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IGCSE

BUSINESS STUDIES PAPER 1 BY KENTISH GOOROOCHURN (2016 SYLLABUS)


SAMPLE ANSWERS BY KENTISH GOOROOCHURN
1. Waka Ltd. manufactures wooden products which are sold to retailers on a 2 months
credit term. The retailers at times, delay payment which causes cash flow problems
for Waka Ltd. The business is planning to stop giving credit terms to retailers. Sakal
Ltd is another producer which also manufactures wooden products but sells directly
to final customers. The gearing ratio of Waka Ltd is currently 75%.

(a) What is meant by a cash flow problem? [2]
This is when the total cash outflows exceed total inflows and that the opening
balance is not sufficient to fund the negative net cash flows.

(b) Identify two advantages to Waka Ltd. of selling wooden products to retailers [2]
Advantage 1: No need to invest in promotion to attract final customers as this is
done by the retailers
Advantage 2: Information from retailers is forwarded to Waka Ltd. about the latest
furniture style demanded by customers

(c) Identify and explain two ways of reducing cost to Waka Ltd. [4]
Way 1: Invest in capital intensive methods of production
Explanation: This would decrease the labour cost as the furniture would be
manufactured mostly using machines.
Way 2: Use alternative wood supplier which is cheaper
Explanation: The wood used to manufacture furniture could be ordered from
another supplier which offers cheaper prices and this would decrease average
cost.

(d) Identify and explain 2 sources of finance that Waka Ltd. could use to invest in
new machinery [6]
Source 1: Share capital
Explanation: Given that it is a private limited company, it could raise share capital
by selling shares to family members and friends. This finance would not have to
be paid back to the shareholders, except that dividend payments could increase.
Source 2: Long term bank loan
Explanation: New machinery is usually costly and bank loans allows businesses to
borrow a high sum of money that could be repaid in the long term. However, as
the gearing is 75%, it is less likely that Waka Ltd. would have access to this source
of finance.

(e) Would a takeover of Sakal Ltd increase the sales revenue of Waka Ltd? Justify
your answer [6]
As Sakal Ltd is taken over, one competitor is eliminated as both are engaged in the
production of wooden products. This implies that they might have a higher
combined sales turnover as the customer base of both businesses would be
merged. However, corporate culture clashes might affect the way of working and
if this results in lower quality furniture, customers might shift to other businesses,
implying that there is no guarantee of an increase in sales revenue. Overall, the
takeover could increase sales revenue only if Waka Ltd is able to coordinate the
ways of working as a new and larger business. The fact that they would be larger

Kentish Gooroochurn (2016)

IGCSE BUSINESS STUDIES PAPER 1 BY KENTISH GOOROOCHURN (2016 SYLLABUS)


SAMPLE ANSWERS BY KENTISH GOOROOCHURN

could allow economies of scale to set in and leading to a lower price charged to
customers, hence increasing sales volume which impacts positively on sales
revenue.
2. The sales of Babooram soap products have recently declined after a successful
launch of a new soap by Kimer Blanc company. The sales of Babooram was $1m in
2015 while the total industry sales totalled to $15m. The marketing manager is
thinking of ways to increase sales revenue.

(a) Define the term market share [2]
This is the proportion of sales held by a firm out of total industry sales for a specific
period. Market share= (Sales of firm / Sales of industry) x 100

(b) Calculate the market share of Babooram in 2015 [2]
(1/15)x 100= 6.67%

(c) Identify and explain two ways that the marketing manager could use to increase
sales [4]
Way 1: Introduce new variety of soap
Explanation: This could help to overcome the saturation of its current soap
products. By having a new variety of soap, customers would want to try in order
to see the difference from competitors. This could therefore help to increase sales
if customers like it.
Way 2: Advertising using social media
Explanation: This could attract the young generation as they spend much time
online and through videos on facebook, they could be made aware about the
benefits of using Baboorams soaps, for instance, for treating skin problems.

(d) Identify and explain two methods of segmentation that the business could use
[6]
Method 1: Segmentation by age group
Explanation: The market can be divided in 3 age groups, for instance, babies would
require a different soap from adults. Adults on the other hand could require a
soap that has more strong properties regarding cleaning of the skin. Another soap
could be used for the older age group with mild properties as old people tend to
have sensitive skin. This way of segmenting the market could help the business
increase sales as each one would be targeted using a different strategy.
Method 2: Segmentation by gender
Explanation: Male and female customers require different soaps, for instance, a
soap with fragrance of different types could be targeted to the female customers
while men might not prefer the same type. This would enable Babooram to take
production decisions regarding the ingredients used in its soap products.



Kentish Gooroochurn (2016)

IGCSE BUSINESS STUDIES PAPER 1 BY KENTISH GOOROOCHURN (2016 SYLLABUS)


SAMPLE ANSWERS BY KENTISH GOOROOCHURN
(e) Should Babooram continue to expand the business further? Justify your answer
[6]
By expanding the business further, purchasing economies of scale could set in
where bulk purchase of ingredients to manufacture the soap could lead to lower
average costs, enabling the business to decrease its selling price with a hope of
attracting more customers. As the total industry sales amounted to $10m, it
shows that there is demand for soap products, therefore, expansion could be
necessary. However, if Kimer Blanc has captured a high proportion of the market
share, it might not be cost effective to expand, especially if customers have
developed a preference over competitors brand. Overall, only if customers would
be willing to switch to the new soaps introduced by Babooram then it should
expand. Else, it might end up producing too many soap products and money
would be tied up in inventories.

