng: Checki ng that the
ÑÑ.. targets are bei ng met and
apprai si ng staff
Term
Co-ordi nati ng: Bri ngi ng peopl e
and departments together so
that they work towards
common ai ms
I niti ative
Strategic deci si ons
Tactical deci si ons
Operati onal deci si ons
Deci si on-maki ng process
Chief �xecutive
(Managi ng Di rector)
Commandi ng: Usi ng
authority to gi ve and
di scuss tasks and targets
to staff
Defi niti on
Abi l ity to work on one' s own and to
make suggesti ons for sol vi ng
probl ems.
I mportant, l ong-term deci si ons, that
can affect the overal l success of
the busi ness.
Frequentl y taken and l ess i mportant
deci si ons.
Day-to-day deci si ons taken wi thi n
each department.
The stages a manager shoul d go
through before taki ng an i mportant
deci si on - shown by the
deci si on-maki ng fl ow chart:
Organi si ng: Managi ng peopl e
and resources effecti vel y
towards achi evi ng the ai ms of
the organi sati on
Exampl es
I f qual ity of output i s fal l i ng,
a manager mi ght come up wi th
an i dea to i mprove i t.
Pepsi deci des to open thei r own
cafes.
Shoul d we buy trucks or l ease them?
Whi ch dresses shoul d we put i n the
shop wi ndow?
See fi gure bel ow.
1 Obj ecti ves of 2 I denti fy the
the busi ness �� probl em
4 Consi der opti ons
and take deci si on
The di rector (or seni or manager) i n
charge of al l operati ons wi thi n
a busi ness.
Try to fi nd out the name of the
Chi ef Executi ve of a wel l known
company in your country.
45 .
UNIT 1 1
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Term
Human resources manager
Marketi ng manager
Fi nance and accounts manager
Operati ons manager
(Producti on manager)
Admi ni strati on manager
Defi niti on
Responsi bl e for al l aspects of
trai ni ng, moti vati ng and apprai si ng
staff.
Responsi bl e for al l aspects of market
research, the marketi ng mi x, and
sal es performance of products.
Responsi bl e for keepi ng fi nanci al
records, produci ng annual accounts,
and control l i ng cash fl ows.
Exampl es
The manager wi l l negoti ate wi th
trade uni ons on pay.
The manager wi l l prepare job
descri pti ons and j ob speci fi cati ons
for recrui ti ng new staff.
The manager wi l l deci de the
pri ce at whi ch each product is sol d.
I f thi s i s too hi gh, few consumers
wi l l buy i t.
I f the net cash fl ow i s negati ve, thi s
manager wi l l be responsi bl e for
rai si ng addi ti onal fi nance.
Responsi bl e for produci ng the Orderi ng stocks of raw materi al s,
product/servi ce in the ri ght quanti ti es checki ng on qual ity standards, usi ng
and to the correct qual ity l evel . the most appropri ate producti on
methods.
Responsi bl e for cl eri cal work, IT
equi pment, and mai ntenance of
. bui l di ngs.
Keepi ng records and offi ci al
documents, mai ntai ni ng the computer
system and arrangi ng mai ntenance
to the bui l di ngs when necessary.
Sample q�estions and · answers
• 46
Sample questions 1) Match the areas of responsibility (see list below) to
the manager:
Manager
Marketi ng
Operati ons (Producti on)
Fi nance
Admi ni strati on
Areas of responsibility:
i) arranging bank loans
Responsi bl e for:
ii) deciding which newspaper to advertise in
iii) checking on quality l evels
iv) organising the post roo1n for despatch of letters.
Marks 1 mark for each correct answer.
Student' s answer
Manager Responsi bl e for:
[4 marks]
Marketi ng Deci di ng whi ch newspaper to
advert
.
i se i n
Operati ons (Producti on)
Fi nance
Admi ni strati on
Checki ng on qual i ty l evel s
Arrangi ng bank l oans
Organi si ng the post room for
despatch of l etters
Managing a business
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Examiner' s marks 4 marks - all correct.
and comments
Marks
Student' s answer
Examiner' s marks
and comments
2) Harry owns a TV repair shop. He en1ploys five n1echanics and
two adn1inistration staf He plans to open a new branch in
another towq. He needs to recruit a tnanager for this shop. The
manager will have to organise the workers , and deal with
customers and all problems. Explain two qualities that you think
a successful manager of Harry' s new shop is likely to have.
[6 marks]
1 mark for each point and 1 mark for putting each point into context; 1
further mark for explaining each point.
The manager will need to be knowledgeable about tel evision
repair. It will be easier for the n1anager to run the shop if he or
she, as well as the workers, has the ability to repair the televisions.
The manager will also need good con1n1unication skills so that he
or she can speak clearly.
416 marks. Two relevant points were made, but only the first was
developed in the context o TV repairs. The second point, about good
communication skills, could have been developed by explaining that these
would be necessar to make technical details clear to customers.
Common mi sconcepti ons and errors
Error
' Managers j ust gi ve orders to
other workers. '
' I f managers take deci si ons
careful l y, there wi l l be no ri sks for
the busi ness. '
' Human resources managers j ust
recruit and sack staff.'
Why it i s wrong
There are so many other parts of a
manager's j ob - and woul d ' gi vi ng
orders' be a very effective styl e of
management?
Even the best managers taki ng the
best deci si ons wi l l have to accept
some ri sk - changes to the economy,
for exampl e, are not under the
control of managers.
HR managers al so have responsi bi l ity
for trai ni ng, staff apprai sal ,
negoti ati ng with uni ons, keepi ng
staff records and moti vati ng staff.
e Try thi s a ) Expl ai n one reason why you thi nk i t i s i mportant for a manager t o set
ai ms or targets for the busi ness. [4 marks]
b) A manager i s worri ed about fal l i ng profits. She knows that a maj or
change i s needed to sol ve thi s probl em. Before taki ng a deci si on she
47 .
UNIT 1 1
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Detai l s
Age
Education
Restaurant experience
Mai n busi ness ski l l s
' Describe your mai n
personal qual ities'
'What plans would you have
for the restaurant?'
• 48
deci des to use the deci si on-maki ng flow chart. Fi l l in the gaps usi ng the
sentences bel ow:
4
*
Col l ect and analyse data
Revi ew - was it successful ?
Consi der opti ons and take deci si on
3
[3 marks]
c) Umeel i s reti ri ng after 25 years of managi ng hi s own restaurant. I t i s a
very successful busi ness. He empl oys 25 trai ned staff and needs to recruit
a new manager. After adverti si ng the j ob, he must deci de between two
appl i cants. He has gathered the fol l owi ng i nformati on about them:
Person A
35
Busi ness degree
3 years as j uni or manager.
Moti vati ng staff, good
communi cator.
' I am a natural l eader and I am
ambiti ous for mysel f and
the restaurant. '
' I woul d ai m to doubl e i ts si ze and
empl oy more staff.'
Person B
55
A l evel s
20 years as chef and then 5 years
as manager.
Cooki ng, orderi ng ri ght amount
of stocks.
' I am a very hard worker. I enjoy
gi vi ng peopl e pl easure wi th the
food I cook. '
' I woul d l i ke to encourage staff to
cook even hi gher qual ity food. '
On the basi s of thi s i nformati on, whi ch person woul d you choose for
the manager's j ob? Justi fy your answer. [ 1 0 marks]
Examiner's tip
/ Think of the qualities of a good manager and apply these to the
information above. The final choice might depend on the aims that
Umeel has for the business.
NI T 1 2 Commu n i cati on 1 n
bus i ness
Key objectives • To understand why good conlmunication is inlportant to
business
Key definitions
The sender of the
message shoul d send i t
i n cl ear l anguage and
usi ng the most
appropri ate method
Term
Verbal or spoken communication
Written communicati on
Vi sual communi cati on
Formal communi cation
I nformal communi cation
Barriers to communi cati on
I nternal communicati on
External communi cati on
e To explain the advantages and disadvantages of diferent
communication methods
e To examine why barriers to communication exist and how
they can be reduced
One-way communi cati on al l ows
for no feedback, e. g. a safety
noti ce on a fi re door
The communi cati on method or
medi um i s how the message i s
sent, for exampl e, written e-mai l
or a face-to-face conversati on
Feedback al l ows for two-way
communi cati on, e. g. a repl y to a
questi on
Defi niti on
The sender speaks di rectl y to the
recei ver(s) .
The message is sent in a written
form.
The message i s put i nto a form that
can be understood vi sual l y, not
wri tten or spoken.
Messages sent by usi ng the channel s
set up by the organi sati on.
Messages through the ' grapevi ne' of
i nformal contacts.
The reasons why communi cati on fai l s.
Messages sent and recei ved by
peopl e wi thi n the organi sati on.
Messages sent outsi de of the
organi sati on.
The recei ver shoul d
understand and act
upon the message. I f
asked for, feedback
shoul d be gi ven
Exampl es
T . Tel ephone
2. Meeti ngs
3. Conversati on
T. Letters
2. Memos
3. E-mai l s
T. Graph of sal es fi gures
2. Vi deo
3. Posters
T . Reports
2. Mi nutes from a meeti ng
Staff tal ki ng at breaks or
l unchti mes.
T. Uncl ear l anguage
2. Too many l evel s of hi erarchy
3. Usi ng the wrong method
T . Manager tal ki ng to workers
2. Noti ce on company noti ce board
or i ntranet
T . An order sent to a suppl i er
2. Letter to a customer
49 .
UNIT 12
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Sample questi ons and answers
• 50
Sample questions 1) Choose the best n1ethod of conununication. Match the message
(table A) with the method c communication (table B) . [4 n1arks]
A ¯ the message
a) Li st of staff names who
have Fi rst Ai d trai ni ng
b) Urgent order to suppl i er
c) Detai l ed map of how to
get to the factory to be sent
to ten vi sitors arri vi ng thi s
afternoon
d) Contract of empl oyment
for new worker
Marks 1 mark for each correct answer.
Student' s answer a) ¯ iii)
b) ¯ ii)
c) ¯ iv)
d) ¯ i)
B ¯ the method of
communication
i) Letter
ii) Tel ephone cal l
i i i) Noti ce board
iv) E-mai l
Examiner's marks Full marks - do you understand why these are the correct methods to

se?
and comments
2) Explain two advantages of managers using meetings with staf as
a main form of communication. [ 4 nnrks]
Marks 1 mark each for identiying an advantage plus 1 mark each for explahzing.
Student' s answer Meetings between a 1nanager and workers allow for feedback. This
means that if the worker does not understand the tnessage then he
or she can ask for more information.
Another advantage i s that workers n1ight be more tnotivated.
Examiner's marks 3 marks awarded, 2 for two benefits, but only one c them is explained.
and comments Te studettt could have added that by allowing talking and discussion between
manager and staf the worker will feel more involved and keen to work hard.
Common mi sconcepti ons and errors
Error
'Communi cati on i s al ways more
effecti ve vi a computer. '
'Two-way communi cati on i s a waste
of ti me. '
Why i t i s wrong
It may be true that computers ai d
communi cati on, for exampl e,
i nternet and e-mai l s, but it is not
always the case. They can break
down and often l ead to too many
messages bei ng sent - the recei ver
may not be abl e to tel l whi ch are
the most i mportant ones.
Two-way communi cati on may take
more ti me than one-way, but i t has
many benefi ts. I t al l ows for
feedback, questi ons and
i nvol vement of the staff.
Communication in business
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Error
' Letters are the best form of
communi cati on. '
Why it is wrong
Thi s i s often not true. They can be
too formal and ti me consumi ng ­
they al so do not al l ow for
i mmedi ate feedback. The choi ce of
the best medi um of communi cati on
must take many factors i nto
account.
e Try thi s A marketi ng manager for a sweet manufacturer wants t o send a message to
the owners of the 25 retai l shops that sel l the fi rm' s product. The message
gi ves detai l s about an ex�iti ng new product wi th col ourful packagi ng and a
new brand n�me.
a) I s thi s an exampl e of i nternal or external communi cati on? Expl ai n your
answer bri efly. [ 2 marks]
b) Woul d you advi se the manager to use a tel ephone cal l to every shop
owner, an e-mai l message to each s hop, or a vi deo sent to al l shop
owners pl us posters? J ustify the method of communi cati on you choose.
[ 8 marks]
c) 'As my busi ness has expanded to over 400 workers, I fi nd i t more and
more di ffi cult to communi cate wi th staff. They j ust do not read my
noti ces. I thi nk I wi l l send them a newsl etter each week, ' the managi ng
di rector of a l arge suit-maki ng company tol d hi s secretary. Expl ai n two
possi bl e barri ers to communi cati on resul ti ng from usi ng ei ther DDîÍC0S
on boards or newsleters. [6 marks]
51 •
NI T 1 3 Moti vati on at wor k
Key objecti ves • To understand the diferent motivation theories
e To understand what n1otivates workers
e To know about the diferent types of payment methods and
other ways workers can be motivated
e To understand how to choose suitable ways of giving job
satisfaction to diferent types of work
e To understand diferent styles of leadership
Key defi ni ti ons
Tayl or
Money i s the mai n moti vator
Motivati on Theori es
(pay more money to i ncrease motivation)
McGregor i denti fi ed two types of manager
- those who bel i eve i n Theory X and those
who bel i eve in Theory Y.
a = sel f-actual i sati on
b = esteem needs
Theory X
The average person
does not l i ke work.
Workers must be
constantl y sup�rvi sed
so they wi l l work.
Moti vati on is from
external factors, e. g.
pay schemes where the
workers are pai d more
for i ncreased output
Term
Moti vation
(a) Monetary rewards
• 52
Theory Y c = soci al needs
d = safety/securi ty needs
e = physi ol ogi cal needs
The average person i s
moti vated by i nternal
factors. To moti vate
workers, you need to
find ways to hel p
workers take an
i nterest i n thei r
work, e. g. gi ve
rewards/i ncenti ves
Progress up the hi erarchy (from e to a) ­
sati sfy/achi eve one l evel , then can move to
the next l evel . Don't necessari l y have to
pay more but can fi nd di fferent ways to
moti vate workers as they move up the
l evel s
Description
Reason why workers want to work
hard and work effecti vel y for the
busi ness.
Wage: payment for work, usual l y
pai d weekl y. Can be cal cul ated by
the number of hours worked (cal l ed
time rate) and pai d overti me
or can be pai d dependi ng on the
quanti ty of products made (cal l ed
pi ece rate).
Examples
Moti vati on can be i ncreased _by:
(a) monetary rewards
(b) non-monetary rewards
(c) i ntroduci ng ways to gi ve job
sati sfacti on.
$ 1 0 per hour pl us overti me
$ 1 0 per product produced
Motivation at work
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Term Descri pti on
Sal ary: payment for work, usual ly
pai d monthl y. In additi on, some
sal ari ed workers al so get commi ssi on
pai d (more pay the more goods they
sel l ) or profit sharing (share of the
profits pai d to empl oyees) or bonus
( l ump sum pai d to workers if they have
worked wel l ) or performance-rel ated
pay (pay whi ch i s rel ated to the
effecti veness of the empl oyee) .
Exampl es
$ 1 0,000 per year
(b) Non-monetary rewards Someti mes cal l ed fri nge benefits.
These are extra benefits gi ven to
empl oyees in addi ti on to thei r pay.
Chi l dren' s educati on fees pai d,
di scounts on the fi rm' s products,
heal th care fees pai d, free
accommodati on, company car.
(c) Job satisfacti on
Leadershi p styl es
The enjoyment a worker gets from
feel i ng that they have done a good
job. There are three mai n ways to
moti vate workers to be more
committed to thei r j ob and work
more effecti vel y:
Job rotation (swappi ng workers
round and onl y doi ng a speci fi c task
for a l i mited ti me before swappi ng
round agai n) .
Job enl argement (extra tasks are
added to the j ob to make it more
i nteresti ng - they shoul d be at a
si mi l ar ski l l l evel ).
Job enri chment (addi ng tasks that
requi re more ski l l and/or
responsi bi l ity) .
Good management and l eadershi p
styl e are i mportant for moti vati on.
A good l eader i s someone who can
i nspi re and get the best out of the
workers. There are three mai n types
of l eadershi p styl e: autocratic,
l ai ssez-fai re, democrati c.
Packi ng for an hour, fi l l i ng
contai ners for an hour, l abel l i ng for
an hour, etc.
Warehouse worker unpacks goods,
sorts orders, stacks shel ves, pi cks
orders, etc.
Hotel recepti oni st answers the
tel ephone, deal s wi th enqui ri es,
takes booki ngs, word processes
l etters, etc.
Autocrati c l eadershi p (manager i"n
charge and gi ves orders) .
Lai ssez-fai re l eadershi p ( manager
gi ves broad obJecti ves and l eaves
the workers to organi se thei r own
way of achi evi ng these obj ecti ves) .
Democrati c l eadershi p ( manager
gets workers i nvol ved i n the
deci si on maki ng).
Sample questions and answers
Sample questions 1) Why might improved motivation of employees increase
productivity? [ 4 111arks J
Marks 1 mark for knowledge that i motivation is high then the desire to achieve
goals is higher; 3 marks i there is a clear linkage between increased
motivation and the increase in peiormance.
Student' s answer As more workers are motivated then they will all be happy to
come to work every day, thus reducing absenteeisn1 . If people are
n1ore n1otivated, they will work harder for the business to their
best ability to try to produce as n1any goods or services as possi bl e.
Also, if there are pron1otion opportunities, they will try to i1npress
the manager and as a result production will increase.
53 •
UNIT 13
Ð Ð Ø Ð Ð Ø Ð Ð Ø Ø Ø Ø Ø Ø Ð Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ð Ð Ø Ø Ø Ø Ø Ø¯ Ø Ø Ð Ø Ð
• 54
Examiner's marks
and comments
Marks
Student' s answer
Examiner's marks
and comments
A good answer with several reasons given as to why productivity might
increase. Full marks.
2) Explain one method that a business could use, which might
increase the motivation of its workforce. [ 3 marks]
1 mark for the method; 2 marks for explaining the impact on motivation.
Job satisfaction - the workforce needs to be satisfed with their j obs
by having better working conditions, knowing there are chances of
promotion, and good wages . Job rotation helps to in1prove job
satisfaction - a group of employees divide themselves and take
shifts at certain times .
Only one method can be rewarded, so 1 mark. The other methods were not
needed and none ofthe methods was explained.
3) The graph shows the weekly wages paid to production workers
at Mimmus plc.
Wages
per week
$400
1 00
Output
200
i) Mimmus plc pays its workers using the paytnent method
shown in the graph above. What method of payn1ent is it
using? Explain your answer. [3 n1arks]
Marks 1 mark for identifying a set amount ofwages paid up to art output of 1 00
units; 2 marks for explaining that the piece rate is then used: that is, the
more output produced above 1 00 units, the more wages are paid.
Student' s answer The workers are paid $200 per week no n1atter how tnuch _ they
produce. After that, piece rate is paid.
Try to mark this yourself- the examiner's marks and comment are on
page 1 04.
ii) Calculate how much the worker will earn if he or she
produces 1 50 units of output. [2 tnarks]
Marks Correct answer 2 marks; 1 mark if correct method, but incorrect answer.
Student's answer $200 7 (50 ? $2) ¯ $300
Try to mark this yoursel- the examiner's marks and com malls are on
page 1 04.
Common mi sconcepti ons and errors
Error
' I ncreasi ng pay wi l l al ways moti vate
workers to work harder. '
Why i t i s wrong
I ncreasi ng pay can i mprove
moti vati on, but i t wi l l not work
every ti me and busi nesses may need
to fi nd other ways to moti vate
workers.

Motivation at work
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Error
'Ti me rate i s pai d at a set peri od of
ti me, for exampl e, each week. '
' Pi ece rate i s where workers get a set
amount of pay and then are pai d
more i f they produce more. '
' Job enl argement i s when more tasks
are added to someone's j ob
descri pti on and they need extra
trai ni ng to do the extra more
diffi cult tasks. '
Why i t i s wrong
Ti me rate i s the amount pai d per
hour worked and may be pai d
weekl y, but so may pi ece rate.
Pi ece rate refers to wages bei ng
rel ated to the output produced and
does not refer to a set amount pai d
whether the worker produces more
or not.
Job enl argement i nvol ves additi onal
tasks bei ng added to the j ob but
they shoul d be of a si mi l ar ski l l l evel .
I f they are more di ffi cul t tasks then
thi s i s j ob enri chment.
e Try thi s Patel Fashi ons i s a retai l busi ness whi ch sel l s women' s cl othes. I t empl oys 1 5
sal es staff who work i n the shop and fi ve more who work i n the offices.
There i s one shop manager who i s in charge of the busi ness. Each of the sal es
staff has a speci fi c j ob and they onl y do thi s one task. For exampl e, some j ust
serve customers at the pay desk, some l ook after the fitti ng room, and others
l ook after the cl othes on di spl ay. Empl oyees keep l eavi ng and the shop
manager regul arly has to adverti se for new empl oyees. ' I do not l i ke havi ng
to spend so much ti me i ntervi ewi ng appl i cants for sal es assi stant jobs. I wi sh
the empl oyees woul d not keep l eavi ng, ' sai d Mari e, the shop manager.
a) Di scuss the different fi nanci al and non-fi nanci al benefits the store
manager coul d use to i mprove moti vati on at the shop, in order to
prevent workers from l eavi ng so regul arl y. Whi ch woul d be the best
method for her to empl oy and why? [ 1 2 marks]
Examiner's tip
/ Explain the advantages and disadvantages of different financial and
non-financial methods of motivation. Select one method and explain
why you think it is the best one for Patel Fashions to use.
b) Woul d j ob rotati on be the best method for Mari e to use in order to
i ncrease j ob sati sfacti on? Expl ai n your answer. [8 marks]
Examiner's tip
/ Explain how Patel Fashions could use job rotation, job enlargement and
job enrichment. Say whether you consider job rotation to be the best
method and why.
c) State whi ch management styl e (democrati c/autocrati c/l ai ssez-fai re) you
woul d suggest for i) Theory X managers and i i ) Theory Y managers.
Expl ai n your choi ce. [6 marks]
¥
55 •
NI T 1 4 Recr u i t ment, tra i n i ng
a nd h u ma n resou rces
Key objectives • To understand the role of the hunlan resources departnlent
e To understand the recruitment and selection process
e To appreciate the diferent types of training
e To know the diference between redundancy and disn1issal
Key definitions
job anal ysi s
• I
i nducti on trai ni ng
Term
Job anal ysi s
Job descri pti on
Job (person) specifi cati on
I nternal recruitment
External recruitment
• 56
The recruitment and sel ecti on process
job descri pti on
I

I
j ob speci fi cati on
sel ect suitabl e i ntervi ews and
appl i cant sel ecti on tasks
(e. g. ski l l or
apti tude tests)
Descri pti on
I denti fi cati on of the tasks and
responsi bi l iti es to be carri ed out by
the person doi ng the job.
The tasks, duti es and responsi bi l iti es
someone wi l l need to carry out as
part of a speci fi c j ob.
The requi red qual i fi cati ons, ski l l s,
personal qual i ti es, etc. for a
speci fi c j ob.
Vacancy i s fi l l ed by a person who i s
an exi sti ng empl oyee.
Vacancy i s fi l l ed by a person who i s
not an exi sti ng empl oyee and wi l l
be new to the busi ness.
4
I
• adverti se the vacancy
send out appl i cati on
forms and shortl i st
sui tabl e appl i cants
Exampl es
A recepti oni st l eaves a company and
when Human Resources l ooks at the
j ob descri pti on, it i s real i sed that
some of the tasks are no l onger
needed. However, the busi ness does
need someone wi th more IT ski l l s.
The recepti oni st' s j ob descri pti on
therefore needs to be rewri tten.
The recepti oni st's j ob descri pti on
now i ncl udes processi ng orders onto
the computer. The recepti oni st is
not requi red to answer as many
queri es because a new tel ephone
system now does thi s.
The recepti oni st's j ob speci fi cati on
wi l l need to i ncl ude I T ski l l s i n
additi on to the usual qual i fi cati ons
and ski l l s of a recepti oni st.
Shop assi stant i s promoted to
supervi sor. The job i s adverti sed on
the company noti ce board or a l arge
busi ness may have a company
newspaper or i ntranet.
A new store manager has been
appoi nted who currentl y works
for another shop. The job was
adverti sed i n l ocal newspapers,
nati onal newspapers, speci al i st
magazi nes and j ournal s, recrui tment
agenci es or centres run by the
government (j ob centres) .
Recruitment, training and human resources
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Term Descri pti on Exampl es
I nducti on trai ni ng An i ntroducti on to the busi ness
for a new empl oyee.
New empl oyee i s shown round
the busi ness, i ntroduced to other
workers, gi ven Heal th & Safety
i nstructi ons, gi ven i nformati on on
rul es and regul ati ons of the
busi ness.
On-the-job trai ni ng Trai ni ng i s gi ven at the pl ace of
work by watchi ng another, more
experi enced empl oyee doi ng the j ob.
A producti on l i ne worker i s shown
what to do by another experi enced
producti on l i ne worker.
Off-the-job trai ni ng Trai ni ng is gi ven away from the
pl ace of work itsel f. Can be at a
di fferent pl ace such as a col l ege or
coul d be at the busi ness's site, but
in a di fferent bui l di ng.
I n a cl assroom usi ng l ecture,
rol e pl ay, case studi es, or computer
si mul ati ons.
Redundancy/retrenchment The sheddi ng of empl oyees because
the busi ness changes.
The busi ness i ntroduces new
technol ogy or cl oses a factory,
therefore fewer workers are
needed.
Di smi ssal The empl oyee i s no l onger empl oyed
because he or she i s unsati sfactory i n
some way.
An empl oyee i s sacked because he
or she i s caught steal i ng stock.
Sampl e questions and answers
Sample questions
Marks
Student's answer
Examiner's marks
and comments
1) Why do businesses carry out a j ob analysis when an e1nployee
l eaves? [4 marks]
2 marks for giving reasons for a job analysis to be drawn up; 2 marks for
explaining why these reasons are important to the business.
A business carries out a job analysis to see whether it needs to
replace the worker with someone who can do exactly the san1e job.
After that, i t will draw up a j ob description outlining all tasks and
duties that the j ob involves and then a j ob specifi cation, which
states the skills and qualifcations that the applicants 1nust have.
The first sentence attempts to answer the qt � estioll , but t he rest (i tlze
response does not directly answer it. The candidate needs to dismss i11 more
detail why a job analysis is carried out and an example li'Ol l ld luwe helped
to explain the answer. Drawing up a job description would then follow, but
only when it has been decided exactly what the job must irwolve ajter the
job analysis is complete. 1 mark.
2) CDF Ltd has just introduced new technology into the business.
It fnds that its employees do not have the appropriate skills
needed to operate this new equipment.
i) Why n1ight this be a problen1 for CDF Ltd? (4 marks]
Marks 2 marks for problems stated; 2 marks for explain in'! the problems.
Student' s answer If the workers do not have the correct skil ls then trai ning will be
needed. The costs of training and/ or recruiting new staf can be
very high. In additi on, while the traini ng takes place, the output
57 •
UNIT 1 4
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• 58
Examiner's marks
and comments
of CDF Ltd is likely to decrease because the workers are either
co-operating with trainers or are the trainers then1selves . Also, if
en1ployees cannot operate the new technology they n1ight fear that
they will lose their j ob and therefore morale tnay be low.
A good answer -full marks. Three problems are stated m1d then explained
as to why they are a problem for the business. Only two problems were
needed for full marks.
ii) How would you suggest that CDF Ltd deals with this
problem? [6 n1arks]
Marks 3 marks for limited sugestions 11ot really explained; 3 further marks if
sugcsti011s are explained.
Student's answer I suggest that it trains some of its employees straight away to
operate the new technology so that they do not spend titne once
the machinery has arrived. It could also advertise for new
employees who are already trained, but this would mean that some
of the current workers would need to be sacked.
Tr to mark this yoursel- the examiner's marks and comments are on
page 1 05.
Common mi sconcepti ons and errors
Error
'A job descri pti on states the
qual i fi cati ons needed for a
parti cul ar j ob. '
' On-the-j ob trai ni ng does not cost
anythi ng because an exi sti ng
empl oyee trai ns the new empl oyee. '
' On-the-j ob trai ni ng i s sui tabl e for a
ski l l ed worker, for exampl e, an
accountant. '
'Off-the-j ob trai ni ng i s al ways away
from the busi ness's premi ses . '
Why i t i s wrong
The job descri pti on outl i nes the
duti es that are i nvol ved i n the
j ob. A job speci fi cati on outl i nes the
qual i fi cati ons and ski l l s that are
needed to carry out the j ob.
On-the-job trai ni ng does cost money
because the experi enced empl oyee
cannot work at the usual rate
whi l e showi ng the trai nee what to
do. The empl oyee wi l l al so need to
keep watchi ng the trai nee to make
sure he or she i s doi ng the job
properl y. Thi s means the company i s
payi ng the experi enced worker, but
he or she is not produci ng the usual
quanti ty of goods.
On-the-j ob trai ni ng i s onl y r�al l y
sui tabl e for unski l l ed or semi -ski l l ed
workers. An accountant woul d need
to be trai ned at col l ege for most of
the ti me and not j ust at hi s or her
pl ace of work. There woul d be
i nsuffi ci ent ti me whi l st worki ng to
go over al l the i nformati on requi red
to become ful l y qual i fi ed.
Off-the-j ob trai ni ng i s away from
the pl ace of work itsel f, but can sti l l
be on the same si te.
Recruitment, training and human resources
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •• • • • • • • • • • • • • • • • • • • • • • • •
e Try thi s a) Suggest three reasons why empl oyees mi ght l eave thei r job. [ 3 marks]
b) I f a l ot of empl oyees left every year, why mi ght thi s be a probl em for
the busi ness? [6 marks]
Examiner's tip
v Include why they are leaving, costs of replacing them, training, morale.
c) Why do busi nesses carry out i nducti on trai ni ng? [ 4 marks]
d) The Royal Garden is a hotel in the centre of a city. It empl oys many
workers in the restaurant and the department whi ch cl eans and servi ces
rooms. Most of these workers have few ski l l s. I n the restaurant there are
al so trai ned empl oyees who work i n the kitchens prepari ng food.
i) The Royal Garden wants to i ncrease the number of restaurants it has
and therefore needs to empl oy more staff to work i n the kitchens.
Di scuss whether i t shoul d use i nternal or external recrui tment for the
new chefs to work i n the restaurants. [ 1 2 marks]
Examiner's tip
v Explain the advantages and disadvantages of internal and external
recruitment. Make a judgement as to which would be the better one to
use and why.
i i) The Royal Garden has recruited several wai ters and wai tresses to
work in the new restaurants. What type of trai ni ng woul d you
suggest the management use to trai n them? J usti fy your choi ce.
[ 5 marks]
Examiner's tip
v Choose a type of training, either on-the-job or off-the-job, and explain
why it would be suitable to train these low-skilled employees.
59 •
NI T 1 5 E mpl oyee a nd
empl oyer associ ati ons
Key objectives • To recognise the diferent types of trade unions
Key definitions
Term
Trade uni on
Craft uni on
General uni on
I ndustri al uni on
White-col l ar uni on
Employer associati ons
Col l ective bargai ni ng
• 60
e To understand how trade unions beneft ernployees and their
role in businesses
e To understand the process of collective bargaining
e To know what happens when confict arises and the diferent
types of industrial action
e To understand the role of employer associations
e To know how confict can be avoided or solved
Descri pti on
An organi sati on formed by a group
of workers, whi ch represents thei r
i nterests.
The reasons for j oi ni ng together
i ncl ude strength i n numbers,
negoti ati ng pay on behal f of its
members, representi ng workers i n
gri evances wi th management,
advi ce i f di smissed/made redundant,
advi ce i f unfai rl y treated, i mproved
worki ng conditi ons.
Represents a particul ar type of
ski l l ed worker.
Represents workers from a vari ety
of trades and i ndustri es.
Represents al l types of workers i n
a parti cul ar i ndustry.
Represents non-manual workers.
An organi sati on formed by a group
of empl oyers to give benefits to its
members.
The reasons for j oi ni ng together
i ncl ude strength i n bei ng a l arge
group, acts as a pressure group,
represents the empl oyers and negotiates
with trade uni ons, shares i deas amongst
the members, someti mes organi ses
di scounts for its members i f buyi ng
i n bul k.
Negoti ati ons between the
management of a busi ness
(or several busi nesses) and a trade
uni on ( or several trade uni ons)
on pay and condi ti ons of
empl oyment.
Exampl es
Nati onal Uni on of Teachers (NUT) .
Nati onal Uni on of Rai l , Mari ti me
and Transport Workers (RMT).
An el ectri ci ans' uni on.
Ski l l ed and unski l l ed workers i n a
uni on whi ch represents workers i n
di fferent i ndustri es.
A uni on whi ch represents al l
workers i n the mi ni ng i ndustry.
A uni on whi ch represents offi ce
workers.
Empl oyers' Organi sati on for l ocal
government.
Uni versi ti es and Col l eges Empioyers'
Associ ati on.
The management of a busi ness
negoti ates pay rates wi th the trade
uni on whi ch represents the
empl oyees.
Employee and employer associations
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Term Descri pti on Exampl es
I ndustri al action Acti on that may be taken by a trade
uni on to put pressure on the
management when i n negoti ati ons.
I t i nvol ves hal ti ng or decreasi ng
• Stri ke (empl oyees refuse to
work) .
Worker parti ci pati on
producti on.
..
Empl oyees contri bute to the
deci si on-maki ng process i n the
busi ness.
• Pi cketi ng (empl oyees who are
taki ng i ndustri al acti on stand
outsi de thei r pl ace of work to
prevent or protest at goods or
peopl e goi ng i n and out of the
busi ness) .
• Work to rul e (rul es are stri ctl y
obeyed so that work i s sl owed
down).
• Go sl ow (empl oyees do thei r
normal work, but more sl owl y) .
• Non-co-operati on (workers refuse
to have anythi ng to do wi th new
worki ng practi ces they
di sapprove of) .
• Overti me ban (refusal to do
overti me).
Worker di rectors, works counci l s,
qual ity ci rcl es, more democrati c
styl es of l eadershi p.
Sampl e questions and answers
Sample questions 1) Explain why workers join trade unions . [6 n1arks]
Marks
Student' s answer
Examiner' s marks
and comments
Up to 3 marks for stating the beneits of trade union membership; 3 marks
for explaining why these are beneits to employees.
If the worker joins a uni on then he or she will be part of a large
group of employees, which has extra bargaining power when
negotiating pay or conditions with the 1nanagen1ent. Pay should be
better and if an employee is treated unfairly then the union will
give him or her advi ce.
The frst beneit is explained but the other two beneits are o11 ly stated and
not explained. Tereore 416 marks were awarded.
2) Toys Galore plc manufactures children' s toys. The c01npany
produces dolls and dolls' clothes. The toys are sold all over the
country and the business also exports 25% of its output. The
workers want a wage increase, but the 1nanagen1ent has said that
this is not possible.
i) Explain three types of industrial action that the union can
advise the workers to take. [6 n1arks]
Marks 1 mark for each ofthe three types ofindustrial action; 1 mark for
explanation ofeach type ofindustrial action.
Student's answer The workers could go on strike, which would 1nean that they
would stop work and so no output would be produced. They
could then picket the factory by standing outside the gates and
trying to stop any delivery lorries or workers going into the
factory. This would mean that the business could not produce any
toys and the managen1ent would be n1ore likely to give in to the
union' s demands. They could also have an overtin1e ban.
61 •
UNIT 1 5
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •• • •
• 62
Examiner's marks 5 I 6 marks were awarded. 3 for the three types c industrial action and
and comments 2 marks for the explanation ofthe first two types ofindustrial action. The
third type was not explained.
ii) Toys Galore plc recently introduced worker participation by
having worker directors. Why mght this help to avoid confl ict
between the workers and the n1anagement of Toys Galore plc?
[5 n1arks]
Marks 2 marks for stating the benitts ofw�rker participation; 2 marks for
explaining why it miht help to avoid conflict; 1 mark for applying it to
Toys Galore pic.
Student' s answer Toys Galore plc produces a lot of products and also exports then1.
Many decisions will have t o be made which will afect the
workers . The worker directors will help to increase the fl ow of
information to the other directors concerning the workers ' feelings
about any changes that are proposed. If these yiews are taken into
account then there is less chance of a decision being n1ade that the
workers will not be happy with.
Tr to mark this yoursel- the examiter' s marks and comments are on
page 1 05.
Common mi sconcepti ons and errors
Error
'Trade uni ons represent al l workers. '
'Trade uni ons al ways cause troubl e
and cal l the workers out on stri ke. '
'A stri ke i s when al l the empl oyees
stop work and don't come back to
work unti l the di spute is settl ed. '
'Worker parti ci pati on i s when
empl oyees get to tel l the
management wha� to do. '
Why i t i s wrong
Trade uni ons onl y represent the
workers who have j oi ned the trade
uni on and not al l the other workers.
Trade uni ons do tal k to
management in some cases and try
to fi nd ways to i ncrease producti vi ty
so that there wi l l be an
i mprovement i n the worki ng
condi ti ons for thei r members.
Only trade uni on members wi l l go
out on stri ke, not the other workers.
Al so, stri kes can be for a short
peri od of ti me, such as hal f a day,
just to make a poi nt. They do not
necessari l y go on for very l ong as
workers do not get pai d for the
ti me they are on stri ke. They onl y
get some pay from the uni on if it
has suffi ci ent funds to pay them
some money.
Worker parti ci pati on i s when
workers contri bute to the
deci si on-maki ng process i n some
way. They do not take it over.
Employee and employer associations
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
e Try thi s a) Match the type of trade uni on wi th the exampl e. [ 4 marks]
Types of trade uni on
Craft uni on
I ndustri al uni on
General uni on
Whi te-col l ar uni on
Exampl es
i) The members are al l secretari es
i i) The members are al l di fferent types
of workers in the mi ni ng i ndustry
i i i) The members are unski l l ed and semi ­
ski l l ed workers i n several di fferent
i ndustri es
i i i) The members are unski l l ed and semi ­
ski l l ed workers i n several di fferent
i ndustri es
i v) The members are al l ski l l ed workers
b) Expl ai n why busi nesses j oi n empl oyer associ ati ons. [6 marks]
Examiner's tip
v Explain three benefits to businesses of joining an employer association.
c) The workers at P and D ltd are unhappy because the management
wants to change the hours they work. The management wants the
workers to work four days at 1 0 hours per day i nstead of fi ve days at 8
hours per day. Thi s is so that the workers can be asked to work overti me
on the fifth day. Sal es of the busi ness's products have been i ncreasi ng
rapi dl y and more output i s needed.
i) The uni on wants the workers to take i ndustri al acti on. Shoul d they
go on stri ke or i ntroduce an overti me ban? Expl ai n your answer.
[6 marks]
Examiner's tip
/ Explain the advantages and disadvantages of strike action and an
overtime ban and then decide which would be more effective for the
workers at P and D Ltd and why.
i i ) The management of P and D ltd has been thi nki ng of i ntroduci ng
worker parti ci pati on. Suggest three di fferent ways they coul d use to
do thi s. [6 marks]
Examiner's tip
v Explain three ways of having worker participation, for example, worker
directors, works councils, quality circles, or more democratic styles of
leadership.
63 •
NI T 1 6 The ma r ket a n d
ma r keti ng
Key objectives • To understand why marketing is important to a business
Key definitions
By i ncome group/soci al group
(A, B, C1
f
C2, D, E)
By gender
(mal e/femal e)
By use of the product
(domesti c or busi ness use)
Term
A market
Product-ori entated busi ness
Market-ori entated busi ness
Marketi ng budget
Marketi ng mi x
• 64
e To know the diference between a product-orientated business .
and a market-orientated business
e To understand what is meant by market segn1entation
e !o understand why and how a business segtnents its tnarket
e To know what are the main elements of the n1arketing n1ix
Marketi ng
The management process whi ch
i denti fi es customer wants,
anti ci pates thei r future wants
and then goes about sati sfyi ng
them profitabl y
Market segmentation
Marketi ng hel ps a busi ness to
i ncrease: its sal es revenue;
profits; market share {or at
l east mai ntai n it) .
It al so may want to: i mprove
the i mage of the product; enter
a new market or market
segment; devel op new
products; i mprove exi sti ng
products
By age {chi l dren, teenagers,
young adults, mi ddl e aged, ol d)
The market i s di vi ded up i nto __
,
By regi on {dry/wet parts of
groups of consumers who
the country)
have si mi l ar needs
Defi niti on
Where buyers and sel l ers come
together to exchange products
for money.
One whose mai n focus of acti vity i s
on the product i tsel f.
One whi ch carri es out market
research ÍO fi nd out consumer wants
before a product i s devel oped
and produced.
A fi nanci al pl an for the marketi ng
of a product or product range for
some speci fi ed peri od of ti me.
It speci fi es how much money i s
avai l abl e to market the product or
range, so the marketi ng department
knows how much it can spend.
Descri bes al l the acti vi ti es whi ch
go i nto marketi ng a product.
They are often summari sed as the
4 P' s: Product, Pri ce, Promoti on
and Pl ace.
By l i festyl e {si ngl e/
marri ed/with chi l dren/etc.)
Exampl e
Fruit and vegetabl e market
A busi ness whi ch i nvented a new
ki tchen tool
A busi ness whi ch makes chocol ate
bars fi ndi ng out what type of
chocol ate bar appeal s to consumers
$500, 000 to market a new chocol ate
bar. The marketi ng department wi l l
then deci de whi ch marketi ng
acti vi ti es it wi l l use to real i se its
target sal es over a speci fi ed ti me
peri od.
Product - new chocol ate bar for
smal l chi l dren
Pri ce - $0. 30
Promoti on - adverti sed on ¯
duri ng chi l dren' s programmes
Pl ace - sol d i n supermarkets
The market and marketing
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Sample questions and answers
Sample question C & C plc produces washing powder. It has been in business for
many years. It started by selling just one type of washing powder,
but now it sells many diferent brands all ai1ned at diferent groups
of customers (low-income, families with babies, sensitive skin,
sports-playing families, people who care for the environment, etc. ) .
When C & C plc was going to introduce a new brand of washing
powder it would carry out market research frst to fnd out what
consumers wanted from their washing powder. The business would
then design a new product to meet these needs . C & C plc has
been very successful and seen its sales grow continuously each year.
Marks
Student's answer
Examiner's marks
and comments
a) Does C & C plc segment its market? Explain your answer.
(2 marks]
1 mark i correctly identiies what is meant by segmenting the market; 1
mark for explaining that C & C plc segments its market.
Yes C & C plc sells products to diferent custon1ers.
The answer is vague. They could have gained the second mark by making
it clear that the products are dif erent and targeted towards dif erent
customers. 1 mark.
b) Why does C & C pl c do this i nstead of selling a single product
to the whole market? [ 4 n1arks]
Marks Explaining why segmentation may be a way ofmeeting OS|0htï UeedS awl
increasing sales, 1-2 marks; 1-2 marks for applying this to C & C plc.
Student' s answer Some businesses aim their products at j ust one group of custon1ers
and not the whole market because this means that the product will
satisf their individual needs. Each brand of C & C washing powder
can be bought by a diferent type of consun1er, for example,
diferent income groups or families with babies. Each product is
made to appeal to just one of these groups. If each product was
aimed at all the groups then it probably wouldn' t n1eet the needs of
any particular customer and wouldn' t sell so well . Segn1enting the
market increases sales of the product and, therefore, n1ay result in
greater profts.
Examiner' s marks A clear understanding ofmarket segmentation, wlu'clt is applied to C & C
and comments plc. Full marks.
c) Do you think C & C plc is a product-orientated business or a
market-orientated business? Explain your answer. (2 nurks]
Marks 1 mark for saying it is a market-orientated business plus 1 mark for
explaining why.
Student's answer C & C pic i s a market-ori entated business as n1arket research is
carried out to fnd out what the cust01ner wants and then i t nukes
the new product according to what the custo1ner wants . If the
business was product orientated then it would develop a new
product and then try to sell it to consun1ers.
65 •
UNIT 1 6
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 66
Examiner's marks
and comments
Tlz e cattdidate explains that it is a market-orientated busit1css, but docs fWt
need to add the second sentence. 2 marks.
Common misconcepti ons and errors
Error
'A market i s in a si ngl e pl ace. '
' Marketi ng i s j ust about
adverti si ng the product. '
Devel opi ng a marketi ng mi x that
does not l i nk together.
Why it is wrong
A market does not have to
·
be a
pl ace. For exampl e, it coul d be
goods sol d over the i nternet.
Marketi ng i s much more than j ust
adverti si ng or promoti ng a product
or servi ce. It i ncl udes consi derati on
of the channel of di stri buti on, the
product itsel f, pri ci ng and
packagi ng.
A marketi ng mi x must be cl earl y
l i nked together. For exampl e an
expensi ve hi gh-pri ced product
shoul d have packagi ng that gi ves
the i mpressi on of a hi gh qual ity
product and it shoul d be sol d i n
shops whi ch are used by hi gh­
i ncome groups. Promoti on needs to
emphasi se the hi gh qual ity of the
product and ensure that it i·s
adverti sed i n pl aces seen by hi gh­
i ncome groups.
e Try thi s Ncube Giftware Ltd manufactures wooden gi ft items whi ch i t exports to
European markets. The di rectors want to expand producti on. Bafana, the
marketi ng di rector, says 'The marketi ng department wi l l pl ay a very
i mportant rol e in hel pi ng the busi ness to expand. '
a) Expl ai n three possi bl e obj ecti ves of the marketi ng department at
Ncube Giftware Ltd. [ 6 marks]
b) What are the four el ements of the marketi ng mi x? [ 4 marks]
c) Do you thi nk i t i s i mportant for the four el ements of the marketi ng mi x
to l i nk together? Expl ai n your answer. [8 marks]
Exami ner's ti p
7 Try to explain why i t might be important to link the elements together
and what might happen if the business does not.
NI T 1 7 Ma r ket resea rch
. Key objectives • To understand why market research is needed
e To understand the diference between prin1ary and secondary
research
e To describe how to carr out market research taking into
account sample size, tpe of sampling method, location and
timing of the research
e To evaluate whether the information gathered is accurate
Key definitions
Postal
\
<Street
Face to face
t
Door to door
Fi nance dept Sal es data
' • Customer servi ce
I ntervi ews
<Tel ephone
Questi onnai res
l nternf sources ,. department
Pri mary research
t
I nternet
Fi el d research - fi rst-hand
i nformati on
Ori gi nal data gathered for a
speci fi c purpose by the busi ness
Secondary research
Desk research - second-hand
i nformati on
Previ ousl y publ i shed data gathered
ori gi nal ly for another purpose
Government
Consumer panel Observati on Experi ments / reports/
Term
Market research
Quantitative data
Qual itative data
Random sampl e
Quota sampl e
External sources stati sti cs
/l "
Market research reports Trate j ournal s Newspapers
Defi niti on
A busi ness fi nds out consumer
wants before a product i s devel oped
and produced.
I nformati on about the quanti ty
of somethi ng.
I nformati on about opi ni ons or
j udgements.
Every member of the popul ati on
has an even chance of bei ng
sel ected (for exampl e, for a
questi onnai re or i ntervi ew) .
Peopl e are sel ected on the basi s of
certai n characteri sti cs, for exampl e,
age, gender, i ncome.
Exampl es
Pri mary research and secondary
research.
How many customers buy col a.
Why customers l i ke col a.
Peopl e are sel ected at random, for
exampl e, every 1 OOOth person i n the
tel ephone di rectory.
A certai n number of peopl e are
sel ected for i ntervi ew or to answer a
questi onnai re. For exampl e, hal f
shoul d be mal e and hal f shoul d be
femal e.
67 •
UNIT 1 7
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Sample questions and answers
• 68
Satnple question Khan pic produces chocolate bars and only sells then1 i n its hotne
country. It produces many diferent brands of chocolate bar which
have been selling well for several years. However, one of its
brands, called ' Bigga Bars ' , has seen its sales fall over the last year.
Karl, the marketing manager, says 'We must do something to
increase total sales revenue from all our products . We n1ust carry
out primary and secondary research. '
Marks
Student' s answer
Examiner's marks
and comments
a) Why n1ight Khan Pic want to carry out n1arket research?
[ 4 tnarks]
1-2 marks for listing one or two reasons why market research might be
carried out, for example, to find out why sales have fallen; 1-2 additional
marks for explaining these reasons.
Khan pi c might carry out market research t o see why its product
was not what customers wanted. I t wants to fnd out why its
product did not meet customer needs, for exa1nple, whether the
price is too high, or whether any new products have been
launched onto the market. When it knows what is wrong with
Bigga Bars, it can decide how to make them more appealing to
customers or maybe withdraw the product and launch a new one if
it is in the decline stage of the product life cycle.
This was a good answer with reasons given for carrying out research. These
reasons were also explained well. 4 marks.
b) What is the diference between primary and secondary research?
[4 marks]
Marks 1-2 marks for stating what is meant by primar research or secondary
research; 1-2 additional marks for explaining both primary and secondary
research and indicating how they are dif erent.
Student' s answer Primary research is frst-hand information, whereas secondary
research is second-hand information.
Tr to mark this answer yoursel- the examiner's marks and comments
are on page 1 06.
c) Describe how Khan pic should carry out prin1ary rnarket
research before deciding whether to sell a new chocolate bar in
a new overseas market. [ 6 n1arks]
Marks Up to 6 marks for describing the process of carring out a method of
primar research. for example, (The business could design a questionnaire
(1J. This would need to be tested to see whether the q1estions are gathering
tlze correct i1iformation the business requires [2}. Care should be taken to
ask questions appropriate to the overseas market [3}. The questionnaire
should then be carried out after deciding whether it wants a random sample
or quota sample [4}. It also needs to decide the sample size to ensure the
Market research
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Student's answer
Examiner's marks
and comments
accuracy ofthe questionnaire [5}. The time, day a11d place to carry out the
questionnaire will be chosen and finally the results will be collated and
analysed [ 6}.
Pri1nary research is about fnding out frst-hand infomution. The
company could cary out a questionnaire door to door. .Before
the product is sold overseas, the company needs to fnd out about the
market and the potential customers. It can then advertise in places
where the product will sell and this will mean a lot of sales and
increased profts.
The candidate has misread the question and said that the company could
carry out a questionnaire door to door. The other points are correct, but do
not answer the question and thereore this would only gain 1 1nark. The
rest ofthe points do not describe how to carry out research.
Common mi sconcepti ons and errors
Error
' Pri mary research is i nformati on
al ready avai l abl e. '
' I nformati on gathered by pri mary
research is al ways accurate. '
Descri bi ng the advantages and
di sadvantages of pri mary research
when asked to descri be how i t
i s carri ed out.
Why i t i s wrong
Secondary research i s i nformati on
that i s al ready avai l abl e and
gathered for another purpose
whereas pri mary research i s ori gi nal
research carri ed out for a speci fi c
purpose.
Poor questi ons, bad sampl i ng
techni ques and carryi ng out the
research i n the wrong pl ace l ead to
i naccurate results.
Need to descri be the process of how
pri mary research i s carri ed out
rather than di scussi ng thi s as a
method of research .
• Try thi s a) Gi ve two advantages to a busi ness of usi ng pri mary market research.
[4 marks]
b) What sources of secondary data are avai l abl e for a busi ness to use i f it
wanted to sel l a new product in a new overseas market? [3 marks]
c) If pri mary market research is carri ed out, expl ai n what the busi ness can
do to i mprove the chances of getti ng accurate i nformati on. [4 marks]
69 •
NI T 1 8 Presentati on of
i nfor mati on
Key objectives • To know how to draw graphs and charts frotn business data
e To know how to interpret graphs and charts
Sample questions and answers
• 70
Sample question XYZ Ltd carried out a questionnaire and here is one of the
answers to a question:
Marks
Student's answer
Examiner's marks
and comments
What age group are you in? Number of people
0-20 1 0
21 -35
36-50
5 1-65
66 7
20
40
20
1 0
a) Using this information, draw a graph or chart to show the ages
of the people who answered the questionnaire. [5 marks]
1 mark for title; 1 mark for each labelled axis; 2 marks for accurately
plotted graph/chart.
45
40
35
30
25
20
1 5
1 0
5
Û ��
0-20 21 -35 36-50 51 -65 66+
The candidate scored 2 marks for a correctly plotted bar chart. 1e axes
were not labelled and there was no title. Total ¬ 2 I 5 marks.
b) The graph shows the average wage levels of etnployees in the
company in 2003 and 2004.
Average annual wages XYZ Ltd 2003 and 2004
1 6
1 4
1 2
, 1 0
g 8

