Past Year Exam Paper Folder SL

–2– M16/3/BUSMT/SP2/ENG/TZ0/XX
Section A
Answer one question from this section.
1. Rio Mobiliário (RM)
Rio Mobiliário (RM) is a Brazilian furniture manufacturer. It generates sales in South America,
North America and Europe. It has successfully outsourced production and distribution facilities to
North America.
Selected financial data for the year ended and as of 31 December 2015. All figures in millions of
Brazilian reals.
Accumulated retained profit 4116

Cash 486
Cost of goods sold 3074
Creditors 498
Debtors 958
Expenses 1390
Gross profit X
Interest 12
Net fixed assets 3110
Net profit after interest and tax 606
Net profit before interest and tax Y
Overdraft 52
Sales revenue 5256
Share capital 800
Short-term loans 650
Stock 1562
Tax 174
(a) Define the term outsourcing. [2]
(b) (i) Calculate the gross profit X for RM (no working required). [1]
(ii) Calculate Y and hence, calculate the net profit margin for RM (no working
required). [2]
(iii) Using relevant information from the table, construct a fully labelled balance sheet
for RM. [5]
The Trial Version

2. Parder
Image removed for copyright reasons
Parder manufactures ride-on (riding) lawnmowers.
Selected forecast financial data for the ride-on lawnmowers, for 2016:
$
Annual fixed costs
Rent 30 000
Marketing 40 000
Administration 30 000
Variable costs per ride-on

lawnmower
Components 400
Direct labour 100
Price per ride-on lawnmower 1500
(a) Define the term variable costs. [2]
(b) (i) Calculate for Parder, for 2016, the break-even level of output (show all
your working). [2]
(ii) Construct a fully labelled break-even chart, to scale, for Parder, for 2016. [4]
(iii) Calculate the profit or loss if 700 ride-on lawnmowers are sold in 2016 (show all
your working). [2]
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Section B
3. German Car Keys Limited (GCK)
For decades, German Car Keys Limited (GCK) has made car keys for various car manufacturers.
It is 100 % owned by Schmidt family members. New apps on mobile smartphones may soon
replace traditional car keys. Car owners will have in their phone an “e-key”, which will unlock doors
and start the car. Car hire companies like e-keys because they are cheaper than physical keys
and can be easily downloaded.
This innovation in car keys could put GCK out of business. Shareholders are shocked. For years,
they believed that GCK had a secure place in the market. GCK’s market share and profits were
high and debt was low. However, rather than make investments in new product lines, GCK made
only minor modifications to the physical car keys and paid high dividends to satisfy shareholder
expectations. As a result, the company does not have a portfolio of products. It relies on one
single product.
GCK conducted market research and identified two other car components it could manufacture.
GCK has many skilled workers, and the factories will have to be upgraded at significant cost. GCK
is now looking for ways to finance the renovation of the factories. If e-keys become popular (as
predicted) and action by GCK is not taken quickly, this old car key company may find itself out of
business.
[Source: adapted from www.telekom.com]
(a) State two secondary methods (sources) of market research for GCK. [2]
(b) Using a fully labelled Boston Consulting Group (BCG) matrix, explain the position of
GCK’s current product (physical car keys). [4]
(c) With reference to GCK, explain the relationship between investment and profit. [4]
(d) Discuss two appropriate sources of finance for the renovation of GCK’s factories. [10]
The Trial Version

4. Vinn
Vinn is an American public limited company. It mass-produces jeans. Twelve years ago,
production was offshored to China and Turkey to reduce manufacturing costs. To benefit from
economies of scale, Vinn sells standardized regular-fit jeans. Vinn uses an identical marketing mix
everywhere they sell.
Despite the global popularity of American jeans, Vinn has experienced a significant fall in demand
due to:
• customer complaints about poor quality jeans
• economic recessions in Vinn’s main markets. However, economic forecasts expect
improvements within two years
• increased global competition of mass-produced clothes
• anti-globalization pressure groups. For example, a local pressure group, “B-Local”, has
criticized Vinn’s undifferentiated advertising campaigns as inappropriate for all markets
and segments.
In addition, Vinn’s management is worried about labour costs in China rising faster than the
United States (US). It also has communication problems with its offshored employees.
Vinn’s management decided to re-shore back to the US and completely change its strategic focus.
Recent market research has revealed a niche market: some customers in North America are willing
to pay high prices for individually designed and produced jeans. To create a new competitive
advantage, Vinn will aim for different market positioning by using highly skilled, creative fashion
designers located in major American cities. Cost-effective production of individually designed jeans
requires specialized technology currently available in the US. Vinn will no longer mass-produce
jeans.
(a) Define the term offshoring. [2]
(b) Explain one advantage and one disadvantage for Vinn of using an identical
marketing mix. [4]
(c) Explain one advantage and one disadvantage for Vinn of operating as a public
limited company. [4]
(d) Discuss Vinn’s decisions to re-shore back to the US and to produce only individually
designed jeans. [10]
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5. JustJet (JJ)
JustJet (JJ) is a leading European airline. It operates low-price flights across Europe branded as
JustJet. Currently it only offers an economy service and charges for on-board meals and drinks.
JustJet has strong brand awareness in Europe. The business is very profitable. However, the
economy “no frills” market has saturated.
After reviewing the results of focus groups, the JJ board of directors proposed launching a second
service, called JustJetplus (JJplus). This service will offer first-class-only flights to non-European
destinations. Between 2006 and 2008 other airlines offering a first-class-only service failed. JJ’s
directors believe its brand name and financial strength are strong enough to succeed.
JJ will purchase airplanes with first-class specifications only for the new JJplus service.
Passengers will have first-class seats that convert into beds, individual tablet computers,
high-quality food and free Wi-Fi. Although JJplus will charge expensive first-class fares for all
seats, its prices will nevertheless be lower than the first-class tickets offered by their competitors.
Flights will be daily to non-European destinations, such as New York and Brazil, Russia, India and
China (BRIC).
The target market consists of two market segments:

• vacationers seeking luxury travel at a lower price than the first-class tickets offered by
competitors
• business flyers, such as entrepreneurs from BRIC countries.
To break even, JJplus must sell 90 % of the seats on each flight.
(a) Define the term market segment. [2]
(b) Explain one advantage and one disadvantage for JJ of using focus groups as a
method of market research. [4]
(c) Using the Ansoff matrix, explain JJ’s strategy of offering the first-class-only service,
JJplus. [4]
(d) Evaluate JJ’s proposal to launch the JJplus service. [10]
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Section C
Answer one question from this section. The organizations featured in sections A and B and in the
paper 1 case study may not be used as a basis to your answer.
6. With reference to an organization of your choice, discuss the impact of innovation on

operations management strategy. [20]
7. With reference to an organization of your choice, examine the impact of culture on

organizational ethics. [20]
8. With reference to an organization of your choice, examine the impact of globalization on

organizational change. [20]
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–2– N16/3/BUSMT/SP2/ENG/TZ0/XX
Section A
1. Valley Gardens (VG)
Valley Gardens (VG) is a large garden retailer that sells flowers, plants, trees and other garden
supplies. In 2016, in an attempt to gain market share and increase sales, VG introduced a
loss leader pricing strategy for several varieties of trees. The strategy had an impact on both sales
and profitability.
Selected financial information for VG, all figures in $000s:
2015 2016
Cost of goods sold 2800 V
Expenses 1200 1300
Gross profit W 1600
Net profit before interest and tax X Y
Sales revenue 4300 5100
(a) Define the term loss leader pricing strategy. [2]
(b) Using information from the table:
(i) calculate the missing figures V, W, X and Y (no working required); [4]
(ii) calculate the gross profit margin for 2015 and 2016 (no working required). [2]
(c) Using the quantitative information in the table and your answers to part (b), comment
on the impact of a loss leader pricing strategy on VG. [2]
The Trial Version

