Endorsed by

University of Cambridge
International Examinations
 C o n te n ts
Introduction IV

Unit 1 The purpose of business activity 1

Unit 2 Types of business activity 5

Unit 3 Forms of business organisation 10

Unit 4 Government and economic influences on business 14

Unit 5 Other external influences on business 19

Unit 6 Business costs and revenue 23

Unit 7 Business accounting 27

Unit 8 Cash flow planning 32

Unit 9 Financing business activity 36

Unit 10 Organisational structure 41

Unit 11 Managing a business 45

Unit 12 Comn1unication in business 49

Unit 13 Motivation at work 52

Unit 14 Recruitment, training and human resources 56

Unit 15 Employee and employer associations 60

Unit 16 The 1narket and n1arketing 64

Unit 17 Market research 67

Unit 18 Presentation of information 70
Unit 19 The n1arketing mix: product and packaging 72
Unit 20 The marketing mix: price 76
Unit 21 The marketing n1ix: promotion 79
Unit 22 The marketing mix: place 83
Unit 23 Factors affecting production 87
Unit 24 Factors affecting location 91

Unit 25 Business in the international con1n1unity 95

Answers 99
Index 110

iii.
 I n t rod u ct i on
How to use the study guide
This text has pritnarily been written to support students in their
study of Business Studies to IGCSE. It has been designed to
complement the IGCSE Business Studies textbook (Barrington
and Stimpson) . The units in this guide follow the chapters in
the textbook.
Please be aware , however, that the order of the units in the
textbook and this study guide and the order of the sections of the
curriculum content are different. Teaching progran1n1es do not
have to follow the order of either the curriculun1 content in the
syllabus or the textbook. Teachers may have used the schen1e of
work provided on CIE's website, so again the order of the units in
this study guide will not be the same as the order of topics �n the
scheme of work, or the scheme of work provided on the CD-ROM
which supports the textbook.

IGCSE Syllabus - Curriculum Content IGCSE Study Guide Units

Busi ness and the environ ment i n which it operates:
A - Busi ness activity U n its 1, 2
B - The organ isation U n its 1, 2
C- Chan g i n g busi ness environm ent U n its 4, 5
D - Economic e nviron ment U n its 1, 2, 2 5
Business structure, org a n isation a n d control:
A - Ownersh i p a nd i ntern a l org a n isation U n its 3, 1 0, 1 1 , 1 2
B - F i n a ncing busi ness activity U n it 9
Busi ness activity to ach ieve objectives:
A- Ma rket i ng U n its 1 6, 1 7, 1 8, 1 9, 20, 2 1 , 22
B - Prod uction (Operations management) U n its 6, 23, 24
C - F i na ncial i nformatio n a nd decision-m a k i n g U n its 7, 8
Peop le i n business:
A - Human n eeds and rewa rds U n it 1 3
B - M a n power U n it 1 4

Reg u l ating and contro l l i ng business activity:

A - Reasons for reg u l ation U n its 4, 5
B - Influences on busi ness activity U n its 4, 5, 1 5, 2 5

The IGCSE Business Studies exanlination has two question papers.

Paper 1 contains short-answer questions and structured questions based
on short pieces of information. The skills being tested are n1ainly
knowledge with understanding and application, with fewer n1arks
awarded for analysis and evaluation. The questions on this paper carry
up to 8 marks, but most of the questions have 2, 3, 4, 5 or 6 n1arks
allocated. You will see in the different units in the study guide there
are these types of shorter-answer questions for you to practise.
Paper 2 has a business situation or probletn with questions
arising fron1 the case study. The skills being tested on this paper are
analysis and evaluation, but the questions will be asking for the
answer to be applied to the business in the case study. The
questions on this paper often carry 8, 10 or 12 1narks. Again, there
are questions in the different units in this book, which will help
you to practise answering these types of questions.
• iv
 Introduction
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Each unit in the study guide has the following five sections :

Section What the section covers How to use the section

Key objectives Outl i n es the key objectives, which
specify what yo u should u n dersta nd
or be a b l e to do i � the exa m i nation.
Key defi nitions Summa rises the m a i n terms or
defi n itions yo u should know for
the exa m i n ation.
Sample questions and answers G i ves exa mples of student
answers, outl i n e mark sche mes a n d
exa m i n e r's ma rks a n d com ments.
Common misconceptions G ives some common m i sta kes
and errors made by students i n exa ms.
Try th is Has exa m i n ation q u estions fo r
yo u to answer.
These l i sts can serve as a checklist of
yo u r prog ress in each topic.
These a re only s u m m a ries ( i n the
form of a ta b l e or d i a g ra m) a n d for
more deta i l ed exp la nation you
s h o u l d add to these from you r
textbook or cl ass notes.
Cover u p the exa m i ner's marks a n d
comments and s e e w h a t m a r k
y o u wou l d have g iven the a n swer
before yo u look at the actual mark
that was g iven . This will h e l p you
understa nd what is req u i red for
fu l l ma rks.
Answer the q uestions. The a n swers
section at the back of t h is revision
g u id e will help yo u to check the
marks yo u r a nswer wou l d have
received.

This study guide contains the necessary support for the

attainment of the highest grade. It can be used on its own or in
combination as follows:
• to con1plen1ent the I GCSE textbook and CD-lZ.OM
• at the end of each topic, to provide reinforcetnent and
assessn1ent
• to prepare for the I GCSE exan1ination.
If you want to get the maximum value fro1n this book, it is
strongly advised that you attempt to answer all the questions on
paper and not in the book. Then you can repeat the exercises at
intervals throughout the course.
We hope you find this book a useful resource in your study of
IGCSE Business Studies and that it assists yo u in gaining a
commendable grade .

What examiners are looking for

Most Business Studies exan1ination papers are testing four different
skills . These are :
• knowledge with understanding
• application
• analysis
• evaluation.
Knowledge with understanding. This is tested with the type of
question that asks you to explain a particular tern1, for exatnple,
'What is 1neant by market segn1ent?' These are the type of questions
where you will need to have revised the tem1s or definitions of the

ve
INTRODUCTION
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

different topics. You need to be able to write down what they n1ean
clearly and accurately if you are to gain n1axin1un1 nurks. With
thorough revision of the definitions section and supporting notes it
will be relatively easy to acquire n1ost of the n1arks for these
questions. Unfortunately, only about a quarter of the marks across
the whole papers will be for knowledge with understanding.
The type of command words which are testing this area are:
Describe . . . , State . . . , List . . . , Outline . . . , What is tneant by . . . ,
Give . . . , Define . . . , Identify . . . , Name . .
.

Application. This means the exanuner is testing whether you can

apply your answer to the business given in the examination, for
example, 'What do you think the business in the case study could do
to increase sales?' Your answer must not just be a general explanation
of how a business could increase sales, but how this specific business
could increase sales. If you don't try to think in tem1s of the business
given, you will lose a quarter of the marks across the whole
examination papers. So this is a very important skill.
When you look at the revision questions in this book, you will
see that there are many mini case studies outlined before the
questions themselves so that you can practise this skill of answering
in the context of the p articular business.
The type of command words which are testing this area are :
Explain how this business . . . , Why might company x . . . , Give an
example from the case study to . . . , Why n1ight cotnpany z . . , Fron1. .

the case study outline . . .

Analysis. The skill of analysis involves being able to select

information from text, tables, graphs, diagran1s or drawings. You
should be able to arrange information in order to 1nake sense of it, for
example, this could involve graphing infom1ation provided in a table.
You must be able to analyse what information is being shown, for
example, if the information shows an upward trend in the business
performance. Or you must be able to exanune the implications of a
suggested idea or strategy.
There are � evision sections thoughout this book that con t ain
questions that give you practice of this skill.
The type of command words which are testing this area are:
Analyse two factors . . . , Explain why . . . , Using accounting ratios,
analyse .. . , Examine why the business .. .

Evaluation. This skill requires you to draw conclusions, n1ake

judgements or make recommendations, but they must be justifi e d
to ensure the marks are achieved, for exan1ple , 'Which would be
the best form of fi n ance for this business to use to pay for the
expansion of its factory?' The qu estion does not just test evaluation
but also tests knowledge with understanding, application and so1ne
analysis . The mark scheme will reflect the different skills being
tested and reward then1 accordingly.
Revision sections throughout this book contain questions that
give you practice of this skill. Exanuner's tips will also indicate
where you need to include evaluation in your answers.
e vi
 Introduction
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

The type of con1mand words which are testing this area are:
Discuss . . . , Justify . . . , Consider. . . , Decide . . . , Which . . . , Evaluate . . . ,
Why do you think . . . , To what extent . . . , Do you agree . . . ,
Advise . . . , Assess . . . , Recomn1end . . .
.,.

As you work through the questions in this study guide, try to think
about which skills the examiner is testing. For example , if the
examiner is testing evaluation by asking if you agree with a
particular p roposal, then you must make judgements in your
answer, so you should agree or disagree and explain why, otherwise
you will not gain the higher marks.

Preparing for the examination

Du ri n g the cou rse

Preparing for an external examination is a continuous process
throughout the course. All the activities, lessons, homework and
assignn1ents are major factors in detennining your final
examination grade, so the first piece of advice is to suggest that you
work steadily throughout the one or two years of the course . It is
essential that you prepare thoroughly for internal school
examinations then, as you approach the I GCSE exan1ination and
start your revision programme, the topics will be familiar and the
learning process will be less stressful and more productive .
Revision should be what it says, refreshing your men1ory of what
you need to know and be able to do for the exan1ination; it should
not be learning something for the first time .
Make sure that your notes are up to date . If you n1iss work
through absence either copy it from a friend or leave a con11nent
in your notes that will remind you to refer to the topic in a
textbook. Similarly, look at any hon1ework you have missed and if
it involves the reinforcement of skills or concepts, then it would be
a good idea to complete it.
In sun1mary:
• work throughout the course
• ensure that your work is both complete and accurate
• learn the topics for tests and internal exan1inations
• seek assistance if you fi n d an aspect of the course difficult.

Rev i s i o n ti ps
• Divide your time so that you revise a section or topic at a ti1ne .

You could do one unit from this guide at a tin1e or you could
group units together into the topic areas, for exa1nple, n1arketing
would include Units 1 6 to 22.
• Learn the terms, concepts, facts, etc . thoroughly. Precise and

clear answers are more likely to gain full nurks . Vague answers
may get son1e credit, but they are more likely to lose you n1arks .
• When you have learnt a particular topic practise answering the

questions at the end of the units to test if you have learnt all the

vii e
INTRODUCTION
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

information thoroughly. Pay particular attention to n1aking sure

you explain in detail.

Rev i s i o n tech n iques

Well in advance of the examination, produce a revision tin1etable for
all your subj ects. Be realistic - you must include time for relaxation
and socialising. Then create a more detailed timetable for Business
Studies to cover all the topics . Ideally, you ought to go through the
complete course twice. Keep a checklist of the topics studied - it is
encouraging to have a visual record of your progress.
It is useful to have a syllabus, but not essential as this book
includes all the inforn1ation required for I G CSE Business Studies.
You will need a quiet room at a co1nfortable ten1perature, plenty
of paper and a pencil or biro . Some students find using highlighter
pens helpful. On occasions revising with a friend 1nakes a welcon1e
and useful change. You will have to discover for yourself the
length of time for which you can profitably study. This is a very
individual characteristic and can vary fro1n person to person - it
may be as little as 30 minutes or over an hour. Do not exceed your
optimum study time, break up the available time into study
sessions and breaks. I ntroduce 'rewards' - when I have finished this
section of work I will . . .
Revision must b e active, s o do not believe that just looking at a
book is an effective way of learning. Your eyes can go over the
words but the meaning never enters your brain! You can nuke
flash cards that have bullet lists of essential points. You can study
the topic for several minutes and then close the book and write out
what you can ren1ember - do not take great care over presentation
- then check your account against the book. Repeat until you
have most of the information correct, then move on to another
section of the work.
This is the 'look, cover, write and check' technique and it is very
effective for the majority of students. It is crucial that you repeat this
technique on the same topic at least once, but preferably twice, soon
after your first attempt, i.e. either later the san1e day or the next day.
Once you have acquired a reasonable knowledge of the course, it
is time to extend the revision to practising on past papers. This is a
n1ost valuable form of preparation because not only does it provide a
test of the effectiveness of your revision but it also provides an
insight into what to expect in the 'real' examination. You need to
practise the skills of application, analysis and evaluation. This requires
you to look at case studies to answer questions. Paper 2 practice
questions, in particular, will develop these skills but Paper 1 will ask
questions in a business context and also develop these skills.

How to app roach th e exa m i nation

If your Centre or school has provided a detailed exan1ination
tin1etable, highlight your examinations and put this ti1netable in a
pro1ninent place in your home . Ask one of your parents to check
with you each day so that you don ' t n1iss an examination.

• viii
 Introduction
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Collect together the correct equipn1ent the night before -

pencil, pencil sharpener, eraser, ruler, calculator (are the batteries
OK?) and two blue/black p ens (in case one runs out) .
Leave hon1e in plenty of ti1ne. If you are late, you will not be
given extra tin1� and under certain circun1stances you will not be
allowed to enter the examination room. The regulations vary
depending on the Examination Board. Do not put yourself at a
disadvantage .

Advice for w h e n you a re about to ta ke yo u r

exte rn a l exa m i n ations
• Make sure you know the examination instructions. Read then1
on the front cover and obey then1. Answer all the questions in
the examination as there is no choice given.
• Read each question carefully and pay particular attention to the
command words. Highlight or underline the key words in the
question. Make sure you obey the con1n1and word, for exan1ple,
if the question says 'state two examples' then don't explain
them, but if it says 'explain . . . ' then n1ore than a si1nple
statement is needed.
• Make sure you read a case study carefully and apply your
answers in the context of the case study. This is especially
important in questions where you are specifically asked to do so.
• Use all the information provided in the case study. Read the
informatio n carefully and underline key points.
• Do not repeat the sa1ne answer in different sections - you do
not usually gain double credit.
• Use the nun1ber of n1arks available for a question as a guide to
the nun1ber of points needed if you are not told how 1nany to
include. Do not write a detailed answer to a question which is
only worth 2 marks. However, if 1nore marks are available then
a detailed explanation will be needed. For questions using the
comn1and words for analysis and evaluation then fewer points
will be required, but more in-depth discussion will be needed
for the highest marks.
• Make sure you understand how to achieve the higher l eve ls on a
question where a level response 1nark schen1e is used. These are
usually the ones that are using the con1n1and words for analysis
and evaluation and carry a relatively large nutnber of marks, tor
exatnple, 6, 8, 1 0, 1 2 marks. (Your teacher can explain this to you.)
• Be aware of the time available . Use your tin1.e wisely and don't
spend a lot of time trying to answer questions you are not sure
about. Answer the questions you are n1ore confident in
answering and go back to the other questions at the end of the
examination. Also, if you have finished the exan1ination before
the end then re-read your answers and t1y to add to then1. If
you run out of space then fill any space underneath the question
or answer on spare paper.
• Make sure the correc t equipn1ent is brought to the ex�unination,
such as pen , ruler, pen cil , eraser and calculator.

ix •
INTRODUCTION
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

After the exatnination the papers are sent to the exatniner allocated
to your Centre. This exatniner will be part of a teatn headed by a
Principal Exan1iner. All the n1en1bers of the exatnining teatn will
look at a sample of their scripts and assess the range of candidates'
responses to each question. About a week after the examination,
the team will meet to co-ordinate the marking for each question
and decide the range of responses that are acceptable. During the
n1arking period, the Principal Examiner will sample the marking of
each examiner, at least twice, to ensure con1parability of n1arking
across the team. The scripts and the marks are returned to the
Examination Board where the minin1um mark for each grade is
decided. A few weeks later you are informed of your grade .

How to i m p rove yo u r g rade

Here are a few tips:
• Use this book. I t was written to help students attain high grades.
• Learn all the work. Low grades are nearly always attributable to
inadequate preparation. If you can recall the work, you will
succeed and if you cannot, you will fail. Harsh, but true.
• Practise the skills necessary to be successful including calculations
and interpretation of graphs.
• Make sure you can explain your answers in detail and do not
make simple statements unless a question asks you for a simple
statement.
• Use past papers to reinforce revision, to become fatniliar with
the type of question, and to gain confidence.
• Answer the question on the examination paper - do not regard
a question as an invitation to write about the topic.

Finally, good luck!

ex
 N IT 1 T h e p u r p ose of
b u s i n ess a ct i v i ty
Key objectives • To understand what is n1eant by scarcity
e To know what is meant by the economic problem
e To apply the idea of opportunity cost to a nu1nber of different
situations
e To explain why specialisation is important in modern businesses
e To understand the nature of business activity and the groups
involved in it
Key definitions
U nl i mited h u m a n wants The economic problem is ca used
by the scarcity of resources
.......,.
(factors of production) compared
to human wants
Scarcity resu lts i n opportu nity
cost. When choices a re made,
the next best thing g iven u p is
ca l led the opportun ity cost
1
You have $ 1 0 and want to buy
both a DVD and a jacket. If you
buy the j acket, the DVD is your
opportunity cost
Term Defi n ition
Specialisation Where reso u rces a re used to
co nce ntrate on prod ucing one
particu l a r prod uct.
Division of labour Each worker does one spec i a l ised job.
Busi ness objectives The targ ets or a i ms that a business is
work ing towa rds.
Va lue added The d ifference between the sel l i ng
pri ce of a prod uct a n d the cost of
the bou g ht-i n materi a l s n eeded to
make it.
Stakeholders G ro u ps of people with a d i rect
i nterest in the performa nce of a
busin ess.
Sca rcity of factors of
prod uction: la nd, labour,
� ca pita l a n d e nterprise
La nd- i n c l u des a l l natu ral
resou rces
Labour- the n u mber of people
a ble to work
Capital- m a n-made resou rces
such as m a c h i nes that a id
productio n
E nterprise- people prepa red to
take risks by sta rti ng busi nesses
Exa m ples
Cou ntries speci a l i se, e.g. Qatar
in oil product i o n. Labour with i n
a firm ca n speci a l ise, too .
I n a computer asse mbly factory each
worker wi l l perform a speci a l ist task.
I ncrease profits, i n crease sa l es,
survive. Objectives can d iffer
between b u s i n esses. The o bj ectives
of any one b u s i n ess can change over
time, e.g. surviva l at sta rt- u p a n d
profits o nce it is esta bl ished.
If a firm sel ls a product for $ 1 5, but
the m ate rials that were bou g ht i n
fro m other firms o n ly cost $ 6,
then the value added is $9.
Wo rkers, customers, consum ers,
shareholders, reside nts, governme nt,
ba n ks. These g ro u ps often have
d iffe rent o bjectives for the business.
1 •
UNIT 1
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Sample questions and answers

Satnple question The AR.C Cotnpany produ ces and sells costnetics for won1en and
girls. The con1pany is owned by a brother and sister. They wanted
to tnake more n1oney than they were earning in their old j obs.
Although profi t able, business sales have fallen in recent years. This
is causing nuny stakeholder groups to worry about the future of
the business. The owners are very keen for the business to
continue . Sales are falling due to new con1petition in the n1arket
with exciting new products, so ARC tnust cut production costs to
survive. The con1pany has bought expensive new tnanufacturing
equipment which is very specialised. Fewer workers are needed
and they perform the same tasks each day and some workers have
left because they are bored. Production has fallen as a result of this
and ARC cannot supply all of the shops.
The marketing director is keen to increase the value added of
the cosmetics. One product - the 'Bella' perfun1e - currently sells
for $ 7 . It is made from soap bought in by the business at a cost of
$2 per item. The director believes that by designing new luxury
packaging for the product, value added could be increased.

a) How do the business's obj ectives seetn to have changed

recently? [5 tnarks]
Marks 1 mark for explaining what a business objective is; 2 marks for identifying
and explaining the original objective; 2 marks for idetztifying and
explaining the more recent objective.
Student's answer Most businesses have obj ectives that they ain1 for. The obj ective of
this business is to survive . It has a lot of new cotnpetitors and sales
are £1lling. Stakeholders are worried that the business n1ight not
survive so this is now the business's obj ective.
Examiner's marks The student understands that objectives are tmgets to aim for - 1 mark.
and comments The answer states that the latest objective is probably survival a11d explains
why - 2 marks . However, there is no attempt to identify or explain the
original objective that seems to have been prof it. 3 I 5 marks .

b) Explain the advantages and disadvantages of using division of

labour for this business. [7 marks]
Marks 1 mark for explaining division of labour; 3 marks for explaining two or
more advantages for this business (maximum 2 marks if no riference to this
business); 3 marks for explaining two or more disadvantages for this
business (maximum 2 marks if no riference to this busi11ess).
Student's answer Division of labour is where a product is n1ade by workers
specialising on one stage of production each. The new machinery
that ARC bought allowed the business to use division of labour.
This n1eans that each worker does what they are best at. This
should increase output and itnprove quality. ARC should benefit
from lower costs and this will help the business survive. However,
division of labour does have its problems. The work can be boring
as workers are only doing one j ob all the tin1e .

• 2
 The purpose of business a ctivity
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Try to mark this yourself - the examiner's marks a11d COI/11/lCilfs arc 011
page 99.

c) Assume that the marketing director bought in new packaging

for the Bella 1Perfun1e. This costs an extra $1 per unit. She
increases the selling price by 20%. Calculate the new value
added of this product. [3 marks]

Marks If the candidate calculates the correct answer of $5.40 = 3 marks even with
no working; if new bought-in costs of $3 is stated = 1 mark; if uew selli11g
price of $8.40 = 1 mark; ifformula of value added is correctly given = 1
mark.
Student's answer Value added = selling price less bought-in costs
= $7 + 20% less $3
= $8.40 less $3
= $5 . 40
Examiner's marks 3 marks - well done!
and comments

d) Evaluate any one alternative method that the nurketing director

could use to increase the value added of this product. lS n1arks]
Marks 1 mark for identifying one other method; 2 marks for cxplai11ing hou' it
might increase value added; 2 marks for evaluatillg this method.
Student's answer To increase value added, the nurketing director could keep the
price the san1e but lower bought-in costs. Cheaper rnaterials could
be bought in for the perfun1e so that it does not cost so n1uch to
make. This will mean that value added fro n1 each bottle of
perfume will rise .
However, cheaper materials rnight lead to lower quality. I t
n1ight n1ake the perfume sr11ell differently. This could lead t o fewer
sales of the product. If consumers are looking for a quality product
in this market then sales could be hit badly.
Try to mark this answer yourself - the examiner's marks and comments
are on page 99.

Common miscon ceptions a n d errors

Error
' M o re money wi l l solve the
economic prob l e m .'
'Sta keholders a re the sa me
as shareholders.'
'Va l u e added is the profit made
on each u n it.'
Why it is wrong
The economic pro b l e m resu lts from
sca rcity of resources rather than
money.
S h a reholders are j u st one g ro u p of
sta keholders - there a re ot her
g ro u ps, too.
Va l u e ad ded is not profit as o n ly the
cost of bought-in materia ls/
com pon ents have been subtracted
from the se l l i n g price.

3 .
UNIT 1
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

e Try t h i s A new plastics factory is t o b e b u i lt i n you r cou ntry. I t wi l l employ many

workers and wi l l export some of its output to other countries. It wi l l be b u i lt
on farm land severa l k i l ometres away from the main city. Other pl astics
b usinesses are worried a bout the com petition it wi l l bri n g . It cou l d lead to
lower prices for plastic prod ucts. Loca l residents have mixed feel i ngs about
the plan. The factory wi l l use specia l ised equ i pment to a l l ow for d ivision of
labour.

a) Identify fou r sta keholder g r o u ps that wi l l be affected by the p l a n to

b u i l d th i s new factory. [4 ma rks]

b) D iscuss how two of these g r o u ps m i g ht be affected by the new factory.

[8 ma rks]

Examiner's tip
./ You o ught to try to think of how stakeholders might be a ffected in
both positive and nega tive ways.

c) Assess the effect on workers of usi n g d ivision of l a bour i n the

new factory. [8 ma rks]

Examiner's tip
./ Define division of labour a n d consider both advantages and
disadva ntages to workers.

• 4
 N IT 2 Typ es of b u s i n ess
a ct i v i ty
Key objectives • To know the difference between the three stages of
production: primary, secondary and tertiary
e To understand the difference between the p rivate and public
sectors of industry
e To explain the differences b etween horizontal , vertical and
conglomerate mergers and takeovers
e To understand the different ways of measuring business size
e To explain why some businesses remain small

Key definitions Types of business mergers and takeovers (integration) - an exan1ple

from the oil industry:

Vertical i nteg ration backwards is

with a business in the sa me Conglomerate
industry but at a d ifferent stage of i nteg ration is with firms
prod uction: towa rds the raw in a d ifferent i nd u stry,
materi al, e.g. i ntegration with e.g . i nteg rati on with
Asi a O il Fields pic N a m i bi a Dri n ks p i c

Acme O il pic could Ho rizontal integration

Horizontal i nteg ration
i ntegrate with other i s with a busi ness in the
will offer more
,.._.._____ --! businesses in the same i ndustry at the
econom ies of scale a nd
following ways: same stage of
reduces average costs
prod u ction, e . g . Astra
O il pic

Conglomerate Vertica l integration forwards i s

i ntegration is also with a business i n the s a m e
known as diversification industry b ut towards t h e
consumer, e.g. i ntegration w ith
Egypt Petrol Stations pic

Term Defi n ition Examples

Primary production I nd ustries that extract and exploit M i n ing, ag ricultu re, forestry and
the natu ral resou rces of the earth. fishing .

Secondary production I nd ustries that m a n ufact u re goods Car p rod uction, com puter assembly,
made from the raw materi als food ca n ni ng a n d steel ma k i n g .
provi ded by the primary sector.

Tertiary production I n d ustries that provide services to Travel ag ents, ba n k i n g, i ns u ra nce,

consumers and other sectors health serv i ces and transport.
of i nd ustry.

De-industrialisation Relative decl i n e in the i m portance Most adva nced i n d ustrialised

of a cou ntry's secondary eco n o m i es are experiencing this.
(manufacturing) sector.

5.
UNIT 2
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Defin ition Examples

Public sector The sector of the economy i n whi'h
organ isations a re owned and
control led b y t h e state (gove rnm ent) .
Private sector The sector of the economy i n which
org a n isations a re owned and
contro l l ed by i nd iv i d u a ls.
I n most m ixed economies, health
services and ra i l way services are i n
the p u b l i c sector.
I n most m ixed economies, reta i l i n g
and fa rmi ng busi nesses are i n the
private sector.

Free ma rket economy A l l reso u rces are privately
owned . Prices are determ i ned by
su pply and dema nd.
Planned economy A l l resou rces a re owned by the
governme nt, which a l so takes
all maj o r economic decisions.
Mixed economy Has both a private and a
p u b l i c secto r.
There are no 'pure' free ma rket
econom ies but the U SA and South
Korea, for exam ple, have very large
private sectors com pa red
to the who le economy.
Former co m m u n ist cou ntries in
Eastern E u rope had pla n ned (or
com ma nd) eco n o m i es.
Nearly a l l cou ntries have m i xed
eco n o m i es, b ut the bala nce
between private and p u b l i c sectors
is not a l ways the same.

Privatisation The sa le of state-owned assets such I n m a ny countries, fo r exa m p le, the

as p u b l ic corporations to the UK and Germ any, wate r, telephone
private sector. and e lectricity i nd ustries have
been privatised.

Capital-intensive Use a high proportion of capital N uclear powe r pl ants, l a rge

busi nesses equ i pment to prod uce thei r output.
labour-i ntensive Use a high pro portion of l a b o u r
businesses to prod uce the i r o utput.
Internal growth. B us i ness g rowth ach i eved by
expa n d i n g the exist i n g business.
a utomated car factories.
Fruit picking, private schoo ls,
ca l l centres.
Reta i ler open i ng a new shop, car
facto ry extend i n g to ra ise capacity.

External growth B usiness g rowth ach i eved by merg i ng H ewlett Packard ta k i n g over
with or ta k i n g over other busi nesses. Compaq com puters, Ch rysler
merg i ng with D a i m l e r.

Sample questions and answers

Sample question The main airline in Country X, Airco , is owned and 1nanaged by
the central government.

a) The government decides to privatise this airline. Explain what

this means. [2 n1arks]
Marks Up to 2 marks for brief explanatio11 .
Student's answer This means that the government will sell the public sector airline
to the private sector, perhaps to an existing private sector airline
company.
Examiner's marks Full marks for clear understanding - there was no 11eed to add 'perhaps to
and comments a11 existing pritJate sector airline company ' but it was a good development.

b) Which sector of industry is this business in? Justify your answer.

[2 111arks]
Marks 1 mark for tertiary a11d 1 mark for brief explmwtion .

• 6
 Types of business activity
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer The airline is in the secondary sector as it produces flights for
passengers .

Examiner's marks No, this is wrong so no marks. Airlines provide trmz�port services to people
and comments and businesses so it is in the tertiary sector.
1-

c) Briefly analyse one argument for and one against the

privatisation. [4 tnarks]

Marks Up to 2 marks for each m;gument.

Student's answer By privatising the airline, the government will force it to becon1e
more efficient. It will have to cotnpete with other airlines and will
no longer be supported by the governn1ent. However, son1e flights
rnight be stopped if they do not make enough profit. This will be a
problem for the people affected.

Examiner's marks Full marks as there are two clear arguments - one for and one a,�ainst.
and comments The student has not wasted any time - the explanations are short and clear.

d) An existing private sector airline, Airgroup , is i nterested in

buying Airco from the government. This integration would
make a much larger business. It would be one of the largest in
the industry. The government is asking a high price for Airco
and some staff do not want to leave the public sector.
i) If this integration went ahead, would it be vertical,
horizontal or conglon1erate? Explain your answer. [3 n1arks]
Marks 1 mark for horizontal and up to 2 marks for explanation .
Student's answer This would be horizontal integration. This is because the two firms
both provide services and are in the satne industry.
Examiner's marks 2 marks for this answer because the explanation lacked detail - it should
and comments have gone on to say cthey are at the same stage ofproviding airline services'.

ii) Do you think it is likely to be a good idea for Airgroup to

integrate with Airco? Justify your answer. [8 rnarksl
Marks Up to 3 marks each for two explained advanta,�es applied to this lmsilzess
(maximum 1 mark each if not applied) plus 2 marks for some jlldj!,ement
or evaluation.
Student's answer Airgroup might benefit in several ways frorn this takeover. It will
reduce the number of competing airlines. This will reduce
competition. Airgroup might be able to increase its prices because
of this. Also, it might be able to buy aircraft more cheaply as there
might be economies of scale because the firn1 is now much larger
than before . So Airgroup will, therefore , definitely benefit frotn
this takeover.
Try to mark this yourself - the examiner's marks and comments are on
page 99.