6
4
2
0
2003 2004
D Mal e • Femal e
Presentation of information
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
i) Identif the n1ain changes that occurred between 2003
and 2004.
[3 n1arks]
Marks Identiying that the wages o both men and women increased ¯ 1 mark.
Giving the changes in fgures ¯ 2 marks.
ii) If the company employed 30 men in 2003 and 35 tnen in
2004 calculate the % change in the total male wage costs
between 2003 and 2004. [ 4 marks]
Marks Total wagesfor both years calculated ¯ 2 marks. Percentage increase
correctly calculated ¯ 2 marks. Up to 3 marks can be awarded for correct
method even i there is an error in the calculation.
Student' s answer i) Both male and female wages went up. The average n1ale wage
increased by $3, 000, while the average female wage went up by
$2,000.
Examiner' s marks
and comments
ii) $1 2, 000 ? 30 ¯ $360, 000
$1 5, 000 ? 35 ¯ $525, 000
Increase 525, 000 - 360, 000 ¯ 1 65, 000
1 65, 000/360, 000 ¯ 45. 83%
The candidate has completed all the answers correctly. Three points were
identiied - both male and female wages had increased and the increases
were given. Te second part was correctly calculated. Full marks.
Common mi sconcepti ons and errors
Error
Mi ssi ng off a ti tl e to a graph.
Not l abel l i ng axes.
e Try thi s a) Usi ng t he i nformati on i n t he tabl e bel ow, "draw a graph showi ng the
sal es of the four mai n brands produced by thi s company. [ 5 marks]
D ö D pi c ¯ Sal es revenue ( $mi l l i ons)
Brands 2002 2003 2004
Chocol ate fi g bars 3 5 8
Candy bars 3 4 7
Sugar pops 4 6
Choco melts 4 5 8
b) The graphs bel ow show i nformati on about Mi guel ' s garden busi ness.
Sal es Product A Sal es Product B
Ti me
i ) Descri be what the two graphs show.
Ti me
[ 4 marks]
i i) Suggest one reason for the di fferences between the two graphs.
(See al so Uni t 1 9) [3 marks]
71 •
NI T 1 9 The ma r keti ng m1 x:
product and packagi ng
Key objectives • To explain why businesses brand products
Key definitions
Protects the product/can
transport the product
Term
To i mprove sel l i ng
appeal
Brand name
Brand loyalty
Brand i mage
Product l ife cycl e
Extensi on strategy
• 72
e To know what factors a business takes into account when
branding a product
e To know why packaging is important
e To understand the role that packaging plays in the 1narketing 1nix
e To understand how to draw and label a product life cycle
e To understand what happens to prices, profi ts, sales and pron1otion
as a product passes through the diferent stages of the life cycle
e To explain how the life cycle can be extended
Packagi ng i s the physi cal
contai ner or wrappi ng
for a product
Di spl ays i nformati on
about the product
Descri pti on
The uni que name of a product
whi ch di sti ngui shes i t from other
brands. I t gi ves the brand an
i denti ty of i ts own.
When customers keep buyi ng a
parti cul ar brand i nstead of a
competi tor's brand.
The i mage or i denti ty gi ven to a
p
roduct wh
i c
h
m�kes it different
to its competitors' brands.
The stages a product wi l l pass
through from i ts i ntroducti on,
through its growth unti l it i s
mature and then fi nal l y decl i nes.
A way of extendi ng the product
l i fe cycl e when i t has reached
maturi ty or saturati on stage.
Sui tabl e for the product to
fi t i n/can easi l y di spense the
product
Promoti on of the brand
i mage
Exampl es
Coca-Col a
Ni ke
Mars
Ni ssan
Customer keeps buyi ng Adi das
shoes i nstead of Ni ke.
Coca-Col a i s drunk by peopl e who
are trendy and have fun.
The stages are:
devel opment
i ntroducti on
growth
maturity
saturati on
decl i ne.
I ntroduce a new i mproved versi on
(Pi aystati on 2).
Use a new adverti si ng campai gn.
Sel l i nto new markets.
Sel l through di fferent outl ets.
I ntroduce new vari ati ons of the
ori gi nal product/servi ce.
The marketing mix: product and packaging
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Sample questions and answers
Sample question Mr Patel owns and runs a sn1all private lin1ited cornpany called
Patel Enterprises Ltd which 1nanufactures sportswear. The n1ain
products are polp shirts, shorts and skirts for younger children who
play tennis. The products all have the san1e brand nan1e, 'Tennis
Tiger' . These are high quality clothes which are sold for a high
price. The retail outlets which sell these products are specialist
sportswear shops, but Patel Enterprises Ltd also sells its products on
the internet. The range was launched two years ago and growth in
sales has been rapid. However, over the last six n1onths sales have
continued to increase, but the increase has been slower than in the
previous two years.
Marks
Student' s answer
Examiner's marks
and comments
a) Why does Patel Enterprises Ltd brand its products? [6 marks]
1-2 marks for displaying a knowledge ofbranding; 1-2 marks for
applying this to the context ofPatel Enterprises Ltd; 1-2 marks for
explaining the advantage ofbranding.
A business brands its products to create a unique identity so that
customers will be able to recognise it and buy the products again.
' Tennis Tiger' is the brand name for Patel Enterprises Ltd products .
Customers will recognise the brand name and know that these
products will be of good quality and it will n1ake them more likely
to keep buying the products. Also, if there is a brand logo on the
garments then customers will want to buy nutching polo shirts and
shorts and so the business will increase its sales.
This is a good answer with more discussion than necessary to gain full
marks. Knowledge of branding is clearly given along with a good
application to this case. More than one advantage ofbranding is also
included. Total ¯ 6 I 6 marks.
b) What brand image would you suggest for ' Tennis Tiger' ?
Explain your answer. [ 4 marks]
Marks 1-2 marks for sugesting a suitable brand image; 1-2 marks for justifyin}<
the image in ters ofyoung children.
Student' s answer The brand in1age should appeal to the target audience. It needs to
appeal to people who play tennis and so it should be sporty.
Examiner's marks This is a general answer. It does link to tennis and sport, but it does not
and comments make clear how it would appeal to young children. The student could have
discussed the tiger image being cuddly and fim, which would appeal to
young children. Total ¯ 214 marks.
c) What stage of the product life cycle do you think ' Tennis
Tiger' garments have reached? Justi f your choice. [3 n1arks]
Marks 1 mark for identiying that it has reached the maturity stage ofthe fife
cycle; up to 2 marks for justiying why this is the case.
73 •
UNIT 1 9
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 74
Student' s answer
Examiner' s marks
and comments
It has reached the maturity stage because sales are still i ncreasing at
a rapid rate.
1 mark for correctly identifying the stage, but no further marks as the
student has not made it clear that sales are increasing at a reduri11 rate of
increase. Total ¯ 1 13 marks.
d) The increase in the sales of ' Tennis Tiger' products has slowed
in the last six months. What do you think the cornpany should
do if sales do not increase any rnore? Explain your JHSVCI.
[8 11arks]
Marks 1-2 marks for examples ofsuitable altio/ the lmsi1 1 css rould take; 1-4
marks for showing advantages o these actions explained in terms ofthe
business; 2 marks for justiication as to what the lmsiHess should do.
Student' s answer Patel Enterprises Ltd should increase their advertising of ' Tennis
Tiger' clothes to make more consumers aware of the products. They
could also rn special ofers where custon1ers could get a discount on
a second garment after they had bought one. These initiatives should
encourage sales and see an increase. They could also reduce their
prices to encourage more sales, but this may mean using cheaper
materials if they are to keep the san1e profts. A lower price could
make consumers think that the garments are not of such a high
quality and therefore sales might fall instead of rise. They could also
try to sell the clothes in diferent retail outlets, for exatnple,
supermarkets. However, this may not create the right brand itnage
for the clothes. They could also try to sell then1 abroad.
Tr to mark this yoursel- the examiner's marks and comments are on
page 1 06.
Common mi sconcepti ons and errors
ì
Error
' Packagi ng i s j ust a contai ner for
the product. '
' I n the maturi ty phase of the product
l i fe cycl e sal es fal l . '
'After the saturati on phase of the
product l ife cycl e, a product's sal es
wi l l al ways fal l . '
Why i t i s wrong
Packagi ng i s more than j ust a
contai ner for the product. I t can be
used to rei nforce the brandi ng of
the product and promote i t. The
packagi ng often makes the product
easi l y recogni sabl e on the shel ves
and attracts attenti on.
I n the maturi ty phase of the product
l i fe cycl e sal es sti l l i ncrease, but onl y
sl owl y.
After the saturati on phase of the
product l i fe cycl e, sal es wi l l fal l i f i t
moves i nto the decl i ne phase.
However, i f the busi ness successful l y
uses extensi on strategi es then the
l ife of the product wi l l be extended
and sal es may i ncrease .
The marketing mix: product and packaging
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
e Try thi s Peacock pi c manufactures and sel l s soft dri nks. The mai n brand i t sel l s i s
bought by sports pl ayers. The outer packagi ng of the dri nk i s pl ai n bl ack
and some customers have compl ai ned that i t i s di ffi cul t to dr i nk from the
contai ner. The marketi ng manager, Sheena, thi nks that some changes need
to be made to the packagi ng to i mprove sal es of the dri nk.
a) What functi ons does packagi ng perform for the sports dri nk produced
by Peacock pi c? [ 5 marks]
Examiner's tip
/ Make sure you apply your answer to the sports drink in the case.
b) What factors shoul d Sheena take i nto account when changi ng the
packagi ng for thi s sports dri nk? [6 marks]
Examiner's tip
/ Do not describe the changes she should make.
c) Draw and l abel the stages of a typi cal product l i fe cycl e on a graph.
[ 4 marks]
Examiner's tip
/ Do not forget to label the axes.
d) Pri ci ng is a very i mportant el ement i
n
the marketi ng mi x of a busi ness.
How and why mi ght a busi ness change its pr
i
ces duri ng the stages of a
typi cal l i fe cycl e? (See al so Unit 20) . [6 marks]
Examiner's tip
/ Describe the change and then say what should happen as a result of
the change.
e) Why do some products have much l onger l i fe cycl es than others? Gi ve
exampl es to i l l ustrate your answer. [4 marks]
75 •
NI T 20 The ma r keti ng m1 x:
pr 1 ce
Key objectives • To explain what afects demand and supply
Key definitions
Pri ce
Market
.
¬ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
pnce
:
l
b
Quanti ty
Pri ci ng strategy
Cost-pl us pri ci ng
Penetrati on prici ng
Price ski mmi ng
Competitive prici ng
Promoti onal pri ci ng
Psychol ogi cal pri ci ng
Pri ce el astic demand
Pri ce i nel astic demand
• 76
e To understand what i s meant by elastic and inelastic demand
for a product
e To explain what happens to den1and for a product if the price
increases or decreases when demand is elastic or inelastic
e To understand the diferent pricing strategies and explain when
they would be suitable to use
b
Supply is determi ned by the deci si ons of
producers: affected by pri ce, the cost of
produci ng the goods, taxes/subsi di es,
i mprovements in technol ogy, cl i mate
D
Demand is determi ned by the deci si ons of
consumers: affected by pri ce, pri ce of
substi tute products, taste and fashi on,
adverti si ng, consumers' i ncome, pri ce of
compl ementary products
Defi niti on
The cost of manufacturi ng the
product pl us a profi t mark-up
When the pri ce i s set l ower than the
competi tors' pri ces i n order to be
abl e to enter a new market.
A hi gh pri ce i s set for a new product
on the market.
The product is pri ced i n l i ne wi th
or j ust bel ow competi tors' pri ces to
try to capture more of the market.
When a product i s sol d at a very l ow
pri ce
f
or a s
h
ort peri od of ti me.
When parti cul ar attenti on i s pai d to
the effect that the pri ce of a product
wi l l have upon the customers'
percepti ons of the product.
Demand changes by a greater
proporti on than pri ce change.
Demand changes by a smal l er
proporti on than pri ce change .
Pri ce charged
Cost = $ 1 00 ¬ 50% profi t
Pri ce = $ 1 50
Competi tors' pri ces = $ 1 0
Thi s pri ce = $9. 50
New product pri ce = $ 50
No near substi tute on the market
Competi tors' pri ces = $20-$23
Thi s product pri ce = $22
Competi tors' pri ces = $ 1 0
Thi s product = $ 7 for a l i mi ted
peri od of ti me
Pri ce = $9. 99
The marketing mix: price
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Sample questions and answers
Sample question Luxury Leisure plc owns and runs several leisure centres in the
capital city of country X. The centres are expensive to join, but are
at a similar pric� to other luxury centres in the city. They want to
encourage more people to become members , so have advertised a
special low rate to join the leisure centre for a limited tin1e in
order to encourage addi tional members . Last year Luxury Leisure
plc put its prices up from $40 per month to $50 per month, but
found that membership fell by 1 5%.
Marks
Student's answer
Examiner' s marks
and comments
Marks
Student's answer
Examiner' s marks
and comments
a) I dentif two pricing strategies that are being used by Luxury
Leisure plc. [2 1narks]
1 mark for each corect answer - competitive pricing and promotional pricing.
Competitive pricing and penetration pricing.
Te frst answer is corect, but the second one is not correct as the setice is not
new and not tring to get into a new market. Total ¯ 1 rnark.
b) Explain one other pricing strategy Luxury Leisure plc could use
and why i t might use it. [3 n1arks]
1 mark for a suitable strategy; up to 2 marks for explaining why it nl l��lz t
be suitable for this business to use.
It could use cost-plus pricing as this would ensure that all the costs
were covered.
1 mark for a suitable method and 1 mark for the explanation. Total ¯
2 I 3 marks as the student did not go on to explain the answer in detail.
c) Using the informati on in the case study above, should Luxury
Leisure plc have put its prices up fron1 $40 to $50 per n1onth?
Explain your answer. [ 6 marks]
Marks 2 marks for identifying that demand is inelastic; 2 marks for explaining the
dfects ofthe change; 2 marks for making djr u�scmc1 1 t .
Student' s answer The price was increased by $10, a 25% increase. This 111eans that
den1and is inelasti c. The business should have put its prices up, as
this would 11ean that the company would increase its sales revenue
and possibly its profts.
Tr to mark this yoursel- the examiner's marks and comments are on
page 1 07.
77 •
UNIT 20
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 78
Common mi sconcepti ons and errors
Error
' Sugar i s an i nel asti c product. '
' Pri ce ski mmi ng i s where the product
i s pri ced bel ow the pri ces of
competi tors. '
' Putti ng pri ces down wi l l al ways
gai n i ncreased sal es. '
Why i t i s wrong
As sugar i s a basi c necessity, demand
for sugar coul d be sai d to be
i nel asti c. The product i tsel f i s not
i nel asti c.
Pri ce ski mmi ng i s where a new
product enters a market at a hi gh
pri ce. I t i s usual ly a new i nvention, or
a new devel opment of an ol d
.
product,
and therefore it can be sol d on the
market at a high price and peopl e wi l l
pay thi s because of the novelty factor.
Reduci ng pri ces wi l l someti mes
cause sal es to fal l i f the product has
an i mage of bei ng hi gh qual ity.
Customers may thi nk that the
qual ity i s l ower as the pri ce i s now
l ower and not buy i t.
e Try thi s Acmo Oi l pi c i s a multi -nati onal oi l company. I t extracts oi l , refi nes i t and
al so owns the petrol stati ons where its petrol i s sol d. Many of the petrol
stati ons al so have shops that sel l food, dri nks, maps and gi ft i tems. The gi ft
i tems are al so sol d in many other l ocal shops.
a) Woul d thi s busi ness's revenue be l i kely to i ncrease if i t were to cut petrol
pri ces? Expl ai n your answer gi vi ng reasons. [ 4 marks]
Examiner's tip
/ Think about whether demand is elastic or inelastic. Would customers be
sensitive to price reductions or not and would they buy a lot more or
would there be just a small percentage increase in sales?
b) Often Acmo's shops reduce thei r pri ces of gi ftware at certai n ti mes of
the year. Why do you thi nk they do thi s? [ 4 marks]
c) Di scuss the factors that affect whi ch pri ci ng strategy for gi ftware thi s
busi ness uses? [8 marks]
Examiner's tip
/ Think about the factors that infuence whether the business should use
competitive pricing, price skimming, etc. Examples of factors might
include: nearby competitors; at what stage of the product life cycle the
products are; costs of production; whether product is high quality.
NI T 21 The ma r keti ng m1 x:
promoti on
Key objectives • To understand that there are four types of pronlotion and to
understand when they are used
Key definitions
Term
Persuasive adverti si ng
I nformative adverti si ng
Target audi ence
Customer service
e To understand the factors that afect the types of advertising
to use
e To know what is meant by the target audience
e To explain when to use the diferent types of prmnotion
e To explain when to use personal selling
e To explain the role of PR (public relations) in business
e To know the importance of customer service
Adverti sements
I ncl udi ng tel evi si on, radi o,
newspapers and magazi nes,
posters/bi I I boards,
ci nemas, l eafl ets/di rect mai l ,
i nternet
Personal sel l i ng
Goods sol d strai ght to the
customer, for exampl e, where
customers may need advi ce or
where the exact nature of the
product can vary
Defi niti on
Adverti si ng or promoti on whi ch i s
tryi ng to persuade the consumer
that they real l y need the product
and shoul d buy i t.
The emphasi s of adverti si ng or sal es
promoti on i s to gi ve ful l i nformati on
about the product.
The peopl e who are the potenti al
consumers of the product or servi ce.
Concerned wi th keepi ng
customers happy by maki ng them
feel i mportant and bui l di ng a good
rel ati onshi p between the busi ness
and its customers.
Promoti onal offers
Pri ce reducti ons, gi fts, poi nt-
of-sal e di spl ay and
demonstrati on, after-sal es
service, free sampl es,
competi ti ons, money-off coupons
Publ i c rel ati ons
Thi s i s concerned wi th
promoti ng a good i mage for
the busi ness. Often takes the
form of sponsori ng an event
Exampl es
' Buy XYZ - i t's the best ! '
'XYZ i s a new product and i t wi l l
carry out the functi ons five ti mes
faster than the ol d product. '
Chi l dren are the target audi ence for
toys.
Gi vi ng advi ce about the product;
del i veri ng goods for consumers;
provi di ng credi t faci l i ti es; provi di ng
product i nformati on; after-sal es
servi ce.
79 •
UNIT 21
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• • • • • •
Sample questions and answers
• 80
Sample question Party Extraordinaire is a partnership business that was forn1ed fve
years ago. I t organises parties for young children for birthdays and
other special celebrations. The business has been very successful
and wants to expand. It currently advertises in local newspapers
and puts up posters in local toy shops and children' s clothes shops.
Customers often use the business again and it also gets bookings
from customers telling their friends about the business. It wants to
expand into organising parties for adults.
Marks
Student' s answer
Examiner' s marks
and comments
a) Why does Party Extraordinaire advertise in this way? [2 n1arks]
2 marks for an · explanation.
Party Extraordinaire advertises in local newspapers because local
people will use its service and see the adverts. It also puts up
posters in toy shops and children' s clothes shops, so again people
with children are likely to go to these places, see the business' s
adverts and might therefore use its services.
A good answer. The student correctly identiies where the busi11ess
advertises and why it should be ef ective, as the target audience will see the
advertisements. Full marks.
b) Party Extraordinaire decides to expand into organising parties
for adults . Suggest three suitable ways it could pron1ote the new
service. Justif your choice. [9 n1arks]
Marks 1 mark for each suitable way o promoting the business (3 maximum); up
to 2 marks for justiyit1g why each way would be ef ective i11 the context o
this business (6 maximum) .
Student's answer Party Extraordinaire could offer a pron1otion whereby, if th

customer books one party, then a second is given at a reduced
pri ce. This would encourage customers to come back and book
more parties. The business could advertise in the local newspapers,
as local adults would see an advert there. Finally, custon1ers could
be entered i n a competition if they booked a party.
Tr to mark this yoursel- the examiner's marks and comments are on
page 1 07.
c) Party Extraordinaire is designing a new poster to put in toy
shops. Discuss whether the poster should use mainly inforn1ative
or persuasive advertising. [ 4 1narks]
Marks 2 marks for discussing the advantages I disadvantages o informative
advertising; 2 marks for explaining the advatztages I disadvatztages of
persuasive advertisi11g; 2 tnarks for making a judgement as to which one
the business should usc.
Student's answer The poster could be persuasive, which would n1ean that the poster
would make the parties sound really good and 1nake custo1ners
want to book one. This type of advertising is efective when
The marketing mix: promotion
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Examiner' s marks
and comments
people need to be encouraged to book a party which they n1ight
otherwise not bother to do. Customers need to think that it is
good value for money. I think they should use persuasive
advertising, as it will encourage n1ore people to book parties .
2 marks for explaining the advantages ofpersuasive advertising and 1 mark
for making a judgement. However, the student has not explained
informative advertising and so full marks cannot be awarded. 3 I 6 marks.
Common mi sconcepti ons and errors
Error
' Promoti on onl y i ncl udes adverti si ng. '
'Tel evi si on i s al ways a good way to
adverti se. '
' I ncreased adverti si ng expenditure
al ways i ncreases sal es. '
' Personal sel l i ng i s where you have a
shop assi stant servi ng customers. '
Why it i s wrong
Promoti on i ncl udes adverti si ng but
al so other types of promoti on such
as competi ti ons.
Tel evi si on i s expensi ve and,
dependi ng on the ti me adverts are
shown, they may not be seen by the
target audi ence.
J ust because more money i s spent
on adverti si ng does not mean that i t
wi l l be effective and persuade more
customers to buy the product. The
adverti si ng mi ght be i n the wrong
pl aces to be seen by the target
audi ence or competitors coul d be
spendi ng more on adverti si ng as
wel l .
Sel l i ng i n a shop i s not real l y what
personal sel l i ng means, thi s i s j ust
servi ng customers and is not a form
of promoti on. Personal sel l i ng is
where the busi ness promotes the
busi ness by vi siti ng i ts customers
and di scussi ng thei r i ndi vi dual
needs. For exampl e, a representati ve
of a bui l di ng company vi si ti ng a
customer to di scuss what they want.
I t i s usual l y used where an i ndi vi dual
product or servi ce i s bei ng sol d.
e Try thi s Musi c Mani a i s a shop whi ch sel l s musi c CDs. I t i s l ocated i n a l arge shoppi ng
centre i n the city centre. The CDs i t sel l s are by bands and si ngers who appeal
to teenagers. I t has been i n busi ness for fi ve years and wants to expand.
a) I denti fy the target audi ence for Musi c Mani a. [ 1 mark]
b) The management of Musi c Mani a. wants to expand. It needs to deci de
whether to spend more on adverti si ng or to sel l a wi der range of musi c
CDs whi ch appeal to different age groups. What factors shoul d i nfl uence
the deci si on? [6 marks]
Examiner's tip
v Consider factors like the cost, trends in spending habits, which option is
most likely to increase profits, and what type of customers use the
shopping centre.
81 •
UNIT 21
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 82
c) Musi c Mani a has deci ded to sel l cl assi cal musi c i ncl udi ng opera musi c.
Expl ai n the factors thi s busi ness shoul d take i nto account when deci di ng
whi ch form of promoti on to use. [8 marks]
Examiner's tip
.
7 Think about the target audience - hence where Music Mania should
advertise and cost of advertising, diferent forms of promotion
available, for example, competitions, whether to use PR, etc.
d) Musi c Mani a woul d not use personal sel l i ng. Gi ve an exampl e of a
busi ness that you thi nk wou l d use personal sel l i ng. Justi fy your choi ce
of exampl e. [ 4 marks]
NI T 22 The ma r ket i ng m1 x:
pl ace
Key objectives • To understand the diferent channels of distribution
e To understand the role of the wholesaler
e To select the most appropriate channel of distribution for a
given product
e To select the most appropriate method of transporting goods
for a given product
Key definitions A channel of distribution is the means by which a product is passed
from the place where it is produced to the customer or consumer.
There are four main channels used by business as follows:
Channel of di stri buti on Expl anati on/exampl es
Prod.ucer �
Producer �
Producer � Whol esal er:
Buys i n l arge
quanti ti es from
manufacturer and
sel l s i n smal l
quanti ti es t o smal l
retai l ers.
Consumer Di rect sel l i ng of products such as
components to busi nesses, new
wi ndows for a house, products sol d
over the i nternet (known as e-commerce).
Retai l er Consumer Products are sol d i n bul k to retai l ers,
such as food products to supermarkets,
or speci al istexpensi ve products, such as
j ewel l ery.
Retai l er Consumer Thi s i s where the whol esal er breaks
bul k, such as for some food products.
Producer Agent: Whol esal er Retai l er Consumer When products are exported, the
manufacturer someti mes uses an agent
in the other country. The agent then
sel l s the product(s) on behalf of the
manufacturer.
I ndependent person
or busi ness who
deal s with the sal es
and di stri buti on
of a product(s).
Method of transportation is the type of transNrt that the
Inanufacturer uses to deliver the
p
roducts to the n1arket. The most
con1n1on n1ethods are road haul age (l oÌries) , rail ways , canal or
river, sea freight, air freight and pipelines . GeHerally, the Sl oVCr the
forn1 of transport the cheaper it will be.
Sample questions and answers
Sample questions 1) What are the advantages to a producer of using a channel of
distribution as shown below? [4 n1arks]
Producer ¬ wholesaler ¬ retailer ¬ consun1er
Marks 1-2 marks for each advantage to the producer.
83 •
UNIT 22
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• 84
Student' s answer The producer can sell in bulk to the wholesaler and therefore does
not have to spend n1oney storing the products in the warehouse.
The cost of distribution will be lower, as the producer only has to
deliver to the wholesaler and not to many diferent retailers .
Examiner's marks Two good explanations ofadvantages to the producer -full marks.
and cotnments
Marks
Student's answer
Examiner' s marks
and comments
2) C & D plc produces computer games designed to be played on
PCs. It is a large business based in Brazil, but sells its gan1es in n1any
diferent countries. It has just developed a new con1puter gan1e
.
for
teenage children. This new game is to be sold in one of the
business's South East Asian markets to see how popular it is before
launching it in all the diferent countries the business sells to.
i) What channel of distribution would you suggest that t
h
e
company uses for its new game? Justif your choice. [4 marks]
1 mark for an explanation o a suitable channel ofdistribution; 3 marks for
explanation ofwhy this channel would be suitable.
The manuf
a
cturer should sell it to a computer gan1e retailer and then
on to the customer. This would be a good channel of distribution to
use because the customer would need advice about the game and
the retailer could be a specialist computer type of shop. If the games
were sold to a wholesaler, the correct advice tnight not get to the
customer. Also, wholesalers would not buy these gatnes in bulk if
most of their retail customers were smal shops which sold food and
would not be interested in stocking computer gan1es.
A good answer - a suitable channel was sugested (although it was possible
to argue that other channels ofdistribution might be suitable) and then the
channel was justied in terms ofselling to a retailer and not using a
wholesaler. Even though some ofthe points might not always be true in
some countries, the answer was a correct justifcation for sci/in._� stra(�ht to
retailers and not through wholesalers. Full marks.
ii) What factors should C & D plc consider when deciding the
marketing mix for its new computer game? [8 marks]
Marks 2 marks for listing up to two or more factors; 4 marks for explaining up to
two or more factors; 2 marks for the answer being applied to the computer
games market.
Student's answer C & D plc will frstly have to consider who its target tn,arket is for
the new game. As it is teenagers, the business will have to design a
game that will appeal to this group of consmners . The advertising
and promotions wil have to be in places that will be seen by
teenagers and sold in shops teenagers visit. C & D plc needs to
consider how large i ts advertisi ng budget for protnoting the new
gan1e will be. If it is not very large then the business will have to
think carefully about where it advertises as it will soon run out of
n1oney. TV advertising may not be possible if the budget is small.
What cmnpetitors do will also have to be taken into account. If
con1petitors sell their computer gan1es in certain shops then C & D
plc tnay also have to sell its new game in these san1e s hops as this
The marketing mix: place
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
will be where teenagers wil go to buy gan1es and will see the new
game and buy it. C & D plc will also need to advertise in si1nil ar
pl aces to its competitors so that teenagers will see the adverts . The
pricing strategy may have to be con1petitive pricing if there are
already a l ot of competitors selling sin1ilar gan1es, or penetration
pricing if the business needs to break into this n1arket.
Tr to mark this yoursel- the examiner's marks and comments are on
page 1 07.
Common mi sconcepti ons and errors
Error
' Pl ace i s where the product i s sol d. '
' Retai l ers break bul k. '
' Sel l i ng through a whol esal er makes
products more expensive than i f
they are sol d di rectl y to a retai l er. '
' Road transport i s al ways the best
to use. '
Why it i s wrong
Pl ace i s maki ng the product
avai l abl e where and when the
customer wants to buy and i s not
j ust the shop used to sel l the
product.
A whol esal er breaks bul k by buyi ng
from the manufacturer i n l arge
quanti ti es and di vi di ng up the
product i nto smal l er quanti ti es to
sel l to smal l retai l ers.
A whol esal er can be cheaper to buy
from because they buy i n such l arge
quanti ti es from manufacturers they
get di scounts and thei r del i very and
admi ni strati on costs can be much
l ower.
Road transport can be more
expensi ve and sl ower than other
forms of transport - i t depends on
the product bei ng del i vered.
e Try thi s a) Put t he fol l owi ng products i n t he suitabl e channel s of di stri buti on:
• ti ns of frui t
• shoes (exported)
• weddi ng cakes
• new cars.
i ) Producer ~
i i) Producer ¬
i i i) Producer ¬
iv) Producer Agent
¬ Retai l er
Whol esal er Retai l er
Whol esal er Retai l er
Consumer
Consumer
Consumer
Consumer
[ 4 marks]
Product
b) D & E is a food processi ng busi ness. The di rectors are thi nki ng about
endi ng sal es of thei r ready made meal s to a retai l chai n of supermarkets
and sel l i ng them to an ai r l i ne for i n-fl i g
h
t meal s. W
h
at are t
h
e
advantages and di sadvantages of doi ng thi s? [ 1 0 marks]
85 •
UNIT 22
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 86
Examiner's tip
/ Consider advantages and disadvantages of not selling to a retail chain
of supermarkets and advantages and disadvantages of selling directly
to an airline.
c) Monay Ltd was set up ten years ago. I t started maki ng wooden tabl es,
but sl owl y expanded and now makes several di fferent types of furni ture.
Sal es of i ts products have kept growi ng and profits have i ncreased
rapi dl y. The di rectors of Monay Ltd want to expand i nto the
manufacture of qual i ty di ni ng tabl es and chai rs, whi ch i t wants to sel l to
hi gh-i ncome consumers.
Suggest a marketi ng mi x that thi s busi ness coul d use i f i t i ntroduces
qual ity di ni ng tabl es and chai rs. [ 1 2 marks]
Examiner's tip
/ Consider all four P's and link them together to market a high quality
product.
d) Why mi ght a different marketi ng mi x be used for the same product i n
di fferent countri es? [8 marks]
Examiner's tip
/ Consider culture, climate, religion, incomes, types of retail outlets used,
use of r radio, newspapers, etc.
NI T 23 Factors affecti ng
prod uct i on
Key objectives • To understand what is meant by value added
e To be able to identif what factors may increase productivity
e To understand the diferent methods of production and when
they would be used
e To understand the efects of new technology on both the
business and its employees
e To identif the diferent ways of ensuring quality of the
product or service
Key definitions
speci al l y made product meets exact requi rements fl exi bl e way of worki ng producti on can easi l y
be changed between
products
costs are hi gher
i ncreased empl oyee motivation
of customer
jobs are more
vari ed
hi gher ski l l ed workers needed
costs are l ow and therefore l ower pri ces
Batch producti on
A certai n quanti ty of a product i s
made and then a certai n quanti ty
of another product is made
some vari ety i n jobs can be more expensive
warehouse space
needed which i s costly
goods produced qui ckl y
Fl ow producti on
Large quanti ti es of a
capital -i ntensi ve methods of producti on product are produced in a j obs are bori ng
conti nuous process (al so
cal l ed mass producti on)
l ower ski l l ed workers needed, so cheaper
capi tal set up costs are hi gh
Term
Val ue added
Labour productivity
Stock control
Le�n producti on
i f one machi ne breaks down, the whol e producti on l i ne stops
Expl anati on
Di fference between the sel l i ng pri ce
and the cost of i nputs.
Output measured agai nst the l abour
i nput used to produce i t.
There shoul d al ways be suffi ci ent
stock to meet demand. Thi s i s
checked both i n the producti on and
i n the shops.
Stock
l evel s
Exampl es
Product sel l s for $1 0; cost of i nputs
$2 per uni t; val ue added ^ $8
Output (over a gi ven peri od of ti me)
-
Nu
m
b
e
r- oT e
m
i-, oy
e
es ¯ ¯¯ ¬~ ~
See fi gure bel ow.