2. Café Lucchini (CL)
Fabi Lucchini will open the only café, selling hot and cold drinks only, in her small village. The
economy is weak so the local government will pay 50 % of the rent for the premises in which CL
will operate.
Fabi has forecasted the following figures for the first six months of operation, beginning on
1 July 2016:
Rent per month $2000

Government payment toward
rent per month $1000
Salary per month $1600
Electricity (payable every $200
second month
starting in August)
Cleaning supplies per month $100
Sales revenue per month July $4000
August $4000
September $3500
October $3500
November $4000
December $4500
Purchases per month 40 % of sales
An option is to install cooking facilities and serve meals to increase CL’s sales revenue. Fabi
estimates that she could sell 40 meals per day at an average variable cost of $5 and at an average
sales price of $10. Serving meals would increase her fixed costs by $3000 per month.
(a) Define the term fixed cost. [2]
(b) Calculate the break-even quantity of meals that CL must sell to pay for the increase in
fixed costs of $3000 to provide these meals (show all your working). [2]
(c) Using the information in the table only, prepare a monthly cash flow forecast, for CL,
for the first six months of operation. [6]
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Section B
3. Flussbiegung CityRoller (FC)
Flussbiegung CityRoller (FC) is a private limited company that sells

scooters in a large German city. Its shop is situated in an excellent
location near the city centre. In 2014, FC sold 1200 scooters at a
sales price of €2200 per scooter. The business has few variable
costs.
FC only sells one brand of scooter, called Rasen, which consumers

regard as high quality. Rasen’s competitors are:
Brand Price (in €s) Consumer opinion

Electrico 2800 medium quality
Elegante 2300 low quality
Zoom 1900 low quality
Elegante and Zoom have both become popular in the last five years. Despite some problems with
quality, both are seen as fashionable scooters. Elegante has successfully built a brand identity as
a stylish scooter. Electrico scooters are electric-powered and are popular with people concerned
about pollution. Rasen, Elegante and Zoom scooters all use petrol (gas).
Despite Rasen’s reputation for quality, in the last five years FC’s market share has decreased.
Rasen’s manufacturer has also been losing market share across Germany. The problem,
according to FC, is that the manufacturer does not invest enough to update the brand’s image.
Rasen scooters appeal to an older generation in Germany, but younger people prefer products
that are fashionable. FC uses below the line promotions. These promotions do not have the same
influence on market perception as the manufacturer’s above the line promotions, which emphasize
Rasen’s quality. Another possibility for Rasen is, rather than update its brand image, to maintain
its current brand identity but try to sell its product in different geographic markets where its current
brand identity may have more appeal, such as in eastern Europe or Africa.
(a) Describe one feature of a private limited company. [2]
(b) Construct a position/perception map for all four brands of scooter. [4]
(c) Explain the relationship between Rasen’s product life cycle and FC’s marketing mix. [4]
(d) Discuss the importance of branding for FC and for Rasen. [10]
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4. Adventures for All (A4A)
Tama Toki founded Adventures for All (A4A), which owns

four adventure parks employing 342 people. The parks offer
adventure activities such as high wire and mountain biking.
A4A’s target market is teenagers and adults. A4A’s mission
statement is: “safety and affordability at A4A are the most
important reasons for a great time for all”.
A4A uses predatory pricing. Its competitors are theme

parks and adventure centres. However, social trends are
changing. Many teenagers prefer social networking rather
than adventure activities. A4A’s sales revenue and profits are falling.
Tama discussed with senior managers two possible growth strategies:
Option 1. Through extensive promotion, attract children and adults with disabilities and access
requirements to the parks. This approach would require specialized training for
existing staff. No modifications to the parks would be required.
Option 2. Offer corporate team-building activities. A4A would develop specially designed
programmes for senior leadership teams to spend three days in newly built conference
centres located at the parks. Corporate teams would engage in adventure activities
together and then discuss strategic options for their organizations.
Option 2 could be highly profitable. A4A could charge high prices for these programmes.
However, some of Tama’s senior managers argued that A4A should continue to provide
“adventures for all” and not just to a group of highly paid senior leadership teams.
The two options created major disagreements. Two senior managers, working with Tama since the
creation of A4A, threatened to resign if Option 2 was implemented. Two other senior managers
argued that without Option 2 many jobs at A4A were under threat.
(a) Define the term target market. [2]
(b) Explain two roles of A4A’s mission statement. [4]
(c) Explain one advantage and one disadvantage for A4A of using a predatory
pricing strategy. [4]
(d) Using the Ansoff matrix, evaluate the two possible growth strategies for A4A. [10]
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5. Thorns Hill (TH)
Thorns Hill (TH) is a hotel. Its mission statement is “to provide the highest standard of customer
service and to be the best employer”. TH is divided into three sections, each with a manager:
 sleeping accommodation
 restaurant
 function room for weddings, conferences and other events.
The function room offers entertainment facilities and purchases catering from the hotel restaurant.
The function room employees are mostly students working in their spare time. They have flexible
contracts that do not guarantee hours of work nor provide benefits such as paid sick leave or
holidays.
The use of flexible contracts has reduced the function room’s annual wage cost by 40 % over
the last five years. The de-layering of supervisory posts (positions) has further reduced the cost
of wages. With these cost savings, the profits of the function room have increased significantly.
Recently, issues with punctuality, absenteeism and labour turnover have increased.
30 % of the restaurant’s sales revenue comes from catering for the function room. The restaurant
recently won an award and, in the summer season, is always full of diners. In summer the
restaurant has difficulty meeting the catering demands of the function room. Meals ordered often
arrive late from the restaurant.
Competition in the market for function rooms is high. The owners are considering a proposal to
improve the reputation of the function room by outsourcing all the services of the function room to a
private contractor. The private contractor will charge TH more than the direct cost of the
function room.
(a) Define the term de-layering. [2]
(b) Using Herzberg motivation theory, explain one reason for the recent issues at TH with
punctuality and absenteeism. [2]
(c) Explain two benefits and one negative consequence for TH of an increase in
labour turnover. [6]
(d) Discuss the proposal to outsource all function room services to a private contractor. [10]
The Trial Version

Section C
6. With reference to an organization of your choice, discuss the ways in which culture can
influence business strategy. [20]

business ethics. [20]
8. With reference to an organization of your choice, discuss the ways in which innovation can
influence organizational change. [20]
The Trial Version

Section A
1. Sotatsu Electronics (SE)
Sotatsu Electronics (SE) manufactures electronic products and is famous for its innovative
televisions. In late 2015, SE introduced a new high-definition television with twice the quality of
the best-selling television of its chief competitor. Determining that it would be two years before its
competitors could have a similar product, SE adopted a price skimming strategy.
Table 1: Select financial information for SE for 2015 and 2016.

Figures in $000 000.
2015 2016
Cash 300 250
Cost of goods sold 2100 2300
Creditors 180 230
Expenses 1200 1300
Fixed assets 1075 1275
Gross profit X 2800
Net profit before interest and tax 1000 Y
Sales revenue 4300 5100
Total current assets 650 700
Total current liabilities 275 300
(a) Define the term price skimming. [2]
(b) (i) Calculate the values of X and Y in Table 1 (no working required). [2]
(ii) Construct a profit and loss account for SE for 2015 and 2016. [4]
(c) Calculate net current assets (working capital) for 2016 (show all your working). [2]
The Trial Version

