Formative Assessment

27th September 2023 Max Marks - 25

Subject – Business Management Grade - DP 1

Text A: Fort Industries (FI)

Fort Industries (FI) manufactures aircraft. Jacques Fort founded the business in 1957 as
a private limited company. He owned 100 % of the shares and managed the company
strictly, making most of the decisions himself. FI grew through both internal and
external growth. Later, it began to manufacture aircraft parts for other manufacturers.
Jacques led his workforce by using Taylor’s motivation theory. He regularly set clear
objectives and monitored his employees carefully. Employees had to meet international
quality and safety standards. Although Jacques was controlling, employees had job
security and believed that he had their best interests at heart.
FI became a public limited company in 1988 and grew. Jacques found this transition
difficult. He liked privacy and rarely spoke to the media. This had to change. Employees
also began to ask for less supervision, wider spans of control and greater control over
quality standards. Jacques retired in 2000 and his son, Henri, took over as CEO. Henri
consults widely with his executive team and line managers on all decisions.
Recently, FI has been struggling with liquidity. Henri implemented strict cost controls
and analysed the following ratios (see Table 1).
Table 1: Liquidity ratios for FI for 2019 and 2020 and industry averages for 2020

Often, FI has to delay payment to creditors. Employees are concerned that by saving
money, safety standards at FI have been reduced.
Henri is considering two options to solve the liquidity problem:
Option 1: A long-term loan.
Option 2: Issuing and selling additional shares in FI.

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 Text B: Buzza
Jo and Demi Straus established Buzza, a partnership, in 1999. Buzza manufactures
women’s fashion accessories, such as handbags and scarves. Jo, a gifted designer, directs
the design team. Demi, a business graduate, organized the business by function. She
manages most of those functions.
In 2012, they converted Buzza to a private limited company to help obtain finance for
the business’s expansion. Jo and Demi retained 60 % ownership between them.
Because of the brand’s reputation, Buzza can recruit creative graduates from design
universities. Graduates receive 12-month contracts, which are renewed only if Buzza
accepts their designs. Buzza tells graduates that, generally, only half of all contracts are
renewed. The average age in the design team is 26. Labour turnover in the design team
is much higher than in similar exclusive brands.
Wealthy consumers interested in the latest fashions find Buzza a highly desirable and
exclusive brand. Only approved retail outlets sell Buzza products. New collections are
produced four times a year. At the end of each season, retailers return unsold products
to Buzza. Last year, these unsold products were valued at $15 million. At present, Buzza
sends returned products to an incinerator plant to be destroyed. A recent television
documentary revealed that Buzza incinerates perfectly good products, which led to
damaging social media comments.
In response to the negative publicity, Jo and Demi are considering two options:
Option 1: Sell surplus products at greatly reduced prices on its website.
Option 2: Break down returned products to recover raw materials for re-use in future
products. This process of breaking down returned products will be time consuming and
costly.

1. State two types of external growth. (Text A) [2]

2. Explain two reasons why Jacques may have found the [4]
transition difficult when FI became a public limited
company. (Text A)

3. Explain one advantage and one disadvantage to Buzza of [4]

operating as a partnership. (Text B)

4. Discuss the two options that Jo and Demi are considering. [10]
(Text B)

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