/ Maxi mum stock l evel
- - . - Reorder l evel
- - - � Mi ni mum stock l evel
L
Techni ques used by a busi ness to cut
down on any waste and therefore
i ncrease effi ci ency.
Ti me
Reduce the ti me taken for a product
to be devel oped; reduce any waste
in the producti on process.
87 •
UNIT 23
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¯erm Expl anati on Exampl es
Qual ity control I nspectors check the fi ni shed goods
to detect any faulty ones.
Sampl e one i n every 1 00 products
produced to make sure none i s
faul ty.
Qual ity assurance There is i nspecti on both duri ng and
after producti on and tri es to stop
any faults from happeni ng i n the
fi rst pl ace. Requi res team worki ng
from the empl oyees.
Al l the producti on workers check
thei r part of the process and make
sure there are no faulty components
or faul ty fi ni shed products.
Sample questions and answers
• 88
Sample question Sita Ltd produces clothes for babies. It has been in business for ten
years and has seen sales increase rapidly throughout this titne. It
employs 50 production workers who use sewing n1achines.
T
he
production manager wants to introduce new sewing tnachines that are
twice as fast as the old ones. It will allow the business to produce
higher quality baby clothes as well as gain from other benefi ts of new
technology. The average selling price of an iten1 of clothing is $1 0
with material costing $1 . However, with new machines i t will allow
the sellng price to increase to $1 5 and material wil only cost $2.
a) What will happen to the value added of the average product if
new technology is introduced? [3 marks]
Marks 2 marks for value added $ 1 0 - $ 1 ¯ $9 and $ 1 5 - $2 ¯ $1 3.
3 marks in total for a corect answer: new technology $13 - $9 ¯ $4.
Student's answer $ 1 0 - $1 ¯ $9 and $ 1 5 - $2 ¯ $1 3. Value added increases by $3.
Examiner' s marks Correct method, incorrect answer. 2 I 3 marks.
and comments
b) Why n1ight the production manager want to introduce new
technology at Sita Ltd? [8 marks]
Marks Up to 3 marks for lists of why new technology is an advantage; up to 3
marks for explanation ofadvantages ofnew technology; 2 marks for
applying the answer to this business.
Student's answer New technolog will Jllow SitJ Ltd to produce 1nore high quJlity
garments. As productivity will increase, it may be able to decrease
the number of employees and therefore production wages will be
reduced and even though the new technology will cost a lot of
money to buy, it may increase profts.
Examiner's marks
and comments
Te answer is in the context of Sita Ltd and so 2 application marks
were gained; 1 mark for the frst advantage and 3 marks for the second
advantage as it is explained. Total ¯ 618 marks. Explanation ofthe frst
or third point would have gained full marks - a good answer.
c) Sita Ltd uses batch production in the production of baby clothes.
i) What is tneant by batch production? [2 n1arks]
Marks 2 marks for a clear dei11ition; 1 mark for a vague answer.
Factors affecting production
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Student's answer Batch production is where an an1ount of a particular product is
produced and then an amount of another product is produced.
Marks
Student's answer
Examiner' s marks
and comments
Tr to mark this yoursel- the examiner's marks and cormnents are on
page 1 08.
,
ii) Why does Sita Ltd use batch production and not fow
production? [6 marks]
2 marks for advantages ofbatch production or disadvantages offow
production; 2 additional marks for explanation ofthese
advantages/disadvantages; 2 marks if applied to Sita Ltd.
Sita Ltd uses batch production because it does not sell enough baby
clothes to produce a large quantity as there is not enough den1and.
Aso these kinds of products come in many diferent styles and sizes
and not just one basic product so again the business will need to
produce so many of one size, so many of another size, etc. Flow
production would mean a very large quantity of a si ngle garment
would be made and Sita Ltd wouldn' t be able to sell thetn all.
A good answer, although there is some repetition at the end. Well applied
to the case. Full marks.
Common mi sconcepti ons and errors
Error
'Val ue added is profit made. '
(Al so i n Uni t 1 )
' I ncreased productivi ty means that
producti on i ncreases. '
' Fl ow producti on i s where a l ot of
producti on of one product is
produced and then quite a l ot of
producti on of another product is
made. '
' Qual i ty control i s maki ng sure a
product is of the hi ghest qual ity. '
' New technol ogy al ways means j obs
are l ost. '
Why i t i s wrong
Val ue added i s not j ust profit, i t i s
the sel l i ng pri ce mi nus the cost of
i nputs.
Producti vi ty usual l y refers to an
i ncrease i n output per worker whi ch
may mean an i ncrease i n output
overal l or i t may not.
Fl ow producti on i s where l arge
quanti ti es are produced i n a
conti nuou process. A l arge quanti ty
of a standardi sed product i s
produced.
Qual ity control i s where products
are checked to make sure there are
no faul ts wi th the products and they
meet the standards expected for
that product. It does not mean the
product i s of hi gh qual ity j ust that
i t does not have any defects.
When new technol ogy i s i ntroduced
some j obs may be l ost as machi nes
may now do parti cul ar jobs.
However, other j obs may now be
created, for exampl e, computer
programmers, operators of the new
equi pment, mai ntenance jobs.
89 •
UNIT 23
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 90
e Try thi s a) Medi c Suppl i es pi c produces equi pment for hospital s. Some of the
equi pment i t sel l s i s desi gned to a parti cul ar hospi tal ' s speci fi cati on and
i s bui l t to thei r order, such as machi nes whi ch scan pati ents' whol e
bodi es. Other equi pment i s produced conti nuousl y, such as bandages.
i) What two methods of producti on does Medi c Suppl i es pi c use?
[2 marks]
i i) Why is qual ity control or qual i ty assurance so i mportant to Medi c
Suppl i es pi c? [ 4 marks]
Examiner's tip
/ Explain what is meant by quality control or quality assurance - you do
not need to do both. Apply your answer to Medic Supplies pic.
i i i) Expl ai n how Medi c Suppl i es pi c can use stock control to ma�e sure it
never runs out of raw materi al s when produci ng bandages.
[6 marks]
Examiner's tip
/ Explai
n
the process of stock control and how it ensures that raw
materials should always be available so production can take place.
iv) The di rectors at Medi c Suppl i es pic have been advi sed to i ntroduce
l ean producti on techni ques. Descri be what is meant by ' l ean
producti on' and how it mi ght be used at Medi c Suppl i es pi c.
[6 marks]
b) Tel esal es Servi ces Ltd was set up four years ago. I t processes orders for
several smal l busi nesses i n a ci ty. It takes orders from customers and
then passes these back to the smal l busi ness so that the i tem(s) can be
del ivered. I t i ntroduced on-l i ne orderi ng one year ago and has found
that thi s si de of the busi ness has grown very rapi dl y. However, the
tel ephone orderi ng si de of the busi ness has fal l en sl i ghtl y.
i ) ' It i s four ti mes cheaper to process an order on- l i ne than over the
tel ephone, ' says Mi guel , the Managi ng Di rector. Why do you thi nk
thi s i s true? Expl ai n your answer. [6 marks]
Examiner's tip
/ Explain the cost savings of using computers to take orders instead of
people.
i i ) Expl ai n why the empl oyees mi ght be worri ed about the trend i n
i ncreased on-l i ne orderi ng and fewer tel ephone orders at Tel esal es
Servi ces Ltd. [ 4 marks]
Examiner's tip
/ Explain the possible effects on the number and types of jobs at the
company.
NI T 24 Factors affect i ng
l ocat i on
Key objectives • To understand the factors that afect the location of J
manufacturing business
e To understand the factors that afect the location of a retailing
business
e To understand the factors that afect the relocation of a business
e To understand the factors that afect the l ocation of a service
sector business
Key definitions Factors afecting the location of these diferent businesses :
market raw materi al s/components cl i mate shoppers avai l abi l ity of sui tabl e
external
economi es
of scal e
water suppl y
transport
and
power shops nearby
.
empty shop
rent
personal preference
of the owners
avai l abi l ity
of l abour
government i nfl uence access for del i very customer parki ng security
government grants avoi d tari ff barri ers cl i mate rent
new markets
overseas
no room to expand
at present si te
raw materi al near to other
source runs busi nesses
out
rent/taxes ri si ng
di ffi cul ti es wi th
l abour force
avai I a bi I i ty m
of l abour customers
personal p,referen e of owners
Sample questions and answers
Sample questions 1) Better Burgers is a fast food chain. I t has £1st food outlets in
tnany diferent countries and is considering opening a new
outlet in a city centre. Discuss what would be the most
important factors when deciding on where to locate this outlet.
[1 0 nurks]
Marks 1-4 marks for listing /explaining factors that would cf ect location decisions;
2 marks for application to fast food outlets; 1-4 rnarks for explaining
which would be the most important factors.
91 •
UNIT 24
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 92
Student' s answer Better Burgers needs to fnd a site that is in the centre of the city.
Examiner' s marks
and comments
Marks
Student' s answer
Examiner's marks
and comments
I t should be where there are lots of shoppers who would be likely
to use the fast food outlet. The location should also be near places
for customers to park their cars. The rent to be paid on the
premises should be considered, as it will be very high in the city
centre compared with the edge of the city. Delivery vehicles will
need to be able to get to the outlet so that they can deliver food.
An empty shop or building will have to be looked for and the
security of the area should be taken into account. If there are a lot
of robberies in the area, it n1ight not be the best of locations. The
kind of shops and restaurants nearby is an in1portant factor to
consider, as they will attract shoppers to the area who n1ight then
eat at the outlet. The most important factor is the nu1nber of
customers there will be in the area. The outlet needs to be in the
centre of the city to make sure it attracts a . lot of custo1ners. Then
the amount of rent paid will not be very in1portant as the outlet
will make a lot of sales to pay the rent easily. Access by delivery
vehicles is less important as they will be able to get the food to the
outlet easily by trolley. Obviously, an empty shop is needed, but it
does not matter if it is not in the right area.
10 marks. The factors were discussed and applied t o this scenario.
The importance ofthe factors was also discussed.
2) A car sales outlet wants to open in the city. Why would' its
location be diferent to a jewellery shop? Explain your answer.
[8 marks]
3 marks for explaining the factors that afect the location ofa jewellery
shop; 3 marks for explaining the factors that afect the location ofa car sales
outlet; 2 marks for making the dif erences clear.
A j ewellery shop would need to be on a high street or nuin road
where a lot of people would pass by and look in the shop window.
I t needs to be in a secure area, so that it is at less risk of theft . The
shop could be located near other j ewellery shops to attract people
coming to the area to buy jewellery.
The car sales outlet needs a lot of space to park all the cars for
sale. The rent should not be too high as the prenuses will ta
k
e up a
lar
g
e area7 which will make it ex
p
ensive. Access for customer
parking is important because custon1ers are likely to drive up in their
cars and need to park so they can look at the cars for sale. As long as
cars can get in and out, access for delivery shouldn' t be in1portant.
Comparisons are not made, even though factors afecting both types ofshop
are explained. Thereore 6 I 8 marks were awarded. Clear comparisons are
needed for full marks.
3) A company
\
hat cleans ofces needs to decide where to locate
its own o
f
ce sta
f
W
h
y 1nig
h
t it not
l
ocate its own o
f
ces in
the city centre? [6 marks]
Marks Up to 3 marks for listitz disadvantages oflocati1g iH the city centre; up to
3 marks for explaining these disadvantages.
Factors affecting location
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Student' s answer The cit centre is expensive in tenns of rent of pretnises. It is an
area that a lot of businesses want to locate in and this will drive up
the rent to be paid. It is difcult and expensive to park cars in the
cit centre. It takes a lot of time for employees to get to work in
the cit centre. The ofces do not need to be located where there
are a lot of people.
Try to mark this yoursel- the examiner's marks and comrnents are on
page 1 08.
Common mi sconcepti ons and errors
Error
' Busi nesses need to be near the raw
materi al source. '
' I t i s al ways better to l ocate near
to customers. '
Why it i s wrong
Busi nesses onl y need to be near
thei r raw materi al s i f they are a
manufacturi ng busi ness and produce
a l ot of waste. I t i s not so i mportant
to be near the raw materi al source
with today's i mproved transport
l i nks.
Many busi nesses l ocate where thei r
costs wi l l be l ow. Thi s may be i n
another country where wages are
l ow. I t may not be near to
customers.
'The i nternet has not affected where Busi nesses that use the i nternet to
busi nesses l ocate. ' sel l thei r products do not need to be
near to customers any more, as they
recei ve thei r orders over the
i nternet and then post the goods to
customers. The busi ness can l ocate
anywhere.
e Try thi s a) M and T pi c manufactures chocol ates. I t wants t o set U a new factory
maki ng chocol ates. The busi ness empl oys a l ot of workers and many of
them need to be qual i fi ed in chocol ate maki ng. The cocoa used to make
the chocol ate i s i mported.
i ) Sel ect three factors that woul d affect the l ocati on of thi s busi ness
and expl ai n why they are i mportant. [6 marks]
H) Thi s busi ness has started to sel l an i ncreasi ng quantity of its
chocol ates in an overseas market. The Managi ng Di rector i s thi nki ng
of movi ng the manufacture of the chocol ates to thi s overseas
market. Di scuss what factors he shoul d take i nto account when
deci di ng whether to move the factory abroad. [ 1 0 marks]
Examiner's tip
� Consider the market, costs of setting up a new factory, costs of running
a factory in this overseas market.
93 •
UNIT 24
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 94
b) Governments do not usual ly l eave the l ocati on deci si ons total l y to
busi nesses themsel ves. Expl ai n why you thi nk thi s is the case. [6 marks]
Examiner's tip
/ Explain the disadvantages of businesses choosing to locate where they
want to without any consideration of the local population or environment.
c) DD Ltd is a busi ness that stocks and sel l s sports cl othes over the i nternet.
Di scuss whether you thi nk the l ocati on of the busi ness i s i mportant.
[6 marks]
NI T 25 B us i ness i n the
i nter nati ona l
commu n i ty
Key objectives • To understand that business success can be infuenced by
international factors
Key definitions
Term
I mports
Exports
Exchange rate
Currency appreciation
Currency depreci ati on
Common (si ngl e) currency
Tariff
Quota
Gl obal isation
Mul ti nati onal corporati ons
Economi c uni on
e To explain how exchange rates can have an impact on
businesses that import and export
e To understand what globalisation is and why it is increasing
e To explain the efect that multinational businesses can have on
a country
Defi niti on
Products bought by a country from
other countri es.
Products sol d from a country to
other countri es.
The pri ce of one currency i n terms
of another.
When the currency buys more of
another currency than before, its
val ue ri ses.
When the currency buys l ess of
another currency than before, i ts
val ue fal l s.
When a group of countri es agree
to use the same currency.
A tax on i mports to make them J ess
competi ti ve with domesti cal ly
produced products.
A maxi mum l i mit on the quanti ty of
i mported goods al l owed i nto a
country.
The i ncrease in i nternati onal trade
and competi ti on, as shown by the
growth of multi nati onal corporati ons.
Busi nesses that have operati ons i n
more than one country.
Agreements between countri es to
trade freel y wi th each other and
have common economi c i nsti tuti ons.
Exampl es
Spai n i mports oi l from Saudi Arabi a,
Saudi Arabi a i mports cars from
Germany.
Give two exampl es of i mportant
exports from your own country.
The exchange rate for £ in terms of
the euro was £ 1 : 1 . 45€ in May 2004.
Fi nd out the exchange rate for your
country's currency i n terms of the
US$.
OLD: £ 1 : $ 1
NEW: £ 1 : $ 1 . 50
£ has appreci ated
OLD: 1 €: $ 1
NEW: 1 €: $0. 80
€ has depreci ated
The euro i s used by many members
of the European Uni on.
Try to fi nd out about a tari ff put on
an i mport i nto your country and
make a note.
Does your country have any i mport
quotas? Try to fi nd out one such
quota and make a note.
Worl d trade i s growi ng at over 1 0%
each year. Tarri fs and quotas are
bei ng reduced.
Coca-Col a, McDonal ds, l kea
(fur niture), Canon (copi ers and
cameras) .
The European Uni on ( EU) .
95 •
UNIT 25
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Sampl e questions and answers
• 96
Satnpl� question Three countries, X, Y and Z, trade with each other. The
governtnent of Country X is worried about the high level of
imports from the other two countries . The governn1ent of
Country Y wants to encourage the other countries to join a
co1nmon currency. The currency of Country Z has recently
appreciated against the currencies of the other two countries.
a) State one way in which Country X could reduce in1ports fro1n
the other two countries . [ 1 n1ark]
Marks 1 mark for either import tarifor import quota.
Student' s answ�r Tarifs on itnports is one way.
Examiner's marks 1 mark.
and comments
Marks
Student' s answer
Examiner's marks
and comments
Marks
Student's answer
Examiner' s marks
and comments
b) Explain two ways in which businesses in Country X n1ight be
afected by the government reducing imports . [4 marks]
1 mark for identifying each factor plus 1 further mark for some development
of each factor.
If imports were reduced then consun1ers might start buying n1ore
products from businesses in Country X. This would increase sales .
Also, a reduced supply of imports could increase prices.
This answer is worth 3 marks. The frst point is a good one and the ef ect
on businesses is briey explained. The second point is only identifed and
gains 1 mark. The student should have explained the possible �[eet 011
business ofhiher import prices} for example} i a business i11 Cout'ztry X
imports important materials then a price increase would raise its costs. This
could lead to lower proits.
c) Do you think that businesses in these three countries would
benefi t from a common (single) currency? Explain your answer.
[6 n1arks]
1 mark for dinition} up to 5 marks for giving a balanced discussion;
maximum of 4 if only one side of argumerz t is given.
A single currency is when several countries agree to use the san1e
money so that when they trade the satne n1oney can be used. This
would benefi t businesses . It would tnean that cornpanies would not
have to convert tnoney into forei gn currency if they were buying
imports. This would save on currency exchange costs. A con1n1on
currency also means that they could j ust print one price list for all
three countries which would save on costs .
There are pqssible drawbacks too thou
g
h.
4 marks. This is a good} thou(�h one-sided} answer. 11zcre is no evaluatio11
of the benits} so it cannot ear more than 4 marks. The studc11t should
have explained briey two poi11ts agai11st a common currency. For exmnple}
it will be easier for consumers to compare prices and competition may
itzcrcase due to the ease ofselling to other countries.
Business in the international community
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Marks
Student's answer
Examiner's marks
and comments
d) i) Complete this table with an exchange rate for Count1y Z' s
currency (en) in 2005 showing an appreciation con1pared to
the $. 1 1 n1ark]
2004 1 Yen : $2
2005 1 Yen : . . . . . . .
1 mark for correct answer (any rate over $2) .
$2. 50
Yes, the student understands that an appreciation means that a currency
uni1t buys more ofanother currency than beore. 1 mark.
i i ) Explain one efect of this appreciation on exporters i n
Country Z. [4 1narks]
Marks 2 marks for explaining that export prices could rise; 2 marks for
development - it could lead to lower demand for exports a1d lor ucr profits
from exporting.
Student's answer When a currency appreciates it makes in1ports cheaper and exports
more expensive. This means that exporters in Country Z will fnd
it more difcult to sell goods to other countries. Exporting will
become more difcult and less proftable.
Try to mark this yoursel- the examiner's marks and comments are on
page 1 09.
Common mi sconcepti ons and errors
Error
' I nternati onal trade i s bad for
busi ness as i t l eads to more
competi ti on. '
' A busi ness can easi l y sel l i ts products
to other countri es. '
' Multi nati onal s sel l products i n more
than one country. '
Why i t i s wrong
Al though tradi ng wi th other
countri es can i ncrease competiti on,
busi nesses al so have much l arger
markets and can often purchase
suppl i es cheapl y from other
countri es.
Sel l i ng to other countri es i s not
al ways easy. Products and marketi ng
may need to be changed to meet
l ocal market condi ti ons, for
exampl e.
To be termed a mul ti nati onal , a
busi ness shoul d have producti on
operati ons i n more than one
country.
e Try thi s Zi rcon pi c manufactures chemi cal s for i ndustry. Currentl y i t onl y operates i n
one country. Zi rcon i s pl anni ng to set up another chemi cal factory i n
Country X, whi ch has a rapi dl y expandi ng economy. Country X has hi gh
tari ffs on al l i mports. The Managi ng Di rector of Zi rcon has asked the
government of Country X for permi ssi on to bui l d the factory. The
government and trade uni ons are very i nterested in the pl an. Greenworl d, a
l ocal envi ronmental group, is agai nst the pl an.
97 •
UNIT 25
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• 98
a) Expl ai n two reasons why Zi rcon i s pl anni ng to become a mul ti nati onal .
[ 4 marks]
b) Li st two probl ems Zi rcon mi ght face when operati ng in another country.
[2 marks]
c) Eval uate whether the government of Country X shoul d al l ow Zi rcon to
bui l d the new chemi cal factory. [8 marks]
Examiner's tip
7 Consider the advantages and disadvantages to the country of Zircon's
new factory, then come to an overall conclusion.
Answers
UNIT 1 The purpose of busi ness
acti vi ty
Sample questions and answers
b) Examiner's marks and comments: This answer
shows a good understanding of division of
labour (1 n1ark) and the possible benefts to
ARC (3 marks) . The disadvantages are less
detailed (1 rnark) and not applied to this
business. The student could have explained the
motivation problen1 leading to workers leaving
and the i1npact this mght have on output and
sales for ARC. Total ¯ 5/7 marks.
d) Examiner' s n1arks and comments: Full marks
- the answer analyses
;
nd evaluates clearly.
• Try this
a) 1 n1ark each for any of these: unemployed
workers (chance of a job) , shareholders,
con1petitors, residents, government.
b) The answer will depend on which groups are
chosen. For example, unemployed workers
would now have a chance of getting a j ob in
the new £1ctory, but workers in existing
plastics factories n1ight be worried about the
new co1npetitor destroying their jobs; the
government would welcome the new jobs and
increased output (some might be sold abroad
as exports) ; the new factory will pay taxes to
the governn1ent, but the government might
be worried about the negative in1pact on the
envi

onment and the risks of pollution. (Only
need to look at one advantage and one
disadvantage per stakeholder. ) 4 n1arks for
identifing advantages/ disadvantages; 4 marks
for discussion.
c) Defne division of labour ( 1 mark) . Benefts to
workers n1ight be: able to specialise and be
trained in one task, if output increases this
could increase wages. But: work may becon1e
repetitive

nd if plastics factories close (decline
of the industry?) then the skills that workers
have may no longer be needed. Up to 4 marks
for identifi cation of advantages/ disadvantages;
up to 3 marks for discussion.
UNIT 2 Types of busi ness acti vity
Sample questions and answers
d) ii) Exan1iner' s n1arks and con1Ìnents . The two
advantages were both briefy explained.
However, there was no atten1pt to show
judgement or evaluation. For exan1ple, the
student could have referred to the price that
Airco nught be sold for. Airgroup might pay
too n1uch and end up making a loss. Aso,
Airco workers might go on strike as they do
not want to leave the public sector - perhaps
because they believe that their jobs are safer
under government control . Total ¯ 6/8 marks .
e Try this
a) i) Con1pany X ii) Con1pany X
b) Less efcient/productive workers; over-stafng;
labour-intensive production methods - could
be a business that produces hand-1nade shoes.
Any one point explained ¯ up to 4 nurks.
c) Managers/ owners nuy wish to remain sn1all
to avoid extra work or stress; lack of fnance
for expansion; the business 1night sell in quite
a small sector of the market with low sales -
does not want to expand into other tnarkets it
does not know so well. 1 mark for each factor
identifed (n1axi1num of 2 nurks) ; 1 n1ark for
developing each point.
d) i) Backwards vertical integration ( 1 rnark)
because the leather supplier is in the san1e
industry, but supplies raw materials (i . e. at a
diferent stage of production) . (2 nurks) .
ii) More regular and certain supplies of raw
material; can control quality of raw material;
can obtain cheaper supplies; can prevent
supplies being sold t
.
o competitors. 1 nurk for
identifcation (of each beneft) ; 1 nurk each
for some development.
e) i) Secondary ( 1 n1ark) - it turns ravv nuterials
into fnished good. 1 nurk for the explanation.
ii) Tertiary ( 1 n1ark) - they provide a servi ce
to consun1ers/nunufacturers . 1 mark for the
explanati on.
iii) This is vertical integration forwards ( 1
n1ark) . It gives the nunufacturer J guaranteed
outlet for goods; the n1anufacturer can control
price and marketing of goods etc. 2 nurks for
i dentifing points; 2 rnarks for smne
de.velop1nent.
f The public sector is usually n1ade up of
i t nportant industri es such as electrici ty and
publ i c transport. The shoe retailing industry is
99 •
ANSWERS
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
not as it nportant as this, so it should be in the
private sector and private owners will run the
shops for proft. 1 mark for defnition; up to 4
t narks for developing argun1ents.
UNI T 3 Forms of busi ness
organi sati on
Sample questions and answers
d) Exatniner' s tnarks and con11nents : Although
this is quite d short answer, it contains
in1portant poi nts and son1e discussion. There
are both advantages and disadvantages and
these are briefly looked at fron1 Rashid' s point
of vi ew. There is a clear recommendation and
this is backed up by knowledge of a Deed of
Partnershi p. Total ¯ 8/8 marks.
e Try this
( 1 111ark deducted if no recotn111endation
given) . For: can raise tnore capital through
sale of shares (they pl an to expand) ; hi gher
public profi le and better i111age; could use
share capital to reduce loans . Against: sotne
loss of control ; danger of future takeovers ;
have to release inforn1ation to public (0 and
0 wanted to control their own business) .
Give a fnal recon1mendation and justif it.
UNI T 4 Government and economi c
i nfl uences on busi ness
Sample questions and answers
d) Examiner' s marks and comn
1
ents: This is an
excellent answer. Notice how the student
starts of by defning these two tern1s. The
efects of higher interest rates are well applied
to Fogla' s shop. Finally, there is a very good
attempt to evaluate these efects - Fogla' s
might not be that n1uch afected by higher
rates and the student explains why. Total ¯
8/8 marks .
a) 1 mark for identifing each reason and 1 mark
each for son1e developtnent. She n1ay have
shared smne of the work - the business was
expanding rapidly. She may have added capital
to the business to allow it to buy more
equipn1ent which was needed for the expansion.
• Try this
b) 2 n1arks for accurate defnition - franchising is a) 2 marks for accurate defi nition.
when a business has pem1ission to use the b) 2 n1arks for two exan1ples of governn1ent
name, logo and trading methods of an action to protect consun1ers; up to 2 marks in
existing business. addition for explaining each point.
c) Up to 3 marks for identifing
Governments often protect consun1ers fron1
advantages/ disadvantages ; 3 marks for
dangerous products . If a soft drinks frm did
discussion of these for 0 and 0 Cleaning
not use very clean methods of producti on
with a formal judgement. Advantages: rapid
then this could harn1 consumers . The
way to expand, franchisees use own capital to
government would use laws on hygiene
expand. Disadvantages : less control over the
standards in this case. Also acceptable:
business; franchisee keeps some of the profts
protection against monopoly power,
of their business. Useful for 0 and 0, as they
misleading advertisements, underweight or
wanted to expand quickly. They would not
faulty goods .
have to provide all the fnance (it is not a pic) ,
c) 1 mark for identifing a reason, up to 3 n1arks
but son1e control is lost and ' they were keen
for development/ eXp
l
âHâtion. To protect
l
oca
l
to control their own business' .
environn1ent, to avoid building on fannland,
d) 1 n1ark each for identifing up to three benefi ts;
to protect residents fron1 pollution, etc.
1 n1ark each for developing them. Benefts:
Without these planning restrictions fn1s
less risk; proven successful product; some
management tasks done by the franchiser;
would be able to build in the cheapest
market research and marketing decisions taken
location without considering any other factors.
by franchiser.
_ d) To create more jobs and to increase den'and
e) 1 nurk for each diference; 1 n1ark for
for the products of local suppliers. 1 mark each.
d
eve
l
oping eac
h
one.
e) Up to 4 marks for identifing advantages and
f 2 n1arks for advantages; 2 tnarks for
disadvantages; up to 4 n1arks for a bal anced
disadvantages and up to 4 tnarks for
argun1ent fron1 Mitn Chul' s point of view.
explai ni ng and discussing these for 0 and 0 Advantages: improved working conditions,
• 1 00
Answers
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
more motivated staf, fewer costly accidents,
better public image. Disadvantages: could
increase costs, might make Mim Chul's firm
uncompetitive compared to rival firms that
might have poor health and safety, and lower
costs as a result; money could not be used for
other things, for exan1ple, improved machinery.
UNIT 5 Other external i nfl uences
on busi ness
• Try this
a) 2 marks for accurate defnition.
b) Central Government ¯ Increased exports
Local workers ¯ More choice of jobs
Local authority ¯ I ncreased local tax
payn1ents
Residents ¯ Noi se fron1 aircraft
Local unen1ployed workers ¯ More chance of
fnding a job
Businesses ¯ Easier to i1nport and export goods
Airlines ¯ Increased fights mean expansion
Train con1panies ¯ I ncreased competition
from airlines
Environmentalists ¯ Destruction of nature sites
1 mark for each.
c) Up to 2 n1arks for appropriate letter format.
Either (argu1nents against) : Noise, pollution,
increased trafc and car parking, spoiling the
countryside. Conclusion could be: build it
elsewhere or stop the growth in air transport
(for exan1ple, increase taxes on flying) . Or
(arguments in favour) : Jobs, increased sales for
lo-al businesses, more tourists fron1 other
countries, easier to import and export
products. Conclusion could be: build it as
soon as possible, as it will lead to much
greater business sales and output. Up to 4
n1arks for poi nts tnade; up to 4 n1arks for
analysis and fnal conclusion.
UNIT 6 Busi ness costs and revenue
e Try this
a) 1 mark each for:
Direct: fl our; wages of bakery workers
Indirect: salary, rent
b) 2 n1arks for defi ning budgets; 2 n1arks for
brief outline of up to two benefts; 2 111arks
for applying to Cairo Tyre Con1pany.
Budgets are fi nancial plans (for the future) .
These plans give departn1ents a target to \Vork
towards. This can be tnotivating for workers.
They help to prevent overspending. The
1narketing departrnent spent too 111uch at the
Cairo Tyre Co1npany and this 1night have
been because the departrnent did not know
what the budget was.
c) 1 mark for defning disecono1ny; 1 mark for
any one diseconomy of scale. The example
applied to Cairo Tyre Company for 1
further mark.
d) Up to 3 marks for developing benefts; 3
further marks for disadvantages; 2 further
marks for balanced discussion. Advantages:
useful for analysing how n1uch n1ust be sold to
cover all costs (break even) and the safety
margin; can be used to compare diferent
options, for example, the break even of
diferent shop locations; able to analyse what
might happen to break even if prices are
lowered/raised. Disadvantages: assun1es all
goods are sold; assumes straight lines are
realistic; fxed costs are not always constant;
can becon1e out of date quickly. On balance:
useful if the drawbacks are considered when
analysing break-even results.
UNIT 7 Busi ness accounti ng
Sample questions and answers
c) Examiner's marks and con1n1ents: This is very
good. The two forn1ulae have been given and
the calculations are correct. What is n1ore, the
student understands what the results show and
tries to suggest one reason for the poor fgures.
judgen1ent is shown at the end - it is
important to compare ratio results either wi th
other years or with other, sin1ilar, businesses.
Total ¯ 1 0/ 1 0 n1arks.
e Try this
a) 1 mark each for: proft and loss account;
balance sheet. (Accept also cash fow
statement. )
b) Up to 3 nurks for either The balance sheet
contains details of the finn' s assets and liabiliti es.
It also shows the shareholders' funds; 0ï. profit
and loss account contains the revenue, gross and
net proft of the business. The balance sheet also
shows the retained proft.
c) Shareholders: i)
1 01 •
ANSWERS
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Trade union: iii)
Govermnent: iv)
Creditors: ii)
1 tnark each.
d) Up to 4 111arks for correct ratio results (up
to 2 marks if correct formulae but incorrect
resul ts) ; 6 n1arks for analysing and briefly
discussing results . (Accept any four results. )
(Not essenti al to show formul a unl ess 2004 2005
cal cul ati on i s wrong)
Gross profit margi n % =
GP
? 1 00 20% 1 7. 1 %
Sal es revenue
Net profit margi n % =
NP
? 1 00
Sal es revenue
10% 7. 1 %
Return on capi tal empl oyed % =
N
: ? 1 00 1 5% 1 0. 4%
Cap1tal
empl oyed
These results show that the proftability of
Titan Tankers has declined since 2004. The
cmnpany has n1ade less gross and net proft
even though sales have i ncreased. Costs seem
to have increased too quickly. Also, net proft
has fallen despite the fact that more capital has
been invested in the business. The new capital
does not seem to be very proftable or is not
being used very efciently. But it is important
to con1pare with other companies in the same
industry.
UNI T 8 Cash fl ow pl anni ng
e Try this
a) (2, 000) This is obtained by subtracting total
cash outflow from cash infow or
1 , 500 - 3, 500 ¯ (2, 000)
b) Up to 2 marks for defnition. This is the cash
balance at the end of the month - it could be
negative if there is a bank overdraft.
c) Up to 4 nnrks for using the cash fow
forecast to explain answer. There is a bank
overdraft at the end of July (a negative
closing balance) because cash outfows in the
frst two months were greater than cash
infl ows . Although this was not true i n July
(cash inflow 3, 000 and cash outfow 1 , 500) ,'
the negative cash bal ances in the other
n1onths were bigger than the positive net
cash fow in July. The n1ain reason seen1s to
be the purchase of equipment.
• 102
d) 2 marks for identifing reasons; up to 4 n1arks
for explanation i ncluding use of cash flow
forecast fgures . They can be shown to lenders
and investors to encourage then1 to
lend/invest. They can be used to plan future
fnance needs . In this case Rishav and
Abdullah would need to plan an overdraft, at
least for the frst three months . If they did not
plan this, the bank could refuse it j ust when
they needed it. I n this case it shows that the
net cash fow is positive in July and this n1ight
encourage lenders and investors to believe
·
that the radio station will be successful .
UNIT 9 Fi nanci ng busi ness acti vi ty
Sample questions and answers
3) ii) Examner's marks and cotnments: 2 marks
for knowledge and application; 1 nnrk for
some attempt to analyse why it would be
useful. The student could have explained that
forecast proft and cash flow would be very
important to the loan decision. Also, there is no
evaluation. The business plan might not be
detailed enough or the bank n1anager tnight
think that it was too op
d
n1istic, so the loan
might not be given after all. Total = 3/6 nnrks.
e Try this
a) 1 n1ark for each advantage and disadvantage.
Shares: Can raise substantial sun1s of capital
for lin1ited con1panies but nny afect the
ownership and control of the business.
Overdraft : Flexible form of fnance that can
be varied to meet the needs of the business
but often high i nterest rate and can be called
back by the bank at short notice.
Long-term loan: Suitable for long-term
projects or expansion and does not afect
ownership or control but interest n1ust be paid
and the loan will have to be repaid.
b) 1 mark for each correct answer:
Debenture: external
Shares: external
Proft: internal
Sale of buildings: i nternal
c) Up to 2 tnar
k
s
t
or stat
i
ng su
i
ta
bl
e sources, up
to 4 n1arks for explaining any two of these for
this business; 2 rnarks for reasoning and
recon1mendation .
Answers
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Long-term loans (short-term or medium-tern1
may be unsuitable) , sale of shares, retained
profts . An overdraft is not suitable for long­
term expansion.
Explain one beneft and one drawback to at
least two of these.
Recommendation. Might depend on current
interest rate - if high, then shares or profts
might be better. If profts are low then they
might be inadequate for the expansion. If
directors do not want to risk losing control,
then sale of shares could be risky. Advice:
retained profts if sufcient, if not, then loan
if the interest rate not too high.
UNIT 1 0 Organi sati onal structure
Sample questions and answers
d) Examiner' s marks and comments: Two factors
are identifed, explained and given some link
to Yuan' s fl ower business. Finally, the student
tries to explain that the fnal structure is not
certain - it depends on how Yuan expands
the business. All four skills are shown by the
student. Total ¯ 8/8 marks.
• Try this
a) 4 marks for correct and labelled chart; 2-3
marks for missing some information or one
level; 1 n1ark for some attempt.
l
Li ne managers
| Ì I Ì Ì
Factory manager
l
|
Supervi sors
l
Li ne managers
| Ì I Ì Ì
l
Li ne managers
| Ì I Ì Ì
b) i) 1 mark for identifing problen1; 1 1nark for
application to Abadullah' s business; 2 marks
for explanation/ analysis.
Poor communication with lower levels -
managers of factories will not be able to
comn1unicate easily with Head Ofce;
decisions not taken locally or taken by more
junior 1nanagers . The styles of clothes chosen
by Abadullah might not be right for all
regions; possible poor motivation for factory
managers as all nujor decisions are taken at
Head Ofice.
ii) 1 n1ark for defnition; 1 nurk for application
to this business; 2 marks for
explanation/ analysis .
Yes, it does appear to be centralised as all
maj or decisions are taken at Head Ofce
which is a sign of a centralised business.
Factory managers cannot decide which styles to
make or how to pay their production workers.
iii) 1 mark for defnition; up to 3 n1arks for
identifing advantages/ drawbacks of
decentralisation; 2 nurks for
explaining/ analysing at least two of these and
2 marks for discussion/judge1nent.
Decentralisation is when decision-n1aking
power is given to factories, branches or
divisions, and not Head Ofce. Possible
benefts : Quicker decision-n1aking locally,
decisions taken locally will take local £ctors
such as fashion or labour shortages into
account. Drawbacks: nunagers will need
training to take good decisi ons; diferent
branches and areas n1ay take diferent
decisions and these could clash.
Decentralising could beneft Abadullah' s
business if managers are trained well and if
local diferences are so great that Head Ofce
decisions do not suit all areas.
UNIT 1 1 Managi ng a busi ness
e Try this
a) 1 mark for reason; up to 3 nurks for
explaining it.
Any one of motivating staf giving the
business a sense of purpose and direction;
making sure all departn1ents are working
towards the san1e ai1ns ; giving n1anagers a
means of comparing actual perforn1ance
against the original target.
Any one of these should be briefly explained,
analysing why this advantage results fro1n ain1s
and targets.
b) 1 mark each (see Key defnitions) .
c) Up to 3 111arks for identifing i1nportant
factors; up to 3 n1arks for applyi ng then1 to
this business; up to 4 1narks for analysing
then1 with a fnal, supported
recornmendation. Person A is very �unbi tious
and if Un1eel wants the restaurant to expand,
this might be the person to e1nploy. 'A' seen1s
to be a good communicator - very in1portant
1 03 •
ANSWERS
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
in 3 busy restaurant. ' A' is well educated and
possibly trained in managetnent and n1otivation
techniques - the 25 restaurant staf will need to
be well tnanaged. ' 1 has n1ore relevant
experience and being a former chef n1eans ' B'
might concentrate on quality n1eals and motivate
the staf to achieve this target. Quality is 'B"s
objective and this n1ight mean that Un1eel could
increase prces in the restaurant. If Umeel wants
the business to expand over the next few years, I
would choose ' A' as long as there are already
good chefs who can take control of the cooking
side of the business.
UNI T 1 2 Communi cati on i n busi ness
• Try this
a) 1 mark for correct answer plus 1 mark for
brief explanati on.
External - the manager is sendi ng a message
to people who do not work in the business.
b) Up to 4 marks for up to two advantages and
two disadvantages of any two methods; up to
4 marks for discussion in context and fnal
!CCOl ll l \ l Cl 1 d3ti O! l .
An e-n1ail would be quick, but it may not be
opened inm1ediatel y. An attachn1ent could be
included, in colour, of the product details. A
telephone call would be more personal and the
benefts of the new sweet could be explained to
evety shop owner; however, it would take a
long time to telephone all shop owners. The
best n1ethod could be a video sent to all shops
plus posters for displaying in the shop. It could
be expensive and take a long time to produce
the video though, and the n1anufacturer coul d
never be sure that every shop owner watched it.
c) 1 tnark each for i dentifing possible barriers
to con1n1uni cati on; up to 2 n1arks for each
barrier for explaining them and applying then1
to either exatnpl e.
·
Notice board: cannot be
certain that it will be read by everyone that is
meant to receive the n1essage as there is usually
no chance for feedback. It is a written format
which not everyone will be attracted by, and
son1e n1ay not understand the language used.
Both of these problen1s could result i n
p
oor
conlmtmi cati on. The same barrier can apply to
newsl etters .
• 104
UNI T 1 3 Moti vati on at work
Sample
q
uestions and answers
3) i) Exatniner' s n1arks and con11nents: 1 tnark
for i dentifing $200 paid, then 1 tnark for
stating pi ece rate. The third n1ark would be
for explaining why i t was clear i t was piece
rate. Total ¯ 2/3 n1arks.
ii) 2 marks for correct answer.
e Try this
a) 6 n1arks for explaining the advantages and
disadvantages of diferent fnancial and non­
fnancial n1ethods of n1otivation; 4 tnarks for
selecting one method and explaining why you
think it the best one to use; 2 n1arks if the
answer is in the context of Patel Fashions.
Financial nlethods nught include conlnussion,
proft-sharing bonus or perfor1ance-related
pay. Non-fi nancial n1ethods nught include
discounts on the clothes, paying for healthcare,
pension, clothes.
b) 4 marks for explaining how to use job
rotati on/j ob enl argen1ent/job enrichn1ent to
i ncrease n1otivation ( 1-2 tnarks each) ; 2 lT3!kS
for saying whether you consider job rotation to
be the best n1ethod to use and why; 2 tnarks for
answering in the context of Patel Fashions . Job
rotation involves workers swapping round and
doing each task for only a linuted titne and then
changing round again. Job enlargen1ent is where
extra tasks of a sinular level of skill are added to a
worker' s j ob descri ption. Job rotation is quite
lin1ited in the shop as there are not very many
j obs to do. Job enlargement n1ight be better as
workers will then get more enjoytnent fron1
doing a variety of jobs such as working on the
tills, arranging the clothes and helping custon1ers,
which will i ncrease their job satisfacti on.
c) i) 1 mark for autocrati c. 2 tnarks for
j ustifying the choi ce of n1anagen1ent style.
Workers need to be constantly supervised so
they will work.
ii) 1 mark for detnocratic or laissez-faire.
2 1narks for j ustifing the choi ce of
tnanagement style. Workers are tnotivated by
bei ng able to take an i nterest i n their work.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ���:�
UNIT 1 4 Recrui tment, trai ni ng and
human resources
Sample questions and answers
2) ii) Exan1iner's marks and comn1ents: The
student' s answer gives two suggestions which
are explained. Total ¯ 4/6 marks.
• Try this
a) 1 mark for each reason given, for example,
redundancy, sacked, en1ployee left because
they found another job/moved away from the
area/ emigrated.
b) 1 tnark for stating a problen1 (maximum 2
marks) and up to 2 additional marks if the reason
is explained as to why it is a problem. Possible
problen1s might include: the reasons why the
employees are leaving, for example, bad
managetnent; costs of replacing the employees;
increased training costs; reduced morale.
c) 2 marks for describing what induction
training includes : for example, show the
en1ployee where everything is; health and
safety training; n1eet other employees; go over
rules and regulations of the business. 2 marks
for explaining the usefulness to the business of
induction training.
d) i) 6. marks for discussing the advantages
and/ or disadvantages of internal and external
recruitment, for example, cost, skills of
app1icants, n1otivation, availability of suitable
employees; 2 marks if applied to chefs;
4 marks for justifing which would be the
better tnethod to use and why. The
conclusion would probably be external
recruitn1ent so the che(� would already be
trained and able to bring their experience to
the restaurants. The chefs would be
productive strai ght away and would not need
to be trained by The Royal Garden, which
would be expensive.
ii) 2 marks
.
for explaining either on-the-job or
of-the-job training; 3 marks for justifing
which would be the n1ore suitable method to
use and why. The answer would probably be
on-the-job training, but if suitable justifcation is
gven then full marks could be awarded for of­
the-job training. Advantages of on-the-job
training: because it would be easy and cheap to
let other workers show the new en1ployees
what to do; these en1ployees do not need n1uch
training as the jobs are low-skilled.
Uni t 1 5 Empl oyee and empl oyer
associ ati ons
Sample questions and answers
2) ii) Exatniner's n1arks and conunents: A good
answer in context of the business and the
candidate explains how it will help to avoid
confict. Total ¯ 5/5 marks.
e Try this
a) craft union - (iv) ; industrial union - (ii) ;
general union - (iii) ; white collar union - (i)
1 mark for each correct answer.
b) 1 n1ark for each of three benefts (for exatnple,
represent employees in negotiations with trade
unions; giv� advice to n1embers; act as pressure
group for members; share ideas) and 3
additional nurks for explanations.
c) i) 2 marks for explaining the advantages and
disadvantages of strike action (for exan1ple,
very disruptive to business ; loss of pay for
workers) ; 2 marks for explaining the
advantages and disadvantages of an overtin1e
ban (for example, workers don' t lose norn1al
pay; pressure on business as orders nuy be
delivered late) ; 2 n1arks for deciding which
would be more efective for the workers at P
and D Ltd and why. An overtin1e ban would
probably be more efective because P and D
Ltd have got increasing sales and they need to
increase output to n1eet these orders . The
workers will not lose any wages, but there
will be pressure on the con1pany to give in to
the employees' wishes otherwise they will
lose business . Strike action could also be
efective as output would be lost, but the
workers would not get paid when on strike so
an overtime ban would be the best fonn of
industrial action for the workers to take.
ii) 1 n1ark for each of three exatnples of
worker participation (for exatnple, worker
directors, works councils, quality circles, n1ore
den1ocratic styles of leadership) ; 3 additional
marks for expl aini ng the three ways of having
worker participation.
UNI T 1 6 The market and marketi ng
e Try this
a) 1 tnark for stating each obj ective of tnarketi ng
(for exan1ple, to i ncrease sales revenue and
proftability; to increase 1narket share; to
improve the image of products; to target a
105 •
ANSWERS
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
new rnarket or n1arket segn1ent; to develop
new products or in1prove existing products) ;
3 additional rnarks for explaining the three
objectives .
b) 1 n1ark for each elernent - Product, Price,
Pron1otion, Place.
c) 4 rnarks for explaining the benefits of linking
the eletnents of the 1narketing mix together
(for exan1ple, so that the diferent elements
reinforce each other; the advertising budget
will be rnore efectively used; sales will be
higher) ; 4 n1arks for explaining what might
happen if the business does not link the
elen1entsJogether (for exan1ple, the sales n1ay
not be as high as they could be; potential
custon1ers rnay buy the competitors' products;
the product rnight £1il altogether) .
UNIT 1 7 Market research
Sample questions and answers
b) Exa1niner's nurks and comments: The candidate
only states what is meant by primary and
secondary research and does not explain the
difference between theri1. Total ¯ 2/4 n1arks.
• Try this
a) 2 n1arks for each advantage stated (for example,
fi rst-hand infom1ation straight fom actual or
potential consutners; can be qualitative rather
than quantitative; inforn1ation about the
product itself is obtained) ; 2 marks for
explaining each advantage.
b) 1 mark for each example (government
statistics on population and income;
newspapers of the country; trade magazines in
the other country; the report and accounts of
the competitors in the other country;
i
n
f
onnat
i
on prov
id
e
d b
y an
i
nteniat
l
oiia
l
organisation, such as the UN, on its website) .
c) 2 rnarks for each way the business can try to
ensure the inforn1ation is accurate. Up to 2
marks for explaining each of these ways (for
example, make sure the information is up to
date, take a large sample, ensure the sample is
representative of the target market) .
UNI T 1 8 Presentati on of i nformati on
• Try this
a) 1 mark for a ti tle; 2 nurks for correctly
labell ed axes and scale; 2 tnarks for correctly
pl otted graph.
• 106
b) i) 2 n1arks for describing the trend in each
graph. Product A has seen sales increase
slowly at first and then rise rapidly. After
reaching a peak, sales then fall . Product B
sees sales increase steadily, reach a peak and
then fall. But sales then start to rise again and
continue to rise above the previous peak.
ii) 1 mark for stating a reason for the
diferences; 2 marks for explaining the reason
(for exan1ple, Product A has a typical product
life cycle; Product B had successful extension
strategies used, so that sales have increase
d
again after the decline stage) .
UNI T 1 9 The marketi ng mi x:
product and packagi ng
Sample questions and answers
d) Examiner's n1arks and con11nents: The candidate
suggests several ways of increasing sales and
explains how they should be efective, and there
is also a consideration of drawbacks. The answer
is applied to this business but no decision is
n1ade as to what is the best way of increasing
sales. Total ¯ 6/8 n1arks.
e Try this
a) 3 marks for explaining the functions of
packaging; 2 marks for applying the answer to
sports drinks (for example, to give
information about what the drink contains; to
make the drink look attractive; to give the
drink a sporty image; to preserve the drink) .
b) 3 marks for stating the factors Sheena n1ight
take into account. 3 n1arks for explaining why
these factors n1ight be in1portant (for exarnple,
cost of packaging, competitors' packaging, the
target market for the drink, design allowing
con�um�g to drink out of the contJiner) .
c) 1 n1ark for labelling the axes, 3 n1arks for
labelling the fve stages, deduct 1 mark for each
missing label. Stages to label - introduction,
growth, maturity, saturation, decline.
d) 3 marks for describing the changes; 3 1narks
for saying what should happen as a result of
the changes (for exatnple, the price may be
high when the product is frst introduced to
the n1arket if there are few or no con1petitors.
Then competitive pricing as competition
increases in the growth phase. When sales
start to fall, the price n1ay be reduced to try to
encourage sales to increase again or at least
slow the decline in sales) .
_ l
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Answers
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
e) 3 nurks for explaining why son1e products
have longer life cycles (for example, they are
not fashion goods and therefore stay popular
for longer; they appeal to a large market and
have few con1petitors - custon1ers will keep
buying the products as there will be no close
substitutes) . 1 1nark for a suitable example (for
exan1ple, chocolate bars, washing powder) .
UNI T 20 The marketi ng mi x: pri ce
Sample questions and answers
c) Examiner's marks and comments: 2 marks for
correctly identifing that demand is inelasti c;
2 marks for making a j udgement as to what
the business should have done and why. The
student does not explain the efects of the
change on the business. The student could
have explained that Luxury Leisure plc lost
n1en1bers due to the price increase.
However, the reduction in n1embers was a
lower percentage than the percentage
increase in pri ce. Total ¯ 4/6 marks.
• Try this
a) 2 marks for stating whether demand is inelastic
(then a percentage increase in price would lead
to a smaller percentage fall in sales and an
increase in sales revenue) or elastic (then a
larger percentage fall in sal es and a fall in sales
revenue) . 2 marks for explaining why petrol
would be likely to have an inelastic demand,
which 1neans that customers are not price
sensitive and n1ost of then1 will keep buying
the product (if prices rise, sales revenue will
increase) . Elastic den1and n1eans that custon1ers
are price sensitive and they will buy substitute
products .
b) 2 n1arks for stating that they want to increase
sales of the products; 2 tnarks for explaining
that this will be at tin1es of the year when
sales will not be good, for exan1ple, at the end
of a season for gift items associated with
particular festivals.
c) 4 marks for stating factors that affect pricing
strategies . 4 nurks for explaining these
factors and why they are important to the
business (for exampl e, con1peti tors ' pri ces;
stage of the product l ife cycl e of the
product; costs of production; type of
product; qu:ity of product; whether there
are con1peting products) .
UNI T 21 The marketi ng mi x:
promoti on
Sample questions and answers
b) Exatniner's nurks and cmnments: Three
suitable ways suggested and two were j ustifed
briefy. Total ¯ 5/9 marks .
e Try this
a) 1 mark for teenagers .
b) Up to 3 marks for stating factors like the cost;
trends i n spending habits; which is most likely
to increase profts; what type of custmners use
the shopping centre. Up to 4 nutks for
explaining how these factors infl uence the
decision. If many different age groups of
customers use the shopping centre then sales
may be increased by attracting a wider range
of customers . If Music Mania spends 1nore on
advertising then it will only attract the san1e
age group of custo1ners and this nny not
increase sales as n1uch.
c) 3 marks for stating the factors to consider.
3 marks for explaining these factors. 2 nurks
for applying them to selling classical music.
The promotion has to be suitable for music. If
the proft per CD was not hi gh then ' buy
one, get one free' would not be suitable as
the business would lose 1noney. COs are not
bought that often, so it 1night be better to
ofer a second CD at a reduced price once
one has been purchased.
d) 1 mark for a suitable exan1ple (for exatnple,
ftted kitchen, building work) ; 3 marks for
explaining why the exan1ple would be sold
using personal selling - advice would need to
be given and the product or service 1nay be
specifc to the custon1ers' requiretuents .
UNI T 22 The marketi ng mi x: pl ace
Sample questions and answers
2) ii) Exanliner's n1arks and con1n1ents: A good
answer, but n1ore than two factors were
considered and the answer had n1ore points
explained than were needed to achieve full
marks. Total 8/8 1narks.
e Try this
a) i) wedding cakes; ii) new cars; iii) tins of
fruit; iv) shoes (exported)
b) 5 nnrks for expl aining the advantages and
disadvantages of not selling to a retail chain of
107 •
ANSWERS
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
supennarkets (for exan1ple, sales are not as
hi gh, does not reach a wide target n1arket,
n1ore control over the way the product is sold
to the custotner) . 5 tnarks for explaining the
advantages and disadvantages of selling
directly to an airline (sold directly to customer
so higher profi ts, products are produced to
the custotner' s specifcation) .
c) Product - should be high quality furniture;
Price - should be high ·to refl ect a high
quality product; Promotion - should be in
places where high-income groups would be
likely to see the advertisements; Place -
should be in shops which sell mainly
expensive products. 4 n1arks for stating the
diferent elen1ents of the marketing mix. 4
n1arks for explaining how these four elements
would be used in each case. 4 marks for the
answer to be in the context of furniture for
each eletnent of the n1arketing n1ix.
d) 4 nurks for stating diferent factors to
consider. 4 tnarks for explaining why these
£1ctors woul d be in1portant when deciding on
the n1arketing n1ix in a diferent country. The
types of retail outl ets used, for exan1ple, may
be diferent. In one country large
supern1arkets may be used by tnost of the
custotners whereas in another country, small
shops tnay be more comn1on, so wholesalers
·ill be part of the ' place' in the n1arketing
tnix in one country, but not in the other.
UNIT 23 Factors affecti ng producti on
Sample questions and answers
c) i) Exan1iner's n1arks and comn1ents: Clear
defnition. Total ¯ 2/2 marks .
• Try th i s
a) i) 1 1nark for each n1ethod - j ob production
and fow producti on.
ii) 2 tnarks for explaining what is n1eant by
either quality control or quality assurance; 2
n1arks for saying vhy it is i tuportant to Medic
Suppli es pic. Quality assurance is where
qual ity standards are set and then applied
throughout the bu�ine�� . Everone on the
production line at Medic Suppli es pic will be
responsible for ensuring that there are no
defects with the products . This is parti cularly
in1portant for this business because it supplies
• 108
equiptncnt to hospitals and if there were any
faults then a death could be caused, n1eaning
the company would get a bad reputatipn
resulting in lost sales.
iii) 2 n1arks for explaining the process of stock
control; 2 marks for explaining how it ensures
that raw materials should always be available so
that production can take place; 2 n1arks for
being in the context of n1edical supplies.
iv) 2 marks for defi nition of lean production.
Up to 4 n1arks for explaining how it n1ight be
introduced at the business.
b) i) 3 marks for stating the cost savings of using
computers to take orders instead of employing
people (for example, fewer people needed,
less wages to pay out, ordering can be
automated) ; 3 tnarks for explaining why these
mean lower costs.
ii) 2 marks for stating the possible efects on
the number and types of j obs at the con1pany,
2 marks for explaining why these efects are
worrying for the employees at Telesales
Services Ltd. More on-line ordering will
n1ean that fewer ernployees will be needed as
this is done automatically. Fewer telephone
orders will n1ean employees who work in this
section will be made redundant as they will
not be transferred to on-line orderi ng. This is
why employees are worried about losing
their j obs.
UNIT 24 Factors affecti ng l ocati on
Sample questions and answers
3) Examiner's marks and conm1ents: 3 n1arks for
listing disadvantages (more than three were
listed) and 1 mark for explaining the reason
for high rent i n city centres. The candidate
needed to explain the other disadvantages
for full n1arks . Total ¯ 4/6 n1arks .
e Try th i s
a) i ) 3 marks for each of the three £1ctors (for
example, availability of labour, location of
ports, availability and cost of land, goven1ment
grants) ; 3 n1arks for explaining why these .
factors are lmpod:art The cocoa
i
s
i
n1porte
d
so
being located near to a port will reduce the
transport costs of the raw n1aterials.
ii) l tnark for stating each of the appropriate
factors (n1aximun1 3) ; for exan1ple, the
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Answers
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
market, costs of setting up a new factory,
costs of running a factory in this overseas
market, availability of suitable labour,
governn1ent policy; 3 marks for explaining
these factors; 2 marks for applying the answer
to chocolate manufacturing; 2 n1arks for
nuking judgements as to which factors are
the n1ost irnportant when making the
decision. If particular skilled labour is needed
and there is none available in the country
then it will be expensive to en1ploy foreign
skilled workers .
b) 2 marks for stating the disadvantages of
businesses locating wherever they want to,
without any consideration of the local
population or environment; 4 marks for
explaining the reasons. For example, causing
trafc congestion fron1 delivery lorries;
destroying areas with wildlife and natural
beauty; the local population nuy not be
happy about factories being built near their
houses; causing pollution.
c) 2 marks for stating whether location is
important to this business ; 4 marks for
justifing this answer. Points nuy include:
selling over the internet n1eans that customers
do not need to go to a particular place to see
the products so the business does not need a
shop for custotners to visit; orders are sent by
post and therefore it is useful to have access
to postal services nearby; the internet allows
the business to locate anywhere in the world,
not necessarily in the same country as the
custon1ers; orders can be placed over the
internet, so the business is not reliant on the
post for orders to be sent, which saves time
between orders being placed and the orders
being received by the business .
UNI T 25 Busi ness i n the
i nternati onal communi ty
Key defnitions
The ' exa1nples' questions are based on your own
countr - ask your teacher to check your answers.
Sample questions and answers
d) ii) Examiner's marks and conlfents: The
student has understood the impact on
exporters of an appreciation and has stated
that this could reduce profts fro1n exporti ng.
Total ¯ 4/4 nurks .
• Try this
a) 1 n1ark for indentifing each reason and 1
mark for a brief explanation of each one.
To obtain raw materials - these 1night not be
available in the ' ho1ne' country; to produce
more cheaply - labour costs could be lower in
another countr; to avoid tarif - by
producing goods in another country, in1port
tarifs will no longer have to be paid for
imports into that country.
b) 1 mark for each correct point.
Language problen1s; diferent laws (for
exan1ple, consumer protection) ; diferent
customer tastes; con1n1unication problerns
with head ofce.
c) Up to 2 marks for benefts and up to 2 nurks
for drawbacks; up to 4 n1arks for discussion
and judgement.
Benefts: more j obs, export earnings, increased
output, increased tax revenues.
Drawbacks: j obs lost at existing con1petitors,
possible environn1ental dan1age; possible
exploitation of labour; possible excessive
exploitation of natural resources; profts sent
back to ' home' country.
1 09 •
accounts 27, ^U, 46
advertising 79
Articles of Association 1 0
a�e� 27, 28, 30, 36, 37
balance of payments 1 4
balance sheet 28, 30
bankruptcy 30
benefi ts 1 9, 2 1 , 53
bonuses 52-3
brands 72
break-even poi nt 23, 26
budgets 23, 26, 64
busi ness, types 6, 64, 91 , 93
business pl ans 37
capital 1 , 27, 28, 3(> , 37
cash fow 32, 34, 35, 46
chains of command 41
char� 23, 70, 71
collective bargaining 60
communication 4V, 50, 5 1
consumer protection laws 1 5
contracts of employment 1 5
contribution 23
co-operatives 1 0
corporations 10, 1 2, 95, 97
cost beneft analysis 1 9, 21
costs 1 , 1 9, 21 , 23, 24, 26, 27
credit 30, 37
currency 1 7, 95
customer service 79
debentures 36
deb� 27, 28, 30, 32, 37
decentralisation 42
decision-making 1 5, 45
de-industrialisation 5
depreciation 27
discrimination 1 5
dismissal 57, 60
distribution 83, 85
diversi fcation 5
dividends 27, 36
economic growth 6, 1 4, 17
economic problem 1, 3
economic unions 95
economy, types of 6
employer associations 60
• 1 10
I ndex
exchange rates 1 4, 1 5 , 1 7 , 95
expenditure 37
exports 1 4, 1 7, 95
feedback 49, 50, 5 1
fnance 34, 36, 37, 39
forecasts 23, 26, 32, 34
franchises 1 0
globalisati on 95
graphs 70, 7 1
Gross Domestic Product (GDP) 1 4
hierarchies, levels o f 4 1
hire purchase 3 7
imports 1 4, 1 5 , 95
income 1 4, 17: 5cc dÍi0 wages
industrial action 61 , 62
infation 1 4, 1 7
integration 5, 8
job satisfaction 53, 55
leasing 37
liabilities 27, 28, 30
limited companies 8, 10, 1 2, 39
limited liability 10
liquidity 27, 30, 32
loans 28, 32, 34, 36, 39
location 91 , 93
managers 41 , 43, 45-6, 47, 53
market research 6 7, 69
marketing mix 64, 66, 72, 74, 76, 79,
83
Memorandum of Association 1 0
monopolies 1 5
motivation theories 52
multinational corporations 95, 97
national minimum wage 1 5
overdrafts 32, 36, 39
overheads 23, 27
packaging 72, 74
partnerships 1 0, 1 2
personal selling 79, 81
pressure gropps 1 9
price skimming 7(> , 78
pricing strategies 76, 78
private sector 6, 8, 1 0, 12
privatisation 6
product life cycle 72, 7 4
production 5, 87, 89
productivity 87, 89
prof� 8, 27, 28, 30, 35, 36, 53
promotion 79, 81
public corporations 1 0, 1 2
public relations 79
public sector 6, 8, 10, 1 2
quality control 88, 89
quotas 1 5, 95
ratios, types of 27, 30
recession 1 4
recruitment process 56, 58
redundancy 57, 60
retained proft 27, 36
retrenchment 57
revenue 23, 27, 30
salaries 53
sal es turover 27, 28
scale, (dis) economies of 24, 26
shareholders 3, 1 0, 27, 28, 39
shares 28, 36, 39
sole traders 10, 1 2
spans o f control 41 , 43
stakeholders 1 , 3
start-up fnance 34, 37
stock control 87
supply and demand 76, 78
taxes and tariffs 1 5, 27, 95
technology, changes in 1 9, 21, 89
trade cycle 1 4
training 57, 58
transportation 83, 85
unemployment 1 4, 21
uni ons 60, 6 1 , 62
value added 1 , 3, 87, 89
wages 52, 54, 55
worker participation 61 , 62

C o n te n ts
Introduction
Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Unit 6 Unit 7 Unit 8 Unit 9 Unit 10 Unit 11 Unit 12 Unit 13 Unit 14 Unit 15 Unit 16 Unit 17 Unit 18 Unit 19 Unit 20 Unit 21 Unit 22 Unit 23 Unit 24 Unit 25
IV

The purpose of business activity Types of business activity Forms of business organisation Government and economic influences on business Other external influences on business Business costs and revenue Business accounting Cash flow planning Financing business activity Organisational structure Managing a business Comn1unication in business Motivation at work Recruitment, training and human resources Employee and employer associations The 1narket and n1arketing Market research Presentation of information The n1arketing mix: product and packaging The marketing mix: price The marketing n1ix: promotion The marketing mix: place Factors affecting production Factors affecting location Business in the international con1n1unity Answers Index

1 5 10 14 19 23 27 32 36 41 45 49 52 56

60
64

67 70 72 76 79 83 87
91 95 99 110

iii.

