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Foreword
I had the opportunity of discussing this book with several educationists, teachers and
students when it was in the process of making, and I felt at once that it was likely to
prove unusually useful. It gathers together a great deal of information which must
otherwise be delved for in many books and all this is arranged judiciously and on
practical lines. The authors’ outlook might be described as one of liberal commonsense
clarity, simplicity of expression, and examination - skills - focused. Our study packs are
there to offer a canvas for Zimbabweans to showcase their best ideas to help transform
the country into a knowledge- based society where citizens are free to express their
creativity, knowledge and ingenuity. We have set challenging objectives, but we believe
that only by striving to achieve the highest, can we elevate ourselves above the elements
which tend to hold our country back. However, if your see anything where you feel we
may have failed to deliver, and where we may have failed on issues such as content,
depth, relevance and usability, please let us know by using the contact numbers
(09) 61226/61247, 0773 247 358; or Box 2759 Byo; email at turnupcollege@yahoo.com.
We are here to listen and improve.
In my days as a teacher and as a student I should have welcomed this book warmly
because:
(i) It approaches the syllabus wholistically
(ii) It uses simplified expression
(iii) It has an in-depth coverage of content
(iv) It provides examination skills at the earliest stage of studying
(v) It provides local, international and commonplace examples; illustrations and case
studies.
(vi) It provides intelligent questions and answers of the examination type on a chapter
by chapter basis
(vii) Last but not least, it provides a clear platform for self-evaluation as one prepares
for the final examinations.
I have no doubt that learners and educators would as well find this book to be the best. It
is certainly a manual for success. Every one would find it worthy to have his own copy. I
should not be surprised if the Turn-up College Study Pack became the best resource in
school and out of school.
Sam Madzingira
Director
Table of contents
Chapter Page
Acknowledgements
The Director of Turn- Up College would like to express his gratitude to members of
Turn-Up Enterprises and other outsiders, whom through their effort, made the publication
of this study pack a success. Also not to be forgotten is my secretaries Chiedza Prisca
Muchena and Crystabell Mudzingwa who typed the manuscript. My gratitude also goes
to the editorial team who attempted to perfect the module. I also extend my thankfulness
to all the writers whose resources have been used as a basis for the production of this
module.
We have taken every effort to try and get hold of the copyright holders of any
information we have reproduced without acknowledgement. We will appreciate the help
from anyone to enable us contact the copyright holders whose permission we have not yet
obtained.
S. Madzingira
CHAPTER 1
Business and its Environment.
1. Structured Questions
1. Despite the advantages of large firms, many small businesses are very
successful. Give three reasons that justify this statement. [6]
Answer
Reasons might include: -
- Personalized services
- Tailor- made products
- Convenient opening times
- Closeness / proximity to customers
- Subcontracted by large firms etc.
Answer
(a) De- integration refers to the process of a firm or group reducing the scope of
its activities. It may take different forms such as de-merging, divestment,
contracting – out and management buyouts.
(b) Reasons for de-integration
- Raising finance
- Saving management time and expertise
- Increased efficiency
- Defensive reasons for example to avoid take over as a result of poor
performance.
3. Suggest two possible reasons for the government’s privatization policy. [4]
Answer
4. (a) Distinguish between the public sector and private sector of an economy.
[2]
(b) Explain why some goods and services are provided by the public sector in
your country. [3]
Answer
(a) Public sector – government ownership and aims at improving social welfare.
Private sector – individual ownership and aims at maximizing profit.
Answer
(a) Diseconomies of scale are an increase in the cost per unit as a result of
increased scale of production.
(b) Managerial economies of scale, technical economies of scale financial
economies of scale marketing economies of scale. Risk bearing economies of
scale.
Answer
Answer
8. How might a fall in the external value of a country’s currency cause inflation?
[5]
Answer
Answer
(a) A type of economy where individuals can own resources, and price
mechanism determines what to produce and for whom to produce.
(b) Legal controls might include:
- Restriction on share capital to be raised by a company
- Restrictions on location
- Restriction on the levels of pollution.
- Restriction on number of hours of worked per day for example 8 hours.
Answer
(i) Interest rates reduce borrowing, as cost of borrowing is high. This leads to
increased cost of production.
(ii) Customers cannot but, TV on credit, as interest will increase the price finally
paid.
(iii) TV producer cannot acquire inputs on credit from suppliers as interest charges
are too high
a- They help define an organisation and its environment thus justifying their
existence to the government, customers and society at large.
- They help in coordinating decisions and decision makers.
- They provide standards for assessing organisational performance.
- Help to reduce conflicts in decision-making if all employees know the objectives.
b- State and explain three ways in which the objectives of a private enterprise might
differ from those of a public sector enterprise. [4]
A- Private sector enterprises is profit oriented i.e. high sales volume and lower unit
costs of production.