7 .
UNIT 2
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Com mon m isconceptions a n d errors

Error Why it i s wrong
'Org a n i sations in the p u b l i c sector P u b l i c l i m ited com pan i es a re in the
include p u b l i c l i m ited com pa n ies.' private sector of i n d ustry (see U n it 3).
'There is both backwa rd a n d forwa rd H o ri zontal i nteg ration is j u st
horizonta l i nteg rati o n . ' between two fi rms at the sa me stage
of production i n the sa me i n d u stry;
vertica l i nteg ration can be either
backwa rds or forwa rds .

'Profits are a g o o d w a y of Profit l evels c a n va ry g reatly between

com p a ri n g the size of busi nesses.' com pan ies even if they a re of s i m i l ar
size i n te rms of wo rkers, capital, etc.
Profits a re not a good way of
co mparing busi ness size.

e Try t h i s The table below shows some data fo r th ree shoe m a n ufactu rers i n 200 5 .

Sales turnover (Sm) Capital employed ($m) Workers employed

Company X 1 60 35 1 , 500

Company Y 1 00 4 2, 500

Company Z 50 10 700

a) Wh i ch is the la rgest business:

i) i n terms of sa les? [ 1 mark]
i i) i n terms of ca pita l e m p l oyed ? [ 1 mark]

b) How wou l d you explain the h i g h n u mber of workers e m p l oyed by

Company Y yet the rel atively low sa les com pa red to Company X?
[4 ma rks]

c) Company Z has not expa nded in recent yea rs. Expla i n any two possible
reasons why this busi ness rem a i ns q u ite smal l . [ 4 marks]

d) The d irectors of Company X a re pla n n i n g to take over a leather suppl ier.

This wi l l cost $ 1 O m . The d i rectors expect the business to gain g reat
advantages from this i nteg ratio n .
i) What type of i nteg ratio n is t h i s ? Exp l a i n you r answer. [3 ma rks]
i i) Ana lyse two poss i b l e benefits to Company X from this i ntegration.
[4 ma rks]

e) The d i rectors of Co m pany Y a re p l a n n i ng a m e rger with a cha i n of reta i l

s h o e shops. These shops c u r rently s e l l a w i d e ra nge o f shoes from
d ifferent man ufactu rers. Wh ich sector of i n d u stry do the fol l owing
businesses operate in?
i) The shoe m a n ufactu rer, Company Y.
i i) The reta i l shoe shops.

I n each case, exp l a i n you r a nswer briefly . [4 ma rks]

• 8
 Types o f business a ctivity
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

i i i) Ana lyse one poss i b l e benefit to Company Y resulting from this

i ntegrati on. [5 marks]

f) Do you thi n k shoe reta i l ers should be in the p u b l ic or private sector

in your cou ntr¥ ? J ustify your answer. [5 marks]

Examiner's tip
.I Define both sectors and then explain your opinion.

ge
 NIT 3 Fo rm s of b u s i n ess
o rg a n i sat i o n
Key objectives • To understand the differences between lilnited and unlin1ited
liability businesses
e To know the reasons why business owners choose to use
different forms of business organisation
e To explain the differences between organisations in the private
sector and organisations in the public sector
e To explain the advan tages and disadvan tages of all of these
different forn1s of business organisation
e To evaluate these forms of business organisation in different
circumstances

Key definitions
Sole trader: a business owned a nd Partnership: a business owned by
operated by one person 2-20 people

I Types of busi ness organisations

Pub l i c l i m ited compa ny: a business
owned by shareho lders that can
sel l sha res to the p u b l ic th rough
the Stock Exch ange.
Remember: public l i m ited
com pan ies are in the private
sector
I
Private l i m ited company: a
business owned by sharehol ders
Public corporation: a business which ca n not se l l sha res thro. u gh
owned and contro l led by the the Stock Excha nge
state - a l so known as
national ised i n d ustry.
Remem ber: p u b l i c corporations
a re i n the public sector

Term Defi n ition Examples

Limited li a b i l ity The l i a b i l ity of the owners for the debts Shareholders i n a l l com p a n i es have l i m ited
of the business is l i m ited to the owne rs' l ia b i l ity.
i nvestment.

Articles of Association A legal document that m ust be
com p l eted before a busi ness is g iven
company status. It provi des deta i l s of the
i ntern a l ru l es of the company.
Memorandum A l e g a l docu ment that m ust be
of Association com p l eted before a business is g iven
company status. It provides i m porta nt
i nformation for shareholders .
Annual General Co mpan ies m ust hold these each yea r.
Meeti ng (AGM)
Co operative
- An org a n isation run by a, g ro u p of
people, each of whom has a financial
i nterest i n its success a n d a say i n how
it is ma naged.
The iss u i n g of sha res a nd the rig hts and
d uties of d i rectors.
The na me, add ress, reg istered office and
issued capital of the business. The obj ectives
of the busi ness a re a lso stated .
A l l sharehol ders have t h e right t o atte nd and
vote on which d i rectors should run the
company.
Farmers i n many co u ntries operate as a
co-o perative to sel l their prod uce.

Franch ise A business that uses the na me, McDonalds, Pizza H ut a n d Body Shop - most
promotional l ogos and tra d i n g methods of thei r outlets a re fra nchises owned by
of a n existing s uccessfu l business. d iffe rent people .

• 10
 Forms of business organisa tion
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Sample questions and answers

Sample question Rashid has j ust left school. He wants to set up his own business as
a gardener. Rashid wants to be able to control his own working
life . He has very few savings - just enough to buy tools. He
believes that he will need extra finance .

a) Briefly explain two benefits that Rashid could gain from setting
up his own business . [4 marks]
Marks 1 mark for each benef it plus a further 1 mark each for some explmzation .

Student's answer If Rashid set up his own business, he would be working for
hin1self He could take all of his own decisions and vvould be
independent. This seems to be important to hin1.
He could keep all of the profits from the business. This will
encourage him to work hard to n1ake his business a success .

Examiner's marks Full marks - two points made with brief explanation.
and comments

b) What forn1 of business organisation would you recon1n1end

Rashid to use? Explain your answer. [5 n1arks]
Marks 1 mark for correct identification of appropriate b11siness fonn (for example, sole
trader but accept partnership and private limited company if these are
explained); 2 X 2 marks for two points well developed a1Ul applied to Rashid.
Student's answer I would advise hin1 to beco1ne a sole trader. These businesses are
easy to set up with no expensive legal costs. There are no other
owners, so all decisions can be taken by the owner.
Examiner's marks 1 mark for referring to sole trader plus 2 marks for two ad va n tages ,�ivcn.
and comments However, these are not applied to Rashid at all. For example, the sfl/{lent
could have referred to Rashid's lack offinance (he may want to avoid legal
costs) and his wish to take his own decisions. Therifore, no applicatio11
marks. Total = 3 I 5 marks.

c) Outline two other sources of finance that Rashid could use apart
fron1 his own savings. [4 n1arks]
Marks 1 nwrk for each appropriate source plus 1 extra mark j{>r each explanation
in the context of Rashid 's business.
Student's answer If Rashid does set up as a sole trader, he will have few sources of
finance . He could ask a bank for a loan, but he will need to
convince the bank that his business plan for gardening services is a
good one . Once he has started working, he could use any profits
that he nukes to finance the business, but at the start there would
not be any.
Examiner's marks Full marks as two sources arc identified and explained in terms '�{Rashid's
and comments new business.

11 •
UNIT 3
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

d) After several months, Rashid has too much work! His business
has been very successful in attracting new custon1ers. He also
has much work to do in his office such as keeping accounts and
ordering supplies. A friend of Rashid's, Sahnan, is keen to
become a partner and is taking accounting examinations, but he
does not enjoy manual work. Salman has offered to invest some
of his savings into the business so that sotne tnodern garden
machinery can be bought. This would save Rashid a lot of titne
on some j obs.
Would you advise Rashid to take Salman as a partner in his
business? Justify your answer. [8 n1arks]
Marks 2 marks for content of advantages/disadvantages of partnership; 2 marks
for applying to Rashid's case; 2 marks for analysing at least one point in
detail; 2 marks for discussion showing judgement.
Student's answer If Rashid took Salman as a partner, he could share some of the
work of running the business . Salman could do the accounts and
Rashid could concentrate on the gardening. Sahnan could also put
capital into the business. This would allow Rashid to buy
equipment which would help him in his work.
However, Rashid would no longer be in full control and that is
what he wanted. He would probably have to ask Saln1an before
making big decisions, which would slow the process down.
I think that Rashid should take Sahnan as a partner.· The
business will then expand, but they should sign a Deed of
Partnership to reduce the chance of argutnents.
Try to mark this yourself- the examiner's marks and comments are on
page 1 00.

Com mon m isconceptions and e rrors

Error Why it i s wrong

'Sole traders can never em ploy The owne rsh i p and busi ness control
other workers . ' a re in the hands of one person -
this d oes not stop the so le trader
from em p l oy i n g a d d itional staff.

'Al l p a rtners have to work i n Some pa rtners can choose to ta ke

t h e busi ness.'
'A l i m ited company can se l l shares
through the Stock E xchange.'
an active pa rt in control of the
busi ness - this wou ld need to be
made clear in the Deed of
Pa rtners h i p . You can a l so have
sleeping pa rtners .
O n l y p u b l i c l i m ited com pa n ies (pic)
can do th is; private l i m ited
compan ies (Ltd) a re restricted i n
w h o they c a n se l l sha res to.

' P u b l i c l i m ited com p a n i es All private and p u b l i c l i m ited

a re in the p u b l i c sector of i n d ustry.'
compan ies a re in the private
sector owned by p rivate i n d ividua ls;
p u b l i c corporations a re owned by
the government and a re in the
p u b l i c sector .

• 12
 Forms of business organisa tion
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

e Try th i s The g rowth o f Onyema's clea n i n g busi ness had s u rprised h i m . Sta rt i ng j ust
th ree years ago with a bucket a n d some spong es, he had offered clea n i ng
services to loca l shops a n d offices. Wit h i n two months he had taken on
three staff a nd his s ister, Ole na, as a p a rtner. F u rther orders came flood i ng
in from a wide rang e of businesses. Onyema a n d his sister decided one year
ago to set u p a private l i m ited company. 0 and 0 Clea n i ng Ltd sounded
i mpressive and it mea nt that the busi ness wo u l d s u rvive the death of e ither
Onye ma or Olena. They we re keen to control the i r own busi ness. H oweve r,
they had f u rther expa nsion p l a ns. They wa nted to set up fra nchised
businesses i n all reg ions a n d wou l d supply the co mpany name, logo,
tra i n i n g and some clea n i ng eq u i pment. This wou l d need a d d ition a l fi na nce.
The com pa ny accou nta nt advised that the busi ness sho u l d become a p u b l i c
l i m ited com pany. Onyema a n d Olena h a d c o m e a long way i n th ree short
yea rs - were they ready fo r this h u g e ste p?

a) O ut l i ne two poss i b l e rea sons why Onyema encou raged his sister to
become a busi ness p a rtner. [4 marks]

b) Expl a i n what you u n d e rsta nd by 'fra nchising'. [2 marks]

c) Onyema a n d Olena decided to expand the busi ness by offering

franchises. Do you th i n k this was a wise deci sion? Expl a i n your a n swer.
[6 ma rks]

Examiner's tip
./ Give the advantages a n d disadvantages of fran chising before deciding.

d) I m a g i n e that you p l a n to open an '0 a n d 0 C l e a n i n g ' fra nch ise. Expla i n

t h e advantages o f this p l a n rather t h a n sett i n g u p a n e w clea n i ng
busi ness. [6 ma rks]

e) O ut l i ne two d iffe rences between a private l i m ited company a n d a p u b l i c

l i m ited company. [4 marks]

f) Wou l d you recom mend Onyema a n d O l e n a to co nve rt the i r company

i nto a public l i m ited co m pany? J u stify yo u r a nswe r. [8 marks]

Examiner's tip
./ Explain the advantages and disadvan tages before making your
recommendation.

13 •
 NIT 4 Gove r n m e n t a nd
e co n o m i c i n f l ue n ces
on b u s i n ess
Key objectives • To explain why and how governn1ents control business activity
e To explain why and how governments support business
e To know the econon1ic obj ectives of govenunents
e To understand the n1easures that governtnents can take to
control the econon1y �

e To understand the impact of business activity on society

Key definitions

Unemployment: Whe n people Economic I nflati o n : I n crea ses i n ave ra ge

who want a j o b c a n n ot find one. i nfluences on ,�--....._ p rices, e . g . i n 2004 the rate of .
High u n e m p l oyment red uces i nflation i n Arg enti na was 5. 6 % but
people's i n comes i n Hong Kong it was only 0 . 2 %

Trade cycle: T h e reg u la r u pswi ngs a n d

Economic growth: An i ncrease i n a downswings t h a t occ u r i n a cou ntry's G D P
cou ntry's Gross Do mestic Prod u ct
(GDP) . GDP is the va l u e of tota l
output in a cou ntry in one yea r
Boom

Q..
a
1.!)
The bala nce of payments: Records the
difference between a cou ntry's exports
a n d i m ports. A bal ance of payments
d eficit exists if i m ports a re g reater tha n
exports, e . g . i n t h e USA i n 2004
Yea rs

Term Defi n ition Exam ples

Exports Goods and services sold by a cou ntry Cotton goods a re one of Egypt's
to other countries. major exports.

Im ports Goods and services bought by one Arg enti na has to i m port oil and gas.
cou ntry from other cou ntries.

An i ncrease in rea l i ncome When i ncome rises at a faster rate If a n i nd ivid u a l 's i ncome rises by 5 %
tha n i nfl ation. p e r yea r a n d prices rise b y 3 % then
rea l i ncome has increased by 2 % .

Recession A period when a cou ntry's GDP J a pa n 's G D P (after i nflation) fe l l by

is fa l l i n g . 1 % in 2002.

Economic boom A period o f very fast econo m i c C h i n a 's economy g rew by 8%

g rowth wh ich can l ead t o i n 2003.
h i g h inflation.

Exchange rate The price of one currency in 1 U S $ : 1 e u ro .

terms of a nother .

• 14
 Government a n d economic influences
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Defin ition Examples

Exchange rate depreciation A fal l in the exch a n ge rate of If the exch a n ge rate for the US$ fel l
a cu rrency. from 1 US $ : 1 e u ro t o 1 U S $ :0.6 e u ro
then the U S $ has d epreciated.

Direct taxes Paid d i rectly from �ncomes. I ncome tax, company profits tax.

Indirect taxes Taxes on goods a n d services. Va l u e added tax, d uties on petro l

a n d a lcoh o l .

Import tariff A tax on i m ported goods to M a l aysi a has a 200 % ta riff on

d iscou rage their sale. i m ported cars.

Import q uota A legal l i m it on the qua ntity of a
product that may be i m po rted.
Consumer protection laws Laws designed to protect consumers
from u nfa i r actions by prod u ce rs
or reta i l ers.
The E U used to pl ace q u otas on
i m po rted J a panese ca rs.
U K Consumer Credit Act 2004.

Monopoly A business that has no com petition
in its market - it i s the sol e sel ler.
Illegal discrimination U nfavo u rable treatment of someo ne
on specific g ro u nds, u n related
to their a b i l ity to do the j o b .
M i crosoft has 95% of the ma rket for
com p uter operat i n g systems.
N ot recr u iti ng a person beca use of
the i r age, gend er, race, rel i g ion,
sexual ity, or beca use they have
a d isabil ity.

Ethical decision A decision taken on moral· g rou nds.
Contract o f employment A legal a g reement betwee n workers
and employers l isti ng the r i g hts and
responsi b i l it i es of employees.
National minimum wage The legal m i n i m u m hou rly wage rate.
A soft d r i n k firm d eci d i n g to stop
advertising d i rectly to ch i l dren as
the d r i n ks co u l d be one of the
ca uses of tooth decay i n chi l d re n .
It wi l l include h o u rs of work, hol iday
a l l owa nce, expected leve ls of
behaviour, pension benefits.
In the UK in 2004 this was set at
£4.85 per h o u r.

Sample questions and answers

Sample question Fogla's is a supermarket that sells a variety of food and household
products. It pays most of its workers the national minin1un1 wage .
The company imports many food products fron1 other countries.
The n1anager of Fogla's decided to open a cafe within the
supern1arket, which is proving to be popular. It sells quite
expensive n1eals and drinks, but the average incotne of local
residents is high.

a) Explain one likely reason why the governn1ent insists on a

national minimun1 wage . [4 1narks]
Marks 1 mark for suggesting a likely reason; 1-3 marks for detailed development.

Student's answer The government might have wanted to protect workers. When
there are not many j obs, en1ployers 1night try to pay workers as
little as possible. They could take advantage of workers and only
pay thetn very low wages. Workers would have to accept t h e j obs.
The government wants to prevent workers fron1 being exploited .
Examiner 's marks This is a Jzood answer. A clear reason is given. This is then dcJJelopcd m ul
and comments explained in enough detail. 4 marks.

15 •
UNIT 4
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

b) The governn1ent plans to increase the national n1inin1un1 wage

by 20%. Discuss the likely effects of this decision on Fogla 's.
[8 tnarks]
Marks 2 marks for knowledge of two iffects; 2 marks for applying these to this
business; 2 marks for analysis of these iffects; 2 marks for some discussion
and judgement.
Student's answer Fogla's will have to pay higher wages to n1any of its workers. This
will raise the firn1's costs. The con1pany's profits could fall. The
manager of the supennarket tnight even tnake son1e workers
redundant to save costs, so the effect is likely to be bad. Workers
in other businesses will also have higher wages and tnore tnoney to
spend though .
Examiner's marks 2 marks awarded for knowledge (higher costs for Fog/a 's and higher incomes
and comments for other workers); 1 mark for some application; 1 mark for explaining the
impact of higher costs (possibly lower profits). Total = 418 marks. The
student did not analyse the second point and there was no evaluation of the
possible positive impact of higher wages on the business. For example,
higher wages could increase incomes for workers in other busi1zesses mzd this
could lead to higher spending and increased sales for Fogla 's.

c) Analyse the likely effect on Fogla' s of a depreciation in the

country's foreign exchange rate. [6 tnarks]
Marks Up to 3 knowledge marks for good understmzding of exchange rates and
depreciation; up to 3 analysis marks for explaining the impact on this
business.
Student's answer A depreciation of a country's exchange rate means that its currency
is worth less. For example , if the value of $ 1 falls from £2 to
£ 1 .50 then the $ value has depreciated. The exchange rate is the
price of one currency measured against another. This depreciation
will make imports more expensive . Goods bought fron1 other
countries will be more expensive . Fogla's prices tnight be higher
than other supermarkets that do not in1port.
Examiner's marks This shows real understanding. The student also analyses the iffect of a
and comments depreciation on Fogla 's accurately. Full marks .

d) Fogla's manager is worried when he sees the following

newspaper headline:

INTEREST RATES SET TO RISE TO

SLOW DOWN INFLATION
Discuss the likely effects of higher interest rates on Fogla's
profits.
[8 n1arks]
Marks Up to 2 marks for knowledge shown about interest rates and inflation;
2 marks for analysing the iffects 011 business; 2 marks for applyirzg these
�ffects to Fogla 's; 2 marks for some discussion/judgement .

• 16
 Governmen t and economic influences
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer Inflation is when prices rise, and interest rates are the cost of
borrowing money. Higher interest rates will affect Fogla 's in
several ways . It will cost the firn1 n1ore to borrow. This could
mean that it decides not to expand. Also, higher interest rates will
mean that consumers will have less to spend. They n1ight not go to
Fogla's cafe so often, especially because it is quite expensive. On
the other hand, Fogla's might not be much affected. It mainly sells
food, and consumers will still need to buy this no matter how high
interest rates are . Also , if inflation does fall because of higher
interest rates then the firm's costs will not rise so quickly. There
will, therefore, be some positive and son1e negative effects.
Try to mark this yourself - the examiner's marks and CVIIIIHCIIfs are 011

page 1 00.

Com mo n m i sconce ptions a n d errors

Error Why it is wrong

' Economic booms are a l ways good They ca n lead to h i g h e r i ncomes,

for the eco nomy.' but ' booms' can lead to h i g h
i nflation a n d lowe r levels o f o utput
event u a l ly.

' I nflation means the economy
is expa n d i n g . '
'A recession wi l l l e a d t o a fa l l i n
demand f o r a l l goods.'
I nflation is the measure of the rate
of price i n c r eases.
A recession lowe rs consumers'
i ncomes - they cou l d switch to
buying cheaper goods so the
demand fo r these cou l d rise.

'An exchange rate depreciation N o - it has fa l l en i n te rms of other

means the va l u e of the cou ntry's cu rrencies.
cu rre ncy has risen.'
'An exchange rate ap preciation Exports rise in price after an
wi l l make exports chea per.' appreciation of the cu rrency.

e Try th is M i m C h u l Ltd prod uces soft d r i n ks based on fresh fru it. T h e company h a s a
monopoly in Co u ntry X. The d r i n ks are advertised to consumers with the
slogan ' D ri n k Mim C h u l's j u ices a n d you wi l l never be i l l ' .

a) Expl a i n the t e r m 'monopoly'. [2 ma rks]

b) Expl a i n why the government m i g ht decide to protect the consumers of

soft d r i n ks i n Cou ntry X. [6 ma rks]

Examiner's tip
./ You could write about the firm 's monopoly position and the
·

advertising it uses.

c) The company plans to b u i l d a new factory to m a ke the d r i n ks. It wa nts

to b u i l d on a site close to ho uses and schools. The government has
p l a n n i n g co ntro ls ove r the b u i l d i n g of new facto ries. Mim Chul Ltd has a
poor reputation for hea lth a n d safety in its facto ries.

17 •
UNIT 4
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

O ut l i n e o n e possi b l e reason why the government has p l a n n i n g contro ls

for the b u i l d i n g of new facto ries. [4 marks]

d) The government has offe red M i m C h u l ' s business a g rant for the new
factory if it is b u i lt i n a n other area. From the fol lowi ng l i st, pl ace a tick
a l o ngside the two most l i kely reasons for this. [2 ma rks]

Possible reason for

govern ment grant

To i ncrease i mports

To create more jobs

To i ncrease i nflation

To i ncrease demand for the

products of loca l supplie rs

e) Discuss whether M i m C h u l Ltd should spend money on i m proving hea lth

and safety in its facto ries. [8 ma rks]

Examiner's tip
v' Th ink about the disadvantages of not having good working conditions.

• 18
 N IT 5 Ot h e r exte r n a l
i n f l u e n ces o n b u s i n ess
Key objectives • To understand the other external constraints that affect business
activity
e To recognise how technology can affect businesses
e To know why the environment is of increasing concern to
most businesses
e To understand how cost benefit analysis can be used to measure
the full social costs and benefits of business decisions

Key definitions

Term Defin ition Examples

Technological change Cha nges i n prod u cts or the ways M o b i l e phones with cameras.
prod ucts a re made resulting from Robots used to make cars.
resea rch i nto new ideas.

Pressure groups G roups of people who share a Trade u n i ons, G reen peace, Wo rld
common interest a n d ta ke a ction Wide Fund for Nature.
to ach i eve the changes they a re
see k i n g .

Private costs T h e costs to prod ucers and
consumers of an economic a ctivity.
Externa l costs The costs of an economic activity
paid for by the rest of society, not
the produ cers/consumers.
Private benefits The benefits of a n econo m i c a ctivity
to producers/consumers .
External benefits The benefits of an eco n o m i c activity
received by the rest of society other
than producers/consumers.
Cost benefit analysis An ana lysis, usu a l ly ca rried out by
the gove rnment, i nto the overa l l
costs a n d benefits (private a n d
external) o f a l a rg e n e w proj ect.
The costs pa id for by a chemical firm
when prod ucing prod ucts.
Po l l ution from a chemica l factory
which h a rms the environ ment and
may damage the health of l oca l
resid ents.
The benefit to a driver of using
a car.
A new a i rport may encou ra g e
tourists to a reg ion, which wi l l bring
jobs to fi rms other than the a i rport.
An a n a lysis of the i m pact of a new
motorway on users, residents, road
safety, etc.

Sample questions and answers

Sample question Norris Cars Ltd manufactures hand-built sports cars. The business
has a huge custon1er waiting list. The directors have decided to
make a new model of a car using the latest production technology .
Workers who have used the san1e rnethods for 111any years will
have to learn new skills. The new n1achines \Nill cut do\vn o n
waste materials and pollution from the factory. R.esidents have
often con1plained to the local gover11111ent about N o rri s Cars and
the external costs caused by the factory.

a) Using ar). exan1ple , explain what is n1eant by the tern1 ' external
costs ' . [ 3 n1arks]

19 •
UNIT S
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Marks Up to 2 marks for an understanding of this term plus 1 mark for an

appropriate example.
Student's answer External costs are when people other than the producer or
consumer of a good or service have to pay the costs of producing a
product. An example is the pollution from a factory that society
has to pay to be cleaned up .
Examiner' s marks Full marks - good diftnition and relevant example.
and comments
b) The following list gives the possible effects of the decision by
Norris Cars to purchase the latest technology equiptnent.
Identify with a PC, EC, PB or EB whether they are private or
external costs or benefits. [ 4 n1arks]

Cost or benefit Private or external cost/benefit

H ig he r profits if production costs
a re l owered

J obs may be l ost if the mach i n es

a re much more efficient
Pol l ution a n d waste wi l l be reduced
Tra i n i n g costs wi l l be h i g h

Marks 1 mark for each correct answer.

Student's answer
Cost or benefit Private or external cost/benefit
H ig h e r profits if prod uction costs PB
a re lowered

Jobs may be l ost if the mach i nes EC

a re m uch more efficient

Pol l ution a n d waste wi l l be red uced EB

Tra i n i n g costs wi l l be h i g h PC

Examiner's marks 4 marks for correct answers .

and comments
c) Do you think that the workers at Norris Cars Ltd would think
the purchase of the new machinery was a good idea or not?
Explain your answer. [8 n1arks]
Marks Up to 2 marks for identifying relevant factors; up to 2 marks for applying
these to this business; up to 2 marks for analysing at least one if these
points; up to 2 marks for some judgement/evaluation.
Student's answer The case tells us that workers will need to be retrained. Some will
be afraid of this. They may have done the san1e job for years and this
could tnean they do not want to learn new skills, or they n1ight be
slow learners. This uncertainty could reduce their job security and
motivation so that they do not work as hard as they could. It is
likely, therefore, that they will not think that it is a good idea .

• 20
 Other externa l in fluences on business
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Examiner's marks 1 mark for content as only one facto r was men tioned; 1 mark fo r application}.
and comments 2 marks for analysis as the impact on motivation is exp la i n e d; 1 m a rk for
very limited evaluation . The answer cou ld have been i mp ro ve d by
considering one other factor - workers ttJil/ now be m u lti-skilled and l l'ill he
more able to find ptherjobs if they wanted to. Total = 5 I 8 marks .

Com mo n m i sconceptions a n d e rrors

Error Why it is wrong

' New tech no logy a l ways leads to
u ne m p l oyment.'
N ew technology can create jobs, as
people need to m a ke and service
the new mach i nery. N ew
technology a l so creates new
products a n d new markets .

'Workers wi l l a l ways be opposed to Some workers wi l l become more

tech nolog ica l change.'
sk i l l ed, which wou ld i n crease their
chances of g a i n i ng other jobs.
Technol ogy co u l d m a ke jobs more
secu re if the firm becomes more
efficient.

'Cost benefit a n a lysis measu res the Cost benefit a n a lysis tries to assess
profit of a project.' both private and external costs a n d
ben efits (social costs and benefits) -
it is not concerned with profit.

e Try th i s Here i s a recent newspaper article:

GOVERNMENT PLANS NEW AIRPORT

IN NORTH WEST

Central Government intends to allow a large new airport to be

built in the North West. This is an area of high
unemploy1nent and more flights into the area will lead to n1ore
tourists and increased exports . It is also hoped that new
companies will be set up as the North West will now be
cheaper for the transportation of goods. Many local residents
are totally opposed to the idea of the new airport. They have
formed a pressure group called ' SANW' (Stop Airport in
North West) . Most local fin11s have welcon1ed the new airport
plan. However, some business people in the area are worried
about increased con1petition and a possible shortage of skilled
labour. The local government authority is hoping that its tax
revenues will rise fro1n airport charges, but it is worried about
the effect on local pollution levels .

a) What do you u ndersta nd by the term 'pressu re group'? [2 marks]

b) List A (bel ow) shows the sta keholders affected by the govern ment's
decision. Identify the major i m pact on each gro u p from List B . [9 ma rks]

21 •
UNIT S
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

list A list B
Centra l Government Increased loca l tax payments
Local workers in employment Noise from ai rcraft
Local government a uthority More choice of jobs for ski l l ed workers
Residents l iving close to the new a irport Increased competition from airlines
Local unemployed workers More cha nce of finding a job
Businesses in the North West Easier to import and export goods
Airl i nes Increased exports from the economy
Train compan ies Destruction of nature sites
Environmenta l ists Increased fl ights mean expa nsion

c) I ma g i n e that you a re either a member of the SANW press u re group or a

North West b u s i n ess own er. Write a l ette r to the Gove rnm ent expla i n i n g
why you either op pose or su pport the new a i rport p l a n . [ 1 0 ma rks]

Examiner's tip
.I Try to explain three separate poin ts in your letter.

• 22
 N IT 6 B u s i n ess costs a n d
reve n u e
Key objectives • To know the difference between different kinds of costs
e To understand what 'break-even level of production' means
e To draw and analyse simple break -even charts
e To calculate the break-even p oint from data
e To know what a budget is and why budgeting is important
e To understand how economies of scale arise

Key definitions
Term Defi n ition Examples/ca leu lation Diagram

Fixed costs These costs do not vary with the

n u m ber of items so ld or produced.
Rent of b u i l d i ng
I nterest on loans
S � FC
M a nagers' sa l a ri es Output

Variable costs These costs vary d i rectly with the Cost of raw materials
n u mber of items sold or produced . E l ectricity used for mach i n ery
Prod u ction l a bour costs

Total cost The a d d ition of fixed a n d Tota l cost = F ixed costs

variable costs. + Va r i a b l e costs
Output

Total revenue The i ncome of a business d u ring a Tota l reve n u e =

(Sales revenue) time period from the sa l e of o utput. Q u a ntity sold x Price

Output

��i�::
Break-even chart This is a g raph which shows the B�o po;nt
TR
costs and reve n u e of a business and
the l evel of sal es that m ust be made
to break eve n . � •

Break-even output

Break-even point The leve l o f sa l es or o utput at w h i c h See d i agram a bove.