2. Anubis
Tom operates Anubis as a sole trader, selling cell/mobile phone cases on the internet. The market
is increasingly competitive. The retail price of phone cases is predicted to fall in the second quarter
of 2018. Employees at Anubis will receive a 3 % rise in wages starting from 1 April 2018.
Tom has forecasted the following monthly cash outflows for January through March 2018:
 Heating and lighting: $4000.
 Wages: $50 000.
 Packaging: $15 000.
 Delivery charges: 5 % of sales revenue.
 Cost of goods sold: $220 000.
Additional information:
 Opening balance on 1 January 2018: $8000.
 Sales revenue: $300 000 each month.
 Rent of $2000 paid quarterly: first payment in January 2018.
 Receipt of a tax refund in February 2018: $3000.
(a) Outline two appropriate external short-term sources of finance for Anubis other than
loans from family and friends. [2]
(b) Using the information above, prepare a fully labelled cash-flow forecast for Anubis from
January to March 2018. [5]
(c) Comment on the predicted cash flow for Anubis for 2018. [3]
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Section B
3. Dales
Dales is a public limited hotel chain operating in a highly competitive tourism market. Dales is
positioned as a high-price and high-quality chain. The majority of its staff are on permanent
contracts, but wage rates at Dales are below the average for the hotel industry. Consequently,
staff turnover is high. Recruitment is difficult due to the number of hotels in the areas where Dales
hotels are located and the wages paid.
In 2010, in order to remain competitive, Dales outsourced the cleaning of hotel rooms to Wire.
Outsourcing reduced the cost of cleaning rooms for Dales from 5 % of total revenue per room to
2 %. Net profit after tax and interest increased and share prices rose by 10 %.
Initially, Wire paid cleaners at Dales a low wage of:

 $6 per hour for 8 hours, 5 days per week.
 Cleaners cleaned, on average, 13 rooms per day.
In 2016, Wire introduced a piece rate system:

 $2 is paid per room cleaned.
 Cleaners have a target of 20 rooms per day, 5 days per week.
In recent years, newspaper reports highlighting poor pay and working conditions have damaged
Dales’s brand image. Recent customer feedback has also highlighted concerns about food quality,
room cleanliness and poor customer service at Dales hotels. Room bookings fell during the same
period. Profits in 2016 decreased from $24 m to $4 m.
The current contract with Wire is up for renewal. Dales is considering insourcing.
(a) Outline two common steps taken by a business in recruitment. [2]
(b) (i) Explain two disadvantages for Wire of introducing a piece rate system of wages
for its cleaning staff. [4]
(ii) Calculate the financial impact on cleaners employed by Wire from the introduction
of the piece rate system in 2016 (show all your working). [2]
(iii) Calculate the change in cleaning costs per room from the introduction of the
piece rate system used by Wire. [2]
(c) Recommend if Dales should stop outsourcing the cleaning of hotel rooms. [10]
The Trial Version

4. Secco Vineyards (SV)
Secco Vineyards (SV ) is a family-owned business producing wine in Sonoma, California.

In 1947, SV opened using cost-plus (mark-up) pricing. For SV ’s customers, the wines were
medium priced and available in local grocery stores.
In 1977, Joe Secco, grandson of the founder, created a new strategy. He re-branded SV ’s wine for
a niche premium market.
 SV began to sell directly to customers at its winery instead of in local grocery stores.
 SV stopped using cost-plus (mark-up) pricing and began to sells its wines at much higher prices
than before.
 Regular wine tastings and promotional events were held at its winery. At these events, wine
experts would promote SV ’s wines by creating an elegant experience based on a luxurious
culture of wine consumption: stylish wine glasses, classical music and food that complements
the wine.
However, SV has recently faced intense competition and sales have fallen. Local wine producers
and overseas competitors have entered the market with similar market positioning. In order to
maintain its brand image, SV has not changed its pricing strategies.
SV conducted secondary market research about other possible markets in the US for its premium
wines. The research suggested that other possible markets for high-quality wines, such as those
of SV, exist. As a result, SV is considering two options to increase sales in addition to its current
distribution channel:
 Option 1: open a business-to-consumer (B2C) e-commerce store
 Option 2: sell SV wines to wholesalers serving the whole of the US market for premium wines.
(a) Describe one characteristic of a niche market. [2]
(b) With reference to SV, explain one advantage and one disadvantage of using
secondary market research. [4]
(c) Given the intense competition, explain two pricing strategies SV might consider. [4]
(d) Recommend which of Option 1 and Option 2 SV should consider in order to increase
sales. [10]
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5. Gen Y Limited
Gen Y Limited is an internet start-up business owned by Zack Johnson. Zack owns 80 % of
the shares and venture capitalists own the other 20 %. Gen Y has specialist programmers and
coders who create innovative market research data reports for clients. These data reports have
revolutionized Gen Y ’s clients’ ability to understand and respond to customers in their markets.
To retain the best programmers, employees are given cognitive training and are empowered to
make decisions and take risks. They are also regularly praised for the impact that their reports
are having on their clients’ decision making. One day a week, employees can work on their own
“dream, but risky, projects”. Intrapreneurship is strongly encouraged at Gen Y. However, Gen Y
lacks the capital to develop some of these projects into future revenue streams.
Virtually all of Gen Y ’s costs are fixed – salaries. As of 2017, Gen Y has not yet generated a profit.
Without more revenue they will have to reduce the number of programmers. Petra, a new investor,
is being considered to provide fresh capital to invest in Gen Y. Ownership of Gen Y will change to:
Zack 40 %
Venture capitalists 20 %
Petra 40 %
Petra believes in intrapreneurship but is concerned that “dream” projects are not generating profits.
She has said that if she is going to invest in Gen Y two conditions must be met:
 Management at Gen Y will change to an autocratic leadership style.
 Programmers will be expected to meet sales targets.
As a result, programmers will have no autonomy.
(a) Outline two features of an autocratic leadership style. [2]
(b) Apply Daniel Pink’s motivation theory to the programmers at Gen Y. [6]
(c) Explain one reason, other than increased sales revenue, why it is important that
Gen Y generates new revenue streams. [2]
(d) Discuss whether Zack should sell Petra half of his shares with her conditions. [10]
The Trial Version

Section C

innovation. [20]
7. With reference to an organization of your choice, examine the impact of ethics on

organizational strategy. [20]
8. With reference to an organization of your choice, discuss the ways in which culture can
promote or inhibit change. [20]
The Trial Version

Section A
1. Pelican Pies (PP)

Pelican Pies (PP) produces high-quality pies that have limited brand loyalty outside of their local
market. The prices of the pies are higher than those of PP’s competitors.
Table 1: Selected financial information for PP for the year ending 30 April 2017.
Number of pies sold 8000

Price of each pie sold $4.00
Cost of goods sold per pie $1.75
Expenses
• Electricity per month $200
• Rent of premises per quarter $1000
• Promotional expenses per year $1000
8 % interest per year paid on a loan of $40 000

Tax 25 % of profits
For 2018, PP’s owner, Austin, is looking to increase sales beyond the local market by lowering
prices and spending a greater proportion of PP’s promotional budget on above-the-line methods
such as regional newspaper advertisements. To finance this type of promotion, Austin will have to

increase his loan amount by $10 000.

Table 2: Selected financial information for the year ending 30 April 2018.
Number of pies sold 20 % increase on 2017 figure

Price of each pie sold 30 % decrease on 2017 figure
Cost of goods sold per pie $1.75
Expenses
• Electricity per month $200
• Rent of premises per quarter $1000
• Promotional expenses per year 200 % increase on 2017 figure
8 % interest per year paid on a loan of $50 000

Tax 25 % of profits
(a) Describe one reason why brand loyalty would be important to PP. [2]

(b) Construct a profit and loss account for PP for the year ending 30 April 2017 based on

the figures in Table 1 (show all your working). [4]
(c) Construct a forecasted profit and loss account for PP for the year ending 30 April

The Trial Version 2018 based on the figures in Table 2 (show all your working). [4]
2. Moverse

Moverse operates in the health and fitness sector. Moverse is not a traditional gym with machines

(equipment) and fitness instructors (trainers). The instructors themselves travel and run fitness

classes in the buildings of large companies. Instructors all work part-time and are paid wages on a
time rate basis.
Moverse currently sells its services to several large companies. They have a total of 727
employees enrolled on its programme.
• Moverse charges a yearly fee of $145 for each employee participating.

