Business

IGCSE Business Studies:
Questions and Answers

Covering Edexcel’s IGCSE Business Studies Syllabus
Paul Hoang
Margaret Ducie
Sam Cleary
ISBN: 978-1-905504-67-1
Published by Anforme Ltd.,

Stocksfield Hall, Stocksfield, Northumberland NE43 7TN.
Tel: 01661 844000 Fax: 01661 844111
email: info@anforme.co.uk
www.anforme.com
Contents
Chapter 1.1 - Objectives 1

Chapter 1.3 - Factors of Production 3
Chapter 1.4 - Primary, secondary and tertiary activity 7
Chapter 1.5 - Business Location 10
Chapter 1.6 - Government influences on business activity and objectives 12
Chapter 1.7 - External influences 16
Chapter 1.8 - Judging Success 20
Chapter 2.1 - Internal Organisation 22
Chapter 2.2 - Communication 28
Chapter 2.3 - Recruitment and Selection 32
Chapter 2.4 - Training 35
Chapter 2.5 - Motivation and rewards 38
Chapter 3.1 - External and Internal Sources of Finance 40
Chapter 3.2 - Budgets and cash flow forecasts 43
Chapter 3.3 - Cost and break-even analysis 47
Chapter 3.4 - Financial Statements 51
Chapter 3.5 - Ratios and performance 55
Chapter 4.1 - The Market 67
Chapter 4.2 - The Marketing Mix 69
Chapter 4.3 - Market Research 79
Chapter 5.1 - Economies and Diseconomies of Scale 81
Chapter 5.2 - Methods of production 83
Chapter 5.3 - Productivity 85
Chapter 5.4 - Quality 89
Chapter 1.1
Objectives
Questions
Most businesses will have a mission statement which provides a framework for setting their
objectives. This mission statement sets out the overall purpose of the business. Look at the
examples of mission statements below for two coffee shops.
Coffee Shop 1: “We have a passion for coffee and are committed to bringing our customers The
perfect cup anywhere, anytime.”
Coffee Shop 2: “To inspire and nurture the human spirit – one person, one cup and one
neighbourhood at a time.”
a. What is meant by business objectives? (2 marks)
b. Discuss which coffee shop has the ‘better’ mission statement to enable it to formulate business
objectives. (6 marks)
IGCSE Business Studies: Questions and Answers Chapter 1.1 1

Answers
Answer Marks
1(a) What is meant by business objectives?
Valid points could include:

2
• Targets that a business strives to achieve (1)
• Examples: survival, market share, profitability or wealth creation (1)
1(b) Discuss which coffee shop has the ‘better’ mission statement to enable it to
formulate business objectives.
Valid points in favour of Coffee Shop 1 could include:

• Having passion for coffee can help to motivate the workforce (1)
• Being committed to customers can help to boost sales (1)
• Aiming for ‘the perfect cup’ of coffee gives staff a sense of direction in terms of
achieving quality (1)
Valid points in favour of Coffee Shop 2 could include:

• ‘To inspire and nurture’ can motivate workers to achieve organisation objectives 6
(1)
• This can help to recruit like-minded people, i.e. staff who want to work for such
a coffee shop (1)
• The mission statement hints at growth as a business objective, i.e. one

neighbourhood at a time (1)
A balanced discussion is required for 5-6 marks. A judgment should be made with
justification for full marks. For example, students might argue that Coffee Shop 1
has the better mission statement as it mentions ‘passion’ and commitment, which
can help to formulate objectives for the staff.

Chapter 1.3
Factors of Production
Questions
a. For each of the following businesses identify the factors of production used in the production
process, state whether the business is capital-intensive or labour-intensive and explain your
answer:
i. A café serving coffee, tea and snacks

ii. An advertising company
iii. A firm of painters and decorators
iv. A shoe manufacturer. (4 x 5 marks)
b. Explain two reasons why the number of workers required in supermarkets has reduced over the
past 20 years. (4 marks)
c. Explain the benefits of job specialisation to a clothing manufacturer. (4 marks)

Answers
Answer Marks
1(a)(i) For each of the following businesses identify the factors of production used
in the production process, state whether the business is capital-intensive
or labour-intensive and explain your answer.
A café serving coffee, tea and snacks

• Labour-intensive business (1) because the personal skills of the employees
hired to serve customers and the culinary skills of the baker are more 5
important for the running of the business than the equipment and machinery
used in the kitchen. (1)
• Capital e.g. oven, fridge, freezer, microwave, cooking equipment. (1)

• Enterprise e.g. skills of manager of café to attract customers and encourage
people to return, skill of chef/cook to produce high quality bread and cakes,
skilled waiters. (1)
• Labour e.g. skilled baker/cook, skilled manager and waiters. (1)

1(a)(ii) For each of the following businesses identify the factors of production used
in the production process, state whether the business is capital-intensive
or labour-intensive and explain your answer.
An advertising company

• Labour-intensive business (1) because the skilled workers who produce the
creative ideas contribute more to the production process than the computers
5
and software (1).
• Capital e.g. computers, software, office furniture, printers, fax, photocopier.

(1)
• Enterprise e.g. skills of managing director to attract new and retain existing
business, skills and creative output of employees. (1)
• Labour e.g. skilled workers who can create advertisements, skilled writers,
employees who can use specialised software. (1)

Answer Marks
1(a)(iii) For each of the following businesses identify the factors of production
used in the production process, state whether the business is capital-
intensive or labour-intensive and explain your answer.
A firm of painters and decorators

• Labour-intensive business (1) because the skills and capabilities of the
painters and decorators contribute more to the production process than the 5
capital equipment used. (1)
• Capital e.g. ladders, van/truck to transport equipment, paint brushes, rollers

etc. (1)
business, skills and creative output of employees. (1)
• Labour e.g. skilled painters. (1)

1(a)(iv) For each of the following businesses identify the factors of production
used in the production process, state whether the business is capital-
intensive or labour-intensive and explain your answer.
A shoe manufacturer

5
• Capital-intensive business. (1)
• Capital e.g. specialised machinery, sewing equipment, tools. (1)
business (1), skills and creative output of employees. (1)
• Labour e.g. skilled workers and unskilled workers. (1)

1(b) Explain two reasons why the number of workers required in supermarkets
has reduced over the past 20 years.
Any one from:

• Bar codes are placed on goods rather than price tags (1) and therefore
fewer employees are needed to place prices on goods. (1)
• Cash registers automatically update stock records (1) so fewer employees 4

are required to record sales of stock and monitor stock levels in a warehouse.
(1)
• Self-service checkouts exist in some supermarkets (1) and therefore fewer

cashiers are required. (1)
Award up to 2 marks for each explanation.

Answer Marks
1(c) Explain the benefits of job specialisation to a clothing manufacturer.

• The production process can be broken down into several tasks (1) e.g. cutting,
sewing, attaching zips and buttons, ironing, finishing including labels and tags
(1) and this encourages job specialisation (1)
• Job specialisation enables workers to become more skilled in the task, which 4
increases productivity and possibly produces goods of a better quality (1).
• Job specialisation allows more goods to be produced in the same time frame
(1).
Award up to 2 marks for each explanation.

Chapter 1.4
Primary, secondary and tertiary activity
Questions
Unglert’s Bakery Ltd. produces bread and cakes for sale in its 20 shops located across Southern
Germany. The bakery needs goods and services from the primary, secondary and tertiary sectors
to make the bread and cakes and to sell the goods to customers.
a. Explain what is meant by the interdependence of primary, secondary and tertiary sectors by
using two examples from Table 1.4a. (4 marks)
b. Give two examples of businesses in the primary sector that Unglert’s Bakery Ltd. might trade
with. (2 marks)
c. Give two examples of businesses in the tertiary sector that Unglert’s Bakery Ltd. might trade
with. (2 marks)
Table 1.4a
Sector Examples of goods/services provided

Primary sector Ingredients: flour, sugar, butter, eggs, yeast
Secondary sector Production of cakes and bread
Tertiary sector Advertising, insurance, banking, shops to sell the bread and cakes
d. Produce a table similar to the above for:

i. A mobile phone manufacturer
ii. A fast food restaurant
iii. A shop selling kitchen equipment
iv. A pig farmer. (4 x 6 marks)

Answers
Answer Marks
1(a) Unglert’s Bakery Ltd. produces bread and cakes for sale in its 20 shops
located across Southern Germany. The bakery needs goods and services
from the primary, secondary and tertiary sectors to make the bread and cakes
and to sell the goods to customers.
Explain what is meant by the interdependence of primary, secondary and tertiary

sectors by using two examples from Table 1.4a.

• Interdependence means that the sectors of industry are dependent upon each
other and cannot work in isolation or without each other (1)
4
For example:
• Ingredients from the primary sector(1) are used in the production of bread and
cakes in the secondary sector (1)
• Unglerts Bakery Ltd. will have to buy insurance (1) from the tertiary sector (1)
for the premises and employees
• Unglerts Bakery Ltd. will have a bank account (1) and possibly a bank loan
from the tertiary sector.
• Unglerts Bakery Ltd. may use the services of an advertising agency (1) from
the tertiary sector (1) to design an advertising campaign for the company.
1(b) Give two examples of businesses in the primary sector that Unglert’s Bakery
Ltd. might trade with.
Examples could include:

• Farmer who produces flour, eggs, butter, milk (1) 2
• Energy is required to fuel ovens and provide lighting and heating to the shops
(1)
Award 1 mark for each example

1(c) Give two examples of businesses in the tertiary sector that Unglert’s Bakery
Ltd. might trade with.
Examples could include:

• Bank for finance and banking services (loan, financial advice) (1)
• Wholesaler to buy in bulk sugar, icing sugar, baking powder, salt (1)
• An accountant to produce accounts and audit accounts (1) 2
• An advertising agency to produce an advertising campaign (1)

• An insurance company for insurance for the buildings and employees to protect
against injury (1)
Award 1 mark for each example

Answer Marks
1(d)(i) Mobile phone manufacturer
Sector Examples of goods/service provided
Primary Metal for components, copper for wiring, oil to make plastic (2)
Secondary Production of mobile phones, purchase of components for
phones from other manufacturers e.g. battery, circuit board, 6
memory card (2)
Tertiary Advertising agency, transport company to deliver the phones
from the factory to the retail shops, banking, advertising,
insurance (2)
1(d)(ii) Fast Food restaurant
Primary Meat, eggs, salad ingredients, fish, milk, tea, coffee (2)
Secondary Production of food for customers, purchase of ingredients from 6
other manufacturers e.g. cheese, tomato sauce, pickles (2)
Tertiary Advertising agency, banking, advertising, insurance, interior
design of restaurants (2)
1(d)(iii) A shop selling kitchen equipment
Primary Raw materials to make the kitchen products e.g. clay, metal, oil
for plastics, wood (2) 6
Secondary Manufacture of raw materials into finished kitchen products (2)
Tertiary Advertising, insurance, accountancy services, banking, transport
to deliver products to shops, interior design of shops (2)
1(d)(iv) A pig farmer
Primary Pigs, water, straw, workers to tend to the pigs (2)
Secondary Pig food, pens and houses for the pigs to sleep in (2)
6
Tertiary Vets to vaccinate the animals and tend to them when they are ill,
transport to take the pigs to market (2)

Chapter 1.5
Business Location
Questions
Benn and Sons is an engineering company based in Iowa, USA. It provides technical assistance
and maintenance to the airline industry. They are located in Des Moines, the state capital, 60 miles
away from the airport where their customers are based. They are considering moving closer to the
airport, where land is cheaper and the government is considering tax breaks for businesses that
move to the area. The trade union that represents the majority of the staff has expressed concerns
about the commuting time that staff will face.
a. Evaluate the proposed move to a site nearer to the airport. (6 marks)

Answers
Answer Marks
(a) Evaluate the proposed move to a site nearer to the airport.
Arguments in favour:
• Being closer to their customers may increase efficiency and allow them to work
more closely to assist them and understand their needs
• The government grant and cheap land will reduce average costs and possibly
help them to reduce prices or increase profits
6
Reward strong analysis to a maximum of 3 marks.
Arguments against:
• It may prove more difficult to retain and recruit adequate amounts of staff
• May be a labour dispute and industrial action that will cost the firm money
Reward strong analysis to maximum of 3 marks.
A balanced answer required for full marks.