Tota l costs = Tota l reve n u e .

Direct costs These a re costs t h a t can be d i rectly In a factory m a k i n g c l oth es, l eather used
related to a particu l a r prod uct for m a k i n g one style of coat is a d i rect cost.
or department.

Indirect costs These a re costs that ca n not be In a factory m a k i n g cloth i ng, e lectricity costs
(also known as d i rectly rel ated to a particu l a r would be ve ry d iffi c u lt to 'divide' accu rately
overheads) prod uct or department. between products a nd departments.
These are the costs per u nit T ota I costs
C a I cu I a t e d by :
Average costs
(also known as of output. Tota l o utput
----­

unit costs) For exa m ple, if costs = $30,000 and tota l o utput
= 1 0,000 u n its, then average cost = $ 3 .
Contribution The contribution of a prod u ct is If a computer costs $ 1 00 i n materi a l s a n d l a b o u r
sel l i ng price l ess va riable cost. (va riable costs), b ut is sold f o r $ 2 50, then
contribution is $ 1 50.

Budget This is a p l a n for the future conta i n i ng
n u merical or financial targets.
Forecast Th is is a prediction of the futu re,
for exa mple, sa les fo recast.
A budget for the m a rketing department m i g ht
be ' $ 50,000 to be spent on promotion over the
n ext 12 months'.
A firm forecasts that it wi l l se l l 200 u n its
per m o nth over the next year.

23 •
UN/T 6
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Defi n ition Examples/calculation

Econom ies Th ese a re the cost advantages of P u rchasi ng, m a rketing, and financ i a l,
of scale p ro d ucing on a l a rge sca le. managerial a n d technica l economies.
Diseconomies These a re the disadva ntages of Poor com m u n ication, low mora l e amongst
of scale producing on a l a rge sca le. workers .

Sa mple questions and answers

Sample question The Cairo Tyre Con1pany has asked you to help with sotne
costing problems . The manager, Mr Shah, does not know if the
factory has reached break-even p oint. He is also unsure of the
likely benefits that could be gained from expanding the business .
He gives you the following infonnation:
Annual fixed costs: $50 ,000
Labour cost per tyre: $1
Variable cost per tyre : $2
Selling price to customers: $5 per tyre
Last year, the marketing department spent n1uch more than
Mr Shah expected them to . This was one of the reas�ns why the
company made a loss last year. D espite this, Mr Shah has plans to
expand the factory as he believes that this would increase the
chances of making profits in the future .

a) For this business, are labour and materials variable costs?

Explain your answer. [ 4 marks]
Marks 1 mark for knowledge: What is meant by a variable cost? 1 mark for
application to this business; 2 marks for explanation of why these costs are
variable and not fixed costs.
Student's answer Yes, labour and material costs are variable costs for the Cairo Tyre
Company because they will change with the nun1ber of tyres
made. The more tyres that are made, the more labour and
materials will be needed to produce them. Therefore, as output of
tyres increases, these costs will increase.
Examiner's marks T11e first sentence shows understanding that variable costs vary with output
and comments and the student also applied it to the case by mentioning the number of tyres
made (2 marks). The second sentence explains clearly that these costs increase
as the number of tyres produced increases (2 more marks). Total = 4 marks.

b) Calculate the break-even level of output for this business -

show all workings. [4 marks]
Marks 1 mark for break-even formula; 1 mark for contribution calculation; 1 mark for
attempted break-ev�n result (incorrect); 2 marks for correct break-even result.
Fixed costs
Student's answer The break-e ven level of output = Contribution per unit
Contribution per unit = Selling price tninus variable costs
$5 - $3
$2

• 24
 B usiness costs and reven ue
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

$50,000
The break-even level of output = $2 = 25,000 tyres

Examiner's marks Full marks again for a correct answer - note lw1v tlze working is clearly laid
and comments out, so even if a mistake had been made the examiner could still have
given some marks for a correct method.

c) Use the break-even chart below.

i) Identify the break-even level of output on the graph and
state what it is. [2 marks]
ii) What is the level of profit at an output level of 50,000 tyres?
[2 n1arks]
iii) Explain what would happen to the break-even level of
output if the price of tyres was raised to $7 . State one
assumption that you make . [6 marks]

400

0 300
0
"'C O
c �
}SR
ro - �Profit of
Q) 200
VI

$ 50, 000
VI

't: :::J
0 c vc
U Q.I
>
Q)
'-
1 00

1 2.5 25 37.5 50
Output of tyres (in OOOs)

Marks 1 mark for appropriate assumption; 1 mark for correct new revenue line;
2 marks for correct new break-even point; 2 marks for �orrect new profit figure.
Student's answer i) The break-even level of output is 25 ,000 tyres - I have shown
this with a dotted line .

ii) The profit made is $50 ,000 at an output of 50,000 tyres - I

have shown this on the graph . It is the difference between sales
revenue and total cost.

iii) The new revenue line is the dotted line I have added (SR?) .
The break-even point falls to 1 2, 500 tyres. I have assun1e d that
sales remain the same.
Examiner's marks This answer gained full marks. The student correctly answered all
and comments parts of the question. The assumption about sales is important - if the price
is raised and sales fall then the firm might not reach the break-even point.

d) Explain briefly two economies of scale that the con1pany n1ight

benefit from if it expanded. [ 6 rnarks]
Marks 1 mark for each correct example of an economy <?f scale; 2 marks for each
economy that has been explained and applied to the case study.
Student's answer Econon1ies of scale reduce average costs as a finn expands . Two
exan1ples are purchasing or bulk-buying econon1ies and n1anagerial
25 •
UNIT 6
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

econon1ies. The tyre factory 1night be able to buy rubber n1ore

cheaply if it bought greater an1ounts, as it would receive a discount
when placing bulk orders. Also, specialist 1nanagers could be
recruited to n1anage the business n1ore efficiently, for example, a
specialist marketing manager to oversee the marketing of the tyres.
Examiner's marks Full marks - two good suggestions and both were accurately explained
and comments and applied.

Com mon m isconceptions and errors

Error
'Variable costs va ry over time.'
'Fixed costs never change.'
'Economies of scale reduce total costs. '
'Break even is t h e t i m e it takes
for a firm to cover a l l costs.'
'Budgets are forecasts of what wi l l
happen i n the future.'
Why it is wrong
Very common error. Variable costs
vary with the level of output not
with time.
Fixed costs may change i n the long
run if the firm expa.nds its total
capacity.
No - they do not reduce total costs.
As a fi rm expcmds, tota l costs are
l i kely to rise, but economies of scal e
could reduce average costs of
production.
The break-even point is measured i n
un its o f output/sales n o t time.
Forecasts are pred ictions, but
budgets are plans. A company needs
to plan for the future and budgets
are p lans with financial targets.

e Try th i s a ) Indicate whether the fol l owing costs o f a bakery busi ness are di rect or
indirect costs by ticking the correct col u m n . [ 4 marks]

Costs D i rect Indirect

Flour
Salary of office manager
Wages of bakery workers
Rent of the building

b ) Referring to the Cairo Tyre Company case a bove, explain to the manager
the possible benefits to his business of using budgets for each department.
[6 marks]

c) Outline one possible diseconomy of scal e that the Ca iro Tyre Company
might experience if it expanded. [3 ma rks]

d) Do you thi n k that brea k-even charts are a useful technique for ma nagers
to use? Expl a i n your a nswer. [8 ma rks]

Examiner's tip
./ As well as explaining two advantages, also consider two possible
drawbacks to break-even cha rts.

• 26
 N IT 7 B u s i n ess a cco u n t i n g
Key objectives • To understand why businesses keep accounting records and how
they use then1
e To analyse the needs of the different users of business accounts
e To understand the construction of simple balance sh eets
e To understand the construction of simple profit and loss accounts
e To analyse business accounts using ratios

Key definitions
Term Defi n ition Examples

Profit and l oss accou nt An account that records business sa les ABO Tra d e rs Ltd profit and loss account
revenue, all costs and expenses, and for year ending 3 1 /9/04 ($)
any loss/profit made duri n g the year.
Sales turnover 1 2, 000

(N . B . B rackets round a n u m ber mean Costs of g oods sold (4,000)

that it is a minus figu re). G ross profit 8,000

Overheads (3, 000)

Net profit 5, 000

Trading accou nt The part of the p rofit and l oss

account that records reven ue,
cost of sales and g ross profit.
Sales tu rnover The va lue of sa les in a certai n If 1 200 items were sold for $ 1 0
(Sales revenue) time period. each then the firm's sa les revenue
is $ 1 2, 000.
Gross profit Profit after subtracting the cost If goods costing the firm $4, 000
of sa les from sa les turnover. were sold for $ 1 2, 000 then gross
profit = $8,000.
Net profit Profit after subtracting all expenses/ If g ross profit = $8,000 and the firm's
overheads from g ross profit. expenses/overheads a re $3,000
then net profit = $ 5,000.
Corporation tax Tax on compa ny net profits. If this is at 40 % and net profits
are $ 5, 000 then the company wi l l
pay $2, 000 i n corporation tax.
Dividends Annual payments from com pany
profits to shareholders.
Depreciation The fal l i n the val u e of fixed assets Mach i nes and vehicles fa l l in va l ue
over time. each year.
liq u idity The a b i l ity of the business to Calcu l ated by using the next two
convert its assets i nto cash and pay ratios.
off short-term debts.
Cu rrent ratio Current assets Using the balance sheet on page 28:
Current liabi l ities 2, 500
= 1 .47
1 , 700

Acid test ratio Current assets - Stock Using the bala nce sheet on page 28:
Current l i a b i l ities 1 , 500
= 0.88
1 , 700
Retu rn on capita l employed (%) Using the accounts above and the
Net profit ba lance sheet:
------�----- X 1 00 5, 000
Capita l employed X 1 00 = 2 5 . 3 %
1 9,800

27 •
UN/T l
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Defin ition Exam ples

Retained profit Profit made after payment
(Reserves) of tax and d ividends. It is
reinvested back i nto
the business.
Gross profit G ross profit Using the accou nts on page 2 7 :
margi n (%) Sales turnover x 1 00 8,000
X
1 00 = 66.7 %
1 2, QQQ
Net profit Net profit Using the accou nts on page 2 7 :
marg i n (%) x 1 00 5,000
Sales turnover •
1 00 = 4 1 .7 %
X
1 2, QQQ

Balance sheet The account records a l l busi ness ABD Traders Ltd ba la nce
assets a nd l i a b i l ities and the sheet for year ending
value of shareholders' funds. 3 1 /9/04 ($) (see bel ow).
Working ca pital The capita l needed by a Using the ba la nce sheet
business to fina nce its below: 800 it is the same
-
Balance sheet:
day-to-day needs. as the net current assets.
Fixed assets Assets owned by a business B u i l d i ngs, machi nery and Fixed assets:
1----··-·---··------ ·---·----

that it expects to keep and motor vehicl es. Bui ldings 1 3,000
use for more than one year. Machinery 6,000
1 9.000
Current assets Assets that the busi ness wi l l Stocks, debtors, cash. Current assets:
use up or turn i nto cash within
one year. Stocks 1 ,000
Debtors 1 ,000
Cash 500
2. 500
Current liabi l ities Loa ns and debts of the business Bank overd raft and cred itors. Current l iabilities:
that wi l l be repaid withi n one Overdraft 1 , 200
yea r. Creditors 500
1 .700
Net current assets 800
Long-term The money val u e of debts that Long-term loans and Total assets less
liabilities do not have to be repaid in one debentures. current l iabilities 1 9.800
year. Long-term liabil ities:
Shareholders' Fi nance provided by Share capita l is from sale of Loans 1 2,000
funds shareholders - share capital or shares. Reta i ned profits are Shareholders' funds:
retai ned profits. ca l led reserves. Capital 5,000
Capital employed Total va lue of business's Long-term l i a b i l ities plus Reserves 2,800
long-term fina nce. shareholders' funds. Capital employed 1 9.800

Sample questions and answers

Sample question Table 1: Fina ncial i nformation a bout City Cafe Ltd ($000)
2004 2005
Sales revenue 200 250
Net profit 25 15
Current liabilities 20 20
Cu rrent assets 50 20
Capital empl oyed 300 300

a) State and explain two ways in which the owners of City Cafe
Ltd might use the net profits of the business . [ 4 1narks]

• 28
 B usiness a cco unting
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Marks 1 mark each for identifying the uses of net profit and 1 mark each for
briifly explaining each use.
Student's answer The owners of this business could use the net profits either to pay
dividends or to keep in the business. Shareholders will expect some
dividends as they have invested in the business. If profit is left in the
business, it is called retained profit. This could be used for expansion.
Examiner' s marks Very good answer - 4 marks. Two uses are identified and briifly explained.
and comments
b) Using figures from Table 1 and a ratio , analyse the liquidity of
the company. [5 n1arks]

Marks 1 mark for correctly writing down the current ratio; marks for
2
calculation (both years); up to 2 marks for explaining what the result
shows abou t liquidity.
Student' s answer The current ratio is a liquidity ratio and uses this formula:
Current assets
Current liabilities
50 20
In 2004 the result was: 20 = 2.5 and in 2005 the result was :
20 =
1
This shows that the liquidity of the business is i1nproving as 1 is a
better result than 2 . 5 . The firm will find it easier to pay its short­
term debts.
Examiner's marks The student makes a good start by accurately stating the formula for the
and comments current ratio. The two calculations are correct. The rest of the answer is
wrong, as the student does not understand what the current ratio result
shows about liquidity. Liqu idity has, of course, got worse from 2004 to
2 005 and if this continues, the business will find it diffic ult to pay off its
short-term liabilities. 3 marks.

c) Using the figures in Table 1 and ratio analysis , evaluate the

performance of the City Cafe Ltd between 2004 and 2005 .
[1 0 1narks]
Marks Up to 2 marks for correctly stating two relevant ratios, for example, Het
profit margin and return on capital employed. Up to 4 marks for
calculations (both years). Up to 4 marks for discussion which a11alyses the
results and draws a conclusion about the peiformance of the business.
Student's answer
2004 2005
Net profit
Net profit marg i n = x 1 00 1 2.5% 6%
Sales
Net profit
Return on capita l employed = x 1 00 8.3 % 5%
Capita l employed

These results show that the p rofitability o f the business i s falling.

The firm is making less p rofit per $ of sales , p erhaps because costs
are rising faster than price.

29 •
UNIT 7
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Return on capital employed has fallen which 1neans that the

money invested in the business is making less of a return .
Both of these figures are poor, but it would help if we had results
from other cafe businesses to see if City Cafe is better or worse at
making profits than they are .
Try to mark this yourself- the examiner's marks and comments are on
page 1 0 1 .

Com m o n m i sconceptions and errors

Error
Not remembering the ratios.
.Putting sa les revenue in the
balance sheet.
'Any current ratio resu lt below 1
mea ns the firm is ban krupt.'
'Gross profit is always less than
net profit.'
'Creditors owe the firm money.'
Why it is wrong
Obvious! Use the l ist a bove to hel p
you .
This is a profit and loss account item
- on ly assets and l ia b i l ities appear in
the balance sheet.
A result of 1 is acceptable - it means
that all short-term debts are covered
by current assets. Even below 1 , a
firm may be liquid enough as it is
u n l i kely that it wi l l have to repay all
short-term debts at the same time.
Net profit is g ross profit after
expenses have been taken away, so
net profit is always lower.
Debtors are customers who have not
yet paid - they owe the firm money.
The firm owes money to its creditors.

e Try t h i s The 2005 accounts for Titan Tan kers pic have just been publ ished.
G roups of sta keholders in the business have been wa iting to analyse these.

a) Identify two of the main accounts that wi l l appear in these publ ished
accounts. [2 marks]

b) Explain what one of these accou nts contai ns. [3 marks]

c) Table 1 contains a list of sta keholders in Titan Tan kers pic who want to
use and ana lyse the company accounts. Copy the table and fi l l in the
' Useful for' col u mn with one of the o ptions bel ow:

Table 1 : The users of publ ished accounts

Stakeholders: Useful for:

Shareholders
Trade u n ion
Govern ment
Creditors

Options:
i) seei ng what the l evel of d ividends wil l be this yea r

• 30
 Business a cco unting
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

ii) analysi ng whether the busi ness has sufficient l i q u i d ity

i i i) seei ng whether the business p l a ns to expand or red uce the labour
force
iv) assessing whether the business seems to be making excess profits.
[4 ma rks]

d) Using the fig u res in Table 2 and ratio ana lysis, eva l uate the performance
of this company over the l ast year. [1 0 ma rks]

Table 2: Financial i nformation from Titan Ta nkers pic 2005 accou nts
($000)

2004 2005
Sales revenue 300 350

G ross profit 60 60

Net profit 30 25

Cap ital employed 200 240

Examiner's tip
./ Explain what your results indicate about the compa ny's performance.
Should these results be compared with any others?

31 •
 NIT 8 C a s h f l ow p l a n n i n g
Key objectives • To understand what is meant by cash inflows, cash outflows and
net cash flows
e To analyse a simple cash flow forecast
e To understand why such forecasts are helpful to businesses
e To explain how a business might deal with a cash flow problem

Key definitions All figs

i n $000
Cash i nflow: The amount of Cash i nflow:
cash received by a busi ness i n Cash from sa les 5,000
�ach t i m e period --

Cash outflow: C a s h outflow: The a mount of

cash pa id out by a business over
Materials 1 ,000 a period of time
La bour 1 , 500
Tota l cash outflow 2, 500
--

O pening balance 1 , 000

Net cash flow 2, 500
Closing ba lance 3, 500

Term Defin ition Exa mple

Cash flow forecast A ta ble showing the estimated cash See Ta ble 1 on page 33.
flows of a business over a time
period. Such forecasts help to
identify future finance problems
and help the firm to plan for its
cash needs.
Opening balance The amount of cash the business For the business i n Table 1, the
holds at the start of a time period. open ing ba la nce i n October
is $ 3,000.
Closing balance The amount of cash held by a Opening balance $ 1 5,000.
business at the end of a time period . Monthly net cash flow $4, 000.
Closing bala nce = $ 1 9,000.
Cash flow cycle This shows the stages between a See the cash flow cycle figure
busi ness paying out for materials, below.
labour and other costs and
receiving cash from the sa le of g oods.
The cash flow cycle

1 Cash needed to 2 Materials,

3 Goods produced
pay for wages, rent, etc.

5 Cash payment 4 Goods sold

'---
·received for
goods sold
II(

liquidity cri sis When a business does not have
enough cash to pay i mmed iate debts.
I 1--
If a firm is short of cash, it may
have to arra nge a bank overd raft
or other loans to meet
i mmediate debts.

• 32
 Cash flo w planning
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Sample questions and answers

Sample question Zippo Printers Ltd publishes a range of books, calendars and
birthday cards. The directors are planning an expansion progra1nn1e
by buying new printing machines. D en1and is very high and stocks
have been very low. The managers plan to build up stocks,
especially before the end of the year when most calendars are sold.
The finance director allows retail customers a long time to pay
Zippo's for supplies. She said 'By giving shops more credit we can
gain extra orders'. The finance director is constructing a cash flow
forecast for the next three months. She sees real problems arising for
the business. The three month cash flow forecast is shown below:

Table 1: Zippo Printers Ltd three month cash flow forecast ($)

Cash i n : October N ovember December

Cash from sal es 8,000 1 2, 000 1 5, 000

Loans received 1 4, 000

Tota l cash in: 22,000 1 2, 000 1 5, 000

Cash out:

Materials 3,000 4, 000 6,000

La bour 4, 500 5, 000 5, 500

Overheads 1 ,000 1 , 000 1 , 000

Purchase of fixed assets 8,000 6, 000 8,000

Total cash out: X ·1 6,000 20, 500

Opening balance 3, 000 8, 500 z

Net cash flow 5, 500 y {5,500)

Closing bal ance 8,500 4, 500 ( 1 , 000)

a) Calculate the figures missing as shown above as X, Y and Z .

[ 6 marks]
Marks 2 marks for each correct answer - 1 mark for good attempt at calculation.
Student's answer The total cash out in October = $3 ,000 + $4, 500 + $ 1 , 000 +
$8 ,000 = $ 1 6,500. So X should be $ 1 6,500 .
Net cash flow = cash in - cash out. In Noven1ber th is = $ 1 2 ,000 -
$ 1 6,000 = $4,000 so y = $4,000.
The opening balance in December will be the sarne as the closing
balance in November, so Z = $4,500.
Examiner's marks X is correct so 2 marks. 1 mark for Y because although the number is
and comments correct, the net cash flow is negative and should be shown as ($4000). Z is
correct so 2 marks. Total = 5 I 6 marks.

b) Explain one benefit to Zippo' s finance director of this cash flow

forecast. [ 4 tnarks]

Marks 1 mark for identifying a benefit; 1 mark for applying to Zippo 's forecast
and 2 marks for explaining why it is a benefit.

33 •
UNIT B
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer The cash flow forecast helps fim1s plan for future loans. It looks as
though Zippo's will need a loan in Decen1ber as the cash flow
forecast is negative. By producing this forecast, a bank is n1ore likely
to offer a loan as it shows that the company is planning carefully.
Examiner's marks This is correct. The student has explained one use of cash flow forecasts
and comments well, and takctt informatiott from Zippo 's forecast. 4 marks.

c) What could be done to improve the cash flow of this business?

Identify two ways of improving Zippo's cash flow frotn the
list below. [2 tnarks]
• Reducing sales
• I ncreasing material purchases
• Paying suppliers more slowly
• Obtaining a loan
• Offering less credit to retail shops
Marks 1 mark for each correct point idetttified.

Student's answer Obtaining a loan, offering retail shops less credit.

Examiner's marks 2 marks - both correct.
and comments
d) Using the two ways you have identified, explain to Zippo's
finance director the advantages and disadvantages of these two
ways of improving cash flow. [6 marks]
Marks 2 marks for applyittg points to Zippo; 2 marks for explainittg in detail and
2 marks for evaluation.
Student' s answer A loan will give the company more cash . It could ask the bank to
pay this loan in D ecember so that cash flow does not becotne
negative . The firm will have to p ay interest on the loan, which
will add to the overheads of the business .
Offering less credit to retail shops will mean fewer debtors,
thereby turning customer debts into cash and improving cash flow.

Examiner' s marks Briif, but accurate. 3 marks for the first paragraph - all skills are shown.
and comments 2 marks for the second paragraph - there is no evaluation. The student
could have said that shops may stop buying cards from Zippo 's and buy
cards from a firm that offers more credit. 5 I 6 marks.

Com mon m isconceptio n s a n d e rrors

Error W h y it i s wrong

'New businesses do not need cash
flow forecasts as they have only
j ust started.'
They need cash flow forecasts more
than most firms ! They need them to:
a) a pply for start-u p loans from
banks
b) encourage people to i nvest in
the business
c) mdndg� c��h flow� t�t t� v�ry
expensive time in a b usi ness's
l ife cycle .

• 34
 Cash flo w planning
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Error Why it is wrong

Confusi ng cash flow with profit:
'If a firm is making a profit it wi l l
have a good cash flow.'
Forgetting the negative signs - put
figures i n brackets.
Cash and profit are very d ifferent. A
profita ble busi ness can run out of
cash. A loss-making busi ness could
have plenty of cash, for exa m ple,
ACE Suit Co. Ltd in March 2005 :
Sales = 200 su its at $ 7 5 = $ 1 5,000
Variable costs = $25 per suit = $ 5,000
Fixed costs = $ 3, 000
Profit in March = $7,000
B UT if half of the su its were sold on
credit and a l l costs were paid in cash:
Cash i n = $ 7 , 500
Cash out = $8, 000
Net cash flow = ( $ 5 00)
M istakes w i l l be made with m i n us
additions if the m i n us signs are not
shown .

e Try th i s Rishav a n d Abd u l l ah are friends who want t o set u p their own radio
station. They wi l l need a larg e amount of equipment. The finance wi l l come
from i nvestors and the ban k and they a lso plan to sel l advertising space. It
wi l l take severa l weeks for firms to pay for advertisements so the friends
wi l l have to attract many l isteners first. Their accountant has constructed a
cash flow forecast for the first th ree months:

($)

May J u ne July
Cash i n from advertisements 0 1 , 500 3, 000
Capital and loans 4, 000
Cash out:
Purchase of equipment 5, 000 2, 000 0
Salaries 500 500 500
Overheads 1 , 000 1 , 000 1 , 000
Total cash out: 6, 5 00 3, 500 1 , 500
Opening balance 0 (2, 500) (4, 500)
Net cash flow (2, 500) X 1 , 500
Closi ng balance (2, 500) (4, 500) (3, 000)

a) Calculate the val u e of n et cash flow in J u ne. [1 mark]

b) What is meant by the term 'closing ba l a nce'? [2 ma rks]

c) Use the cash flow forecast and the case to exp l a i n why the closing
balance is negative at the end of J u ly. [4 marks]

d) Exp l a i n why it was so i mportant to Rishav and Abd u l l a h to have this

cash flow forecast before they started their business. [6 ma rks]

Examiner's tip
./ Explain how a cash flo w forecast helps with planning the finance needs
of a new busin ess - use the figures in the table to help you.

35 .
 NIT 9 F i n a n c i n g b u s i n ess
a ct i v i ty
Key objectives •To understand why businesses need finance
e To explain the advantages and disadvantages of different sources
of finance
e To understand which sources of finance are most suitable in
different situations

Key definitions

I NTERNAl finance: Ra ised from

/ either I NTERNAL orcanEXTERNAL
Sources of finance be
EXTE RNAl finance: Ra ised from
withi n the busi ness i nd ividuals or institutions

I
outside t h e business

Reta i ned pro fi t : Profits kept i n I

the busi ness after payments to loans: Fina nce obta i ned from
owners (dividends), e.g. : a n institution, e.g. bank, that
Net profit after tax $ 5,000 m ust be repaid at some time in
Dividends $2,000 the future
Retai ned profit $3, 000

I
Sale of shares: A share is a
Sale of assets: Raising fi nance document g iving pa rt
by sel l i ng off assets the busi ness ownersh i p of a company.
no longer needs Sel li n g more shares ra ises
additional cap ita l

I
Control of working capita l :
I
Sel ling off stocks and asking Debentures: A long-term loan
debtors to pay more quickly to a busi ness - the lender
receives a certificate indicati ng
date of repayment

I
Overdraft: When the bank
agrees for the busi ness to
borrow up to an agreed
a mo u nt. The a mount bo"rrowed
ca n be varied, but i nterest rates
are often high

• 36
 Fina n cing business activity
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Defin ition Examples

Debt factoring This is the sale of debt i nvoices
(money owed to a business by its
customers) to a specialist finance
organisation.
Leasing Obta i n i ng the use of a n asset in
exchange for regu l a r leas i n g charges
instead of buying it outrig ht.
Hire purchase This a l lows a busi ness to purchase a n
asset b y making month ly payments
over a period of time.
Trade credit Credit gained from suppliers.
Busi ness plan A report that gives deta i ls of the
marketing, production and financial
p lans of a new busi ness sta rt-up.
Start-u p finance (cap ital) The capita l needed to set u p a
new business.
Capital expenditure Spendi ng on fixed assets that wi l l
last more than o n e year.
Revenue expenditu re Spending on day-to-day expenses,
not fixed assets.
If a customer owes a busi ness
$60,000 to be pa id i n th ree months'
time, the business could sell this
i nvoice to a debt factor for
i mmediate cash, but at a discount.
Many com puters are leased to
businesses - they become outdated
q u ickly, so purchasing them can be
a d isadvantage.
This is a n alternative to using cash
to buy the asset outright.
A supplier del ivers goods va lued at
$2,000, but these wi l l be paid for in
two months' time.
See page 1 3 9 in IGCSE textbook
(2nd ed ition).
Finance wi l l be needed for such
assets as b u i l d i ngs and stocks before
trading ca n beg i n .
B u i ld ings, machi nery and veh icles
Wages, purchase of materials and
e lectricity

Sample questions and answers

Sample questions 1) Heathwood Engineering plc needs additional finance. The
business has three spending plans . Select one source of finance
from the list below for each plan. State one reason for the source
of finance selected in each case.

Spending plan Suitable source o f finance Reason for choice

New computers for the office
Takeover of a rival business
Tem porary increase in stocks

Sources of finance: Issue of shares

Leasing
Trade credit
Long-term loan [6 n1arks]
Marks 1 mark for each appropriate source plus 1 mark for relevant reason .

37 •
UNIT 9
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer

Spending plan Suitable source of finance Reason for choice

New computers for the office
Takeover of a riva l busi ness
Temporary i ncrease in stocks
Leasing As computers will become out of
date q u ickly, Heathwood does not
actu a l ly want to own them.
Issue of shares The takeover is l i kely to be
expensive and issues of shares ca n
raise a lot of ca pita l . A l ong-term
loan wi l l lead to high i nterest
payments.
Trade cred it No need for a long-term loan if the
increase in stocks is tempora ry.

Examiner's marks · Full marks - correct choices and good reasons given.
and comments
2) Jill and Zuki are two friends who want to open a new beauty
salon. They are both skilled hairdressers, but they have not
owned their own business before . They are applying for a large
bank loan to help with 'set-up' costs.
i) What 'set-up ' costs will need to be paid before the business
starts to trade? State two examples. [� n1arks]
Marks 1 mark each for appropriate costs identified.
Student's answer Rent of premises, purchase of hairdryers .
Examiner's marks and 2 marks .
comments
ii) State three questions that the bank manager is likely to ask
Jill and Zuki before giving the loan . Briefly explain why
each question is important. [ 6 marks]
Marks 1 mark for each relevant question; 1 mark for each relevant reason.

Student's answer Q t . Where are you setting up your business?

Reason: So that he can tell whether it is a good area for this
type of business .
Q2. Have you done any market research?
Reason: So that he can tell whether the two friends have
looked into the p ossible demand.

Q3 . How much money are Jill and Zuki going to invest?

Reason: So that the bank n1anager can see that the bank will
not be taking all of the risk.
Examiner's marks Full marks again - three good questions plus relevant reasons .
and comments
3) i) What do you understand by a business plan? [2 n1arks]
"i

Marks 2 marks fo r good understanding; 1 mark for some understa11ding.

Student's answer A business p lan contains details of a new business start-u p includin g
market research and aims of the business.