• Moverse’s fixed costs are $60 000 per year.
• The variable cost per employee taking part in the programme is $45.
(a) Describe the time rate method of paying wages. [2]

(b) Calculate the break-even quantity for Moverse (show all your working). [2]

(c) Construct a fully labelled break-even chart, to scale, for Moverse if 800 employees

enroll on Moverse’s training programme. [4]
(d) Calculate the profit or loss if 800 employees enroll on Moverse’s training programme

(show all your working). [2]
The Trial Version
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Section B
3. Davenport Electronics (DE)

Davenport Electronics (DE) is a small company that manufactures remote control electronic
devices that open garage doors. The devices are kept in owners’ cars. For years, DE devices
operated in a fashion similar to those of its three competitors. When an owner activated the
remote control, a unique password was transmitted and the garage door opened.
Unit sales and revenue had not grown for several years until, four years ago, some computer
hackers discovered how to steal passwords when remote controls are activated. With the
passwords, hackers could later open garage doors and steal their contents. For DE and its
competitors (whose products operated in a similar manner), sales began to decline.
DE responded by developing a way to change the unique password every time a remote control
is activated. Thus, by the time a hacker successfully steals a password, the password no longer
works. DE’s innovation significantly enhanced the security of a DE remote control.
The three competitors are all larger than DE.
Price of remote Quality

control perception
Company A High Medium
Company B Medium Medium
Company C Low Medium
DE Medium High
As a result of this innovation, DE’s market share and scale of operation have increased. However,
DE is now experiencing diseconomies of scale. Some managers also worry that, with the pressure
to meet increased orders, the company will lose its focus on quality. Other managers believe that
future success in the industry will depend on frequent innovation.
(a) Define the term diseconomy of scale. [2]

(b) Using the table, construct a product position map/perception map for all

four companies. [4]

(c) (i) Draw and label a product life cycle curve. [2]

(ii) Explain how DE’s innovation is an extension strategy. [2]

(d) With reference to DE, discuss the merits of small organizations compared to large

organizations. [10]
The Trial Version

4. Grunsburg Textiles (GT )

Grunsburg Textiles (GT ) is a textile company founded by the paternalistic leader Henrik Steiner.

As the company grew, it became very committed to corporate social responsibility (CSR). “Our
aims,” GT says on its website, “include making profits, providing safe and secure employment,
contributing to society through investment in environmentally friendly production practices and
supporting ethical causes”. Many people believe that GT’s success is tied to its reputation for
taking care of its employees and for its commitment to CSR.
In 2015, GT purchased €44 million in new environmentally friendly equipment. It financed the

purchase with a bank loan. GT originally forecasted that the new equipment would generate
€8 million in annual net cash flow. Instead, the actual increase in GT’s annual net cash flow

from the new equipment was only €6 million. The Chief Financial Officer (CFO), Elaine, warned

Henrik that unless net cash flow increased significantly, the average rate of return (ARR) would be
significantly lower than originally forecasted.
GT is struggling to make the loan payments and to have sufficient working capital. Elaine

determined that one way to shorten the working capital cycle is debt factoring. However, when she
approached several (debt) factors, she was discouraged by their proposed discount rates.
Elaine knows that the situation is worse than she had warned. If the economy were to weaken
and revenue to decline, she believes that the company could go out of business. Proposals for a
solution include cutting back on GT’s commitment to its employees and CSR practices.
(a) State any two stages of the working capital cycle. [2]

(b) Calculate for GT:

(i) the payback period for the €44 million investment in new equipment based on the

forecasted increase in net cash flow (show all your working). [2]
(ii) the average rate of return (ARR) based on an annual increase in net cash flow of

€6000 and assuming an asset life of the new equipment of eight years (show all
your working). [2]
(c) With reference to GT, explain one advantage and one disadvantage of debt factoring. [4]

(d) Examine Elaine’s proposals to cut back on GT’s commitment to its employees and

CSR practices. [10]
The Trial Version
Turn over
5. Green Clean (GC)

Green Clean (GC) is a private limited company controlled by the Hitta family. Its unique selling
point (USP) is offering high-quality, reliable cleaning services by teams of professional cleaners
who clean offices and houses.
GC has strong ethical objectives. They only use eco-friendly cleaning products and pay their
employees fair wages. Labour turnover is low and many cleaners have worked for the company
for over two decades.
However, the cleaning market has become very competitive. GC has been slow to react. Other
cleaning companies are beginning to offer a wider range of services. GC’s management has

decided to introduce a gardening service to maximize profit.
GC will recruit professionally trained gardeners. As it is very difficult to find professional gardeners

in the market, GC will pay them 20 % more than its cleaners. GC prefers to use external

recruitment. GC’s management will also offer cleaners the opportunity to become gardeners
even though off-the-job training costs are very high. If most of GC’s cleaners choose training, the

company could fall short of workers to meet the demand for cleaning services.
The cleaners are becoming demotivated because they are unhappy about the difference in pay
between cleaners and future gardeners. They believe that gardeners are not more skilled than
cleaners but just have a different skill set. Human resource managers are concerned about the

potential impact of demotivated cleaners and are looking for ways to improve morale. One option
they are considering is to offer cleaners an employee-share ownership scheme. Shareholders,

however, are opposed to this proposal.
(a) Define the term ethical objective. [2]

(b) Explain one advantage and one disadvantage for GC of recruiting gardeners

externally. [4]
(c) Explain one advantage and one disadvantage for GC of using off-the-job training for

the cleaners who would like to become gardeners. [4]
(d) With reference to two motivation theories, examine the motivation of cleaners at GC. [10]

The Trial Version
Section C
6. With reference to an organization of your choice, examine the impact of innovation on

operations management strategy. [20]
7. With reference to an organization of your choice, discuss the ways in which globalization

can influence organizational culture. [20]
8. With reference to an organization of your choice, discuss the ways in which ethics and

change can influence human resource management. [20]
The Trial Version

Section A
1. Fishers
Fishers manufactures baseball caps. In 2017, it sold 75 000 caps. The variable cost per cap was
$6. 70 % of Fishers’s annual sales occur from April to September. Starting in March, Fishers
experiences a significant increase in current assets and current liabilities, which start to decrease
in October.
Table 1: Selected data for Fishers for 2017 (figures in $000s)
Sales revenue $900

Fixed costs $55
Table 2: Selected forecasted financial information for Fishers for 2018
Increase in number of baseball caps sold 10 %

Increase in variable costs per cap $1.00
Fixed costs $55 000
Interest $30 000
Income tax expense 20 % of net profit before tax
Sales price per cap will remain the same as in 2017.
[Source: © International Baccalaureate Organization 2018]
(a) Define the term current assets. [2]
(b) Using Table 1, calculate Fishers’s net profit before interest and tax for 2017 (show all
your working). [2]
(c) Using Table 2, calculate the following forecasted figures for 2018:
(i) sales revenue; [1]
(ii) total variable costs; [1]
(iii) income tax; [1]
(iv) net profit after interest and tax. [1]
(d) Explain why Fishers experiences a significant increase in current assets and current
liabilities from March to October. [2]
The Trial Version

2. Visionary Toys (VT)
Visionary Toys (VT) produces highly innovative toys for children. VT began operation in January
2017 and its unique selling point/proposition (USP) is producing toy parts with a 3D printer. The
financial director presented financial information for VT at the end of 2017. He was concerned
about VT’s liquidity.
Table 1: Revenue and expense information for the year 2017 and balance sheet items at
31 December 2017
Cash $1000
Net fixed assets $27 000
Interest paid $250
Creditors $4000
Debtors $3500
Accumulated retained profit
$10 000
– end of 2017
Costs of goods sold $7500
Sales revenue $27 250
Short-term loans $1500
Overdraft balance $2000
Expenses $7000
Share capital $13 500
Dividends paid $2500
Long-term liabilities $5000
Stock of toy parts $4500
(a) Define the term unique selling point/proposition (USP). [2]
(b) (i) Construct a fully labelled balance sheet for VT for the end of 2017. [5]
(ii) Calculate the acid test (quick) ratio for VT for 2018. [1]
(c) Explain one way VT could improve its liquidity. [2]
The Trial Version
Turn over
Section B
3. JVS
JVS is a successful manufacturer of designer clothing. A marketing expert described JVS’s

brand name, Izzys, as one of the business’s major strengths. Because of its market orientation
approach, JVS spends significantly more on market research than its competitors.
JVS’s products are:

• Izzys, a range of high-quality fashion jeans, which contributes 70 % towards JVS’s revenue and
profit. The market for this range is not growing.
• IzzDen, a range of denim jackets, which is near the end of the product life cycle. Manufacturing
of this product will cease later this year.
Izzys and IzzDen are sold through high-end independent retailers throughout countries in Europe.
JVS uses a price leadership strategy for these two products. Consumers perceive JVS as
fashionable. They also believe that JVS’s products are worth the premium price.
JVS is considering launching a new product, a range of fashionable shorts – Izzless – aimed at the
15–19 age group. With this product, JVS would reach a different, but highly competitive, market.
Focus groups revealed that many low-income young consumers want to purchase fashion shorts.
JVS would sell the new shorts to mass market discount retail stores. Consumers would also be
able to order online for next-day delivery.
(a) State two stages of the product life cycle. [2]
(b) Apply the Boston Consulting Group (BCG) matrix to JVS’s current product portfolio. [4]
(c) Explain one advantage and one disadvantage for JVS of using focus groups for its
market research. [4]
(d) Recommend whether JVS should launch the new product, Izzless. [10]
The Trial Version

4. Healthy Start (HS)
Tom Donat started Healthy Start (HS), a national chain of stores preparing and selling healthy
snacks, which are produced in batches. HS’s target market is teenagers and young adults. Tom
was concerned about high levels of fast food consumption and youth unemployment. His vision
statement for HS is: “To encourage life-long healthy eating habits and to train school leavers (drop
outs) in acquiring work skills”.
HS hires many school leavers without qualifications. Because of the valuable social service that
HS provides, an independent online media provider will feature HS in a new online reality TV show.
All employees, including managers, start at the lowest level of the organizational hierarchy and
train on the job. Job enlargement, job enrichment and intrapreneurship opportunities are available.
20 % of all profits earned are put back into HS to finance these opportunities. Staff turnover is
lower than the industry average.
Competition from global fast food restaurants has intensified. Their economies of scale mean that
HS struggles to increase its market share. Online reviews indicate that some customers perceive
HS’s snacks as healthy but overpriced and with small-sized portions.
Tom is considering two options:

• Option 1: Implement flow production. HS will buy new technology and assign each employee to
a specific job on the production line. HS will increase portion sizes and keep prices the same.
• Option 2: Implement a new social media marketing campaign linked to the new online TV show.
The campaign will focus on the health benefits of HS’s snacks.
(a) Describe one role of a vision statement for HS. [2]
(b) Explain how the following can benefit HS:
(i) job enlargement; [2]
(ii) intrapreneurship. [2]
(c) Explain two possible economies of scale available to global fast food restaurants but
not HS. [4]
(d) Discuss the two options that Tom is considering for HS in response to the intense
competition. [10]
The Trial Version
Turn over
5. Creative Software Systems (CSS)
Creative Software Systems (CSS), a private limited company, designs custom software packages
for public sector organizations. Ebru Aga is the sole shareholder, though she is considering an
employee share ownership scheme.
For years, CSS managed its employees closely, setting individual targets for performance and
requiring regular progress reports. Following Adams’s equity theory, CSS tied financial rewards
to frequently measured performance outcomes. Though managers clearly explained to individual
employees how additional financial rewards were linked to specific contributions they made, many
employees still felt the system was unfair.
After reading Daniel Pink’s theory of motivation, Ebru reconsidered her management style and
CSS’s system of financial rewards. She liked when Pink reported that a major American company
allowed employees to work 20 % of their time on projects of their choice. Ebru implemented the
following three changes:
• Change 1: Adopting a project-based organizational structure for CSS projects.
• Change 2: Eliminating performance-related pay (PRP).
• Change 3: Allowing employees to spend 20 % of their time on any project they wish, either one
of CSS’s or their own “dream project”.
Employees’ reactions were mixed. Some employees were thrilled. They had many ideas of their
own that they wanted to explore. Other employees, however, did not like the change. In the 20 %
of their time given to any project they wished, they chose to work on projects given to them by
CSS. They felt it was unfair. Although they were advancing important projects of the company,
they would no longer get performance-related pay (PRP), while others spent their time on projects
that might not contribute to CSS’s profitability.
(a) Define the term public sector. [2]
(b) Explain one advantage and one disadvantage for CSS of introducing an employee
share ownership scheme. [4]
(c) Explain one advantage and one disadvantage for CSS of implementing a project-
based organizational structure (Change 1). [4]
(d) With reference to Adams’s equity theory and Daniel Pink’s motivation theory, discuss
Ebru’s decision to eliminate performance-related pay (PRP) (Change 2) and to allow
employees to spend 20 % of their time on any project they wish (Change 3). [10]
The Trial Version

Section C

human resources strategy. [20]
7. With reference to an organization of your choice, examine the impact of ethics on

organizational change. [20]
8. With reference to an organization of your choice, examine the impact of innovation and
culture on an organization. [20]
The Trial Version

Section A
1. Piper Industrial (PI)
Piper Industrial (PI) manufactures pipe. The company is highly profitable and its corporate
tax rate is 20 %. PI is forecasting major capital expenditure for 2019.
Table 1: Selected forecast financial information for the year ending 31 December 2019
Cost of goods sold $15 000 000
Expenses $4 700 000
Gross profit X
Interest $1 000 000
Net profit after interest and tax $3 440 000
Net profit before interest and tax $5 300 000
Net profit before tax $4 300 000
Sales revenue $25 000 000
Tax Y
Table 2: Annual cash flow forecast for the year ending 31 December 2019
Receipts from debtors $24 000 000
Total receipts $24 000 000
Payments to creditors $14 000 000
Payments for expenses $4 600 000
Payments to banks for debt $1 200 000
Capital expenditure $2 700 000
Total payments $22 500 000
Net cash flow Z
Opening balance $3 700 000
Closing balance $5 200 000
(This question continues on the following page)

The Trial Version
(Question 1 continued)
(a) Define the term capital expenditure.[2]
(b) Using Table 1, calculate for PI :
(i) gross profit (X); [1]
(ii) tax (Y). [1]
(c) Using Table 1 and your calculations in (b)(i) and (ii), construct a profit and loss account
for PI. [2]
(d) Using Table 2, calculate the net cash flow (Z) for PI for 2019 (show all your working).[2]
(e) Explain the difference between profit and cash flow. [2]
The Trial Version
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–4– N18/3/BUSMT/S P2/ENG/TZ0/XX
2. Patras Furniture (PF)
Patras Furniture (PF) manufactures chairs. PF uses batch production.
Currently, PF sells 200 chairs per month. Each chair sells at an average price of €100.
Below are the forecasted fixed and variable costs for 2019.
Table 1: Fixed costs
Rent €24 000
Insurance €6000
Salaries €11 000
Lease on equipment €40 000
Cleaning service €18 000
Table 2: Variable costs per chair
Material €50
Delivery €5
(a) Define the term batch production. [2]
(b) (i) Calculate the break-even level of output for PF for 2019 (show all your working). [2]
(ii) Construct a fully labelled break-even chart, to scale, for PF for 2019. [4]
(iii) Calculate the forecasted profit if PF sells 2400 chairs in 2019 (show all
your working). [2]
The Trial Version