I n t rod u ct i on
How to use the study guide
This text has pritnarily been written to support students in their study of Business Studies to IGCSE. It has been designed to complement the IGCSE Business Studies textbook (Barrington and Stimpson) . The units in this guide follow the chapters in the textbook. Please be aware , however, that the order of the units in the textbook and this study guide and the order of the sections of the curriculum content are different. Teaching progran1n1es do not have to follow the order of either the curriculun1 content in the syllabus or the textbook. Teachers may have used the schen1e of work provided on CIE's website, so again the order of the units in this study guide will not be the same as the order of topics �n the scheme of work, or the scheme of work provided on the CD-ROM which supports the textbook.
IGCSE Syllabus - Curriculum Content
Busi ness and the environ ment i n which it operates: A - Busi ness activity B - The organ isation C- Chan g i n g busi ness environm ent D - Economic e nviron ment Business structure, org a n isation a n d control: A - Ownersh i p a nd i ntern a l org a n isation B - F i n a ncing busi ness activity Busi ness activity to ach ieve objectives: A- Ma rket i ng B - Prod uction (Operations management) C - F i na ncial i nformatio n a nd decision-m a k i n g Peop le i n business: A - Human n eeds and rewa rds B - M a n power Reg u l ating and contro l l i ng business activity: A - Reasons for reg u l ation B - Influences on busi ness activity

IGCSE Study Guide Units
U n its U n its U n its U n its 1, 1, 4, 1, 2 2 5 2, 2 5

U n its 3, 1 0, 1 1 , 1 2 U n it 9 U n its 1 6, 1 7, 1 8, 1 9, 20, 2 1 , 22 U n its 6, 23, 24 U n its 7, 8 U n it 1 3 U n it 1 4 U n its 4, 5 U n its 4, 5, 1 5, 2 5

The IGCSE Business Studies exanlination has two question papers. Paper 1 contains short-answer questions and structured questions based on short pieces of information. The skills being tested are n1ainly knowledge with understanding and application, with fewer n1arks awarded for analysis and evaluation. The questions on this paper carry up to 8 marks, but most of the questions have 2, 3, 4, 5 or 6 n1arks allocated. You will see in the different units in the study guide there are these types of shorter-answer questions for you to practise. Paper 2 has a business situation or probletn with questions arising fron1 the case study. The skills being tested on this paper are analysis and evaluation, but the questions will be asking for the answer to be applied to the business in the case study. The questions on this paper often carry 8, 10 or 12 1narks. Again, there are questions in the different units in this book, which will help you to practise answering these types of questions.
• iv

The a n swers section at the back of t h is revision g u id e will help yo u to check the marks yo u r a nswer wou l d have received. These are : • • • • knowledge with understanding application analysis evaluation. for exatnple. Knowledge with understanding. outl i n e mark sche mes a n d exa m i n e r's ma rks a n d com ments.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Introduction Each unit in the study guide has the following five sections : Section Key objectives What the section covers Outl i n es the key objectives. If you want to get the maximum value fro1n this book. It can be used on its own or in combination as follows: • • • to con1plen1ent the I GCSE textbook and CD-lZ. These a re only s u m m a ries ( i n the form of a ta b l e or d i a g ra m) a n d for more deta i l ed exp la nation you s h o u l d add to these from you r textbook or cl ass notes. 'What is 1neant by market segn1ent?' These are the type of questions where you will need to have revised the tem1s or definitions of the ve . which specify what yo u should u n dersta nd or be a b l e to do i � the exa m i nation. What examiners are looking for Most Business Studies exan1ination papers are testing four different skills . We hope you find this book a useful resource in your study of IGCSE Business Studies and that it assists yo u in gaining a commendable grade . to provide reinforcetnent and assessn1ent to prepare for the I GCSE exan1ination. Has exa m i n ation q u estions fo r yo u to answer. Cover u p the exa m i ner's marks a n d comments and s e e w h a t m a r k y o u wou l d have g iven the a n swer before yo u look at the actual mark that was g iven . it is strongly advised that you attempt to answer all the questions on paper and not in the book. How to use the section These l i sts can serve as a checklist of yo u r prog ress in each topic. This will h e l p you understa nd what is req u i red for fu l l ma rks. Key defi nitions Sample questions and answers G i ves exa mples of student answers. This study guide contains the necessary support for the attainment of the highest grade.OM at the end of each topic. Then you can repeat the exercises at intervals throughout the course. This is tested with the type of question that asks you to explain a particular tern1. Common misconceptions and errors Try th is G ives some common m i sta kes made by students i n exa ms. Summa rises the m a i n terms or defi n itions yo u should know for the exa m i n ation. Answer the q uestions.

. . only about a quarter of the marks across the whole papers will be for knowledge with understanding. you will see that there are many mini case studies outlined before the questions themselves so that you can practise this skill of answering in the context of the p articular business. This means the exanuner is testing whether you can apply your answer to the business given in the examination. Analysis. . This skill requires you to draw conclusions. . You should be able to arrange information in order to 1nake sense of it. . . The mark scheme will reflect the different skills being tested and reward then1 accordingly. . . The type of command words which are testing this area are : Explain how this business . . Exanuner's tips will also indicate where you need to include evaluation in your answers. . . . . Unfortunately. n1ake judgements or make recommendations. . the case study outline . . You must be able to analyse what information is being shown. 'Which would be the best form of fi n ance for this business to use to pay for the expansion of its factory?' The qu estion does not just test evaluation but also tests knowledge with understanding. .. . Why might company x . . . but they must be justifi e d to ensure the marks are achieved. Why n1ight cotnpany z . Using accounting ratios. Examine why the business . . diagran1s or drawings. Revision sections throughout this book contain questions that give you practice of this skill. e vi . . . List . Give . graphs. . With thorough revision of the definitions section and supporting notes it will be relatively easy to acquire n1ost of the n1arks for these questions. . . . . Identify . . application and so1ne analysis . for example.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • INTRODUCTION different topics. . Fron1. . So this is a very important skill. 'What do you think the business in the case study could do to increase sales?' Your answer must not just be a general explanation of how a business could increase sales. Evaluation. . . Or you must be able to exanune the implications of a suggested idea or strategy. . Outline . . The skill of analysis involves being able to select information from text. . you will lose a quarter of the marks across the whole examination papers. if the information shows an upward trend in the business performance. Define . . There are � evision sections thoughout this book that con t ain questions that give you practice of this skill. You need to be able to write down what they n1ean clearly and accurately if you are to gain n1axin1un1 nurks. . Name . . . this could involve graphing infom1ation provided in a table. . for example. tables.. Application. for example. . Give an example from the case study to . . State . What is tneant by . The type of command words which are testing this area are: Describe . Explain why . . If you don't try to think in tem1s of the business given. The type of command words which are testing this area are: Analyse two factors . When you look at the revision questions in this book. for exan1ple . . analyse . . . but how this specific business could increase sales. . . .

As you work through the questions in this study guide. . homework and assignn1ents are major factors in detennining your final examination grade. try to think about which skills the examiner is testing. . Assess . etc . . . . thoroughly. You could do one unit from this guide at a tin1e or you could group units together into the topic areas. then it would be a good idea to complete it. Rev i s i o n ti ps • Divide your time so that you revise a section or topic at a ti1ne . . Do you agree . To what extent . Make sure that your notes are up to date . lessons. then you must make judgements in your answer. . refreshing your men1ory of what you need to know and be able to do for the exan1ination. . n1arketing would include Units 1 6 to 22. Consider. facts. . Similarly. . . otherwise you will not gain the higher marks. . for exa1nple. In sun1mary: • • • • work throughout the course ensure that your work is both complete and accurate learn the topics for tests and internal exan1inations seek assistance if you fi n d an aspect of the course difficult. Decide . . . it should not be learning something for the first time .. Advise . . look at any hon1ework you have missed and if it involves the reinforcement of skills or concepts. so you should agree or disagree and explain why. Evaluate . . It is essential that you prepare thoroughly for internal school examinations then. Recomn1end . . • Learn the terms. . . . . . . Preparing for the examination Du ri n g the cou rse Preparing for an external examination is a continuous process throughout the course. Revision should be what it says. Justify . • When you have learnt a particular topic practise answering the questions at the end of the units to test if you have learnt all the vii e .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Introduction The type of con1mand words which are testing this area are: Discuss . . . as you approach the I GCSE exan1ination and start your revision programme. Why do you think . Precise and clear answers are more likely to gain full nurks . Which . . . concepts. If you n1iss work through absence either copy it from a friend or leave a con11nent in your notes that will remind you to refer to the topic in a textbook. . . . if the examiner is testing evaluation by asking if you agree with a particular p roposal.. All the activities. . so the first piece of advice is to suggest that you work steadily throughout the one or two years of the course . Vague answers may get son1e credit. . For example . the topics will be familiar and the learning process will be less stressful and more productive . . . . but they are more likely to lose you n1arks . .

Rev i s i o n tech n iques Well in advance of the examination. I ntroduce 'rewards' . . Repeat until you have most of the information correct. cover.when I have finished this section of work I will . plenty of paper and a pencil or biro . Pay particular attention to n1aking sure you explain in detail. it is time to extend the revision to practising on past papers. Ideally. This is the 'look.it may be as little as 30 minutes or over an hour. On occasions revising with a friend 1nakes a welcon1e and useful change. This is a very individual characteristic and can vary fro1n person to person . will develop these skills but Paper 1 will ask questions in a business context and also develop these skills. Keep a checklist of the topics studied . Paper 2 practice questions. you ought to go through the complete course twice. s o do not believe that just looking at a book is an effective way of learning. Your eyes can go over the words but the meaning never enters your brain! You can nuke flash cards that have bullet lists of essential points. How to app roach th e exa m i nation If your Centre or school has provided a detailed exan1ination tin1etable. but not essential as this book includes all the inforn1ation required for I G CSE Business Studies. then move on to another section of the work. Revision must b e active. . in particular. This requires you to look at case studies to answer questions. highlight your examinations and put this ti1netable in a pro1ninent place in your home . It is crucial that you repeat this technique on the same topic at least once. It is useful to have a syllabus.it is encouraging to have a visual record of your progress. You need to practise the skills of application. soon after your first attempt. You can study the topic for several minutes and then close the book and write out what you can ren1ember . i. You will need a quiet room at a co1nfortable ten1perature.then check your account against the book.e.you must include time for relaxation and socialising. Ask one of your parents to check with you each day so that you don ' t n1iss an examination.• • • • • • • • • • • • • • • • • • • • INTRODUCTION • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • information thoroughly. either later the san1e day or the next day. analysis and evaluation. write and check' technique and it is very effective for the majority of students. You will have to discover for yourself the length of time for which you can profitably study. produce a revision tin1etable for all your subj ects. Once you have acquired a reasonable knowledge of the course.do not take great care over presentation . Then create a more detailed timetable for Business Studies to cover all the topics . break up the available time into study sessions and breaks. This is a n1ost valuable form of preparation because not only does it provide a test of the effectiveness of your revision but it also provides an insight into what to expect in the 'real' examination. Some students find using highlighter pens helpful. Do not exceed your optimum study time. but preferably twice. Be realistic . • viii .

Read then1 on the front cover and obey then1. but if it says 'explain . Make sure you obey the con1n1and word.e wisely and don't spend a lot of time trying to answer questions you are not sure about. 1 2 marks. Make sure you read a case study carefully and apply your answers in the context of the case study. Read the informatio n carefully and underline key points. Do not repeat the sa1ne answer in different sections . ruler. you will not be given extra tin1� and under certain circun1stances you will not be allowed to enter the examination room. pen cil . tor exatnple. ruler. for exan1ple. Use all the information provided in the case study. calculator (are the batteries OK?) and two blue/black p ens (in case one runs out) . but more in-depth discussion will be needed for the highest marks. Answer the questions you are n1ore confident in answering and go back to the other questions at the end of the examination. 6. For questions using the comn1and words for analysis and evaluation then fewer points will be required. pencil sharpener. . such as pen . The regulations vary depending on the Examination Board. eraser. Use the nun1ber of n1arks available for a question as a guide to the nun1ber of points needed if you are not told how 1nany to include. Highlight or underline the key words in the question. 8. eraser and calculator. If you are late. ' then n1ore than a si1nple statement is needed. Make sure the correc t equipn1ent is brought to the ex�unination. Leave hon1e in plenty of ti1ne. However. Answer all the questions in the examination as there is no choice given. Use your tin1. Advice for w h e n you a re about to ta ke yo u r exte rn a l exa m i n ations • • • • • • • • • Make sure you know the examination instructions. Read each question carefully and pay particular attention to the command words. if 1nore marks are available then a detailed explanation will be needed.) Be aware of the time available . . Also.you do not usually gain double credit. 1 0. This is especially important in questions where you are specifically asked to do so. These are usually the ones that are using the con1n1and words for analysis and evaluation and carry a relatively large nutnber of marks. Do not put yourself at a disadvantage . (Your teacher can explain this to you. if you have finished the exan1ination before the end then re-read your answers and t1y to add to then1. ix • . If you run out of space then fill any space underneath the question or answer on spare paper. if the question says 'state two examples' then don't explain them. Make sure you understand how to achieve the higher l eve ls on a question where a level response 1nark schen1e is used. Do not write a detailed answer to a question which is only worth 2 marks.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Introduction Collect together the correct equipn1ent the night before pencil.

and to gain confidence. Answer the question on the examination paper . During the n1arking period.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • INTRODUCTION After the exatnination the papers are sent to the exatniner allocated to your Centre. good luck! ex . If you can recall the work. Low grades are nearly always attributable to inadequate preparation. you will succeed and if you cannot. This exatniner will be part of a teatn headed by a Principal Exan1iner. I t was written to help students attain high grades. the team will meet to co-ordinate the marking for each question and decide the range of responses that are acceptable.do not regard a question as an invitation to write about the topic. but true. to become fatniliar with the type of question. Learn all the work. Practise the skills necessary to be successful including calculations and interpretation of graphs. A few weeks later you are informed of your grade . you will fail. the Principal Examiner will sample the marking of each examiner. to ensure con1parability of n1arking across the team. Finally. About a week after the examination. Harsh. All the n1en1bers of the exatnining teatn will look at a sample of their scripts and assess the range of candidates' responses to each question. Make sure you can explain your answers in detail and do not make simple statements unless a question asks you for a simple statement. at least twice. How to i m p rove yo u r g rade Here are a few tips: • • • • • • Use this book. Use past papers to reinforce revision. The scripts and the marks are returned to the Examination Board where the minin1um mark for each grade is decided.

. When choices a re made. consum ers.g. These g ro u ps often have d iffe rent o bjectives for the business. If a firm sel ls a product for $ 1 5. Qatar in oil product i o n. (factors of production) compared to human wants Sca rcity of factors of prod uction: la nd. Stakeholders 1 • .u p a n d profits o nce it is esta bl ished. ba n ks. e.m a n-made resou rces such as m a c h i nes that a id productio n E nterprise.. customers. ca pita l a n d e nterprise � Scarcity resu lts i n opportu nity cost. survive. I n a computer asse mbly factory each worker wi l l perform a speci a l ist task. If you buy the j acket.. Exa m ples Cou ntries speci a l i se. Labour with i n a firm ca n speci a l ise. i n crease sa l es. Objectives can d iffer between b u s i n esses. governme nt. Division of labour Busi ness objectives Va lue added The d ifference between the sel l i ng pri ce of a prod uct a n d the cost of the bou g ht-i n materi a l s n eeded to make it.. e. then the value added is $9.i n c l u des a l l natu ral resou rces Labour. the next best thing g iven u p is ca l led the opportun ity cost You have $ 1 0 and want to buy both a DVD and a jacket. surviva l at sta rt. reside nts. the DVD is your opportunity cost 1 La nd.. Wo rkers. too . The o bj ectives of any one b u s i n ess can change over time. shareholders. but the m ate rials that were bou g ht i n fro m other firms o n ly cost $ 6..g.. Each worker does one spec i a l ised job. labour..N IT 1 T h e p u r p ose of b u s i n ess a ct i v i ty Key objectives • To understand what is n1eant by scarcity e To know what is meant by the economic problem e To apply the idea of opportunity cost to a nu1nber of different situations e To explain why specialisation is important in modern businesses e To understand the nature of business activity and the groups involved in it Key definitions U nl i mited h u m a n wants The economic problem is ca used by the scarcity of resources .people prepa red to take risks by sta rti ng busi nesses Term Specialisation Defi n ition Where reso u rces a re used to co nce ntrate on prod ucing one particu l a r prod uct. G ro u ps of people with a d i rect i nterest in the performa nce of a busin ess. I ncrease profits. The targ ets or a i ms that a business is work ing towa rds.the n u mber of people a ble to work Capital.

2 marks for idetztifying and explaining the more recent objective. They wanted to tnake more n1oney than they were earning in their old j obs. The con1pany has bought expensive new tnanufacturing equipment which is very specialised. It is made from soap bought in by the business at a cost of $2 per item. This should increase output and itnprove quality. The obj ective of this business is to survive . The con1pany is owned by a brother and sister. b) Explain the advantages and disadvantages of using division of labour for this business. The work can be boring as workers are only doing one j ob all the tin1e .C Cotnpany produ ces and sells costnetics for won1en and girls. The director believes that by designing new luxury packaging for the product.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 1 Sample questions and answers Satnple question The AR. 3 marks for explaining two or more disadvantages for this business (maximum 2 marks if no riference to this busi11ess). This is causing nuny stakeholder groups to worry about the future of the business. there is no attempt to identif or explain the y original objective that seems to have been prof it. Sales are falling due to new con1petition in the n1arket with exciting new products. Stakeholders are worried that the business n1ight not survive so this is now the business's obj ective. value added could be increased. Although profi t able. a) How do the business's obj ectives seetn to have changed recently? [5 tnarks] Marks 1 mark for explaining what a business objective is. The owners are very keen for the business to continue . business sales have fallen in recent years.the 'Bella' perfun1e . This n1eans that each worker does what they are best at. 3 I 5 marks . Production has fallen as a result of this and ARC cannot supply all of the shops. The new machinery that ARC bought allowed the business to use division of labour.currently sells for $ 7 .1 mark. However. It has a lot of new cotnpetitors and sales are £1lling. [7 marks] Marks 1 mark for explaining division o labour. ARC should benefit from lower costs and this will help the business survive. Division of labour is where a product is n1ade by workers specialising on one stage of production each. However. so ARC tnust cut production costs to survive. 2 marks f identif or ying and explaining the original objective. division of labour does have its problems. Student's answer • 2 . Most businesses have obj ectives that they ain1 for.2 marks . One product . Fewer workers are needed and they perform the same tasks each day and some workers have left because they are bored. The answer states that the latest objective is probably survival a11d explains why . 3 marks for explaining two or f more advantages for this business (maximum 2 marks if no riference to this business). The marketing director is keen to increase the value added of the cosmetics. Student's answer Examiner's marks and comments The student understands that objectives are tmgets to aim for .

marks a11d COI/11/lCilfs arc 011 c) Assume that the marketing director bought in new packaging for the Bella 1Perfun1e. lS n1arks] Marks Student's answer 1 mark f identif or ying one other method. To increase value added. 3 . Calculate the new value [3 marks] added of this product. Cheaper rnaterials could be bought in for the perfun1e so that it does not cost so n1uch to make.' Why it is wrong The economic pro b l e m resu lts from sca rcity of resources rather than money.the examiner's marks and comments are on page 99.the examiner's page 99.40 less $3 $5 . 40 Examiner's marks and comments 3 marks . She increases the selling price by 20%.40 = 3 marks even with f f no working. Marks If the candidate calculates the correct answer o $5. If consumers are looking for a quality product in this market then sales could be hit badly. 2 marks for evaluatillg this method. . Value added = = = = Student's answer selling price less bought-in costs $7 + 20% less $3 $8.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • The purpose of business a ctivity Try to mark this yourself . too.there a re ot her g ro u ps. However. Va l u e ad ded is not profit as o n ly the cost of bought-in materia ls/ com pon ents have been subtracted from the se l l i n g price. This costs an extra $1 per unit. Try to mark this answer yourself . if new bought-in costs o $3 is stated = 1 mark.' 'Va l u e added is the profit made on each u n it.' 'Sta keholders a re the sa me as shareholders.well done! d) Evaluate any one alternative method that the nurketing director could use to increase the value added of this product. 2 marks for cxplai11ing hou' it might increase value added. I t n1ight n1ake the perfume sr11ell differently. Common miscon ceptions a n d errors Error ' M o re money wi l l solve the economic prob l e m . ifformula of value added is correctly given = 1 f mark. This will mean that value added fro n1 each bottle of perfume will rise . cheaper materials rnight lead to lower quality. if uew selli11g price o $8. S h a reholders are j u st one g ro u p of sta keholders . the nurketing director could keep the price the san1e but lower bought-in costs. This could lead t o fewer sales of the product.40 = 1 mark.

c) Assess the effect on workers of usi n g d ivision of l a bour i n the new factory. [4 ma rks] b) D iscuss how two of these g r o u ps m i g ht be affected by the new factory. a) Identify fou r sta keholder g r o u ps that wi l l be affected by the p l a n to b u i l d th i s new factory. It wi l l be b u i lt on farm land severa l k i l ometres away from the main city./ Define division of labour a n d consider both advantages and disadva ntages to workers. [8 ma rks] Examiner's tip . I t wi l l employ many workers and wi l l export some of its output to other countries. [8 ma rks] Examiner's tip ./ You o ught to try to think of how stakeholders might be a ffected in both positive and nega tive ways.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 1 • • • • • • • • e Try t h i s A new plastics factory is t o b e b u i lt i n you r cou ntry. The factory wi l l use specia l ised equ i pment to a l l ow for d ivision of labour. • 4 . Loca l residents have mixed feel i ngs about the plan. Other pl astics b usinesses are worried a bout the com petition it wi l l bri n g . It cou l d lead to lower prices for plastic prod ucts.

Travel ag ents. I nd ustries that m a n ufact u re goods made from the raw materi als provi ded by the primary sector. i nteg rati on with N a m i bi a Dri n ks p i c Horizontal i nteg ration will offer more econom ies of scale a nd reduces average costs . I n d ustries that provide services to consumers and other sectors of i nd ustry. forestry and fishing ._____ Acme O il pic could i ntegrate with other --! businesses in the following ways: Ho rizontal integration i s with a busi ness in the same i ndustry at the same stage of prod u ction.. i ns u ra nce..g. com puter assembly.an exan1ple from the oil industry: Vertical i nteg ration backwards is with a business in the sa me industry but at a d ifferent stage of prod uction: towa rds the raw materi al. Relative decl i n e in the i m portance of a cou ntry's secondary (manufacturing) sector. Astra O il pic Conglomerate i ntegration is also known as diversification Vertica l integration forwards i s with a business i n the s a m e industry b ut towards t h e consumer. e. e. Tertiary production De-industrialisation 5._. ba n k i n g. . Examples M i n ing. Car p rod uction.g . vertical and conglomerate mergers and takeovers To understand the different ways of measuring business size To explain why some businesses remain small Key definitions Types of business mergers and takeovers (integration) .N IT 2 Typ es of b u s i n ess a ct i v i ty Key objectives • e e e e To know the difference between the three stages of production: primary. ag ricultu re..g. i ntegration with Asi a O il Fields pic Conglomerate i nteg ration is with firms in a d ifferent i nd u stry. health serv i ces and transport. e . i ntegration w ith Egypt Petrol Stations pic Term Primary production Secondary production Defi n ition I nd ustries that extract and exploit the natu ral resou rces of the earth. secondary and tertiary To understand the difference between the p rivate and public sectors of industry To explain the differences b etween horizontal . Most adva nced i n d ustrialised eco n o m i es are experiencing this. food ca n ni ng a n d steel ma k i n g . g . e.

b) Which sector of industry is this business in? Justify your answer. have very large private sectors com pa red to the who le economy. for exam ple. Examples I n most m ixed economies. a) The government decides to privatise this airline. External growth Sample questions and answers Sample question The main airline in Country X. N uclear powe r pl ants. Examiner's marks and comments Full marks for clear understanding . perhaps to an existing private sector airline company. Use a high proportion of capital equ i pment to prod uce thei r output. Has both a private and a p u b l i c secto r. [2 111arks] Marks • 6 1 mark for tertiary a11d 1 mark for brief explmwtion . l a rge a utomated car factories. wate r. fo r exa m p le. This means that the government will sell the public sector airline to the private sector.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 2 Term Public sector Defin ition The sector of the economy i n whi'h organ isations a re owned and control led b y t h e state (gove rnm ent) . A l l reso u rces are privately owned . B usiness g rowth ach i eved by merg i ng with or ta k i n g over other busi nesses. B us i ness g rowth ach i eved by expa n d i n g the exist i n g business. the UK and Germ any. I n most m ixed economies. Private sector Free ma rket economy Planned economy A l l resou rces a re owned by the governme nt. Explain what this means. car facto ry extend i n g to ra ise capacity. private schoo ls. [2 n1arks] Marks Student's answer Up to 2 marks for brief explanatio11 . The sector of the economy i n which org a n isations a re owned and contro l l ed by i nd iv i d u a ls. Reta i ler open i ng a new shop. Airco . health services and ra i l way services are i n the p u b l i c sector. H ewlett Packard ta k i n g over Compaq com puters. Mixed economy Privatisation The sa le of state-owned assets such as p u b l ic corporations to the private sector. . which a l so takes all maj o r economic decisions. is owned and 1nanaged by the central government.there was no 11eed to add 'perhaps to a11 existing pritJate sector airline company ' but it was a good development. I n m a ny countries. Ch rysler merg i ng with D a i m l e r. There are no 'pure' free ma rket econom ies but the U SA and South Korea. Prices are determ i ned by su pply and dema nd. Former co m m u n ist cou ntries in Eastern E u rope had pla n ned (or com ma nd) eco n o m i es. b ut the bala nce between private and p u b l i c sectors is not a l ways the same. telephone and e lectricity i nd ustries have been privatised. reta i l i n g and fa rmi ng busi nesses are i n the private sector. Fruit picking. ca l l centres. Use a high pro portion of l a b o u r to prod uce the i r o utput. Capital-intensive busi nesses labour-i ntensive businesses Internal growth. Nearly a l l cou ntries have m i xed eco n o m i es.

the examiner's marks and comments are on page 99. It will have to cotnpete with other airlines and will no longer be supported by the governn1ent. 7 . No. .one for and one a. Airgroup . This would be horizontal integration.�ainst. This will be a problem for the people affected.�es applied to this lmsilzess (maximum 1 mark each if not applied) plus 2 marks for some jlldj!. However. definitely benefit frotn this takeover.gument. i) If this integration went ahead. this is wrong so no marks.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Types of business activity Student's answer Examiner's marks and comments The airline is in the secondary sector as it produces flights for passengers . This integration would make a much larger business. Airlines provide trmz�port services to people and businesses so it is in the tertiary sector. is i nterested in buying Airco from the government. So Airgroup will. The government is asking a high price for Airco and some staff do not want to leave the public sector. Marks Student's answer [4 tnarks] Up to 2 marks for each m. the government will force it to becon1e more efficient. it might be able to buy aircraft more cheaply as there might be economies of scale because the firn1 is now much larger than before . 2 marks for this answer because the explanation lacked detail . 1- c) Briefly analyse one argument for and one against the privatisation. Also.it should have gone on to say cthey are at the same stage ofproviding airline services'. [3 n1arks] Marks Student's answer Examiner's marks and comments 1 mark for horizontal and up to 2 marks for explanation . son1e flights rnight be stopped if they do not make enough profit.the explanations are short and clear. d) An existing private sector airline. It will reduce the number of competing airlines. Airgroup might benefit in several ways frorn this takeover. [8 rnarksl Marks Up to 3 marks each for two explained advanta. horizontal or conglon1erate? Explain your answer. By privatising the airline.ement or evaluation. ii) Do you think it is likely to be a good idea for Airgroup to integrate with Airco? Justify your answer. The student has not wasted any time . Student's answer Try to mark this yourself . This will reduce competition. Airgroup might be able to increase its prices because of this. would it be vertical. therefore . This is because the two firms both provide services and are in the satne industry. It would be one of the largest in the industry. Examiner's marks and comments Full marks as there are two clear arguments .

'There is both backwa rd a n d forwa rd H o ri zontal i nteg ration is j u st between two fi rms at the sa me stage horizonta l i nteg rati o n . 500 2. ' of production i n the sa me i n d u stry. This wi l l cost $ 1 O m . i i) The reta i l shoe shops. Company Y. 500 700 a) Wh i ch is the la rgest business: i) i n terms of sa les? [ 1 mark] [ 1 mark] i i) i n terms of ca pita l e m p l oyed ? b) How wou l d you explain the h i g h n u mber of workers e m p l oyed by Company Y yet the rel atively low sa les com pa red to Company X? [4 ma rks] c) Company Z has not expa nded in recent yea rs. [ 4 marks] d) The d irectors of Company X a re pla n n i n g to take over a leather suppl ier. capital.' Why it i s wrong P u b l i c l i m ited com pan i es a re in the private sector of i n d ustry (see U n it 3). i) What type of i nteg ratio n is t h i s ? Exp l a i n you r answer. I n each case.' Profit l evels c a n va ry g reatly between com pan ies even if they a re of s i m i l ar size i n te rms of wo rkers. etc. exp l a i n you r a nswer briefly .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 2 Com mon m isconceptions a n d errors Error 'Org a n i sations in the p u b l i c sector include p u b l i c l i m ited com pa n ies. Sales turnover (Sm) Company X Company Y Company Z 1 60 1 00 50 Capital employed ($m) 35 4 10 Workers employed 1 . The d i rectors expect the business to gain g reat advantages from this i nteg ratio n . Expla i n any two possible reasons why this busi ness rem a i ns q u ite smal l . Wh ich sector of i n d u stry do the fol l owing businesses operate in? i) The shoe m a n ufactu rer. [4 ma rks] i i) Ana lyse two poss i b l e benefits to Company X from this i ntegration. • 8 . e Try t h i s The table below shows some data fo r th ree shoe m a n ufactu rers i n 200 5 . 'Profits are a g o o d w a y of com p a ri n g the size of busi nesses. These shops c u r rently s e l l a w i d e ra nge o f shoes from d ifferent man ufactu rers. vertica l i nteg ration can be either backwa rds or forwa rds . Profits a re not a good way of co mparing busi ness size. [3 ma rks] [4 ma rks] e) The d i rectors of Co m pany Y a re p l a n n i ng a m e rger with a cha i n of reta i l s h o e shops.

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Types o f business a ctivity i i i) Ana lyse one poss i b l e benefit to Company Y resulting from this i ntegrati on. [5 marks] Examiner's tip .I Define both sectors and then explain your opinion. f) [5 marks] Do you thi n k shoe reta i l ers should be in the p u b l ic or private sector in your cou ntr¥ ? J ustify your answer. ge .

A business that uses the na me. Remember: public l i m ited com pan ies are in the private sector Types of busi ness organisations I Private l i m ited company: a business owned by sharehol ders which ca n not se l l sha res thro. The obj ectives of the busi ness a re a lso stated . g ro u p of people. A legal document that m ust be com p l eted before a busi ness is g iven company status. Co mpan ies m ust hold these each yea r. add ress. It provides i m porta nt i nformation for shareholders . each of whom has a financial i nterest i n its success a n d a say i n how it is ma naged.most of thei r outlets a re fra nchises owned by d iffe rent people . Farmers i n many co u ntries operate as a co-o perative to sel l their prod uce. Pizza H ut a n d Body Shop . A l l sharehol ders have t h e right t o atte nd and vote on which d i rectors should run the company. It provi des deta i l s of the i ntern a l ru l es of the company. • 10 . Remem ber: p u b l i c corporations a re i n the public sector Examples Term Limited li a b i l ity Defi n ition The l i a b i l ity of the owners for the debts of the business is l i m ited to the owne rs' i nvestment. Shareholders i n a l l com p a n i es have l i m ited l ia b i l ity. reg istered office and issued capital of the business. The iss u i n g of sha res a nd the rig hts and d uties of d i rectors. Franch ise McDonalds. u gh the Stock Excha nge Public corporation: a business owned and contro l led by the state . Articles of Association Memorandum of Association The na me.NIT 3 Fo rm s of b u s i n ess o rg a n i sat i o n Key objectives • e e e e To understand the differences between lilnited and unlin1ited liability businesses To know the reasons why business owners choose to use different forms of business organisation To explain the differences between organisations in the private sector and organisations in the public sector To explain the advan tages and disadvan tages of all of these different forn1s of business organisation To evaluate these forms of business organisation in different circumstances Key definitions Sole trader: a business owned a nd operated by one person Partnership: a business owned by 2-20 people I Pub l i c l i m ited compa ny: a business owned by shareho lders that can sel l sha res to the p u b l ic th rough the Stock Exch ange. Annual General Meeti ng (AGM) Co operative - An org a n isation run by a. promotional l ogos and tra d i n g methods of a n existing s uccessfu l business. A l e g a l docu ment that m ust be com p l eted before a business is g iven company status.a l so known as national ised i n d ustry.

so all decisions can be taken by the owner. the sfl/{lent could have referred to Rashid's lack o finance (he may want to avoid legal f costs) and his wish to take his own decisions. no applicatio11 marks. 1 mark for referring to sole trader plus 2 marks for two ad va n tages . For example. Rashid wants to be able to control his own working life . He could keep all of the profits from the business. 11 • . sole f trader but accept partnership and private limited company if these are explained). or Student's answer I would advise hin1 to beco1ne a sole trader.two points made with brief explanation. He could ask a bank for a loan. He believes that he will need extra finance . He has very few savings .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Forms of business organisa tion Sample questions and answers Sample question Rashid has j ust left school. c) Outline two other sources of finance that Rashid could use apart fron1 his own savings. these are not applied to Rashid at all. There are no other owners. This seems to be important to hin1. Total = 3 I 5 marks. 2 X 2 marks f two points well developed a1Ul applied to Rashid. a) Briefly explain two benefits that Rashid could gain from setting [4 marks] up his own business . He wants to set up his own business as a gardener. Once he has started working. [5 n1arks] Marks 1 mark for correct identification o appropriate b11siness fonn (for example. Therifore. Marks Student's answer 1 mark f each benef it plus a further 1 mark each for some explmzation . but at the start there would not be any. Examiner's marks and comments Full marks . These businesses are easy to set up with no expensive legal costs. or If Rashid set up his own business. he would be working for hin1self He could take all of his own decisions and vvould be independent.just enough to buy tools. but he will need to convince the bank that his business plan for gardening services is a good one . However. he will have few sources of finance . b) What forn1 of business organisation would you recon1n1end Rashid to use? Explain your answer. If Rashid does set up as a sole trader. Examiner's marks and comments Full marks as two sources arc identified and explained in terms '�{Rashid's new business. This will encourage him to work hard to n1ake his business a success . he could use any profits that he nukes to finance the business. [4 n1arks] Examiner's marks and comments Marks Student's answer 1 nwrk for each appropriate source plus 1 extra mark j{>r each explanation in the context of Rashid 's business.�ivcn.

He also has much work to do in his office such as keeping accounts and ordering supplies. O n l y p u b l i c l i m ited com pa n ies (pic) can do th is. He would probably have to ask Saln1an before making big decisions. ' Why it i s wrong The owne rsh i p and busi ness control a re in the hands of one person this d oes not stop the so le trader from em p l oy i n g a d d itional staff. A friend of Rashid's. This would allow Rashid to buy equipment which would help him in his work. Student's answer Try to mark this yourself. If Rashid took Salman as a partner. he could share some of the work of running the business . 'Al l p a rtners have to work i n t h e busi ness. 2 marks f f for applying to Rashid's case.' ' P u b l i c l i m ited com p a n i es a re in the p u b l i c sector of i n d ustry. which would slow the process down. 2 marks for analysing at least one point in detail. Com mon m isconceptions and e rrors Error 'Sole traders can never em ploy other workers . Rashid has too much work! His business has been very successful in attracting new custon1ers.the examiner's marks and comments are on page 1 00. private l i m ited compan ies (Ltd) a re restricted i n w h o they c a n se l l sha res to. Salman has offered to invest some of his savings into the business so that sotne tnodern garden machinery can be bought. Some pa rtners can choose to ta ke an active pa rt in control of the busi ness . You can a l so have sleeping pa rtners . p u b l i c corporations a re owned by the government and a re in the p u b l i c sector . Marks 2 marks for content o advantages/disadvantages o partnership. Rashid would no longer be in full control and that is what he wanted. but they should sign a Deed of Partnership to reduce the chance of argutnents. Would you advise Rashid to take Salman as a partner in his [8 n1arks] business? Justify your answer. 2 marks for discussion showing judgement. Sahnan could also put capital into the business. This would save Rashid a lot of titne on some j obs. I think that Rashid should take Sahnan as a partner. but he does not enjoy manual work. Sahnan. is keen to become a partner and is taking accounting examinations.' 'A l i m ited company can se l l shares through the Stock E xchange.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 3 d) After several months.this wou ld need to be made clear in the Deed of Pa rtners h i p . All private and p u b l i c l i m ited compan ies a re in the private sector owned by p rivate i n d ividua ls. However.· The business will then expand.' • 12 . Salman could do the accounts and Rashid could concentrate on the gardening.

f) [4 marks] Wou l d you recom mend Onyema a n d O l e n a to co nve rt the i r company i nto a public l i m ited co m pany? J u stify yo u r a nswe r. he had offered clea n i ng services to loca l shops a n d offices. 13 • . [6 ma rks] [4 marks] [2 marks] Examiner's tip . F u rther orders came flood i ng in from a wide rang e of businesses. logo. Expla i n t h e advantages o f this p l a n rather t h a n sett i n g u p a n e w clea n i ng busi ness. They we re keen to control the i r own busi ness.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Forms of business organisa tion e Try th i s The g rowth o f Onyema's clea n i n g busi ness had s u rprised h i m . [6 ma rks] e) O ut l i ne two d iffe rences between a private l i m ited company a n d a p u b l i c l i m ited company. Ole na. b) Expl a i n what you u n d e rsta nd by 'fra nchising'. Onyema a n d Olena h a d c o m e a long way i n th ree short yea rs . d) I m a g i n e that you p l a n to open an '0 a n d 0 C l e a n i n g ' fra nch ise. The com pa ny accou nta nt advised that the busi ness sho u l d become a p u b l i c l i m ited com pany.were they ready fo r this h u g e ste p? a) O ut l i ne two poss i b l e rea sons why Onyema encou raged his sister to become a busi ness p a rtner. Do you th i n k this was a wise deci sion? Expl a i n your a n swer. Onyema a n d his sister decided one year ago to set u p a private l i m ited company. Wit h i n two months he had taken on three staff a nd his s ister. This wou l d need a d d ition a l fi na nce./ Explain the advantages and disadvan tages before making your recommendation. they had f u rther expa nsion p l a ns. They wa nted to set up fra nchised businesses i n all reg ions a n d wou l d supply the co mpany name. c) Onyema a n d Olena decided to expand the busi ness by offering franchises. tra i n i n g and some clea n i ng eq u i pment. as a p a rtner. H oweve r. Sta rt i ng j ust th ree years ago with a bucket a n d some spong es./ Give the advantages a n d disadvantages of fran chising before deciding. 0 and 0 Clea n i ng Ltd sounded i mpressive and it mea nt that the busi ness wo u l d s u rvive the death of e ither Onye ma or Olena. [8 marks] Examiner's tip .

Goods and services bought by one cou ntry from other cou ntries. High u n e m p l oyment red uces people's i n comes Economic i nfluences on ...NIT 4 Gove r n m e n t a nd e co n o m i c i n f l ue n ces on b u s i n ess Key objectives • To explain why and how governn1ents control business activity e To explain why and how governments support business e To know the econon1ic obj ectives of govenunents e To understand the n1easures that governtnents can take to control the econon1y e To understand the impact of business activity on society � Key definitions Unemployment: Whe n people who want a j o b c a n n ot find one. If a n i nd ivid u a l 's i ncome rises by 5 % p e r yea r a n d prices rise b y 3 % then rea l i ncome has increased by 2 % . The price of one currency in terms of a nother . When i ncome rises at a faster rate tha n i nfl ation. e .!) Yea rs Term Exports Im ports An i ncrease in rea l i ncome Defi n ition Goods and services sold by a cou ntry to other countries. A period o f very fast econo m i c g rowth wh ich can l ead t o h i g h inflation._ I nflati o n : I n crea ses i n ave ra ge p rices.. Exam ples Cotton goods a re one of Egypt's major exports. C h i n a 's economy g rew by 8% i n 2003. 1 U S $ : 1 e u ro .. i nflation i n Arg enti na was 5. i n t h e USA i n 2004 a 1.�--. A period when a cou ntry's GDP is fa l l i n g . g . g . GDP is the va l u e of tota l output in a cou ntry in one yea r Trade cycle: T h e reg u la r u pswi ngs a n d downswings t h a t occ u r i n a cou ntry's G D P Boom Q. 6 % but i n Hong Kong it was only 0 .. i n 2004 the rate of . Arg enti na has to i m port oil and gas. A bal ance of payments d eficit exists if i m ports a re g reater tha n exports. Recession Economic boom Exchange rate • 14 . e . J a pa n 's G D P (after i nflation) fe l l by 1 % in 2002. The bala nce of payments: Records the difference between a cou ntry's exports a n d i m ports. 2 % Economic growth: An i ncrease i n a cou ntry's Gross Do mestic Prod u ct (GDP) .