• 38
 Fina n cing business a ctivity
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Examiner's marks There is enough understanding shown for 2 marks.

and comments
ii) Jill and Zuki decide to draw up a business plan . Will this
convince the bank n1anager to give a loan? Explain your
answer. Jo [ 6 nurks]

Marks 2 marks for explaining what a business plan would contain for this business
(knowledge and application); 2 marks for analysing how it could irifluence
the decision; 2 marks for evaluating its impact on the decision .
Student's answer In their business plan, Jill and Zuki will present useful information
about their idea for the beauty salon. They should include market
research about other salons, details of their experience , where the
salon will be located and how much finance they will need. This
will definitely mean that the bank manager will lend then1 all the
money they need. The manager will see that they have thought
about the business and so will be prepared to lend the money.
Try to mark this yourself- examiner's marks and comments are on page 1 02.

Com m o n m i sconceptions a n d e rrors

Error
'Al l l i m ited com pa nies can sel l more
shares on the Stock Exchange.'
'Se l l i n g more shares is a n exa m ple
of i nternal fi nance.'
'Shares are a form of long-term loan.'
'An overdraft is a long-term loa n.'
Why it is wrong
Only public l i m ited com pa nies can
do this - private l i m ited com panies
ca nnot do this.
Even though shareholders own a
com pa ny they are 'outside'
providers of ca pita l - the company is
a separate legal u n it. Sale of shares
is external finance.
N o - shares do not have to be
repa id by the com pa ny. Al l loans
have to be repaid eventual ly.
No - a n overdraft can be ca l led back
by a bank at short notice. A long­
term loan is for a n ag reed period,
usua l ly more than ten years.

e Try t h i s a ) The table below lists three sou rces o f busi ness finance. Copy the ta ble
and briefly exp l a i n one advantage and one d isadva ntage of each source.
[6 marks]

Source of finance Disadva nta � e

Issue of new shares by a company

Overdraft
Long-term loan

b) Use the fol l owi ng table to indicate with a tick whether the fol lowi ng

sources of fi na nce a re i nte rna l or extern a l : [ 4 ma rks]

39 •
UNIT 9
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Source of finance I nternal External

Debenture
Issue of shares
Retai ned profit
Sale of buildings

c) The d irectors of a public l i m ited company are planning to double the

size of the existing factory. This will cost $5m. The com pany a l ready has
substa ntia l long-term loans. The d i rectors sti l l control just over 50% of
the shares between them. They a re considering four possible sources of
fi nance: new share issue, l ong-term loan, overdraft, reta ined profits.

Advise the d irectors on the most suitable method of fi na nci ng this

expansion. G ive reasons for your a nswer. [8 ma rks]

Examiner's tip
./ Think about how long they will need the finance for.

• 40
 N IT 1 0 O rg a n i sa t i o n a l
st r u ct u re
Key objectives • To explain what is meant by 'organisational structure' and why
businesses need one
e To understand how organisational structure can be shown on a
diagram and why it changes as firms expand
e To analyse the different ideas connected to organisational
structure
e To understand the impact of decentralisation on a business

Key definitions The diagram below shows the typical organisational structure of a
business. This structure shows how the business is organised
internally with levels of responsibility:

The vertica l l i n es show the

chain of com mand - the l i n ks
Chief through which i nstructions are
executive passed down from managers to
subord inates

H u man
�I
Sales resources Adm i n Accounts Promotions
manager manager manager manager manager The horizonta l l ines show the
levels of h ierarchy the
-

� � � � �
managers on each level have
equal authority
I I I I I I I I
����� �����
The s pan of contro l is the nu m ber
of staff who report to each
ma nager. The span of control of
the sales manager is five

Term Defi n ition Exa mples

Delegation G iving a su bord inate the a uthority
to do certa in tasks.
H ierarchy The different levels of a uthority
in the organisation.
Tal l structure This type of organ isation has many
levels of hierarchy and sma l l spans
of control.
Functional departments Departments in an organ isation that
have responsi b i lity for one pa rt of
the business ..
Line managers Have d i rect responsi b i l ity for
decisions and for the work of staff.
Staff manager Specia l ist advisers who su pport the
line managers and di rectors.
A marketing manager may delegate
the task of gathering market data
to a worker in his or her department
The chart above shows the h iera rchy
of the business.
M a rketing
Accounting
Production
M a rket i n g ma nager, accou nts
manager.
IT special ist, econom ist.

41 •
UNIT 1 0
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Defi n ition Examples

Decentra l isation Taking decisions away from the The Egyptia n division of the German
centre of an organ isation - away ca r firm Mercedes may take many
from Head Office. decisions without referri ng back to
d i rectors in Germa ny.

Sa mple questions and· answers

Sample question Yuan's business has grown rapidly in three years. Setting her flower
business up as a sole trader, Yuan had nude all of the in1portant
decisions. Now she has three flower shops and a home delivery service .
She employs an accountant, managers for the shops, and a transport
manager. The current organisational stn1cture is shown below:

Yuan
Shop Shop
manager A ma nager 8

�
I

a) What is the span of control of shop manager A? [1 mark]

Marks 1 mark for correct answer offour.
Student's answer Four people report to this manager. . I

Examiner's marks
and comments
Good! 1 mark.
I
b) How many levels of hierarchy are there in this business? f
[1 mark] I
I

I
Marks 1 mark for correct answer of three.
Student's answer There are four levels of hierarchy. I
Examiner's marks
and comments
No - there are only three levels including Yuan herself 0 marks .
I
c) If shop A expands and four more staff are employed, the
manager's span of control will increase .
i) Explain one advantage of this . [3 tnarks]
ii) Explain one disadvantage of this . [3 marks]
Marks 1 mark for identifying each factor and up to 2 marks for explaining each m1e.
Student's answer i) A wider spanoJ. of control will mean that the manager will have
to delegate more authority to each worker. This could n1ean
that their jobs become n1ore interesting.

Examiner's marks Full marks for an accurate and well explained answer.
and comments

• 42
 Organisa tional structure
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer ii) A wider span of control 1neans a longer chain of con1n1and, so
messages will take longer to reach the staff.

Examiner's mark� No marks here - a wider span of control does not create lllore levels of
and comments hierarchy and therefore does not make the chaill of conunand lo11._�er. The
student could havl!explained the reduced control that the tnanager will have
with a wider span of control.

d) How do you think the organisational structure of Yuan's

business might change if it continues to grow? Explain
your answer. [8 n1arks]
Marks 2 marks for identifying possible changes; 2 marks for applying them to this
business; 2 marks for explaining Ianalysing changes and 2 marks for
evaluation.
Student's answer If Yuan's business grows, it will need a new structure . More
departments will be need e d, for exan1ple, marketing and human
resources . Yuan might need to recruit some n1ore senior n1anagers,
as she will not be able to take all of the decisions herself. A
marketing director would help her to advertise the fl o wer shops .
The chain of command will get longer so that staff in the shops
will have to wait longer for messages from the top . The structure
will depend on the span of control that Yuan wants and whether
she decides to decentralise the business . If she decides to grow
flowers as well as sell them, a new division will be needed.
Try to mark this for yourself. The examiner's 1narks and comments are on
page 1 03 .

Com m o n m isco nceptions a n d e rrors

Error
'Delegation is giving a l l responsib i l ity
to workers.'
'Staff managers control the staff.'
'A wider span of control means that
more managers are needed.'
Why it is wrong
Delegation gives authority or power
to workers to do a job - the
manager sti l l has the final
responsi b i l ity.
Staff manages are special ist advisers
- they do not control the l i ne
workers in the busi ness.
A wider span of control means that
more workers report to each
manager - so fe wer managers m ig ht
be needed.

e Try th is Ahmed Cloth ing Ltd i s a clothi n g manufactu rer. I t h a s three factories i n
three different countries. Each factory is contro l led b y a factory ma nager
who is helped by three prod uction supervisors. Each supervisor controls the
work of five p roduction l i ne workers.

a) Sketch the organisation chart for one of Ahmed's factories. [4 marks]

43 .
UNIT 1 0
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

b) The company has three levels of management at Head Office. The

business is contro l led by Abad u l la h Ahmed. He bel ieves in taking a l l of
the im portant decisions h imself. The factory ma nagers have to ensure
that Abad u l lah's designs of clothes are fol lowed. Each factory pays its
workers exactly the same wages. Methods of production a re decided on
by Abadullah and his Head Office ma nagers.
i) Explain one problem that cou l d result from havi ng many levels of
h iera rchy. [4 marks]
i i) Would you describe Ahmed Clothing Ltd as being a centra l ised
business? Explain you r answer. [4 ma rks]
i i i) Discuss whether Abadu llah should decentra l ise his busi ness. [8 marks]

Examiner's tip
./ Yo u should try to define decen tra lisation, give advantages and
disadvantages and then make a decision.

• 44
 N IT 1 1 M a n a g i n g
Key objectives
Key definitions
Planning: Setting aims and
targets for the organisation,
e.g. to i ncrease market share
by 2 %
Co-ord inating: Bringing people
and departments together so
that they work towards
common aims
Term
Initiative
Strategic decisions
Tactical decisions
Operational decisions
Decision-making process
Ch ief �xecutive
(Managing Director)
a b u s i n ess
• To explain the role of managers in business
e To understand the qualities needed for a good 1nanager
e To outline the different management responsibilities within
different departments
A manager has
responsibil ity for Controlling: Checking that the
� resou rces and decision ...,___...,. , targets are being met and
making . The role of appra ising staff
managers i ncludes:
Organising: Managing peop l e
and resources effectively
towards achieving the aims of
the organisation
Commanding: Using
authority to g ive and
d iscuss tasks and targets
to staff
Definition Examples
Abi lity to work on one's own a nd to If qual ity of output is fa l l i ng,
make suggestions for solving a m anager m i g ht come u p with
problems. a n idea to improve it.
I mporta nt, l ong-term decisions, that Pepsi decides to open their own
can affect the overa l l success of cafes.
the business.
Frequently taken a nd less i m portant Should we buy trucks or lease them?
decisions.
Day-to-day decisions taken withi n Which dresses should we put i n the
each department. shop window?
The stages a manager shou ld go See figure below.
through before taking a n i m portant
decision - shown by the
decision-making flow chart:
1 Objectives of 2 Identify the
the business �----��� problem
4 Consider o ptions
L------l and take decision
The d irector (or senior manager) in Try to fin d out the name of the
charge of all operations withi n Chief Executive of a wel l known
a business. com pany in your country.
45 .
UNIT 1 1
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Definition Exam ples

Human resources manager
Marketing manager
Finance a nd accounts ma nager
Operations manager
(Production manager)
Administration manager
Responsible for a l l aspects of
tra i n i ng, motivating and a ppraising
staff.
Responsible for a l l aspects of market
research, the marketing m ix, and
sa les performa nce of products.
Responsible for keeping fi nancial
records, producing annual accou nts,
and contro l l i ng cash flows.
Responsi b l e for producing the
product/service in the right quantities checking on q u a l ity sta ndards, using
and to the correct quality leve l .
Responsible for clerica l work, IT
equ ipment, and maintena nce of
. buildings.
The manager wi l l negotiate with
trade un ions on pay.
The ma nager wi l l prepare job
descriptions and job specifications
for recru iting new staff.
The manager wi l l decide the
price at which each product is sold.
If this is too h ig h, few consumers
wi l l buy it.
If the net cash fl ow is negative, this
manager wi l l be responsi b l e for
ra ising additional finance.
Ordering stocks of raw materials,
the most a p propriate production
methods.
Keeping records and official
documents, maintaining the computer
system and arra n g i ng maintenance
to the b u i l d i ngs when necessa ry.

Sa mple q�estions and a

· nswers
Sample questions 1) Match the areas of responsibility (see list below) to
the manager: [4 marks]

M a n ager Responsible for:

Marketing
Operations (Prod uction)
Finance
Adm i nistration

Areas of responsibility:
i) arranging bank loans
ii) deciding which newspaper to advertise in
iii) checking on quality levels
iv) organising the post roo1n for despatch of letters.

Marks 1 mark for each correct answer.

Student's answer
M anager Responsible for:
Marketing Deciding which newspaper to
.
advert ise i n
Operations (Production) Checking on q u a l ity levels
Finance Arranging bank loans
Adm i n istration Organising the post room for
despatch of l etters

• 46
 Managing a business
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Examiner's marks 4 marks - all correct.

and comments
2) Harry owns a TV repair shop . He en1ploys five n1echanics and
two adn1inistration staff. He plans to open a new branch in
another towq. He needs to recruit a tnanager for this shop. The
manager will have to organise the workers , and deal with
customers and all problems. Explain two qualities that you think
a successful manager of Harry's new shop is likely to have .
[6 marks]
Marks 1mark for each point and 1 mark for putting each point into context; 1
further mark for explaining each point.
Student's answer The manager will need to be knowledgeable about television
repair. It will be easier for the n1anager to run the shop if he or
she, as well as the workers, has the ability to repair the televisions.
The manager will also need good con1n1unication skills so that he
or she can speak clearly.
Examiner's marks 416 marks. Two relevant points were made, but only the first was
and comments developed in the context of TV repairs. The second point, about good
communication skills, could have been developed by explaining that these
would be necessary to make technical details clear to customers.

Common m isconceptions a n d errors

Error
'Managers j ust g ive orders to
other workers.'
'If managers take decisions
carefu l ly, there wil l be no risks for
the busi ness.'
'H uman resources managers j ust
recru it and sack staff.'
Why it is wrong
There are so many other parts of a
manager's job - and wou l d 'giving
orders' be a very effective style of
management?
Even the best managers taking the
best decisions wi l l have to accept
some risk - changes to the economy,
for exa m ple, are not under the
control of managers.
H R managers a lso have responsi bi l ity
for training, staff a ppraisal,
negotiating with unions, keeping
staff records and motivating staff.

e Try th i s a ) Explain one reason why you thi n k i t i s i mportant for a manager t o set
aims or targets for the business. [4 marks]

b) A manager is worried about fal l i ng profits. She knows that a major

change is needed to solve this p roblem . Before taking a decision she

47 .
UNIT 1 1
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

decides to use the decision-ma king flow chart. F i l l in the gaps using the
sentences below:

4
'-------i

Col lect and ana lyse data

Review - was it successful ?
Consider options a n d take decision [3 marks]

c) U meel is reti ring after 25 years of managing h is own restaurant. It is a

very successful busi ness. He employs 25 trai ned staff and needs to recru it
a new manager. After advertising the job, he m ust decide between two
appl icants. He has gathered the fol l owing i nformation a bout them:

Details Person A Person B

Age 35 55
Education B usiness degree A l evels
Restaurant experience 3 years as j u n ior ma nager. 20 years as chef and then 5 years
as manager.
Main business skills Motivating staff, good Cooki ng, ordering right amount
com m u nicator. of stocks.
'Describe your main ' I am a natura l leader and I a m 'I a m a very hard worker. I e njoy
personal qualities' ambitious for myself a n d giving people pleasure with the
t h e restau ra nt.' food I cook.'
'What plans would you have 'I would aim to double its size and ' I wou l d l i ke to e ncou rage staff to
for the resta urant?' employ more staff.' cook even higher q u a l ity food.'

On the basis of this i nformation, which person would you choose for
the manager's job? Justify you r answer. [ 1 0 ma rks]

Examiner's tip
./ Think of the qua lities of a good manager and apply these to the
information above. Th e fina l choice might depend on the aims tha t
Umeel has for the business.

• 48
 N IT 1 2 C o m m u n i ca t i o n 1 n
Key objectives
Key definitions
The sender of the
message should send it
i n clear language and
using the most
appropriate method
Term
Verbal or spoken communication
Written commun ication
Visual communication
Formal communication
Informal communication
Barriers to communication
Internal commun ication
External communication
b u s i n ess
• To understand why good conlmunication is inlportant to
business
e To explain the advantages and disadvantages of different
communication methods
e To examine why barriers to communication exist and how
they can be reduced
One-way communication a l l ows
for no feed back, e.g. a safety
notice on a fire door
The communication method or The receiver should
medium is how the message is understa nd and act
sent, for example, written e-m a i l upon the message. If
or a face-to-face conversation asked for, feed back
should be g iven
Feedback a l lows for two-way
com m u nication, e.g. a rep ly to a
q uestion
Definition Exam ples
The sender speaks di rectly to the 1. Telephone
receiver(s). 2. Meeti ngs
3. Conversation
The message is sent in a written 1. Letters
form. 2. M emos
3. E-mails
The message is put i nto a form that 1. Graph of sa les figures
can be understood visual ly, not 2. Video
written or spoken. 3. Posters
Messages sent by using the channels 1. Reports
set up by the organ isation. 2. M i n utes fro m a meeting
Messages through the 'gra pevi ne' of Staff ta lking at brea ks or
i nforma l contacts. l u nchti mes.
The reasons why commun ication fai ls. 1. U nclear lang uage
2 . Too many levels of hierarchy
3 . Using the wrong method
Messages sent and received by 1. Manager ta l k i ng to workers
people with i n the organisation. 2. Notice on company notice board
or i ntranet
Messages sent o utside of the 1. An order sent to a supplier
organisation. 2. Letter to a customer
49 .
UNIT 1 2
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Sample quest i o n s an d a nswers

Sample qu estions 1 ) Choose the best n1ethod of conununication. Match the message
(table A) with the method cif communication (table B) . [4 n1arks]

A - the message B the method of

-

communication
a) List of staff names who i) Letter
have Fi rst Aid tra i ning
ii) Telephone cal l
b) U rgent order to supplier
i i i) Notice board
c ) Detai l ed map of how to
iv) E-ma i l
g et to the factory to be sent
to ten visitors arriving this
afternoon
d) Contract of employment
for new worker

Marks 1 mark for each correct answer.

Student's answer a) = iii)
b) = ii)
c) = iv)
d) = i)
Examiner's marks Full marks - do you understand why these are the correct methods to �se?
and comments
2) Explain two advantages of managers using meetings with staff as
a main form of communication. [ 4 nnrks]
Marks 1 mark each for identifying an advantage plus 1 mark each for explahzing.
Student's answer Meetings between a 1nanager and workers allow for feedback. This
means that if the worker does not understand the tnessage then he
or she can ask for more information .
Another advantage i s that workers n1ight be more tnotivated.
Examiner's marks 3 marks awarded, 2 for two benefits, but only one cif them is explained.
and comments The studettt could have added that by allowing talking and discussion between
manager and staff, the worker will feel more involved and keen to work hard.

Com mon m i sco nceptions and e rrors

Error Why it i s wrong
'Communication is always more It may be true that computers aid
effective via computer.' comm u nication, for example,
i nternet and e-m a i ls, but it is not
a lways the case. They can break
down and often lead to too many
messages being sent - the receiver
may not be able to tel l which a re
the most i mportant ones.
'Two-way comm u nication is a waste Two-way comm u nication may take
of time.' more time than one-way, but it has
many benefits. It a l l ows for
feedback, q uestions and
i nvolvement of the staff.
• 50
 Communica tion in business
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Error Why it is wrong

'Letters are the best form of
com m u nication.'
Th is is often not true. They can be
too formal and time consum ing ­
they a lso do not a l low for
i m mediate feed back. The choice of
the best med i u m of communication
m ust take many factors i nto
account.

e Try t h i s A marketing manager for a sweet man ufacturer wa nts t o send a message to
the owners of the 25 reta i l shops that sel l the firm's prod uct. The message
g ives deta ils a bout a n ex�iting new product with colourfu l packaging and a
new bra nd n�me.

a) Is this an exa m ple of i nternal or external commun ication? Expl a i n you r

a nswer briefly. [2 marks]

b) Would you advise the manager to use a telephone ca l l to every shop

owner, a n e-ma i l message to each s hop, or a video sent to all shop
owners plus posters? Justify the method of commun ication you choose.
[8 ma rks]

c) 'As my busi ness has expa nded to over 400 workers, I find it more and
more difficult to com m u n icate with staff. They j ust do not read my
notices. I th ink I wi l l send them a n ewsl etter each week,' the managing
d irector of a la rge suit-making com pany told his secretary. Expl a i n two
possi ble barriers to com munication resu lting from using either n o tices
on boards or newsletters. [6 marks]

51 •
 N IT 1 3 M ot i va t i o n a t wo r k
Key objectives • T o understand the different motivation theories
e To understand what n1otivates workers
e To know about the different types of payment methods and
other ways workers can be motivated
e To understand how to choose suitable ways of giving job
satisfaction to different types of work
e To understand different styles of leadership

Key definitions

Ta y l or

Money is the main motivator Motivation Theories

(pay more money to increase motivation)

McGregor identified two types of manager

- those who believe i n Theory X and those
who bel ieve in Theory Y.
Theory X
The average person
does not l ike work.
Workers must be
constantly sup�rvised
so they wi l l work.
Motivation is from
externa l factors, e.g.
pay schemes where the
workers are paid more
for i ncreased output
a = self-actual isation
b = esteem needs
Theory Y c = social needs
The average person is d = safety/secu rity needs
motivated by i nternal e = physiolog ical needs
factors. To motivate
workers, you need to Progress up the h ierarchy (from e to a) ­
find ways to help satisfy/ach ieve one l evel, then can move to
workers take a n the next level. Don't necessarily have to
interest i n their pay more but can fi nd different ways to
work, e.g. give motivate workers as they move up the
rewards/incentives levels

Te rm Description Examples
Mo t iv a tion Reason why workers wa nt to work Motivation can be i ncreased _by:
hard and work effectively for the (a) monetary rewa rds
busi ness. (b) non-moneta ry rewa rds
(c) i ntroducing ways to g ive job
satisfaction.

(a) Monetary rewards Wage: payment for work, usu a l ly

paid weekly. Ca n be ca lcu lated by
the number of hours worked (ca l led
time rate) and pa id overtime $ 1 0 per hour plus overtime
or ca n be paid depend i ng on the
qua ntity of products made (ca l led $ 1 0 per prod uct prod uced
piece rate).

• 52
 Motivation at work
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Descri ption Examples

(b) Non-monetary rewards
(c) Job satisfaction
Salary: payment for work, usua l ly $ 1 0,000 per year
paid month ly. In addition, some
salaried workers a lso get com mission
pa id (more pay the more g oods they
sel l) or profit sharing (share of the
profits paid to employees) or bonus
(lump sum paid to workers if they have
worked wel l) o r performance-related
pay (pay which is related to the
effectiveness of the employee).
Sometimes cal l ed fringe benefits. Chi ldren's education fees paid,
These are extra benefits g iven to d iscounts on the firm's prod ucts,
employees in add ition to thei r pay. health ca re fees paid, free
accommodation, company car.
The enjoyment a worker g ets from
feeling that they have done a good
job. There a re three main ways to
motivate workers to be more
com mitted to their job and work
more effectively:

Job rotation (swapping workers Packing for a n hour, fi l l i ng

round and only doing a specific task conta iners for an hour, l a be l l i ng for
for a l i m ited time before swapping an hour, etc.
round aga i n).

Job enlargement (extra tasks a re Warehouse worker u n packs g oods,

added to the job to make it more sorts orders, stacks shelves, picks
i nteresting - they shou ld be at a orders, etc.
sim i lar ski l l l evel).

Job en richment (adding tasks that Hotel receptionist answers the

req u i re more ski l l and/or
responsib i lity) .
Leadership styles Good management and leadershi p
style are importa nt for motivation.
A good l eader is someone who can
i nspire a nd g et the best out of the
workers. There are three ma i n types
of l eadersh i p style: a utocratic,
laissez-fai re, democratic.
telephone, deals with enqui ries,
ta kes bookings, word processes
l etters, etc.
Autocratic leadersh i p (manager i"n
charge and g ives orders) .
La issez-fai re leadership (manager
g ives broad o bJectives and l eaves
the workers to organ ise their own
way of achieving these objectives).
Democratic leadersh i p (manager
g ets workers i nvolved i n the
d ecision maki ng).

Sample questions and answers

Sample questions 1) Why might improved motivation of employees increase
productivity? [ 4 111arks J
Marks 1 mark for knowledge that if motivation is high then the desire to achieve
goals is higher; 3 marks if there is a clear linkage between increased
motivation and the increase in peiformance.
Student's answer As more workers are motivated then they will all be happy to
come to work every day, thus reducing absenteeisn1 . If people are
n1ore n1otivated, they will work harder for the business to their
best ability to try to produce as n1any goods or services as possible.
Also , if there are pron1otion opportunities, they will try to i1npress
the manager and as a result production will increase.
53 •
UNIT 1 3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ·-· . . . .

Examiner's marks A good answer with several reasons given as to why productivity might
and comments increase. Full marks.

2) Explain one method that a business could use, which might

increase the motivation of its workforce. [3 marks]
Marks 1 mark for the method; 2 marks for explaining the impact on motivation.
Student' s answer Job satisfaction - the workforce needs to be satisfied with their j obs
by having better working conditions, knowing there are chances of
promotion, and good wages . Job rotation helps to in1prove job
satisfaction - a group of employees divide themselves and take
shifts at certain times .
Examiner's marks Only one method can be rewarded, so 1 mark. The other methods were not
and comments needed and none of the methods was explained.
3) The graph shows the weekly wages paid to production workers
at Mimmus plc .
Wages
per week
$400

1 00 200
Output
i) Mimmus plc pays its workers using the paytnent method
shown in the graph above . What method of payn1ent is it
using? Explain your answer. [3 n1arks]
Marks 1 mark for identifying a set amount of wages paid up to art output of 1 00
units; 2 marks for explaining that the piece rate is then used: that is, the
more output produced above 1 00 units, the more wages are paid.
Student's answer The workers are paid $200 per week no n1atter how tnuch _they
produce. After that, piece rate is paid.
Try to mark this yourself- the examiner's marks and comment are on
page 1 04.

ii) Calculate how much the worker will earn if he or she

produces 1 50 units of output. [2 tnarks]
Marks Correct answer 2 marks; 1 mark if correct method, but incorrect answer.
Student's answer $200 + (50 X $2) = $300
Try to mark this you rself- the examiner's marks and com malls are on
page 1 04.

Com mon m iscon ceptions and e rrors

Error Why it i s wrong

'Increasing pay wi l l always motivate I ncreasing pay can improve

workers to work harder.' motivation, but it wi l l not work
every time and busi nesses may need
to fi nd other ways to motivate
workers.
• 54
 Motiva tion a t work
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Error Why it is wrong

'Ti me rate is paid at a set period of
time, for example, each week.'
'Piece rate is where workers get a set
amou nt of pay and then are paid
more if they produce more.'
'Job enlargement is when more tasks
are added to someone's job
description and they need extra
tra i n i ng to do the extra more
d ifficult tasks.'
Time rate is the a mount paid per
hour worked and may be paid
weekly, but so may piece rate.
Piece rate refers to wages being
related to the output produced and
does not refer to a set a mount paid
whether the worker prod uces more
or not.
Job enlargement i nvolves additional
tasks being added to the job but
they should be of a s i m i l a r ski l l level.
If they a re more d ifficult tasks then
this is job enrichme nt.

e Try th i s Patel Fashions is a retai l business which sells women's clothes. I t employs 1 5
sal es staff who work i n the shop and five more who work i n the offices.
There is one shop manager who is in charg e of the busi ness. Each of the sa les
staff has a specific job and they only do this one task. For exam ple, some just
serve customers at the pay desk, some look after the fitting room, and others
look after the clothes on d isplay. E mployees keep leaving and the shop
manager reg ularly has to advertise for new employees. ' I do not l i ke having
to spend so m uch time i nterviewing appl icants for sales assistant jobs. I wish
the employees would not keep leaving,' said Marie, the shop manager.

• a) Discuss the d ifferent financial and non-fi nanci a l benefits the store
manager could use to i m p rove motivatio n at the shop, in order to
prevent workers from leaving so reg ula rly. Which would be the best
method for her to employ and why? [ 1 2 ma rks]

Examiner's tip
.I Explain the advantages and disa dvantages of different financial and
non-financial methods o f motivation. Select one method and explain
why you think it is the best one for Patel Fashions to use.

b) Would job rotation be the best method for Marie to use in order to
i ncrease job satisfaction? Exp l a i n you r answer. [8 ma rks]

Examiner's tip
./ Explain h o w Patel Fashions could use job rotation, job enlargement and
job enrichment. Say wh ether you consider job rotation to be the best
method and why.

c) State which manageme nt styl e (democratic/a utocratic/la issez-fa i re) you

would suggest for i) Theory X ma nagers and i i) Theory Y managers.
Expla i n your choice. [6 ma rks]

'

55 •
 N IT 1 4 Rec r u i t m e n t, t ra i n i n g
a n d h u m a n reso u rces
Key objectives • To understand the role of the hunlan resources departnlent
e To understand the recruitment and selection process
e To appreciate the different types of training
e To know the difference between redundancy and disn1issal

Key definitions
The recru itment a n d selection process

job ana lysis

• I job description
I •
I job specification I • advertise the vacancy

i nduction training select suitable i nterviews and send out application

applicant selection tasks forms and shortlist
(e.g. ski l l or suitable applicants
a ptitude tests)

Term Descri ption Examples

Job analysis Identification of the tasks and
responsi b i l ities to be ca rried out by
the person doing the job.
Job descri ption The tasks, duties and responsib i l ities
someone w i l l need to ca rry out as
part of a specific job.
Job (person) specification The requ i red qual ifications, skil ls,
personal qual ities, etc. for a
specific job.
Internal recruitment Vacancy is fil led by a person who is
a n existing employee.
External recru itment Vacancy is fil led by a person who is
not a n existing employee and wi l l
b e new to the business.
't
A receptionist l eaves a company and
when Human Resources l ooks at the
job description, it is rea l ised that
some of the tasks a re no longer
needed . However, the business does
need someone with more IT ski l ls.
The receptionist's job descri ption
therefore needs to be rewritten .
T h e reception ist's job descri ption
now incl udes processing orders onto
the computer. The receptionist is
not requ i red to answer as many
queries because a new telephone
system now does this.
The receptionist's job specification
wi l l need to include IT ski l ls in
addition to the usual qual ifications
and skills of a receptionist.
Shop assista nt is promoted to
supervisor. The job is advertised on
the com pany notice board or a large
business may h ave a company
newspaper or i ntra net.
A new store manager has been
a ppointed who currently works
for another shop. The job was
advertised i n loca l newspapers,
national newspapers, specia l ist
magazines and journa ls, recru itment
agencies or centres run by the
government (job centres).