Section B
3. Jacob Strutz (JS)
Jacob Strutz (JS) is an American multinational company that produces jeans. Founded in
1860, for 100 years JS enjoyed steady growth in sales, mostly in the United States and then
in Canada and Mexico. In the 1960s and 1970s, when teenagers worldwide began wearing
jeans, JS’s sales increased significantly. JS’s premier product is Strutz’s No.5 jeans, one of
the best-known brands in the world.
In the late 1970s, JS operated 71 factories in the United States. In 1994, its sales peaked at
$7.6 billion worldwide, but then began to decline. In 2002, JS made the decision to close its
last remaining factories and outsource manufacturing to foreign manufacturers, whose quality
was more difficult to control. By 2017, annual sales were only $4.5 billion. Even sales of
Strutz’s No.5 jeans declined, and JS faced intense competition, including foreign competition.
JS briefly experimented with fast fashion, an industry practice developed in the United States
in response to cheap, foreign imports. In fast fashion, new design concepts are quickly
manufactured once they have been tested at fashion shows. Unfortunately, fast fashion
worked against JS’s brand identity. Surveys indicated that JS’s brand has value and inspires
loyalty, though focus groups of young consumers did not perceive JS as cool.
JS has been a leader in corporate social responsibility (CSR). Since the 1890s, it has
pursued profits through values. More recently, JS introduced Strutz’s chemical-free jeans.
Because many of JS’s suppliers operate in areas with few pollution regulations, to remain
consistent with its image of CSR, JS is insisting that suppliers follow innovative but expensive
chemical-free processes.
(a) Define the term multinational company (MNC). [2]
(b) Explain the importance to JS of:
(i) brand value; [2]
(ii) brand loyalty. [2]
(c) (i) Draw and label a product life cycle for Strutz’s No.5 jeans. [2]
(ii) Explain the position of Strutz’s No.5 jeans on the product life cycle. [2]
(d) Discuss the role and impact of globalization on the growth and evolution of JS. [10]
The Trial Version
Turn over
4. Dana’s Handbags (DH)
Dana’s Handbags (DH ) is a small manufacturer of women’s handbags. DH sells directly to

large retail chains in Europe. The company is privately owned and has fifteen shareholders.
Table 1: Selected financial data for DH for 2016 and 2017 (figures in $000s)
2016 2017
Sales revenue 28 000 29 000
Cost of goods sold 14 000 15 000
Gross profit 14 000 14 000
Net profit after interest and tax 1370 1300
Total current assets (at year end) 5000 5200
Total current liabilities (at year end) 3000 3500
Stock (inventory) 3000 3200
Cash 1000 900
Beginning in 2017, DH adopted a programme of corporate social responsibility (CSR) by:

• donating money to charities
• encouraging employees to do three paid hours per week of community service during
work hours
• using only biodegradable materials in its handbags.
This programme was expensive.
DH’s management thought that a programme of corporate social responsibility (CSR) would
strengthen DH’s brand. During the first year of the corporate social responsibility (CSR)
programme, employee morale improved and DH received favourable media attention.
However, at the annual general meeting in January 2018, financial results from 2017
revealed that sales growth had not improved. Several influential shareholders complained
about the high cost of the corporate social responsibility (CSR) programme. Other
shareholders suggested that DH should develop consumer awareness that it is a socially
responsible company.
(a) Identify two features of a private limited company. [2]
(b) Calculate:
(i) the net profit margins for DH for 2016 and 2017; [2]
(ii) net current assets (working capital) for DH for 2016 and 2017. [2]
(c) Explain one method of above-the-line promotion and one method of below-the-
line promotion that DH could use to raise consumer awareness that it is a socially
The Trial Version
responsible company. [4]
(d) Discuss DH’s decision to develop a policy of corporate social responsibility (CSR). [10]
5. Benno
Benno is a soft drinks manufacturer. Its mission statement is

“to produce healthy drinks without damaging the environment”.
Competition in the healthy soft drinks market is fierce.

Benno uses a competitive pricing strategy. However, sales of
Benno’s drinks have fallen significantly over the last five years,
particularly in the 12–18 age group. The business has no
accumulated retained profits.
Benno is committed to innovation and corporate social responsibility (CSR). Its research
and development division has recently invented a new biodegradable drink pack ring
that starts to break down within two hours of contact with sea water. It dissolves fully in
48 hours. Currently, 98 % of pack rings are made of plastic and when dumped in the sea are
responsible for the death of many sea creatures.
A focus group of loyal customers used regularly by Benno’s marketing department is

wholeheartedly in favour of the new drink rings. However, the marketing director has read
recent studies that suggest:
• purchases of green products are not increasing, despite the positive attitude of many
consumers towards sustainability and biodegradable products
• consumers continue to prioritize price when purchasing soft drinks.
To manufacture the new drink rings, machinery costing $5 million would be needed. Drink
ring production unit costs would rise from 10 cents to 15 cents and prices of a six-pack of
Benno soft drinks would have to increase by 5 %. Benno’s net profit margin on a six-pack
is 10 %.
Benno’s director of corporate social responsibility favours the change to the new drink rings
but is opposed by both the finance director and marketing directors.
[Source: Image provided with permission from E6PR™]
(a) Define the term innovation. [2]
(b) Explain two roles of Benno’s mission statement. [4]
(c) Explain one advantage and one disadvantage for Benno of using a focus group of
loyal customers. [4]
(d) Recommend whether Benno should replace its plastic drink rings with the new
biodegradable drink rings. [10]
The Trial Version
Turn over
Section C
6. With reference to an organization of your choice, examine the impact of innovation on

promotional strategy. [20]

change in operations management. [20]
8. With reference to an organization of your choice, examine the impact of ethics and culture
on human resource management. [20]
The Trial Version

Section A
1. Las Migas
Carolina plans to set up a bakery, Las Migas, in a small town. Competition from established
bakeries is strong. Carolina has asked for a bank loan because her personal savings are
insufficient. The bank manager requested the following information:
yy a business plan
yy a cash flow forecast for the first four months of operations.
Carolina has no experience with financial forecasts but she estimated the figures for Las Migas for
the first four months of operations. These figures are shown in Table 1.
Table 1: Estimated figures for Las Migas for the first four months of operations
For the first two months of operations: $1500

Estimated sales per month
From the third month of operations onwards: $3500
Monthly rent $1000
$45 to be paid every two months starting the first
Interest
month of operation
Opening balance $100
Ingredients and supplies 30 % of sales
Electricity per month 1 % of sales
Carolina’s monthly salary $390
(a) State two elements, other than a cash flow forecast, of a business plan. [2]
(b) Prepare a cash flow forecast for Las Migas for the first four months of operations. [6]
(c) Explain one problem that Las Migas may experience as a new business. [2]
The Trial Version

2. DuffJD
DuffJD provides a laundry service for towels and sheets to three hotel chains in a major city,
Hoyluk. It provides each hotel chain with trade credit.
Competition in this market is increasing, as two rivals are planning to offer laundry services to hotel
chains in Hoyluk.
Table 1: Selected financial data for DuffJD for 2018
Annual fixed costs $75 000
Variable costs per item $0.50
Price charged per item laundered $2.00
Number of Items laundered 200 000
(a) Define the term trade credit. [2]
(b) Using the financial data for DuffJD for 2018, calculate:
(i) the contribution per unit per item laundered (no working required); [1]
(ii) the margin of safety (no working required). [1]
(c) Draw a fully labelled break-even chart for DuffJD for 2018 using the data provided. [4]
(d) Explain how an increase in competition may affect DuffJD’s margin of safety. [2]
The Trial Version
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Section B
3. Ace Industries (AI)