Chapter 1.6
Government influences on business activity and objectives
Questions
Soleil Solar Power Company Ltd. is a solar power company based in the UK. The solar panels it
sells are manufactured in China and sold to customers located in a range of countries around the
world. On 1st September 2010, it received an order from a German customer worth £40,000.
On the 1st September 2010 the Pound: Yuan (Chinese currency) exchange rate was:
£1 : 10.50 Yuan
It received another order from the same company on 1st December 2010. On that date the £:Yuan
exchange rate was: £1 : 10.10 Yuan.
a. Calculate the amount owed by Soleil Solar Power Company Ltd. to the Chinese factory on
1st September and 1st December 2010. (2 marks)
b. Analyse the impact of changing exchange rates on Soleil Solar Power Company Ltd.
(5 marks)
c. Identify two laws that would impact upon how Soleil Solar Power Company Ltd. operates.
(2 marks)
d. Explain how each law would impact upon how Soleil Solar Power Company Ltd. operates.
(4 marks)
e. Analyse two other ways in which the government might influence the operations of Soleil
Solar Power Company Ltd. (5 marks)

Answers
Answer Marks
1(a) Calculate the amount owed by Soleil Solar Power Company Ltd. to the
Chinese factory on 1st September and 1st December 2010.

2
1st September 40,000 x 10.50 = 420,000 (1)
1st December 40,000 x 10.10 = 404,000 (1)
1(b) Analyse the impact of changing exchange rates on Soleil Solar Power
Company Ltd.

• If the exchange rate of the Yuan rises relative to pounds then it increases
costs (1) to Soleil Solar Power Company Ltd. and therefore their production
costs will rise (1).
• If the exchange rate of the Yuan falls relative to pounds then it will decrease
costs (1) to Soleil Solar Power Company Ltd. and therefore their production
costs will fall (1).
• Soleil Solar Power Company Ltd. is also affected by the changing exchange
rate of the pound with the currencies used by its customers (1). This can be 5
an issue as the value of an exchange rate can change between the time a
customer orders solar panels and the time of delivery (lead time) (1). This
may affect the number of sales (1) if the exchange rate rises relative to other
currencies (1).
• Soleil Solar Power Company Ltd. will have to decide upon a price when a
customer makes an order (1) and may face either a fall or a rise in their
profits (1) if the exchange rate changes (1).
Award 2 marks for analysing the impact of exchange rates, up to a maximum of

4 marks. Award 1 mark for analysing relevance to Soleil Solar Power Company
Ltd.
1(c) Identify two laws that would impact upon how Soleil Solar Power Company
Ltd. operates
Choose any two from the following:

• Health and Safety legislation (1)
• Trade Descriptions Act (UK and EU) (1)
• Equal Pay Act (1)
2
• Sexual Discrimination Act (1)
• Disability Discrimination (1)
• Legislation preventing discrimination because of sexual preference (1)
• Legislation preventing discrimination because of religious preference (1)
• Race Relations Act (1)
• Consumer Protection Laws (1)

Answer Marks
1(d) Explain how each law would impact upon how Soleil Solar Power Company
Ltd. operates.
• Health and Safety legislation covers the environment in which businesses

operate (1). For example, Soleil Solar Power Company Ltd. must make sure
that employees have a safe environment to work in (1), receive training about
how to use equipment (1), there must be adequate heating and lighting (1) and
suitable washroom facilities (1). Following Health and Safety legislation may
mean that costs increase for Soleil Solar Power Company Ltd. (1)
• Trade Descriptions Act means that any goods Soleil Solar Power Company Ltd.
sells must be as described (1) and must have the characteristics and qualities
advertised (1). This means that Soleil Solar Power Company Ltd. must make
sure that any descriptions of their products are accurate (1).
• Equal Pay Act states that men and women who are doing the same job, with the
same experience and qualifications must receive equal pay (1). This means
that Soleil Solar Power Company Ltd. must pay men and women the same
wages for the same work (1). 4
• Sexual Discrimination Act states that Soleil Solar Power Company Ltd. must
not discriminate against women or men when recruiting (1). The most suitable
person should be given the job regardless of their gender (1). It also means
that if a woman becomes pregnant she cannot be discriminated against if she
applies for promotion (1). Her job must be held open for when she returns after
maternity leave (1).
• Race Relations Act states that Soleil Solar Power Company Ltd. must not
discriminate against anybody because of their race or ethnicity (1). When
the business advertises for employees/recruits employees it must treat all
candidates equally (1) and must not discriminate against anybody because of
their race, nationality, colour or ethnic origin (1). The best person should be
given the job regardless of their race (1).
• Sales of Goods Act states that good sold must be as described, be fit for the
purpose intended and be of a saleable quality (1). This means that Soleil Solar
Power Company Ltd. must ensure that any goods sold are in working order (1)
and meet the required standards (1) and be of good quality (1).
Award 2 marks for analysing the impact of exchange rates, up to a maximum of 4

marks. Reference must be made to Soleil Solar Power Company Ltd. for 4 marks.

Answer Marks
1(e) Analyse two other ways in which the government may influence the operations of
Soleil Solar Power Company Ltd.

• Government could provide Soleil Solar Power Company Ltd. with a grant (1)
to open another branch of their business in a particular part of the country
(1). This would provide Soleil Solar Power Company Ltd. with a source of
finance (1).
• Government could invest in education and training (1) and therefore Soleil
Solar Power Company Ltd. may have a more skilled/educated workforce to
choose from (1). This could improve the productivity of Soleil Solar Power
Company Ltd. (1).
• Government could increase/decrease tax (1) on company profits and this 5

could increase/decrease costs for Soleil Solar Power Company Ltd.(1)
• Government could increase/decrease interest rates (1) and this could

increase/decrease costs for Soleil Solar Power Company Ltd. (1)
• Government could provide a subsidy (1) to businesses that invest in solar

power (1). This would increase demand for the products of Soleil Solar
Power Company Ltd. (1) as their prices may fall and their sales revenue and
profits would increase (1).
• Any other appropriate answer
Award 2 marks for analysing how the government may influence operations, up
to a maximum of 4 marks. 1 mark for analysing influence on Soleil Solar Power
Company Ltd.

Chapter 1.7
External influences
Questions
1. People Tree is a UK based clothing company that makes garments from materials sourced from
15 different countries. All materials are purchased on a fair trade basis and any services, for
example, embroidery, stitching and weaving are also paid for on a fair trade basis. This means
that the prices of the garments are pitched at a level which covers production costs and allows the
producers to make a profit instead of being based on the global market price for that material as
this can often be less than the production costs. This arrangement makes it possible for profits of
trade to be fed back into the community. The methods of production are all designed to minimise
the impact on the environment, for example all dyes used are natural.
Source: adapted from www.peopletree.co.uk
a. Identify two ways in which People Tree operates on ethical principles. (2 marks)
b. Discuss how ethical principles can influence a business. (5 marks)

Answers
Answer Marks
1(a) Identify two ways in which People Tree operates on ethical principles.

• People Tree pay its suppliers on a fair trade basis, which means that it pays
a price which covers productions costs and enables the suppliers to make a
profit. (1)
• The fair trade arrangement covers suppliers of raw materials and those who 2
provide a service e.g. stitching, embroidery and weaving. (1)
• The methods of production used by People Tree are designed to minimise the
impact on the environment e.g. the dyes used are all natural. (1)
2 x 1 mark for identifying a way in which People Tree operates on ethical principles
1(b) Discuss how ethical principles can influence a business.

• The ethical principles of a business can satisfy the needs of an organisation’s
stakeholders (1) e.g. suppliers get paid a fair price for their goods/services,
impact of production on the environment is minimised, jobs are created
and workers are not exploited (1). This benefits the business, its suppliers,
workers and potentially customers. (1)
• The ethical principles of a business could give the business a positive image
(1) and therefore may attract customers and increase sales and profits. (1)
• The ethical principles of a business can educate its employees, young people
and therefore society. (1) 5
• If a business fails to uphold its ethical principles then this could seriously
damage its reputation (1) and therefore it may lose customers and sales e.g.
if it was reported to not be providing a safe environment for workers or to be
using a production process that was damaging to the environment. (1)
1 x 3 marks or 1 x 2 marks for explaining the positive influence of ethical principles

on a business
1 x 3 marks or 1 x 2 marks for explaining the negative influence of ethical principles
on a business
Answers must have at least one positive and one negative influence for full 5
marks.

Questions
2. Patagonia is an outdoors clothing designer and retailer. They work to protect the global environment
by using production techniques that aim to minimise the impact on the environment, by trying to
reduce and recycle waste and use some of their profits to support charities and other non-profit
making organisations that work to protect the environment.
Source adapted from: www.patagonia.com
a. Analyse three ways in which care for the environment impacts upon the way Patagonia
operates. (6 marks)
b. Discuss the following statement, ‘Patagonia makes a positive contribution to society’.

(6 marks)
IGCSE Business Studies: Questions and Answers 18

Answers
Answer Marks
2(a) Analyse three ways in which care for the environment impacts upon the way
Patagonia operates.

• Patagonia uses production techniques that minimise impact on the environment
(1). This may increase their production costs (1).
• Patagonia aims to reduce waste and recycle materials (1). This may give
them a positive public image (1) and may increase their sales and profits (1).
6
• Patagonia donates some of its profits to other organisations which work to

protect the environment (1). This may give them a positive public image (1)
and may increase their sales and profits (1).
Award 1 mark for identifying a way in which Patagonia works to care for the
environment. Award 1 mark for analysing the effect on Patagonia.
2(b) Discuss the following statement, ‘Patagonia makes a positive contribution to
society’.

• Patagonia provides jobs for people (1). This may give them a positive public
image (1) and may increase their sales and profits (1) and this provides them
with an income. Workers receive an income from Patagonia which is spent in
other businesses (1). This is positive for society (1).
• Patagonia tries to minimise the impact on the environment of the production of

their products (1). Protection of the environment will contribute to sustainable
development for future generations (1).
• Patagonia possesses corporate social responsibility and influences its

employees (1) and society (1) and can educate people and other businesses
to be more responsible (1) and this can have a positive impact (1) on society.
6
• Patagonia is a business that advertises its products to attract customers
(1). This does not necessarily have a positive impact upon society as this
encourages consumption of goods (1) and this may be wasteful (1) in terms of
the earth’s resources and people may purchase goods they do not need (1).
• Patagonia is producing products using energy and raw materials (1). This
could be considered wasteful and therefore having a negative impact on
society (1).
• Money spent on advertising could be donated to charitable organisations (1)

and excess advertising could be considered to be wasteful (1).
Award up to 4 marks for explaining the positive impact Patagonia has on society.
Award up to 4 marks for explaining the negative impact Patagonia may have on
society. Must have at least one positive and one negative impact for full 6 marks

Chapter 1.8
Judging Success
Questions
Aaron Gekoski has established his own children’s clothing label called Marine Madness based on
cartoon depictions of sea life. He donates 10% of his profit to a marine conservation charity. The
table below shows a summary of his financial statements for the first 3 years. Aaron also used
his products to help publicise a documentary which highlighted the dangers of the shark finning
industry.
2008 2009 2010

Sales Revenue 23,000 28,000 45,000
Total Costs 11,000 17,900 22,000
Profits 12,000 10,100 23,000
Dividends 9,000 7,000 18,000
Donation 1,200 1,010 2,300
a. Calculate Marine Madness’ sales growth over the 3 year period. (2 marks)
b. Comment on how successful Marine Madness has been since it was created in 2008.
(4 marks)
c. Explain 2 non-financial factors that Aaron and his stakeholders might use to judge whether
the business has been successful. (4 marks)
d. Evaluate how good dividend payments are as a measure of judging success. (6 marks)

Answers
Answer Marks
1(a) Calculate Marine Madness’ sales growth over the 3 year period.