The company imports many food products fron1 other countries. U K Consumer Credit Act 2004.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Government a n d economic influences Term Exchange rate depreciation Defin ition A fal l in the exch a n ge rate of a cu rrency. gend er. I ncome tax. It sells quite expensive n1eals and drinks. rel i g ion. which is proving to be popular.6 e u ro then the U S $ has d epreciated. hol iday a l l owa nce. In the UK in 2004 this was set at £4. M a l aysi a has a 200 % ta riff on i m ported cars. National minimum wage Sample questions and answers Sample question Fogla's is a supermarket that sells a variety of food and household products. A decision taken on moral· g rou nds. A tax on i m ported goods to d iscou rage their sale. 1-3 marks for detailed development. The government might have wanted to protect workers. A clear reason is given. a) Explain one likely reason why the governn1ent insists on a national minimun1 wage . They could take advantage of workers and only pay thetn very low wages. Paid d i rectly from �ncomes. A soft d r i n k firm d eci d i n g to stop advertising d i rectly to ch i l dren as the d r i n ks co u l d be one of the ca uses of tooth decay i n chi l d re n . Va l u e added tax. The E U used to pl ace q u otas on i m po rted J a panese ca rs. The government wants to prevent workers fron1 being exploited . pension benefits. u n related to their a b i l ity to do the j o b . U nfavo u rable treatment of someo ne on specific g ro u nds. A legal l i m it on the qua ntity of a product that may be i m po rted. A business that has no com petition in its market . sexual ity. When there are not many j obs. Direct taxes Indirect taxes Import tariff Import q uota Consumer protection laws Monopoly Illegal discrimination M i crosoft has 95% of the ma rket for com p uter operat i n g systems. d uties on petro l a n d a lcoh o l . explained in enough detail. 4 marks. but the average incotne of local residents is high.85 per h o u r. company profits tax. Taxes on goods a n d services. The n1anager of Fogla's decided to open a cafe within the supern1arket. Examiner 's marks and comments This is a Jzood answer. [4 1narks] Marks Student's answer 1 mark for suggesting a likely reason. It pays most of its workers the national minin1un1 wage . The legal m i n i m u m hou rly wage rate. N ot recr u iti ng a person beca use of the i r age. race. This is then dcJJelopcd m ul 15 • . It wi l l include h o u rs of work. or beca use they have a d isabil ity. Examples If the exch a n ge rate for the US$ fel l from 1 US $ : 1 e u ro t o 1 U S $ :0. expected leve ls of behaviour. Workers would have to accept t h e j obs.it i s the sol e sel ler. Ethical decision Contract o f employment A legal a g reement betwee n workers and employers l isti ng the r i g hts and responsi b i l it i es of employees. en1ployers 1night try to pay workers as little as possible. Laws designed to protect consumers from u nfa i r actions by prod u ce rs or reta i l ers.

Workers in other businesses will also have higher wages and tnore tnoney to spend though . This will raise the firn1's costs. 1 mark for some application. Fogla's prices tnight be higher than other supermarkets that do not in1port. This depreciation will make imports more expensive .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 4 b) The governn1ent plans to increase the national n1inin1un1 wage by 20%. 2 marks for some discussion/judgement . 1 mark f explaining the or impact o higher costs (possibly lower pro ts). Goods bought fron1 other countries will be more expensive . higher wages could increase incomes for workers in other busi1zesses mzd this could lead to higher spending and increased sales for Fogla 's. 2 marks for some discussion f and judgement. Fogla's will have to pay higher wages to n1any of its workers. if the value of $ 1 falls from £2 to £ 1 . 2 marks for analysing the iffects 011 business. up to 3 analysis marks for explaining the impact on this business. For example. 2 marks for applyirzg these �ffects to Fogla 's. 2 marks for applying these to this f business. c) Analyse the likely effect on Fogla' s of a depreciation in the country's foreign exchange rate. d) Fogla's manager is worried when he sees the following newspaper headline: INTEREST RATES SET TO RISE TO SLOW DOWN INFLATION Discuss the likely effects of higher interest rates on Fogla's profits. [8 n1arks] Marks Up to 2 marks for knowledge shown about interest rates and inflation. Student's answer Examiner's marks 2 marks awarded for knowledge (higher costs for Fog/a 's and higher incomes and comments for other workers). [8 tnarks] Marks 2 marks for knowledge o two iffects. [6 tnarks] Marks Up to 3 knowledge marks for good understmzding o exchange rates and f depreciation. The manager of the supennarket tnight even tnake son1e workers redundant to save costs. The con1pany's profits could fall. Student's answer Examiner's marks and comments This shows real understanding.50 then the $ value has depreciated. Full marks . A depreciation of a country's exchange rate means that its currency is worth less. Total = 418 marks. The student also analyses the iffect o a f depreciation on Fogla 's accurately. so the effect is likely to be bad. The exchange rate is the price of one currency measured against another. Discuss the likely effects of this decision on Fogla 's. The f fi student did not analyse the second point and there was no evaluation of the possible positive impact of higher wages on the business. 2 marks for analysis o these iffects. For example . • 16 .

they cou l d switch to buying cheaper goods so the demand fo r these cou l d rise. a) Expl a i n the t e r m 'monopoly'. It wa nts to b u i l d on a site close to ho uses and schools. but ' booms' can lead to h i g h i nflation a n d lowe r levels o f o utput event u a l ly.' e Try th is M i m C h u l Ltd prod uces soft d r i n ks based on fresh fru it. Exports rise in price after an appreciation of the cu rrency.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Governmen t and economic influences Student's answer Inflation is when prices rise. Mim Chul Ltd has a poor reputation for hea lth a n d safety in its facto ries. On the other hand.it has fa l l en i n te rms of other cu rrencies. and interest rates are the cost of borrowing money. [6 ma rks] Examiner's tip . T h e company h a s a monopoly in Co u ntry X. They n1ight not go to Fogla's cafe so often. and consumers will still need to buy this no matter how high interest rates are .' Why it is wrong They ca n lead to h i g h e r i ncomes. 17 • . Fogla's might not be much affected. ' I nflation means the economy is expa n d i n g . therefore. A recession lowe rs consumers' i ncomes . ' 'A recession wi l l l e a d t o a fa l l i n demand f o r a l l goods. higher interest rates will mean that consumers will have less to spend. and CVIIIIHCIIfs are 011 Com mo n m i sconce ptions a n d errors Error ' Economic booms are a l ways good for the eco nomy. This could mean that it decides not to expand. be some positive and son1e negative effects. The d r i n ks are advertised to consumers with the slogan ' D ri n k Mim C h u l's j u ices a n d you wi l l never be i l l ' .' 'An exchange rate depreciation means the va l u e of the cou ntry's cu rre ncy has risen. Also. Try to mark this yourself . [2 ma rks] b) Expl a i n why the government m i g ht decide to protect the consumers of soft d r i n ks i n Cou ntry X.' 'An exchange rate ap preciation wi l l make exports chea per./ You could write about the firm 's monopoly position and the · advertising it uses. Higher interest rates will affect Fogla 's in several ways . especially because it is quite expensive.the examiner's marks page 1 00. It will cost the firn1 n1ore to borrow. if inflation does fall because of higher interest rates then the firm's costs will not rise so quickly. Also . It mainly sells food. The government has p l a n n i n g co ntro ls ove r the b u i l d i n g of new facto ries. N o . I nflation is the measure of the rate of price i n c r eases. c) The company plans to b u i l d a new factory to m a ke the d r i n ks. There will.

From the fol lowi ng l i st. [4 marks] d) The government has offe red M i m C h u l ' s business a g rant for the new factory if it is b u i lt i n a n other area. pl ace a tick [2 ma rks] a l o ngside the two most l i kely reasons for this.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 4 O ut l i n e o n e possi b l e reason why the government has p l a n n i n g contro ls for the b u i l d i n g of new facto ries. Possible reason for govern ment grant To i ncrease i mports To create more jobs To i ncrease i nflation To i ncrease demand for the products of loca l supplie rs e) Discuss whether M i m C h u l Ltd should spend money on i m proving hea lth and safety in its facto ries. • 18 . [8 ma rks] Examiner's tip v' Th ink about the disadvantages of not having good working conditions.

road safety. T h e costs to prod ucers and consumers of an economic a ctivity. explain what is n1eant by the tern1 ' external costs ' . [ 3 n1arks] 19 • . usu a l ly ca rried out by the gove rnment. Robots used to make cars. Po l l ution from a chemica l factory which h a rms the environ ment and may damage the health of l oca l resid ents. The new n1achines \Nill cut do\vn o n waste materials and pollution from the factory. The benefit to a driver of using a car. The costs of an economic activity paid for by the rest of society. Pressure groups Private costs Externa l costs The costs pa id for by a chemical firm when prod ucing prod ucts. G reen peace. Trade u n i ons. Examples M o b i l e phones with cameras. etc.esidents have often con1plained to the local gover11111ent about N o rri s Cars and the external costs caused by the factory. not the produ cers/consumers. i nto the overa l l costs a n d benefits (private a n d external) o f a l a rg e n e w proj ect. Workers who have used the san1e rnethods for 111any years will have to learn new skills. The benefits of an eco n o m i c activity received by the rest of society other than producers/consumers. A new a i rport may encou ra g e tourists to a reg ion. The business has a huge custon1er waiting list. An ana lysis. a) Using ar). residents. The directors have decided to make a new model of a car using the latest production technology . exan1ple .N IT 5 Ot h e r exte r n a l i n f l u e n ces o n b u s i n ess Key objectives To understand the other external constraints that affect business activity e To recognise how technology can affect businesses e To know why the environment is of increasing concern to most businesses e To understand how cost benefit analysis can be used to measure the full social costs and benefits of business decisions • Key definitions Term Technological change Defin ition Cha nges i n prod u cts or the ways prod ucts a re made resulting from resea rch i nto new ideas. Wo rld Wide Fund for Nature. An a n a lysis of the i m pact of a new motorway on users. R. G roups of people who share a common interest a n d ta ke a ction to ach i eve the changes they a re see k i n g . Private benefits External benefits Cost benefit analysis Sample questions and answers Sample question Norris Cars Ltd manufactures hand-built sports cars. The benefits of a n econo m i c a ctivity to producers/consumers . which wi l l bring jobs to fi rms other than the a i rport.

It is likely. therefore. The case tells us that workers will need to be retrained. PB or EB whether they are private or [ 4 n1arks] external costs or benefits. up to 2 marks for some judgement/evaluation. Student's answer • 20 . Some will be afraid of this. They may have done the san1e job for years and this could tnean they do not want to learn new skills. [8 n1arks] Marks Up to 2 marks for identif ying relevant factors.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT S Marks Student's answer Up to 2 marks for an understanding of this term plus 1 mark for an appropriate example. c) Do you think that the workers at Norris Cars Ltd would think the purchase of the new machinery was a good idea or not? Explain your answer. or they n1ight be slow learners. This uncertainty could reduce their job security and motivation so that they do not work as hard as they could. EC. up to 2 marks for applying these to this business. External costs are when people other than the producer or consumer of a good or service have to pay the costs of producing a product.good diftnition and relevant example. Identify with a PC. Private or external cost/benefit PB EC EB PC Cost or benefit H ig h e r profits if prod uction costs a re lowered Jobs may be l ost if the mach i nes a re m uch more efficient Pol l ution a n d waste wi l l be red uced Tra i n i n g costs wi l l be h i g h Examiner's marks and comments 4 marks for correct answers . up to 2 marks for analysing at least one if these points. Examiner' s marks and comments Full marks . b) The following list gives the possible effects of the decision by Norris Cars to purchase the latest technology equiptnent. An example is the pollution from a factory that society has to pay to be cleaned up . that they will not think that it is a good idea . Cost or benefit H ig he r profits if production costs a re l owered J obs may be l ost if the mach i n es a re much more efficient Pol l ution a n d waste wi l l be reduced Tra i n i n g costs wi l l be h i g h Private or external cost/benefit Marks Student's answer 1 mark for each correct answer.

Com mo n m i sconceptions a n d e rrors Error ' New tech no logy a l ways leads to u ne m p l oyment. The local government authority is hoping that its tax revenues will rise fro1n airport charges. some business people in the area are worried about increased con1petition and a possible shortage of skilled labour.' 'Cost benefit a n a lysis measu res the profit of a project.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Other externa l in fluences on business Examiner's marks and comments 1 mark for content as only one facto r was men tioned. Cost benefit a n a lysis tries to assess both private and external costs a n d ben efits (social costs and benefits) it is not concerned with profit.workers ttJil/ now be m u lti-skilled and l l'ill he more able to find ptherjobs if they wanted to. o 2 marks for analysis as the impact on motivation is exp la i n e d.' Why it is wrong N ew technology can create jobs. 1 mark f r application}. as people need to m a ke and service the new mach i nery. They have formed a pressure group called ' SANW' (Stop Airport in North West) . 'Workers wi l l a l ways be opposed to tech nolog ica l change. a) What do you u ndersta nd by the term 'pressu re group'? [2 marks] b) List A (bel ow) shows the sta keholders affected by the govern ment's decision. It is also hoped that new companies will be set up as the North West will now be cheaper for the transportation of goods.' e Try th i s Here i s a recent newspaper article: GOVERNMENT PLANS NEW AIRPORT IN NORTH WEST Central Government intends to allow a large new airport to be built in the North West. The answer cou ld have been i mp ro ve d by considering one other factor . Total = 5 I 8 marks . Identify the major i m pact on each gro u p from List B . This is an area of high unemploy1nent and more flights into the area will lead to n1ore tourists and increased exports . 1 m a rk for very limited evaluation . N ew technology a l so creates new products a n d new markets . [9 ma rks] 21 • . Some workers wi l l become more sk i l l ed. However. but it is worried about the effect on local pollution levels . Many local residents are totally opposed to the idea of the new airport. Technol ogy co u l d m a ke jobs more secu re if the firm becomes more efficient. Most local fin11s have welcon1ed the new airport plan. which wou ld i n crease their chances of g a i n i ng other jobs.

• 22 . [ 1 0 ma rks] Examiner's tip .I Try to explain three separate poin ts in your letter. Write a l ette r to the Gove rnm ent expla i n i n g why you either op pose or su pport the new a i rport p l a n .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT S list A Centra l Government Local workers in employment Local government a uthority Local unemployed workers Businesses in the North West Airl i nes Train compan ies Environmenta l ists c) list B Increased loca l tax payments Noise from ai rcraft More choice of jobs for ski l l ed workers More cha nce of finding a job Easier to import and export goods Increased exports from the economy Destruction of nature sites Increased fl ights mean expa nsion Residents l iving close to the new a irport Increased competition from airlines I ma g i n e that you a re either a member of the SANW press u re group or a North West b u s i n ess own er.

The a d d ition of fixed a n d variable costs. These are the costs per u nit of output. In a factory m a k i n g cloth i ng.nt TR � • Break-even output In a factory m a k i n g c l oth es. for exa mple. Examples/ca leu lation Rent of b u i l d i ng I nterest on loans M a nagers' sa l a ri es Cost of raw materials E l ectricity used for mach i n ery Prod u ction l a bour costs Tota l cost = F ixed costs + Va r i a b l e costs Tota l reve n u e = Q u a ntity sold x Price Output Diagram S � FC Output Variable costs Total cost Output Total revenue (Sales revenue) Break-even chart This is a g raph which shows the costs and reve n u e of a business and the l evel of sal es that m ust be made to break eve n . e lectricity costs would be ve ry d iffi c u lt to 'divide' accu rately between products a nd departments.000 to be spent on promotion over the n ext 12 months'. sa les fo recast. if costs = $30.N IT 6 B u s i n ess costs a n d reve n u e Key objectives e e e e e • To To To To To To know the difference between different kinds of costs understand what 'break-even level of production' means draw and analyse simple break -even charts calculate the break-even p oint from data know what a budget is and why budgeting is important understand how economies of scale arise Key definitions Term Fixed costs Defi n ition These costs do not vary with the n u m ber of items so ld or produced. C a I cu I a t e d by : T ota I costs Tota l o utput For exa m ple. l eather used for m a k i n g one style of coat is a d i rect cost. Th is is a prediction of the futu re. If a computer costs $ 1 00 i n materi a l s a n d l a b o u r (va riable costs). These a re costs t h a t can be d i rectly related to a particu l a r prod uct or department. b ut is sold f o r $ 2 50. These a re costs that ca n not be d i rectly rel ated to a particu l a r prod uct or department. This is a p l a n for the future conta i n i ng n u merical or financial targets. A firm forecasts that it wi l l se l l 200 u n its per m o nth over the next year.000 and tota l o utput = 1 0. Budget Forecast 23 • . A budget for the m a rketing department m i g ht be ' $ 50. then average cost = $ 3 . These costs vary d i rectly with the n u mber of items sold or produced . Break-even point Direct costs The leve l o f sa l es or o utput at w h i c h Tota l costs = Tota l reve n u e . ��i�:: B�o po.000 u n its. then contribution is $ 1 50. The i ncome of a business d u ring a time period from the sa l e of o utput. See d i agram a bove. ----­ Indirect costs (also known as overheads) Average costs (also known as unit costs) Contribution The contribution of a prod u ct is sel l i ng price l ess va riable cost.

Therefore. 2 marks f correct break-even result. The second sentence explains clearly that these costs increase as the number of tyres produced increases (2 more marks). these costs will increase. managerial a n d technica l economies. m a rketing. Mr Shah. 2 marks for explanation o why these costs are f variable and not fixed costs. or Fixed costs The break-e ven level of output = Contribution per unit Contribution per unit = Selling price tninus variable costs $5 . the more labour and materials will be needed to produce them. Marks 1 mark for knowledge: What is meant by a variable cost? 1 mark for application to this business.000 $1 $2 $5 per tyre Last year. low mora l e amongst workers . the marketing department spent n1uch more than Mr Shah expected them to . Marks Student's answer 1 mark for break-even formula. Total = 4 marks.$3 $2 • 24 . Examples/calculation P u rchasi ng. He gives you the following infonnation: Annual fixed costs: Labour cost per tyre: Variable cost per tyre : Selling price to customers: $50 . Sa mple questions and answers Sample question The Cairo Tyre Con1pany has asked you to help with sotne costing problems . are labour and materials variable costs? [ 4 marks] Explain your answer. a) For this business. The manager. 1 mark for contribution calculation. Mr Shah has plans to expand the factory as he believes that this would increase the chances of making profits in the future . does not know if the factory has reached break-even p oint. Poor com m u n ication. Examiner's marks and comments T11e first sentence shows understanding that variable costs vary with output and the student also applied it to the case by mentioning the number of tyres made (2 marks).• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UN/T 6 Term Econom ies of scale Diseconomies of scale Defi n ition Th ese a re the cost advantages of p ro d ucing on a l a rge sca le. Student's answer Yes. and financ i a l. The more tyres that are made. 1 mark f or attempted break-ev�n result (incorrect). labour and material costs are variable costs for the Cairo Tyre Company because they will change with the nun1ber of tyres made. He is also unsure of the likely benefits that could be gained from expanding the business . These a re the disadva ntages of producing on a l a rge sca le. as output of tyres increases. This was one of the reas�ns why the company made a loss last year. D espite this. b) Calculate the break-even level of output for this business [4 marks] show all workings.

5 25 37.I > Q) '- 0 300 VI }SR �Profit of vc 't: :::J VI Q) 200 1 00 $ 50. I have assun1e d that sales remain the same. State one [6 marks] assumption that you make . Two exan1ples are purchasing or bulk-buying econon1ies and n1anagerial 25 • .I have shown this on the graph . Examiner's marks and comments This answer gained full marks. It is the difference between sales revenue and total cost.note lw1v tlze working is clearly laid out. 000 1 2. i) Identify the break-even level of output on the graph and state what it is. iii) The new revenue line is the dotted line I have added (SR?) .000 tyres . so even if a mistake had been made the examiner could still have given some marks for a correct method. [ 6 rnarks] Marks Student's answer 1 mark for each correct example of an economy <?f scale. 400 0 "'C O c � ro 0 c U Q. d) Explain briefly two economies of scale that the con1pany n1ight benefit from if it expanded. [2 marks] ii) What is the level of profit at an output level of 50.000 tyres . Econon1ies of scale reduce average costs as a finn expands . 1 mark for correct new revenue line.000 tyres? [2 n1arks] iii) Explain what would happen to the break-even level of output if the price of tyres was raised to $7 . or 2 marks f correct new break-even point.000 $2 = 25.if the price is raised and sales fall then the firm might not reach the break-even point. ii) The profit made is $50 . 2 marks for each economy that has been explained and applied to the case study. The student correctly answered all parts of the question. The break-even point falls to 1 2.000 tyres Full marks again for a correct answer .000 at an output of 50. or i) The break-even level of output is 25 . 2 marks for �orrect new profit figure.I have shown this with a dotted line . The assumption about sales is important .5 50 Output of tyres (in OOOs) Marks Student's answer 1 mark f appropriate assumption. c) Use the break-even chart below. 500 tyres.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • B usiness costs and reven ue The break-even level of output Examiner's marks and comments = $50.

but economies of scal e could reduce average costs of production. A company needs to plan for the future and budgets are p lans with financial targets. Variable costs vary with the level of output not with time.they do not reduce total costs.' 'Budgets are forecasts of what wi l l happen i n the future. as it would receive a discount when placing bulk orders.' 'Economies of scale reduce total costs. ' 'Break even is t h e t i m e it takes for a firm to cover a l l costs. Forecasts are pred ictions.' Very common error. d) Do you thi n k that brea k-even charts are a useful technique for ma nagers to use? Expl a i n your a nswer. Examiner's marks and comments Full marks . but budgets are plans. for example. Also. tota l costs are l i kely to rise. explain to the manager the possible benefits to his business of using budgets for each department. specialist 1nanagers could be recruited to n1anage the business n1ore efficiently.two good suggestions and both were accurately explained and applied./ As well as explaining two advantages.' e Try th i s a ) Indicate whether the fol l owing costs o f a bakery busi ness are di rect or indirect costs by ticking the correct col u m n . a specialist marketing manager to oversee the marketing of the tyres. [6 marks] c) Outline one possible diseconomy of scal e that the Ca iro Tyre Company [3 ma rks] might experience if it expanded. No . Examiner's tip [8 ma rks] .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 6 econon1ies. The tyre factory 1night be able to buy rubber n1ore cheaply if it bought greater an1ounts. The break-even point is measured i n un its o f output/sales n o t time. As a fi rm expcmds. Fixed costs may change i n the long run if the firm expa.nds its total capacity. Com mon m isconceptions and errors Error Why it is wrong 'Variable costs va ry over time. [ 4 marks] Costs D i rect Indirect Flour Salary of office manager Wages of bakery workers Rent of the building b ) Referring to the Cairo Tyre Company case a bove. • 26 . also consider two possible drawbacks to break-even cha rts. 'Fixed costs never change.

000 i n corporation tax. B . cost of sales and g ross profit. 500 1 . The va lue of sa les in a certai n time period. Using the balance sheet on page 28: 2.88 Retu rn on capita l employed (%) Net profit ---� --Capita l employed X 1 00 Using the accounts above and the ba lance sheet: 5. If goods costing the firm $4. 000 (4.800 X 1 00 = 2 5 .Stock Current l i a b i l ities Mach i nes and vehicles fa l l in va l ue each year. 000 1 9. Current assets Current liabi l ities Current assets .000. Sales turnover (N . Profit after subtracting the cost of sa les from sa les turnover. The fal l i n the val u e of fixed assets over time.000 then net profit = $ 5. 700 = 0. 500 1 . If 1 200 items were sold for $ 1 0 each then the firm's sa les revenue is $ 1 2. If this is at 40 % and net profits are $ 5. 000 then the company wi l l pay $2. and for year ending 3 1 /9/04 ($) any loss/profit made duri n g the year.000 (3.000. Profit after subtracting all expenses/ overheads from g ross profit. The a b i l ity of the business to convert its assets i nto cash and pay off short-term debts. all costs and expenses. 000 then gross profit = $8. 000 were sold for $ 1 2. 000 Trading accou nt The part of the p rofit and l oss account that records reven ue.000 and the firm's expenses/overheads a re $3. Calcu l ated by using the next two ratios. B rackets round a n u m ber mean that it is a minus figu re). 000. Sales tu rnover (Sales revenue) Gross profit Net profit Corporation tax Dividends Depreciation liq u idity Annual payments from com pany profits to shareholders.47 Acid test ratio Using the bala nce sheet on page 28: 1 . 700 Cu rrent ratio = 1 .000) 8. Tax on compa ny net profits. If g ross profit = $8.N IT 7 B u s i n ess a cco u n t i n g Key objectives • e e e e To understand why businesses keep accounting records and how they use then1 To analyse the needs of the different users of business accounts To understand the construction of simple balance sh eets To understand the construction of simple profit and loss accounts To analyse business accounts using ratios Key definitions Term Profit and l oss accou nt Defi n ition Examples An account that records business sa les ABO Tra d e rs Ltd profit and loss account revenue. Costs of g oods sold G ross profit Overheads Net profit 1 2. 000) 5. 3 % 27 • .

7 % The account records a l l busi ness ABD Traders Ltd ba la nce assets a nd l i a b i l ities and the sheet for year ending 3 1 /9/04 ($) (see bel ow). QQQ X 1 00 = 66.7 % x • 1 00 Using the accou nts on page 2 7 : 5. Assets owned by a business that it expects to keep and use for more than one year.000 1 9. G ross profit Sales turnover Net profit Sales turnover x Exam ples Gross profit margi n (%) Net profit marg i n (%) Balance sheet 1 00 Using the accou nts on page 2 7 : 8.share capital or retai ned profits. cash.000 1 . 200 500 1 . Assets that the busi ness wi l l use up or turn i nto cash within one year.000 5.800 1 9.000 6. 500 1 . 1 2. QQQ X 1 00 = 4 1 . Sample questions and answers Sample question Table 1: Fina ncial i nformation a bout City Cafe Ltd ($000) 2004 2005 250 15 20 20 300 Sales revenue Net profit Current liabilities Cu rrent assets Capital empl oyed 200 25 20 50 300 a) State and explain two ways in which the owners of City Cafe [ 4 1narks] Ltd might use the net profits of the business .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UN/T l Term Retained profit (Reserves) Defin ition Profit made after payment of tax and d ividends. machi nery and motor vehicl es.000 1 2. - Working ca pital Balance sheet: 1----··-·---··------ Fixed assets B u i l d i ngs.000 500 2. Reta i ned profits are ca l led reserves. 1 3. It is reinvested back i nto the business. debtors.000 Current assets: Stocks Debtors Cash Current l iabilities: Overdraft Creditors Net current assets Total assets less current l iabilities Long-term liabil ities: Loans Shareholders' funds: Capital Reserves Capital employed 1 . The capita l needed by a business to fina nce its day-to-day needs. Fixed assets: Bui ldings Machinery ·---·---- Current assets Stocks. Long-term loans and debentures. Fi nance provided by shareholders . • 28 . that wi l l be repaid withi n one yea r.800 Current liabi l ities Loa ns and debts of the business Bank overd raft and cred itors. Share capita l is from sale of shares. Using the ba la nce sheet below: 800 it is the same as the net current assets. value of shareholders' funds.800 Capital employed Total va lue of business's long-term fina nce. Long-term liabilities Shareholders' funds The money val u e of debts that do not have to be repaid in one year. Long-term l i a b i l ities plus shareholders' funds.700 800 1 9.000 2.000 1 2.

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

B usiness a cco unting

Marks Student's answer

1 mark each for identif ying the uses o net pro and 1 mark each for f fit briifly explaining each use.

The owners of this business could use the net profits either to pay dividends or to keep in the business. Shareholders will expect some dividends as they have invested in the business. If profit is left in the business, it is called retained profit. This could be used for expansion.

Examiner' s marks and comments

Very good answer -

4

marks. Two uses are identified and briifly explained.

b) Using figures from Table 1 and a ratio , analyse the liquidity of [5 n1arks] the company. Marks 1 mark for correctly writing down the current ratio;

calculation (both years); up to shows abou t liquidity.
Student' s answer

2

marks for marks for explaining what the result
2

The current ratio is a liquidity ratio and uses this formula: Current assets Current liabilities 50 In 2004 the result was: 20
=

2.5 and in 2005 the result

was :

20 20

=

1

This shows that the liquidity of the business is i1nproving as 1 is a better result than 2 . 5 . The firm will find it easier to pay its short­ term debts.
Examiner's marks and comments

The student makes a good start by accurately stating the formula for the current ratio. The two calculations are correct. The rest o the answer is f wrong, as the student does not understand what the current ratio result shows about liquidity. Liqu idity has, o course, got worse from 2004 to f 2 005 and if this continues, the business will find it diffic ult to pay off its short-term liabilities. 3 marks.
c) Using the figures in Table 1 and ratio analysis , evaluate the performance of the City Cafe Ltd between 2004 and 2005 . [1 0 1narks]

Marks

Up to 2 marks for correctly stating two relevant ratios, for example, Het pro margin and return on capital employed. Up to 4 marks for fit calculations (both years). Up to 4 marks for discussion which a11alyses the results and draws a conclusion about the peiformance o the business. f
2004 2005
6%

Student's answer
Net profit marg i n
=

Net profit Sales
=

x

1 00

1 2.5% 1 00

Return on capita l employed

Net profit Capita l employed

x

8.3 %

5%

These results show that the p rofitability o f the business i s falling. The firm is making less p rofit per $ of sales , p erhaps because costs are rising faster than price.

29 •

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

UNIT 7

Return on capital employed has fallen which 1neans that the money invested in the business is making less of a return . Both of these figures are poor, but it would help if we had results from other cafe businesses to see if City Cafe is better or worse at making profits than they are .

Try to mark this yourself- the examiner's marks and comments are on page 1 0 1 . Com m o n m i sconceptions and errors
Error Why it is wrong

Not remembering the ratios. .Putting sa les revenue in the balance sheet. 'Any current ratio resu lt below 1 mea ns the firm is ban krupt.'

Obvious! Use the l ist a bove to hel p you . This is a profit and loss account item - on ly assets and l ia b i l ities appear in the balance sheet. A result of 1 is acceptable - it means that all short-term debts are covered by current assets. Even below 1 , a firm may be liquid enough as it is u n l i kely that it wi l l have to repay all short-term debts at the same time. Net profit is g ross profit after expenses have been taken away, so net profit is always lower. Debtors are customers who have not yet paid - they owe the firm money. The firm owes money to its creditors.

'Gross profit is always less than net profit.' 'Creditors owe the firm money.'

e Try t h i s

The 2005 accounts for Titan Tan kers pic have just been publ ished. G roups of sta keholders in the business have been wa iting to analyse these.
a)

Identify

two

accounts.

of the main accounts that wi l l appear in these publ ished [2 marks]
[3 marks]

b) Explain what one of these accou nts contai ns. c)

Table 1 contains a list of sta keholders in Titan Tan kers pic who want to use and ana lyse the company accounts. Copy the table and fi l l in the ' Useful for' col u mn with one of the o ptions bel ow:
Table 1 : The users of publ ished accounts Stakeholders: Useful for:

Shareholders Trade u n ion Govern ment Creditors Options: i) seei ng what the l evel of d ividends wil l be this yea r
• 30

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Business a cco unting

ii) analysi ng whether the busi ness has sufficient l i q u i d ity i i i) seei ng whether the business p l a ns to expand or red uce the labour

force
iv) assessing whether the business seems to be making excess profits. [4 ma rks] d) Using the fig u res in Table 2 and ratio ana lysis, eva l uate the performance

of this company over the l ast year.

[1 0 ma rks]

Table 2: Financial i nformation from Titan Ta nkers pic 2005 accou nts
($000)

2004

2005
350 60 25 240

Sales revenue G ross profit Net profit Cap ital employed

300 60 30 200

Examiner's tip
./ Explain what your results indicate about the compa ny's performance.

Should these results be compared with any others?

31 •

The amount of cash held by a business at the end of a time period . See Ta ble 1 on page 33.000 1 . 500 --- • Key definitions Cash i nflow: The amount of cash received by a busi ness i n �ach t i m e period 5.000 C a s h outflow: The a mount of cash pa id out by a business over a period of time 2. Closing bala nce = $ 1 9. The cash flow cycle 1 Cash needed to pay for 2 Materials. it may have to arra nge a bank overd raft or other loans to meet i mmediate debts. Closing balance Cash flow cycle This shows the stages between a See the cash flow cycle figure busi ness paying out for materials. cash outflows and net cash flows e To analyse a simple cash flow forecast e To understand why such forecasts are helpful to businesses e To explain how a business might deal with a cash flow problem All figs i n $000 Cash i nflow: Cash from sa les Cash outflow: Materials La bour Tota l cash outflow O pening balance Net cash flow Closing ba lance Term Cash flow forecast Defin ition 1 . Such forecasts help to identify future finance problems and help the firm to plan for its cash needs. 500 1 . • 32 . below.000. rent. If a firm is short of cash. The amount of cash the business holds at the start of a time period.NIT 8 C a s h f l ow p l a n n i n g Key objectives To understand what is meant by cash inflows.000.000. wages. 000. 000 2. 500 Exa mple A ta ble showing the estimated cash flows of a business over a time period. etc. 3 Goods produced 5 Cash payment '--- ·received for goods sold II( I 4 Goods sold 1-- liquidity cri sis When a business does not have enough cash to pay i mmed iate debts. Monthly net cash flow $4. the open ing ba la nce i n October is $ 3. labour and other costs and receiving cash from the sa le of g oods. 500 3. Opening balance For the business i n Table 1. Opening balance $ 1 5.

000 4. The total cash out in October = $3 .000 1 2. Z is correct so 2 marks.000 X 3. The managers plan to build up stocks. 1 mark for applying to Zippo 's forecast and 2 marks for explaining why it is a benefit. 500 y 6. 000 1 .000 so y = $4. So X should be $ 1 6.000 8.500) ( 1 .000 $ 1 6.000 = $4. 500 8. the net cash flow is negative and should be shown as ($4000).000 = $ 1 6. She sees real problems arising for the business. 500 1 .000 + $4. 000 ·1 6. X Examiner's marks and comments is correct so 2 marks. 33 • . 500 a) Calculate the figures missing as shown above as X. 000 8. The directors are planning an expansion progra1nn1e by buying new printing machines. 000 22.500 . [ 6 marks] Marks Student's answer 2 marks for each correct answer .000 8.500. calendars and birthday cards. 000 5.1 mark for good attempt at calculation.500. The three month cash flow forecast is shown below: Table 1: Zippo Printers Ltd three month cash flow forecast ($) Cash i n : October 8.cash out. The opening balance in December will be the sarne as the closing balance in November. 500 z {5. 000) 4. 000 N ovember 1 2. so Z = $4. In Noven1ber th is = $ 1 2 . 000 + $8 . b) Explain one benefit to Zippo' s finance director of this cash flow [ 4 tnarks] forecast. 1 mark for Y because although the number is correct. 000 Cash from sal es Loans received Tota l cash in: Cash out: Materials La bour Overheads Purchase of fixed assets Total cash out: Opening balance Net cash flow Closing bal ance 3. 000 5.000 1 4. 000 6. 000 December 1 5. 500 + $ 1 . Marks 1 mark for identif ying a benefit.000 20. The finance director allows retail customers a long time to pay Zippo's for supplies. 500 1 .000. D en1and is very high and stocks have been very low. 000 1 5. Total = 5 I 6 marks. Y and Z . The finance director is constructing a cash flow forecast for the next three months. She said 'By giving shops more credit we can gain extra orders'.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Cash flo w planning Sample questions and answers Sample question Zippo Printers Ltd publishes a range of books. Net cash flow = cash in . especially before the end of the year when most calendars are sold.500 4.000 5.

The student could have said that shops may stop buying cards from Zippo 's and buy cards from a firm that offers more credit. Com mon m isconceptio n s a n d e rrors Error W h y it i s wrong 'New businesses do not need cash flow forecasts as they have only j ust started. explain to Zippo's finance director the advantages and disadvantages of these two ways of improving cash flow. It looks as though Zippo's will need a loan in Decen1ber as the cash flow forecast is negative. a bank is n1ore likely to offer a loan as it shows that the company is planning carefully. 3 marks for the first paragraph . thereby turning customer debts into cash and improving cash flow. The firm will have to p ay interest on the loan. offering retail shops less credit. marks for evaluation.both correct. [6 marks] Marks Student' s answer 2 2 marks for applyittg points to Zippo. Examiner's marks and comments This is correct. 4 marks. 5 I 6 marks. c) What could be done to improve the cash flow of this business? Identify two ways of improving Zippo's cash flow frotn the [2 tnarks] list below. 2 marks for the second paragraph . 2 marks . but accurate. It could ask the bank to pay this loan in D ecember so that cash flow does not becotne negative . Obtaining a loan.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT B Student's answer The cash flow forecast helps fim1s plan for future loans. By producing this forecast. 2 marks for explainittg in detail and A loan will give the company more cash . and takctt in formatiott from Zippo 's forecast. • 34 . which will add to the overheads of the business . • Reducing sales • I ncreasing material purchases • Paying suppliers more slowly • Obtaining a loan • Offering less credit to retail shops Marks Student's answer Examiner's marks and comments 1 mark for each correct point idetttified.there is no evaluation.' They need cash flow forecasts more than most firms ! They need them to: a) a pply for start-u p loans from banks b) encourage people to i nvest in the business c) mdndg� c��h flow� t�t t� v�ry expensive time in a b usi ness's l ife cycle .all skills are shown. Offering less credit to retail shops will mean fewer debtors. d) Using the two ways you have identified. The student has explained one use o cash flow forecasts f well. Examiner' s marks and comments Briif.

It wi l l take severa l weeks for firms to pay for advertisements so the friends wi l l have to attract many l isteners first. 000 6.' Cash and profit are very d ifferent. 500 July 3. 500) 2. 000 500 1 .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Cash flo w planning Error Why it is wrong Confusi ng cash flow with profit: 'If a firm is making a profit it wi l l have a good cash flow./ Explain how a cash flo w forecast helps with planning the finance needs of a new busin ess . 000 3.put figures i n brackets. 000 1 . 000 Cash i n from advertisements Capital and loans Cash out: Purchase of equipment Salaries Overheads Total cash out: Opening balance Net cash flow Closi ng balance 0 4. Examiner's tip [6 ma rks] . b) What is meant by the term 'closing ba l a nce'? c) [1 mark] [2 ma rks] Use the cash flow forecast and the case to exp l a i n why the closing balance is negative at the end of J u ly. 000 500 1 . 500) 1 . A profita ble busi ness can run out of cash. e Try th i s Rishav a n d Abd u l l ah are friends who want t o set u p their own radio station. 500) 0 500 1 . [4 marks] d) Exp l a i n why it was so i mportant to Rishav and Abd u l l a h to have this cash flow forecast before they started their business. Their accountant has constructed a cash flow forecast for the first th ree months: ($) May J u ne 1 .000 Variable costs = $25 per suit = $ 5. A loss-making busi ness could have plenty of cash.000 B UT if half of the su its were sold on credit and a l l costs were paid in cash: Cash i n = $ 7 . 500 (3. 000 5. 35 .000 Fixed costs = $ 3. for exa m ple. . 000 Profit in March = $7. 500 (4. The finance wi l l come from i nvestors and the ban k and they a lso plan to sel l advertising space. 000 Net cash flow = ( $ 5 00) Forgetting the negative signs . M istakes w i l l be made with m i n us additions if the m i n us signs are not shown . 000) a) Calculate the val u e of n et cash flow in J u ne. 500 (2. 500) X (4.use the figures in the table to help you. ACE Suit Co. 500) (2. Ltd in March 2005 : Sales = 200 su its at $ 7 5 = $ 1 5. They wi l l need a larg e amount of equipment. 5 00 0 (2. 500 Cash out = $8.

bank. that m ust be repaid at some time in the future loans: Fina nce obta i ned from the busi ness after payments to owners (dividends). e.the lender receives a certificate indicati ng date of repayment I I Overdraft: When the bank agrees for the busi ness to borrow up to an agreed a mo u nt. 000 Retai ned profit I document g iving pa rt ownersh i p of a company.000 Dividends $3. : $ 5. e. The a mount bo"rrowed ca n be varied. Sel li n g more shares ra ises additional cap ita l Sale of shares: A share is a Sale of assets: Raising fi nance by sel l i ng off assets the busi ness no longer needs Control of working capita l : I Sel ling off stocks and asking debtors to pay more quickly Debentures: A long-term loan to a busi ness .g.g.NIT 9 F i n a n c i n g b u s i n ess a ct i v i ty To understand why businesses need finance e To explain the advantages and disadvantages of different sources of finance e To understand which sources of finance are most suitable in different situations • Key objectives Key definitions I NTERNAl finance: Ra ised from / either I NTERNAL orcan be EXTERNAL Sources of finance withi n the busi ness Reta i ned pro fi t : Profits kept i n I EXTE RNAl finance: Ra ised from i nd ividuals or institutions outside t h e business I a n institution.000 Net profit after tax $2. but i nterest rates are often high • 36 .

Select one source of finance from the list below for each plan. Suitable source o f finance Reason for choice Spending plan New computers for the office Takeover of a rival business Tem porary increase in stocks Sources of finance: Issue of shares Leasing Trade credit Long-term loan Marks [6 n1arks] 1 mark for each appropriate source plus 1 mark for relevant reason .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Fina n cing business activity Term Debt factoring Defin ition Examples This is the sale of debt i nvoices (money owed to a business by its customers) to a specialist finance organisation. See page 1 3 9 in IGCSE textbook (2nd ed ition).000 to be pa id i n th ree months' time. machi nery and veh icles Wages. Start-u p finance (cap ital) The capita l needed to set u p a new business. This is a n alternative to using cash to buy the asset outright. production and financial p lans of a new busi ness sta rt-up. Capital expenditure Revenue expenditu re Sample questions and answers Sample questions 1) Heathwood Engineering plc needs additional finance. purchase of materials and e lectricity Busi ness plan A report that gives deta i ls of the marketing. The business has three spending plans . but at a discount. the business could sell this i nvoice to a debt factor for i mmediate cash. but these wi l l be paid for in two months' time. If a customer owes a busi ness $60. Spending on day-to-day expenses.000.they become outdated q u ickly. not fixed assets. Obta i n i ng the use of a n asset in exchange for regu l a r leas i n g charges instead of buying it outrig ht. Credit gained from suppliers. B u i ld ings. Finance wi l l be needed for such assets as b u i l d i ngs and stocks before trading ca n beg i n . Many com puters are leased to businesses . This a l lows a busi ness to purchase a n asset b y making month ly payments over a period of time. A supplier del ivers goods va lued at Leasing Hire purchase Trade credit $2. so purchasing them can be a d isadvantage. 37 • . State one reason for the source of finance selected in each case. Spendi ng on fixed assets that wi l l last more than o n e year.

• 38 .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 9 Student's answer Spending plan Suitable source of finance Reason for choice New computers for the office Leasing As computers will become out of date q u ickly. Briefly explain why each question is important. i) What 'set-up ' costs will need to be paid before the business starts to trade? State two examples. 3) i) What do you understand by a business plan? "i [2 n1arks] 2 marks f r good understanding. [ 6 marks] Marks Student's answer 1 mark for each relevant question. Have you done any market research? Reason: So that he can tell whether the two friends have looked into the p ossible demand. They are applying for a large bank loan to help with 'set-up' costs. The takeover is l i kely to be expensive and issues of shares ca n raise a lot of ca pita l . How much money are Jill and Zuki going to invest? Reason: So that the bank n1anager can see that the bank will not be taking all of the risk. No need for a long-term loan if the increase in stocks is tempora ry. Q3 . but they have not owned their own business before . Where are you setting up your business? Reason: So that he can tell whether it is a good area for this type of business . Takeover of a riva l busi ness Issue of shares Temporary i ncrease in stocks Trade cred it Examiner's marks and comments · Full marks . 2) Jill and Zuki are two friends who want to open a new beauty salon.three good questions plus relevant reasons . 1 mark for each relevant reason. Q2. 2 Marks Student's answer Examiner's marks and comments marks . o or Student's answer A business p lan contains details of a new business start-u p includin g market research and aims of the business. Heathwood does not actu a l ly want to own them. Q t .correct choices and good reasons given. ii) State three questions that the bank manager is likely to ask Jill and Zuki before giving the loan . A l ong-term loan wi l l lead to high i nterest payments. [� n1arks] 1 mark each for appropriate costs identified. purchase of hairdryers . Rent of premises. 1 mark f some understa11ding. Examiner's marks and comments Marks Full marks again . They are both skilled hairdressers.

details of their experience . They should include market research about other salons. Even though shareholders own a com pa ny they are 'outside' providers of ca pita l . usua l ly more than ten years. N o . A long­ term loan is for a n ag reed period. This will definitely mean that the bank manager will lend then1 all the money they need.a n overdraft can be ca l led back by a bank at short notice. where the salon will be located and how much finance they will need. Jo Marks 2 marks for explaining what a business plan would contain for this business (knowledge and application). In their business plan. Sale of shares is external finance. 'Al l l i m ited com pa nies can sel l more shares on the Stock Exchange. [6 marks] Disadva nta � e Source of finance Issue of new shares by a company Overdraft Long-term loan b) Use the fol l owi ng table to indicate with a tick whether the fol lowi ng sources of fi na nce a re i nte rna l or extern a l : [ 4 ma rks] 39 • .private l i m ited com panies ca nnot do this. ii) Jill and Zuki decide to draw up a business plan . 2 marks for analysing how it could irifluence the decision.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Fina n cing business a ctivity Examiner's marks and comments There is enough understanding shown for 2 marks. 2 marks for evaluating its impact on the decision .' e Try t h i s a ) The table below lists three sou rces o f busi ness finance. Al l loans have to be repaid eventual ly. Student's answer Com m o n m i sconceptions a n d e rrors Error Why it is wrong Only public l i m ited com pa nies can do this . No .' 'An overdraft is a long-term loa n.examiner's marks and comments are on page 1 02. Copy the ta ble and briefly exp l a i n one advantage and one d isadva ntage of each source.' 'Se l l i n g more shares is a n exa m ple of i nternal fi nance. The manager will see that they have thought about the business and so will be prepared to lend the money. Will this convince the bank n1anager to give a loan? Explain your [ 6 nurks] answer.' 'Shares are a form of long-term loan. Jill and Zuki will present useful information about their idea for the beauty salon. Try to mark this yourself.the company is a separate legal u n it.shares do not have to be repa id by the com pa ny.