Ace Industries (AI) manufactures plastic containers, mostly for the soft and fruit juice industries.
The operations management department uses flow production for its standard-sized products and
batch production for its customized products.
AI’s sales are growing rapidly. It currently has a 6 % share of the plastic container market. However,
it has recently struggled to meet customized orders on time. Some customers have complained
about product quality. Currently, AI is organized by region, which allows the company to have
strong relationships with customers, who feel that AI knows them and cares about their interests.
The human resource department is proposing restructuring the organization by function. Not
everyone at AI agrees with this change. Many think that the problems of late delivery and poor
quality could be solved through greater delegation.
Lloyd Rinnegrat, Chief Financial Officer, has suggested that AI’s management think more deeply
about their rapid growth. Except Lloyd, most people at AI believe that rapidly growing sales
are good – that by increasing its market share AI will, in the long run, benefit by being a large
organization. However, Lloyd argues that being a small organization has many merits, as shown by
the changes in AI’s recent gross profit margins and net profit margins.
Table 1: Selected financial data for AI
2017 2018 2019
Sales growth 14 % 15 % 12 %
Sales $327 000 000 $376 000 000 $421 000 000
Gross profit margin 57 % 55.3 % 53.2 %
Net profit margin 9 % 8 % 7 %
The marketing department has predicted that the soft and fruit juice industries are moving away
from major mass-produced drinks and toward niche products, such as exotic fruit drinks and
speciality beverages for very particular markets.
(a) Outline two features of batch production. [2]
(b) Draw a possible organizational chart for a manufacturing firm like AI if it is organized by
function. [2]
(c) Calculate:
(i) the total size of the plastic container market in 2019 (show all your working); [2]
(ii) the difference in AI’s net profit before interest and tax between 2018 and 2019
(show all your working). [2]
(d) Explain
The Trial Version how delegation might help AI improve its delivery times. [2]
(e) With reference to AI, discuss Lloyd’s view that being a small organization has merits. [10]
4. Willow Enterprises (WE)
Willow Enterprises (WE) was founded in 1989 originally as a small manufacturer of carpeting
for high-end commercial and institutional office space. In 1997 the management made several
strategic decisions:
yy change from the use of cheap man-made materials to more expensive natural fibres in its
carpets
yy change legal status from a private to a public limited company
yy use profits to increase production capacity and expand the sales force
yy diversify by taking over other regional businesses, including a retail chain, and transform them
into environmentally friendly businesses.
Because of its appeal to environmentally conscious customers, WE became the regional market
leader and, by 2008, was an important carpet manufacturer at a national level.
At this time, Chief Executive Officer Simon Dee decided that WE would adopt a far-reaching
programme of corporate social responsibility (CSR). Every year, WE committed more resources
to various forms of corporate social responsibility (CSR), such as charitable contributions and fair
payments to employees and suppliers. By 2018, WE had diverse revenue streams and a brand
identity strongly associated with corporate social responsibility (CSR).
For the last few years, WE’s gross and net profit margins have been falling slightly but steadily.
Simon has attributed the declining profitability to diseconomies of scale and one-off (one-time)
expenses associated with each takeover. The Chief Financial Officer, Ruth Croft, disagreed.
She gave Simon a copy of a 1970 article by the economist Milton Friedman entitled “The Social
Responsibility of Business is to increase its Profits”.
(a) Define the term revenue streams. [2]
(b) Explain one advantage and one disadvantage of WE changing its legal status to a
public limited company. [4]
(c) With reference to WE, distinguish between internal and external growth. [4]
(d) Discuss whether WE should retain its programme of corporate social responsibility
(CSR). [10]
The Trial Version
Turn over
5. Copper Health (CH)
Copper Health (CH) was the market leader in the production of anti-venom* vaccines to treat
poisonous snake bites. CH’s mission – influenced heavily by corporate social responsibility (CSR)
– is to put customers first and profits second in the treatment of snake bites.
Despite 100 000 deaths worldwide each year from snake bites and 400 000 serious injuries, CH
recently announced that it will no longer produce anti-venom vaccines. Several large Mexican,
Brazilian and Indian pharmaceutical companies have entered the market selling anti-venom
vaccines at a much lower price than CH.
A spokesperson for CH said: “We will remain a private limited company where corporate social
responsibility (CSR) remains an important driving force for our mission. Our medical research is
only financed from retained profit. When the lower-priced competition arrived, our sales and profits
of anti-venom vaccines decreased significantly. Treating snakebites no longer makes financial
sense. Instead, the technology used to produce anti-venom vaccines will be used to research and
develop (R&D) other life-saving vaccines”.
A non-governmental organization (NGO) has demanded action. “CH is the largest manufacturer
of anti-venom vaccines in the world. Although CH’s competitors are increasing their production of
anti-venom vaccines they will not be able to produce enough to satisfy demand for the next two
years. There will be a major shortage. This will result in many life-threatening injuries and deaths.”
The non-governmental organization (NGO) has urged CH to seek new sources of finance to
continue the production of the anti-venom vaccine.
* anti-venom: a medication made from antibodies that is used to treat venomous bites
and stings
(a) Define the term retained profit. [2]
(b) Explain one advantage and one disadvantage for CH of having a mission statement. [4]
(c) Explain two possible external sources of finance CH could use to continue production
of anti-venom vaccines. [4]
(d) Discuss CH’s decision to stop producing anti-venom vaccines. [10]
The Trial Version

Section C
6. With reference to an organization of your choice, discuss the ways in which ethics can
influence innovation in an organisation. [20]
7. With reference to an organization of your choice, examine the impact of culture on

organizational strategy. [20]
8. With reference to an organization of your choice, discuss the ways in which globalization
can influence organizational change. [20]
The Trial Version

The Trial Version

–2– 2221 – 5012
Section A
1. The Pie Store (TPS)
The Pie Store (TPS) bakes pies and sells them in its three retail stores. When developing its
brand, TPS used the mathematical symbol pi (π). In 2020, each store made a profit.
Table 1: Financial information for TPS’ three retail stores for 2020 (all figures in $)
Store 1 Store 2 Store 3

Sales 180 000 223 000 170 000
Cost of goods sold 90 000 120 000 85 000
Gross profit 90 000 103 000 85 000
Expenses 66 000 76 000 67 000
Net profit before interest and tax X Y Z
At the end of 2020, the balance sheet for TPS (the three stores combined) showed $200 000
in assets and $120 000 in liabilities. $50 000 of the liabilities was long-term debt.
(a) Describe one step in the development of a brand. [2]
(b) Calculate:
(i) which store made the highest net profit before interest and tax (no working required); [1]
(ii) which store had the highest profitability (show all your working). [2]
(c) Calculate:
(i) TPS’ equity; [1]
(ii) TPS’ return on capital employed (ROCE) (show all your working). [2]
(d) Explain one effect that the $50 000 long-term debt may have on TPS’ profit and
loss account. [2]
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–3– 2221 – 5012
2. Sharon’s Super Lunches (SSL)
Sharon’s Super Lunches (SSL) is a cooperative that provides healthy school lunches. The
lunches are delivered daily to students, who order them online. SSL aims for a minimum
order size of 50 lunches to deliver to a school.
Table 2: Sales and other financial information for SSL for one week
Forecasted sales of lunches 3200
Maximum sales of lunches 4000
Price of lunches $10.20
Variable costs per lunch $6.40
Fixed costs for SSL $7980
SSL is considering a new promotional strategy for healthy school lunches: they will donate
a free school lunch to a student in a lower-income area for each lunch purchased in a
higher-income area.
(a) Describe one feature of a cooperative. [2]
(b) Using total contribution, calculate the forecasted total profit for SSL before the
introduction of the new promotional strategy (show all your working). [2]
(c) Construct a fully labelled break-even chart for SSL for before the new promotional
strategy is introduced (show all your working). [4]
(d) Explain one advantage to SSL from implementing the new promotional strategy. [2]
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–4– 2221 – 5012
Section B
Answer two questions from this section.
3. Soft Skin Cosmetics (SSC)
Soft Skin Cosmetics (SSC) is a private limited company that produces a small range of face
creams and soaps. Its products are designed and produced in the United States, and are
made from safe, natural ingredients.
SSC has a product-orientated marketing approach. Tiffany Presley, one of the company’s
co-founders, believes that SSC’s consumers value health above fashion. “The skincare
market is full of toxic products, but ours are healthy even if they don’t smell or look as nice,”
she says. Chelsea Presley, SSC’s other co-founder, wants to develop the first sunscreen free
of synthetic chemicals. However, product innovation is costly and risky. If the new sunscreen
is a failure, several years of research and development costs will be wasted, which SSC
cannot afford. SSC currently lacks the scale to innovate.
SSC does not pay for advertising. It relies on social media and word-of-mouth promotion. Its
brand awareness is very high among young women, and customer reviews are very positive
about SSC’s quality and effectiveness. The company only sells online, not in retail outlets. To
reach unsatisfied demand domestically and internationally, SSC would have to broaden its
current distribution channels.
SSC practises corporate social responsibility (CSR). It does not test its products on animals,
and supports several charities protecting endangered species. Pressure groups publicly
recognize SSC’s commitment to animal welfare.
Currently, multinational companies dominate the global skincare market. Small emerging
companies rarely survive. Chelsea wants to convert SSC to a public limited company, but
Tiffany disagrees: she argues that shareholder pressure toward profit maximization could
jeopardize consumer and animal safety.
(a) State two features of product innovation. [2]
(b) Explain one advantage and one disadvantage for SSC of having a product-orientated
marketing approach. [4]
(c) Explain one advantage and one disadvantage to SSC of practising corporate social
responsibility (CSR). [4]
(d) Discuss Chelsea’s idea to convert SSC into a public limited company. [10]
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–5– 2221 – 5012
4. ReVolve Ltd (RV)
ReVolve Ltd (RV ) manufactures and sells high-quality, high-priced