2
• 95.6% (22000/23000) x 100 (2)
• Sales revenue almost doubled. (1)
1(b) Comment on how successful Marine Madness has been since it was created
in 2008.

• Profits have increased by 91% (1)
• Dividends to shareholders have doubled (1)
• The donation to the charity has increased (1) 4
• The company has survived beyond the first 3 years – this is the period most
businesses fail (1)
• However it is difficult to assess impact on the shark-finning industry (1)
Credit all valid points to a maximum of 4.

1(c) Explain 2 non-financial factors that Aaron and his stakeholders might use to
judge whether the business has been successful.
Any two from:

• Has the business managed to effect the desired social change in the shark
finning industry? (1) For example, is there a heightened awareness of the issue
or have the levels of shark finning dropped (1)
4
• To what extent are the customers satisfied by the products? (1) This could be
measured by the number of repeat customers. (1)
• Are the employees motivated and satisfied in their role? (1) This could be
measured by turnover rates, for example. (1)
Credit any other valid response. Award 1 mark for valid point and 1 for development.
1(d) Evaluate how good dividend payments are as a measure of judging success.

• Dividends are usually reflective of a company being in profit (1) increased
dividends can be a sign that the company has increased its profit levels (1)
• However, a forward thinking firm may decide to withhold dividend payments

6
in order to invest for the future (1) So higher dividend payments may indicate
short-term thinking on the part of the board of directors and lower dividends
might be because of investment and not low profit levels. (1)
Credit any appropriate evaluation. Balanced response needed for full marks.
Award a maximum 3 for a one sided answer.

Chapter 2.1
Internal Organisation
Questions
1. Tape Distributors Ltd sells adhesive tape and packaging products to retailers. It has the following
organisational structure:
Figure 2.1b

With reference to Figure 2.1b answer the following questions:
a. How many levels are there in the hierarchy?
b. How long is the chain of command?
c. What is the span of control of the finance director? (3 marks)

Answers
Answer Marks
1(a) How many levels are there in the hierarchy?
• 6 levels (1)
1(b) How long is the chain of command?
• 6 people (1) 3
1(c) What is the span of control of the finance director?
• 2 people (1)

Questions
2. a. Fiori Ice Cream Ltd. makes ice cream and sells it to small independent food stores and specialist
shops.
i. Explain the function of the human resource department and how it will support Fiori Ice
cream Ltd.
ii. Explain the function of the production department and how it will support Fiori Ice cream Ltd.
iii. Explain the function of the finance department and how it will support Fiori Ice cream Ltd.
iv. Explain the function of the marketing department and how it will support Fiori Ice cream Ltd.
(4x2 marks)
b. The Human Resource Manager of Fiori Ice Cream Ltd. delegates the task of putting a job
advertisement in the local paper to an administrator within the same department. Explain who
has the overall responsibility for ensuring that the advertisement appears in the newspaper.
(2 marks)

Answers
Answer Marks
2(a) (i) Explain the function of the human resource department and how it will
support Fiori Ice Cream Ltd.
Functions could include (1 mark for 1 function):

• To deal with any matters concerning employees e.g.
• recruitment and training
• employment contracts 2
• monitoring conditions of employment
• conducting disciplinary and grievance procedures
• the welfare of the employees.
It will support Fiori Ice Cream Ltd. by fulfilling its duties of dealing with any issues
regarding employees (1).
2(a) (ii) Explain the function of the production department and how it will support
Fiori Ice Cream Ltd.

• production of the good or service
• ensure quality control 2
• implement a stock management system.
It could support Fiori Ice Cream Ltd. by ordering stocks (1), organising and
managing production of the ice cream (1), ensuring the quality of the ice-cream
(1).
2(a)(iii) Explain the function of the finance department and how it will support Fiori
Ice Cream Ltd.

• management of cash inflows and outflows, including salaries and wages,
payments of bills and receipts of payments from debtors
• produce and forecast financial accounts 2
• preparing budgets and monitoring actual expenditure
It will support Fiori Ice Cream Ltd. by being responsible for all financial issues (1)
and for all specific tasks involving raising finance and cash inflows and outflows
(1). All departments in the business require finance (1).

Answer Marks
2(a)(iv) Explain the function of the marketing department and how it will support
Fiori Ice Cream Ltd.

• undertake market research
• promotion and advertising 2
• distribution of products
• provision of after sales service.
It can support Fiori Ice Cream Ltd. by undertaking market research, promoting
the ice cream products and providing an after sales service (1).
2(b) The Human Resource Manager of Fiori Ice Cream Ltd. delegates the task of
putting a job advertisement in the local paper to an administrator within the
same department. Explain who has the overall responsibility for ensuring
that the advertisement appears in the newspaper.

The Human Resource Manager has overall responsibility for ensuring that the 2
advertisement appears in the newspaper (1) even though they have delegated
the task to an administrator. This is because they are accountable for the actions
of the administrator (1). They can pass the responsibility for the task to the
administrator but not the accountability (1)
Award up to 2 marks for the explanation.

Chapter 2.2
Communication
Questions
1. a. Suggest the most appropriate method of communication in each of the following situations and
explain your answer in each case:
i. Mei Ling works in the Human Resource Department of UA Cinemas in Texas, USA, and
wishes to inform all employees that the date they will receive their wage and salaries has
changed from the last day of the month to the 22nd of every month.
ii. Mei Ling needs information on the hours worked by all staff in each of the cinemas by the end
of the day.
iii. Mei Ling has been involved in recruitment of new employees and needs to send 10 of the
recent interviewees an offer of employment.
iv. Duncan is the team leader of a group of employees who clean the cinema after each showing
of a film. There has been a complaint about the punctuality of one of the team members
called Edie.
v. UA Cinemas wishes to inform the general public in Texas about a new customer loyalty scheme
they are launching.
(5 x 3 marks)
b. UA Cinemas is an international chain of cinemas which operate in many countries around the
world. Discuss the extent to which the use of computer networks and electronic communication
can help to overcome communication problems which may arise in such a large company.
(6 marks)
c. Despite the increasing use of electronic methods of communication in today’s business

environment businesses still use paper–based communication in a variety of circumstances.
Explain why this is the case. (5 marks)
d. Explain an advantage and disadvantage of interviewing a person for a job using video-
conferencing through the Internet. (5 marks)

Answers
Answer Marks
1(a)(i) Suggest the most appropriate method of communication in each of the
following situations and explain your answer in each case:
Mei Ling works in the Human Resource Department of UA Cinemas in

Texas, USA, and wishes to inform all employees that the date they will
receive their wage and salaries has changed from the last day of the month
to the 22nd of every month.
Most appropriate method:

• Letter (1)
3
• It is formal communication (1) and informs workers of the change of timing
of their wages (1).
• An individual letter given to each worker should ensure that all workers
receive the message (1)
• The letter is evidence of the change (1)

• The letter is personal to each worker (1).

1(a)(ii) Mei Ling needs information on the hours worked by all staff in each of the
cinemas by the end of the day.

As the information is needed the same day Mei Ling should call each cinema
using the telephone (1) to ensure that the message is received and necessary 3
action taken (1) i.e. the information is emailed to her.
She should email (1) each cinema and ask for the required details about hours
worked (1) to be emailed back to her.

1(a)(iii) Mei Ling has been involved in recruitment of new employees and needs to
send 10 of the recent interviewees an offer of employment.
An offer of employment should be written in a letter (1). The letter should follow 3
a telephone call (1) to the new employees offering them the job (1).

Answer Marks
1(a)(iv) Duncan is the team leader of a group of employees who clean the cinema
after each showing of a film. There has been a complaint about the
punctuality of one of the team members called Edie.
Valid points could include: 3

Duncan should talk (1) to Edie about the complaint in an informal meeting (1).
This verbal meeting is the first stage in a disciplinary process (1).

1(a)(v) UA Cinemas wishes to inform the general public in Texas about a new
customer loyalty scheme they are launching.

• The cinema could put the information on their website (1)
• The cinema could produce leaflets about the loyalty scheme (1), which could 3
be available in the cinema, local cafes and art galleries (1)
• A press release could be issued in a local or regional newspaper (1)

1(b) UA Cinemas is an international chain of cinemas which operate in
many countries around the world. Discuss to what extent the use of
computer networks and electronic communication can help to overcome
communication problems which may arise in such a large company.

Advantages (2 marks for an explanation of an advantage)
• Information can be shared via email, on the company server or on the
company website (2)
• Email communication can be quick, easy and relatively cheap (2)

• It can lead to quicker decision-making and can reduce costs of production
(2)
• Workers can work collaboratively on documents from different locations (2) 6
Disadvantages (2 marks for an explanation of an disadvantage)

• Too much email can mean that staff are overloaded and important emails
may be missed (2)
• Too much time may be spent reading and writing emails rather than
completing other tasks (2)
• People may talk to each other less which can damage relationships (2)
• Electronic communication may slow down decision-making as people have
to read emails and respond to emails (2)
2 marks for drawing and explaining a conclusion.

Answer Marks
1(c) Despite the increasing use of electronic methods of communication
in today’s business environment businesses still use paper–based
communication in a variety of circumstances. Explain why this is the case.

• Paper-based communication include legal documents which could be used
in court (2)
• Formal communication is still paper-based as it needs a signature (2) 5

• Certain documents, e.g. invoices and receipts, have to be kept in paper
format for auditing purposes (2)
• Email is inappropriate for some types of communication because of

confidentiality reasons and/or its sensitive nature (2)
Award up to 2 marks for each explanation, up to a maximum of 4 marks and 1

mark for a conclusion
1(d) Explain an advantage and disadvantage of interviewing a person for a job
using video-conferencing through the Internet.
Advantage – valid points could include:

• Reduces costs because both parties do not have to travel to meet (2)
• Time is not spent travelling which is good for both parties (2)
• The interviewer and the interviewee both can see each other, which makes
the interview more realistic and allows both parties to observe body language
(2).
Award up to 2 marks for an explanation 5
Disadvantage – valid points could include:

• The situation is contrived and the interviewer and/or the interviewee may
feel uncomfortable so the interview might not be as effective as meeting
somebody personally (2)
• If the technology fails the interview cannot take place (2)

• It is not the same as meeting in person and therefore perception of the
person may not be reliable (2)
Award up to 2 marks for an explanation

Chapter 2.3
Recruitment and Selection
Questions
1. Phó Real is a café bar in Ho Chi Minh City, Vietnam. The manager has decided that she needs to
recruit extra waiting staff to work during busy lunch times and at weekends.
a. Give two examples of requirements that might be asked for on the person specification.
(2 marks)
b. Assess whether the manager should advertise in a national newspaper for new waiting staff.
(4 marks)
c. Explain, with the aid of an example, one employment law that the manager must be aware of
when shortlisting and interviewing candidates. (4 marks)
d. One applicant looks very strong on the basis of her application but has failed to provide the
names of two referees. Explain whether this is a problem for Phó Real. (4 marks)

Answers
Answer Marks
1(a) Give two examples of requirements that might be asked for on the person
specification.