3. Le Nurvesh International school (LNIS) offers the IGCSE and IB programme in
Mauritius. Mr Roche Davidos is the headmaster and believes that financial rewards
have no impact on the motivation of the teaching staff. The teaching staff is
currently demotivated and believe that their efforts are not rewarded.
Management uses an autocratic style. Recently, some teachers have left to work at
Shanefield International School (SIS).

(a) What is meant by an autocratic leadership style? [2]
This is where the leader retains decision making power and give instructions to
subordinates and the latter have to follow without being able to voice out. Usually
present in centralised organisations.

(b) Identify two benefits of delegation to the head of departments at LNIS [2]
Benefit 1: More time available to the headmaster to concentrate on other
important aspects about running the school
Benefit 2: Acts as a motivator for the head of departments as they believe that
management trusts them.

(c) Explain whether Roche Davidos should delegate tasks to the head of
departments [4]
By delegating tasks, Roche Davidos would have more time to plan for the events
at the international school, for instance, meeting with different stakeholders such
as parents. The latter would as such be satisfied about events which are well
planned by management. However, if the head of departments have too many
tasks being delegated to them apart from their usual list of duties, they might have
lesser time to devote to the running of their departments and lesser control on
the teaching staff directly under them.




Kentish Gooroochurn (2016)

IGCSE BUSINESS STUDIES PAPER 1 BY KENTISH GOOROOCHURN (2016 SYLLABUS)


SAMPLE ANSWERS BY KENTISH GOOROOCHURN

(d) Identify and explain two ways that Roche Davidos could use to motivate the
teaching staff [6]
Method 1: Use a democratic leadership style
Explanation: Under the current autocratic leadership style, teachers are not able
to voice out their opinions and this might explain poor motivation. By becoming
more democratic, the views of the teachers would be taken into consideration,
hence satisfying their self-esteem needs and this could boost up motivation given
that they feel valued.
Method 2: Increase pay
Explanation: Roche Davidos might be wrong to say that financial rewards have no
impact of motivation. By increasing pay, teachers would feel that their hard work
put into the running of the school is being rewarded. As such, they might continue
to put efforts to improve results. However, pay is only a hygiene factor according
to Herzberg two factor theory.

(e) To what extent should Roche Davidos be concerned about increasing number of
teaching staff leaving to work at other schools? Justify your answer [6]
Roche Davidos should be concerned as the goodwill of the international school is
at stake. Parents would complain that teachers are leaving to work for other
schools and the shift of teachers could cause a lack of human resource to complete
the syllabus and this is crucial as the IGCSE and IB exams are externally assessed.
The recruitment and selection costs would also be high as each time new teaching
staff would have to be recruited and training provided to them. However, with
new members of staff, the school might have new pool of ideas that could help to
improve results through new techniques of instruction in class. Overall, if the
goodwill of an international school is tarnished, parents would not be encouraged
to send their child for education in such an institution. New teachers joining might
take too much time to adapt to the organisational culture and to the IGCSE and IB
programme and this could have a negative impact of results.

Kentish Gooroochurn (2016)

IGCSE BUSINESS STUDIES PAPER 1 BY KENTISH GOOROOCHURN (2016 SYLLABUS)


SAMPLE ANSWERS BY KENTISH GOOROOCHURN
4. The diagram below shows the economic cycle:

Many businesses in Country X have started to close down because of the economic
recession. The government is thinking that some help should be given to important
private sector firms providing essential services to the public.

(a) Define the term recession [2]
Fall in the level of economic activity characterised by declining GDP for a sustained
period.

(b) Identify two features of a boom [2]
Feature 1: High spending patterns by consumers
Feature 2: Low level of unemployment

(c) Explain the objective of private sector businesses during a recession [4]
Survival would be a major objective as during recession, many businesses have
closed down in Country X and the remaining ones might not want to have the same
problem. As such, they would try to reduce costs, for instance, by making workers
redundant in order to survive. They would want to at least break even with the
hope that after the recession and slump as shown in the figure, their business
flourish.



Kentish Gooroochurn (2016)

IGCSE BUSINESS STUDIES PAPER 1 BY KENTISH GOOROOCHURN (2016 SYLLABUS)


SAMPLE ANSWERS BY KENTISH GOOROOCHURN

(d) Identify and explain two ways in which a depreciation of Country Xs currency
might affect businesses [6]
Way 1: Imports more expensive
Explanation: If local businesses are importing raw materials from abroad to
manufacture products, they would have lesser imports with the same amount of
money. Therefore, more money would be required to buy imports. As the cost of
businesses increase, they would keep prices high with the hope to recoup their
investment but unfortunately Country X is going through a recession and
customers might not purchase.
Way 2: Businesses importing from Country X would find their imports cheaper
Explanation: As the local currency depreciated, the currency of other countries
would be stronger in relation to Country Xs. Therefore, they would want to buy
from Country X as they would be paying lesser in real terms. This would help to
increase sales volume of local businesses but not help to increase profits.
(e) Do you think that the government should help private sector firms in Country X?
Justify your answer [6]
By providing grants and subsidies, the government would be helping the private
sector firms to survive. This is in line with the macro economic objectives of the
government, where job loses would be less likely to occur. This would help to cope
with the declining standard of living during the recession. However, the
government should not help those firms as the money used is mostly from tax and
private individuals would rather want the government to provide merit goods such
as health care, instead of helping private sector businesses. Overall, the
government cannot help all private sector businesses but only some that really are
engaged in the provision of essential services. This could however create conflicts
as some private owners would find it unacceptable that their business did not get
help from the government.

Kentish Gooroochurn (2016)