• 56
 Recruitment, tra ining a n d h uman resources
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Description Examples

Induction train ing An introduction to the business
for a new employee.
On-the-job training Tra ining is g iven at the p lace of
work by watch ing another, more
experienced employee doing the job.
Off-the-job training Tra i n i ng is g iven away from the
place of work itself. Ca n be at a
d ifferent place such as a col lege or
could be at the business's site, but
in a different bui lding.
Redundancy/retrenchment The shedd ing of employees because
the busi ness changes.
Dismissal The employee is no longer employed
because he or she is unsatisfactory i n
some way.
New employee is shown round
the busi ness, i ntroduced to other
workers, g iven Hea lth & Safety
instructions, g iven i nformation on
ru les and reg ulations of the
business.
A production line worker is shown
what to do by a nother experienced
production l i ne worker.
I n a classroom using l ecture,
role play, case studies, or com puter
simu lations.
The busi ness i ntroduces new
tech nology or closes a factory,
therefore fewer workers a re
needed.
An employee is sacked because he
or she is caught stea l i ng stock.

Sample questions and answers

Sample questions 1) Why do businesses carry out a j ob analysis when an e1nployee
leaves? [4 marks]
Marks 2 marks for giving reasons for a job analysis to be drawn up; 2 marks for
explaining why these reasons are important to the business.
Student's answer A business carries out a job analysis to see whether it needs to
replace the worker with someone who can do exactly the san1e job .
After that, i t will draw u p a j o b description outlining all tasks and
duties that the j ob involves and then a j ob specification, which
states the skills and qualifications that the applicants 1nust have .
Examiner's marks The first sentence attempts to answer the qt�estioll, but the rest (if tlze
and comments response does not directly answer it. The can didate needs to dismss i11 m o re
detail why a job analysis is carried out an d an example li'O l l ld luwe helped
to explain the answer. Drawing up a job description would then follow, but
only when it has been decided exactly what the job must irwolve ajter the
job analysis is complete. 1 mark .
2 ) CDF Ltd has j ust introduced new technology into the business.
It finds that its employees do not have the appropriate skills
needed to operate this new equipment.

i) Why n1ight this be a problen1 for CDF Ltd? (4 marks]

Marks 2 marks for problems stated; 2 marks for explain in'-!? th e problems.
Student's answer If the workers do not have the correct skills then trai ning will be
needed. The costs of training and/ or recruiting new staff can be
very high . In addition, while the training takes place, the output

57 •
UNIT 1 4
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

of CDF Ltd is likely to decrease because the workers are either

co-operating with trainers or are the trainers then1selves . Also , if
en1ployees cannot operate the new technology they n1ight fear that
they will lose their j ob and therefore morale tnay be low.
Examiner's marks A good answer -full marks. Three problems are stated m1d then explained
and comments as to why they are a problem for the business. Only two problems were
needed for full marks.

ii) How would you suggest that CDF Ltd deals with this
problem? [6 n1arks]
Marks 3 marks for limited suggestions 11ot really explained; 3 further marks if
suggcsti011s are explained.
Student's answer I suggest that it trains some of its employees straight away to
operate the new technology so that they do not spend titne once
the machinery has arrived. It could also advertise for new
employees who are already trained, but this would mean that some
of the current workers would need to be sacked.
Try to mark this yourself- the examiner's marks and comments are on
page 1 05.

Common m isco n ceptions a n d errors

Error
'A job descri ption states the
qual ifications needed for a
pa rticu lar job.'
'On-the-job tra i n i ng does not cost
a nythi n g because an existing
employee tra i ns the new employee. '
'On-the-job tra i ning is suita b l e for a
ski l l ed worker, for example, a n
accounta nt.'
'Off-the-job train ing is a lways away
from the business's prem ises . '
W h y it is wrong
The job descri ption outl ines the
duties that are i nvolved in the
job. A job specification outl i nes the
qual ifications and ski l ls that a re
needed to ca rry out the job.
On-the-job tra i n i n g does cost money
because the experienced employee
cannot work at the usual rate
while showing the tra inee what to
do. The employee wi l l also need to
keep watching the tra inee to make
sure he or she is doing the job
properly. Th is means the compa ny is
paying the experienced worker, but
he or she is not producing the usual
quantity of goods.
On-the-job train ing is only r�a l ly
suitable for unski l led or semi-skil led
workers. An accounta nt would need
to be tra i ned at col lege for most of
the time and not just at h is or her
place of work. There wou ld be
i nsufficient time whi lst working to
go over all the i nformation req u i red
to become ful ly qual ified.
Off-the-job tra i n i ng is away from
the p lace of work itse lf, but can sti l l
b e on the sa me site.

• 58
 Recruitment, training and h uman reso urces
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •• • • • • • • • • • • • • • • • • • • • • • • •

e Try th i s a) Suggest three reasons why employees m i g ht leave their job. [3 marks]

b) If a l ot of employees left every year, why m i g ht this be a problem for

the business? [6 marks]

Examiner's tip
./ Include why they are lea ving, costs of replacing them, tra ining, morale.

c) Why do businesses carry out induction tra i n i ng ? [ 4 marks]

d) The Royal Garden is a hotel in the centre of a city. It employs many

workers in the restau ra nt and the department which cleans and services
rooms. Most of these workers have few ski l ls. I n the resta u rant there are
a lso trained employees who work in the kitchens preparing food .
i) The Royal Garden wa nts to i ncrease the n u m ber of restaurants it has
and therefore needs to employ more staff to work i n the kitchens.
Discuss whether it shou ld use i ntern a l or externa l recru itment for the
new chefs to work i n the restaura nts. [ 1 2 marks]

Examiner's tip
./ Explain the advantages and disa dvantages of internal and external
recruitment. Make a judgement as to which would be the better one to
use and why.

i i) The Royal Garden has recruited several wa iters and waitresses to

work in the new restaurants. What type of tra i n i ng wou ld you
suggest the management use to tra i n them? Justify your choice.
[5 marks]

Examiner's tip
./ Choose a type of tra ining, either on-the-job or off-the-job, and explain
why it would be suitable to train these low-skilled employees.

59 •
 N IT 1 5 E m p l oye e a n d
e m p l oye r a ssoc i a t i o n s
Key objectives • To recognise the different types of trade unions
e To understand how trade unions benefit ernployees and their
role in businesses
e To understand the process of collective bargaining
e To know what happens when conflict arises and the different
types of industrial action
e To understand the role of employer associations
e To know how conflict can be avoided or solved

Key definitions
Term
Trade un ion
Craft un ion
General union
Industrial union
Wh ite-collar union
Employer associations
Collective bargaining
Descri ption Examples
An organ isation formed by a g roup National U n ion of Teachers (N UT) .
of workers, which represents their National U n ion o f Rai l, Maritime
i nterests. and Transport Workers (R MT).
The reasons for joining together
i nclude strength i n num bers,
negotiating pay on beh a lf of its
members, representing workers i n
grievances with management,
advice if d ismissed/made redundant,
advice if unfa i rly treated, improved
working conditions.
Represents a particular type of An electricians' union.
skil led worker.
Represents workers from a variety Skil led and unskil led workers i n a
of trades and industries. union wh ich represents workers i n
different i n dustries.
Represents a l l types of workers in A union which represents a l l
a pa rticular i ndustry. workers i n t h e m i n i ng i ndustry.
Represents non-manual workers. A union which represents office
workers.
An organ isation formed by a g roup E m ployers' Organ isation for local
of employers to g ive benefits to its government.
members. U niversities and Col leges E m pioyers'
The reasons for joining together Association.
i nclude strength in being a large
g roup, acts as a pressu re g roup,
represents the employers and negotiates
with trade unions, shares ideas amongst
the members, sometimes organ ises
discounts for its members if buying
i n bulk.
Negotiations between the The management of a busi ness
management of a business negotiates pay rates with the trade
(or severa l busi nesses) and a trade union which represents the
un ion (or severa l trade un ions) employees.
on pay and cond itions of
employment.

• 60
 Employee a n d employer associations
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Description Examples

Industrial action Action that may be taken by a trade
union to put pressure on the
manag ement when i n negotiations.
It i nvolves halting or decreasing
...
prod uction.
Worker participation Employees contri bute to the
decision-making process in the
busi n ess.
• Strike (employees refuse to
work) .
• Picketing (employees who are
taking ind ustrial action stand
outside their place of work to
prevent or protest at goods or
people going in and out of the
business).
• Work to rule (ru l es are strictly
obeyed so that work is slowed
down).
• Go slow (employees do their
normal work, but more slowly).
• No n-co-operation (wo rkers refuse
to have a nything to do with new
working practices they
disapprove of).
• Overtime ban (refusa l to do
overtime).
Worker di rectors, works councils,
qual ity ci rcles, more democratic
styles of leadership.

Sample q uestions and answers

Sample questions 1) Explain why workers join trade unions . [6 n1arks]
Marks Up to 3 marks for stating the benefits of trade union membership; 3 marks
for explaining why these are benefits to employees.
Student's answer If the worker joins a union then he or she will be part of a large
group of employees, which has extra bargaining p ower when
negotiating pay or conditions with the 1nanagen1ent. Pay should be
better and if an employee is treated unfairly then the union will
give him or her advice.
Examiner's marks The first benefit is explained but the other two benefits are o11ly stated and
and comments not explained. Therefore 416 marks were awarded.
2) Toys Galore plc manufactures children's toys. The c01npany
produces dolls and dolls' clothes. The toys are sold all over the
country and the business also exports 25% of its output. The
workers want a wage increase, but the 1nanagen1ent has said that
this is not possible.
i) Explain three types of industrial action that the union can
advise the workers to take. [6 n1arks]
Marks 1 mark for each of the three types of industrial action; 1 mark for
explanation of each type of industrial action.
Student's answer The workers could go on strike , which would 1nean that they
would stop work and so no output would be produced. They
could then picket the factory by standing outside the gates and
trying to stop any delivery lorries or workers going into the
factory. This would mean that the business could not produce any
toys and the managen1ent would be n1ore likely to give in to the
union's demands. They co uld also have an overtin1e ban.
61 •
UNIT 1 5
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •• • •

Examiner's marks 5 I 6 marks were awarded. 3 for the three types cif industrial action and
and comments 2 marks for the explanation of the first two types of industrial action. The
third type was not explained.

ii) Toys Galore plc recently introduced worker participation by

having worker directors. Why might this help to avoid conflict
between the workers and the n1anagement of Toys Galore plc?
[5 n1arks]
Marks 2 marks for stating the beniftts of w�rker participation; 2 marks for
explaining why it might help to avoid conflict; 1 mark for applying it to
Toys Galore pic.
Student's answer Toys Galore plc produces a lot of products and also exports then1 .
Many decisions will have t o be made which will affect the
workers . The worker directors will help to increase the flow of
information to the other directors concerning the workers ' feelings
about any changes that are proposed. If these yiews are taken into
account then there is less chance of a decision being n1ade that the
workers will not be happy with .
Try to mark this yourself- the examit-zer's marks and comments are on
page 1 05.

Com mon m i scon ceptions and errors

Error
'Trade un ions represent a l l workers.'
'Trade un ions always cause trouble
and ca l l the workers out on strike.'
'A strike is when all the employees
stop work and don't come back to
work unti l the d ispute is settled.'
'Worker participation is when
employees get to tel l the
management wha� to do.'
W h y it is wrong
Trade unions o n ly represent the
workers who have joi ned the trade
u n ion and not a l l the other workers.
Trade un ions do ta l k to
management in some cases and try
to find ways to i ncrease productivity
so that there wi l l be a n
improvement i n the working
cond itions for their mem bers.
O n ly trade union members wi l l go
out on stri ke, not the other workers.
Also, strikes can be for a short
period of time, such as h a lf a day,
just to make a point. They do not
necessarily go on for very long as
workers do not get paid for the
time they are on strike. They only
g et some pay from the u n ion if it
has sufficient funds to pay them
some money.
Worker participation is when
workers contribute to the
decision-ma king process i n some
way. They do not take it over.

• 62
 Employee a n d employer associations
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

e Try th i s a ) Match the type o f trade u n ion with the exa m ple. [ 4 marks]

Types of trade u n ion Examples

Craft union i) The members are a l l secretaries

Industrial u n ion i i) The members a re a l l different types
of workers in the m i n i ng i ndustry
Genera l union
i i i) The mem bers are unskil led and semi­
White-col lar u nion skil led workers i n severa l d ifferent
industries
i i i) The members a re u nskil led and semi­
skil led workers i n severa l d ifferent
industries
iv) The members are a l l skil led workers

b) Expl a i n why businesses join employer associations. [6 marks]

Examiner's tip
./ Explain three benefits to businesses of joining an employer associa tion.

c) The workers at P and D ltd a re unhappy because the management

wants to change the hours they work. The management wants the
workers to work fou r days at 1 0 hours per day i nstead of five days at 8
hours per day. Th is is so that the workers can be asked to work overti me
on the fifth day. Sales of the business's products have been i ncreasing
rapidly and more output is n eeded.
i) The union wants the workers to take ind ustrial action. Should they
go on stri ke or i ntroduce an overtime ban? Exp l a i n your a nswer.
[6 marks]

Examiner's tip
./ Explain the advantages and disa dva n tages of strike action and an
o vertime ban and then decide which would be more effective for the
workers at P and D Ltd a n d why.

ii) The management of P and D ltd has been thi n ki n g of i ntroduci ng

worker participation. Suggest three d ifferent ways they cou ld use to
do this. [6 ma rks]

Examiner's tip
./ Explain three ways of ha ving worker pa rticipation, for example, worker
directors, works councils, qua lity circles, or more democratic styles o f
lea dership.

63 •
 N IT 1 6 T h e m a r ket a n d
m a r ket i n g
Key o bjectives • To understand why marketing is important to a business
e To know the difference between a product-orientated business .
and a market-orientated b usiness
e To understand what is meant by market segn1entation
e ! o understand why and how a business segtnents its tnarket
e To know what are the main elemen ts of the n1arketing n1ix

Key definitions Marketing helps a busi ness to

Marketing
The management process which
identifies customer wants,
a nticipates their future wants
and then goes a bout satisfying
them profitably
i ncrease: its sa les revenue;
profits; market share {or at
least m a i ntain it) .
It also may want to: i mprove
the image of the prod uct; enter
a new ma rket or market
segment; develop new
products; i mprove existing
products

By income group/soci a l group By age {chi ldren, teenagers,

(A, B, C1 C2, D, E)
I young adults, middle aged, old)

Market segmentation
By gender The market is d ivided u p i nto ,_. By reg ion {dry/wet parts of
....,_.__
(mal e/fema le) groups of consumers who the country)
have si m i lar needs

By use of the product By l ifestyl e {si ngle/

(domestic or busi ness use) married/with chi ldren/etc.)

Term Definition Example

A market Where buyers and sel l ers come
together to exchange prod ucts
for money.
Product-orientated business One whose ma i n focus of activity is
on the product itself.
Market-orientated business One which carries out market
resea rch to find out consumer wants
before a product is developed
and produced.
Marketing budget A financial plan for the marketing
of a product or prod uct range for
some specified period of time.
It specifies how m uch money is
available to market the product or
range, so the marketing department
knows how much it can spend.
Marketing mix Descri bes all the activities which
go i nto marketing a prod uct.
They are often summarised as the
4 P's: Product, Price, Promotion
and Place.
Fruit and vegetable ma rket
A business which i nvented a new
kitchen tool
A business which makes chocolate
bars finding out what type of
chocolate ba r a ppea ls to consumers
$ 5 00, 000 to ma rket a new chocolate
ba r. The ma rketi ng department wi l l
then decide which marketing
activities it wi l l use to rea l ise its
target sa l es over a specified time
period .
Product - new chocolate bar for
sma l l chi ldren
Price - $0.30
Promotion - advertised on TV
during chi ldren's programmes
Place - sold i n supermarkets

• 64
 The market and marketing
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Sample questions and answers

Sample question C & C plc produces washing powder. It has been in business for
many years. It started by selling just one type of washing powder,
but now it sells many different brands all ai1ned at different groups
of customers (low-income, families with babies, sensitive skin,
sports-playing families, people who care for the environment, etc.) .
When C & C plc was going to introduce a new brand of washing
powder it would carry out market research first to find out what
consumers wanted from their washing powder. The business would
then design a new product to meet these needs . C & C plc has
been very successful and seen its sales grow continuously each year.

a) Does C & C plc segment its market? Explain your answer.

(2 marks]
Marks 1 mark if correctly identifies what is meant by segmenting the market; 1
mark for explaining that C & C plc segments its market.
Student's answer Yes - C & C plc sells p roducts to different custon1ers.
Examiner's marks The answer is vague. They could have gained the second mark by making
and comments it clear that the products are different and targeted towards different
customers. 1 mark.

b) Why does C & C plc do this instead of selling a single product

to the whole market? [ 4 n1arks]
Marks Explaining why segmentation may be a way of meeting wsto m er n ee ds awl
increasing sales, 1-2 marks; 1-2 marks for applying this to C & C plc.
Student's answer Some businesses aim their products at j ust one group of custon1ers
and not the whole market because this means that the product will
satisfy their individual needs. Each brand of C & C washing powder
can be bought by a different type of consun1er, for example,
different income groups or families with babies. Each product is
made to appeal to just one of these groups. If each product was
aimed at all the groups then it probably wouldn't n1eet the needs of
any particular customer and wouldn't sell so well. Segn1enting the
market increases sales of the product and, therefore, n1ay result in
greater profits.

Examiner's marks A clear understanding of market segmentation, wlu'clt is applied to C & C

and comments plc. Full marks.

c) Do you think C & C plc is a p roduct-orientated business or a

market-orientated business? Explain your answer. (2 nurks]
Marks 1 mark for saying it is a market-orientated business plus 1 mark for
explaining why.
Student's answer C & C pic is a market-orientated business as n1arket research is
carried out to find out what the cust01ner wants an d then it nukes
the new product according to what the c usto1ner wants . If the
business was product orientated then it would develop a new
product and then try to sell it to consun1ers.
65 •
UNIT 1 6
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Examiner's marks Tlze cattdidate explains that it is a market-orientated busit1css, but docs fWt
and comments need to add the second sentence. 2 marks.

Com mon m isconceptions and errors

Error
'A market is in a single place.'
'Marketing is just a bout
advertising the product.'
Developing a ma rketing mix that
does not l ink together.
Why it is wrong
·
A market does not have to be a
place. For example, it could be
goods sold over the i nternet.
Marketing is m uch more than just
advertising or promoting a product
or service. It incl udes consideration
of the channel of distribution, the
prod uct itself, prici ng and
packaging.
A marketing m ix m ust be clearly
l inked together. For example an
expensive h igh-priced product
shoul d have packaging that gives
the i mpression of a high quality
product and it shou ld be sold in
shops which are used by h ig h­
income g roups. Promotion needs to
emphasise the h i g h quality of the
product and ensure that it i·s
advertised i n places seen by h i gh­
i ncome g roups.

e Try t h i s Ncube G iftware Ltd manufactures wooden g ift items which i t exports to
European markets. The d i rectors want to expand production. Bafa na, the
marketing d i rector, says 'The marketing department wi l l play a very
i m portant role in helping the b usi ness to expand.'

a) Explain three possible objectives of the ma rketing department at

Ncube G iftware Ltd . [ 6 marks]

b) What are the fou r elements of the ma rketing m ix? [4 ma rks]

c) Do you think it is i mporta nt for the fou r elements of the ma rketing m ix

to l i n k together? Expl a i n you r a nswer. [8 ma rks]

Exa m i ner's tip

./ Try t o explain why i t might be important t o link the elements together
and what might happen if the business does not.

• 66
 N IT 1 7 M a r ket resea rc h
. Key objectives • To understand why market research is needed
e To understand the difference between prin1ary and secondary
research
e To describe how to carry out market research taking into
account sample size, type of sampling method, location and
timing of the research
e To evaluate whether the information gathered is accurate

Key definitions

Postal

\
Face to face

t
< Street
Door to door

< Telephone
Fina nce dept
'
f
Sales data

l ntern
• Customer service
sou rces ,...d..-- epartment

I nterviews Questionnaires
I nternet

Primary research
t Secondary resea rch
Desk research - second-hand
i nformation
Field research - fi rst-hand
Previously published data gathered
i nformation
origina l ly for another purpose
Original data gathered for a
specific purpose by the busi ness

Government
Consumer panel Observation Experiments / reports/
External sources statistics

Market resea rch reports

/ l "' Newspapers
Tratle journals

Term Defin ition Examples

Market research A business finds out consumer
wants before a product is developed
and produced.
Quantitative data I nformation a bout the quantity
of someth ing.
Qualitative data I nformation about opinions or
judgements.
Random sample Every member of the population
has a n even chance of bei ng
selected (for example, for a
questionnaire or i nterview).
Quota sample People are selected on the basis of
certa i n characteristics, for exa m ple,
age, gender, i ncome.
Pri mary resea rch and secondary
research.
How m a ny customers buy cola.
Why customers l i ke cola.
People a re selected at random, for
exa m ple, every 1 OOOth person in the
telephone d irectory.
A certai n n u m ber of peop l e are
selected for i nterview or to a nswer a
questionna ire. For exa mple, half
should be m a l e and half should be
female.

67 •
UNIT 1 7
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Sample questions and answers

Satnple question Khan pic produces chocolate bars and only sells then1 in its hotne
country. It produces many different brands of chocolate bar which
have been selling well for several years. However, one of its
brands, called 'Bigga Bars ' , has seen its sales fall over the last year.
Karl, the marketing manager, says 'We must do something to
increase total sales revenue from all our products . We n1ust carry
out primary and secondary research . '

a) Why n1ight Khan Pic want to carry out n1arket research?

[ 4 tnarks]
Marks 1-2 marks for listing one or two reasons why market research might be
carried out, for example, to find out why sales have fallen; 1-2 additional
marks for explaining these reasons.
Student's answer Khan pic might carry out market research to see why its product
was not what customers wanted. It wants to find out why its
product did not meet customer needs, for exa1nple , whether the
price is too high, or whether any new products have been
launched onto the market. When it knows what is wrong with
Bigga Bars, it can decide how to make them more appealing to
customers or maybe withdraw the product and launch a new one if
it is in the decline stage of the product life cycle .
Examiner's marks This was a good answer with reasons given for carrying out research. These
and comments reasons were also explained well. 4 marks.

b) What is the difference between primary and secondary research?

[4 marks]
Marks 1-2 marks for stating what is meant by primary research or secondary
research; 1-2 additional marks for explaining both primary and secondary
research and indicating how they are different.
Student' s answer Primary research is first-hand information, whereas secondary
research is second-hand information.

Try to mark this answer yourself- the examiner's marks and comments
are on page 1 06.

c) Describe how Khan pic should carry out prin1ary rnarket

research before deciding whether to sell a new chocolate bar in
a new overseas market. [ 6 n1arks]
Marks Up to 6 marks for describing the process of carrying out a method of
primary research. for example, (The business could design a questionnaire
(1J. This would need to be tested to see whether the q11estions are gathering
tlze correct i1iformation the business requires [2}. Care should be taken to
ask questions appropriate to the overseas market [3}. The questionnaire
should then be carried out after deciding whether it wants a random sample
or quota sample [4}. It also needs to decide the sample size to ensure the

• 68
 Market resea rch
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

accuracy of the questionnaire [5}. The time, day a11d place to carry out the
questionnaire will be chosen and finally the results will be collated and
analysed [6}. '
Student's answer Pri1nary research is about finding out first-hand infomution. The
company could carry out a questionnaire door to door. .Before
the product is sold overseas, the company needs to find out about the
market and the potential customers. It can then advertise in places
where the product will sell and this will mean a lot of sales and
increased profits.

Examiner's marks The candidate has misread the question and said that the company could
and comments carry out a questionnaire door to door. The other points are correct, but do
not answer the question and therefore this would only gain 1 1nark. The
rest of the points do not describe how to carry out research .

Com mon m i sconceptions and e rrors

Error Why it is wrong

'Pri mary research is i nformation Secondary resea rch is i nformation

a l ready ava ilable.'
'Information gathered by primary
research is always accurate.'
Descri bing the advantages and
d isadvantages of primary research
when asked to describe how it
is carried out.
that is a l ready available and
gathered for another purpose
whereas pri mary resea rch is ori g i na l
research carried out for a specific
purpose.
Poor questions, bad sampling
techniques and carrying out the
research i n the wrong place lead to
i naccu rate resu lts.
Need to describe the process of how
primary research is carried out
rather than d iscussing this as a
method of research .

• Try th is a ) G ive two advantages t o a business o f using pri mary m arket research.
[4 marks]

b) What sources of secondary data are ava i lable for a busi ness to use if it
wanted to sel l a new product in a n ew overseas market? [3 marks]

c) If primary market research is carried out, explain what the business ca n

do to i mprove the chances of getting accu rate i nformation . [4 marks]

69 •
 N IT 1 8 P rese n ta t i o n of
i n for m a t i o n
Key objectives • To know how to draw graphs and charts frotn business data
e To know how to interpret graphs and charts

Sample questions and answers

Sample question XYZ Ltd carried out a questionnaire and here is one of th e
answers to a question:
What age group are you in? Number of people
0-20 10
2 1 -35 20
36-50 40
5 1-65 20
66 + 10

a) Using this information, draw a graph or chart to show the ages

of the people who answered the questionnaire . [5 marks]
Marks 1 mark for title; 1 mark for each labelled axis; 2 marks for accurately
plotted graph /chart.
Student's answer
45
40
35
30
25
20
15
10
5
o �������
0-20 2 1 -3 5 36-50 5 1 -65 66+

Examiner's marks The candidate scored 2 marks for a correctly plotted bar chart. 17ze axes
and comments were not labelled and there was no title. Total = 2 I 5 marks.
b) The graph shows the average wage levels of etnployees in the
company in 2003 and 2004 .
Average annual wages XYZ Ltd 2003 a n d 2004
16
14
12
0 10
g 8
�
6
4
2
0
2003 2004
D Male • Female
• 70
 Presen ta tion of informa tion
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

i) Identify the n1ain changes that occurred between 2003

and 2004. [3 n1arks]

Marks Identifying that the wages of both men and women increased = 1 mark.
Giving the changes in figures = 2 marks.

ii) If the company employed 30 men in 2003 and 35 tnen in

2004 calculate the % change in the total male wage costs
between 2003 and 2004 . [4 marks]
Marks Total wagesfor both years calculated = 2 marks. Percentage increase
correctly calculated = 2 marks. Up to 3 marks can be awarded for correct
method even if there is an error in the calculation.
Student's answer i) Both male and female wages went up. The average n1ale wage
increased by $3 ,000, while the average female wage went up by
$2,000.

ii) $ 1 2,000 X 30 = $360,000

$ 1 5 ,000 X 35 = $525 ,000
Increase 525,000 - 3 60,000 = 1 65 ,000
1 65 ,000/360,000 = 4 5 . 83%

Examiner's marks The candidate has completed all the answers correctly. Three points were
and comments identified - both male and female wages had increased and the increases
were given. The second part was correctly calculated. Full marks.

Com mon m isconceptions a n d e rrors

Error
M iss i n g off a title to a g ra p h .
Not l a be l l i n g axes.

e Try t h i s a) Using t h e i nformati o n i n t h e table bel ow, "d raw a g ra p h showing the
sa les of the fo u r main brands prod uced by this com pa ny. [5 ma rks]

D & D pic - Sales revenue ( $ m il l ions)

Brands 2002 2003 2004
Chocol ate fig bars 3 5 8

Ca ndy bars 3 4 7

Sugar pops 4 6
Choco melts 4 5 8

b) The g ra p hs below show information a bout M ig ue l 's garden business.

Sales Product A Sa l es Prod uct B

Ti m e Ti me

i) Describe w h a t the two g ra p hs show. [4 ma rks]

i i) Suggest one reason for the differences between the two g ra phs.
(See also U n it 1 9) [3 marks]

71 •
 N IT 1 9 T h e m a r ket i n g m 1 x :
p rod u ct a n d packa g i n g
Key objectives • To explain why businesses brand products
e To know what factors a business takes into account when
branding a product
e To know why packaging is important
e To understand the role that packaging plays in the 1narketing 1nix
e To understand how to draw and label a product life cycle
e To understand what happens to prices, profits, sales and pron1otion
as a product passes through the different stages of the life cycle
e To explain how the life cycle can be extended

Key definitions
Packag ing is the physica l
conta iner or wra ppi n g
f o r a prod u ct
Protects the prod uct/can S u ita b l e f o r the prod uct t o
tra nsport the prod uct f i t i n/ca n eas i l y d ispense t h e
prod uct

To i m p rove sel l i ng Promotion of the bra n d

appeal image

Displays i nformation
a bout the prod uct

Term Description Examples

Brand name The u n iq u e name of a prod uct Coca-Co la
which d isti n g u ishes it from other N i ke
bra nds. It g i ves the bra nd an M a rs
identity of its own . N issa n
Brand loyalty When customers kee p buying a Customer kee ps buying Adidas
p a rticu l a r bra n d instead of a shoes i nstead of N i ke.
competitor's bra n d .

Brand i mage T h e i m a g e or identity g ive n t o a Coca-Col a is drunk by people who

p rod uct w h ic; h m� kes it d ifferent are tre ndy and have fu n .
to its com petitors' bra nds.
Product l ife cycle The stages a prod uct wi l l pass T h e stages a re:
through from its i ntrod uct i o n, deve lopment
thro u g h its g rowth u ntil it is i ntrod uction
mature and then fina l ly d ec l i nes. g rowth
maturity
saturation
decl i ne.
Extension strategy A way of exte n d i ng the prod uct I ntroduce a new i m p roved version
life cycle when it has reached (Piaystation 2).
matu rity or sat u ration sta g e . Use a new advertisi n g ca m p a i g n .
Se l l i nto n e w ma rkets.
S e l l thro u g h d iffe rent o utlets.
I ntroduce new va riations of the
orig i n a l prod u ct/service.

• 72
 The marketing m ix: p ro duct and pa ckaging
• • • • •• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Sample q uestions and answers

Sample question Mr Patel owns and runs a sn1all private lin1ited cornpany called
Patel Enterprises Ltd which 1nanufactures sportswear. The n1ain
products are polp shirts, shorts and skirts for younger children who
play tennis. The products all have the san1e brand nan1e, 'Tennis
Tiger' . These are high quality clothes which are sold for a high
price. The retail outlets which sell these products are specialist
sportswear shops, but Patel Enterprises Ltd also sells its products on
the internet. The range was launched two years ago and growth in
sales has been rapid. However, over the last six n1onths sales have
continued to increase, but the increase has been slower than in the
previous two years.

a) Why does Patel Enterprises Ltd brand its products? [6 marks]

Marks 1-2 marks for displaying a knowledge of branding; 1-2 marks for
applying this to the context of Patel Enterprises Ltd; 1-2 marks for
explaining the advantage of branding.
Student's answer A business brands its products to create a uniqu e identity so that
customers will be able to recognise it and buy the products again.
'Tennis Tiger' is the brand name for Patel Enterprises Ltd products .
Customers will recognise the brand name and know that these
products will be of good quality and it will n1ake them more likely
to keep buying the products. Also , if there is a brand logo on the
garments then customers will want to buy nutching polo shirts and
shorts and so the business will increase its sales.
Examiner's marks This is a good answer with more discussion than necessary to gain full
and comments marks. Knowledge of branding is clearly given along with a good
application to this case. More than one advantage of branding is also
included. Total = 6 I 6 marks.

b) What brand image would you suggest for 'Tennis Tiger'?