• The experience required e.g experience of a similar role. (1)
2
• The qualifications required – a qualification in another language might be
desirable. (1)
• The skills required e.g customer service skills. (1)

• Work permit or immigration status required. (1)
1(b) Critically assess whether the manager should advertise in a national
newspaper for new waiting staff.

Arguments for:
• Wide coverage (1) could mean a large response rate. (1)
• The advert could be colourful and creative (1) to attract attention and portray
Pho Real in a positive light. (1)
4
Arguments against:
• Likely to be costly (1) and therefore could harm Pho Real’s cashflow position.
(1)
• It may not be the sort of job a person would relocate for (1) and so the
company might be better served advertising at lower cost locally (1).
Other valid points may be credited. A balanced answer is required for full marks.
1(c) Explain, with the aid of an example, one employment law that the manager
must be aware of when shortlisting and interviewing candidates.
Valid answers could include:

• Race Relations Act (1) means that stipulating a member of a particular ethnic
group may not apply, or implying they would be unlikely to be appointed is
against the law. (1)
• Gender equality legislation (1) means that a manager could not preclude
women from applying or treat them any different during selection process
4
as men e.g the HR Manager could not ask a female candidate if they were
planning to start a family soon. (1)
• The Disability Discrimination Act (1) means that a firm cannot discriminate
against a disabled candidate so they would not be able to fail to shortlist a
candidate that was well qualified based on their disability. (1)
Award 2 marks for each area of legislation that is identified and explained.

Answer Marks
1(d) One applicant looks very strong on the basis of her application but has
failed to provide the names of two referees. Explain whether this is a
problem for Pho Real.
Valid points may include:

• Although the candidate looks strong on paper if the claims that he or she
made were unsubstantiated then there is a danger that they were fictitious
(2)
• This means that they might not have chosen the best candidate for the 4
position (1) and may have missed out on a better employee (1)
• The candidate may have left their previous job in undesirable circumstances
(1) and Pho Real may not have appointed had they known the reason. (1)
• However, they may be inclined to give the job to the candidate anyway (1),
should the reason for not providing the referees be satisfactory. (1)
A balanced answer is required for full marks.

Chapter 2.4
Training
Questions
1. Carlos Messi is a restaurateur from Buenos Aires, Argentina. He owns a chain of steak eateries.
Training for staff in his kitchens is mostly done on-the-job. Carlos has recently recruited staff for a
new outlet and is devising a training programme for them.
a. State two things that might be included in the induction training for the new staff. (2 marks)
b. Explain two benefits of conducting the training of the new staff on-the-job. (4 marks)
c. Evaluate whether Carlos should consider using off-the-job training for all kitchen staff in future.
(6 marks)

Answers
Answer Marks
1(a) State two things that might be included in the induction training of the new
staff
Valid points include:

• Orientation. (1)
2
• Health and safety training. (1)
• Introduction to colleagues and description of their roles. (1)
1 mark for any valid point, up to a maximum of 2.

1(b) Explain two benefits of conducting the training of the new staff on the job

• Learning new skills whilst doing the job through trial and error might be an
effective way to learn in the roles available (1) and instant feedback can be
given by colleagues. (1)
• Training will be with a more experienced colleague who should know the role
well (1) and be able to pass on the skills and knowledge required. (1) 4
• It can be more cost effective for the firm (1) as the new employee is productive
straight from being hired and doesn’t spend time away being trained. (1)
• Less formal (1) – this might produce better results if new recruits are more
relaxed. (1)
1 mark for any valid point, plus 1 for development, up to a maximum of 4.

Answer Marks
1(c) Evaluate whether Carlos should consider using off-the-job training for all
kitchen staff.
Benefits include:
• Definition of off-the-job training. (1)
• Training delivered by expert trainers. (1)
• Allows new recruits to focus exclusively on training in an environment away
from the workplace. (1)
• Can lead to industry recognised qualifications. (1)

• New recruits are less likely to pick up bad habits. (1)
• New recruits will feel invested in, which may motivate them. (1)
Disadvantages include:
• Costly for businesses as new recruits are being paid whilst not doing the 6
job. (1)
• Expert trainers are costlier than simply using experienced employees. (1)
• Benefit of training could be felt by another restaurant should the trainee
leave. (1)
• Skills taught may not be directly applicable to the role. (1)
Judgement should include application to context e.g Carlos should train his chefs
off the job so that they have vocational qualifications in food preparation that will
promote quality and ensure that they have correct and up-to-date knowledge of
food hygiene procedures.
1 mark definition plus 4 for balanced discussion and 1 for judgement.

Maximum of 4 for one sided answer.

Chapter 2.5
Motivation and rewards
Questions
1. Chang’s is a picture frame manufacturing company based in Malaysia. Chang’s supplies its
products to retailers throughout the country. It has traditionally relied on time based payment
systems and has never tried to implement any non-financial methods of motivation.
a. How might paying a piece rate increase motivation in a business? (2 marks)
b. Explain why the CEO of Chang’s might be rewarded with share ownership options. (3 marks)
c. Evaluate whether a firm like Chang’s should allocate an annual budget for staff social events to
increase employee motivation. (5 marks)

Answers
Answer Marks
1(a) How might paying a piece rate increase motivation in a business?
Required content:
• Definition - piece rate is when an employee is paid according to output. (1)
2
• Employees who wish to maximise pay may therefore be motivated to
maximise output. (1)
1 mark for definition plus 1 mark for explanation of how it aids motivation.
1(b) Explain why the CEO of the business might be rewarded with share
ownership options.

• Offering discount share options mean that the CEO will earn a large amount
of money should the share price rise. (1) 3
• The share price will rise if the business is able to increase profits. (1)
• The CEO should therefore be motivated to increase profits and so this might
be a more motivational payment system than salary only. (1)
1(c) Evaluate whether a firm like Chang’s should allocate an annual budget for
staff social events to increase employee motivation.

• Social events budget will appeal to ‘love and belonging’ aspect of Maslow
hierarchy of needs. (1)
• Staff will feel valued and may improve their relationships with colleagues (1)
• Staff may form informal groups which may increase productivity. (1)
• Turnover and absenteeism might decrease if staff feel a sense of team spirit
and belonging. (1)
5
• However, if pay is too low perhaps the budget would be better spent
addressing the first level of Maslow’s hierarchy e.g physiological needs. (1)
• Staff may form informal groups and encourage each other to shirk. (1)
• Social events might not suit all employees – hard to please a diverse range
of staff. (1)
• Increase in costs may be unacceptable use of funds for shareholders/

owners. (1)
2 marks to be awarded for benefits, 2 marks for disadvantages and 1 for

judgement.

Chapter 3.1
External and Internal Sources of Finance
Questions
1. AG Silver PLC is a silver mining company. It is listed on the London Stock Exchange. The
company has recently made a large profit on a mine in Mexico but the silver is now exhausted. It
is considering further exploration in South America to find more silver deposits.
a. If AG Silver uses profits earned previously to finance new mines would that be internally or
externally financed? (2 marks)

b. Due to their debtors being slow to settle payment AG Silver has a cash flow problem. Explain
two methods it could use to remedy the problem other than selling stock off cheaply.
(6 marks)
c. Assess the drawbacks to AG Silver of increasing the level of gearing within the business
(4 marks)
d. AG Silver is considering selling further shares in the business to help towards the cost of
exploration. Evaluate whether this would be an appropriate source of finance. (6 marks)

Answers
Answer Marks
1(a) If AG Silver uses profits earned previously to finance new mines would that
be internally or externally financed?
Required content:
2
Internally financed (1) as the company is using earnings generated by the
company. (1)
1(b) Due to their debtors being slow to settle payment AG Silver has a cash flow
problem. Explain two methods it could use to remedy the problem other
than selling stock off cheaply.
• Improve credit control (1) through increasing the speed by which debtors
settle accounts (1), for example by offering small discounts for prompt
payment. (1)
• More promotions (1) may increase sales revenue (1) and should increase 6
the amount of working capital in the business, provided they are effective
and successful. (1)
• Negotiating better terms with suppliers (1) will mean cheaper supplies (1) or
longer credit periods. (1)
Credit any valid, well explained alternative.

Two points should be explained. 1 mark for correct identification of point plus 2
for explanation.
1(c) Assess the drawbacks to AG Silver of increasing the level of gearing within
the business.
• Gearing refers to the amount of capital within the business that is financed by
borrowed funds (1), borrowing more money means paying a greater amount
of interest. (1)
4
• Increasing the level of gearing might leave AG Silver vulnerable to liquidity
problems (1) should interest rates in the economy rise. (1)
• AG Silver might be seen as a greater risk by potential investors (1) so raising

finance through selling shares might be more difficult in future. (1)
• A steady cash flow is needed to service – or pay for – debts (1) and the
nature of silver exploration means this might not be possible, exposing AG
silver to possible insolvency. (1)

Answers
Answer Marks
1(d) AG Silver is considering selling further shares in the business to help towards
the cost of exploration. Evaluate whether this would be an appropriate source
of finance.

• Selling shares to investors means there is no extra burden on the business
cash flow (1); this reduces the chances of insolvency and liquidity problems.
(1)
• The shareholders will get a return in the form of a dividend should the
exploration prove successful (1)
• If the exploration isn’t successful and contributes no profit, there is no extra 6

liability to AG Silver. (1)
• However, new shareholders will have a claim from any resulting profits (1)
from the exploration so returns to the existing shareholders would be diluted.
(1)
• New shareholders will have voting rights (1) and there might be the possibility
of a takeover whereby the existing owners lose control. (1)
Credit any other appropriate evaluation. Balanced response needed for full
marks.

Chapter 3.2
Budgets and cash flow forecasts
Questions
1. a. Complete the missing figures for Haruki Ltd.: (5 marks)
Budget ($) Actual ($) Variance($) F/A

Sales (goods) 2,200 2,300
Sales (services) 3,150 120 A
Rent 2,500 2,500
Raw materials 1,100 1,300
Wages 800 50 F
Marketing costs 450 430
Profit 400 350
b. Examine how the use of budgeting and variance analysis can aid business decision-making.
(5 marks)

Answers
Answer Marks
1(a) Complete the missing figures for Haruki Ltd.:
Budget ($) Actual ($) Variance ($) F/A

Sales (goods) 2,200 2,300 100 F
Sales (services) 3,150 3,030 120 A
Rent 2,500 2,500 0 -
Raw materials 1,100 1,300 200 A 5
Wages 800 750 50 F
Marketing costs 450 430 20 F
Profit 400 350 50 A
Deduct 1 mark for each error. Apply the Own Figure Rule as appropriate.
1(b) Examine how the use of budgeting and variance analysis can aid business
decision-making.