- Public enterprise provides goods and services to improve the society’s standard of
living and quality of life.
- Private sector enterprises are competitive and have to be market oriented and all
policies aim to satisfy the consumers.
- In public enterprises, social responsibility figures prominently.
12 a) Explain two possible threats resulting from switching from a central planning to
an economy based on market forces to manufacturers.
A- Protection from external competition will no longer exist, market forces eliminate
the barriers for other more efficient producers who can charge lower prices for
their products.
- Government’s subsidies and non-tariff protection will no longer exist so firms
find it difficult to sell at low prices.
- Share of the market is reduced as many other competitors are free to enter the
market and provide goods.
13 State four major objectives of the state. Give two examples of situations in which
one or more of these objectives might conflict with each other.
A (i) To ensure economic growth.
(ii) To keep inflation low and under control.
(iii) To ensure full employment to keep unemployment between 2-5%.
(iv) Promote social goals and society’s welfare through provision of essential
social services.
To maintain a stable price level, the state may set high interest rates in order to cut
consumption expenditure; however, high interest rates would increase business
costs thus reducing business profits and economic growth.
Providing social services cost tax payers’ money and this could be in form of
higher personal or corporate taxes. High taxes would lower the disposable income
and lower standards of living as well as business costs increasing.
A- To minimise costs imposed by the MNC in areas like balance of payments costs,
industrial dominance and technological dependence.
- To ensure that foreign investors bring with them the advanced technology and
market that is conducive to growth.
- To ensure the provision of Industrial experience and managerial expertise and
training of local entrepreneurial talent.
- To ensure that there is no over exploitation of natural resources and labour.
b) Why might the owner of a small business not wish to expand his business? [4]
A - Smaller number of employees provide for easier co-ordination and control of
efforts towards the achievement of organizational goals.
- Government regulations for small enterprises are less stringent and more flexible.
- There is greater ability for the owner to control the operations and activities of a
small enterprise.
- There is simplicity of operations due to lack of many departments or a
bureaucratic system.
Turn -Up College ‘A’ Level Management revision book
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- Closer contact with customer can he easily established thus responding quickly to
customer needs.
- Greater flexibility in operation.
b) Why would a firm prefer to sell a franchise rather than conduct business directly?
[3]
A- It allows opening a business under the beneficial umbrella of an established well
publicised company image.
- The layout and décor, inventory, equipment and systems, all have been evolved
and proven over time.
- Consumers re already familiar with the chain and its reputation, this head start
gives the firm immediate business on opening day.
- The franchisee obtains capital and necessary training in operations.
19 a) Why might a conflict of objectives exist between the management and workforces
of a company? [3]
b) Suggests two ways of minimising this conflict [2]
A a) Objective of the management centres towards the economic betterment of the
company i.e. economic performance measured by profit and loss figures
- Workforce’s objectives centres on betterment of the self i.e. better wages, training
and working conditions.
- Conflict arises in pursing these objectives, e.g a production manager may require
workers to work more overtime in order to meet the increased orders.
Turn -Up College ‘A’ Level Management revision book
Page 14
- Workers are unwilling to work so much overtime since it decreases the time
available for their social activities and intruding in their private time.
- Production manager works towards improving the economic performance of the
company while the workers sought to satisfy their social needs.
20 a) Why might the government of your country encourage firms who wish to export?
[4]
A. - It earns a country foreign currency and enables importation
- Exporting enables firms to enlarge production and enjoy economics large
scale.
- Exporting is a means of geographic diversification
- Poor demand dramatically can be compensated by high demand in
overseas markets
- Variety of products are brought into a country
- Better relations with trading partners.
b. State three ways which in which such encouragement might be given.
A - Establishing cordial international diplomatic relations is important in encouraging
export/ many export bureaucracies and procedures can be simplified and made
more convenient.
- Government can grant export subsidies- to reduce the real production cost and
more competitive prices on the world market.
- Government gathers and discriminates information to keep producers informed to
the threats and opportunities overseas.
Essay Questions
Answer
2. Discuss the external economic constraints that might limit the future of
businesses in your country. [25]
· Government control on prices makes it difficult for businesses to charge a price that
will bring a reasonable profit.
· Shortages of raw materials and of poor quality may make businesses produce
products of poor quality and poor demand for products.
Answer
(a) (i) Opportunity Cost- it is the cost in terms of the next best-foregone
alternative. E.g. if the government is deciding between opening a new
factory and putting up a recreational facility in a certain area, the
opportunity cost of opening a factory is the benefit that would have been
gained by a recreational – facility that is foregone. Putting up a
recreational facility makes the community to forego the business that a
factory could have brought.
(ii) Social Costs – combination of private costs and external costs. E.g.
putting up a factory brings pollution to the society plus private costs that
include wages, fuel, and building material. Private costs are borne by the
businessperson while external costs are costs to society that emanate from
the business person’s activities e.g. pollution, congestion.
b) Answers should acknowledge the need to control pollution and at the same time
recognize that businesses are essential for a county’s success. Therefore, answers
should give reasons why businesses should continue to operate and suggest
strategies of dealing with pollution.
4. To what extent should businesses take the interest of stakeholders into account
when making decisions? [25]
Answer
· Increase in prices.
· Merging to reduce competition.
· Staff dissatisfaction.
· Community fear over the amounts of pollution from firms.
· Impact on public image and reputation and eventually on long term profits?
· On the other hand, the business is in the private sector and aiming to make (short-
term) profits so should it be concerned with stakeholder’s interests?
Short-term profits might be increased by focusing just on the interest of shareholders, but
these decisions could damage the image / reputation of the business and lead to
stakeholders opposition and this might reduce profits in the long term.
Answer
Answers should show a sound judgment by considering both advantages and
disadvantages.
Advantages
· Scope for economic of scale – give examples, bulk buying at low cost.
· Could close one site and raise capital leading to new site having better buildings.
· Reduces competition – scope to raise prices.
· Synergy – two organizations coming together may generate more ideas and mutual
benefits.
Disadvantages
· Diseconomies of scale – communication already poor.
· Problems if operating on both sites.
· Co-ordination problems.
· Conflicts of interest between management.
· Human problems for example which staff to make redundant. Will the staff from
one company have authority over others.
· Cost of purchases and cost of rationalization / reorganization.
· Loss of control with new partner.
6 (a) Explain any three elements of the business external environment. [5]
(b) Discuss how technology change might affect u businesses in your
country. [20]
Answer
a) Answers should choose any of the following elements and briefly explain them;
(i) Physical
(ii) Economical
(iii) Social
(iv) Technological
(v) Legal
(vi) Political etc.
Answer
a) Advantages of being a small business.
· Clothes can be made to customer specification due to customer contact.
· Personalized services.
· Customers feel they are given attention.
· Flexibility.
Disadvantages.
· Too much competition from larger manufacturers.
· Reduced efficiency.
· Loss of economies of scale.
· Difficulties in raising funds.
· Difficulties in employing highly skilled staff.
8 (a) Discuss how the business objectives might differ from those of the
state. [10]
b) Evaluate how businesses might respond to fluctuations in exchange
rates. [15]
Answer
· Businesses might be out to maximize profits while the state is out to increase social
welfare of the people.
· Businesses might be concerned with growth and as a result increase pollution while
government may be concerned with reducing pollution.
Effects
Exports become expensive and hence, businesses will find it difficult to penetrate foreign
markets. Demand for the firm’s products will be reduced.
Imports become cheaper and local businesses will suffer when demand shifts to imported
goods.
Depreciation / devaluation of a currency. This is when the currency loses value against
other countries’ currencies.
Effects
Exports become cheaper and hence, businesses gain from increased demand.
Imports become expensive and hence demand shifts to local products.
Therefore, depending on the elasticity of demand for exports and imports fluctuations in
exchange rate benefit businesses.
(b) Discuss why public limited companies find it difficult to satisfy the
interests of both shareholders and other stakeholders in the business.
[15]
Answer
b) Answers should choose at least three stakeholders and show how each
stakeholder’s interest conflicts with shareholders’ interest for example government
and shareholders. Shareholders want higher profits to be paid out as dividends
while the government requires profits as taxes.
Suppliers want to increase cost of material and to be paid promptly while shareholders
want to extend creditors payments period to improve liquidity.
Customers require a cut in the price to aid affordability but shareholders require prices to
be increased to increase profits and dividends.
Answer
Answers should highlight the strength and weaknesses of the writer’s country as an
investment destination.
Disadvantages
· Economic hardships facing the country. For example inflation BOP deficit.
· Not too many people can afford clothing. Since it is a developing country.
· Currency fluctuations rather too high.
· Competition is already too high
- Price mechanism decides what to produce through the forces of demand and
supply.
- Consumer preferences and relative difficulty of producing the goods or
production costs determines the allocation of society’s resources.
- Price system apportions raw materials thus more inputs to the most productive
(profitable) firms/Industries.
- Price system carries out the distribution process by rationing goods on the basis of
preference and relative incomes.
b) Under what circumstances do you think that governments should provide financial
assistance to business? [15]
A - If they contribute to the economy’s growth.