Explain your answer. [4 marks]
Marks 1-2 marks for suggesting a suitable brand image; 1-2 marks for justifyin}<,
the image in terms of young children .
Student's answer The brand in1age should appeal to the target audience. It n e eds to
appeal to people who play tennis and so it should be sporty.

Examiner's marks This is a general answer. It does link to tennis and sport, but it does not
and comments make clear how it would appeal to young children. The stu dent could have
discussed the tiger image being cuddly and fim, which would appeal to
young children. Total = 214 marks.

c) What stage of the product life cycle do you think 'Tennis

Tiger' garments have reached? Justify your choice. [3 n1arks]
Marks 1 mark for identifying that it has reached the maturity stage of the fife
cycle; up to 2 marks for justifying why this is the case.

73 •
UNIT 1 9
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer It has reached the maturity stage because sales are still increasing at
a rapid rate.
Examiner's marks 1mark for correctly identifying the stage, but no further marks as the
and comments student has not made it clear that sales are increasing at a reduri11J? rate of
increase. Total = 1 13 marks.

d) The increase in the sales of 'Tennis Tiger' products has slowed

in the last six months. What do you think the cornpany should
do if sales do not increase any rnore? Explain your answer.
[8 111arks]
Marks 1 -2marks for examples of suitable a ct io 11 the lmsi11css ro u ld take; 1-4
marks for showing advantages of these actions explained in terms of the
business; 2 marks for justification as to what the lmsiHess should do .
Student's answer Patel Enterprises Ltd should increase their advertising of 'Tennis
Tiger' clothes to make more consumers aware of the products. They
could also run special offers where custon1ers could get a discount on
a second garment after they had bought one. These initiatives should
encourage sales and see an increase. They could also reduce their
prices to encourage more sales, but this may mean using cheaper
materials if they are to keep the san1e profits. A lower price could
make consumers think that the garments are not of such a high
quality and therefore sales might fall instead of rise . They could also
try to sell the clothes in different retail outlets, for exatnple,
supermarkets. However, this may not create the right brand itnage
for the clothes. They could also try to sell then1 abroad.
Try to mark this yourself- the examiner's marks and commen ts are on
page 1 0 6.

Com mon m i sconceptions and errors , · ·

Error W h y it i s wrong

' Packag i n g is j u st a conta i n e r for Packa g i n g is more than j u st a

the product . ' conta i n e r for the p roduct. It can be
used to re i nforce the bra n d i n g of
the product and p romote it. The
pack a g i n g often ma kes the product
easi ly recogn isable on the shelves
and attracts attenti o n .

' I n the matu rity phase of the product
l ife cycle sa les fa l l . '
'After t h e satu ration phase o f the
prod uct l ife cycle, a product's sa l es
wi l l a l ways fa l l . '
I n the matu rity phase o f the prod uct
life cycle sales sti l l i ncrease, but o n ly
slowly.
After the satu ration p hase of the
p rod uct l ife cycle, sa l es wi l l fa l l if it
moves i nto the decl i n e p hase.
However, if the busi ness successfully
uses extension strateg ies then the
l ife of the product wi l l be extended
a n d sa l es may i n crease .

• 74
 The marketing mix: product and packaging
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

e Try th i s Peacock pic manufact u res and sel ls soft d r i n ks. The m a i n brand i t sells is
bo u g ht by sports p layers. The outer packa g i n g of the d ri n k is p l a i n bl ack
and some customers have com p l a i ned that it is d iffi cu lt to d r i n k from the
conta i ner. The ma rketi ng manag er, Sheena, th i n ks that some changes need
to be made to the packa g i n g to i m prove sa les of the dri n k .

a ) What fu nctions does packa g i n g perform for t h e sports d ri n k prod uced

by Peacock p ic? [5 ma rks]

Examiner's tip
./ Make sure you apply your answer to the sports drink in the case.

b) What factors sho u l d Sheena take i nto account when chang ing the
packa g i n g for this sports d ri n k ? [6 marks]

Examiner's tip
./ Do not describe the changes she should make.

c) Draw and label the stages of a typica l product l ife cyc l e on a g ra p h .

[ 4 ma rks]

Examiner's tip
./ Do not forget to label the axes.

d) Prici ng is a very i m portant e l e ment i n the m a rketi ng m ix of a busi ness.

How and why m i g ht a business change its pr i ces d u ri n g the stages of a
typica l l ife cycle? (See a l so U n it 20) . [6 ma rks]

Examiner's tip
./ Describe the change and then say what should happen as a result of
the change.

e) Why do some prod ucts have m u ch l o n g e r l ife cycles than others? G ive
exa m p l es to i l l ustrate you r answer. [4 ma rks]

75 •
 N IT 2 0 T h e m a r ket i n g m 1 x :
p r 1 ce
Key objectives • To explain what affects demand and supply
e To understand what is meant by elastic and inelastic demand
for a product
e To explain what happens to den1.and for a product if the price
increases or decreases when demand is elastic or inelastic
e To understand the different pricing strategies and explain when
they would be suitable to use

Key definitions

s Supply is determ i ned by the decisions of

Price prod u cers: affected by price, the cost of
prod ucing the goods, taxes/subsidies,
Ma rket i m p roveme nts in tech n ology, c l i mate
.
p n ce ___. -----------------
:
I

Demand is determ i ned by the decisions of

s D consumers: affected by price, price of
su bstitute prod ucts, taste and fas h ion,
advertising, consu mers' i ncome, price of
Quantity com p l ementary products

Pricing strategy Defi n ition Price charged

Cost-plus pricing The cost of man ufactu ring the
product p l us a profit ma rk-up
Penetration prici ng When the price is set l ower than the
competitors' prices i n o rder to be
a b l e to enter a new ma rket.
Price skimming A h i g h price is set for a new prod u ct
on the ma rket.
Competitive prici ng The prod u ct is priced in l i ne with
or just below com petitors' prices to
try to capt u re m ore of the ma rket.
Cost = $ 1 00 + 50% profit
Price = $ 1 50
Competitors' prices = $ 1 0
This price = $ 9 . 50
N ew prod uct price = $ 50
No near su bstitute on the ma rket
Com petitors' prices = $20-$ 23
This product price = $22

Promotional pricing When a prod u ct is sold at a very l ow Com petitors' prices = $ 1 0

Psychological pricing
Price e lastic demand
price for a s h ort period of time. Th is prod u ct = $ 7 for a l i m ited
period of time
When partic u l a r attention is pa i d to Price = $ 9 . 99
the effect that the price of a prod uct
w i l l have u pon the customers'
perceptions of the prod uct.
Demand changes by a greater
proport i o n than price change.

Price i nelastic demand Demand changes by a sma l l er

proport i o n than price change .

• 76
 The marketing mix: price
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Sample questions and answers

Sample question Luxury Leisure plc owns and runs several leisure centres in the
capital city of country X. The centres are expensive to join, but are
at a similar pric� to other luxury centres in the city. They want to
encourage more people to become members , so have advertised a
special low rate to join the leisure centre for a limited tin1e in
order to encourage additional members . Last year Luxury Leisure
plc put its p rices up from $40 p er month to $50 per month, but
found that membership fell by 1 5%.

a) Identify two pricing strategies that are being used by Luxury

Leisure plc . [2 1narks]
Marks 1 mark for each correct answer - competitive pricing and promotional pricing.
Student's answer Competitive pricing and penetration pricing.
Examiner's marks The first answer is correct, but the second one is not correct as the setvice is not
and comments new and not trying to get into a new market. Total = 1 rnark.

b) Explain one other pricing strategy Luxury Leisure plc could use
and why it might use it. [3 n1arks]
Marks 1 mark for a suitable strategy; up to 2 marks for explaining why it nll��lzt
be suitable for this business to use.
Student's answer It could use cost-plus p ricing as this would ensure that all the costs
were covered.
Examiner's marks 1 mark for a suitable method and 1 mark for the explanation. Total =
and comments 2 I3 marks as the student did not go on to explain the answer in detail.

c) Using the information in the case study above, should Luxury

Leisure plc have put its prices up fron1 $40 to $50 per n1onth?
Explain your answer. [ 6 marks]
Marks 2 marks for identifying that demand is inelastic; 2 marks for explaining the
dfects of the change; 2 marks for making a jru�szcmc11t.
Student's answer The price was increased by $ 1 0 , a 25% increase. This 111eans that
den1and is inelastic. The business should have put its prices up, as
this wo uld 111ean that the company would increase its sales revenue
and possibly its profits.
Try to mark this yourself- the examiner's marks and comments are on
page 1 07.

77 •
UNIT 20
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Com mon m isconceptions and errors

Error
'Sugar is an i n e l astic product . '
'Pri ce s k i m m i n g is where the prod uct
is priced be low the prices of
com petitors.'
'Putt i n g prices down wi l l a l ways
g a i n i n creased sa l es.'
Why it is wrong
As sugar is a basic necessity, demand
for sugar cou l d be sa id to be
inel astic. The prod uct itself is not
inelastic.
Price s k i m m i ng is where a new
prod uct enters a ma rket at a h i g h
price. It is usua l ly a new invention, o r
.
a new development of an old product,
and therefore it can be sold on the
market at a high price and people wi l l
pay this because of the novelty factor.
Red u c i ng prices wi l l someti mes
cause s a l es to fa l l if the prod uct has
a n image of being h i g h q u a l ity.
Customers may th i n k that the
q u a l ity is lower as the price is now
lower and not buy it.

e Try th i s Acmo O i l p i c is a m u lti-nati o n a l o i l compa ny. I t extracts o i l , refi nes i t a n d

a lso owns the petrol stations where its petrol is so l d . M a ny o f the petro l
stations a lso have shops that sel l food, d ri n ks, maps a n d g ift items. The gift
items a re a l so sold in many other loca l shops.

a) Wou l d this business's revenue be l i kely to i n crease if it were to cut petrol

prices? Exp l a i n you r answe r g iving reasons. [4 ma rks]

Examiner's tip
./ Think about whether demand is elastic or inelastic. Would customers be
sensitive to price reductions or not, and would they buy a lo t more or
would there be just a small percentage increase in sales ?

b) Often Acmo's shops red uce their prices of giftwa re at certa i n ti mes of
the yea r. Why do you t h i n k they do this? [4 ma rks]

c) D iscuss the factors that affect which pricing strategy for g iftwa re this
business u ses? [8 ma rks]

Examiner's tip
./ Think about the fa ctors that influence whether the b usiness sho uld use
competitive pricing, price skimming, e tc. Examples of fa ctors might
include: nearby competitors; a t wha t stage o f the product life cycle the
products a re; costs o f production; whether product is high qua lity.

• 78
 N IT 2 1 T h e m a r ket i n g m 1 x :
p ro m ot i o n
Key objectives • To understand that there are four types of pronlotion and to
understand when they are used
e To understand the factors that affect the types of advertising
to use
e To know what is meant by the target audience
e To explain when to use the different types of prmnotion
e To explain when to use personal selling
e To explain the role of PR (public relations) in business
e To know the importance of customer service
Key definitions
Advertisements
I nc l u d i n g television, rad i o,
newspapers a n d magazines,
posters/bi I I boa rds,
cine mas, leaflets/d i rect m a i l ,
i nternet
Personal sel l i ng
Goods so ld stra i g ht to the
customer, for exa m p le, whe re
customers may need advice or
where the exact natu re of the
prod uct can va ry
Term Defi n ition
Persuasive advertising Advertising or promotion which is
trying to persuade the consu mer
that they rea l ly need the product
and should b uy it.
I nformative advertising The emphasis of advertising or sa les
promotion is to g ive fu l l i nformation
about the product.
Target audience The people who a re the potenti a l
consumers o f t h e product or service.
Customer service Conce rned with keeping
customers ha ppy by m a k i n g them
fee l i m po rta nt a n d b u i l d i n g a good
re l ationsh i p between the busi ness
and its customers.
Promotional offers
Price reductions, gifts, poi nt-
of-sale d isplay and ·
demonstration, after-sales
service, free samples,
competitions, money-off cou pons
Public relations
Th is is concerned with
pro moti n g a good image for
the business. Often ta kes the
form of sponsori ng a n event
Exa m p l es
' B uy XYZ - it's the best ! '
'XYZ is a new product a n d i t w i l l
carry out t h e fu nctions five ti mes
faster than the old prod uct.'
C h i l d ren a re the ta rget a u d i e nce for
toys.
G iving advice a bout the p rod uct;
d e l iveri ng goods for consumers;
provi d i n g cred it faci l ities; provi d i n g
prod uct i nformation; afte r-sa les
service.
79 •
UNIT 2 1
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Sample questions and answers

Sample question Party Extraordinaire is a partnership business that was forn1ed five
years ago . I t organises parties for young children for birthdays and
other special celebrations. The business has been very successful
and wants to expand. It currently advertises in local newspapers
and puts up p osters in local toy shops and children's clothes shops.
Customers often use the business again and it also gets bookings
from customers telling their friends about the business. It wants to
expand into organising parties for adults.

a) Why does Party Extraordinaire advertise in this way? [2 n1arks]

Marks 2 marks for an · explanation.
Student's answer P arty Extraordinaire advertises in local newspapers because local
people will use its service and see the adverts. It also puts up
posters in toy shops and children's clothes shops, so again people
with children are likely to go to these places, see the business's
adverts and might therefore use its services.
Examiner's marks A good answer. The student correctly identifies where the busi11ess
and comments advertises and why it should be effective, as the target audience will see the
advertisements. Full marks.

b) Party Extraordinaire decides to expand into organising parties

for adults . Suggest three suitable ways it could pron1ote the new
service. Justify your choice. [9 n1arks]
Marks 1 mark for each suitable way of promoting the business (3 maximum); up
to 2 marks for justifyit1g why each way would be effective i11 the context of
this business (6 maximum) .
Student's answer Party Extraordinaire could offer a pron1otion whereby, if th �
customer books one p arty, then a second is given at a reduced
price. This would encourage customers to come back and book
more parties. The business could advertise in the local newspapers,
as local adults would see an advert there . Finally, custon1ers could
be entered in a competition if they booked a party.
Try to mark this yourself- the examiner's marks and comments are on
page 1 07.

c) Party Extraordinaire is designing a new poster to put in toy

shops. Discuss whether the poster should use mainly inforn1ative
or p ersuasive advertising. [ 4 1narks]
Marks 2 marks for discussing the advantages Idisadvantages of informative
advertising; 2 marks for explaining the advatztages Idisadvatztages of
persuasive advertisi11g; 2 tnarks for making a judgement as to which one
the business should usc.
Student's answer The poster could be p ersuasive, which would n1ean that the poster
would make the parties sound really good and 1nake custo1ners
want to book one. This type of advertising is effective when

• 80
 The marketing mix: promo tion
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

people need to be encouraged to book a party which they n1ight

otherwise not bother to do . Customers need to think that it is
good value for money. I think they should use persuasive
advertising, as it will encourage n1ore people to book parties .

Examiner's marks 2 marks for explaining the advantages of persuasive advertising and 1 mark
and comments for making a judgement. However, the student has not explained
informative advertising and so full marks cannot be awarded. 3 I 6 marks.

Common m i sconceptions and e rrors

Error Why it is wrong

'Promotion o n ly incl u des advertisi n g . ' Promotion incl u des advertising b ut

a l so other types of promotion such
as competiti ons.

'Te levision is a l ways a g o o d w a y t o Television i s expensive and,

a dvertise.' depend i n g on the time adverts a re
shown, they may not be seen by the
ta rget a u d ience.

' I ncreased advertising expendit u re
always i ncreases sales.'
'Perso n a l se l l i n g is where you have a
shop assista nt serving customers.'
J ust beca use more money is spent
o n advertising does not mean that it
wi l l be effective and persuade more
customers to buy the product. The
a dvertis i n g m ight be i n the wron g
places t o b e s e e n by t h e ta rget
a u d i ence or competitors cou l d be
spend i n g more on advertising as
we l l .
Se l l i n g i n a shop is not rea l ly what
person a l se l l i n g mea ns, this is j u st
servi ng customers a n d is not a form
of promotio n . Pe rso n a l se l l i n g is
where the busi ness promotes the
busi ness by visit i n g its customers
a n d d iscuss i n g their i n d ividual
n eeds. For exa m p l e, a representative
of a b u i l d i ng company visiti ng a
customer to discuss what they want.
It is usual ly used where a n i ndividual
p rod uct or service i s being sol d .

e Try th is M usic M a n i a is a shop which se l ls music CDs. It is l ocated i n a l a rg e shop p i n g

centre i n t h e city centre. T h e C D s it sel ls a r e b y bands and singers who appeal
to teenagers. It has been i n busi ness for five years and wa nts to expa nd.

a) Identify the ta rget a u d i ence for M usic M a n i a . [ 1 mark]

b) The ma nagement of M usic M a n i a. wa nts to expand. It needs to decide

whether to spend more on advertisi n g or to sel l a wider ra nge of music
CDs which appeal to d ifferent age grou ps. What factors sho u l d i nfl u ence
the decision? [6 ma rks]

Examiner's tip
./ Consider fa ctors like the cost, trends in sp ending habits, which option is
most likely to increase pro fits, and wh a t type o f customers use the
shopping cen tre.

81 •
UNIT 2 1
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· c) M usic Mania has decided to se l l classica l m usic incl u d i n g opera m usic.

Expl a i n the factors this busi ness should ta ke i nto accou nt when deci d i n g
w h i c h form o f promotion t o use. [8 ma rks]

Examiner's tip .
./ Think about the target a udience - hence where Music Mania should
a dvertise and cost of advertising, different forms of promo tion
a vailable, for example, compe titions, whether to use PR, etc.

d) M usic M a n i a wou l d not use person a l sel l i ng . G ive an exa m p l e of a

business that you th i n k wou ld use perso n a l sel l i n g . J u stify you r choice
of exa m p l e . [ 4 ma rks]

• 82
 N IT 2 2 T h e m a r ket i n g m 1 x :
p l a ce

Key objectives • To understand the different channels of distribution

e To understand the role of the wholesaler
e To select the most appropriate channel of distribution for a
given product
e To select the most appropriate method of transporting goods
for a given product

Key definitions A channel of distribution is the means by which a product is passed

from the place where it is produced to the customer or consumer.
There are four main channels used by business as follows:

Channel of distribution Explanation/examples

Prod.ucer � Co nsumer Di rect sel l i ng of products such as
com ponents to businesses, new
windows fo r a house, products sold
over the internet (known as e-commerce).
Prod ucer � Reta i ler Consumer Prod ucts a re so ld i n bulk to reta i l ers,
such as food products to su perma rkets,
or speci a l ist/expensive products, such as
j ewe l l ery.
Prod ucer � Wholesaler: Reta i l e r Co nsumer Th is i s w h e r e the whol esa ler breaks
B uys i n large b u l k, such as for some food prod ucts.
quantities from
man ufacturer and
sel ls in sma l l
quantities t o sma l l
reta ilers.
Prod ucer Agent: Wholesaler Reta i l er Consumer When prod ucts a re exported, the
Independent person man ufacturer sometimes uses an agent
or business who in the other cou ntry. The agent then
deals with the sales sells the prod uct(s) on behalf of the
and d istribution man ufacturer.
of a product(s).

Method of transportation is the type of transNrt tha t the

Inanufacturer uses to deliver the p roducts to the n1a rket. The m os t
con1n1on n1ethods are road haulage (l o rries ) , rail ways , c a n a l or
river, sea freight, air freight and pipelines . G e n era lly , the s lo w e r the
forn1 of transport the cheaper it will be.

Sample questions and answers

Sample questions 1) What are the advantages to a producer of using a channel of
distribution as shown below? [4 n1arks]

Producer --7 wholesaler --7 retailer --7 consun1er

Marks 1-2 marks for each advantage to the producer.

83 •
UNIT 22
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Student's answer p
The roducer can sell in bulk to the wholesaler and therefore does
not have to spend n1oney storing the products in the warehouse.
The cost of distribution will be lower, as the producer only has to
deliver to the wholesaler and not to many different retailers.
Examiner's marks Two good explanations of advantages to the producer -full marks .
and cotnments
2) C & D plc produces computer games designed to be played on
PCs. It is a large business based in Brazil, but sells its gan1es in n1any
different countries. It has just developed a new con1puter gan1e for
.
teenage children. This new game is to be sold in one of the
business's South East Asian markets to see how popular it is before
launching it in all the different countries the business sells to .

i) What channel of distribution would you suggest that th e

company uses for its new game? Justify your choice . [4 marks]
Marks 1 mark for an explanation of a suitable channel of distribution; 3 marks for
explanation of why this channel would be suitable.
Student's answer The manufacturer should sell it to a computer gan1e retailer and then
on to the customer. This would be a good channel of distribution to
use because the customer would need advice about the game and
the retailer could be a specialist computer type of shop . If the games
were sold to a wholesaler, the correct advice tnight not get to the
customer. Also, wholesalers would not buy these gatnes in bulk if
most of their retail customers were small shops which sold food and
would not be interested in stocking computer gan1es.
Examiner' s marks A good answer - a suitable channel was suggested (although it was possible
and comments to argue that other channels of distribution might be suitable) and then the
channel was justified in terms of selling to a retailer and not using a
wholesaler. Even though some of the points might not always be true in
some countries, the answer was a correct justification for sci/in._� stra(�ht to
retailers and not through wholesalers. Full marks.

ii) What factors should C & D plc consider when deciding the
marketing mix for its new computer game? [8 marks]
Marks 2 marks for listing up to two or more factors; 4 marks for explaining up to
f f
two or more actors; 2 marks or the answer being applied to the computer
games market.
Student's answer C & D plc will firstly have to consider who its target tn,a rket is for
the new game . As it is teenagers, the business will have to design a
game that will appeal to this group of consmners . The advertising
and promotions will have to be in places that will be seen by
teenagers and sold in shops teenagers visit. C & D plc needs to
consider how large its advertising budget for protnoting the new
gan1e will be. If it is not very large then the business will h ave to
think carefully about where it advertises as it will soon run out of
n1oney. TV advertising may not be possible if the budget is small.
What cmnpetitors do will also have to be taken into account. If
con1petitors sell their computer gan1es in certain shops then C & D
plc tnay also have to sell its new game in these san1e s hops as this

• 84
 The marketing mix: p la ce
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

will be where teenagers will go to buy gan1es and will see the new
game and buy it. C & D plc will also need to advertise in si1nilar
places to its competitors so that teenagers will see the adverts . The
pricing strategy may have to be con1petitive pricing if th ere are
already a lot of competitors selling sin1ilar gan1es, or penetration
pricing if the business needs to break into this n1arket.
Try to mark this yourself- the examiner's marks and comments are on
page 1 07.

Common m i sconceptions and errors

E rror Why it is wrong

'Place is where the prod uct is so l d . '
Place is m a k i n g the prod uct
ava i l a ble where a n d when the
customer wa nts to buy a n d is not
just the shop used to sel l the
product.

' Reta i lers break b u l k . '
A who lesa ler brea ks b u l k by buying
from the m a n ufact u rer i n l a rg e
q u a ntities a n d d ivid i n g u p the
product i nto sma l le r quantities to
se l l to sma l l reta i l ers.

'Sel l i ng thro u g h a wholesa ler ma kes
prod ucts more expensive than if
they a re sold d i rectly to a reta i ler.'
'Road tra nsport is a l ways the best
to use.'
A who lesa l e r can be chea per to buy
fro m beca use they buy i n such l a rge
q u a ntities fro m m a n u factu rers they
get d iscou nts a n d t h e i r d e l ivery a n d
a d m i n istration costs ca n be m uch
lower.
Road tra nsport can be more
expensive a n d sl ower than other
forms of tra nsport - it depends on
the prod uct be i n g del ivered.

e Try th is a ) Put t h e fo l lowing prod ucts i n t h e s u ita b l e channels o f d istri bution:

[4 ma rks]
• tins of fru it
• shoes (exported)
• wed d i n g ca kes
• new cars .
Product

i) Prod ucer -4 Consumer

i i) Prod ucer -4 -4 Reta i l e r Consumer

i i i) Prod ucer -4 Who l esa ler R eta i l e r Consumer
iv) Prod ucer Agent Whol esa l e r Reta i le r Consumer

b) D & E is a food process i n g busin ess. The d i recto rs a re t h i n k i n g a bout

ending sa les of their ready made meals to a reta i l cha i n of s u perma rkets

a n d se l l i n g them to an a i r l i n e for i n-fl ig h t meals. W h at a re t h e

advantages a n d disadva nta ges of d o i n g this? [ 1 0 ma rks]

85 •
UNIT 22
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Examiner's tip
./ Consider a dva n tages a n d disadvantages of not selling to a retail chain
of supermarkets and a dvantages and disadvantages of selling directly
to an a irline.

c) Monay Ltd was set up ten yea rs ago. It started making wooden ta bl es,
but slowly expanded a n d now makes seve ral d ifferent types of furn itu re.
Sales of its products have kept g rowi n g a n d profits have increased
ra pid ly. The d i rectors of Monay Ltd wa nt to expand i nto the
man ufacture of q u a l ity d i n i n g tables and c h a i rs, which it wants to sel l to
h ig h-i ncome consumers.

Suggest a marketing m ix that this business cou l d use if it i ntrod uces

q u a l ity d i n ing ta b l es and cha i rs. [ 1 2 marks]

Examiner's tip
./ Consider all fo ur P's and link them together to market a high qua lity
product.

d) Why m i g ht a d iffe rent marketing m ix be used fo r the same prod uct i n

d ifferent countri es? [8 marks]

Examiner's tip
./ Consider culture, clima te, religion, incomes, types of retail outlets used,
use of rv, radio, newspapers, etc.

• 86
 N IT 2 3 Fa cto rs affect i n g
p rod u ct i o n
Key objectives • To understand what is meant by value added
e To be able to identify what factors may increase productivity
e To understand the different methods of production and when
they would be used
e To understand the effects of new technology on both the
business and its employees
e To identify the different ways of ensuring quality of the
product or service

Key definitions
speci a l ly made prod uct meets exact req u i rements flexible way of work i n g production ca n easi ly
of customer be changed between
products

Batch production
A certa i n q u a ntity of a prod uct is
costs a re hig her jobs a re more
made and then a certa in q u a ntity
varied
of another prod uct is made

increased employee motivation higher ski l led workers needed some va riety i n jobs can be more expensive

warehouse space
needed which is costly
costs a re low and therefore lower prices
goods prod u ced q u ickly
Flow prod uction
Large quantities of a
capital-i ntensive methods of prod uction ....,__-t prod uct are prod uced in a ......
_ ...... j obs a re bori ng
continuous process (a lso
ca l l ed mass prod uction)
lower ski l l ed workers needed, so cheaper capital set u p costs a re h i g h

if one mach i n e breaks down, the whole prod uction line stops

Term Explanation Examples

Val ue added D ifference between the sel l i ng price Prod uct s e l l s for $1 0; cost of i n puts
and the cost of i n puts. $2 per u n it; va l u e added $8 =

Labour productivity Output measu red aga inst the labour Output (ove r a given period of ti me)
e i>-, oye es
--Nu m b r- o T e m
__ __ -
__ _ _
i n put used to prod uce it.

Stock control There should a lways be sufficient See f i g u re below.

stock to meet demand. Th is is
checked both i n the prod uction and
i n the shops.
Stock
levels
_ _ _
_ / Maxi m u m stock level
- - . - Reord e r level

- - - � M i n i m u m stock level
L-----

Ti me

Le�n prod uction Tech n i ques used by a business to cut Red uce the time taken for a prod uct
down on any waste and therefore to be devel oped; red uce a ny waste
increase efficiency. in the prod uction process.

87 •
UNIT 23
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Term Explanation Exam ples

Qual ity control I nspectors check the fin ished goods
to detect a ny fa u lty ones.
Qual ity assurance There is i n spection both d u ri n g a n d
after prod uction and tries t o sto p
a ny fa u lts from happe n i ng i n the
fi rst pl ace. Req u i res team wor k i n g
from t h e employees.
Sample one i n every 1 00 prod ucts
prod uced to m a ke s u re n o n e is
fa u lty.
All the prod uction worke rs check
their pa rt of the process and m a ke
s u re there are no fau lty compone nts
or fa u lty fin ished products.

Sa mple questio n s a n d a n swers

Sample question Sita Ltd produces clothes for babies. It has been in business for ten
years and has seen sales increase rapidly throughout this titne . It
employs 50 production workers who use sewing n1achines. T he
production manager wants to introduce new sewing tnachines that are
twice as fast as the old ones. It will allow the business to produce
higher quality baby clothes as well as gain from other benefits of new
technology. The average selling price of an iten1 of clothing is $ 1 0
with material costing $ 1 . However, with new machines i t will allow
the selling price to increase to $ 1 5 and material will only cost $2.

a) What will happen to the value added of the average product if

new technology is introduced? [3 marks]
Marks 2 marks for value added $ 1 0 - $ 1 = $9 and $ 1 5 - $2 = $ 1 3 .
3 marks in total for a correct answer: new technology $ 13 - $9 = $4.
Student's answer $ 1 0 - $1 = $9 and $ 1 5 - $2 = $ 1 3 . Value added increases by $3 .
Examiner' s marks Correct method, incorrect answer. 2 I3 marks .
and comments
b) Why n1ight the production manager want to introduce new
technology at Sita Ltd? [8 marks]
Marks Up to 3 marks for lists of why new technology is an advantage; up to 3
marks for explanation of advantages of new technology; 2 marks for
applying the answer to this business.

Student's answer New technology will Jllow SitJ Ltd to produce 1nore high quJlity
garments. As productivity will increase, it may be able to decrease
the number of employees and therefore production wages will be
reduced and even though the new technology will cost a lot of
money to buy, it may increase profits.
Examiner's marks The answer is in the context of Sita Ltd and so 2 application marks
and comments were gained; 1 mark for the first advantage and 3 marks for the second
advantage as it is explained. Total = 618 marks . Explanation of the first
or third point would have gained full marks - a good answer.

c) Sita Ltd uses batch production in the production of baby clothes.

i) What is tneant by batch production? [2 n1arks]
Marks 2 marks for a clear deji11ition; 1 mark for a vague answer.