• Budgeting allows a business to plan its costs, revenues and profits (1)
• Variance analysis allows a business to monitor its costs, revenues and
profits (1) 5
• They allow a business to make appropriate adjustments to the plans (1)

• They provide targets and hence guide management decision-making (1)
• They help to guide/control business expenditure (1)
• Any other valid point (1)

Questions
2. a. Complete the 3-month cash flow forecast for Müller & Co.: (5 marks)
January ($) February ($) March ($)

Opening balance 0 250 50
Sales Revenue 1,200 980
Bank overdraft 0 0
Cash inflow 800 1,380
Wages 500 500 500

Electricity 200 200
Telecommunications 150 150 150
Advertising 100 150 100
Cash outflow 930
Net cash flow

Closing balance 250
b. Explain two causes of cash flow problems. (4 marks)
c. Explain how a business can resolve its cash flow problems. (4 marks)

Answers
Answer Marks
2(a) Complete the 3-month cash flow forecast for Müller & Co.:
January ($) February ($) March ($)

Opening balance 0 250 50
Sales Revenue 1,200 800 980
Bank overdraft 0 0 400
Cash inflow 1,200 800 1,380
Wages 500 500 500

Electricity 200 200 180 5
Telecommunications 150 150 150
Advertising 100 150 100
Cash outflow 950 1,000 930
Net cash flow 250 200 450

Closing balance 250 50 500
Deduct 1 mark for each error. Apply the Own Figure Rule as appropriate.
2(b) Explain two causes of cash flow problems.
Valid points could include explanation of:

• Sales being lower than expected (2)
• Costs being higher than budgeted (2)
4
• There being unexpected costs (2)
• A significant number of customers buying on credit (2)
• Poor credit control (2)
• Any other relevant explanation (2)
2(c) Explain how a business can resolve its cash flow problems.
Valid points could include explanation of:

• Improving its marketing to boost sales revenue (2)
• Using a bank overdraft to deal with a cash shortage (2)
4
• Negotiating improved trade credit terms with its suppliers (2)
• Lease rather than buy capital equipment (2)
• Improved credit control (2)
• Any other relevant explanation (2)

Chapter 3.3
Cost and break-even analysis
Questions
1. Complete the information in the table below. (5 marks)
Units sold Sales Revenue Total fixed Total Variable Total Costs Profit/Loss
(shoes) ($) Costs ($) Costs ($) ($) ($)
0 0 (4,200)
60 4,200
120 3,000 7,200
180 10,800

Answers
Answer Marks
1(a) Complete the information in the table below:
Units sold Sales Revenue Total fixed Total Variable Total Costs Profit/Loss
(shoes) ($) Costs ($) Costs ($) ($) ($)
0 0 4,200 0 4,200 (4,200)
60 3,600 4,200 1,500 5,700 (2,100) 5
120 7,200 4,200 3,000 7,200 0
180 10,800 4,200 4,500 8,700 2,100
Deduct 1 mark for each error, but apply the own figure rule (error carried
forward) where appropriate.

Questions
2. In-a-Box is an online business which is planning to make plastic stationery boxes to sell to schools
and offices in Hong Kong. In-a-Box wants to know how many stationery boxes it needs to sell to
break-even. The cost and revenue data for In-a-Box is shown below (figures in HK$):
• Fixed costs are $2,000 per month

• Variable costs are $20 per box
• In-a-Box wants to produce 80 boxes per month
• Selling price of each box is $60
a. Use the information above to calculate the break-even level of output for In-a-Box. (2 marks)
b. Plot a suitable break-even chart for In-a-Box and show the margin of safety. (6 marks)
c. Assess the value of using break-even analysis to help In-a-Box decide whether to produce these
stationery boxes. (6 marks)

Answers
Answer Marks
2(a) Use the information to calculate the break-even level of output for In-a-Box.
Break-even = Fixed Costs ÷ Contribution

2
• $2,000 ÷ ($60 - $20) (1)
• 50 boxes (1)
2(b) Plot a suitable break-even chart for In-a-Box and show the margin of safety.
Break-even and margin of safety for In-a-Box
TR
6,000
Cost and
Revenues
($)
4,000 TC
3,000
margin of 6
2,000 safety
(30 boxes)
Output (boxes)
50 80 100
Award up to 5 marks for the break-even diagram, deducting 1 mark for each
error/omission. Apply the own figure rule where appropriate.
Award 1 mark for the correction identification (on the chart) of the margin of
safety.
2(c) Assess the value of using break-even analysis to help In-a-Box decide
whether to produce these stationery boxes.
Valid points could include an explanation of:

• Break-even analysis being quite simple to calculate and easy to understand,
helping In-a-Box to know how many items they need to sell to make a profit
(2)
• Helping In-a-Box to spot possible problems at an early stage such as higher

costs than expected (2)
• Helping the firm (as part of its business plan) if In-a-Box needs a bank loan
at any time to continue production of the stationery boxes (2)
6
• Break-even being a forecast only, so sales and/or costs of In-a-Box might not
turn out to be as predicted (2)
• Break-even being a static model so it represents the situation for In-a-Box at

one point in time only (2)
• Break-even analysis assumes that both variable and fixed costs stay the
same as output increases, but this might be unrealistic due to economies of
scale (2)
If only advantages OR disadvantages are assessed, award up to 4 marks.

There must be consideration of both advantages and disadvantages for 5-6
marks.

Chapter 3.4
Financial Statements
Questions
1. Karoo Florists Ltd. supplies fresh flowers to restaurants, hotels and other businesses in Melbourne,
Australia. The company’s accountant has provided the following financial information:
• Sales revenue = $18,960
• Cost of goods sold = $6,320
• Expenses = $6,000
a. Define the term ‘expenses’. (2 marks)
b. From the above information, calculate the i) gross and ii) net profit of the company. (3 marks)
c. In the previous year, the company’s gross profit was $11,450 and its net profit was $6,040.
Comment on the financial performance of Karoo Florists Ltd. over the past 2 years. (4 marks)

Answers
Answer Marks
1(a) Define the term ‘expenses’.

• Costs not directly linked to the level of production (1) 2
• Accept answers that refer to expenses as overheads (1)
• Examples: Insurance, interest payments or advertising expenditure (1)
1(b) From the above information, calculate the i) gross and ii) net profit of the
company.
Sales revenue = $18,960
Cost of goods sold = $6,320
Gross profit = $12,640
Expenses = $6,000 3
Net profit = $6,640
• Gross profit = Sales revenue – Cost of goods sold

• $18,960 – $6,320 = $12,640 (2)
• Gross profit - Expenses = Net Profit

• $12,640 – $6,000 = $6,640 (1)
1(c) In the previous year, the company’s gross profit was $11,450 and its net
profit was $6,040. Comment on the financial performance of Karoo Florists
Ltd. over the past 2 years.
Year 1 Year 2 % change
Gross profit = $11,450 $12,640 10.4%
Expenses = $5,410 $6,000 10.9%
Net profit = $6,040 $6,640 9.93%
4
• Karoo Florists Ltd. has earned $1,190 more gross profit, a rise of 10.4% (1)
• Expenses however have risen proportionately more by 10.9% (1)
• As a result, net profit has increased at a relatively lower rate at 9.93% (1)
• Overall, there has been improvement in the firm’s financial performance (1)

Questions
2. Consider the simplified balance sheet for Karoo Florists Ltd. and answer the questions below.
2012 2011
Fixed assets = $32,500 $30,000
Current assets = $6,320 $6,100
Current liabilities = $5,300 $5,000
Shareholders’ Funds = $10,000 $10,000
Retained profit = $10,000 $6,850
Mortgage = $13,520 $14,250
a. Calculate the value of the working capital for Karoo Florists Ltd. for both years. (2 marks)
b. Explain why working capital is important to a business such as Karoo Florists Ltd. (4 marks)
c. Calculate the capital employed for the company for both years. (3 marks)
d. Using the information given in the balance sheet, assess whether the financial performance of
Karoo Florists Ltd. has improved between 2011 and 2012. (5 marks)

Answers
Answer Marks
2(a) Calculate the value of the working capital for Karoo Florists Ltd. for both
years.
2012 2011

2
• 2012: $6,320 - $5,300 = $1,020 (1)
• 2011: $6,100 - $5,000 = $1,100 (1)
2(b) Explain why working capital is important to a business such as Karoo
Florists Ltd.

• Working capital is needed to pay for the daily running of Karoo Florists Ltd.
(1) 4
• Example applied to Karoo Florists Ltd., e.g. purchase of flowers or the
payment of wages to workers (1)
• Explanation that without sufficient working capital, the business will face
liquidity problems and bankruptcy in the long run (2)
2(c) Calculate the capital employed for the company for both years.
2012 2011
Fixed assets = $32,500 $30,000
Shareholders’ Funds = $10,000 $10,000
3
Retained profit = $10,000 $6,850
Mortgage = $13,520 $14,250
Capital employed = Mortgage + Shareholders’ Funds + Retained profit
• 2012: 13,520 + 10,000 + 10,000 = $33,520 (2)

• 2011: 14,250 + 10,000 + $6,850 = $31,100 (1)
2(d) Using the information given in the balance sheet, assess whether the
financial performance of Karoo Florists Ltd. has improved between 2011
and 2012.

• The value of fixed assets has increased, suggesting the firm has grown (1)
• Working capital seems stable, but liquidity can be questioned as the liquidity
ratios are close to 1:1 (1)
5
• Retained profit has increased significantly (almost 46%), creating an internal
source of finance (1)
• The mortgage has been reduced, thereby reducing the firm’s net interest
payments on its borrowing (1)
• Capital employed has increased overall, suggesting better financial

performance (1)
• Any other valid point (1)

Chapter 3.5
Ratios and performance
Questions
1. Profit and loss account for Kingman Book Store:
Sept ($) Oct($) Nov ($) Dec ($)

Sales revenue 15,000 10,500 16,000
Cost of goods sold 7,200 5,980 7,520
Gross profit 5,520 4,725 8,480
Gross profit ratio 48%
a. Define the term ‘gross profit ratio’. (2 marks)
b. Calculate the missing figures in the above table and comment on the performance of Kingman
Book Store during the given time period. (6 marks)

Answers
Answer Marks
1(a) Define the term ‘gross profit ratio’.
• The gross profit ratio calculates the gross profit as a proportion of sales
revenue (1)
2
• Illustration of the formula:
gross profit ratio = (gross profit / sales revenue) x 100
or use of a numerical example (1)
1(b) Calculate the missing figures in the above table and comment on the
performance of Kingman Book Store during the given time period.
Profit and loss account for Kingman Book Store:
Sept ($) Oct($) Nov ($) Dec ($)

Sales revenue 15,000 11,500 10,500 16,000
Cost of goods sold 7,200 5,980 5,775 7,520
Gross profit 7,800 5,520 4,725 8,480
Gross profit ratio 52% 48% 45% 53%
Valid points for the commentary could include:

• Sales revenues have fluctuated over the period but risen by 6.67% during 6
the four months (1)
• Cost of goods sold has increased by 4.1%, i.e. a smaller proportion than the
increase in sales (1)
• Thus, gross profit has increased by 8.7% (1)

• There has been an insignificant change in the gross profit ratio (1)
• Overall, the financial performance of the firm has been quite steady (1)
Award up to 3 marks for the calculations; apply the own figure rule where
appropriate. Award up to 3 marks for the commentary.

