Name: Alex W.

Date: 3/1/2021
Marks: __/60
Duration: 1 hour 30 minutes
 1. a. i. Define the term ‘shareholders’. [2]
A shareholder, sometimes referred to as a stockholder, is a person, company, or
organisation that owns at least one share of a company’s stock, known as equity.
Because shareholders essentially share a portion of ownership in a company, they
receive the benefits of a business’s success.
ii. Briefly explain the term ‘focus group’. [3]
A focus group is a research technique utilised to collect data through the process of
group interaction. This group comprises a small number of deliberately selected people
who will participate in a facilitated discussion regarding a given topic to obtain
consumer perceptions about a particular area of interest. Focus groups are used with
the intention of identifying and exploring consumers’ feelings, perceptions, and
thoughts about a specific product, service, or solution.

b. i. Refer to Table 1 and other information. Calculate the price of the dress for Lydia. [3]
Total cost per unit + markup
20*10 = $200
$250 + $25 + $25 = $300
$300 + $200 = $500
$500*1.5 = $750
The price of the dress is $750.
ii. Explain one payment method (other than time-based) that DC could use to pay its
employees. [3]
Another payment method that DC could use to pay its employees is piece rate. Piece
rate is a wage determination system wherein workers get paid based on each unit of
production at a fixed rate. Through this, employees could get paid for every pair of
trousers they make based on the new batch production method.

c. Analyse two human resource problems that DC might experience from the introduction of
the new batch production method. [8]
Two human resource problems that DC might encounter from the introduction of the
new batch production method are deskilling and the need for training.

Deskilling is the process in which skilled labour within an industry ends up being
eliminated by the introduction of technology or machinery. With the assumption that
machinery is being used to automate repetitive tasks, this could potentially result in
employees losing the skills they have to create clothing. Employees end up with less
skills therefore disadvantaging the company in question.
On the other hand, the need for training will rise if equipment or machinery is
introduced to repeat the aforementioned repetitive tasks. New equipment or
machinery will inevitably involve training, as employees will need to learn how to
operate them. This will need extra funds, therefore costing the business more. How will
the business fund this? The biggest potential disadvantage of training employees is
the sheer amount of costs involved, especially if it is advanced training. Advanced
courses and external training providers can sometimes be pricey and, though it is
admittedly worth the expense, the business may not have the budget to afford it.

d. Discuss a suitable pricing strategy that DC could use for the new range of trousers. [11]
A suitable pricing strategy that DC could use for its new range of trousers is
penetration pricing. Penetration pricing, by definition, is a marketing strategy used by
businesses to attract customers to their new product or service by offering a low
price during its initial release. This lower price helps this new product or service
essentially “penetrate” the market and attract customers away from competitors.
Market penetration is reliant on the strategy of using low prices initially to make a
wide customer base aware of a new product.

The goal of a price penetration strategy is to entice customers to try said new
product and build market share with the intention of keeping the new customers once
prices rise back to normal levels.

Penetration pricing can be a successful marketing strategy given proper application. It

can often increase both market share and sales volumes. Additionally, a larger
amount of sales may lead to lower production costs and quick inventory turnover. The
key to a successful penetration pricing campaign, though, is keeping the
newly-acquired customers.
However, if the low price is part of the introductory campaign, curiosity may initially
prompt customers to choose the brand, but once prices rise to or near the price
levels of any competing brands, they may switch back to the competitor.

As a result, a major disadvantage to the market penetration pricing strategy is that

an increase in sales volumes may not always lead to a rise in profits if prices must
remain low to keep the new customers. If the competition lowers their prices as well,
the companies might find themselves in a price war, leading to both lower prices and
profits for an extended period of time.

Other pricing strategies that DC may consider include competitive pricing (setting
similar price to competitors, could be higher and lower; they have competitors and
therefore would need to be competitive themselves), skimming (setting high prices in
order to gain high profits; most likely ineffective, though, as these involve
batch-produced products, therefore each trouser would be similar and not unique),
and price discrimination, which is the act of setting different prices for different
groups of customers. With competitive pricing, they could validate this method by
aiming at the high class part of the market, selling trousers of good quality. However,
if they intend on aiming to a certain age range (25-50, as mentioned in the text),
they need to set the price accordingly and make sure that it can act as an “umbrella”
for the aforementioned age range. Since DC will be selling at large shops as well, they
would have to account for the profit that the large shops would be taking from their
sales.