• 88
 Factors a ffecting production
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer Batch production is where an an1ount of a particular product is

produced and then an amount of another product is produced.

Try to mark this yourself- the examiner's marks and cormnents are on
page 1 08. ,.

ii) Why does Sita Ltd use batch production and not flow
production? [6 marks]

Marks 2 marks for advantages of batch production or disadvantages offlow

production; 2 additional marks for explanation of these
advantages /disadvantages; 2 marks if applied to Sita Ltd.
Student's answer Sita Ltd uses batch production because it does not sell enough baby
clothes to produce a large quantity as there is not enough den1and.
Also these kinds of products come in many different styles and sizes
and not j ust one basic product so again the business will need to
produce so many of one size, so many of another size, etc . Flow
production would mean a very large quantity of a single garment
would be made and Sita Ltd wouldn't be able to sell thetn all.

Examiner' s marks A good answer, although there is some repetition at the end. Well applied
and comments to the case. Full marks.

Common m iscon ceptions a n d e rrors

Error
'Va l ue added is profit made.'
(Also i n U n it 1 )
' I ncreased prod uctivity means that
prod uction i ncreases.'
Why it is wrong
Va l u e added is not j ust profit, it is
the sel l i n g price m i n us the cost of
i n p uts.
Productivity usu a l ly refers to an
i ncrease in o utput per wo rker which
m ay mea n a n i n crease i n output
overa l l or it may not.

'Flow prod uction is where a lot of F l ow prod uction is where large

prod uction of one prod uct is q u a ntities a re prod uced i n a
produced a n d then q u ite a l ot of co nt i n u o us process. A large q u a ntity
prod uction of a nother prod uct is of a sta ndard ised product is
made.' prod uced.

'Qua l ity contro l is making sure a Q u a l ity contro l is where products

prod uct is of the h i g hest q u a l ity. '
' N ew tech no logy a l ways m e a n s jobs
a re lost.'
a re checked to make sure there a re
no fau lts with the prod ucts a nd they
meet the sta ndards expected for
that prod uct. It does not mean the
product is of h i g h q u a l ity j ust that
it d oes not have any d efects.
When new technology is i ntroduced
some j obs may be l ost as machi nes
m ay now do parti c u l a r jobs.
H owever, other jo bs may now be
created, for exa m p l e, co m p uter
prog ra m m e rs, operato rs of the new
eq u i pm ent, m a i ntenance jobs.

89 •
UNIT 23
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

e Try t h i s a ) Medic S u p p l ies p i c prod u ces equi pment for hospita ls. Some o f the
e q u i pment it sel ls is designed to a particu l a r hospita l's specification and
is b u i lt to their order, such as machi nes which sca n patie nts' who l e
bod ies. Other eq u i pment is produced conti n uously, s uch as ba ndages.
i) What two methods of prod uction does M ed i c S u p p l ies pic use?
[2 ma rks]
i i) Why is q ua l ity co ntro l or q u a l ity assura n ce so i m portant to Medic
S u p p l i es pic? [4 ma rks]

Examiner's tip
../ Explain what is meant by qua lity control or qua lity assurance - yo u do
not need to do both. Apply your answer to Medic Supplies pic.

i i i) Exp l a i n how M ed i c S u p p l i es p i c ca n use stock co ntro l to ma�e sure it

never runs out of raw materia ls when prod ucing bandages.
[6 ma rks]

Examiner's tip
../ Explain the process of stock con trol and how it ensures that raw
ma terials should always be a vailable so production can take place.

iv) The d i rectors at Medic S u p p l ies pic have been advised to i ntroduce
lean prod uction techniq u es. Describe what is meant by 'lean
prod uction' a n d how it m ig ht be used at Medic S u p p l i es pic.
[6 ma rks]

b) Te lesa l es Services Ltd was set up fo u r years ago. It processes ord ers for
severa l s m a l l businesses i n a city. It takes orders from customers and
then passes these back to the sma l l b us i n ess so that the ite m (s) can be
del ivered . It i ntrod u ced on-l i ne ordering one year ago and has fou n d
t h a t this side of the business has g rown very ra pidly. However, t h e
telephone ordering side of the b u s i n ess has fa l l en s l i g htly.
i) ' It is fou r times chea per to process a n order on- l i n e than over the
telephone, ' says M ig u e l, the M a n a g i n g Di rector. Why do you t h i n k
this is tru e? Exp l a i n yo u r a nswer. [6 ma rks]

Examiner's tip
../ Explain the cost savings of using computers to take orders instead of
people.

ii) Expl a i n why the e m pl oyees m ight be worried a bo ut the trend i n

increased on-l ine ordering a n d fewer telephone orders a t Te lesa l es
Services Ltd . [ 4 ma rks]

Examiner's tip
../ Explain the possible effects on the n umber and types of jobs at the
company.

• 90
 N IT 24 Fa cto rs affect i n g
l ocat i o n
Key objectives • To understand the factors that affect the location of a
manufacturing business
e To understand the factors that affect the location of a retailing
business
e To understand the factors that affect the relocation of a business
e To understand the factors that affect the location of a service
sector business

Key definitions Factors affecting the location of these different businesses :

market raw materials/components cli mate shoppers ·

ava i l a b i l ity of su ita b l e
e m pty shop
external transport
economies and
of sca le

water supply power shops nea rby rent

personal preference ava i l a b i l ity

of the owners of labour

government i nfl u ence access for del ivery customer parking secu rity

govern ment g ra nts avoid ta riff ba rriers cl i mate rent

raw material near to other

sou rce runs busi nesses
out

avai Ia bi I ity .--'-----,.--�.,.,.---J

rent/taxes risi n g
of l a bo u r customers
new markets d ifficu lties with
ove rseas labour force perso n a l p,referen e of owners
no room to expa nd
at p resent site

Sample questions and answers

Sam p le questions 1) Better Burgers is a fast food chain. It has £1st food outlets in
tnany different countries and is considering opening a new
outlet in a city centre. Discuss what would be the most
important factors when deciding on where to locate this outlet.
[1 0 nurks]
Marks 1-4 marks for listing /explaining factors that would ciffect location decisions;
2 marks for application to fast food outlets; 1-4 rnarks for explaining
which would be the most important factors.

91 •
UNIT 24
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer Better Burgers needs to find a site that is in the centre of the city.
It should be where there are lots of shoppers who would be likely
to use the fast food outlet. The location should also be near places
for customers to park their cars. The rent to be paid on the
premises should be considered, as it will be very high in the city
centre compared with the edge of the city. Delivery vehicles will
need to be able to get to the outlet so that they can deliver food.
An empty shop or building will have to be looked for and the
security of the area should be taken into account. If there are a lot
of robberies in the area, it n1ight not be the best of locations. The
kind of shops and restaurants nearby is an in1portant factor to
consider, as they will attract shoppers to the area who n1ight then
eat at the outlet. The most important factor is the nu1nber of
customers there will be in the area. The outlet needs to be in the
centre of the city to make sure it attracts a .lot of custo1ners. Then
the amount of rent paid will not be very in1portant as the outlet
will make a lot of sales to pay the rent easily . Access by delivery
vehicles is less important as they will be able to get the food to the
outlet easily by trolley. Obviously, an empty shop is needed, but it
does not matter if it is not in the right area.
Examiner's marks 10 marks. The factors were discussed and applied to this scenario.
and comments The importance of the factors was also discussed.
2) A car sales outlet wants to open in the city. Why would' its
location be different to a jewellery shop? Explain your answer.
[8 marks]
Marks 3 marks for explaining the factors that affect the location of a jewellery
shop; 3 marks for explaining the factors that affect the location of a car sales
outlet; 2 marks for making the differences clear.
Student's answer A j ewellery shop would need to be on a high street or nuin road
where a lot of people would pass by and look in the shop window.
It needs to be in a secure area, so that it is at less risk of theft. The
shop could be located near other j ewellery shops to attract people
coming to the area to buy jewellery.
The car sales outlet needs a lot of space to park all the cars for
sale. The rent should not be too high as the prenuses will ta k e up a
large area7 which will make it exp ensive. Access for customer
parking is important because custon1ers are likely to drive up in their
cars and need to park so they can look at the cars for sale. As long as
cars can get in and out, access for delivery shouldn't be in1portant.
Examiner's marks Comparisons are not made, even though factors affecting both types of shop
and comments are explained. Therefore 6 I 8 marks were awarded. Clear comparisons are
needed for full marks.
3) A company \hat cleans offices needs to decide where to locate
its own o ffi ce sta ff W hy 1nigh t it not l ocate its own o ffi ces in
the city centre? [6 marks]
Marks Up to 3 marks for listitzg disadvantages of locati11g iH the city centre; up to
3 marks for explaining these disadvantages.

• 92
 Fa ctors a ffecting loca tion
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer The city centre is expensive in tenns of rent of pretnises. It is an

area that a lot of businesses want to locate in and this will drive up
the rent to be paid. It is difficult and expensive to park cars in the
city centre . It takes a lot of time for employees to get to work in
the city centre . The offices do not need to be located where there
are a lot of people.
Try to mark this yourself- the examiner's marks and comrnents are on
page 1 08.

Com mon m i sconceptions and errors

E rror Why it is wrong

' Busi n esses need to be near the raw
material source.'
B usinesses o n ly need to be near
t h e i r raw materials if they a re a
m a n ufact u r i n g busi ness a n d prod uce
a lot of waste. It is not so i m porta nt
to be near the raw material sou rce
with today's i m proved tra nsport
l i nks.

'It is a lways better to l ocate near
to customers.'
Many businesses locate where their
costs wi l l be low. Th i s may be in
a noth er cou ntry where wages are
l ow. It may not be near to
customers.

'The i nternet has not affected where
busi nesses locate.'
B usinesses that u se the i nternet to
se l l their prod ucts do not need to be
near to customers any more, as they
rece ive their orders over the
i nternet and then post the goods to
customers. The business can locate
anywhere.

e Try this a ) M a nd T p i c m a n ufactu res choco lates. I t wants t o set up a new factory
making choco l ates. The business e m p l oys a lot of workers a n d many of
them need to be q u a l ified in choco late m a k i n g . The cocoa used to make
the chocolate is i m ported.
i) Sel ect three factors that wou l d affect the location of t h is busi ness
and exp l a i n why they a re i m porta nt. [6 ma rks]
H) Th is business has started to sel l an i ncreasi n g q u a ntity of its
choco lates in an overseas ma rket. The M a n a g i n g D i rector is th i n k i n g
o f moving t h e m a n ufacture o f the ch ocol ates t o this ove rseas
market. D iscuss what factors he s h o u l d take i nto account when
deci d i n g whether to move the factory a b road. [ 1 0 ma rks]

Examiner's tip
� Consider the market, costs of setting up a new fa ctory, costs of running
a fa ctory in this o verseas market.

93 •
UNIT 24
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

b) Govern ments do not u su a l ly l eave the l ocation decisions tota l ly to

busi nesses themse lves. Expl a i n why you th i n k this is the case. [6 ma rks]

Examiner's tip
./ Explain the disadvantages of businesses choosing to locate where they
want to without any consideration of the local population or en vironment.

c) DD Ltd is a busi ness that stocks and sel ls sports clothes over the i nternet.
D iscuss whethe r you t h i n k the l ocation of the busi ness is i m portant.
[6 ma rks]

• 94
 N IT 2 5 B u s i n ess i n t h e
i n te r n a t i o n a l
co m m u n i ty
Key objectives • To understand that business success can be influenced by
international factors
e To explain how exchange rates can have an impact on
businesses that import and export
e To understand what globalisation is and why it is increasing
e To explain the effect that multinational businesses can have on
a country

Key definitions
Term Defin ition Examples

Imports Prod ucts bought by a cou ntry from Spa i n i m ports o i l fro m Saudi Arabia,
other countries. Saudi Ara bia i m ports cars fro m
G erma ny.

Exports Prod ucts sold from a co u ntry to G ive two exa m p l es of i m porta nt
other countries. exports from your own cou ntry.

Exchange rate The price of one currency i n terms The excha n g e rate for £ in terms of
of another. the e u ro was £ 1 : 1 .45€ in M ay 2004.
F i nd o ut the excha n g e rate fo r you r
cou ntry's cu rrency i n terms o f the
US$.

Cu rrency appreciation Whe n the c u rrency buys more of OLD: £ 1 : $ 1

a nother currency than before, its N EW: £ 1 : $ 1 . 5 0
va l u e rises. £ has a p preciated

Currency depreciation When the cu rrency buys l ess of OLD: 1 €: $ 1

a nother c u rrency than before, its N EW: 1 € : $0.80
va l u e fa l l s . € has depreciated

Common (single) currency W h e n a g roup o f cou ntries agree Th e e u ro is used by m a ny mem bers
to use the same currency. of the E u ropean U n ion.

Tariff A tax on i m ports to make them Jess Try to find o ut a bout a tariff put on
competitive with domest i ca l ly a n i m po rt i nto you r cou ntry a n d
prod u ced products. make a note.

Quota A maxi mum l i mit on the quantity of Does your co u ntry have a ny import
i m ported goods a l lowed i nto a q u otas? Try to fi nd o ut one such
cou ntry. q u ota and make a note.

G lobal isation The i ncrease in i nternational trade World trade is g rowi ng at over 1 0 %
a n d competition, as shown by the each yea r. Tarrifs a nd quotas are
growth of m u lti national corporations. being red uced.

Multinational corporations B usinesses that have operations i n Coca-Co la, McDonal ds, l kea
more than o n e co u ntry. (fu r n iture), Ca non (copiers and
ca meras) .

Economic union Ag reements between cou ntries to T h e E u ropean U n i o n (EU).

trade freely with each other a n d
have co mmon economic institutions.

95 •
UNIT 25
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Sample questions and answers

Satnpl� question Three countries, X, Y and Z, trade with each other. The
governtnent of Country X is worried about the high level of
imports from the other two countries . The governn1ent of
Country Y wants to encourage the other countries to j oin a
co1nmon currency. The currency of Country Z has recently
appreciated against the currencies of the other two countries.
a) State one way in which Country X could reduce in1ports fro1n
the other two countries . [ 1 n1ark]
Marks 1 mark for either import tariff or import quota.
Student's answ�r Tariffs on itnports is one way.
Examiner's marks 1 mark.
and comments

b) Explain two ways in which businesses in Country X n1ight be

affected by the government reducing imports . [4 marks]
Marks 1 mark for identifying each factor plus 1 further mark for some development
of each factor.
Student's answer If imports were reduced then consun1ers might start buying n1ore
products from businesses in Country X. This would increase sales .
Also, a reduced supply of imports could increase prices.
Examiner's marks This answer is worth 3 marks . The first point is a good one and the effect
and comments on businesses is briefly explained. The second point is only identified and
gains 1 mark. The student should have explained the possible �[feet 011
business of higher import prices} for example} if a business i11 Cout'ztry X
imports important materials then a price increase would raise its costs. This
could lead to lower profits .
c) Do you think that businesses in these three countries would
benefit from a common (single) currency? Explain your answer.
[6 n1arks]
Marks 1 mark for difrnition} up to 5 marks for giving a balanced discussion;
maximum of 4 if only one side of argumerzt is given .
Student's answer A single currency is when several countries agree to use the san1e
money so that when they trade the satne n1oney can be used. This
would benefit businesses . It would tnean that cornpanies would not
have to convert tnoney into foreign currency if they were buying
imports. This would save on currency exchange costs. A con1n1on
currency also means that they could j ust print one price list for all
three countries which would save on costs .
There are pqssible drawbacks too thou gh.

Examiner's marks 4 marks. This is a good} thou(_� h one-sided} answer. 1 1zcre is no evaluatio11
and comments of the benifrts} so it cannot earn more than 4 marks. The studc11t should
have explained briefly two poi11ts agai11st a common currency. For exmnple}
it will be easier for consumers to compare prices and competition may
itzcrcase due to the ease of selling to other countries.

• 96
 Business in the interna tional comm unity
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

d) i) Complete this table with an exchange rate for Count1y Z's

currency (Yen) in 2005 showing an appreciation con1pared to
the $ . 1 1 n1ark]

2004 1 Yen : $2

2005 1 Yen : . . . . . . .

Marks 1 mark for correct answer (any rate over $2) .

Student's answer $2 . 50
Examiner's marks Yes, the student understands that an appreciation means that a currency
and comments uni1t buys more of another currency than before. 1 mark.

ii) Explain one effect of this appreciation on exporters i n

Country Z. [4 1narks]
Marks 2 marks for explaining that export prices could rise; 2 marks for
development - it could lead to lower demand for exports a11d lorucr profits
from exporting.
Student's answer When a currency appreciates it makes in1ports cheaper and exports
more expensive . This means that exporters in Country Z will find
it more difficult to sell goods to other countries. Exporting will
become more difficult and less profitable .
Try to mark this yourself - the examiner's marks and comments are on
page 1 09.

Com mon m i sconceptions and errors

Error Why it is wrong

' I nternational trade is bad for
business as it l eads to more
competitio n . '
' A business can easi ly sel l i t s products
to other cou ntries.'
' M u ltinationals sel l prod ucts in more
than one cou ntry.'
Alth o u g h tra d i n g with other
cou ntries can i n crease competition,
busi nesses a l so have much larger
markets a n d can often purchase
s u p p l i es cheaply from other
countries.
Se l l i n g to other cou ntries i s not
a lways easy. Prod ucts and ma rketing
may need to be ch a n g ed to meet
l oca l market conditions, for
exa m p l e .
T o be termed a m u lti national, a
business s h o u l d have prod uction
operations i n more than one
cou ntry.

e Try th is Zircon pic man ufactu res chem ica ls for i n d u stry. Cu rrently i t o n l y operates in
one cou ntry. Zi rcon is planning to set u p a n other chemica l factory in
Cou ntry X, which has a ra p i d l y expa n d i n g economy. Cou ntry X has h i g h
tariffs on a l l i m ports. T h e M a n a g i n g Di rector o f Zi rcon has asked t h e
govern ment o f Cou ntry X f o r permission to b u i l d the factory. The
govern ment and trade u n io n s are very i nterested in the plan. G reenworld, a
loca l environmental g ro u p, is a g a i n st the p l a n .

97 •
UNIT 25
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

a) Exp l a i n two reasons why Z i rcon is p l a n n i n g to become a m u ltinationa l .

[ 4 ma rks]

b) List two probl ems Zi rcon m i ght face when operating in a nother cou ntry.
[2 marks]

c) Eva l uate wheth er the g overnment of Cou ntry X should a l l ow Zi rco n to

b u i l d the new chemica l factory. [8 ma rks]

Examiner's tip
./ Consider the a dva ntages and disa dvantages to the coun try of Zircon 's
new fa ctory, then com e to an o verall conclusion.

• 98
 A n swe rs
U N IT 1 The pu rpose of bu s i n ess
activity
Sample questions and answers
b) Examiner's marks and comments: This answer
shows a good understanding of division of
labour (1 n1ark) and the possible benefits to
ARC (3 marks) . The disadvantages are less
detailed (1 rnark) and not applied to this
business. The student could have explained the
motivation problen1 leading to workers leaving
and the i1npact this might have on output and
sales for ARC. Total = 5/7 marks.
d) Examiner's n1arks and comments: Full marks
- the answer analyses ;nd evaluates clearly.
• Try this
a) 1 n1ark each for any of these : unemployed
workers (chance of a j ob) , shareholders,
con1petitors, residents, government.
b) The answer will depend on which groups are
chosen. For example, unemployed workers
would now have a chance of getting a j ob in
the new £1ctory, but workers in existing
plastics factories n1ight be worried about the
new co1npetitor destroying their jobs; the
government would welcome the new j obs and
increased output (some might be sold abroad
as exports) ; the new factory will pay taxes to
the governn1ent, but the government might
be worried about the negative in1pact on the
envi �onment and the risks of pollution. (Only
need to look at one advantage and one
disadvantage per stakeholder.) 4 n1arks for
identifying advantages/ disadvantages; 4 marks
for discussion.
c) Define division of labour ( 1 mark) . Benefits to
workers n1ight be: able to specialise and be
trained in one task, if output increases this
could increase wages. But: work may becon1e
repetitive �nd if plastics factories close (decline
of the industry?) then the skills that workers
have may no longer be needed. Up to 4 marks
for identification of advantages/ disadvantages;
up to 3 marks for discussion.
U N IT 2 Types of bus i n ess activity
Sample questions and answers
d) ii) Exan1iner's n1arks and co n1 1n e n ts : The two
advantages were both briefly explained.
However, there was no atten1pt to show
judgement or evaluation . For exan1ple, the
student could have referred to the price that
Airco nught be sold for. Airgroup might pay
too n1uch and end up making a loss. Also,
Airco workers might go on strike as they do
not want to leave the public sector - perhaps
because they believe that their jobs are safer
under government control. Total = 6/8 marks .
e Try th is
a) i) Con1pany X ii) Con1pany X
b) Less efficient/productive workers; over-staffing;
labour-intensive production methods - could
be a business that produces hand-1nade shoes.
Any one point explained = up to 4 nurks.
c) Managers/ owners nuy wish to remain sn1all
to avoid extra work or stress; lack of finance
for expansion; the business 1night sell in quite
a small sector of the market with low sales -
does not want to expand into other tnarkets it
does not know so well. 1 mark for each factor
identified (n1axi1num of 2 nurks) ; 1 n1ark for
developing each point.
d) i) Backwards vertical integration ( 1 rnark)
because the leather supplier is in the san1e
industry, but supplies raw materials (i . e. at a
different stage of production) . (2 nurks) .
ii) More regular and certain supplies of raw
material; can control quality of raw material;
can obtain cheaper supplies; can prevent
.
supplies being sold t o competitors. 1 nurk for
identification (of each benefit) ; 1 nurk each
for some development.
e) i) Secondary (1 n1ark) - it turns ravv nuterials
into finished goods. 1 nurk for the explanation .
ii) Tertiary ( 1 n1ark) - they provide a service
to consun1ers/nunufacturers . 1 mark for the
explanation.
iii) This is vertical integration forwards (1
n1ark) . It gives the nunufacturer a guaranteed
outlet for goods; the n1anufacturer can control
price and marketing of goods etc . 2 nurks for
identifying points; 2 rnarks for smne
de.v elop1nent.
f) The public sector is usually n1ade up of
itnportant industries such as electricity and
public transport. The shoe retailing industry is
99 •
ANS WERS
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
not as itnportant as this, so it should be in the
private sector and private owners will run the
sh ops for profit. 1 mark for definition ; up to 4
tnarks for developing argun1ents.
U N IT 3 Fo rms of b u s i n ess
o rg a n isati o n
Sample questions and answers
d) Exatniner's tnarks and con11nents : Although
this is quite a short answer, it contains
in1portant poi nts and son1e discussion. There
are both advantages and disadvantages and
these are briefly looked at fron1 Rashid's point
of view. There is a clear recommendation and
this is backed up by knowledge of a Deed of
Partnership. Total = 8/8 marks.
e Try this
a) 1 mark for identifying each reason and 1 mark
each for son1e developtnent. She n1ay have
shared smne of the work - the business was
expanding rapidly. She may have added capital
to the business to allow it to buy more
equipn1ent which was needed for the expansion.
b) 2 n1arks for accurate definition - franchising is
when a business has pem1ission to use the
name, logo and trading methods of an
existing business.
c) Up to 3 marks for identifYing
advantages/ disadvantages ; 3 marks for
discussion of these for 0 and 0 Cleaning
with a formal judgement. Advantages: rapid
way to expand, franchisees use own capital to
expand. Disadvantages : less control over the
business; franchisee keeps some of the profits
of their business. Useful for 0 and 0, as they
wanted to expand quickly. They would not
have to provide all the finance (it is not a pic) ,
but son1e control is lost and 'they were keen
to control their own business' .
d) 1 n1ark each for identifYing up to three benefits;
1 n1ark each for developing them. Benefits:
less risk; proven successful product; some
managemen t tasks done by the franchiser;
market research and marketing decisions taken
by franchiser.
e) 1 nurk for each difference; 1 n1ark for
d eve l oping eac h one.
f) 2 n1arks for advantages; 2 tnarks for
disadvantages a nd up to 4 tna rks for
explaini ng a nd discussing these for 0 and 0
• 1 00
( 1 111ark deducted if no recotn111endation
given) . For: can raise tnore capital throu gh
sale of shares (they plan to expand) ; higher
public profil e and better i111age; could use
share capital to reduce loans . Against: sotne
loss of control; danger of future takeovers ;
have to release inforn1ation to public (0 and
0 wanted to control their own business) .
Give a final recon1mendation and j ustifY it.
U N IT 4 Govern ment a n d eco n o m i c
i nfl u e nces on b u s i n ess
Sample questions and answers
d) Examiner's marks and comn1 ents: This is an
excellent answer. Notice how the student
starts off by defining these two tern1s. The
effects of higher interest rates are well applied
to Fogla's shop . Finally, there is a very good
attempt to evaluate these effects - Fogla 's
might not be that n1uch affected by higher
rates and the student explains why . Total =
8/8 marks .
• Try this
a) 2 marks for accurate definition .
b) 2 n1arks for two exan1ples of governn1ent
action to protect consun1ers; up to 2 marks in
addition for explaining each point.
Governments often protect consun1ers fron1
dangerous products . If a soft drinks firm did
not use very clean methods of production
then this could harn1 consumers . The
government would use laws on hygiene
standards in this case . Also acceptable :
protection against monopoly power,
misleading advertisements, underweight or
faulty goods .
c) 1 mark for identifYing a reason, up to 3 n1arks
for development/ e xp l ana ti on. To protect l ocal
environn1ent, to avoid building o n fannland,
to protect residents fron1 pollution, etc .
Without these planning restrictions fin11s
would be able to build in the cheapest
location without considering any other factors.
, d) To create more jobs and to increase den'land
for the products of local suppliers. 1 mark each.
e) Up t o 4 marks for identifying advantages and
disadvantages; up to 4 n1arks for a balanced
argun1ent fron1 Mitn Chul's point of view.
Advantages: improved working conditions,

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
more motivated staff, fewer costly accidents,
better public image. Disadvantages: could
increase costs, might make Mim Chul's firm
uncompetitive compared to rival firms that
might have poor health and safety, and lower
costs as a result; money could not be used for
other things, for exan1ple, improved machinery.
U N IT 5 Oth e r exte rn a l i nf l u e n ces
on b u s i n ess
• Try this
a) 2 marks for accurate definition.
b) Central Government = Increased exports
Local workers = More choice of jobs
Local authority = Increased local tax
payn1ents
Residents = Noise fron1 aircraft
Local unen1ployed workers = More chance of
finding a job
Businesses = Easier to i1nport and export goods
Airlines = Increased flights mean expansion
Train con1panies = I ncreased competition
from airlines
Environmentalists = Destruction of nature sites
1 mark for each.
c) Up to 2 n1arks for appropriate letter format.
Either (argu1nents against) : Noise, pollution,
increased traffic and car parking, spoiling the
countryside . Conclusion could be: build it
elsewhere or stop the growth in air transport
(for exan1ple, increase taxes on flying) . Or
(arguments in favour) : Jobs, increased sales for
lo-cal businesses, more tourists fron1 other
countries, easier to import and export
products. Conclusion could be: build it as
soon as possible , as it will lead to much
greater business sales and output. Up to 4
n1arks for points tnade; up to 4 n1arks for
analysis and final conclusion.
U N IT 6 B u s i n ess costs a n d reve n ue
e Try this
a) 1 mark each for:
Direct: flour; wages of bakery workers
Indirect: salary, rent
b) 2 n1arks for defi n ing budgets; 2 n1arks for
brief outlin e of up to two benefits; 2 111arks
for applying to Cairo Tyre Con1pany .
Budgets are financial plans (for the future) .
Answers
These plans give departn1ents a target to \Vork
towards. This can be tnotivating for workers.
They help to prevent overspending. The
1narketing departrnent spent too 111uch at the
Cairo Tyre Co1npany and this 1night have
been because the departrnent did not know
what the budget was.
c ) 1 mark for defining disecono1ny; 1 mark for
any one diseconomy of scale . The example
applied to Cairo Tyre Company for 1
further mark.
d) Up to 3 marks for developing benefits; 3
further marks for disadvantages; 2 further
marks for balanced discussion. Advantages:
useful for analysing how n1uch n1ust be sold to
cover all costs (break even) and the safety
margin; can be used to compare different
options, for example, the break even of
different shop locations; able to analyse what
might happen to break even if prices are
lowered/raised. Disadvantages: assun1es all
goods are sold; assumes straight lines are
realistic; fixed costs are not always constant;
can becon1e out of date quickly. On balance :
useful if the drawbacks are considered when
analysing break-even results.
U N IT 7 B u s i ness a cco u nti n g
Sample questions and answers
c ) Examiner's marks and con1n1ents: This is very
good. The two forn1ulae have been given and
the calculations are correct. What is n 1ore, the
student understands what the results show and
tries to suggest one reason for the poor figures.
judgen1ent is shown at the end - it is
important to compare ratio results either wi th
other years or with other, sin1ilar, busin esses.
Total = 1 0/ 1 0 n1arks.
e Try this
a) 1 mark each for: profit and loss account;
balance sheet. (Accept also cash flow
statement.)
b) Up to 3 nurks for either. The balance sheet
contains details of the finn's assets and liabilities.
It also shows the shareholders' funds; or: profit
and loss account contains the revenue, gross and
net profit of the business. The balance sheet also
shows the retained profit.
c ) Shareholders: i)
101 •
A NS WERS
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Trade union: iii)
Govermnent: iv)
Creditors: ii)
1 tnark each .
d) Up to 4 111arks for correct ratio results (up
to 2 marks if correct formulae but incorrect
resul ts) ; 6 n1arks for analysing and briefly
discussing results . (Accept any four results.)
( N ot esse n t i a l to s h o w form u l a u n l ess
calculation is wrong)
G ross p rofit m a rg i n % =
GP
Sa les reve n u e
NP
N et p rofit m a rg i n % =
S a l es reve n u e
Ret u r n on capital e m p l oyed % =
N
Ca p 1ta l
e m p l oyed
These results show that the profitability of
Titan Tankers has declined since 2004 . The
cmnpany has n1ade less gross and net profit
even though sales have increased. Costs seem
to have increased too quickly. Also, net profit
has fallen despite the fact that more capital has
been invested in the business. The new capital
does not seem to be very profitable or is not
being used very efficiently. But it is important
to con1pare with other companies in the same
industry.
U N IT 8 Cash flow p l a n n i n g
e Try this
a) (2,000) This is obtained by subtracting total
cash outflow from cash inflow or
1 , 500 - 3 ,500 = (2 ,000)
b) Up to 2 marks for definition. This is the cash
balance at the end of the month - it could be
negative if there is a bank overdraft.
c) Up to 4 nnrks for using the cash flow
forecast to explain answer. There is a bank
overdraft at the end of July (a negative
closing balance) because cash outflows in the
first two months were greater than cash
inflows . Although this was not true in July
(cash inflow 3 , 000 and cash outflow 1 , 500) ,'
the negative cash bal ances in the other
n1onths were bigger than the positive net
cash flow in July . The n1ain reason seen1s to
be the purchase of equipment.
• 102
d) 2 marks for identifying reasons; up to 4 n1arks
for explanation including use of cash flow
forecast figures . They can be shown to lenders
and investors to encourage then1 to
lend/invest. They can be used to plan future
finance needs . In this case Rishav and
Abdullah would need to plan an overdraft, at
least for the first three months . If they did not
plan this, the bank could refuse it j ust when
2004 2005 they needed it. In this case it shows that the
net cash flow is positive in July and this n1ight
·
x 1 00 20% 1 7. 1 %
encourage lenders and investors to believe
that the radio station will be successful .
x 1 00 10% 7.1 %
U N IT 9 Fi n a n c i n g b u s i n ess a ctivity
: x 1 00 1 5 % 1 0 .4% S ample questions and answers
3) ii) Examiner's marks and cotnments: 2 marks
for knowledge and application; 1 nnrk for
some attempt to analyse why it would be
useful. The student could have explained that
forecast profit and cash flow would be very
important to the loan decision. Also, there is no
evaluation. The business plan might not be
detailed enough or the bank n1anager tnight
think that it was too op d n1istic, so the loan
might not be given after all. Total = 3/6 nnrks.
e Try this
a) 1 n1ark for each advantage and disadvantage .
Shares: Can raise substantial sun1s of capital
for lin1ited con1panies but nny affect the
ownership and control of the business.
Overdraft: Flexible form of finance that can
be varied to meet the needs of the business
but often high interest rate and can be called
back by the bank at short notice .
Long-term loan: Suitable for long-term
projects or expansion and does not affect
ownership or control but interest n1ust be paid
and the loan will have to be repaid.
b) 1 mark for each correct answer:
Debenture : external
Shares: external
Profit: internal
Sale of buildings: internal
c) Up to 2 tnarks tor stati ng su i tabl e sources, up
to 4 n1arks for explaining any two of these for
this business; 2 rnarks for reasoning and
recon1mendation .