Questions
2. Study the data in the table below for two firms in direct competition and answer the questions that
follow:
Business Gross profit ratio Net profit ratio
Zawada Ltd. 40% 20%
Chan Corp. 45% 23%
a. Define the term ‘net profit ratio’. (2 marks)
b.Using the financial information provided, assess whether Zawada Ltd. or Chan Corp. has
performed better. (6 marks)

Answers
Answer Marks
2(a) Define the term ‘net profit ratio’.
• The net profit ratio calculates the net profit of a firm as a proportion of its
sales revenue (1)
• Illustration of the formula: net profit ratio = (net profit / sales revenue) x 100 2
or use of a numerical example (1)
• The difference between a firm’s gross and net profit ratios indicates its ability
to control expenses (1)
2(b) Using the financial information provided, assess whether Zawada Ltd. or
Chan Corp. has performed better.
Business Gross profit ratio Net profit ratio

Zawada Ltd. 40% 20%
Chan Corp. 45% 23%
Valid explanation points could include:
• Chan Corp. has a higher gross profit ratio, i.e. it enjoys larger profit margins
(2)
6
• Chan Corp. also has a higher net profit ratio, showing better financial
performance (2)
• Zawada Ltd. has better overhead control as expenses reduce gross profit by
20% at Zawada Ltd., compared to 22% at Chan Corp. (2)
• There is limited data given, so a true/fair assessment might not be possible,

e.g. other data such as sales revenue and capital employed would be useful
(2)

Questions
3. Study the balance sheet for Renaissance Getaway Tours and answer the questions that follow.
Working capital is the difference between current assets and current liabilities:
2012 ($) 2011 ($)
Fixed Assets
Buildings 250,000 228,000
Vehicles 85,000 95,000
Total fixed assets 335,000 323,000
Current Assets
Debtors 8,000 7,000
Cash 6,000 10,000
14,000 17,000
Current liabilities
Creditors 4,600 5,200
Overdraft 6,300 3,300
Working Capital 3,100 8,500
Net assets employed 338,100 331,500
Shareholders’ funds:
Share capital 150,000 150,000
Retained profit 82,000 55,500
Long-term liabilities
Mortgage 106,100 126,000
Capital employed 338,100 331,500
a. Define the term ‘capital employed’. (2 marks)
b. Assume that the net profit for Renaissance Getaway Tours is $25,000 in 2011 and $22,000 in
2012. Calculate the return on capital employed for both years and comment on your findings.
(4 marks)

Answers
Answer Marks
3(a) Define the term return on ‘capital employed’.
• Capital employed is the amount of money invested in the business. (1)

2
• It is the sum of all internal and external sources of finance. (1)
• The capital employed figure can be seen in a firm’s balance sheet. (1)
3(b) Assume that the net profit for Renaissance Getaway Tours is $25,000 in
2011 and $22,000 in 2012. Calculate the return on capital employed for
both years and comment on your findings.
• ROCE for 2011: $25,000 / $338,100 = 7.39% (1)
• ROCE for 2012: $22,000 / $331,500 = 6.64% (1)

• Explaining what the ratios actually show, e.g. for each $100 of capital 4
employed by the firm in 2011, $7.39 was generated as net profit (1)
• The financial performance based on the ROCE ratio was better in 2011 than
2012 (1)
• However, the firm should compare these ratios to the expected returns from
other projects and/or bank savings rates to gauge the level of return (1)
Award up to 2 marks for the calculations and up to 2 marks for the commentary.

Questions
4. The manager at Vipalas Glassware has calculated that the firm’s current ratio for the past three
years is as follows:
2010 2011 2012

2.45:1 1.95:1 1.1:1
a. Define the term ‘current ratio’. (2 marks)
b. Using the information provided, analyse the financial position of Vipalas Glassware. (4 marks)

Answers
Answer Marks
4(a) Define the term ‘current ratio’.
• The ratio looks at how solvent (or liquid) a business is in the current year (1)
i.e. the extent to which the business can cover its current liabilities with its
current assets (1) 2
• Illustration of the formula: Current ratio = Current assets / Current liabilities
(1)
• or for use of a numerical example (1)

4(b) Using the information provided, analyse the financial position of Vipalas
Glassware.
2010 2011 2012
2.45:1 1.95:1 1.1:1
Valid points could include an analysis of:

• The current ratio having deteriorated over time (2) 4
• What the figures reveal, e.g. in 2011 the company had $1.95 of current
assets for each $1 of current liabilities (2)
• The liquidity position – i.e. sufficient liquidity, albeit not ideal in 2012 (2)
• Other factors that might need to be considered before judging the financial
position of the firm, e.g. gross profit and ROCE ratios (2)

Questions
5. Study the information below for three rival businesses and answer the questions that follow:
Arsenal ($) Bolton ($) Chelsea ($)

Current Assets
Stocks 25,000 10,000 40,000
Debtors 3,000 5,000 20,000
Cash 30,000 20,000 15,000
Current Liabilities
Creditors 20,000 25,000 30,000
Overdraft 10,000 10,000 12,000
a. Distinguish between the acid test and current ratios. (2 marks)
b. Calculate the current ratio and acid test ratio for Arsenal, Bolton and Chelsea. Comment on the
relative financial performance of these businesses. (6 marks)

Answers
Answer Marks
5(a) Distinguish between the acid test and current ratios.
• The acid test ratio ignores stock (inventory) from the calculation of short term
liquidity (1) 2
• Illustration of the formulae (1)
• or for use of a numerical example (1)
5(b) Calculate the current ratio and acid test ratio for Arsenal, Bolton and Chelsea.
Comment on the relative financial performance of these businesses.
Arsenal ($) Bolton ($) Chelsea ($)

Current Assets
Stocks 25,000 10,000 40,000
Debtors 3,000 5,000 20,000
Cash 30,000 20,000 15,000
58,000 35,000 75,000
Current Liabilities
Creditors 20,000 25,000 30,000
Overdraft 10,000 10,000 12,000
30,000 35,000 42,000
Current ratio 1.93:1 1:1 1.78:1

Acid test ratio 1.1:1 0.7:1 0.83:1
Valid points for the commentary could include:

6
• Chelsea has a high degree of risk with its high value of stocks and debtors
(1)
• Most of Chelsea’s current assets come from stocks – a problem if it is difficult

to offload stocks in the industry (1)
• Chelsea has the least cash (the most liquid asset) as a proportion of current
assets (1)
• Arsenal has the lowest amount owed to its suppliers (creditors), suggesting
that it has better financial control (1)
• All three firms have a current ratio of less than 2:1 suggesting possible
liquidity problems (1), albeit not so problematic for Arsenal compared to
Bolton (1)
• Bolton and Chelsea both have an acid test of less than 1:1, implying that
they have huge/potential liquidity issues (1)
Award up to 3 marks for the calculation of current and acid test ratios. Award up
to 3 marks for the commentary.

Questions
6. Compare the data in the table below for three competitors and answer the questions that follow:
Alpha Beta Gamma

Sales revenue 100,000 120,000 150,000
Gross profit 58,000 65,000 72,000
Net profit 38,000 40,000 52,000
Capital employed 80,000 100,000 200,000
Current Assets 20,000 20,000 45,000
Current Liabilities 10,000 12,000 22,000
Stocks 10,000 8,000 20,000
Gross profit ratio
Net profit ratio
Return on capital employed
Current ratio
Acid test ratio
a. Complete the missing calculations in the table above. (5 marks)
b. Using the financial data, assess which firm has performed best on financial grounds. (6 marks)

Answers
Answer Marks
6(a) Complete the missing calculations in the table above.
Alpha Beta Gamma

Sales revenue 100,000 120,000 150,000
Gross profit 58,000 65,000 72,000
Net profit 38,000 40,000 52,000
Capital employed 80,000 100,000 200,000
Current Assets 20,000 20,000 45,000
Current Liabilities 10,000 12,000 22,000
5
Stocks 10,000 8,000 20,000
Gross profit ratio 58% 54.17% 48%
Net profit ratio 38% 33.3% 34.6%
Return on capital employed 47.5% 40% 26%
Current ratio 2:1 1.67:1 2.04:1
Acid test ratio 1:1 1:1 1.13:1
Deduct 1 mark for each error, but apply the own figure rule (error carried forward)
as appropriate.
6(b) Using the financial data, assess which firm has performed best on financial
grounds.

• Gamma has better sales than its rivals, by between 20-50% (1)
• Gamma is also the best performer when comparing gross profit (1) and/or
net profit (1)
• However, both Alpha and Beta perform better when using the gross profit
ratio (1) which suggests they have better control over their cost of goods
sold (1)
• Alpha’s net profit ratio is the best at 38% (1), suggesting that it has good
overhead control (1)
• Gamma is at least twice the size of its rivals (as measured by capital 6
employed), yet its profit is not proportionately higher (1); both Alpha and
Beta have a significantly larger ROCE (1)
• Beta’s liquidity as measured by the current ratio is not as safe as its rivals
who have a ratio of at least 2:1 (1)
• All three firms have adequate liquidity as measured by the acid test (1)
• Based on profitability, it seems that Alpha has performed best (1)
• Based on liquidity, it seems that Gamma has performed the best (1)
Award 1-2 marks for a vague/undeveloped answer that lacks substance.

Award 3-4 marks for answers with some application/use of the data.
Award 5-6 marks for a balanced and developed answer that answers the
question.

Chapter 4.1
The Market
Questions
1. a. Explain the difference between market share and market segment. (4 marks)
b. A furniture manufacturer is product oriented.
i. Explain what product oriented means. (2 marks)
ii. Discuss possible reasons why a furniture manufacturer might decide to produce more market
oriented products. (5 marks)


Answers
Answer Marks
1(a) Explain the difference between market share and market segment.

• Market share is the percentage of sales of the total market owned by an
individual business (1). For example, Starbucks has 70% of the coffee
market in China in 2009. (1)
1 mark for basic explanation + 1 mark for development 4

• A market segment is part of the total market for a product or service (1).
The individuals, organisations or families within the market segment all
share similar characteristics (1). For example, people who buy dog food
and dog products all have a pet dog (1). Dog owners are a segment (1).
Award up to 2 marks for each explanation. An example is not necessary for 4

marks
1(b)(i) A furniture manufacturer is product oriented. Explain what product
oriented means.

Product orientation occurs when a business designs and makes a product which
it hopes will be attractive to consumers (1). For example, a furniture manufacturer
may design and produce furniture it hopes that customers will buy (1). It has not
2
taken into account the needs and wants of consumers (1) when designing and
producing the product (1). It has made a product that it wants to sell (1) and that
it thinks consumers will like (1).

1(b)(ii) Discuss possible reasons why the furniture manufacturer might decide to
produce more market oriented products.

• The furniture manufacturer may wish to increase sales revenue (1) and
therefore wants to design and produce products that satisfy customer’s
needs (1)
• The furniture manufacturer may face fierce competition (1) from rival firms
and may wish to retain its market share (1). It therefore must produce
products which satisfy needs and wants of potential customers (1)
5
• The furniture manufacturer may wish to appeal to a different market segment
(1) and therefore must produce products that meet the needs of the new
market segment (1)
• The furniture manufacturer may be facing declining sales (1) as the furniture
it is trying to sell does not meet the needs of consumers (1). It may wish to
attract more customers (1).
Award 2 marks for each explanation, up to a maximum of 4 marks.

For 5 marks the answer must relate to a furniture manufacturer.

Chapter 4.2
The Marketing Mix
Questions
1. Maguire’s is a women’s clothing label based in Dublin, Ireland. Its products are aimed at a
professional market segment and Susan Maguire, the managing director of the company, has
created a new range of winter wear for 2011. A coat from Maguire’s costs €20 (£23) from their
suppliers in Mumbai, India. After an initial opening day promotion offering 15% off the standard
price to customers, Susan plans to sell the product with a 150% mark-up.
a. Define cost plus-pricing. (2 marks)
b. What would be the selling price of a Maguire’s coat after the opening day sale? (2 marks)
c. Analyse the benefits of using promotional pricing. (4 marks)
d. Examine whether Maguire’s aims of profit maximisation might be better served through
adopting a skimming pricing strategy when the product is launched. (6 marks)

Answers
Answer Marks
1(a) Define cost plus-pricing.
Answers should include: 2

Cost-plus pricing is when a firm works out the average cost per unit and then
adds on a certain percentage for profit, known as a ‘mark up’. (2)
1(b) What would be the selling price of a Maguire’s coat after the opening day
sale?
2
Required content:
€40 x 1.5 = €60 (or £23 x 1.5 = £57.50) (2)
1(c) Analyse the benefits of using promotional pricing.

• Can be useful to give customers an incentive to try a new product, product
line or range (1) which increases the chances of success of new products.
(1)
• Can strengthen the brand (1) if consumers feel that the business is delivering 4
better value for money. (1)
• Can increase market share (1) as consumers switch from competitors. (1)
• Business can increase revenues (1) and potentially, profits. (1)
1 mark for valid point identified and 1 for development.

1(d) Examine whether Maguire’s aims of profit maximisation might be better
served through adopting a skimming pricing strategy when the product is
launched.

Advantages:
• Skimming pricing is charging a high price for products newly introduced into
the market. (1) This means a higher profit margin for the business. (1)
• Charging a high price may fit in with the marketing campaign (1) portraying
6
the good as high quality and therefore enhance the brand. (1)
Disadvantages:
• The clothing market may be highly competitive (1) and so a high price may
mean demand for their products is low. (1)
• This could mean Maguire’s cannot gain a reasonable share of the market
(1). Therefore, profits may be low. (1)
Balanced answer plus a judgement required for full marks.

Questions
2. Scriveners is a firm of solicitors based in Cape Town, South Africa who specialise in personal injury
claims. Until now, they have relied on referrals from existing customers to generate business.
However, since a new management team was appointed, the business is looking for an opportunity
to expand in order to cover the national market. A new approach to promotion is now needed.
a. Define below-the-line promotion. (2 marks)
b. Explain a below-the-line promotion activity which might help Scriveners to expand the
business nationally. (2 marks)
c. Analyse how Scriveners might benefit from engaging in public relations. (4 marks)
d. Evaluate whether Scriveners should advertise their services on the internet only. (6 marks)

Answers
Answer Marks
2(a) Define below-the-line promotion

• Below-the-line is any promotional activity that doesn’t use paid-for media
(1) e.g free gifts and competitions or sales promotions. (1)
2(b) Explain a below-the-line promotion activity which might help Scriveners to
expand the business nationally

• Competitions (1) to launch in new areas. (1)
• Free gifts (1) to new clients from new areas. (1)
2
• Social networking websites such as Twitter (1) can be used by businesses
to give information about their services and interact with potential clients. (1)
• Free consultations (1) to new clients. (1)
1 mark for correct identification of a BTL method plus 1 for application to

expanding business nationally.
2(c) Analyse how Scriveners might benefit from engaging in public relations.

• Public relations is the way in which the business presents itself to the outside
world (1) and so helps the business to control its public image. (1)
• Good public relations can bring with it free (or cheap) publicity which can
increase brand awareness (1) - e.g Scriveners might gain an injury victim a
large payout which might make the press. (1) 4
• Good public relations may enhance a business’ brand (1) and allow it to
attract new customers, thus increasing market share. (1)
• Existing customers are likely to be retained by good PR on the part of the

firm (1), encouraging repeat sales and higher profits. (1)
One mark for any valid point plus one mark for development to a maximum of 4.

Answer Marks
2(d) Evaluate whether Scriveners should advertise their services on the internet
only.

Advantages:
• Large potential coverage – S.A. has millions of internet users (1)
• Building a company website or internet banner adverts should be cheaper
than other media such as TV. (1)
• Consumers can act right away by clicking on a link to email or Skype with an
advisor – unlike with TV or radio. (1)
• Persuasive techniques such as videos, pictures, music and testimonials
from former clients can be uploaded easily. (1)
• Large amounts of information regarding the services can be posted without
the space constraint of a newspaper or magazine advert. (1) 6
Disadvantages:
• Some market segments in S.A might not use the internet for various reasons
and so not be exposed to the marketing. (1)
• Other methods such as TV advertising may give much larger coverage. (1)
• Initial expense of paying a software developer to build site. (1)
• Costs of maintenance of site and keeping information up to date. (1)
2 marks available for two well explained benefits and another 2 for well explained
drawbacks.
Balanced answer plus a judgement is required for full marks.

Questions
3. Lisa Marie’s is a company that has designed a new brand of dairy and gluten free ice cream. Since
the launch the product has been available in batches of 20 cartons on the company website and
the proprietor is looking to explore alternative distribution channels.
a. Define the term ‘channel of distribution’. (2 marks)
b. Explain two disadvantages of selling the product exclusively via the website? (4 marks)
c. Evaluate the impact to Lisa Marie’s of using wholesalers and then supermarkets to sell their
product. (6 marks)

Answers
Answer Marks
3(a) Define the term ‘channel of distribution’.

The channel of distribution is the route via which the finished product gets from
the manufacturer to the consumer. (2)
3(b) Explain two disadvantages of selling the product exclusively via the
website.

• Storage costs will be incurred by Lisa Marie’s (1). If she used a more
traditional distribution channel these costs would be lower. (1)
• Customers may be unwilling to purchase without the advice of a representative 4

from the firm (1) as it is for customers who will be anxious about allergies
etc. (1)
• Some market segments may not purchase via the internet (1) which reduces
the potential sales of the product. (1)
One mark for each valid point plus one for development.
3(c) Evaluate the impact to Lisa Marie’s of using wholesalers and then
supermarkets to sell their product.
Advantages:
• Wholesalers will bear some of the storage and transportation costs (1)
lowering Lisa Marie’s unit costs and increasing profits. (1)
• Wholesalers will break bulk orders (1) allowing her to sell in larger quantities.
This will give her trading economies of scale as she doesn’t have to deal with
dispatching small orders to individual customers. (1)
• Supermarkets will know their local market better than the management of
Lisa Marie’s might (1) and so sales revenue might be increased. (1)
Disadvantages:
6
• The wholesaler will need to make a profit (1) on the sale of the goods so Lisa
Marie’s will not be able to command the same prices per unit that they would
selling direct to consumers. (1)
• Without the wholesaler’s profit mark-up it is possible that the product could
be sold at a lower price (1), therefore building a larger market share. (1)
• The wholesaler might be slow to respond to market changes (1) which Lisa
Marie’s would be more aware of should they sell directly to the customer. (1)

3 marks for key advantages well explained, 3 marks for key disadvantages well
explained.
A maximum of 4 to be awarded for one-sided answer.

Questions
4. Joby Waterman is an inventor who has invented collars that guide lost pets back to their homes
using a series of high pitched sounds. He has spent 3 years developing and testing the product
and researching the pet owners market. He believes the technology could be adapted to retrieve
lost property and even to help young children who lose their way.
a. Define the term ‘product range’. (2 marks)
b. Examine the benefits of Joby establishing a diverse product mix. (4 marks)
c. Explain which stage of the product life cycle will earn least profits for Joby. (4 marks)
d. Analyse two strategies Joby might use to prevent its product entering the decline stage of
the product life cycle. (4 marks)
e. Evaluate how the Boston Matrix might help Joby to manage his product portfolio. (6 marks)

Answers
Answer Marks
4(a) Define the term ‘product range’.
Required content: 2
A product range is the variations of a type of product a business sells. Eg Joby
Waterman is trying to add variations of his dog collar product. (2)
4(b) Examine the benefits of Joby establishing a diverse product mix.

• He can include products for sale in a wide range of markets and appealing
to a variety of market segments (1), thus increasing his sales revenue. (1)
• Selling a larger amount of products overall will allow him to access economies
of scale (1), and lower average costs might mean larger profits. (1)
4
• He will reduce his risk of business failure (1) because if one product has low
sales and is failing the business can still survive if other products in his mix
are selling well. (1)
One mark for valid point plus one mark for development up to a maximum of 4.
4(c) Explain which stage of the product life cycle will earn least profits for Joby.
Answer should include:

• Profits are lowest during introductory phase (1)
• Due to high costs such as the R and D of the technology (1) 4
• Marketing costs are high due to the need to make people aware of the new
invention (1)
• Sales revenue is low as the product has yet to make an impact on the market
(1)
4(d) Analyse two strategies Joby might use to prevent its product entering the
decline stage of the product life cycle.

• Find new uses for the product (1), such as using it to prevent losing personal
possessions. (1)
• Add extra features to the product (1) such as different tones of alarm or 4
personalisation. (1)
• Find new markets (1) in which to sell the product e.g expand abroad. (1)
1 mark for identification of extension strategy plus 1 mark for development up to

a maximum of 4 marks.

Answer Marks
4(e) Evaluate how the Boston Matrix might help Joby to manage his product
portfolio.
Answers should include:

• A clear explanation of the Boston Matrix and the different categories of
products. (2)
• Some application to the context e.g If the pet collars are cash cows he
could use the profits to invest in problem children like the child-finding
device. (2) 6
• Evaluation of how useful it would be for Joby e.g at the moment he doesn’t
have a star and the problem children are still only ideas. However in the
future it may help him to plan for the future and monitor his product range
so that he doesn’t spend too much money on ‘dogs’ or problem children
that can’t be developed. (2)
A balanced answer recognising some uses of the theory and some limitations
of the theory required for full marks.

Chapter 4.3
Market Research
Questions
1. a. Categorise the following into either primary or secondary research.
i. Conducting a survey of every 10th person who passes by in a busy shopping mall.
ii. Looking up the differences between income levels in the USA, UK and Japan.
iii. Asking your school friends for their opinions on IGCSE Business Studies.
iv. Speaking with the marketing manager of a company through a telephone interview.
v. Using information about McDonald’s from their homepage on the Internet.
vi. Using Zoomerang.com to conduct a questionnaire about the latest Hollywood movies.
vii. Talking with a group of teenagers to get their in-depth views about various games consoles.
viii. Gathering information from the internet about people’s use of social networking. (8 marks)
b. With the use of examples, distinguish between quantitative and qualitative research. (3 marks)


Answers
Answer Marks
1(a) Categorise the following into either primary or secondary research.
i. Primary (1)
ii. Secondary (1)
iii. Primary (1)
iv. Primary (1) 8
v. Secondary (1)
vi. Primary (1)
vii. Primary (1)
viii.Secondary (1)
1(b) With the use of examples, distinguish between quantitative and qualitative
research.

Quantitative research uses numerical information/data (1), plus examples such
3
as financial accounts, government statistics and closed-question surveys (1)
Qualitative research uses opinions and non-quantifiable information (1), plus
relevant examples, e.g. focus groups and in-depth interviews (1)

Chapter 5.1
Economies and Diseconomies of Scale
Questions
1. Jimmy Bump’s Ltd is a toy manufacturing company based in Streatham, South London. It has
experienced large growth since it was founded in 2006. After the first two years the owners
found that productivity in the factory was increasing and their production and finance managers
consistently delivered on their targets whilst the cost of materials seemed to be ever decreasing.
In 2011, Jimmy Bump’s products have not been selling well and they have been faced with an
ongoing labour dispute in their new, larger factory in Leamington Spa, England.
a. Outline how Jimmy Bump’s may have benefited from economies of scale during the growth
period. (4 marks)
b. Describe, using evidence from the case study, how diseconomies of scale have arisen for the
business. (4 marks)

c. Evaluate two ways the managers might try to reduce the diseconomies of scale facing the
business. (6 marks)

Answers
Answer Marks
1(a) Outline how Jimmy Bump’s may have benefited from economies of scale
during the growth period.

• Explain managerial economies (1) and apply to case study e.g using
specialist managers to co-ordinate production of the toys and HR. (1)
4
• Explain trading economies of scale (1) and apply to case study e.g bulk
buying of the packaging of the toys. (1)
Other types of economy may be correctly given. Credit 1 mark for a valid point
plus 1 for development to a maximum of 4.
1(b) Describe, using evidence from the case study, how diseconomies of scale
have arisen for the business.