This will cost $5m. l ong-term loan. The d i rectors sti l l control just over 50% of the shares between them. Advise the d irectors on the most suitable method of fi na nci ng this expansion. The com pany a l ready has substa ntia l long-term loans. G ive reasons for your a nswer. • 40 . [8 ma rks] Examiner's tip ./ Think about how long they will need the finance for.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 9 Source of finance I nternal External Debenture Issue of shares Retai ned profit Sale of buildings c) The d irectors of a public l i m ited company are planning to double the size of the existing factory. overdraft. reta ined profits. They a re considering four possible sources of fi nance: new share issue.

N IT 1 0 O rg a n i sa t i o n a l st r u ct u re Key objectives To explain what is meant by 'organisational structure' and why businesses need one e To understand how organisational structure can be shown on a diagram and why it changes as firms expand e To analyse the different ideas connected to organisational structure e To understand the impact of decentralisation on a business The diagram below shows the typical organisational structure of a business. IT special ist. Have d i rect responsi b i l ity for A marketing manager may delegate the task of gathering market data to a worker in his or her department The chart above shows the h iera rchy of the business. M a rket i n g ma nager. econom ist.. accou nts Line managers Staff manager Specia l ist advisers who su pport the line managers and di rectors. 41 • . The different levels of a uthority in the organisation. H ierarchy Tal l structure Functional departments M a rketing Accounting Production manager. decisions and for the work of staff. The span of control of the sales manager is five Term Delegation Defi n ition Exa mples G iving a su bord inate the a uthority to do certa in tasks. This structure shows how the business is organised internally with levels of responsibility: The vertica l l i n es show the chain of com mand . Departments in an organ isation that have responsi b i lity for one pa rt of the business .the l i n ks through which i nstructions are passed down from managers to subord inates • Key definitions Chief executive Sales manager H u man resources manager � Adm i n manager I Accounts manager Promotions manager � ����� I I I � I I � � I I � ����� I levels of h ierarchy The horizonta l l ines show the the managers on each level have equal authority - The s pan of contro l is the nu m ber of staff who report to each ma nager. This type of organ isation has many levels of hierarchy and sma l l spans of control.

The current organisational stn1cture is shown below: Yuan Shop manager A Shop ma nager 8 � I a) What is the span of control of shop manager A? Marks Student's answer Examiner's marks and comments [1 mark] 1 mark for correct answer o four. No . • 42 . Examiner's marks and comments Full marks for an accurate and well explained answer. Now she has three flower shops and a home delivery service . and a transport manager. the manager's span of control will increase . The Egyptia n division of the German ca r firm Mercedes may take many decisions without referri ng back to d i rectors in Germa ny. Yuan had nude all of the in1portant decisions. managers for the shops. Sa mple questions and· answers Sample question Yuan's business has grown rapidly in three years. or i) A wider span of control will mean that the manager will have oJ. c) If shop A expands and four more staff are employed. [3 tnarks] i) Explain one advantage of this . b) How many levels of hierarchy are there in this business? f [1 mark] I I I Marks Student's answer Examiner's marks and comments 1 mark for correct answer o three. f Four people report to this manager.there are only three levels including Yuan herself 0 marks . [3 marks] ii) Explain one disadvantage of this . She employs an accountant. Setting her flower business up as a sole trader. . to delegate more authority to each worker. I I I Marks Student's answer 1 mark f identif or ying each factor and up to 2 marks f explaining each m1e. f There are four levels of hierarchy. This could n1ean that their jobs become n1ore interesting.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 1 0 Term Decentra l isation Defi n ition Examples Taking decisions away from the centre of an organ isation . I Good! 1 mark.away from Head Office.

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Organisa tional structure Student's answer Examiner's mark� and comments ii) A wider span of control 1neans a longer chain of con1n1and. The examiner's 1narks and comments are on page 1 03 . [8 n1arks] Marks 2 marks for identifying possible changes. a new division will be needed. A marketing director would help her to advertise the fl o wer shops . . Com m o n m isco nceptions a n d e rrors Error Why it is wrong 'Delegation is giving a l l responsib i l ity to workers. f d) How do you think the organisational structure of Yuan's business might change if it continues to grow? Explain your answer.the manager sti l l has the final responsi b i l ity. Each supervisor controls the work of five p roduction l i ne workers. marketing and human resources . Yuan might need to recruit some n1ore senior n1anagers._�er. Student's answer Try to mark this for yourself. The chain of command will get longer so that staff in the shops will have to wait longer for messages from the top . The structure will depend on the span of control that Yuan wants and whether she decides to decentralise the business . a) Sketch the organisation chart for one of Ahmed's factories. 2 marks for applying them to this business.' e Try th is Ahmed Cloth ing Ltd i s a clothi n g manufactu rer. I t h a s three factories i n three different countries.' Delegation gives authority or power to workers to do a job . 2 marks for explaining Ianalysing changes and 2 marks f or evaluation. Each factory is contro l led b y a factory ma nager who is helped by three prod uction supervisors. 'Staff managers control the staff.' 'A wider span of control means that more managers are needed. [4 marks] 43 . If Yuan's business grows. If she decides to grow flowers as well as sell them. The f student could havl!explained the reduced control that the tnanager will have with a wider span o control.they do not control the l i ne workers in the busi ness. A wider span of control means that more workers report to each manager . Staff manages are special ist advisers . as she will not be able to take all of the decisions herself.a wider span o control does not create lllore levels o f f hierarchy and therefore does not make the chaill o conunand lo11. More departments will be need e d. so messages will take longer to reach the staff.so fe wer managers m ig ht be needed. it will need a new structure . No marks here . for exan1ple.

The factory ma nagers have to ensure that Abad u l lah's designs of clothes are fol lowed. Methods of production a re decided on by Abadullah and his Head Office ma nagers. He bel ieves in taking a l l of the im portant decisions h imself. i i i) Discuss whether Abadu llah should decentra l ise his busi ness. i i) Would you describe Ahmed Clothing Ltd as being a centra l ised [4 ma rks] business? Explain you r answer. [8 marks] Examiner's tip .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 1 0 b) The company has three levels of management at Head Office./ Yo u should try to define decen tra lisation. • 44 . give advantages and disadvantages and then make a decision. Each factory pays its workers exactly the same wages. i) Explain one problem that cou l d result from havi ng many levels of [4 marks] h iera rchy. The business is contro l led by Abad u l la h Ahmed.

The stages a manager shou ld go through before taking a n i m portant decision . to i ncrease market share by 2 % Planning: Setting aims and � A manager has responsibil ity for resou rces and decision making .___. I mporta nt.. Should we buy trucks or lease them? Which dresses should we put i n the shop window? See figure below. that can affect the overa l l success of the business. Ch ief �xecutive (Managing Director) The d irector (or senior manager) in charge of all operations withi n a business. e.. 45 ..shown by the decision-making flow chart: 1 Objectives of If qual ity of output is fa l l i ng. Pepsi decides to open their own cafes.g.. . The role of managers i ncludes: . . a m anager m i g ht come u p with a n idea to improve it.. Controlling: Checking that the targets are being met and appra ising staff and departments together so that they work towards common aims Co-ord inating: Bringing people and resources effectively towards achieving the aims of the organisation Commanding: Using Organising: Managing peop l e authority to g ive and d iscuss tasks and targets to staff Term Initiative Definition Examples Abi lity to work on one's own a nd to make suggestions for solving problems.N IT 1 1 M a n a g i n g Key objectives a b u s i n ess • To explain the role of managers in business e To understand the qualities needed for a good 1nanager e To outline the different management responsibilities within different departments Key definitions targets for the organisation. Strategic decisions Tactical decisions Operational decisions Decision-making process the business 2 Identify the �----��� problem L------l 4 Consider o ptions and take decision Try to fin d out the name of the Chief Executive of a wel l known com pany in your country.. Day-to-day decisions taken withi n each department.. l ong-term decisions. Frequently taken a nd less i m portant decisions.

the marketing m ix. The ma nager wi l l prepare job descriptions and job specifications for recru iting new staff. advert ise i n Checking on q u a l ity levels Arranging bank loans Organising the post room for despatch of l etters • 46 . M anager Marketing Operations (Production) Finance Adm i n istration Responsible for: Deciding which newspaper to . using and to the correct quality leve l . Marketing manager Responsible for a l l aspects of market research. Finance a nd accounts ma nager Operations manager (Production manager) Ordering stocks of raw materials. motivating and a ppraising staff. Responsi b l e for producing the product/service in the right quantities checking on q u a l ity sta ndards. buildings. If this is too h ig h. producing annual accou nts. Administration manager Sa mple q�estions and answers · Sample questions 1) Match the areas of responsibility (see list below) to the manager: M a n ager Marketing Operations (Prod uction) Finance Adm i nistration Responsible for: [4 marks] Areas of responsibility: i) arranging bank loans ii) deciding which newspaper to advertise in iii) checking on quality levels iv) organising the post roo1n for despatch of letters. and contro l l i ng cash flows. Marks Student's answer 1 mark for each correct answer. and maintena nce of .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 1 1 Term Human resources manager Definition Responsible for a l l aspects of tra i n i ng. Responsible for keeping fi nancial records. Exam ples The manager wi l l negotiate with trade un ions on pay. maintaining the computer system and arra n g i ng maintenance to the b u i l d i ngs when necessa ry. few consumers wi l l buy it. IT equ ipment. Responsible for clerica l work. the most a p propriate production methods. and sa les performa nce of products. The manager wi l l decide the price at which each product is sold. this manager wi l l be responsi b l e for ra ising additional finance. If the net cash fl ow is negative. Keeping records and official documents.

Examiner's marks and comments 416 marks. but only the first was developed in the context of TV repairs. 'If managers take decisions carefu l ly. He plans to open a new branch in another towq. The manager will also need good con1n1unication skills so that he or she can speak clearly.' There are so many other parts of a manager's job .all correct. there wil l be no risks for the busi ness. b) A manager is worried about fal l i ng profits. for exa m ple. are not under the control of managers. [6 marks] Marks Student's answer mark for each point and 1 mark for putting each point into context.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Managing a business Examiner's marks and comments 4 marks .and wou l d 'giving orders' be a very effective style of management? Even the best managers taking the best decisions wi l l have to accept some risk . . Two relevant points were made. 1 The manager will need to be knowledgeable about television repair. about good communication skills.' e Try th i s a ) Explain one reason why you thi n k i t i s i mportant for a manager t o set [4 marks] aims or targets for the business. Common m isconceptions a n d errors Error Why it is wrong 'Managers j ust g ive orders to other workers. He en1ploys five n1echanics and two adn1inistration staff.changes to the economy. keeping staff records and motivating staff. H R managers a lso have responsi bi l ity for training. Explain two qualities that you think a successful manager of Harry's new shop is likely to have . and deal with customers and all problems. 1 further mark for explaining each point. negotiating with unions.' 'H uman resources managers j ust recru it and sack staff. 2) Harry owns a TV repair shop . Before taking a decision she 47 . It will be easier for the n1anager to run the shop if he or she. He needs to recruit a tnanager for this shop. The manager will have to organise the workers . staff a ppraisal. could have been developed by explaining that these would be necessary to make technical details clear to customers. She knows that a major change is needed to solve this p roblem . has the ability to repair the televisions. as well as the workers. The second point.

which person would you choose for [ 1 0 ma rks] the manager's job? Justify you r answer. He employs 25 trai ned staff and needs to recru it a new manager.' 'What plans would you have for the resta urant?' 'I would aim to double its size and On the basis of this i nformation. he m ust decide between two appl icants. Examiner's tip . 'I a m a very hard worker.' ' I wou l d l i ke to e ncou rage staff to cook even higher q u a l ity food. It is a very successful busi ness. He has gathered the fol l owing i nformation a bout them: Person B 55 Details Person A 35 Age Education Restaurant experience Main business skills 'Describe your main personal qualities' B usiness degree 3 years as j u n ior ma nager.' ' I am a natura l leader and I a m Cooki ng./ Think of the qua lities of a good manager and apply these to the information above. good com m u nicator. ambitious for myself a n d t h e restau ra nt. I e njoy giving people pleasure with the food I cook. • 48 . A l evels 20 years as chef and then 5 years as manager.was it successful ? Consider options a n d take decision c) [3 marks] U meel is reti ring after 25 years of managing h is own restaurant. F i l l in the gaps using the sentences below: 3 4 '-------i Col lect and ana lyse data Review . Motivating staff. Th e fina l choice might depend on the aims tha t Umeel has for the business. ordering right amount of stocks.' employ more staff. After advertising the job.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 1 1 decides to use the decision-ma king flow chart.

1. Telephone Written commun ication Letters Visual communication Graph of sa les figures Formal communication Informal communication Barriers to communication 2.N IT 1 2 C o m m u n i ca t i o n 1 n b u s i n ess Key objectives To understand why good conlmunication is inlportant to business e To explain the advantages and disadvantages of different communication methods e To examine why barriers to communication exist and how they can be reduced • Key definitions One-way communication a l l ows for no feed back. M emos 3. Posters 1. 1. Meeti ngs 3. Messages through the 'gra pevi ne' of i nforma l contacts. M i n utes fro m a meeting Reports Staff ta lking at brea ks or l u nchti mes.g. e. e. U nclear lang uage Internal commun ication Messages sent and received by people with i n the organisation. written e-m a i l or a face-to-face conversation The receiver should understa nd and act upon the message. Video 3. . for example. The message is put i nto a form that can be understood visual ly. Manager ta l k i ng to workers or i ntranet External communication 2. Using the wrong method 2. If asked for. The message is sent in a written form. Letter to a customer 1. feed back should be g iven Feedback a l lows for two-way com m u nication. The reasons why commun ication fai ls. Conversation 2.g. 2 . a safety notice on a fire door The sender of the message should send it i n clear language and using the most appropriate method The communication method or medium is how the message is sent. 1. Messages sent by using the channels set up by the organ isation. E-mails 2. a rep ly to a q uestion Term Verbal or spoken communication Definition Exam ples The sender speaks di rectly to the receiver(s). Messages sent o utside of the organisation. not written or spoken. Too many levels of hierarchy 3 . 1. 2. An order sent to a supplier 49 . Notice on company notice board 1.

q uestions and i nvolvement of the staff.do you understand why these are the correct methods to �se? 2) Explain two advantages of managers using meetings with staff as a main form of communication. the worker will f more involved and keen to work hard.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 1 2 Sample quest i o n s an d a nswers Sample qu estions 1 ) Choose the best n1ethod of conununication. Meetings between a 1nanager and workers allow for feedback. Two-way comm u nication may take more time than one-way. They can break down and often lead to too many messages being sent . Examiner's marks and comments marks awarded. but it is not a lways the case. i nternet and e-m a i ls. for example. [ 4 nnrks] Marks Student's answer 1 mark each for identifying an advantage plus 1 mark each for explahzing. [4 n1arks] A - the message B the method of communication - a) List of staff names who have Fi rst Aid tra i ning b) U rgent order to supplier c ) Detai l ed map of how to i) Letter ii) Telephone cal l i i i) Notice board iv) E-ma i l g et to the factory to be sent to ten visitors arriving this afternoon for new worker d) Contract of employment Marks Student's answer 1 mark for each correct answer. eel 3 Com mon m i sco nceptions and e rrors Error Why it i s wrong 'Communication is always more effective via computer. 'Two-way comm u nication is a waste of time. It a l l ows for feedback.' • 50 . Another advantage i s that workers n1ight be more tnotivated. 2 for two benefits. but only one cif them is explained. Match the message (table A) with the method cif communication (table B) . but it has many benefits.the receiver may not be able to tel l which a re the most i mportant ones. This means that if the worker does not understand the tnessage then he or she can ask for more information . The studettt could have added that by allowing talking and discussion between manager and staff. a) b) c) d) = = = = iii) ii) iv) i) Examiner's marks and comments Full marks .' It may be true that computers aid comm u nication.

The message g ives deta ils a bout a n ex�iting new product with colourfu l packaging and a new bra nd n�me.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Communica tion in business Error Why it is wrong Th is is often not true.' the managing d irector of a la rge suit-making com pany told his secretary. [8 ma rks] c) 'As my busi ness has expa nded to over 400 workers. They j ust do not read my notices. I th ink I wi l l send them a n ewsl etter each week. The choice of the best med i u m of communication m ust take many factors i nto account. or a video sent to all shop owners plus posters? Justify the method of commun ication you choose.' e Try t h i s A marketing manager for a sweet man ufacturer wa nts t o send a message to the owners of the 25 reta i l shops that sel l the firm's prod uct. Expl a i n two possi ble barriers to com munication resu lting from using either n o tices on boards or newsletters. I find it more and more difficult to com m u n icate with staff. 'Letters are the best form of com m u nication. a n e-ma i l message to each s hop. b) Would you advise the manager to use a telephone ca l l to every shop owner. [6 marks] 51 • . They can be too formal and time consum ing ­ they a lso do not a l low for i m mediate feed back. a) Is this an exa m ple of i nternal or external commun ication? Expl a i n you r [2 marks] a nswer briefly.

e. (a) Monetary rewards paid weekly. Don't necessarily have to pay more but can fi nd different ways to motivate workers as they move up the levels Te rm Mo t iv a tion Description Examples Reason why workers wa nt to work hard and work effectively for the busi ness.N IT 1 3 M ot i va t i o n a t wo r k Key objectives • T o understand the different motivation theories e To understand what n1otivates workers e To know about the different types of payment methods and other ways workers can be motivated e To understand how to choose suitable ways of giving job satisfaction to different types of work e To understand different styles of leadership Key definitions Ta y l or (pay more money to increase motivation) Money is the main motivator Motivation Theories McGregor identified two types of manager . pay schemes where the workers are paid more for i ncreased output Theory Y The average person is motivated by i nternal factors. then can move to the next level. e. you need to find ways to help workers take a n interest i n their work.those who believe i n Theory X and those who bel ieve in Theory Y.g. Workers must be constantly sup�rvised so they wi l l work. Wage: payment for work. Ca n be ca lcu lated by the number of hours worked (ca l led time rate) and pa id overtime or ca n be paid depend i ng on the qua ntity of products made (ca l led piece rate). usu a l ly $ 1 0 per hour plus overtime $ 1 0 per prod uct prod uced • 52 . To motivate workers. Theory X The average person does not l ike work.g. give rewards/incentives a b c d e = self-actual isation = esteem needs = social needs = safety/secu rity needs = physiolog ical needs Progress up the h ierarchy (from e to a) ­ satisfy/ach ieve one l evel. Motivation can be i ncreased _by: (a) monetary rewa rds (b) non-moneta ry rewa rds (c) i ntroducing ways to g ive job satisfaction. Motivation is from externa l factors.

There are three ma i n types of l eadersh i p style: a utocratic. stacks shelves. 53 • Student's answer . they will try to i1npress the manager and as a result production will increase.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Motivation at work Term Descri ption Examples paid month ly. (c) Job satisfaction for a l i m ited time before swapping round aga i n).they shou ld be at a sim i lar ski l l l evel). Democratic leadersh i p (manager g ets workers i nvolved i n the d ecision maki ng). Also . democratic. req u i re more ski l l and/or responsib i lity) . etc. Sample questions and answers Sample questions Marks 1) Why might improved motivation of employees increase productivity? [ 4 111arks J 1 mark for knowledge that if motivation is high then the desire to achieve goals is higher. etc. etc. laissez-fai re. free accommodation. picks orders. If people are n1ore n1otivated. ta kes bookings. added to the job to make it more i nteresting .000 per year Sometimes cal l ed fringe benefits. d iscounts on the firm's prod ucts. La issez-fai re leadership (manager g ives broad o bJectives and l eaves the workers to organ ise their own way of achieving these objectives). These are extra benefits g iven to employees in add ition to thei r pay. The enjoyment a worker g ets from feeling that they have done a good job. l a be l l i ng for an hour. they will work harder for the business to their best ability to try to produce as n1any goods or services as possible. company car. fi l l i ng conta iners for an hour. Warehouse worker u n packs g oods. some salaried workers a lso get com mission pa id (more pay the more g oods they sel l) or profit sharing (share of the profits paid to employees) or bonus (lump sum paid to workers if they have worked wel l) o r performance-related pay (pay which is related to the effectiveness of the employee). if there are pron1otion opportunities. word processes l etters. There a re three main ways to motivate workers to be more com mitted to their job and work more effectively: Job rotation (swapping workers round and only doing a specific task Chi ldren's education fees paid. Hotel receptionist answers the telephone. In addition. A good l eader is someone who can i nspire a nd g et the best out of the workers. (b) Non-monetary rewards Salary: payment for work. 3 marks if there is a clear linkage between increased motivation and the increase in peiformance. thus reducing absenteeisn1 . Job enlargement (extra tasks a re Packing for a n hour. health ca re fees paid. usua l ly $ 1 0. sorts orders. Autocratic leadersh i p (manager i"n charge and g ives orders) . Job en richment (adding tasks that Leadership styles Good management and leadershi p style are importa nt for motivation. As more workers are motivated then they will all be happy to come to work every day. deals with enqui ries.

. . . . . . 2 marks for explaining the impact on motivation. the more output produced above 1 00 units. Student's answer Try to mark this yourself. The other methods were not needed and none o the methods was explained. . . .the examiner's marks and com malls are on page 1 04. . The workers are paid $200 per week no n1atter how tnuch _they produce. Student' s answer Job satisfaction . . . . piece rate is paid. but incorrect answer. . . . 2) Explain one method that a business could use. . . . . . . . . f 3) The graph shows the weekly wages paid to production workers at Mimmus plc . 1 mark if correct method. Wages per week $400 1 00 200 Output i) Mimmus plc pays its workers using the paytnent method shown in the graph above . .a group of employees divide themselves and take shifts at certain times . . . . Com mon m iscon ceptions and e rrors Error Why it i s wrong 'Increasing pay wi l l always motivate workers to work harder. ·-· . . . . . . .the examiner's marks and comment are on page 1 04. . knowing there are chances of promotion. . Job rotation helps to in1prove job satisfaction . . ii) Calculate how much the worker will earn if he or she produces 1 50 units of output. 2 marks for explaining that the piece rate is then used: that is. . . .' I ncreasing pay can improve motivation. but it wi l l not work every time and busi nesses may need to fi nd other ways to motivate workers. . . Examiner's marks and comments Only one method can be rewarded. $200 + (50 X $2) = $300 Try to mark this you rself. . . UNIT 1 3 Examiner's marks and comments A good answer with several reasons given as to why productivity might increase.the workforce needs to be satisfied with their j obs by having better working conditions. which might [3 marks] increase the motivation of its workforce. . . . . . . . so 1 mark. and good wages . . After that. the more wages are paid. Marks 1 mark for identifying a set amount o wages paid up to art output o 1 00 f f units. . . [2 tnarks] Marks Student's answer Correct answer 2 marks. Full marks. What method of payn1ent is it [3 n1arks] using? Explain your answer.. • 54 . . . . . Marks 1 mark for the method.

Say wh ether you consider job rotation to be the best method and why. Which would be the best method for her to employ and why? [ 1 2 ma rks] Examiner's tip ./ Explain h o w Patel Fashions could use job rotation. If they a re more d ifficult tasks then this is job enrichme nt. Examiner's tip [8 ma rks] . b) Would job rotation be the best method for Marie to use in order to i ncrease job satisfaction? Exp l a i n you r answer. Piece rate refers to wages being related to the output produced and does not refer to a set a mount paid whether the worker prod uces more or not. Job enlargement i nvolves additional tasks being added to the job but they should be of a s i m i l a r ski l l level. job enlargement and job enrichment. the shop manager. a) Discuss the d ifferent financial and non-fi nanci a l benefits the store • manager could use to i m p rove motivatio n at the shop.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Motiva tion a t work Error Why it is wrong 'Ti me rate is paid at a set period of time. 'Job enlargement is when more tasks are added to someone's job description and they need extra tra i n i ng to do the extra more d ifficult tasks. Select one method and explain why you think it is the best one for Patel Fashions to use. some just serve customers at the pay desk. in order to prevent workers from leaving so reg ula rly. and others look after the clothes on d isplay. [6 ma rks] ' 55 • . but so may piece rate.' Time rate is the a mount paid per hour worked and may be paid weekly.' 'Piece rate is where workers get a set amou nt of pay and then are paid more if they produce more. each week. I t employs 1 5 sal es staff who work i n the shop and five more who work i n the offices. E mployees keep leaving and the shop manager reg ularly has to advertise for new employees. There is one shop manager who is in charg e of the busi ness. I wish the employees would not keep leaving. For exam ple. Expla i n your choice. some look after the fitting room.I Explain the advantages and disa dvantages of different financial and non-financial methods o f motivation.' e Try th i s Patel Fashions is a retai l business which sells women's clothes. for example.' said Marie. ' I do not l i ke having to spend so m uch time i nterviewing appl icants for sales assistant jobs. Each of the sa les staff has a specific job and they only do this one task. c) State which manageme nt styl e (democratic/a utocratic/la issez-fa i re) you would suggest for i) Theory X ma nagers and i i) Theory Y managers.

't a ppointed who currently works for another shop. However. Shop assista nt is promoted to supervisor. national newspapers. specia l ist magazines and journa ls. ski l l or a ptitude tests) • advertise the vacancy i nduction training select suitable applicant send out application forms and shortlist suitable applicants Term Job analysis Descri ption Examples Identification of the tasks and responsi b i l ities to be ca rried out by the person doing the job. skil ls.g.N IT 1 4 Rec r u i t m e n t. The receptionist's job descri ption therefore needs to be rewritten . A new store manager has been Job (person) specification The requ i red qual ifications. Internal recruitment External recru itment Vacancy is fil led by a person who is not a n existing employee and wi l l b e new to the business. etc. The job is advertised on the com pany notice board or a large business may h ave a company newspaper or i ntra net. Vacancy is fil led by a person who is a n existing employee. A receptionist l eaves a company and Job descri ption The tasks. it is rea l ised that some of the tasks a re no longer needed . • 56 . recru itment agencies or centres run by the government (job centres). for a specific job. t ra i n i n g a n d h u m a n reso u rces Key objectives • To understand the role of the hunlan resources departnlent e To understand the recruitment and selection process e To appreciate the different types of training e To know the difference between redundancy and disn1issal Key definitions The recru itment a n d selection process job ana lysis • I job description I • I job specification I i nterviews and selection tasks (e. when Human Resources l ooks at the job description. the business does need someone with more IT ski l ls. personal qual ities. T h e reception ist's job descri ption now incl udes processing orders onto the computer. The job was advertised i n loca l newspapers. The receptionist's job specification wi l l need to include IT ski l ls in addition to the usual qual ifications and skills of a receptionist. The receptionist is not requ i red to answer as many queries because a new telephone system now does this. duties and responsib i l ities someone w i l l need to ca rry out as part of a specific job.

It finds that its employees do not have the appropriate skills needed to operate this new equipment. the output 57 • . Ca n be at a d ifferent place such as a col lege or could be at the business's site. Dismissal The employee is no longer employed because he or she is unsatisfactory i n some way. i ntroduced to other workers. On-the-job training Tra ining is g iven at the p lace of work by watch ing another. i) Why n1ight this be a problen1 for CDF Ltd? (4 marks] Marks Student's answer 2 marks for problems stated. 2 ) CDF Ltd has j ust introduced new technology into the business. role play. but only when it has been decided exactly what the job must irwolve a jter the job analysis is complete. New employee is shown round the busi ness. tra ining a n d h uman resources Term Induction train ing Description Examples An introduction to the business for a new employee. g iven i nformation on ru les and reg ulations of the business. Examiner's marks and comments The first sentence attempts to answer the qt�estioll. In addition. more experienced employee doing the job. Drawing up a job description would then follow. i t will draw u p a j o b description outlining all tasks and duties that the j ob involves and then a j ob specification. Off-the-job training Redundancy/retrenchment The busi ness i ntroduces new tech nology or closes a factory. The shedd ing of employees because the busi ness changes. therefore fewer workers a re needed. I n a classroom using l ecture. A production line worker is shown what to do by a nother experienced production l i ne worker. Sample questions and answers Sample questions Marks Student's answer 1) Why do businesses carry out a j ob analysis when an e1nployee leaves? [4 marks] 2 marks for giving reasons for a job analysis to be drawn up. Tra i n i ng is g iven away from the place of work itself. which states the skills and qualifications that the applicants 1nust have . A business carries out a job analysis to see whether it needs to replace the worker with someone who can do exactly the san1e job . The can didate needs to dismss i11 m o re detail why a job analysis is carried out an d an example li'O l l ld luwe helped to explain the answer. but in a different bui lding. An employee is sacked because he or she is caught stea l i ng stock. case studies. The costs of training and/ or recruiting new staff can be very high . 1 mark . 2 marks for explaining why these reasons are important to the business. If the workers do not have the correct skills then trai ning will be needed.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Recruitment. but the rest (if tlze response does not directly answer it. After that. 2 marks for explain in'-!? th e problems. g iven Hea lth & Safety instructions. while the training takes place. or com puter simu lations.

' 'Off-the-job train ing is a lways away from the business's prem ises . The employee wi l l also need to keep watching the tra inee to make sure he or she is doing the job properly. if en1ployees cannot operate the new technology they n1ight fear that they will lose their j ob and therefore morale tnay be low. 'On-the-job tra i n i ng does not cost a nythi n g because an existing employee tra i ns the new employee. On-the-job train ing is only r�a l ly suitable for unski l led or semi-skil led workers. Three problems are stated m1d then explained as to why they are a problem for the business. I suggest that it trains some of its employees straight away to operate the new technology so that they do not spend titne once the machinery has arrived. There wou ld be i nsufficient time whi lst working to go over all the i nformation req u i red to become ful ly qual ified.the examiner's marks and comments are on page 1 05. ' • 58 . ' 'On-the-job tra i ning is suita b l e for a ski l l ed worker.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 1 4 of CDF Ltd is likely to decrease because the workers are either co-operating with trainers or are the trainers then1selves . 3 further marks if suggcsti011s are explained. Try to mark this yourself. A job specification outl i nes the qual ifications and ski l ls that a re needed to ca rry out the job. Only two problems were needed for full marks. Off-the-job tra i n i ng is away from the p lace of work itse lf. but he or she is not producing the usual quantity of goods.' The job descri ption outl ines the duties that are i nvolved in the job. a n accounta nt. On-the-job tra i n i n g does cost money because the experienced employee cannot work at the usual rate while showing the tra inee what to do. but this would mean that some of the current workers would need to be sacked. Also . An accounta nt would need to be tra i ned at col lege for most of the time and not just at h is or her place of work. but can sti l l b e on the sa me site. Th is means the compa ny is paying the experienced worker. Common m isco n ceptions a n d errors Error W h y it is wrong 'A job descri ption states the qual ifications needed for a pa rticu lar job. ii) How would you suggest that CDF Ltd deals with this problem? [6 n1arks] Marks Student's answer 3 marks for limited suggestions 11ot really explained. Examiner's marks and comments A good answer -full marks. It could also advertise for new employees who are already trained. for example.

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •• • • • • • • • • • • • • • • • • • • • • • • • Recruitment. Make a judgement as to which would be the better one to use and why. i i) The Royal Garden has recruited several wa iters and waitresses to work in the new restaurants. Examiner's tip . [3 marks] b) If a l ot of employees left every year. why m i g ht this be a problem for the business? Examiner's tip [6 marks] . costs of replacing them. morale. I n the resta u rant there are a lso trained employees who work in the kitchens preparing food . 59 • . What type of tra i n i ng wou ld you suggest the management use to tra i n them? Justify your choice./ Choose a type of tra ining. i) The Royal Garden wa nts to i ncrease the n u m ber of restaurants it has and therefore needs to employ more staff to work i n the kitchens./ Include why they are lea ving. It employs many workers in the restau ra nt and the department which cleans and services rooms. training and h uman reso urces e Try th i s a) Suggest three reasons why employees m i g ht leave their job./ Explain the advantages and disa dvantages of internal and external recruitment. Most of these workers have few ski l ls. either on-the-job or off-the-job. Discuss whether it shou ld use i ntern a l or externa l recru itment for the [ 1 2 marks] new chefs to work i n the restaura nts. [5 marks] Examiner's tip . and explain why it would be suitable to train these low-skilled employees. tra ining. c) Why do businesses carry out induction tra i n i ng ? [ 4 marks] d) The Royal Garden is a hotel in the centre of a city.

National U n ion of Teachers (N UT) . The management of a busi ness negotiates pay rates with the trade union which represents the employees. improved working conditions. National U n ion o f Rai l.N IT 1 5 E m p l oye e a n d e m p l oye r a ssoc i a t i o n s Key objectives • To recognise the different types of trade unions e To understand how trade unions benefit ernployees and their role in businesses e To understand the process of collective bargaining e To know what happens when conflict arises and the different types of industrial action e To understand the role of employer associations e To know how conflict can be avoided or solved Key definitions Term Trade un ion Descri ption Examples An organ isation formed by a g roup of workers. advice if unfa i rly treated. Represents a l l types of workers in a pa rticular i ndustry. Craft un ion General union An electricians' union. which represents their i nterests. Maritime and Transport Workers (R MT). shares ideas amongst the members. Skil led and unskil led workers i n a union wh ich represents workers i n different i n dustries. represents the employers and negotiates with trade unions. of employers to g ive benefits to its U niversities and Col leges E m pioyers' members. representing workers i n grievances with management. Collective bargaining • 60 . Represents non-manual workers. negotiating pay on beh a lf of its members. acts as a pressu re g roup. Represents a particular type of skil led worker. sometimes organ ises discounts for its members if buying i n bulk. Association. Represents workers from a variety of trades and industries. Negotiations between the management of a business (or severa l busi nesses) and a trade un ion (or severa l trade un ions) on pay and cond itions of employment. Industrial union Wh ite-collar union Employer associations E m ployers' Organ isation for local An organ isation formed by a g roup government. The reasons for joining together i nclude strength i n num bers. advice if d ismissed/made redundant. The reasons for joining together i nclude strength in being a large g roup. A union which represents a l l workers i n t h e m i n i ng i ndustry. A union which represents office workers.

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Employee a n d employer associations

Term Industrial action

Description

Examples
• •

Action that may be taken by a trade union to put pressure on the manag ement when i n negotiations. It i nvolves halting or decreasing ... prod uction.

• •

Strike (employees refuse to work) . Picketing (employees who are taking ind ustrial action stand outside their place of work to prevent or protest at goods or people going in and out of the business). Work to rule (ru l es are strictly obeyed so that work is slowed down). Go slow (employees do their normal work, but more slowly). No n-co-operation (wo rkers refuse to have a nything to do with new working practices they disapprove of). Overtime ban (refusa l to do overtime).

Worker participation

Employees contri bute to the decision-making process in the busi n ess.

Worker di rectors, works councils, qual ity ci rcles, more democratic styles of leadership.

Sample q uestions and answers
Sample questions Marks Student's answer 1) Explain why workers join trade unions .

[6 n1arks]

Up to 3 marks for stating the benefits of trade union membership; 3 marks for explaining why these are benefits to employees.
If the worker joins a union then he or she will be part of a large group of employees, which has extra bargaining p ower when negotiating pay or conditions with the 1nanagen1ent. Pay should be better and if an employee is treated unfairly then the union will give him or her advice.

Examiner's marks and comments

The first benefit is explained but the other two benefits are o11ly stated and not explained. Therefore 416 marks were awarded. 2) Toys Galore plc manufactures children's toys. The c01npany produces dolls and dolls' clothes. The toys are sold all over the country and the business also exports 25% of its output. The workers want a wage increase, but the 1nanagen1ent has said that this is not possible. i) Explain three types of industrial action that the union can advise the workers to take. [6 n1arks]

Marks Student's answer

1 mark f each o the three types o industrial action; or f f explanation o each type of industrial action. f

1

mark for

The workers could go on strike , which would 1nean that they would stop work and so no output would be produced. They could then picket the factory by standing outside the gates and trying to stop any delivery lorries or workers going into the factory. This would mean that the business could not produce any toys and the managen1ent would be n1ore likely to give in to the union's demands. They co uld also have an overtin1e ban.
61 •

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UNIT 1 5

Examiner's marks and comments

5 I 6 marks were awarded. 3 for the three types cif industrial action and 2 marks for the explanation o the first two types o industrial action. The f f third type was not explained.
ii) Toys Galore plc recently introduced worker participation by having worker directors. Why might this help to avoid conflict between the workers and the n1anagement of Toys Galore plc? [5 n1arks]

Marks

2 marks for stating the beniftts o w�rker participation; 2 marks for f explaining why it might help to avoid con flict; 1 mark for applying it to Toys Galore pic.
Toys Galore plc produces a lot of products and also exports then1 . Many decisions will have t o be made which will affect the workers . The worker directors will help to increase the flow of information to the other directors concerning the workers ' feelings about any changes that are proposed. If these yiews are taken into account then there is less chance of a decision being n1ade that the workers will not be happy with .

Student's answer

Try to mark this yourself- the examit-zer's marks and comments are on page 1 05.

Com mon m i scon ceptions and errors
Error W h y it is wrong

'Trade un ions represent a l l workers.'

Trade unions o n ly represent the workers who have joi ned the trade u n ion and not a l l the other workers. Trade un ions do ta l k to management in some cases and try to find ways to i ncrease productivity so that there wi l l be a n improvement i n the working cond itions for their mem bers. O n ly trade union members wi l l go out on stri ke, not the other workers. Also, strikes can be for a short period of time, such as h a lf a day, just to make a point. They do not necessarily go on for very long as workers do not get paid for the time they are on strike. They only g et some pay from the u n ion if it has sufficient funds to pay them some money. Worker participation is when workers contribute to the decision-ma king process i n some way. They do not take it over.

'Trade un ions always cause trouble and ca l l the workers out on strike.'

'A strike is when all the employees stop work and don't come back to work unti l the d ispute is settled.'

'Worker participation is when employees get to tel l the management wha� to do.'

• 62

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Employee a n d employer associations

e Try th i s

a ) Match the type o f trade u n ion with the exa m ple. Types of trade u n ion Examples i)

[ 4 marks]

Craft union Industrial u n ion Genera l union White-col lar u nion

The members are a l l secretaries of workers in the m i n i ng i ndustry

i i) The members a re a l l different types i i i) The mem bers are unskil led and semi­

skil led workers i n severa l d ifferent industries

i i i) The members a re u nskil led and semi­

skil led workers i n severa l d ifferent industries

iv) The members are a l l skil led workers

b) Expl a i n why businesses join employer associations.

[6 marks]

Examiner's tip
./ Explain three benefits to businesses of joining an employer associa tion.

c)

The workers at P and D ltd a re unhappy because the management wants to change the hours they work. The management wants the workers to work fou r days at 1 0 hours per day i nstead of five days at 8 hours per day. Th is is so that the workers can be asked to work overti me on the fifth day. Sales of the business's products have been i ncreasing rapidly and more output is n eeded. i) The union wants the workers to take ind ustrial action. Should they go on stri ke or i ntroduce an overtime ban? Exp l a i n your a nswer. [6 marks]

Examiner's tip
./ Explain the advantages and disa dva n tages of strike action and an

o vertime ban and then decide which would be more effective for the workers at P and D Ltd a n d why.

ii) The management of P and D ltd has been thi n ki n g of i ntroduci ng

worker participation. Suggest three d ifferent ways they cou ld use to do this. [6 ma rks]
Examiner's tip
./ Explain three ways of ha ving worker pa rticipation, for example, worker

directors, works councils, qua lity circles, or more democratic styles o f lea dership.

63 •

It also may want to: i mprove the image of the prod uct. B. Promotion and Place. A financial plan for the marketing Example Fruit and vegetable ma rket Product-orientated business Market-orientated business A business which i nvented a new kitchen tool A business which makes chocolate bars finding out what type of chocolate ba r a ppea ls to consumers $ 5 00. One which carries out market resea rch to find out consumer wants before a product is developed and produced. a nticipates their future wants and then goes a bout satisfying them profitably Marketing helps a busi ness to i ncrease: its sa les revenue.. 000 to ma rket a new chocolate Marketing budget ba r._. D. profits. Descri bes all the activities which go i nto marketing a prod uct._.N IT 1 6 T h e m a r ket a n d m a r ket i n g Key o bjectives e e e e • To understand why marketing is important to a business To know the difference between a product-orientated business .new chocolate bar for sma l l chi ldren Price . E) I By income group/soci a l group Market segmentation The market is d ivided u p i nto groups of consumers who have si m i lar needs By gender (mal e/fema le) By use of the product (domestic or busi ness use) Term A market .sold i n supermarkets Marketing mix • 64 . C1 C2. By reg ion {dry/wet parts of the country) By l ifestyl e {si ngle/ married/with chi ldren/etc. One whose ma i n focus of activity is on the product itself. The ma rketi ng department wi l l then decide which marketing activities it wi l l use to rea l ise its target sa l es over a specified time period .$0. young adults. i mprove existing products By age {chi ldren. old) (A. Product .advertised on TV during chi ldren's programmes Place . and a market-orientated b usiness To understand what is meant by market segn1entation ! o understand why and how a business segtnents its tnarket To know what are the main elemen ts of the n1arketing n1ix Key definitions Marketing The management process which identifies customer wants. Price. enter a new ma rket or market segment. market share {or at least m a i ntain it) . so the marketing department knows how much it can spend. teenagers. They are often summarised as the 4 P's: Product.. of a product or prod uct range for some specified period of time.30 Promotion .__ .) Definition Where buyers and sel l ers come together to exchange prod ucts for money. It specifies how m uch money is available to market the product or range. develop new products. middle aged...

Each product is made to appeal to just one of these groups. for example. Each brand of C & C washing powder can be bought by a different type of consun1er. 1-2 marks for applying this to C & C plc.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • The market and marketing Sample questions and answers Sample question C & C plc produces washing powder. Examiner's marks and comments A clear understanding o market segmentation. b) Why does C & C plc do this instead of selling a single product [ 4 n1arks] to the whole market? Marks Student's answer Explaining why segmentation may be a way o meeting wsto m er n ee ds awl f increasing sales. but now it sells many different brands all ai1ned at different groups of customers (low-income. When C & C plc was going to introduce a new brand of washing powder it would carry out market research first to find out what consumers wanted from their washing powder. It has been in business for many years. different income groups or families with babies. families with babies. 1 mark f explaining that C & C plc segments its market. If each product was aimed at all the groups then it probably wouldn't n1eet the needs of any particular customer and wouldn't sell so well. sensitive skin. therefore. The answer is vague. It started by selling just one type of washing powder. Some businesses aim their products at j ust one group of custon1ers and not the whole market because this means that the product will satisfy their individual needs. etc. C & C plc has been very successful and seen its sales grow continuously each year. (2 nurks] Marks 1 mark for saying it is a market-orientated business plus 1 mark for explaining why. sports-playing families. 65 • Student's answer . c) Do you think C & C plc is a p roduct-orientated business or a market-orientated business? Explain your answer. If the business was product orientated then it would develop a new product and then try to sell it to consun1ers. or Yes - C & C plc sells p roducts to different custon1ers. people who care for the environment.) . Full marks. C & C pic is a market-orientated business as n1arket research is carried out to find out what the cust01ner wants an d then it nukes the new product according to what the c usto1ner wants . a) Does C & C plc segment its market? Explain your answer. wlu'clt is applied to C & C f plc. Segn1enting the market increases sales of the product and. n1ay result in greater profits. 1 mark. (2 marks] Marks Student's answer Examiner's marks and comments 1 mark if correctly identifies what is meant by segmenting the market. They could have gained the second mark by making it clear that the products are different and targeted towards different customers. 1-2 marks. The business would then design a new product to meet these needs .

' a) Explain three possible objectives of the ma rketing department at Ncube G iftware Ltd . Bafa na. 2 marks. b) What are the fou r elements of the ma rketing m ix? c) [ 6 marks] [4 ma rks] Do you think it is i mporta nt for the fou r elements of the ma rketing m ix to l i n k together? Expl a i n you r a nswer. Com mon m isconceptions and errors Error 'A market is in a single place. Promotion needs to emphasise the h i g h quality of the product and ensure that it i·s advertised i n places seen by h i gh­ i ncome g roups./ Try t o explain why i t might be important t o link the elements together Exa m i ner's tip and what might happen if the business does not. prici ng and packaging. l inked together.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 1 6 Examiner's marks and comments Tlze cattdidate explains that it is a market-orientated busit1css. A marketing m ix m ust be clearly Developing a ma rketing mix that does not l ink together. says 'The marketing department wi l l play a very i m portant role in helping the b usi ness to expand.' Marketing is m uch more than just advertising or promoting a product or service. It incl udes consideration of the channel of distribution. but docs fWt need to add the second sentence. For example an expensive h igh-priced product shoul d have packaging that gives the i mpression of a high quality product and it shou ld be sold in shops which are used by h ig h­ income g roups. the prod uct itself. For example. The d i rectors want to expand production.' Why it is wrong A market does not have to be a · place. it could be goods sold over the i nternet. • 66 . [8 ma rks] . e Try t h i s Ncube G iftware Ltd manufactures wooden g ift items which i t exports to European markets. the marketing d i rector. 'Marketing is just a bout advertising the product.

For exa mple.-- Secondary resea rch Field research . Why customers l i ke cola. location and timing of the research e To evaluate whether the information gathered is accurate Key definitions Postal \ Face to face < Street < Telephone I nternet Door to door Fina nce dept t ' Sales data l ntern I nterviews Questionnaires Primary research t f • Customer service sou rces . 67 • .. half should be m a l e and half should be female. How m a ny customers buy cola. gender. age.. type of sampling method. I nformation about opinions or judgements. People are selected on the basis of certa i n characteristics.fi rst-hand i nformation Original data gathered for a specific purpose by the busi ness Desk research .. for a questionnaire or i nterview). for exa m ple. Pri mary resea rch and secondary research. A certai n n u m ber of peop l e are Quantitative data Qualitative data Random sample Quota sample selected for i nterview or to a nswer a questionna ire. for exa m ple.. Key objectives • To understand why market research is needed e To understand the difference between prin1ary and secondary research e To describe how to carry out market research taking into account sample size. i ncome. People a re selected at random. every 1 OOOth person in the telephone d irectory. Every member of the population has a n even chance of bei ng selected (for example.d epartment .N IT 1 7 M a r ket resea rc h . I nformation a bout the quantity of someth ing.second-hand i nformation Previously published data gathered origina l ly for another purpose Consumer panel Observation Experiments External sources / Market resea rch reports / journals Newspapers l "' Tratle Examples Government reports/ statistics Term Market research Defin ition A business finds out consumer wants before a product is developed and produced.

[ 6 n1arks] Marks Up to 6 marks for describing the process of carrying out a method of primary research. it can decide how to make them more appealing to customers or maybe withdraw the product and launch a new one if it is in the decline stage of the product life cycle . the marketing manager. whether the price is too high. (The business could design a questionnaire (1J. Student' s answer Primary research is first-hand information. It wants to find out why its product did not meet customer needs. It also needs to decide the sample size to ensure the • 68 . 4 marks. says 'We must do something to increase total sales revenue from all our products . one of its brands. for exa1nple . Try to mark this answer yourself. Student's answer Khan pic might carry out market research to see why its product was not what customers wanted. for example. It produces many different brands of chocolate bar which have been selling well for several years. ' a) Why n1ight Khan Pic want to carry out n1arket research? [ 4 tnarks] Marks 1-2 marks for listing one or two reasons why market research might be carried out.the examiner's marks and comments are on page 1 06. b) What is the difference between primary and secondary research? [4 marks] Marks 1-2 marks for stating what is meant by primary research or secondary research. Karl. 1-2 additional marks for explaining these reasons. This would need to be tested to see whether the q11estions are gathering tlze correct i1iformation the business requires [2}. Care should be taken to ask questions appropriate to the overseas market [3}. These reasons were also explained well. or whether any new products have been launched onto the market. 1-2 additional marks for explaining both primary and secondary research and indicating how they are different. whereas secondary research is second-hand information. to find out why sales have fallen. The questionnaire should then be carried out a fter deciding whether it wants a random sample or quota sample [4}. We n1ust carry out primary and secondary research . c) Describe how Khan pic should carry out prin1ary rnarket research before deciding whether to sell a new chocolate bar in a new overseas market.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 1 7 Sample questions and answers Satnple question Khan pic produces chocolate bars and only sells then1 in its hotne country. When it knows what is wrong with Bigga Bars. Examiner's marks and comments This was a good answer with reasons given for carrying out research. has seen its sales fall over the last year. called 'Bigga Bars ' . for example. However.