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Long-term loans (short-term or medium-tern1
may be unsuitable) , sale of shares, retained
profits . An overdraft is not suitable for long­
term expansion.
Explain one benefit and one drawback to at
least two of these .
Recommendation. Might depend on current
interest rate - if high, then shares or profits
might be better. If profits are low then they
might be inadequate for the expansion. If
directors do not want to risk losing control,
then sale of shares could be risky. Advice :
retained profits if sufficient, if not, then loan
if the interest rate not too high.
U N IT 1 0 O rg a n i satio n a l structu re
Sample questions and answers
d) Examiner's marks and comments: Two factors
are identified, explained and given some link
to Yuan's flower business. Finally, the student
tries to explain that the final structure is not
certain - it depends on how Yuan expands
the business. All four skills are shown by the
student. Total = 8/8 marks.
• Try this
a) 4 marks for correct and labelled chart; 2-3
marks for missing some information or one
level; 1 n1ark for some attempt.
Factory manager
l
I
Supervisors
l
Line managers
l
Line managers
Line m a nagers
I I I I I I I I I I I I
b) i) 1 mark for identifying problen1; 1 1nark for
application to Abadullah's business; 2 marks
for explanation/ analysis.
Poor communication with lower levels -
managers of factories will not be able to
comn1unicate easily with Head Office;
decisions not taken locally or taken by more
junior 1nanagers. The styles of clothes chosen
by Abadullah might not be right for all
regions; possible poor motivation for factory
managers as all nuj or decisions are taken at
Head Office.
Answers
ii) 1 n1ark for definition; 1 nurk for application
to this business; 2 marks for
explanation/ analysis .
Yes, it does appear to be centralised as all
maj or decisions are taken at Head Office
which is a sign of a centralised business.
Factory managers cannot decide which styles to
make or how to pay their production workers.
iii) 1 mark for definition; up to 3 n1arks for
identifying advantages/ drawbacks of
decentralisation; 2 nurks for
explaining/ analysing at least two of these and
2 marks for discussion/judge1nent.
D ecentralisation is when decision-n1aking
power is given to factories, branches or
divisions, and not H ead Office. P ossible
benefits : Quicker decision-n1aking locally ,
decisions taken locally will take local £Lctors
such as fashion or labour shortages into
account. Drawbacks: nunagers will need
training to take good decisions; different
branches and areas n1ay take different
decisions and these could clash.
Decentralising could benefit Abadullah's
business if managers are trained well and if
local differences are so great that Head Office
decisions do not suit all areas.
U N IT 1 1 M a nag i n g a b u s i n ess
e Try this
a) 1 mark for reason; up to 3 nurks for
explaining it.
Any one of: motivating staff; giving the
business a sense of purpose and direction;
l
making sure all departn1ents are working
towards the san1e ai1ns ; giving n1anagers a
I I I means of comparing actual perforn1ance
against the original target.
Any one of these should be briefly explained,
analysing why this advantage results fro1n ain1s
and targets.
b) 1 mark each (see Key definitions) .
c) Up to 3 111arks for identifying i1nportant
factors; up to 3 n1arks for applying then1 to
this business; up to 4 1narks for analysing
then1 with a final, supported
recornmendation. Person A is very �unbi tious
and if Un1eel wants the restaurant to expand,
this might be the person to e1nploy. 'A' seen1s
to be a good communicator - very in1portant
1 03 •
A NS WERS
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
in a busy restaurant. 'A' is well educated and
possibly trained in managetnent and n1otivation
techniques - the 25 restaurant staff will need to 3) i) Exatniner's n1arks and con11nents: 1 tnark
be well tnanaged. '13' has n1ore relevant
experience and being a former chef n1eans 'B'
might concentrate on quality n1eals and motivate
the staff to achieve this target. Quality is 'B "s
objective and this n1ight mean that Un1eel could
increase prices in the restaurant. If Umeel wants
the business to expand over the next few years, I e Try this
would choose 'A' as long as there are already
good chefs who can take control of the cooking
side of the business.
U N IT 1 2 Co m m u n i catio n i n b u s i n ess
• Try this
a) 1 mark for correct answer plus 1 mark for
brief explanation.
External - the manager is sending a message
to people who do not work in the business.
b) Up to 4 marks for up to two advantages and
two disadva n tages of any two methods; up to
4 marks for discussion in context and final
re c o t 1 1 1 1 1 e t 1 d a ti o 1 1 .
An e-n1ail would be quick, but it may not be
opened inm1ediately. An attachn1ent could be
included, in colour, of the product details. A
telephone call would be more personal and the
benefits of the new sweet could be explained to
evety shop owner; however, it would take a
long time to telephone all shop owners. The
best n1ethod could be a video sent to all shops
plus posters for displaying in the shop . It could
be expensive and take a long time to produce
the video though, and the n1anufacturer could
never be sure that every shop owner watched it.
c) 1 tnark each for identifying possible barriers
to con1n1unication; up to 2 n1arks for each
barrier for explaining them and applying then1
· which will increase their job satisfaction.
to either exatnple. Notice board: cannot be
certain that it will be read by everyone that is
meant to receive the n1essage as there is usually
no chance for feedback. It is a written format
which not everyone will be attracted by, and
son1e n1ay not understand the language used.
Both of these problen1s could result in p oor
conlmtmication. The same barriers can apply to
newsletters .
• 1 04
U N IT 1 3 M otivat i o n at work
Sample q uestions and answers
for i dentifying $200 paid, then 1 tnark for
stating piece rate . The third n1ark would be
for explaining why it was clear it was piece
rate. Total = 2/3 n1arks.
ii) 2 marks for correct answer.
a) 6 n1arks for explaining the advantages and
disadvantages of different financial and non­
financial n1ethods of n1otivation; 4 tnarks for
selecting one method and explaining why you
think it the best one to use; 2 n1arks if the
answer is in the context of Patel Fashions.
Financial nlethods nught include conlnussion,
profit-sharing bonus or perforn1ance-related
pay. Non-financial n1ethods nught include
discounts on the clothes, paying for healthcare,
pension, clothes.
b) 4 marks for explaining how to use job
rotation/j ob enlargen1ent/job enrichn1ent to
increase n1otivation (1-2 tnarks each) ; 2 tnarks
for saying whether you consider job rotation to
be the best n1ethod to use and why; 2 tnarks for
answering in the context of Patel Fashions . Job
rotation involves workers swapping round and
doing each task for only a linuted titne and then
changing round again. Job enlargen1ent is where
extra tasks of a sinular level of skill are added to a
worker's j ob description. Job rotation is quite
lin1ited in the shop as there are not very many
j obs to do . Job enlargement n1ight be better as
workers will then get more enjoytnent fron1
doing a variety of jobs such as working on the
tills, arranging the clothes and helping custon1ers,
c) i) 1 mark for autocratic. 2 tnarks for
·
j ustifying the choice of n1anagen1en t style .
Workers need to be constantly supervised so
they will work.
ii) 1 mark for detnocratic or laissez-faire .
2 1narks for j ustifying the choice of
tnanagement style . Workers are tno tivated by
b ei ng able to take an interest i n the ir work.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ���:�
U N IT 1 4 Recru itme nt, tra i n i ng a n d
h u m a n resou rces
Sample questions and answers
2) ii) Exan1iner's marks and comn1ents: The
student's answer gives two suggestions which
are explained. Total = 4/6 marks.
• Try this
a) 1 mark for each reason given, for example,
redundancy, sacked, en1ployee left because
they found another job/moved away from the
area/ emigrated.
b) 1 tnark for stating a problen1 (maximum 2
marks) and up to 2 additional marks if the reason
is explained as to why it is a problem. Possible
problen1s might include: the reasons why the
employees are leaving, for example, bad
managetnent; costs of replacing the employees;
increased training costs; reduced morale.
c) 2 marks for describing what induction
training includes : for example, show the
en1ployee where everything is; health and
safety training; n1eet other employees; go over
rules and regulations of the business. 2 marks
for explaining the usefulness to the business of
induction training.
d) i) 6. marks for discussing the advantages
and/ or disadvantages of internal and external
recruitment, for example, cost, skills of
app1icants, n1otivation, availability of suitable
employees; 2 marks if applied to chefs;
4 marks for justifying which would be the
better tnethod to use and why. The
conclusion would probably be external
recruitn1ent so the che(� would already be
trained and able to bring their experience to
the restaurants. The chefs would be
productive straight away and would not need
to be trained by The Royal Garden, which
would be expensive.
. directors, works councils, quality circles, n1ore
ii) 2 marks for explaining either on-the-job or
off-the-job training; 3 marks for justifying
which would be the n1ore suitable method to
use and why. The answer would probably be
on-the-job training, but if suitable justification is
given then full marks could be awarded for off­
the-job training. Advantages of on-the-job
training: because it would be easy and cheap to
let other workers show the new en1ployees
what to do; these en1ployees do not need n1uch
training as the jobs are low-skilled.
U n it 1 5 E m pl oyee a n d e m p loyer
associati o n s
Sample questions and answers
2) ii) Exatniner's n1arks and conunents: A good
answer in context of the business and the
candidate explains how it will help to avoid
conflict. Total = 5/5 marks.
e Try this
a) craft union - (iv) ; industrial union - (ii) ;
general union - (iii) ; white collar union - (i)
1 mark for each correct answer.
b) 1 n1ark for each of three benefits (for exatnple,
represent employees in negotiations with trade
unions; giv� advice to n1embers; act as pressure
group for members; share ideas) and 3
additional nurks for explanations.
c) i) 2 marks for explaining the advan tages and
disadvantages of strike action (for exan1ple ,
very disruptive to business ; loss of pay for
workers) ; 2 marks for explaining the
advantages and disadvantages of an overtin1e
ban (for example , workers don 't lose norn1al
pay; pressure on business as orders nuy be
delivered late) ; 2 n1arks for deciding which
would be more effective for the workers at P
and D Ltd and why. An overtin1e ban would
probably be more effective because P and D
Ltd have got increasing sales and they need to
increase output to n1eet these orders . The
workers will not lose any wages, but there
will be pressure on the con1pany to give in to
the employees' wishes otherwise they will
lose business . Strike action could also be
effective as output would be lost, but the
workers would not get paid when on strike so
an overtime ban would be the best fonn of
industrial action for the workers to take .
ii) 1 n1ark for each of three exatnples of
worker participation (for exatnple, worker
den1ocratic styles of leadership) ; 3 additional
marks for explaining the three ways of having
worker participation .
U N IT 1 6 The m a rket a n d ma rketi ng
e Try this
a) 1 tnark for stating each obj ective of tnarketing
(for exan1ple, to increase sales revenue and
profitability; to increase 1narket share; to
improve the image of products; to target a
10 5 •
ANS WERS
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
new rnarket or n1arket segn1ent; to develop
new products or in1prove existing products) ;
3 additional rnarks for explaining the three
objectives .
b) 1 n1ark for each elernent - Product, Price,
Pron1otion, Place.
c) 4 rnarks for explaining the benefits of linking
the eletnents of the 1narketing mix together
(for exan1ple , so that the different elements
reinforce each other; the advertising budget
will be rnore effectively used; sales will be
higher) ; 4 n1arks for explaining what might
happen if the business does not link the
elen1ents-Jogether (for exan1ple, the sales n1ay
not be as high as they could be; potential
custon1ers rnay buy the competitors' products;
the product rnight £1il altogether) .
U N IT 1 7 Ma rket research
Sample questions and answers
b) Exa1niner's nurks and comments: The candidate
only states what is meant by primary and
secondary research and does not explain the
difference between theri1. Total = 2/4 n1arks.
• Try this
a) 2 n1arks for each advantage stated (for example,
first-hand infom1ation straight from actual or
potential consutners; can be qualitative rather
than quantitative; inforn1ation about the
product itself is obtained) ; 2 marks for
explaining each advantage.
b) 1 mark for each example (government
statistics on population and income;
newspapers of the country; trade magazines in
the other country; the report and accounts of
the competitors in the other country;
i n fonnati on prov id e d b y an i nteniat l oiial
organisation, such as the UN, on its website) .
c) 2 rnarks for each way the business can try to
ensure the inforn1ation is accurate . Up to 2
marks for explaining each of these ways (for
example, make sure the information is up to
date, take a large sample, ensure the sample is
representative of the target market) .
U N IT 1 8 Presentati on of i nformation
• Try this
a) 1 m ark for a title; 2 nurks for correctly
labelled axes and scale; 2 tnarks for correctly
plotted graph.
• 106
b) i) 2 n1arks for describing the trend in each
graph. Product A has seen sales increase
slowly at first and then rise rapidly. After
reaching a peak, sales then fall. Product B
sees sales increase steadily, reach a peak and
then fall. But sales then start to rise again and
continue to rise above the previous peak.
ii) 1 mark for stating a reason for the
differences; 2 marks for explaining the reason
(for exan1ple , Product A has a typical product
life cycle ; Product B had successful extension
strategies used, so that sales have increase d
again after the decline stage) .
U N IT 1 9 The m a rket i n g m ix:
prod u ct and packa g i n g
Sample questions and answers
d) Examiner's n1arks and con11nents: The candidate
suggests several ways of increasing sales and
explains how they should be effective, and there
is also a consideration of drawbacks. The answer
is applied to this business but no decision is
n1ade as to what is the best way of increasing
sales. Total = 6/8 n1arks.
e Try this
a) 3 marks for explaining the functions of
packaging; 2 marks for applying the answer to
sports drinks (for example, to give
information about what the drink contains; to
make the drink look attractive; to give the
drink a sporty image; to preserve the drink) .
b) 3 marks for stating the factors Sheena n1ight
take into account. 3 n1arks for explaining why
these factors n1ight be in1portant (for exarnple,
cost of p ackaging, competitors' packaging, the
target market for the drink, design allowing
con�um�g to drink out of the contJiner) .
c) 1 n1ark for labelling the axes, 3 n1arks for
labelling the five stages, deduct 1 mark for each
missing label. Stages to label - introduction,
growth, maturity, saturation, decline.
d) 3 marks for describing the changes; 3 1narks
for saying what should happen as a result of
the changes (for exatnple, the price may be
high when the product is first introduced to
the n1arket if there are few or no con1petitors.
Then competitive pricing as competition
increases in the growth phase . When sales
start to fall, the price n1ay be reduced to try to
encourage sales to increase again or at least
slow the decline in sales) .
_l

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
e) 3 nurks for explaining why son1e products
have longer life cycles (for example, they are
not fashion goods and therefore stay popular
for longer; they appeal to a large market and
have few con1petitors - custon1 ers will keep
buying the products as there will be no close
substitutes) . 1 1nark for a suitable example (for
exan1ple, chocolate bars, washing powder) .
U N IT 20 Th e m a rket i n g m ix: p rice
Sample questions and answers
c) Examiner's marks and comments: 2 marks for
correctly identifying that demand is inelastic;
2 marks for making a j udgement as to what
the business should have done and why. The
student does not explain the effects of the
change on the business. The student could
have explained that Luxury Leisure plc lost
n1en1bers due to the price increase.
However, the reduction in n1embers was a
lower percentage than the p ercentage
increase in price. Total = 4/6 marks.
• Try this
a) 2 marks for stating whether demand is inelastic
(then a percentage increase in price would lead
to a smaller percentage fall in sales and an
increase in sales revenue) or elastic (then a
larger percentage fall in sales and a fall in sales
revenue) . 2 marks for explaining why petrol
would be likely to have an inelastic demand,
which 1neans that customers are not price
sensitive and n1ost of then1 will keep buying
the product (if prices rise, sales revenue will
increase) . Elastic den1and n1eans that custon1ers
are price sensitive and they will buy substitute
products .
b) 2 n1arks for stating that they want to increase
sales of the products; 2 tnarks for explaining
that this will be at tin1es of the year when
sales will not be good, for exan1ple, at the end
i
of a season for gift items associated with
I particular festivals.
I c) 4 marks for stating factors that affect pricing
I strategies . 4 nurks for explaining these
factors and why they are important to the
I
business (for example, con1petitors' prices;
I stage of the product life cycl e of the
product; costs of production ; type of
product; qu::dity of product; whether there
are con1peting products) .
Answers
U N IT 2 1 The m a rketi n g m ix:
p ro m oti o n
Sample questions and answers
b) Exatniner's nurks and cmnments: Three
suitable ways suggested and two were j ustified
briefly. Total = 5/9 marks .
e Try this
a) 1 mark for teenagers .
b) Up to 3 marks for stating factors like the cost;
trends in spending habits; which is most likely
to increase profits; what type of custmners use
the shopping centre . Up to 4 nutks for
explaining how these factors influence the
decision. If many different age groups of
customers use the shopping centre then sales
may be increased by attracting a wider range
of customers . If Music Mania spends 1nore on
advertising then it will only attract the san1e
age group of custo1ners and this nny not
increase sales as n1uch.
c) 3 marks for stating the factors to consider.
3 marks for explaining these factors. 2 nurks
for applying them to selling classical music .
The promotion has to be suitable for music. If
the profit per CD was not high then 'buy
one, get one free' would not be suitable as
the business would lose 1noney. COs are not
bought that often, so it 1night be better to
offer a second CD at a reduced price once
one has been purchased.
d) 1 mark for a suitable exan1ple (for exatnple,
fitted kitchen, building work) ; 3 marks for
explaining why the exan1ple would be sold
using personal selling - advice would need to
be given and the product or service 1nay be
specific to the custon1ers' requiretuents .
U N IT 22 The m a rketi n g m ix: p l ace
Sample questions and answers
2) ii) Exanliner's n1arks and con1n1ents: A good
answer, but n1ore than two factors were
considered and the answer had n1ore points
explained than were needed to achieve full
marks. Total 8/8 1narks.
e Try this
a) i) wedding cakes; ii) new cars; iii) tins of
fruit; iv) shoes (exported)
b) 5 nnrks for explaining the advantages and
disadvantages of not selling to a retail chain of
107 •
ANSWERS
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
supennarkets (for exan1ple, sales are not as
high , does not reach a wide target n1arket,
n1ore control over the way the product is sold
to the custotner) . 5 tnarks for explaining the
advantages and disadvantages of selling
directly to an airline (sold directly to customer
so higher profits, products are produced to
the custotner's specification) .
c) Product - should be high quality furniture;
Price - should be high ·to reflect a high
quality product; Promotion - should be in
places where high-income groups would be
likely to see the advertisements; Place -
should be in shops which sell mainly
expensive produ cts. 4 n1arks for stating the
different elen1ents of the marketing mix. 4
n1arks for explaining how these four elements
would be used in each case . 4 marks for the
answer to be in the context of furniture for
each eletnent of the n1arketing n1ix.
d) 4 nurks for stating different factors to
consider. 4 tnarks for explaining why these
£1ctors would be in1portant when deciding on
the n1arketing n1ix in a different country. The
types of retail outlets used, for exan1ple, may
be different. In one country large
supern1arkets may be used by tnost of the
custotners whereas in another country, small
shops tnay be more comn1on, so wholesalers
·will be part of the 'place' in the n1arketing
tnix in one country, but not in the other.
U N IT 23 Factors affecting prod uction
Sample questions and answers
c) i) Exan1iner's n1arks and comn1ents: Clear
definition. Total = 2/2 marks .
• Try th i s
a) i) 11nark for each n1ethod - job production
and flow production.
ii) 2 tnarks for explaining what is n1eant by
either quality control or quality assurance; 2
n1arks for saying vvhy it is ituportant to Medic
Supplies pic . Quality assurance is where
quality standards are set and then applied
throughout the bu�ine�� . Everyone on the
production line at Medic S upplies pic will be
responsible for ensuring that there are no
defects with the produ cts . This is particu larly
in1portant for this business because it supplies
• 108
equiptncnt to hospitals and if there were any
faults then a death could be caused , n1eaning
the company would get a bad reputatipn
resulting in lost sales.
iii) 2 n1arks for explaining the process of stock
control; 2 marks for explaining how it ensures
that raw materials should always be available so
that production can take place; 2 n1arks for
being in the context of n1edical supplies.
iv) 2 marks for defi n ition of lean production.
Up to 4 n1arks for explaining how it n1ight be
introduced at the business.
b) i) 3 marks for stating the cost savings of using
computers to take orders instead of employing
people (for example, fewer people needed,
less wages to pay out, ordering can be
automated) ; 3 tnarks for explaining why these
mean lower costs.
ii) 2 marks for stating the possible effects on
the number and types of j obs at the con1pany,
2 marks for explaining why these effects are
worrying for the employees at Telesales
Services Ltd. More on-line ordering will
n1ean that fewer ernployees will be needed as
this is done automatically. Fewer telephone
orders will n1ean employees who work in this
section will be made redundant as they will
not be transferred to on-line ordering. This is
why employees are worried about losing
their j obs.
U N IT 24 Facto rs affecti n g l ocatio n
S ample questions and answers
3) Examiner's marks and conm1ents: 3 n1arks for
listing disadvantages (more than three were
listed) and 1 mark for explaining the reason
for high rent in city centres. The candidate
needed to explain the o ther disadvantages
for full n1arks . Total = 4 / 6 n1arks .
e Try th i s
a) i) 3 marks for each of the three £1ctors (for
example, availability of labour, location of
ports, availability and cost of land, goven1ment
grants) ; 3 n1arks for explaining why these .
factors are lmpod:arit The cocoa is i n1porte d so
being located near to a port will reduce the
transport costs of the raw n1aterials.
ii) l tnark for stating each of the appropriate
factors (n1aximun1 3) ; for exan1ple, the

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
market, costs of setting up a new factory,
costs of running a factory in this overseas
market, availability of suitable labour,
governn1ent policy; 3 marks for explaining
these factors; 2 marks for applying the answer
to chocolate manufacturing; 2 n1arks for
nuking judgements as to which factors are
the n1ost irnportant when making the
decision. If particular skilled labour is needed
and there is none available in the country
then it will be expensive to en1ploy foreign
skilled workers .
b) 2 marks for stating the disadvantages of
businesses locating wherever they want to,
without any consideration of the local
population or environment; 4 marks for
explaining the reasons. For example, causing
traffic congestion fron1 delivery lorries;
destroying areas with wildlife and natural
beauty; the local population nuy not be
happy about factories being built near their
houses; causing pollution .
c) 2 marks for stating whether location is
important to this business ; 4 marks for
justifying this answer. Points nuy include :
selling over the internet n1eans that customers
do not need to go to a particular place to see
the products so the business does not need a
shop for custotners to visit; orders are sent by
post and therefore it is useful to have access
to postal services nearby; the internet allows
the business to locate anywhere in the world,
not necessarily in the same country as the
custon1ers; orders can be placed over the
internet, so the business is not reliant on the
post for orders to be sent, which saves time
I
between orders being placed and the orders
being received by the business .
I
l
I
I
Answers
• • • • • • • • • • • • • • •
U N IT 2 5 B u s i n ess i n the
i nte rnati o n a l co m m u n ity
Key definitions
The ' exa1nples' questions are based on your own
country - ask your teacher to check your answers.
S ample questions and answers
d) ii) Examiner's marks and conlffients: The
student has understood the impact on
exporters of an appreciation and has stated
that this could reduce profits fro1n exporting.
Total = 4/4 nurks .
• Try this
a) 1 n1ark for indentifying each reason and 1
mark for a brief explanation of each one.
To obtain raw materials - these 1night not be
available in the 'ho1ne' country; to produ ce
more cheaply - labour costs could be lower in
another country; to avoid tarifFs - by
producing goods in another country, in1port
tariffs will no longer have to be paid for
imports into that country.
b) 1 mark for each correct point.
Language problen1s; different laws (for
exan1ple , consumer protection) ; different
customer tastes; con1n1unication problerns
with head office.
c) Up to 2 marks for benefits and up to 2 nurks
for drawbacks; up to 4 n1arks for discussion
and j udgement.
Benefits: more j obs, export earnings, increased
output, increased tax revenues.
Drawbacks: j obs lost at existing con1petitors,
possible environn1ental dan1age ; possible
exploitation of labour; possible excessive
exploitation of natural resources; profits sent
back to 'home' country.
1 09 •

accounts 27 , 30, 46
advertising 7 9
Articles of Association
a�e� 27 , 2 8 , 30, 3 6 , 37
balance of payments
balance sheet 28, 30
ban kruptcy 30
benefits 1 9 , 2 1 , 53
bon uses 52-3
bra nds 7 2
break-even p o i n t 2 3 , 2 6
bu dgets 23, 26 , 64
busi ness, types 6, 64, 9 1 , 93
b usiness plans 37
capital 1 , 27 , 28, 3(> , 37
cash flow 32, 34, 3 5 , 46
chains of command 4 1
c h ar� 23 , 7 0 , 7 1
collective bargaining 60
communication 4 9 , 50, 5 1
consumer protection laws
contracts o f em ployme nt
contribution 23
co-operatives 10
corporations 1 0, 1 2, 9 5 , 97
cost benefit an alysis
costs 1 , 1 9 , 2 1 , 23 , 24, 26, 27
credit 30, 37
curren cy 1 7 , 95
customer service 79
debentures 36
deb� 27 , 28, 30, 3 2 , 37
decentralisation 42
decision-making 1 5 , 45
de-industrialisation
depreciation 27
discrimin ation 15
dismissal 5 7 , 60
distribution 83, 85
diversi fication 5
dividends 27, 36
economic growth 6 , 1 4 , 17
economic problem
economic unions 95
economy, types of 6
employer assoc iations 60
• 1 10
I ndex
exchange rates 1 4 , 1 5 , 1 7 , 95 price skimming 7 (> , 7 8
expenditure 37 pricing strategies 7 6 , 7 8
10 exports 1 4, 1 7 , 95 private sector 6 , 8 , 1 0 , 1 2
privatisation 6
feedback 49, 50, 5 1 product life cycle 7 2 , 7 4
14 finance 3 4 , 3 6 , 37 , 39 production 5 , 87 , 8 9
forecasts 23 , 26, 3 2 , 34 productivity 8 7 , 89
franchises 10 profi� 8, 27 , 28 , 30, 35, 36, 53
promotion 7 9 , 8 1
globalisati o n 9 5 public corpora tions 1 0, 1 2
graphs 7 0 , 7 1 public relations 7 9
Gross Domestic Product (GDP) 14 p ublic sector 6 , 8 , 1 0 , 1 2
hierarchies, levels o f 4 1
quality control 8 8 , 89
hire purchase 3 7
quotas 1 5 , 95
imports 1 4, 1 5 , 95
ratios, types of 2 7 , 30
income 1 4 , 1 7 : see also wages
recession 14
industrial action 6 1 , 62
recruitment process 56, 58
inflation 1 4, 1 7
redundancy 5 7 , 6 0
integration 5 , 8
retained profit 27, 3 6
retrenchment 5 7
15 job satisfaction 5 3 , 5 5
revenue 23 , 27 , 3 0
15
leasing 3 7
salaries 53
liabilities 27 , 2 8 , 3 0
sales turnover 27 , 28
limited companies 8 , 1 0 , 1 2 , 3 9
scale, (dis) economies of 24, 26
19, 21 limited liability 10
shareholders 3 , 1 0 , 27 , 28, 39
liquidity 27 , 30, 32
shares 28, 3 6 , 39
loans 2 8 , 3 2 , 3 4 , 3 6 , 39
sole traders 10, 1 2
location 9 1 , 93
spans o f co ntrol 4 1 , 43
stakeholders 1, 3
managers 4 1 , 43, 45-6 , 47, 53
market research 6 7 , 69 start-up fi n a nce 3 4 , 37
marketing mix 64, 66, 72, 74, 7 6, 79, stock c ontrol 87
83 supply and demand 76, 7 8
Memorandum of Association 10
5 monopolies 15 taxes a n d tariffs 1 5 , 27 , 9 5
motivation theories 5 2 technology , changes in 1 9 , 2 1 , 89
multinational corporations 9 5 , 9 7 trade cycle 14
training 5 7 , 5 8
national minimum wage 15 transportation 8 3 , 85
overdrafts 3 2 , 3 6 , 39 u ne mployme n t 1 4, 2 1
overheads 23, 27 uni ons 60, 6 1 , 62
1, 3 packaging 72, 74 value a dded 1 , 3, 8 7 , 89
partnerships 10, 12
personal selling 7 9 , 8 1 wages 52, 5 4 , 5 5
pressure gropps 19 worker participation 6 1 , 6 2