Since DC is continuously moving into a new market, though, penetration pricing would
be beneficial to them, seeing as they can apply high discounts on their early orders
and proceed to build relationships with other stores with more influence and bigger
customer bases- after that, they can increase their prices closer to that of their
competitors.
 2. a. i. Define the term ‘demand’. [2]
Demand, by definition, is a term that refers to a consumer’s desire to purchase a good
or service and their willingness to pay for said product. In other words, it is the
measure of desire to own and purchase a product or service.
ii. Briefly explain the term ‘tertiary sector’. [3]
The tertiary sector is essentially the service sector of the economy, encompassing a
wide range of businesses, including financial institutions, hotels, restaurants, and
schools. The tertiary sector is one of the three main industrial sectors in a developed
economy, with the other two being primary (raw material) and secondary (production
of goods). THe tertiary sector makes up a vast majority of employment
opportunities and has the sole focus of providing services, not goods, to consumers
and other organisations, hence why it is often called the service sector.

b. i. Refer to Table 3. Calculate the gross profit margin. [3]

Gross profit
Revenue*100
GP = 120 - 90
= 30
GPM = 30/120 *100
= 25%

ii. Explain one way that BG could improve its profit margin. [3]
One way that BG could improve its profit margin is by decreasing its costs but
maintaining the current price for its products. The reduction of operating expenses by
minimising supply and efficient resource allocation has proven to be beneficial when it
comes to improving the profit margin. Repetitive tasks may be automated as well in
order to save time and employees.

c. Analyse two possible sources of finance that BG could use for the new lawnmower. [8]
One of the hardest parts involved in running a business is having money to keep it
running. If sufficient finance cannot be raised, then it is unlikely that the business will
succeed. Several things need to be taken account of:
 ● How much finance is needed? Does BG truly need to borrow $10000, or could
Barry or Michael themselves invest funds from their own pockets to lessen the
amount that will be borrowed?
● When and how long is the finance needed for? Considering the fact that
interest rates have the tendency to be higher over longer periods of time. It
could be risky if it were paid over the long term because of BG’s status as a
partnership.
● What security, if available, can be provided?
● The existence of interest rates; because of BG’s status as a partnership, they
would be perceived as risky to lend to. A stable margin and healthy profits
might be able to convince a lender that the risk is less.

One source of finance that BG could use for their new lawnmower is bank loans. A
bank loan provides a longer-term type of finance, with the bank stating the fixed
period over which the loan is provided, the rate of interest, the timing, and amount of
repayments. The bank would require BG to provide some security for the loan,
although this security normally would come in the form of personal guarantees
provided by BG. Bank loans are an excellent method of financing investment in fixed
assets and are generally at a lower rate of interest as compared to bank overdrafts,
which would be advantageous to BG.

Another method of finance that BG could use is trade credit. Trade credit must be
agreed with a supplier, forming a credit agreement between both parties. This source
of finance allows a business to obtain materials and stock but pay for them at a later
date. The payment is usually made once the business has had an opportunity to
convert the materials and stock into products (i.e. the lawnmower), sell them to its
own customers, and receive payments. This would be beneficial to BG because they can
pay at a later date without worrying about the interest.

d. Discuss the advantages and disadvantages to Barry and Michael of the business being a
partnership. [11]
Various advantages and disadvantages come with Barry and Michael’s decision to
turn their business into a partnership. Advantages include individuality, i.e. Barry and
Michael can run the business on their own without involving shareholders, therefore
all profits go to themselves (the burden is shared as well, which lightens it), since it is
a personal, small business Michael and Barry will be able to give one-on-one service
to their customers and know them better, forming good communication bonds and
better relationships with them. This will give them a good reputation and spread
through word-of-mouth, causing their likeliness to succeed and profit to be higher.
Aside from that, specialisation is a key factor from partnership that benefits them,
i.e. division of labour with Barry working in finance and marketing and Michael working
with employees and technical matters, contributing to the success of BG because work
division is clear and efficient. Each partner brings their own knowledge, skills,
experience, and contacts to the table, giving it a better chance of success than any
of the partners trading individually. They share out tasks, with each specialising in
areas they’re best at and enjoy most. A partnership is also easy to start and lacks
formality with fewer legal obligations- more convenient to Barry and Michael.

On the other hand, though, becoming a partnership has its disadvantages as well, such
as that the business has no independent legal status. A business partnership has no
independent legal existence that is distinct from the partners- unless a partnership
agreement with alternative provision is put in place, it will end up being dissolved upon
the resignation or death of one of the partners. This has the potential to cause
insecurity and instability. Again, because of this lack of a separate legal personality,
the partners are personally liable for debts and losses incurred- they have unlimited
liability, If the business runs into trouble, the partners’ personal assets are at risk of
being seized by creditors. The partners are jointly and severally liable. A partnership
might find it more difficult to raise money, too. Banks often prefer the greater
accounting transparency, separate legal personality, and permanence that come with
a limited company. A partnership business is seen as a higher risk; a bank will either be
unwilling to lend or will only do it on less generous terms. Potential for conflict may
also rise between business partners, possibly related to the strategic direction,
discrete business issues, different views on how partners should be rewarded,
ambition, etc. These differences harm the business as well as the relationship between
the involved partners. Conflict can be a major distraction, absorbing the partners’
energy, money, and time. Decision-making can be slower, too, as consultation and
discussion will have to be done with the partner, and when it comes to disagreements,
time will be spent negotiating to build an agreement or consensus, meaning the
possibility of missed opportunities.

Overall, after considering both advantages and disadvantages, the disadvantages of

a partnership seems to outweigh its advantages. Unlimited liability and conflict are
factors that might end up doing more harm than good in the long run; it is simply too
much to risk. When personal assets and relationships are on the table, more is being
risked than just the business itself. Therefore, Barry and Michael might be better off
looking for alternatives unless they can agree on conflict resolution and are secure
enough in terms of finance to handle unlimited liability.