[4 marks] 69 • .' Secondary resea rch is i nformation that is a l ready available and gathered for another purpose whereas pri mary resea rch is ori g i na l research carried out for a specific purpose. the company needs to find out about the market and the potential customers. Need to describe the process of how primary research is carried out rather than d iscussing this as a method of research . f Com mon m i sconceptions and e rrors Error Why it is wrong 'Pri mary research is i nformation a l ready ava ilable. The company could carry out a questionnaire door to door.Before the product is sold overseas. ' Student's answer Pri1nary research is about finding out first-hand infomution. explain what the business ca n do to i mprove the chances of getting accu rate i nformation . . 'Information gathered by primary research is always accurate. It can then advertise in places where the product will sell and this will mean a lot of sales and increased profits. Examiner's marks and comments The candidate has misread the question and said that the company could carry out a questionnaire door to door. bad sampling techniques and carrying out the research i n the wrong place lead to i naccu rate resu lts. but do not answer the question and therefore this would only gain 1 1nark. The time.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Market resea rch accuracy o the questionnaire [5}. • Try th is a ) G ive two advantages t o a business o f using pri mary m arket research. day a11d place to carry out the f questionnaire will be chosen and finally the results will be collated and analysed [6}. Poor questions.' Descri bing the advantages and d isadvantages of primary research when asked to describe how it is carried out. [4 marks] b) What sources of secondary data are ava i lable for a busi ness to use if it wanted to sel l a new product in a n ew overseas market? c) [3 marks] If primary market research is carried out. The other points are correct. The rest o the points do not describe how to carry out research .

b) The graph shows the average wage levels of etnployees in the company in 2003 and 2004 . 17ze axes were not labelled and there was no title. Marks Student's answer 1 mark for title. 2 marks f accurately or plotted graph /chart. draw a graph or chart to show the ages [5 marks] of the people who answered the questionnaire . Total = 2 I 5 marks.N IT 1 8 P rese n ta t i o n of i n for m a t i o n Key objectives To know how to draw graphs and charts frotn business data e To know how to interpret graphs and charts • Sample questions and answers Sample question XYZ Ltd carried out a questionnaire and here is one of th e answers to a question: What age group are you in? Number of people 0-20 10 2 1 -35 20 40 36-50 20 5 1-65 66 + 10 a) Using this information. Average annual wages XYZ Ltd 2003 a n d 2004 16 14 12 0 10 � g 8 6 4 2 0 2003 2004 D Male • 70 • Female . 45 40 35 30 25 20 15 10 5 o ������� 0-20 2 1 -3 5 36-50 5 1 -65 66+ Examiner's marks and comments The candidate scored 2 marks for a correctly plotted bar chart. 1 mark for each labelled axis.

83% Student's answer = 1 65 . Marks Identif ying that the wages of both men and women increased Giving the changes in figures = 2 marks.000 Increase 525. (See also U n it 1 9) Ti me [4 ma rks] [3 marks] Suggest one reason for the differences between the two g ra phs. The second part was correctly calculated. while the average female wage went up by $2. e Try t h i s a) Using t h e i nformati o n i n t h e table bel ow.3 60.000. ii) If the company employed 30 men in 2003 and 35 tnen in 2004 calculate the % change in the total male wage costs between 2003 and 2004 . The average n1ale wage increased by $3 . D & D pic Brands Chocol ate fig bars Ca ndy bars Sugar pops Choco melts 4 - [5 ma rks] Sales revenue ( $ m il l ions) 2002 3 3 2003 5 4 4 5 2004 8 7 6 8 b) The g ra p hs below show information a bout M ig ue l 's garden business. Three points were identified . Com mon m isconceptions a n d e rrors Error M iss i n g off a title to a g ra p h . i) Both male and female wages went up. Full marks.000 X 30 = $360.000 X 35 = $525 . Percentage increase correctly calculated = 2 marks.000 1 65 .000 Examiner's marks and comments The candidate has completed all the answers correctly. ii) $ 1 2. "d raw a g ra p h showing the sa les of the fo u r main brands prod uced by this com pa ny. Sales Product A Sa l es Prod uct B Ti m e i) i i) Describe w h a t the two g ra p hs show.000 $ 1 5 .000/360.000. [4 marks] Marks Total wagesfor both years calculated = 2 marks.000 . Not l a be l l i n g axes.both male and female wages had increased and the increases were given. Up to 3 marks can be awarded f correct or method even if there is an error in the calculation. 71 • .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Presen ta tion of informa tion i) Identify the n1ain changes that occurred between 2003 [3 n1arks] and 2004. = 1 mark.000 = 4 5 .

It g i ves the bra nd an identity of its own . I ntroduce new va riations of the orig i n a l prod u ct/service. I ntroduce a new i m p roved version (Piaystation 2). thro u g h its g rowth u ntil it is mature and then fina l ly d ec l i nes. Examples Coca-Co la N i ke M a rs N issa n Customer kee ps buying Adidas shoes i nstead of N i ke. Se l l i nto n e w ma rkets. • 72 . profits. h m� kes it d ifferent to its com petitors' bra nds. T h e i m a g e or identity g ive n t o a p rod uct w h ic.N IT 1 9 T h e m a r ket i n g m 1 x : p rod u ct a n d packa g i n g Key objectives e e e e e e • To explain why businesses brand products To know what factors a business takes into account when branding a product To know why packaging is important To understand the role that packaging plays in the 1narketing 1nix To understand how to draw and label a product life cycle To understand what happens to prices. Product l ife cycle Extension strategy A way of exte n d i ng the prod uct life cycle when it has reached matu rity or sat u ration sta g e . Coca-Col a is drunk by people who Brand loyalty Brand i mage are tre ndy and have fu n . When customers kee p buying a p a rticu l a r bra n d instead of a competitor's bra n d . T h e stages a re: deve lopment i ntrod uction g rowth maturity saturation decl i ne. sales and pron1otion as a product passes through the different stages of the life cycle To explain how the life cycle can be extended Key definitions Packag ing is the physica l conta iner or wra ppi n g f o r a prod u ct Protects the prod uct/can tra nsport the prod uct S u ita b l e f o r the prod uct t o f i t i n/ca n eas i l y d ispense t h e prod uct To i m p rove sel l i ng appeal Displays i nformation a bout the prod uct Promotion of the bra n d image Term Brand name Description The u n iq u e name of a prod uct which d isti n g u ishes it from other bra nds. Use a new advertisi n g ca m p a i g n . S e l l thro u g h d iffe rent o utlets. The stages a prod uct wi l l pass through from its i ntrod uct i o n.

'Tennis Tiger' . Also . 73 • . b) What brand image would you suggest for 'Tennis Tiger'? [4 marks] Explain your answer. which would appeal to young children. Marks Student's answer Examiner's marks and comments 1-2 marks for suggesting a suitable brand image. up to 2 marks for justifying why this is the case. The stu dent could have discussed the tiger image being cuddly and fim. shorts and skirts for younger children who play tennis. These are high quality clothes which are sold for a high price. Student's answer Examiner's marks and comments This is a good answer with more discussion than necessary to gain full marks.• • • • •• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • The marketing m ix: p ro duct and pa ckaging Sample q uestions and answers Sample question Mr Patel owns and runs a sn1all private lin1ited cornpany called Patel Enterprises Ltd which 1nanufactures sportswear. f The brand in1age should appeal to the target audience. a) Why does Patel Enterprises Ltd brand its products? [6 marks] Marks 1-2 marks for displaying a knowledge o branding. Total = 214 marks. 1-2 marks for f explaining the advantage o branding. but it does not make clear how it would appeal to young children. The range was launched two years ago and growth in sales has been rapid. It does link to tennis and sport. if there is a brand logo on the garments then customers will want to buy nutching polo shirts and shorts and so the business will increase its sales. However. The n1ain products are polp shirts. Knowledge of branding is clearly given along with a good application to this case. Total = 6 I 6 marks. over the last six n1onths sales have continued to increase. The retail outlets which sell these products are specialist sportswear shops. This is a general answer. 'Tennis Tiger' is the brand name for Patel Enterprises Ltd products . c) What stage of the product life cycle do you think 'Tennis Tiger' garments have reached? Justify your choice. the image in terms o young children . Customers will recognise the brand name and know that these products will be of good quality and it will n1ake them more likely to keep buying the products. 1-2 marks for f applying this to the context o Patel Enterprises Ltd. but Patel Enterprises Ltd also sells its products on the internet. but the increase has been slower than in the previous two years. [3 n1arks] Marks 1 mark for identifying that it has reached the maturity stage o the fife f cycle. f A business brands its products to create a uniqu e identity so that customers will be able to recognise it and buy the products again. More than one advantage o branding is also f included. The products all have the san1e brand nan1e. It n e eds to appeal to people who play tennis and so it should be sporty. 1-2 marks for justifyin}<.

mark for correctly identif ying the stage. After the satu ration p hase of the p rod uct l ife cycle. However.the examiner's marks and commen ts are on page 1 0 6. I n the matu rity phase o f the prod uct life cycle sales sti l l i ncrease. for exatnple. this may not create the right brand itnage for the clothes. Com mon m i sconceptions and errors Error ' Packag i n g is j u st a conta i n e r for the product . They could also try to sell then1 abroad. They could also try to sell the clothes in different retail outlets. 1 -2 Student's answer Patel Enterprises Ltd should increase their advertising of 'Tennis Tiger' clothes to make more consumers aware of the products. However. ' • 74 . if the busi ness successfully uses extension strateg ies then the l ife of the product wi l l be extended a n d sa l es may i n crease . ' I n the matu rity phase of the product l ife cycle sa les fa l l . A lower price could make consumers think that the garments are not of such a high quality and therefore sales might fall instead of rise . Marks [8 111arks] marks for examples o suitable a ct io 11 the lmsi11css ro u ld take. The pack a g i n g often ma kes the product easi ly recogn isable on the shelves and attracts attenti o n . 1-4 f marks for showing advantages of these actions explained in terms o the f business. It can be used to re i nforce the bra n d i n g of the product and p romote it. What do you think the cornpany should do if sales do not increase any rnore? Explain your answer. ' W h y it i s wrong . Try to mark this yourself. 1 d) The increase in the sales of 'Tennis Tiger' products has slowed in the last six months. but no further marks as the student has not made it clear that sales are increasing at a reduri11J? rate o f increase. but o n ly slowly. but this may mean using cheaper materials if they are to keep the san1e profits. supermarkets. They could also reduce their prices to encourage more sales.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 1 9 Student's answer Examiner's marks and comments It has reached the maturity stage because sales are still increasing at a rapid rate. 2 marks for justification as to what the lmsiHess should do . They could also run special offers where custon1ers could get a discount on a second garment after they had bought one. These initiatives should encourage sales and see an increase. sa l es wi l l fa l l if it moves i nto the decl i n e p hase. · · Packa g i n g is more than j u st a conta i n e r for the p roduct. a product's sa l es wi l l a l ways fa l l . Total = 1 13 marks. ' 'After t h e satu ration phase o f the prod uct l ife cycle.

th i n ks that some changes need to be made to the packa g i n g to i m prove sa les of the dri n k . e) Why do some prod ucts have m u ch l o n g e r l ife cycles than others? G ive exa m p l es to i l l ustrate you r answer. d) Prici ng is a very i m portant e l e ment i n the m a rketi ng m ix of a busi ness. [4 ma rks] 75 • . b) What factors sho u l d Sheena take i nto account when chang ing the packa g i n g for this sports d ri n k ? [6 marks] Examiner's tip . How and why m i g ht a business change its pr i ces d u ri n g the stages of a typica l l ife cycle? (See a l so U n it 20) ./ Make sure you apply your answer to the sports drink in the case. [ 4 ma rks] Examiner's tip . a ) What fu nctions does packa g i n g perform for t h e sports d ri n k prod uced by Peacock p ic? [5 ma rks] Examiner's tip . The m a i n brand i t sells is bo u g ht by sports p layers.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • The marketing mix: product and packaging e Try th i s Peacock pic manufact u res and sel ls soft d r i n ks. The ma rketi ng manag er./ Do not describe the changes she should make./ Describe the change and then say what should happen as a result of the change. The outer packa g i n g of the d ri n k is p l a i n bl ack and some customers have com p l a i ned that it is d iffi cu lt to d r i n k from the conta i ner. c) Draw and label the stages of a typica l product l ife cyc l e on a g ra p h . [6 ma rks] Examiner's tip . Sheena./ Do not forget to label the axes.

When partic u l a r attention is pa i d to the effect that the price of a prod uct w i l l have u pon the customers' perceptions of the prod uct. A h i g h price is set for a new prod u ct on the ma rket. i m p roveme nts in tech n ology. taste and fas h ion. ----------------- s Supply is determ i ned by the decisions of prod u cers: affected by price. price of com p l ementary products : I s D Quantity Pricing strategy Cost-plus pricing Penetration prici ng Defi n ition The cost of man ufactu ring the product p l us a profit ma rk-up When the price is set l ower than the competitors' prices i n o rder to be a b l e to enter a new ma rket. Demand changes by a sma l l er proport i o n than price change . the cost of prod ucing the goods. p n ce ___. c l i mate Demand is determ i ned by the decisions of consumers: affected by price. The prod u ct is priced in l i ne with or just below com petitors' prices to try to capt u re m ore of the ma rket. advertising. Price charged Cost = $ 1 00 + 50% profit Price = $ 1 50 Competitors' prices = $ 1 0 This price = $ 9 . When a prod u ct is sold at a very l ow price for a s h ort period of time. 50 N ew prod uct price = $ 50 No near su bstitute on the ma rket Com petitors' prices = $20-$ 23 This product price = $22 Com petitors' prices = $ 1 0 Th is prod u ct = $ 7 for a l i m ited period of time Price = $ 9 . consu mers' i ncome. 99 Price skimming Competitive prici ng Promotional pricing Psychological pricing Price e lastic demand Price i nelastic demand • 76 . taxes/subsidies.N IT 2 0 T h e m a r ket i n g m 1 x : p r 1 ce Key objectives To explain what affects demand and supply e To understand what is meant by elastic and inelastic demand for a product e To explain what happens to den1.and for a product if the price increases or decreases when demand is elastic or inelastic e To understand the different pricing strategies and explain when they would be suitable to use • Key definitions Price Ma rket . Demand changes by a greater proport i o n than price change. price of su bstitute prod ucts.

but are at a similar pric� to other luxury centres in the city.competitive pricing and promotional pricing.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • The marketing mix: price Sample questions and answers Sample question Luxury Leisure plc owns and runs several leisure centres in the capital city of country X. [2 1narks] Marks Student's answer Examiner's marks and comments 1 mark for each correct answer . a) Identify two pricing strategies that are being used by Luxury Leisure plc . 77 • . c) Using the information in the case study above. Last year Luxury Leisure plc put its p rices up from $40 p er month to $50 per month. 2 marks for making a jru�szcmc11t. as this wo uld 111ean that the company would increase its sales revenue and possibly its profits. The centres are expensive to join. The business should have put its prices up. [ 6 marks] Marks Student's answer 2 marks for identif ying that demand is inelastic. 2 marks for explaining the dfects o the change. Total = 1 rnark. but the second one is not correct as the setvice is not new and not trying to get into a new market. f The price was increased by $ 1 0 . but found that membership fell by 1 5%. It could use cost-plus p ricing as this would ensure that all the costs were covered. up to 2 marks for explaining why it nll��lzt be suitable for this business to use. They want to encourage more people to become members . Total = 2 I3 marks as the student did not go on to explain the answer in detail. b) Explain one other pricing strategy Luxury Leisure plc could use [3 n1arks] and why it might use it. Try to mark this yourself. This 111eans that den1and is inelastic. Competitive pricing and penetration pricing. Marks Student's answer Examiner's marks and comments 1 mark for a suitable strategy. a 25% increase. The first answer is correct. should Luxury Leisure plc have put its prices up fron1 $40 to $50 per n1onth? Explain your answer.the examiner's marks and comments are on page 1 07. so have advertised a special low rate to join the leisure centre for a limited tin1e in order to encourage additional members . 1 mark for a suitable method and 1 mark for the explanation.

'Pri ce s k i m m i n g is where the prod uct is priced be low the prices of com petitors. [4 ma rks] Examiner's tip . Would customers be sensitive to price reductions or not. a) Wou l d this business's revenue be l i kely to i n crease if it were to cut petrol prices? Exp l a i n you r answe r g iving reasons. and would they buy a lo t more or would there be just a small percentage increase in sales ? b) Often Acmo's shops red uce their prices of giftwa re at certa i n ti mes of the yea r. refi nes i t a n d a lso owns the petrol stations where its petrol is so l d . Customers may th i n k that the q u a l ity is lower as the price is now lower and not buy it.' e Try th i s Acmo O i l p i c is a m u lti-nati o n a l o i l compa ny. a new development of an old product. • 78 . maps a n d g ift items. whether product is high qua lity. a t wha t stage o f the product life cycle the products a re.' 'Putt i n g prices down wi l l a l ways g a i n i n creased sa l es. e tc. Price s k i m m i ng is where a new prod uct enters a ma rket at a h i g h price. It is usua l ly a new invention. M a ny o f the petro l stations a lso have shops that sel l food. Why do you t h i n k they do this? c) [4 ma rks] D iscuss the factors that affect which pricing strategy for g iftwa re this business u ses? [8 ma rks] Examiner's tip . costs o f production. I t extracts o i l . price skimming./ Think about whether demand is elastic or inelastic. and therefore it can be sold on the market at a high price and people wi l l pay this because of the novelty factor.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 20 Com mon m isconceptions and errors Error 'Sugar is an i n e l astic product . demand for sugar cou l d be sa id to be inel astic. The gift items a re a l so sold in many other loca l shops./ Think about the fa ctors that influence whether the b usiness sho uld use competitive pricing. d ri n ks. ' Why it is wrong As sugar is a basic necessity. o r . Red u c i ng prices wi l l someti mes cause s a l es to fa l l if the prod uct has a n image of being h i g h q u a l ity. Examples of fa ctors might include: nearby competitors. The prod uct itself is not inelastic.

provi d i n g prod uct i nformation. competitions. for exa m p le.' C h i l d ren a re the ta rget a u d i e nce for toys. The emphasis of advertising or sa les promotion is to g ive fu l l i nformation about the product. posters/bi I I boa rds. The people who a re the potenti a l consumers o f t h e product or service. provi d i n g cred it faci l ities. i nternet Promotional offers Price reductions. Exa m p l es ' B uy XYZ . cine mas.N IT 2 1 T h e m a r ket i n g m 1 x : p ro m ot i o n Key objectives • e e e e e e To understand that there are four types of pronlotion and to understand when they are used To understand the factors that affect the types of advertising to use To know what is meant by the target audience To explain when to use the different types of prmnotion To explain when to use personal selling To explain the role of PR (public relations) in business To know the importance of customer service Key definitions Advertisements I nc l u d i n g television. money-off cou pons · Personal sel l i ng Goods so ld stra i g ht to the customer. afte r-sa les service. gifts. newspapers a n d magazines. G iving advice a bout the p rod uct.it's the best ! ' I nformative advertising 'XYZ is a new product a n d i t w i l l carry out t h e fu nctions five ti mes faster than the old prod uct. poi ntof-sale d isplay and demonstration. Conce rned with keeping customers ha ppy by m a k i n g them fee l i m po rta nt a n d b u i l d i n g a good re l ationsh i p between the busi ness and its customers. rad i o. Often ta kes the form of sponsori ng a n event Term Persuasive advertising Defi n ition Advertising or promotion which is trying to persuade the consu mer that they rea l ly need the product and should b uy it. leaflets/d i rect m a i l . Target audience Customer service 79 • . free samples. whe re customers may need advice or where the exact natu re of the prod uct can va ry Public relations Th is is concerned with pro moti n g a good image for the business. d e l iveri ng goods for consumers. after-sales service.

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •• • • • • • UNIT 2 1 Sample questions and answers Sample question Party Extraordinaire is a partnership business that was forn1ed five years ago . The business could advertise in the local newspapers. Student's answer Try to mark this yourself. if th � customer books one p arty. The student correctly identifies where the busi11ess advertises and why it should be effective. 2 tnarks for making a judgement as to which one the business should usc. up to 2 marks for justif yit1g why each way would be effective i11 the context of this business (6 maximum) . so again people with children are likely to go to these places. Marks 1 mark for each suitable way of promoting the business (3 maximum). Examiner's marks and comments A good answer. Justify your choice. b) Party Extraordinaire decides to expand into organising parties for adults . as the target audience will see the advertisements. This would encourage customers to come back and book more parties. see the business's adverts and might therefore use its services. I t organises parties for young children for birthdays and other special celebrations. It currently advertises in local newspapers and puts up p osters in local toy shops and children's clothes shops. a) Why does Party Extraordinaire advertise in this way? [2 n1arks] Marks Student's answer 2 marks for an · explanation. custon1ers could be entered in a competition if they booked a party. then a second is given at a reduced price.the examiner's marks and comments are on page 1 07. P arty Extraordinaire advertises in local newspapers because local people will use its service and see the adverts. The business has been very successful and wants to expand. c) Party Extraordinaire is designing a new poster to put in toy shops. [ 4 1narks] Marks advertising. Suggest three suitable ways it could pron1ote the new [9 n1arks] service. Party Extraordinaire could offer a pron1otion whereby. Discuss whether the poster should use mainly inforn1ative or p ersuasive advertising. Student's answer The poster could be p ersuasive. This type of advertising is effective when • 80 . which would n1ean that the poster would make the parties sound really good and 1nake custo1ners want to book one. Customers often use the business again and it also gets bookings from customers telling their friends about the business. as local adults would see an advert there . It also puts up posters in toy shops and children's clothes shops. 2 marks f explaining the advatztages Idisadvatztages o or f 2 marks for discussing the advantages Idisadvantages of in formative persuasive advertisi11g. It wants to expand into organising parties for adults. Finally. Full marks.

Customers need to think that it is good value for money. trends in sp ending habits. The a dvertis i n g m ight be i n the wron g places t o b e s e e n by t h e ta rget a u d i ence or competitors cou l d be spend i n g more on advertising as we l l . ' Why it is wrong Promotion incl u des advertising b ut a l so other types of promotion such as competiti ons.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • The marketing mix: promo tion people need to be encouraged to book a party which they n1ight otherwise not bother to do . the student has not explained or in ormative advertising and so full marks cannot be awarded. this is j u st servi ng customers a n d is not a form of promotio n . 81 • . Television i s expensive and.' 'Perso n a l se l l i n g is where you have a shop assista nt serving customers. Se l l i n g i n a shop is not rea l ly what person a l se l l i n g mea ns. It is usual ly used where a n i ndividual p rod uct or service i s being sol d . depend i n g on the time adverts a re shown. a) Identify the ta rget a u d i ence for M usic M a n i a . [ 1 mark] b) The ma nagement of M usic M a n i a. f Common m i sconceptions and e rrors Error 'Promotion o n ly incl u des advertisi n g . What factors sho u l d i nfl u ence the decision? [6 ma rks] Examiner's tip . J ust beca use more money is spent o n advertising does not mean that it wi l l be effective and persuade more customers to buy the product. I think they should use persuasive advertising. It is l ocated i n a l a rg e shop p i n g centre i n t h e city centre. For exa m p l e. 3 I 6 marks. they may not be seen by the ta rget a u d ience./ Consider fa ctors like the cost. 'Te levision is a l ways a g o o d w a y t o a dvertise. as it will encourage n1ore people to book parties . Pe rso n a l se l l i n g is where the busi ness promotes the busi ness by visit i n g its customers a n d d iscuss i n g their i n d ividual n eeds. wa nts to expand.' e Try th is M usic M a n i a is a shop which se l ls music CDs. It needs to decide whether to spend more on advertisi n g or to sel l a wider ra nge of music CDs which appeal to d ifferent age grou ps. and wh a t type o f customers use the shopping cen tre. However. which option is most likely to increase pro fits. a representative of a b u i l d i ng company visiti ng a customer to discuss what they want. Examiner's marks and comments 2 marks for explaining the advantages o persuasive advertising and 1 mark f f making a judgement. T h e C D s it sel ls a r e b y bands and singers who appeal to teenagers. It has been i n busi ness for five years and wa nts to expa nd.' ' I ncreased advertising expendit u re always i ncreases sales.

whether to use PR. etc./ Think about the target a udience . [ 4 ma rks] • 82 . d) M usic M a n i a wou l d not use person a l sel l i ng . compe titions.hence where Music Mania should . [8 ma rks] Examiner's tip a dvertise and cost of advertising. different forms of promo tion a vailable. G ive an exa m p l e of a business that you th i n k wou ld use perso n a l sel l i n g .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 2 1 · c) M usic Mania has decided to se l l classica l m usic incl u d i n g opera m usic. for example. . J u stify you r choice of exa m p l e . Expl a i n the factors this busi ness should ta ke i nto accou nt when deci d i n g w h i c h form o f promotion t o use.

such as food products to su perma rkets. sea freight. Th is i s w h e r e the whol esa ler breaks b u l k. the man ufacturer sometimes uses an agent in the other cou ntry. or speci a l ist/expensive products. such as for some food prod ucts. There are four main channels used by business as follows: Explanation/examples Co nsumer Di rect sel l i ng of products such as com ponents to businesses. The m os t con1n1on n1ethods are road haulage (l o rries ) . • Key definitions Channel of distribution Prod. Method of transportation is the type of transNrt tha t the Inanufacturer uses to deliver the p roducts to the n1a rket. new windows fo r a house. the s lo w e r the forn1 of transport the cheaper it will be.N IT 2 2 T h e m a r ket i n g m 1 x : p l a ce Key objectives To understand the different channels of distribution e To understand the role of the wholesaler e To select the most appropriate channel of distribution for a given product e To select the most appropriate method of transporting goods for a given product A channel of distribution is the means by which a product is passed from the place where it is produced to the customer or consumer. c a n a l or river. The agent then sells the prod uct(s) on behalf of the man ufacturer. Reta i l e r Co nsumer Prod ucer Agent: Wholesaler Independent person or business who deals with the sales and d istribution of a product(s). G e n era lly . Prod ucts a re so ld i n bulk to reta i l ers.ucer � Prod ucer � Reta i ler Consumer Prod ucer � Wholesaler: B uys i n large quantities from man ufacturer and sel ls in sma l l quantities t o sma l l reta ilers. Sample questions and answers Sample questions 1) What are the advantages to a producer of using a channel of [4 n1arks] distribution as shown below? Producer Marks 1-2 --7 wholesaler --7 retailer --7 consun1er marks for each advantage to the producer. products sold over the internet (known as e-commerce). Reta i l er Consumer When prod ucts a re exported. such as j ewe l l ery. rail ways . 83 • . air freight and pipelines .

4 marks for explaining up to two or more actors._� stra(�ht to retailers and not through wholesalers. TV advertising may not be possible if the budget is small.a rket is for the new game . [4 marks] Marks Student's answer 1 mark for an explanation of a suitable channel of distribution. As it is teenagers. If the games were sold to a wholesaler. ii) What factors should C & D plc consider when deciding the marketing mix for its new computer game? [8 marks] Marks 2 marks for listing up to two or more factors. Even though some o the points might not always be true in f some countries.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 22 Student's answer The roducer can sell in bulk to the wholesaler and therefore does not have to spend n1oney storing the products in the warehouse. This would be a good channel of distribution to use because the customer would need advice about the game and the retailer could be a specialist computer type of shop . 2 marks or the answer being applied to the computer f f games market. Examiner' s marks and comments A good answer . the business will have to design a game that will appeal to this group of consmners . wholesalers would not buy these gatnes in bulk if most of their retail customers were small shops which sold food and would not be interested in stocking computer gan1es. 3 marks for explanation o why this channel would be suitable. the answer was a correct justification for sci/in. The cost of distribution will be lower. p Examiner's marks and cotnments f Two good explanations o advantages to the producer -full marks . What cmnpetitors do will also have to be taken into account. teenage children. as the producer only has to deliver to the wholesaler and not to many different retailers. The advertising and promotions will have to be in places that will be seen by teenagers and sold in shops teenagers visit. If it is not very large then the business will h ave to think carefully about where it advertises as it will soon run out of n1oney. but sells its gan1es in n1any different countries. C & D plc needs to consider how large its advertising budget for protnoting the new gan1e will be. the correct advice tnight not get to the customer. Also. 2) C & D plc produces computer games designed to be played on PCs. This new game is to be sold in one of the business's South East Asian markets to see how popular it is before launching it in all the different countries the business sells to .a suitable channel was suggested (although it was possible to argue that other channels o distribution might be suitable) and then the f channel was justified in terms o selling to a retailer and not using a f wholesaler. i) What channel of distribution would you suggest that th e company uses for its new game? Justify your choice . f The manufacturer should sell it to a computer gan1e retailer and then on to the customer. Full marks. It has just developed a new con1puter gan1e for . If con1petitors sell their computer gan1es in certain shops then C & D plc tnay also have to sell its new game in these san1e s hops as this • 84 . Student's answer C & D plc will firstly have to consider who its target tn. It is a large business based in Brazil.

The pricing strategy may have to be con1petitive pricing if th ere are already a lot of competitors selling sin1ilar gan1es. Try to mark this yourself.the examiner's marks and comments are on page 1 07. ' 'Sel l i ng thro u g h a wholesa ler ma kes prod ucts more expensive than if they a re sold d i rectly to a reta i ler.' 'Road tra nsport is a l ways the best to use.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • The marketing mix: p la ce will be where teenagers will go to buy gan1es and will see the new game and buy it.' e Try th is a ) Put t h e fo l lowing prod ucts i n t h e s u ita b l e channels o f d istri bution: [4 ma rks] • • • • tins of fru it shoes (exported) wed d i n g ca kes new cars . Common m i sconceptions and errors E rror 'Place is where the prod uct is so l d . A who lesa ler brea ks b u l k by buying from the m a n ufact u rer i n l a rg e q u a ntities a n d d ivid i n g u p the product i nto sma l le r quantities to se l l to sma l l reta i l ers. Road tra nsport can be more expensive a n d sl ower than other forms of tra nsport . -4 -4 -4 -4 Product Consumer Reta i l e r R eta i l e r Reta i le r Consumer Consumer Consumer i) Prod ucer i i) Prod ucer i i i) Prod ucer iv) Prod ucer Who l esa ler Whol esa l e r Agent b) D & E is a food process i n g busin ess.it depends on the prod uct be i n g del ivered. The d i recto rs a re t h i n k i n g a bout ending sa les of their ready made meals to a reta i l cha i n of s u perma rkets a n d se l l i n g them to an a i r l i n e for i n-fl ig h t meals. W h at a re t h e advantages a n d disadva nta ges of d o i n g this? [ 1 0 ma rks] 85 • . A who lesa l e r can be chea per to buy fro m beca use they buy i n such l a rge q u a ntities fro m m a n u factu rers they get d iscou nts a n d t h e i r d e l ivery a n d a d m i n istration costs ca n be m uch lower. C & D plc will also need to advertise in si1nilar places to its competitors so that teenagers will see the adverts . ' Reta i lers break b u l k . ' Why it is wrong Place is m a k i n g the prod uct ava i l a ble where a n d when the customer wa nts to buy a n d is not just the shop used to sel l the product. or penetration pricing if the business needs to break into this n1arket.

c) Monay Ltd was set up ten yea rs ago./ Consider a dva n tages a n d disadvantages of not selling to a retail chain of supermarkets and a dvantages and disadvantages of selling directly to an a irline.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 22 Examiner's tip . It started making wooden ta bl es. incomes./ Consider culture. religion. etc. which it wants to sel l to h ig h-i ncome consumers. use of rv. d) Why m i g ht a d iffe rent marketing m ix be used fo r the same prod uct i n d ifferent countri es? [8 marks] Examiner's tip . clima te. • 86 . newspapers. Sales of its products have kept g rowi n g a n d profits have increased ra pid ly. [ 1 2 marks] Examiner's tip . but slowly expanded a n d now makes seve ral d ifferent types of furn itu re. Suggest a marketing m ix that this business cou l d use if it i ntrod uces q u a l ity d i n ing ta b l es and cha i rs. The d i rectors of Monay Ltd wa nt to expand i nto the man ufacture of q u a l ity d i n i n g tables and c h a i rs. radio. types of retail outlets used./ Consider all fo ur P's and link them together to market a high qua lity product.

. the whole prod uction line stops Term Val ue added Labour productivity Stock control Explanation D ifference between the sel l i ng price and the cost of i n puts. Th is is checked both i n the prod uction and i n the shops. Output (ove r a given period of ti me) es __ _ _ __ __ - _ _ _ _ / Maxi m u m stock level ....... red uce a ny waste in the prod uction process. Red uce the time taken for a prod uct to be devel oped. cost of i n puts $2 per u n it... ..� M i n i m u m stock level Ti me Le�n prod uction Tech n i ques used by a business to cut down on any waste and therefore increase efficiency.... There should a lways be sufficient stock to meet demand.. 87 • . Output measu red aga inst the labour i n put used to prod uce it. so cheaper capital set u p costs a re h i g h if one mach i n e breaks down.. continuous process (a lso ca l l ed mass prod uction) warehouse space needed which is costly goods prod u ced q u ickly capital-i ntensive methods of prod uction .... j obs a re bori ng lower ski l l ed workers needed.N IT 2 3 Fa cto rs affect i n g p rod u ct i o n Key objectives e e e e • To understand what is meant by value added To be able to identify what factors may increase productivity To understand the different methods of production and when they would be used To understand the effects of new technology on both the business and its employees To identify the different ways of ensuring quality of the product or service Key definitions speci a l ly made prod uct meets exact req u i rements of customer flexible way of work i n g production ca n easi ly be changed between products costs a re hig her jobs a re more varied Batch production A certa i n q u a ntity of a prod uct is made and then a certa in q u a ntity of another prod uct is made some va riety i n jobs can be more expensive increased employee motivation higher ski l led workers needed costs a re low and therefore lower prices Flow prod uction Large quantities of a -t prod uct are prod uced in a .Reord e r level L----- . va l u e added $8 = i>-._ _ _ . oye e --Nu m b r. Stock levels Examples Prod uct s e l l s for $1 0.o T e m See f i g u re below.

It will allow the business to produce higher quality baby clothes as well as gain from other benefits of new technology. Req u i res team wor k i n g from t h e employees.$ 1 = $9 and $ 1 5 . As productivity will increase. incorrect answer. with new machines i t will allow the selling price to increase to $ 1 5 and material will only cost $2.$2 = $ 1 3 .$9 = $4. New technology will Jllow SitJ Ltd to produce 1nore high quJlity garments.$1 = $9 and $ 1 5 . Exam ples Sample one i n every 1 00 prod ucts prod uced to m a ke s u re n o n e is fa u lty. 1 mark for the first advantage and 3 marks f the second or advantage as it is explained. up to 3 or marks for explanation o advantages o new technology. 3 marks in total for a correct answer: new technology $ 13 . Student's answer Examiner's marks and comments The answer is in the context of Sita Ltd and so 2 application marks were gained. Total = 618 marks . Qual ity control Qual ity assurance Sa mple questio n s a n d a n swers Sample question Sita Ltd produces clothes for babies. i) What is tneant by batch production? [2 n1arks] Marks • 88 2 marks for a clear deji11ition. There is i n spection both d u ri n g a n d after prod uction and tries t o sto p a ny fa u lts from happe n i ng i n the fi rst pl ace. $ 1 0 . Explanation o the first f or third point would have gained full marks .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 23 Term Explanation I nspectors check the fin ished goods to detect a ny fa u lty ones. Value added increases by $3 . The average selling price of an iten1 of clothing is $ 1 0 with material costing $ 1 . c) Sita Ltd uses batch production in the production of baby clothes. It has been in business for ten years and has seen sales increase rapidly throughout this titne . it may be able to decrease the number of employees and therefore production wages will be reduced and even though the new technology will cost a lot of money to buy. All the prod uction worke rs check their pa rt of the process and m a ke s u re there are no fau lty compone nts or fa u lty fin ished products. 2 I3 marks .a good answer.$2 = $ 1 3 . b) Why n1ight the production manager want to introduce new technology at Sita Ltd? [8 marks] Marks Up to 3 marks f lists of why new technology is an advantage. . Correct method. However. 2 marks for f f applying the answer to this business. a) What will happen to the value added of the average product if [3 marks] new technology is introduced? Marks Student's answer Examiner' s marks and comments 2 marks for value added $ 1 0 . 1 mark for a vague answer. T he production manager wants to introduce new sewing tnachines that are twice as fast as the old ones. it may increase profits. It employs 50 production workers who use sewing n1achines.

Also these kinds of products come in many different styles and sizes and not j ust one basic product so again the business will need to produce so many of one size. etc . Full marks.' (Also i n U n it 1 ) ' I ncreased prod uctivity means that prod uction i ncreases. 2 marks if applied to Sita Ltd. A large q u a ntity of a sta ndard ised product is prod uced. 89 • . it is the sel l i n g price m i n us the cost of i n p uts. Well applied to the case. other jo bs may now be created. so many of another size. Sita Ltd uses batch production because it does not sell enough baby clothes to produce a large quantity as there is not enough den1and.' 'Qua l ity contro l is making sure a prod uct is of the h i g hest q u a l ity. Try to mark this yourself.' Why it is wrong Va l u e added is not j ust profit.. m a i ntenance jobs. although there is some repetition at the end. 2 additional marks f explanation o these or f advantages /disadvantages. Common m iscon ceptions a n d e rrors Error 'Va l ue added is profit made. Flow production would mean a very large quantity of a single garment would be made and Sita Ltd wouldn't be able to sell thetn all.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Factors a ffecting production Student's answer Batch production is where an an1ount of a particular product is produced and then an amount of another product is produced. Q u a l ity contro l is where products a re checked to make sure there a re 'Flow prod uction is where a lot of prod uction of one prod uct is produced a n d then q u ite a l ot of prod uction of a nother prod uct is made. ii) Why does Sita Ltd use batch production and not flow production? [6 marks] Marks 2 marks f advantages o batch production or disadvantages o flow or f f production. Productivity usu a l ly refers to an i ncrease in o utput per wo rker which m ay mea n a n i n crease i n output overa l l or it may not. . It does not mean the product is of h i g h q u a l ity j ust that it d oes not have any d efects. co m p uter prog ra m m e rs. F l ow prod uction is where large q u a ntities a re prod uced i n a co nt i n u o us process.the examiner's marks and cormnents are on page 1 08. operato rs of the new eq u i pm ent. A Student's answer Examiner' s marks and comments good answer. H owever.' no fau lts with the prod ucts a nd they meet the sta ndards expected for When new technology is i ntroduced some j obs may be l ost as machi nes m ay now do parti c u l a r jobs. ' N ew tech no logy a l ways m e a n s jobs a re lost. ' that prod uct. for exa m p l e.

It processes ord ers for severa l s m a l l businesses i n a city. i) ' It is fou r times chea per to process a n order on. s uch as ba ndages... iv) The d i rectors at Medic S u p p l ies pic have been advised to i ntroduce lean prod uction techniq u es./ Explain the cost savings of using computers to take orders instead of people. [6 ma rks] . i) What two methods of prod uction does M ed i c S u p p l ies pic use? [2 ma rks] i i) Why is q ua l ity co ntro l or q u a l ity assura n ce so i m portant to Medic S u p p l i es pic? [4 ma rks] Examiner's tip . Apply your answer to Medic Supplies pic.. i i i) Exp l a i n how M ed i c S u p p l i es p i c ca n use stock co ntro l to ma�e sure it never runs out of raw materia ls when prod ucing bandages.l i n e than over the telephone. t h e telephone ordering side of the b u s i n ess has fa l l en s l i g htly. Some o f the e q u i pment it sel ls is designed to a particu l a r hospita l's specification and is b u i lt to their order./ Explain what is meant by qua lity control or qua lity assurance . Other eq u i pment is produced conti n uously. [6 ma rks] Examiner's tip . such as machi nes which sca n patie nts' who l e bod ies. the M a n a g i n g Di rector. It i ntrod u ced on-l i ne ordering one year ago and has fou n d t h a t this side of the business has g rown very ra pidly. ii) increased on-l ine ordering a n d fewer telephone orders a t Te lesa l es Services Ltd ./ Explain the process of stock con trol and how it ensures that raw Examiner's tip ma terials should always be a vailable so production can take place. Describe what is meant by 'lean prod uction' a n d how it m ig ht be used at Medic S u p p l i es pic. [6 ma rks] b) Te lesa l es Services Ltd was set up fo u r years ago.yo u do not need to do both. • 90 . ' says M ig u e l./ Explain the possible effects on the n umber and types of jobs at the company. However.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 23 e Try t h i s a ) Medic S u p p l ies p i c prod u ces equi pment for hospita ls. Why do you t h i n k this is tru e? Exp l a i n yo u r a nswer. It takes orders from customers and then passes these back to the sma l l b us i n ess so that the ite m (s) can be del ivered .. [ 4 ma rks] Expl a i n why the e m pl oyees m ight be worried a bo ut the trend i n Examiner's tip .

.referen e of owners Sample questions and answers Sam p le questions 1) Better Burgers is a fast food chain. 2 marks f application to f f or ast ood outlets. [1 0 nurks] 1-4 marks f listing /explaining f or actors that would ciffect location decisions. 1-4 rnarks f explaining or which would be the most important f actors. Marks 91 • . Discuss what would be the most important factors when deciding on where to locate this outlet.N IT 24 Fa cto rs affect i n g l ocat i o n Key objectives • To understand the factors manufacturing business e To understand the factors business e To understand the factors e To understand the factors sector business that affect the location of a that affect the location of a retailing that affect the relocation of a business that affect the location of a service Key definitions market external economies of sca le water supply personal preference of the owners Factors affecting the location of these different businesses : cli mate transport and shoppers · raw materials/components ava i l a b i l ity of su ita b l e e m pty shop power ava i l a b i l ity of labour government i nfl u ence shops nea rby rent access for del ivery cl i mate near to other busi nesses customer parking rent secu rity govern ment g ra nts avoid ta riff ba rriers raw material sou rce runs out rent/taxes risi n g new markets ove rseas no room to expa nd at p resent site d ifficu lties with labour force avai Ia bi I ity .--'-----..--�....---J of l a bo u r customers perso n a l p. It has £1st food outlets in tnany different countries and is considering opening a new outlet in a city centre.

Then the amount of rent paid will not be very in1portant as the outlet will make a lot of sales to pay the rent easily . The car sales outlet needs a lot of space to park all the cars for sale. The importance o the factors was also discussed. Clear comparisons are needed for full marks. 3) A company \hat cleans offices needs to decide where to locate its own o ffi ce sta ff W hy 1nigh t it not l ocate its own o ffi ces in the city centre? [6 marks] Marks Up to 3 marks for listitzg disadvantages o locati11g iH the city centre. The rent should not be too high as the prenuses will ta k e up a large area7 which will make it exp ensive. up to f 3 marks for explaining these disadvantages. If there are a lot of robberies in the area. The shop could be located near other j ewellery shops to attract people coming to the area to buy jewellery. • 92 . The kind of shops and restaurants nearby is an in1portant factor to consider. it n1ight not be the best of locations. f 2) A car sales outlet wants to open in the city. It needs to be in a secure area. A j ewellery shop would need to be on a high street or nuin road where a lot of people would pass by and look in the shop window. Obviously. access for delivery shouldn't be in1portant. as it will be very high in the city centre compared with the edge of the city. Delivery vehicles will need to be able to get to the outlet so that they can deliver food. Access for customer parking is important because custon1ers are likely to drive up in their cars and need to park so they can look at the cars for sale. As long as cars can get in and out. The rent to be paid on the premises should be considered. Student's answer Examiner's marks and comments Comparisons are not made. The outlet needs to be in the centre of the city to make sure it attracts a . The factors were discussed and applied to this scenario. so that it is at less risk of theft. Why would' its location be different to a jewellery shop? Explain your answer. Access by delivery vehicles is less important as they will be able to get the food to the outlet easily by trolley. An empty shop or building will have to be looked for and the security of the area should be taken into account. 2 marks for making the differences clear. It should be where there are lots of shoppers who would be likely to use the fast food outlet. as they will attract shoppers to the area who n1ight then eat at the outlet. [8 marks] Marks 3 marks for explaining the f actors that a ect the location o a jewellery ff f shop. 3 marks f explaining the factors that a ect the location o a car sales or ff f outlet. but it does not matter if it is not in the right area. Examiner's marks and comments 10 marks.lot of custo1ners. even though factors a ffecting both types o shop f are explained. Therefore 6 I 8 marks were awarded. The most important factor is the nu1nber of customers there will be in the area. an empty shop is needed. The location should also be near places for customers to park their cars.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 24 Student's answer Better Burgers needs to find a site that is in the centre of the city.

It may not be near to customers. costs of running a fa ctory in this o verseas market. i) Sel ect three factors that wou l d affect the location of t h is busi ness and exp l a i n why they a re i m porta nt. Th i s may be in a noth er cou ntry where wages are l ow. The M a n a g i n g D i rector is th i n k i n g market. costs of setting up a new fa ctory. [6 ma rks] H) Th is business has started to sel l an i ncreasi n g q u a ntity of its o f moving t h e m a n ufacture o f the ch ocol ates t o this ove rseas deci d i n g whether to move the factory a b road. It is difficult and expensive to park cars in the city centre . I t wants t o set up a new factory making choco l ates. It is not so i m porta nt to be near the raw material sou rce with today's i m proved tra nsport l i nks. Many businesses locate where their costs wi l l be low. D iscuss what factors he s h o u l d take i nto account when [ 1 0 ma rks] Examiner's tip � Consider the market. The business e m p l oys a lot of workers a n d many of them need to be q u a l ified in choco late m a k i n g . 93 • . 'It is a lways better to l ocate near to customers. choco lates in an overseas ma rket. The offices do not need to be located where there are a lot of people.the examiner's marks and comrnents are on page 1 08.' 'The i nternet has not affected where busi nesses locate.' e Try this a ) M a nd T p i c m a n ufactu res choco lates. Try to mark this yourself. The business can locate anywhere. It is an area that a lot of businesses want to locate in and this will drive up the rent to be paid. The cocoa used to make the chocolate is i m ported. B usinesses that u se the i nternet to se l l their prod ucts do not need to be near to customers any more. It takes a lot of time for employees to get to work in the city centre . as they rece ive their orders over the i nternet and then post the goods to customers.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Fa ctors a ffecting loca tion Student's answer The city centre is expensive in tenns of rent of pretnises. Com mon m i sconceptions and errors E rror ' Busi n esses need to be near the raw material source.' Why it is wrong B usinesses o n ly need to be near t h e i r raw materials if they a re a m a n ufact u r i n g busi ness a n d prod uce a lot of waste.

Expl a i n why you th i n k this is the case. [6 ma rks] Examiner's tip . c) DD Ltd is a busi ness that stocks and sel ls sports clothes over the i nternet.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 24 b) Govern ments do not u su a l ly l eave the l ocation decisions tota l ly to busi nesses themse lves. D iscuss whethe r you t h i n k the l ocation of the busi ness is i m portant./ Explain the disadvantages of businesses choosing to locate where they want to without any consideration of the local population or en vironment. [6 ma rks] • 94 .

Examples Spa i n i m ports o i l fro m Saudi Arabia. Saudi Ara bia i m ports cars fro m G erma ny. W h e n a g roup o f cou ntries agree to use the same currency. Prod ucts sold from a co u ntry to other countries. When the cu rrency buys l ess of a nother c u rrency than before. Ag reements between cou ntries to trade freely with each other a n d have co mmon economic institutions. B usinesses that have operations i n more than o n e co u ntry. 5 0 £ has a p preciated OLD: 1 €: $ 1 N EW: 1 € : $0. McDonal ds. G lobal isation Multinational corporations Economic union 95 • . its va l u e fa l l s . F i nd o ut the excha n g e rate fo r you r cou ntry's cu rrency i n terms o f the US$. World trade is g rowi ng at over 1 0 % each yea r. Try to find o ut a bout a tariff put on a n i m po rt i nto you r cou ntry a n d make a note. l kea (fu r n iture). its va l u e rises. Coca-Co la. T h e E u ropean U n i o n (EU). Tarrifs a nd quotas are being red uced. The price of one currency i n terms of another. OLD: £ 1 : $ 1 N EW: £ 1 : $ 1 . A maxi mum l i mit on the quantity of i m ported goods a l lowed i nto a cou ntry. Ca non (copiers and ca meras) . Currency depreciation Common (single) currency Tariff Quota Does your co u ntry have a ny import q u otas? Try to fi nd o ut one such q u ota and make a note. G ive two exa m p l es of i m porta nt exports from your own cou ntry. The i ncrease in i nternational trade a n d competition.80 € has depreciated Th e e u ro is used by m a ny mem bers of the E u ropean U n ion. as shown by the growth of m u lti national corporations.N IT 2 5 B u s i n ess i n t h e i n te r n a t i o n a l co m m u n i ty Key objectives • To understand that business success can be influenced by international factors e To explain how exchange rates can have an impact on businesses that import and export e To understand what globalisation is and why it is increasing e To explain the effect that multinational businesses can have on a country Key definitions Term Imports Defin ition Prod ucts bought by a cou ntry from other countries. Exports Exchange rate Cu rrency appreciation Whe n the c u rrency buys more of a nother currency than before. A tax on i m ports to make them Jess competitive with domest i ca l ly prod u ced products.45€ in M ay 2004. The excha n g e rate for £ in terms of the e u ro was £ 1 : 1 .

The first point is a good one and the effect on businesses is briefly explained. f • 96 . Y and Z. A con1n1on currency also means that they could j ust print one price list for all three countries which would save on costs . The currency of Country Z has recently appreciated against the currencies of the other two countries. X. [4 marks] Marks Student's answer 1 mark for identif ying each factor plus 1 further mark for some development of each factor.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 25 Sample questions and answers Satnpl� question Three countries. The second point is only identified and gains 1 mark. This could lead to lower profits . A Examiner's marks and comments 4 marks. c) Do you think that businesses in these three countries would benefit from a common (single) currency? Explain your answer. [6 n1arks] Marks Student's answer 1 mark for difrnition} up to 5 marks f giving a balanced discussion. Marks Student's answ�r Examiner's marks and comments 1 mark f either import tariff or import quota. b) Explain two ways in which businesses in Country X n1ight be affected by the government reducing imports . a reduced supply of imports could increase prices. This would increase sales . f single currency is when several countries agree to use the san1e money so that when they trade the satne n1oney can be used. 1 1zcre is no evaluatio11 of the benifrts} so it cannot earn more than 4 marks. For exmnple} it will be easier for consumers to compare prices and competition may itzcrcase due to the ease o selling to other countries. 1 mark. The governtnent of Country X is worried about the high level of imports from the other two countries . Examiner's marks and comments This answer is worth 3 marks . The student should have explained the possible �[feet 011 business o higher import prices} f example} if a business i11 Cout'ztry X f or imports important materials then a price increase would raise its costs. There are pqssible drawbacks too thou gh. Also. or Tariffs on itnports is one way. If imports were reduced then consun1ers might start buying n1ore products from businesses in Country X. This would save on currency exchange costs. or maximum o 4 if only one side of argumerzt is given . The studc11t should have explained briefly two poi11ts agai11st a common currency. a) State one way in which Country X could reduce in1ports fro1n [ 1 n1ark] the other two countries . This would benefit businesses . trade with each other. This is a good} thou(_� h one-sided} answer. It would tnean that cornpanies would not have to convert tnoney into foreign currency if they were buying imports. The governn1ent of Country Y wants to encourage the other countries to j oin a co1nmon currency.

$2 . T o be termed a m u lti national. Se l l i n g to other cou ntries i s not a lways easy. Cu rrently i t o n l y operates in one cou ntry. .it could lead to lower demand for exports a11d lorucr profits from exporting. ' A business can easi ly sel l i t s products to other cou ntries. .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Business in the interna tional comm unity d) i) Complete this table with an exchange rate for Count1y Z's currency (Yen) in 2005 showing an appreciation con1pared to 1 1 n1ark] the $ . Student's answer Try to mark this yourself . 2 marks for development . Zi rcon is planning to set u p a n other chemica l factory in Cou ntry X. Marks Student's answer Examiner's marks and comments 1 mark for correct answer (any rate over $2) . . Cou ntry X has h i g h tariffs on a l l i m ports. the student understands that an appreciation means that a currency uni1t buys more o another currency than before.the examiner's marks and comments are on page 1 09. When a currency appreciates it makes in1ports cheaper and exports more expensive . This means that exporters in Country Z will find it more difficult to sell goods to other countries. busi nesses a l so have much larger markets a n d can often purchase s u p p l i es cheaply from other countries. Prod ucts and ma rketing may need to be ch a n g ed to meet l oca l market conditions.' e Try th is Zircon pic man ufactu res chem ica ls for i n d u stry. 1 mark. which has a ra p i d l y expa n d i n g economy. 2004 2005 1 Yen : $2 1 Yen : . 50 Yes.' ' M u ltinationals sel l prod ucts in more than one cou ntry. for exa m p l e . Com mon m i sconceptions and Error ' I nternational trade is bad for business as it l eads to more competitio n . The govern ment and trade u n io n s are very i nterested in the plan. Marks 2 marks for explaining that export prices could rise. . T h e M a n a g i n g Di rector o f Zi rcon has asked t h e govern ment o f Cou ntry X f o r permission to b u i l d the factory. f ii) Explain one effect of this appreciation on exporters i n [4 1narks] Country Z. G reenworld. . Exporting will become more difficult and less profitable . a business s h o u l d have prod uction operations i n more than one cou ntry. is a g a i n st the p l a n . . ' errors Why it is wrong Alth o u g h tra d i n g with other cou ntries can i n crease competition. a loca l environmental g ro u p. 97 • .

[ 4 ma rks] b) List two probl ems Zi rcon m i ght face when operating in a nother cou ntry. then com e to an o verall conclusion. [8 ma rks] Examiner's tip . • 98 ./ Consider the a dva ntages and disa dvantages to the coun try of Zircon 's new fa ctory. [2 marks] c) Eva l uate wheth er the g overnment of Cou ntry X should a l l ow Zi rco n to b u i l d the new chemica l factory.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • UNIT 25 a) Exp l a i n two reasons why Z i rcon is p l a n n i n g to become a m u ltinationa l .

c) Managers/ owners nuy wish to remain sn1all to avoid extra work or stress. but supplies raw materials (i . For exan1ple. d) i) Backwards vertical integration ( 1 rnark) because the leather supplier is in the san1e industry. but the government might be worried about the negative in1pact on the envi �onment and the risks of pollution. f) The public sector is usually n1ade up of itnportant industries such as electricity and public transport. ii) More regular and certain supplies of raw material.the answer analyses . but workers in existing plastics factories n1ight be worried about the new co1npetitor destroying their jobs. e. if output increases this could increase wages. b) The answer will depend on which groups are chosen. labour-intensive production methods . iii) This is vertical integration forwards (1 n1ark) . It gives the nunufacturer a guaranteed outlet for goods. (Only need to look at one advantage and one disadvantage per stakeholder. government.v elop1nent. 1 n1ark for developing each point. d) Examiner's n1arks and comments: Full marks . 1 nurk each for some development. Up to 4 marks for identification of advantages/ disadvantages. over-staffing. there was no atten1pt to show judgement or evaluation . The disadvantages are less detailed (1 rnark) and not applied to this business. The shoe retailing industry is 99 • . the student could have referred to the price that Airco nught be sold for. the business 1night sell in quite a small sector of the market with low sales does not want to expand into other tnarkets it does not know so well. 1 nurk for the explanation . Airco workers might go on strike as they do not want to leave the public sector . Total = 5/7 marks. the new factory will pay taxes to the governn1ent. Any one point explained = up to 4 nurks. at a different stage of production) . For example. The student could have explained the motivation problen1 leading to workers leaving and the i1npact this might have on output and sales for ARC. the n1anufacturer can control price and marketing of goods etc . 1 mark for each factor identified (n1axi1num of 2 nurks) . 1 nurk for identification (of each benefit) . residents. lack of finance for expansion. Benefits to workers n1ight be: able to specialise and be trained in one task. Airgroup might pay too n1uch and end up making a loss. However. (2 nurks) . But: work may becon1e repetitive �nd if plastics factories close (decline of the industry?) then the skills that workers have may no longer be needed. unemployed workers would now have a chance of getting a j ob in the new £1ctory. can prevent . 2 nurks for identifying points.) 4 n1arks for identifying advantages/ disadvantages. shareholders. Total = 6/8 marks . 1 mark for the explanation. can control quality of raw material. • Try this advantages were both briefly explained. c) Define division of labour ( 1 mark) .they provide a service to consun1ers/nunufacturers . Also. 4 marks for discussion.could be a business that produces hand-1nade shoes.A n swe rs U N IT 1 The pu rpose of bu s i n ess activity Sample questions and answers b) Examiner's marks and comments: This answer shows a good understanding of division of labour (1 n1ark) and the possible benefits to ARC (3 marks) .nd evaluates clearly. e) i) Secondary (1 n1ark) .perhaps because they believe that their jobs are safer under government control. con1petitors. ii) Tertiary ( 1 n1ark) . supplies being sold t o competitors. the government would welcome the new j obs and increased output (some might be sold abroad as exports) . up to 3 marks for discussion. 2 rnarks for smne de.it turns ravv nuterials into finished goods. e Try th is a) 1 n1ark each for any of these : unemployed workers (chance of a j ob) . can obtain cheaper supplies. U N IT 2 Types of bus i n ess activity Sample questions and answers d) ii) Exan1iner's n1arks and co n1 1n e n ts : The two a) i) Con1pany X ii) Con1pany X b) Less efficient/productive workers.

There are both advantages and disadvantages and these are briefly looked at fron1 Rashid's point of view. c) 1 mark for identifYing a reason. there is a very good attempt to evaluate these effects . To protect l ocal . Advantages: rapid way to expand. U N IT 4 Govern ment a n d eco n o m i c i nfl u e nces on b u s i n ess Sample questions and answers d) Examiner's marks and comn1 ents: This is an excellent answer. • Try this a) 1 mark for identifying each reason and 1 mark each for son1e developtnent. Also acceptable : protection against monopoly power.Fogla 's might not be that n1uch affected by higher rates and the student explains why . misleading advertisements. d) To create more jobs and to increase den'land for the products of local suppliers.ANS WERS • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • not as itnportant as this. e) Up t o 4 marks for identifying advantages and disadvantages. up to 3 n1arks for development/ e xp l ana ti on. 3 marks for discussion of these for 0 and 0 Cleaning with a formal judgement. underweight or faulty goods . For: can raise tnore capital throu gh sale of shares (they plan to expand) . to protect residents fron1 pollution. Against: sotne loss of control. franchisee keeps some of the profits of their business. . Governments often protect consun1ers fron1 dangerous products . to avoid building o n fannland. up to 4 tnarks for developing argun1ents. f) 2 n1arks for advantages. She n1ay have shared smne of the work . The effects of higher interest rates are well applied to Fogla's shop . Benefits: less risk. She may have added capital to the business to allow it to buy more equipn1ent which was needed for the expansion. Without these planning restrictions fin11s would be able to build in the cheapest location without considering any other factors. Finally. They would not have to provide all the finance (it is not a pic) . Advantages: improved working conditions. Notice how the student starts off by defining these two tern1s. d) 1 n1ark each for identifYing up to three benefits. 1 n1ark each for developing them.the business was expanding rapidly. some managemen t tasks done by the franchiser. 1 mark each. could use share capital to reduce loans . have to release inforn1ation to public (0 and 0 wanted to control their own business) . If a soft drinks firm did not use very clean methods of production then this could harn1 consumers . up to 4 n1arks for a balanced argun1ent fron1 Mitn Chul's point of view. Disadvantages : less control over the business. up to 2 marks in addition for explaining each point. logo and trading methods of an existing business. e Try this ( 1 111ark deducted if no recotn111endation given) . 1 n1ark for d eve l oping eac h one. market research and marketing decisions taken by franchiser. b) 2 n1arks for two exan1ples of governn1ent action to protect consun1ers. etc . so it should be in the private sector and private owners will run the sh ops for profit. e) 1 nurk for each difference. 2 tnarks for disadvantages a nd up to 4 tna rks for explaini ng a nd discussing these for 0 and 0 • 1 00 a) 2 marks for accurate definition . environn1ent. as they wanted to expand quickly. 1 mark for definition . c) Up to 3 marks for identifYing advantages/ disadvantages . b) 2 n1arks for accurate definition .franchising is when a business has pem1ission to use the name. it contains in1portant poi nts and son1e discussion. Useful for 0 and 0. Total = 8/8 marks. but son1e control is lost and 'they were keen to control their own business' . U N IT 3 Fo rms of b u s i n ess o rg a n isati o n Sample questions and answers d) Exatniner's tnarks and con11nents : Although this is quite a short answer. There is a clear recommendation and this is backed up by knowledge of a Deed of Partnership. The government would use laws on hygiene standards in this case . franchisees use own capital to expand. higher public profil e and better i111age. Give a final recon1mendation and j ustifY it. Total = 8/8 marks . proven successful product. danger of future takeovers .

spoiling the countryside . or: profit and loss account contains the revenue. might make Mim Chul's firm uncompetitive compared to rival firms that might have poor health and safety. can becon1e out of date quickly. They help to prevent overspending. e Try this U N IT 6 B u s i n ess costs a n d reve n ue a) 1 mark each for: Direct: flour. The balance sheet also shows the retained profit. as it will lead to much greater business sales and output. c) Up to 2 n1arks for appropriate letter format. d) Up to 3 marks for developing benefits. increased traffic and car parking. easier to import and export products. Either (argu1nents against) : Noise. 3 further marks for disadvantages.) b) Up to 3 nurks for either. up to 4 n1arks for analysis and final conclusion.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Answers more motivated staff. 2 n1arks for brief outlin e of up to two benefits. judgen1ent is shown at the end . for exan1ple. What is n 1ore. The example applied to Cairo Tyre Company for 1 further mark. Conclusion could be: build it as soon as possible . fewer costly accidents. Or (arguments in favour) : Jobs. 2 111arks for applying to Cairo Tyre Con1pany . assumes straight lines are realistic. increase taxes on flying) . Up to 4 n1arks for points tnade. improved machinery. able to analyse what might happen to break even if prices are lowered/raised. can be used to compare different options. fixed costs are not always constant. money could not be used for other things. Total = 1 0/ 1 0 n1arks. the break even of different shop locations.it is important to compare ratio results either wi th other years or with other. a) 1 mark each for: profit and loss account. e Try this These plans give departn1ents a target to \Vork towards. 2 further marks for balanced discussion. the student understands what the results show and tries to suggest one reason for the poor figures. rent b) 2 n1arks for defi n ing budgets. U N IT 5 Oth e r exte rn a l i nf l u e n ces • Try this on b u s i n ess a) 2 marks for accurate definition. Disadvantages: could increase costs. better public image. 1 mark for any one diseconomy of scale . gross and net profit of the business. It also shows the shareholders' funds. wages of bakery workers Indirect: salary. more tourists fron1 other countries. busin esses. The balance sheet contains details of the finn's assets and liabilities. balance sheet. c ) 1 mark for defining disecono1ny. (Accept also cash flow statement. Advantages: useful for analysing how n1uch n1ust be sold to cover all costs (break even) and the safety margin. sin1ilar. The 1narketing departrnent spent too 111uch at the Cairo Tyre Co1npany and this 1night have been because the departrnent did not know what the budget was. The two forn1ulae have been given and the calculations are correct. Disadvantages: assun1es all goods are sold. U N IT 7 B u s i ness a cco u nti n g Sample questions and answers c ) Examiner's marks and con1n1ents: This is very good. b) Central Government = Increased exports Local workers = More choice of jobs Local authority = Increased local tax payn1ents Residents = Noise fron1 aircraft Local unen1ployed workers = More chance of finding a job Businesses = Easier to i1nport and export goods Airlines = Increased flights mean expansion Train con1panies = I ncreased competition from airlines Environmentalists = Destruction of nature sites 1 mark for each. c ) Shareholders: i) 101 • . This can be tnotivating for workers. for example. Conclusion could be: build it elsewhere or stop the growth in air transport (for exan1ple. pollution. Budgets are financial plans (for the future) . and lower costs as a result. On balance : useful if the drawbacks are considered when analysing break-even results. increased sales for lo-cal businesses.

so the loan might not be given after all. e Try this Ret u r n on capital e m p l oyed % = Ca p 1ta l : x 1 00 1 5 % 1 0 . Also.3 . The new capital does not seem to be very profitable or is not being used very efficiently. e Try this U N IT 8 Cash flow p l a n n i n g a) (2. Shares: Can raise substantial sun1s of capital for lin1ited con1panies but nny affect the ownership and control of the business.' the negative cash bal ances in the other n1onths were bigger than the positive net cash flow in July . Long-term loan: Suitable for long-term projects or expansion and does not affect ownership or control but interest n1ust be paid and the loan will have to be repaid. They can be used to plan future finance needs . at least for the first three months . net profit has fallen despite the fact that more capital has been invested in the business.4% e m p l oyed These results show that the profitability of Titan Tankers has declined since 2004 . 2 rnarks for reasoning and recon1mendation . . The business plan might not be detailed enough or the bank n1anager tnight think that it was too op d n1istic. 1 nnrk for some attempt to analyse why it would be useful. Also. N et p rofit m a rg i n % = 1 00 10% 7.500 = (2 . 500) . They can be shown to lenders and investors to encourage then1 to lend/invest. the bank could refuse it j ust when they needed it. • 102 a) 1 n1ark for each advantage and disadvantage . up to 4 n1arks for explaining any two of these for this business.it could be negative if there is a bank overdraft. there is no evaluation.) ( N ot esse n t i a l to s h o w form u l a u n l ess calculation is wrong) G ross p rofit m a rg i n % = GP Sa les reve n u e NP S a l es reve n u e N x x 2004 2005 1 00 20% 1 7. In this case Rishav and Abdullah would need to plan an overdraft. 500 . Total = 3/6 nnrks.000) b) Up to 2 marks for definition.000) This is obtained by subtracting total cash outflow from cash inflow or 1 . Costs seem to have increased too quickly. up to 4 n1arks for explanation including use of cash flow forecast figures . This is the cash balance at the end of the month . d) Up to 4 111arks for correct ratio results (up to 2 marks if correct formulae but incorrect resul ts) . If they did not plan this. The student could have explained that forecast profit and cash flow would be very important to the loan decision. c) Up to 4 nnrks for using the cash flow forecast to explain answer. In this case it shows that the net cash flow is positive in July and this n1ight · encourage lenders and investors to believe that the radio station will be successful . b) 1 mark for each correct answer: Debenture : external Shares: external Profit: internal Sale of buildings: internal c) Up to 2 tnarks tor stati ng su i tabl e sources. 6 n1arks for analysing and briefly discussing results . The cmnpany has n1ade less gross and net profit even though sales have increased. But it is important to con1pare with other companies in the same industry.A NS WERS • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Trade union: iii) Govermnent: iv) Creditors: ii) 1 tnark each . Although this was not true in July (cash inflow 3 . There is a bank overdraft at the end of July (a negative closing balance) because cash outflows in the first two months were greater than cash inflows . 000 and cash outflow 1 .1 % U N IT 9 Fi n a n c i n g b u s i n ess a ctivity S ample questions and answers 3) ii) Examiner's marks and cotnments: 2 marks for knowledge and application. 1 % d) 2 marks for identifying reasons. The n1ain reason seen1s to be the purchase of equipment. (Accept any four results. Overdraft: Flexible form of finance that can be varied to meet the needs of the business but often high interest rate and can be called back by the bank at short notice .

decisions taken locally will take local £Lctors such as fashion or labour shortages into account. Drawbacks: nunagers will need training to take good decisions. supported recornmendation. D ecentralisation is when decision-n1aking power is given to factories. explained and given some link to Yuan's flower business. sale of shares. retained profits . b) 1 mark each (see Key definitions) .it depends on how Yuan expands the business. c) Up to 3 111arks for identifying i1nportant factors. if not. Yes. giving the business a sense of purpose and direction. U N IT 1 0 O rg a n i satio n a l structu re Sample questions and answers d) Examiner's marks and comments: Two factors are identified. then sale of shares could be risky. up to 3 nurks for explaining it. 1 nurk for application to this business. Person A is very �unbi tious and if Un1eel wants the restaurant to expand. 1 1nark for application to Abadullah's business. up to 4 1narks for analysing then1 with a final. The styles of clothes chosen by Abadullah might not be right for all regions. Advice : retained profits if sufficient. branches or divisions. up to 3 n1arks for applying then1 to this business. Any one of: motivating staff. 1 n1ark for some attempt. 'A' seen1s to be a good communicator . Recommendation. Explain one benefit and one drawback to at least two of these . Decentralising could benefit Abadullah's business if managers are trained well and if local differences are so great that Head Office decisions do not suit all areas. If directors do not want to risk losing control. 2 marks for explanation/ analysis .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Answers Long-term loans (short-term or medium-tern1 may be unsuitable) . analysing why this advantage results fro1n ain1s and targets. decisions not taken locally or taken by more junior 1nanagers. and not H ead Office.very in1portant 1 03 • .if high. • Try this a) 4 marks for correct and labelled chart. Factory manager ii) 1 n1ark for definition. iii) 1 mark for definition. giving n1anagers a means of comparing actual perforn1ance against the original target. making sure all departn1ents are working towards the san1e ai1ns . a) 1 mark for reason. it does appear to be centralised as all maj or decisions are taken at Head Office which is a sign of a centralised business. Finally. If profits are low then they might be inadequate for the expansion. P ossible benefits : Quicker decision-n1aking locally . Might depend on current interest rate . up to 3 n1arks for identifying advantages/ drawbacks of decentralisation. Factory managers cannot decide which styles to make or how to pay their production workers. Any one of these should be briefly explained. then loan if the interest rate not too high. An overdraft is not suitable for long­ term expansion. All four skills are shown by the student. then shares or profits might be better. 2 marks for explanation/ analysis. Total = 8/8 marks. Poor communication with lower levels managers of factories will not be able to comn1unicate easily with Head Office. 2-3 marks for missing some information or one level. the student tries to explain that the final structure is not certain . this might be the person to e1nploy. possible poor motivation for factory managers as all nuj or decisions are taken at Head Office. 2 nurks for explaining/ analysing at least two of these and 2 marks for discussion/judge1nent. different branches and areas n1ay take different decisions and these could clash. U N IT 1 1 M a nag i n g a b u s i n ess e Try this l Supervisors I Line managers I I l I Line managers I I l I Line m a nagers I I l I I I I I I I b) i) 1 mark for identifying problen1.

up to b) 4 marks for explaining how to use job 4 marks for discussion in context and final rotation/j ob enlargen1ent/job enrichn1ent to re c o t 1 1 1 1 1 e t 1 d a ti o 1 1 . Job rotation is quite be expensive and take a long time to produce lin1ited in the shop as there are not very many the video though. profit-sharing bonus or perforn1ance-related External . '13' has n1ore relevant for i dentifying $200 paid. up to 2 n1arks for each tills. Job enlargen1ent is where best n1ethod could be a video sent to all shops extra tasks of a sinular level of skill are added to a plus posters for displaying in the shop . then 1 tnark for experience and being a former chef n1eans 'B' stating piece rate . 'A' is well educated and U N IT 1 3 M otivat i o n at work possibly trained in managetnent and n1otivation Sample q uestions and answers techniques . 2 tnarks An e-n1ail would be quick.the manager is sending a message pay. paying for healthcare. arranging the clothes and helping custon1ers. in colour. increase prices in the restaurant. of the product details. brief explanation. Quality is 'B "s rate. An attachn1ent could be be the best n1ethod to use and why. The changing round again. it would take a long time to telephone all shop owners. 2 1narks for j ustifying the choice of Both of these problen1s could result in p oor tnanagement style . workers will then get more enjoytnent fron1 c) 1 tnark each for identifying possible barriers doing a variety of jobs such as working on the to con1n1unication. however. Non-financial n1ethods nught include to people who do not work in the business. Job enlargement n1ight be better as never be sure that every shop owner watched it. financial n1ethods of n1otivation. objective and this n1ight mean that Un1eel could ii) 2 marks for correct answer. Notice board: cannot be c) i) 1 mark for autocratic. Job telephone call would be more personal and the rotation involves workers swapping round and benefits of the new sweet could be explained to doing each task for only a linuted titne and then evety shop owner. son1e n1ay not understand the language used. It could worker's j ob description. and the n1anufacturer could j obs to do . Total = 2/3 n1arks. b) Up to 4 marks for up to two advantages and pension. It is a written format they will work.A NS WERS • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • in a busy restaurant. to either exatnple. meant to receive the n1essage as there is usually Workers need to be constantly supervised so no chance for feedback. 2 n1arks if the • Try this answer is in the context of Patel Fashions. The third n1ark would be might concentrate on quality n1eals and motivate for explaining why it was clear it was piece the staff to achieve this target. but it may not be for saying whether you consider job rotation to opened inm1ediately. two disadva n tages of any two methods. and ii) 1 mark for detnocratic or laissez-faire . I e Try this would choose 'A' as long as there are already a) 6 n1arks for explaining the advantages and good chefs who can take control of the cooking disadvantages of different financial and non­ side of the business. discounts on the clothes. If Umeel wants the business to expand over the next few years. 2 tnarks for included. which not everyone will be attracted by. 4 tnarks for selecting one method and explaining why you U N IT 1 2 Co m m u n i catio n i n b u s i n ess think it the best one to use. clothes. increase n1otivation (1-2 tnarks each) . newsletters . 2 tnarks for certain that it will be read by everyone that is j ustifying the choice of n1anagen1en t style . barrier for explaining them and applying then1 · which will increase their job satisfaction. · • 1 04 . Workers are tno tivated by conlmtmication. A answering in the context of Patel Fashions .the 25 restaurant staff will need to 3) i) Exatniner's n1arks and con11nents: 1 tnark be well tnanaged. a) 1 mark for correct answer plus 1 mark for Financial nlethods nught include conlnussion. The same barriers can apply to b ei ng able to take an interest i n the ir work.

The conclusion would probably be external recruitn1ent so the che(� would already be trained and able to bring their experience to the restaurants. . • Try this U n it 1 5 E m pl oyee a n d e m p loyer associati o n s Sample questions and answers 2) ii) Exatniner's n1arks and conunents: A good answer in context of the business and the candidate explains how it will help to avoid conflict. . . . . . .(iv) . ii) 2 marks for explaining either on-the-job or off-the-job training. . but if suitable justification is a) craft union . . n1ore den1ocratic styles of leadership) . . very disruptive to business . 3 additional marks for explaining the three ways of having worker participation . . An overtin1e ban would probably be more effective because P and D Ltd have got increasing sales and they need to increase output to n1eet these orders . workers don 't lose norn1al pay. . . . availability of suitable employees. pressure on business as orders nuy be delivered late) . e Try this U N IT 1 6 The m a rket a n d ma rketi ng a) 1 tnark for stating each obj ective of tnarketing (for exan1ple. cost. works councils. . to target a 10 5 • . 2 marks for explaining the usefulness to the business of induction training. ���:� U N IT 1 4 Recru itme nt. health and safety training. skills of app1icants. 2 marks for explaining the advantages and disadvantages of an overtin1e ban (for example . . sacked.(iii) . show the en1ployee where everything is. The chefs would be productive straight away and would not need to be trained by The Royal Garden. Possible problen1s might include: the reasons why the employees are leaving. . . 3 marks for justifying which would be the n1ore suitable method to use and why. quality circles. . . . n1otivation. . share ideas) and 3 additional nurks for explanations. b) 1 tnark for stating a problen1 (maximum 2 marks) and up to 2 additional marks if the reason is explained as to why it is a problem. . which would be expensive. industrial union . tra i n i ng a n d h u m a n resou rces Sample questions and answers 2) ii) Exan1iner's marks and comn1ents: The student's answer gives two suggestions which are explained. but there will be pressure on the con1pany to give in to the employees' wishes otherwise they will lose business . to increase sales revenue and profitability. marks for discussing the advantages and/ or disadvantages of internal and external recruitment. . .(i) 1 mark for each correct answer. e Try this a) 1 mark for each reason given. . for example. but the workers would not get paid when on strike so an overtime ban would be the best fonn of industrial action for the workers to take . . . . ii) 1 n1ark for each of three exatnples of worker participation (for exatnple. . . c) 2 marks for describing what induction training includes : for example. white collar union . . n1eet other employees. c) i) 2 marks for explaining the advan tages and disadvantages of strike action (for exan1ple . en1ployee left because they found another job/moved away from the area/ emigrated. . act as pressure group for members. . costs of replacing the employees. worker directors. . these en1ployees do not need n1uch training as the jobs are low-skilled. to improve the image of products. reduced morale. increased training costs. for example. general union . . Total = 5/5 marks. for example. Advantages of on-the-job training: because it would be easy and cheap to let other workers show the new en1ployees what to do. go over rules and regulations of the business. . redundancy. Total = 4/6 marks. to increase 1narket share. loss of pay for workers) . . The workers will not lose any wages. . bad managetnent. 2 n1arks for deciding which would be more effective for the workers at P and D Ltd and why. . . . given then full marks could be awarded for off­ the-job training. The answer would probably be on-the-job training. . b) 1 n1ark for each of three benefits (for exatnple. . . represent employees in negotiations with trade unions. . giv� advice to n1embers. 4 marks for justifying which would be the better tnethod to use and why. . . . . 2 marks if applied to chefs. .(ii) . .. . . . . Strike action could also be effective as output would be lost. . d) i) 6.

decline. 2 marks for explaining the reason (for exan1ple . But sales then start to rise again and continue to rise above the previous peak. Product B had successful extension strategies used. b) i) 2 n1arks for describing the trend in each graph. newspapers of the country. the product rnight £1il altogether) . After reaching a peak. Pron1otion. Product A has seen sales increase slowly at first and then rise rapidly. reach a peak and then fall. design allowing organisation. sales will be higher) . so that sales have increase d again after the decline stage) .Product. on its website) . 2 marks for applying the answer to sports drinks (for example. Product A has a typical product life cycle . to preserve the drink) . the price n1ay be reduced to try to encourage sales to increase again or at least slow the decline in sales) . d) 3 marks for describing the changes. c) 2 rnarks for each way the business can try to ensure the inforn1ation is accurate . Then competitive pricing as competition increases in the growth phase . to give the drink a sporty image. e Try this U N IT 1 7 Ma rket research Sample questions and answers b) Exa1niner's nurks and comments: The candidate only states what is meant by primary and secondary research and does not explain the difference between theri1. so that the different elements reinforce each other. c) 1 n1ark for labelling the axes.introduction. sales then fall. Price. 2 nurks for correctly labelled axes and scale. 3 additional rnarks for explaining the three objectives . growth. the target market for the drink. 2 marks for explaining each advantage. 3 1narks for saying what should happen as a result of the changes (for exatnple. Total = 2/4 n1arks. ensure the sample is representative of the target market) . inforn1ation about the product itself is obtained) . the price may be high when the product is first introduced to the n1arket if there are few or no con1petitors. the sales n1ay not be as high as they could be. Stages to label . • Try this a) 2 n1arks for each advantage stated (for example. b) 1 mark for each example (government statistics on population and income. make sure the information is up to date. the report and accounts of the competitors in the other country. • Try this U N IT 1 8 Presentati on of i nformation a) 1 m ark for a title. ii) 1 mark for stating a reason for the differences. c) 4 rnarks for explaining the benefits of linking the eletnents of the 1narketing mix together (for exan1ple .ANS WERS • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • new rnarket or n1arket segn1ent. trade magazines in the other country. U N IT 1 9 The m a rket i n g m ix: prod u ct and packa g i n g Sample questions and answers d) Examiner's n1arks and con11nents: The candidate suggests several ways of increasing sales and explains how they should be effective. When sales start to fall. The answer is applied to this business but no decision is n1ade as to what is the best way of increasing sales. such as the UN. 2 tnarks for correctly plotted graph. to develop new products or in1prove existing products) . • 106 _l . potential custon1ers rnay buy the competitors' products. maturity. can be qualitative rather than quantitative. take a large sample. and there is also a consideration of drawbacks. Total = 6/8 n1arks. competitors' packaging. the advertising budget will be rnore effectively used. b) 1 n1ark for each elernent . Place. 3 n1arks for labelling the five stages. to give information about what the drink contains. Up to 2 marks for explaining each of these ways (for example. 4 n1arks for explaining what might happen if the business does not link the elen1ents-Jogether (for exan1ple. b) 3 marks for stating the factors Sheena n1ight take into account. deduct 1 mark for each missing label. con�um�g to drink out of the contJiner) . 3 n1arks for explaining why these factors n1ight be in1portant (for exarnple. i n fonnati on prov id e d b y an i nteniat l oiial a) 3 marks for explaining the functions of packaging. first-hand infom1ation straight from actual or potential consutners. saturation. to make the drink look attractive. cost of p ackaging. Product B sees sales increase steadily.

Total 8/8 1narks. they appeal to a large market and have few con1petitors . The student could have explained that Luxury Leisure plc lost n1en1bers due to the price increase. e Try this Sample questions and answers a) 2 marks for stating whether demand is inelastic (then a percentage increase in price would lead to a smaller percentage fall in sales and an increase in sales revenue) or elastic (then a larger percentage fall in sales and a fall in sales revenue) . qu::dity of product. Total = 5/9 marks . washing powder) . the reduction in n1embers was a lower percentage than the p ercentage increase in price. chocolate bars. so it 1night be better to offer a second CD at a reduced price once one has been purchased. d) 1 mark for a suitable exan1ple (for exatnple. Elastic den1and n1eans that custon1ers are price sensitive and they will buy substitute products . get one free' would not be suitable as the business would lose 1noney. 4 nurks for explaining these factors and why they are important to the 2) ii) Exanliner's n1arks and con1n1ents: A good answer. but n1ore than two factors were considered and the answer had n1ore points explained than were needed to achieve full marks. iv) shoes (exported) b) 5 nnrks for explaining the advantages and disadvantages of not selling to a retail chain of 107 • . what type of custmners use the shopping centre . which 1neans that customers are not price sensitive and n1ost of then1 will keep buying the product (if prices rise.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Answers e) 3 nurks for explaining why son1e products have longer life cycles (for example. Up to 4 nutks for explaining how these factors influence the decision.custon1 ers will keep buying the products as there will be no close substitutes) . 2 nurks for applying them to selling classical music . 3 marks for explaining why the exan1ple would be sold using personal selling . for exan1ple. type of product. which is most likely to increase profits. b) Up to 3 marks for stating factors like the cost. at the end of a season for gift items associated with particular festivals. However. COs are not bought that often. e Try this I business (for example. If the profit per CD was not high then 'buy one. iii) tins of fruit. c) 3 marks for stating the factors to consider. con1petitors' prices. The promotion has to be suitable for music. they are not fashion goods and therefore stay popular for longer. • Try this U N IT 2 1 The m a rketi n g m ix: p ro m oti o n Sample questions and answers b) Exatniner's nurks and cmnments: Three suitable ways suggested and two were j ustified briefly. The student does not explain the effects of the change on the business. U N IT 22 The m a rketi n g m ix: p l ace Sample questions and answers I I i I I that this will be at tin1es of the year when sales will not be good. costs of production . If many different age groups of customers use the shopping centre then sales may be increased by attracting a wider range of customers . ii) new cars. building work) . b) 2 n1arks for stating that they want to increase sales of the products. 2 marks for explaining why petrol would be likely to have an inelastic demand. trends in spending habits. Total = 4/6 marks. U N IT 20 Th e m a rket i n g m ix: p rice c) Examiner's marks and comments: 2 marks for correctly identifying that demand is inelastic. If Music Mania spends 1nore on advertising then it will only attract the san1e age group of custo1ners and this nny not increase sales as n1uch. 2 tnarks for explaining a) 1 mark for teenagers . c) 4 marks for stating factors that affect pricing strategies . 2 marks for making a j udgement as to what the business should have done and why. fitted kitchen. a) i) wedding cakes. 1 1nark for a suitable example (for exan1ple.advice would need to be given and the product or service 1nay be specific to the custon1ers' requiretuents . 3 marks for explaining these factors. stage of the product life cycl e of the product. whether there are con1peting products) . sales revenue will increase) .

5 tnarks for explaining the advantages and disadvantages of selling directly to an airline (sold directly to customer so higher profits. Place should be in shops which sell mainly expensive produ cts. In one country large supern1arkets may be used by tnost of the custotners whereas in another country. 2 marks for explaining why these effects are worrying for the employees at Telesales Services Ltd. Quality assurance is where quality standards are set and then applied 1 th i s throughout the bu�ine�� . U N IT 23 Factors affecting prod uction Sample questions and answers c) i) Exan1iner's n1arks and comn1ents: Clear definition. ii) l tnark for stating each of the appropriate factors (n1aximun1 3) . so wholesalers ·will be part of the 'place' in the n1arketing tnix in one country. iv) 2 marks for defi n ition of lean production. goven1ment grants) . Price . 4 tnarks for explaining why these £1ctors would be in1portant when deciding on the n1arketing n1ix in a different country. n1ore control over the way the product is sold to the custotner) .job production and flow production. ii) 2 tnarks for explaining what is n1eant by either quality control or quality assurance. does not reach a wide target n1arket. sales are not as high . for exan1ple. fewer people needed. availability of labour. 2 n1arks for saying vvhy it is ituportant to Medic Supplies pic . ii) 2 marks for stating the possible effects on the number and types of j obs at the con1pany. b) i) 3 marks for stating the cost savings of using computers to take orders instead of employing people (for example. Promotion . More on-line ordering will n1ean that fewer ernployees will be needed as this is done automatically. equiptncnt to hospitals and if there were any faults then a death could be caused .ANSWERS • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • supennarkets (for exan1ple. Up to 4 n1arks for explaining how it n1ight be introduced at the business. n1eaning the company would get a bad reputatipn resulting in lost sales. 4 marks for the answer to be in the context of furniture for each eletnent of the n1arketing n1ix. the e Try . d) 4 nurks for stating different factors to consider. This is why employees are worried about losing their j obs.should be high ·to reflect a high quality product. Total = 2/2 marks . products are produced to the custotner's specification) . a) i) 1nark for each n1ethod . The types of retail outlets used. 3 tnarks for explaining why these mean lower costs. Total = 4 / 6 n1arks .should be high quality furniture. 4 n1arks for stating the different elen1ents of the marketing mix. 2 n1arks for being in the context of n1edical supplies. • Try U N IT 24 Facto rs affecti n g l ocatio n S ample questions and answers 3) Examiner's marks and conm1ents: 3 n1arks for listing disadvantages (more than three were listed) and 1 mark for explaining the reason for high rent in city centres. small shops tnay be more comn1on. 4 n1arks for explaining how these four elements would be used in each case . factors are lmpod:arit The cocoa is i n1porte d so being located near to a port will reduce the transport costs of the raw n1aterials. less wages to pay out. for exan1ple. ordering can be automated) . location of ports. This is particu larly in1portant for this business because it supplies • 108 th i s a) i) 3 marks for each of the three £1ctors (for example. but not in the other. iii) 2 n1arks for explaining the process of stock control.should be in places where high-income groups would be likely to see the advertisements. Everyone on the production line at Medic S upplies pic will be responsible for ensuring that there are no defects with the produ cts . Fewer telephone orders will n1ean employees who work in this section will be made redundant as they will not be transferred to on-line ordering. availability and cost of land. 3 n1arks for explaining why these . The candidate needed to explain the o ther disadvantages for full n1arks . 2 marks for explaining how it ensures that raw materials should always be available so that production can take place. may be different. c) Product .

availability of suitable labour.by producing goods in another country. possible exploitation of labour. Benefits: more j obs. Points nuy include : selling over the internet n1eans that customers do not need to go to a particular place to see the products so the business does not need a shop for custotners to visit. causing pollution . c) 2 marks for stating whether location is important to this business . Drawbacks: j obs lost at existing con1petitors. the local population nuy not be happy about factories being built near their houses. which saves time between orders being placed and the orders being received by the business .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Answers I i I market. up to 4 n1arks for discussion and j udgement. governn1ent policy. orders can be placed over the internet. causing traffic congestion fron1 delivery lorries.these 1night not be available in the 'ho1ne' country. b) 2 marks for stating the disadvantages of businesses locating wherever they want to. not necessarily in the same country as the custon1ers. U N IT 2 5 B u s i n ess i n the i nte rnati o n a l co m m u n ity Key definitions The ' exa1nples' questions are based on your own country . consumer protection) . profits sent back to 'home' country. possible excessive exploitation of natural resources. 4 marks for justifying this answer. • Try this a) 1 n1ark for indentifying each reason and 1 mark for a brief explanation of each one. increased output. the internet allows the business to locate anywhere in the world. without any consideration of the local population or environment. destroying areas with wildlife and natural beauty. 2 marks for applying the answer to chocolate manufacturing. For example. in1port tariffs will no longer have to be paid for imports into that country.labour costs could be lower in another country. increased tax revenues. b) 1 mark for each correct point. Language problen1s. To obtain raw materials . If particular skilled labour is needed and there is none available in the country then it will be expensive to en1ploy foreign skilled workers . S ample questions and answers d) ii) Examiner's marks and conlffients: The student has understood the impact on exporters of an appreciation and has stated that this could reduce profits fro1n exporting. possible environn1ental dan1age . costs of setting up a new factory. different customer tastes. export earnings. different laws (for exan1ple . Total = 4/4 nurks . con1n1unication problerns with head office. 4 marks for explaining the reasons. 3 marks for explaining these factors.ask your teacher to check your answers. orders are sent by post and therefore it is useful to have access to postal services nearby. costs of running a factory in this overseas market. c) Up to 2 marks for benefits and up to 2 nurks for drawbacks. I I l 1 09 • . 2 n1arks for nuking judgements as to which factors are the n1ost irnportant when making the decision. to avoid tarifFs . to produ ce more cheaply . so the business is not reliant on the post for orders to be sent.

89 profi� 8. 8 1 pressure gropps 19 52. 5 5 worker participation 6 1 . 3(> . 28. 74. 8 1 globalisati o n 9 5 graphs 7 0 . 1 0 . 64 busi ness. 60 83. 7 1 Gross Domestic Product (GDP) hierarchies. types 6. 17 economic problem 1. 2 8 . 1 0 . 89 packaging 72. 3 2 . 27 . 36. 7 8 pricing strategies 7 6 . 3 1 4. 27 . 37 . 46 chains of command 4 1 c h ar� 23 . 32 loans 2 8 . 39 shares 28. 69 marketing mix 64. 7 0 . (dis) economies of 24. 9 5 1 9 . 5 1 balance of payments balance sheet 28. 66. 2 1 . 9 1 . 26 . levels o f 4 1 hire purchase 3 7 imports income inflation 1 4. 36 economic growth 6 . 8 9 productivity 8 7 . 1 4 . 3 0 salaries 53 consumer protection laws contracts o f em ployme nt contribution co-operatives corporations costs 23 15 10 1 0. 35. 50. 37 supply and demand 76. 5 4 . 1 7 . 74 partnerships 10. 34 franchises 10 promotion 7 9 . types of 6 employer assoc iations 60 personal selling 7 9 . 95 price skimming 7 (> . 2 1 uni ons 60. 12 economic unions 95 economy. 79. 85 5 Memorandum of Association monopolies 15 10 1 5 . 8 . 28. 7 6. 39 forecasts 23 . 3 2 . 43. 1 0 . 27 15 technology . 2 1 . 7 1 collective bargaining 60 communication 4 9 . 9 5 . 89 cash flow 32. 37 public corpora tions public relations 7 9 1 0. 1 2 cost benefit an alysis credit 30. 7 8 private sector 6 . 53 1 4. 30 recession 14 56. 95 1 4 . 6 0 retained profit 27. 6 1 . 62 value a dded wages 1 . 89 motivation theories 5 2 multinational corporations 9 5 . 37 curren cy 1 7 . 5 5 leasing 3 7 liabilities 27 . 53 14 finance 3 4 . 3 9 limited liability 10 liquidity 27 . 1 5 . 58 industrial action 6 1 . 97 19. 1 7 . 45-6 . 95 customer service 79 debentures 36 1 . 2 8 . 47. 1 2 . 2 1 . 39 location 9 1 . 39 sole traders stakeholders stock c ontrol 10. 27 . 37 feedback 49. 28 scale. 7 8 taxes a n d tariffs trade cycle 14 deb� 27 . 3 2 . 8 . 37 decentralisation 42 decision-making 1 5 . 8 job satisf action 5 3 . changes in training 5 7 . 83 start-up fi n a nce 3 4 . 95 8 8 . 27 . 95 a�e� 27 . 9 7 national minimum wage overdraf ts 3 2 . 27 spans o f co ntrol 4 1 . 1 7 : see also wages 1 4. 39 overheads 23. 3 5 . 93 managers 4 1 . 3 4 . 30. 1 9 . 93 b usiness plans 37 capital 1 . 1 2 privatisation 6 product life cycle 7 2 . 45 de-industrialisation depreciation 27 discrimin ation dismissal distribution 15 5 7 . 50. 5 8 transportation u ne mployme n t 8 3 . 30. 1 5 . types of 2 7 . 8 7 . 3 6 . 3 6 . 26 shareholders 3 . 7 4 production 5 . 30 ban kruptcy 30 benefits 1 9 . 30. 46 advertising 7 9 Articles of Association 10 exchange rates expenditure 37 exports 1 4 . 72. 3. 23 . 1 7 14 bon uses 52-3 bra nds 7 2 break-even p o i n t 2 3 . 3 6 . 26. 3 6 . 85 diversi fication 5 dividends 27. 3 0 limited companies 8 . 53 recruitment process redundancy 5 7 . 1 2. 1 2 p ublic sector 6 . 26. 21 sales turnover 27 . 6 2 • 1 10 . 30. 43 1. 87 .I ndex accounts 27 . 24. 62 integration 5 . 64. 3 87 market research 6 7 . 1 2 quality control quotas 1 5 . 27 . 30. 3 6 retrenchment 5 7 revenue 23 . 3 6 . 34. 2 6 bu dgets 23. 1 0 . 28. 5 1 15 ratios. 28 .

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