bicycles to high-income earners. Operating in a niche market, its
advertising slogan and unique selling point/proposition (USP) is “hand
made to order, in the USA, delivered within seven days”. Brand loyalty
is strong, but brand recognition outside of its customer base is weak.
98 % of its sales are to customers living within 50 miles of the business.
Prior to 2017, RV received an increasing number of customer complaints that phone lines
were often engaged and calls not returned. As such, it adopted e-commerce. Its website now
allows customers to:
y customize their choice of bicycle
y place orders
y pay for purchases
y have their questions answered.
RV employs 20 highly paid, skilled employees using job production. To retain these workers,
RV has raised their wages significantly since 2016.
Increasing competition from imports of hand-made high-quality bikes has forced down prices
in this niche market. RV has been making increasingly larger losses since 2017. In 2020, its
sales fell by 15 %. Inflation is forecasted at between 2 % and 3 % for the next three years. As
such, RV ’s directors are considering two options to enable it to lower the prices of its bicycles.
Option 1: Offshore production to China, where production costs are significantly lower.
The bicycles would be manufactured using batch production. RV would focus only on the
design and marketing of its bicycles.
Option 2: Invest in new job production techniques that enable parts to be glued rather than
welded, which only requires unskilled labour. Investment would cost $3 500 000 and the
forecasted annual net cash flow is $600 000.
(a) Define the term niche market. [2]
(b) Explain two benefits to RV of the decision to adopt e-commerce. [4]
(c) (i) Calculate the payback period if RV chooses Option 2 (show all your working). [2]
(ii) Explain one disadvantage to RV of using the payback period method of

investment appraisal. [2]
(d) Recommend whether RV ’s directors should choose Option 1 or Option 2. [10]
The Trial Version
Turn over
–6– 2221 – 5012
5. KapTan
KapTan (KT ), which manufactures rechargeable batteries for cordless consumer products
like vacuum cleaners, began five years ago as a business with a product orientation. It sells
business to business (B2B). Multinational companies dominate the rechargeable battery
industry, and KT suffered from cash-flow problems in its first year of trading. Its profits are
small and, in the last two years, have fallen.
KT has now developed an innovative battery that is small and lightweight. This battery is an
emergency power source allowing electric cars to reach a charging station. However, the
battery can only be used ten times before it runs out. KT has insufficient finance to create a
battery that can be recharged an unlimited number of times.
Through market research, KT has discovered that:

y no other emergency batteries for electric cars exist
y owners of electric cars fear running out of power
y KT ’s new battery could be obsolete in five years.
KT has the capacity to produce 90 000 of these new batteries each year. The average cost is
$200 per unit. KT has insufficient funds to invest in additional capacity.
KT is considering two options:
Option 1: Market and sell directly to existing car owners through business to consumer
(B2C) at a retail price of $400. KT will need to borrow significant capital to finance this option.
Option 2: Accept an offer of a five-year strategic alliance with a manufacturer of electric cars.
KT would provide its product exclusively at $250 per unit. Sales are guaranteed.
Table 3: KT ’s forecasted and guaranteed worldwide unit sales (in 000s) for the two options
Option 1 Option 2
Year
forecasted sales guaranteed sales
1 50 40
2 60 50
3 100 85
4 110 80
5 90 60
Total sales 410 315
(a) Define the term product orientation. [2]
(b) With reference to Option 1, for KT, explain the relationship between the product life
cycle, investment, profit and cash flow. [4]
(c) With reference to KT, explain two problems that a new business may face. [4]
(d) Recommend whether KT should choose Option 1 or Option 2. [10]

The Trial Version
References:
4. [Bicycle] Hall, E., (2006). My new bicycle [online]. Available at https://www.flickr.com/photos/mulegirl/99132433

(CC
The Trial VersionBY-SA 2.0) https://creativecommons.org/licenses/by-sa/2.0/ [accessed 29 August 2019].
All other texts, graphics and illustrations © International Baccalaureate Organization 2021

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Answer one question from this section.

1. Rio Mobiliário (RM)

Accumulated retained profit 4116

(a) Define the term outsourcing. [2]

The Trial Version

Image removed for copyright reasons

Parder manufactures ride-on (riding) lawnmowers.

Variable costs per ride-on

Price per ride-on lawnmower 1500

(a) Define the term variable costs. [2]

The Trial Version

Answer one question from this section.

3. German Car Keys Limited (GCK)

[Source: adapted from www.telekom.com]

The Trial Version

(a) Define the term offshoring. [2]

The Trial Version

The target market consists of two market segments:

(a) Define the term market segment. [2]

(d) Evaluate JJ’s proposal to launch the JJplus service. [10]

The Trial Version

6. With reference to an organization of your choice, discuss the impact of innovation on

7. With reference to an organization of your choice, examine the impact of culture on

8. With reference to an organization of your choice, examine the impact of globalization on

The Trial Version

Answer one question from this section.

1. Valley Gardens (VG)

Selected financial information for VG, all figures in $000s:

(a) Define the term loss leader pricing strategy. [2]

(b) Using information from the table:

The Trial Version

2. Café Lucchini (CL)

Rent per month $2000

(a) Define the term fixed cost. [2]

The Trial Version

Answer one question from this section.

3. Flussbiegung CityRoller (FC)

Flussbiegung CityRoller (FC) is a private limited company that sells

FC only sells one brand of scooter, called Rasen, which consumers

Brand Price (in €s) Consumer opinion

(a) Describe one feature of a private limited company. [2]

The Trial Version

4. Adventures for All (A4A)

Tama Toki founded Adventures for All (A4A), which owns

A4A uses predatory pricing. Its competitors are theme

Tama discussed with senior managers two possible growth strategies:

(a) Define the term target market. [2]

(b) Explain two roles of A4A’s mission statement. [4]

The Trial Version

5. Thorns Hill (TH)

(a) Define the term de-layering. [2]

The Trial Version

7. With reference to an organization of your choice, examine the impact of globalization on

The Trial Version

Answer one question from this section.

1. Sotatsu Electronics (SE)

Table 1: Select financial information for SE for 2015 and 2016.

(a) Define the term price skimming. [2]

The Trial Version

The Trial Version

Answer one question from this section.

Initially, Wire paid cleaners at Dales a low wage of: