UNIVERSITY FO CAMBRIDGE LOCAL

EXAMINATIONS SYNDICATE
Joint Examination for the Higher School Certificate

General Certificate of Education Advance Level

MANAGEMENT OF BUSINESS 9368/1

PAPER 1

OCTOBER/NOVEMBER 2001 SESSION 3 hours

 Section A [70 marks]

Answer all questions.

1. How can small businesses effectively compete with large businesses selling the
same goods? [5]

2. Explain the meaning of the following terms commonly found n the accounts of a
business.

(a) Gross Profit [2]

(b) Retained Profit

[3]

(c) Return on Capital Employed [3]

(d) Work in Progress [2]

3. (a) Explain what is meant by ‘contribution cost pricing’. [2]

(b) Explain the circumstances in which a business might want to use a

contribution cost pricing approach. [5]

4. What evidence would you seek to determine whether motivation is low in a

workforce? [4]

5. (a) Job Production is one method of production. State two others. [2]

(b) Under what circumstances do you think Job Production would be the best
method? [5]

6. (a) What do you understand by ‘customer service’ in retailing? [2]

(b) Why is customer service becoming increasingly important in retailing? [4]

7. State and explain two reasons why delegation may be considered essential in an
expanding firm. [4]
8. A business is considered investment in a new factory.

(a) State what is meant by ‘Pay Back Period’. [2]

(b) Calculate the Pay Back Period from the following evidence. [3]

($ 000)

Initial investment 2 000

Net Return Year 1 400

Year 2 400
Year 3 400
Year 4 500
Year 5 600
Year 6 1 300
Year 7 1 700

(c) Explain why Pay Back Period may not be a good way of deciding whether
to invest in this factory. [4]

9. What is meant by

(a) Quota sampling, [2]

(b) Random sampling? [2]

10. Explain why a fall in the external value of your country’s currency might

(a) lead to inflation, [3]

(b) make exporting easier. [3]

11. Explain why a producer of televisions might be worried by the possibility of an

increase in the rate of interest, [5]

12. The profits a company makes have been low for several years. Explain why
shareholders might be concerned at a decision to borrow more capital. [3]
 Section B [30 marks]

Read the following Case Study and answer all the questions.

Wonder Fashions Inc.

Wonder Fashions Inc. is a medium sized business producing dresses for the mass market.
It has always been one of the most successful businesses in its own country but has not
attempted to export. There has been no need to do so since the home country has bought
all that the company has produced. In the last three years imported dresses and dress
materials have been competing successfully in the home market. The Marketing Director
estimates that Wonder Fashions’ market share has fallen to 20% from its 1997 figure of
34 %. He estimates a further fall for the coming year unless action is taken over price.

In a meeting of the Board the Marketing Director argues that the only solution is to
accept lower margins. He says that demand is price elastic and that a small cut in margins
could restore market share to 25 %. The Finance Director points out that market share
may be falling but output and sales are erasing and there are no real problems. The
production department has produced the following figures for the meeting. The figures
relate to the most popular dress in the range which is produced in six different colours
and 8 different sizes.

Quantity of Dresses Produced 200 000 300 000 400 000

Cost Per Dress ($)
Labour 6 5 7
Materials 6 5 4.5
Wastage & Shrinkage 1 1 1.5
Allocated Unit Costs 5 4 5
Total Unit Costs 18 15 18
All prices are ex-factory

Currently the business if producing 300 000 dresses and in the year 2000 sold all but 100
of them. The dress is sold at a standard price of $25 and foreign competitors are selling
similar dresses at $21. Although these imported dresses are of poorer design and quality
they are attracting customers. The Marketing Director is proposing a cut in selling price
to $20 and estimates that sales for the dress will rise to 400 000 in the year. The Board
cannot decide. The Finance Director is worried about the risk and the costs of an effective
marketing push. The marketing department is confident that increased sales in the outlets
they currently supply will be enough. The problem in the personnel department is a desire
to keep the workforce at its present size and the production department is worried about
increases in both direct and overhead costs.
13. (a) By how much will the percentage profit margin on each dress change if
400 000 dresses are produced and the selling price is $20? [3]

(b) If production is increased to 400 000 units, explain possible reasons why:
(i) labour costs per unit are expected to rise, [2]

(ii) materials costs per unit expected to fall, [2]

(iii) allocated overheads per unit are planned to increase. [3]

14. Advise Wonder Fashions whether they should begin to sell their most popular
dress at $20, using any calculations you think might help. [10]

15. Discuss the difficulties the business might experience in selling dresses in your
country. [10]