• Explain that the business has been slower to respond to market trends 4
perhaps because of increased bureaucracy (1), leading to lower sales. (1)
• Explain how relationships between staff and management have deteriorated

(1) e.g the labour dispute from the case study. (1)
1(c) Evaluate two ways the managers of the business might try to reduce the
diseconomies of scale facing the business.

• Dividing the business into departments to regain control of operations (1) but
this might cost money to implement. (1)
• Commission primary market research in order to respond to market trends.

(1) However, this might be expensive. (1)
6
• Improve labour relations by looking at ways to increase motivation such as

improving pay and conditions. (1) However, this again may be prohibitively
expensive. (1)
1 mark for correctly identified point, plus up to 2 marks per point for effective
evaluation.

Chapter 5.2
Methods of production
Questions
1. a. Vortex Cinema is an independent film house that shows old and new films. It produces a monthly
brochure of forthcoming films which it distributes in schools, restaurants, bars and cafes in the
local area. Explain two reasons why Vortex Cinema will produce its brochures using batch
production. (4 marks)
b. Jacksons Garment Ltd. is a company that produces wedding dresses on a large scale for sale in
department stores and wedding dress shops throughout Australia and New Zealand. Francine
Wong designs and makes wedding dresses for individual customers. Suggest which type of
production method will be used in each business and explain your answer in each case.
(4 marks)

Answers
Answer Marks
1(a) Explain two reasons why Vortex Cinema will produce its brochures using
batch production.

• Vortex Cinema produces the brochures in batches because the information
contained in each brochure will change on a monthly basis (1) as the cinema
will show different films each month (1) and therefore the brochure will be
4
different each month (1).
• The number of copies required may change each month (1) and as the
contents will change each month mass production is inappropriate (1)
• Changes to design and layout can be made easily (1)
Award 2 marks for each explanation, up to a maximum of 4.

1(b) Suggest which type of production method will be used in each business
and explain your answer in each case.

• Jacksons Garment Ltd. will use batch production to produce the wedding
dresses because they will have several designs (1) and will make a number
of each design in a range of sizes (1). A particular design of dress will be
available in shops throughout New Zealand and Australia. It would be
inappropriate to use mass production because the wedding dresses are not 4
all the same (1)
• Francine Wong uses job production as she designs and makes wedding
dresses for each individual customer (1). Her dresses are unique (1) and
match the requirements of each customer and are made-to-measure (1).
Each dress is a one-off design for each customer (1).
Award 2 marks for each explanation.

Chapter 5.3
Productivity
Questions
1. Established in 1948, Honda is Japan’s second largest car maker and the world’s largest motorcycle
manufacturer. The Japanese multinational company enjoys annual global sales in excess of $120
billion (£75bn). As part of its growth strategy, Honda has relied on raising labour productivity
despite it being a capital-intensive company.
a. Define the term ‘labour productivity’. (2 marks)
b. Explain why calculating output per machine can be a useful measure of efficiency for a
capital-intensive business such as Honda. (4 marks)

Answers
Answer Marks
1(a) Define the term ‘labour productivity’.
• Measures how efficiently labour is used to generate output (1) 2

• Calculated as the output per worker, i.e. total output ÷ number of workers (1)
1(b) Explain why calculating output per machine can be a useful measure of
efficiency for a capital-intensive business such as Honda.

• Definition of capital-intensive (1)
• Explanation that businesses such as Honda rely heavily on technology and 4
capital equipment so it makes sense to rely on output per machine rather
than labour (2)
• Explanation of how output per machine might be calculated, e.g. total output
÷ number of machines (1) and how this is a useful measure of efficiency in
businesses such as Honda (1)

Questions
2. IKEA, the world’s largest home furniture retailer, was established in 1943. IKEA supplies a wide
range of products from carpets to Christmas trees in its stores, and enjoys annual sales revenue
in excess of €23 billion (£19bn).
In an attempt to finance its growth and to remain competitive, IKEA’s business model has focused
on lowering costs wherever possible. For example, there is no ‘free delivery’ service offered by
the Swedish company; instead customers can enjoy relatively lower prices or pay a small fee for
delivery of their purchased goods. IKEA claims that delivery charges can add up to 25% to their
costs. Most of IKEA’s furniture is mass produced and ‘flat packed’ for self-assembly. This also
helps to keep IKEA’s costs (of transportation) at a lower level.
IKEA relies on technology such as Computer Aided Design (CAD) and Computer Aided
Manufacturing (CAM) to improve its efficiency, from designing the latest furniture to placing stock
orders and locating the products stored in its retail outlets. More recently, IKEA has used e-business
as an alternative way to sell its products.
a. Distinguish between CAD and CAM. (3 marks)
b. Analyse how the use of the new technology can be beneficial to businesses such as IKEA.
(6 marks)

Answers
Answer Marks
2(a) Distinguish between CAD and CAM.

• CAD is the use of technology to aid and streamline product design (1)
3
• CAM uses technology to actually aid production of a product (1), namely to
control machinery and tools in production, with high-speed precision and
consistency (1)
Award the relevant use of examples (1)
2(b) Analyse how the use of the new technology can be beneficial to businesses
such as IKEA.
Valid points of analysis could include the following:

• As the world’s largest home furniture retailer, IKEA operates on a huge scale
so relies on technology to keep it operating efficiently (2)
• For example, electronic checkouts and sophisticated stock control

technologies are required at IKEA (1)
• The use of technologies such as CAD and CAM can help IKEA to “remain
competitive” (e.g. flat-packed) and achieve its growth objective (2) 6
• Technology can help to streamline the delivery system used at IKEA (2)
• e-commerce can help to sell IKEA products (1), thereby cutting the cost of
printing paper-based catalogues (1)
• Email might also help to improve communications at IKEA (1)
Award 1-2 marks for undeveloped answer that might appear as a list.
Award 3-4 marks for answers that are developed with use of examples.
Award 5-6 marks for a thorough analysis, with application to IKEA.

Chapter 5.4
Quality
Questions
1. Bare Fit is a private members gym in Hoboken, New Jersey. It has 500 paying members. Recently
the customer relations manager responsible for quality has received a lot of negative feedback from
customers about the poor customer service of the personal trainers and the aggressive attitude of
the sales staff. In the past, complaints have been made about the food on sale in the café.
a. Assess the importance of promoting quality in the health and fitness industry. (4 marks)
b. Analyse the costs and benefits of the traditional approach to quality currently employed by
Bare Fit. (4 marks)
c. Evaluate whether Bare Fit should change to a TQM system to improve quality. (6 marks)

Answers
Answer Marks
1(a) Assess the importance of promoting quality in the health and fitness
industry.

• The industry may be competitive meaning quality is a key differentiator. (1)
Providing a quality service can mean a larger market share. (1)
• Existing members may tell others about the quality (or lack thereof). (1)
• This might be a key (and cheap) marketing tool in attracting new members.
(1) 4
• There are many free or almost free alternatives to the gym, so without a
quality experience consumers may be reluctant to pay gym subscriptions (1)
reducing revenue for the industry generally, but especially those with poor
reputation. (1)
• Poor quality might be costly in terms of refunds and compensation paid to

complaining members (1) which reduces the profits of the business. (1)
1 mark for valid point. 1 for development, to a maximum of 4 marks.

1(b) Analyse the costs and benefits of the traditional approach to quality
currently employed by Bare Fit.

• They have got a customer relations manager (CRM) who is responsible for
checking quality. This person should be skilled at dealing with complaints and
promoting quality (1) so any flaws should be communicated to management
so that they can eradicate them. (1)
• However, members might not complain for a while and club’s brand is 4
damaged in the interim period. (1)
• CRM costs the business money as a salary is payable. (1)

• CRM job description might just be to deal with poor quality and not to identify
ways to improve it. (1)
Any other valid points can be credited. A Maximum of 2 marks may be awarded
for a one-sided answer.

Answer Marks
1(c) Evaluate whether Bare Fit should change to a TQM system to promote
quality

• Definition of TQM. (1)
• TQM might be a better alternative, as quality will become everyone’s
responsibility and CRM might be redundant – saves the business money. (1)
• Quality should be checked for at every stage and flaws will become apparent
earlier and not just when a member fails to renew subscription. (1)
• If the new system improves quality then membership rates and therefore
revenue should increase as the brand strengthens. (1)
6
• Increased revenue and savings made due to lack of need for quality control
may more than exceed costs of setting up system, making it a worthwhile
investment. (1)
• However, TQM may have a large cost outlay at first due to the need to train
staff to adopt new system. (1)
• Staff may be reluctant to accept changes to their job description which means
more responsibility without incentive of extra pay. (1)
Award 1 mark for definition plus 4 for balanced argument and 1 for reasoned
judgement. 4 marks maximum for one-sided response.

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IGCSE Business Studies:

Questions and Answers

Published by Anforme Ltd.,

Chapter 1.1 - Objectives 1

a. What is meant by business objectives? (2 marks)

IGCSE Business Studies: Questions and Answers Chapter 1.1 1

Valid points could include:

Valid points in favour of Coffee Shop 1 could include:

Valid points in favour of Coffee Shop 2 could include:

• The mission statement hints at growth as a business objective, i.e. one

IGCSE Business Studies: Questions and Answers Chapter 1.1 2

i. A café serving coffee, tea and snacks

c. Explain the benefits of job specialisation to a clothing manufacturer. (4 marks)

IGCSE Business Studies: Questions and Answers Chapter 1.3 3

A café serving coffee, tea and snacks

Valid points could include:

• Capital e.g. oven, fridge, freezer, microwave, cooking equipment. (1)

• Labour e.g. skilled baker/cook, skilled manager and waiters. (1)

Valid points could include:

• Capital e.g. computers, software, office furniture, printers, fax, photocopier.

IGCSE Business Studies: Questions and Answers Chapter 1.3 4

A firm of painters and decorators

Valid points could include:

• Capital e.g. ladders, van/truck to transport equipment, paint brushes, rollers

• Labour e.g. skilled painters. (1)

Valid points could include:

• Labour e.g. skilled workers and unskilled workers. (1)

Any one from:

• Cash registers automatically update stock records (1) so fewer employees 4

• Self-service checkouts exist in some supermarkets (1) and therefore fewer

Award up to 2 marks for each explanation.

IGCSE Business Studies: Questions and Answers Chapter 1.3 5

Valid points could include:

Award up to 2 marks for each explanation.

IGCSE Business Studies: Questions and Answers Chapter 1.3 6

Sector Examples of goods/services provided

d. Produce a table similar to the above for:

IGCSE Business Studies: Questions and Answers Chapter 1.4 7

Explain what is meant by the interdependence of primary, secondary and tertiary

Valid points could include:

Examples could include:

Award 1 mark for each example

Examples could include:

• An advertising agency to produce an advertising campaign (1)

Award 1 mark for each example

IGCSE Business Studies: Questions and Answers Chapter 1.4 8

IGCSE Business Studies: Questions and Answers Chapter 1.4 9

a. Evaluate the proposed move to a site nearer to the airport. (6 marks)

IGCSE Business Studies: Questions and Answers Chapter 1.5 10

Valid points could include:

Reward strong analysis to maximum of 3 marks.

A balanced answer required for full marks.

IGCSE Business Studies: Questions and Answers Chapter 1.5 11

IGCSE Business Studies: Questions and Answers Chapter 1.6 12

Valid points could include:

Award 2 marks for analysing the impact of exchange rates, up to a maximum of

Choose any two from the following:

IGCSE Business Studies: Questions and Answers Chapter 1.6 13

• Health and Safety legislation covers the environment in which businesses

Award 2 marks for analysing the impact of exchange rates, up to a maximum of 4

IGCSE Business Studies: Questions and Answers Chapter 1.6 14

Valid points could include:

• Government could increase/decrease tax (1) on company profits and this 5