- Financial assistance promotes project of strategic value to industrial development.
- Financial schemes armed at encouraging further development and technical
improvement of the operations of the small companies.
- To encourage research and development.
- Provide technical innovation and training of local Research and Development
personnel.
- To encourage training and upgrading of workforce to increase their productivity
and competitiveness.
- Funds are provided to encourage upgrading, mechanisation automation or
computerisation of operations in local firms.
b) “All firms seek to maximise profit.” How valid is this statement in line with business
behaviour? [15]
A Since businesses operate in a world of scarce resources, the economic efficiency of
business is a matter of top priority and should be the sole mission of business.
- However, in real life business have shown that profitability is not and cannot be
the sole criterion of a firm and its management.
- Businesses have other goals like;
- Sales- customer creation and satisfaction.
- Social objectives- to support not only higher education but also reduction of air
and water pollution.
- Growth objectives- expressed in terms of increased profits, sales, market share or
production.
make the infant industries to demand retention of their protected status even when
they are now able to meet foreign competition.
- The incentive to innovate and be more productive will be greatly reduced when
the domestic market is protected from efficient foreign market.
- Permanent tariff barriers would be required to protect a weak industry that will
never be able to compete on an equal footing in the international market.
b) Non-tariff barriers
- Quotas- fix the minimum amount of a commodity to be imported.
- Embargoes total ban against the imports of the goods.
- Exchange control- restrictions on foreign exchanges and its convertibility.
- Custom procedures- can be stringent to make imports of foreign products
difficult.
- Industrial standards- products that do not meet the set standards of quality
and production will be banned from entering the country.
- General Agreement on Trade and Tariffs (GATT) argues for free trade.
CHAPTER 2
MARKETING
Structured Questions
this for a firm when considering a change in the price of its product? [5]
Answer
When price is inelastic, an increase in price will not affect demand. Demand does not
Significance
The firm should increase price because this will result in an increase in revenue.
2.1.1 Answer
(a) Price, product, promotion and place.
Sales
& Introduction
profit
decline
sales
profit
Time
4. Under what circumstances might a “full cost mark up” pricing method be
the most appropriate one for a marketing manager to use? [5]
Answer
Answer
Mass marketing is undifferentiated marketing where product, are designed with mass
appeal and promoted to all types of consumer.
Answer
7. Outline how the market for soft drinks might be segmented in your country. [5]
Answer
Answer
It is a marketing policy, where the product is sold at low price. This approach aims for
high volume and high market share. Market penetration pricing policy is the opposite of
the skimming pricing policy.
Answer
10. Account for the shape and position of the sales and profit lines in a product
life cycle.
Answer
Introduction
Sales are low because the product is not yet known.
Profits are negative because of start up costs.
Growth
Sales begin to increase because product is now known.
Profits begin to be positive because sales, are increasing.
Maturity
Sales and profits level off because of competitors.
Decline – sales and profits decline. Profits decline because of rising Sale effort.
12 How useful are the concepts of demand and supply to a firm? [4]
A- It helps firms to set prices e.g setting a low price will mean a higher possible
turnover in terms of customers.
- A firm may decide to set high prices to lure lesser but more discerning customers.
- Concept of supply can help firms to select a certain market for example to cater
for the mass market or to a selected niche.
- The supply factor may be determined by the number of restaurants serving a
particular group of customers and the firm’s intention to compete in which
market.
b) How might this pricing approach be used by a public transport company? [2]
- When setting fare prices for the different groups of passengers travelling on its
vehicles
e.g. fare for average adult passengers and a lower prices for students or the
elderly.
- The different costs incurred in operating the transport are not considered.
2. Essay Questions
· Answers should go on to show how Boston Matrix is linked to the product life
cycle.
· Appropriate strategies should be highlighted e.g. if a product is at introduction
stage it is a question mark so advertise it so that it becomes a cash cow.
· Answers should go on to highlight the strengths and weaknesses of he Boston
Matrix.
2. A multinational company is about to launch a new camera in your country.
Discuss a marketing strategy the company might use to achieve a successful
launch. [25]
Answer
Answers can consider any of the following strategies
· MNC to carry out a R & D research to find out the needs of customers.
· MNC to price the camera reasonably to reflect quality and to wade away
competition.
· MNC to distribute the camera in shops where the target market will
access it e.g. Photo Inn.
· MNC to promote the camera effectively for example through advertising
or sales promotion.
· MNC to take into account the local Government’s policy e.g. taxes.
· MNC to find a local agent to research on market. Etc.
3. Evaluate the usefulness of the product life cycle to a company when deciding
on the future product mix of its business. [25]
Answer
· Interpretation of data may give firm ideas about discontinuing products or
introducing new ones. E.g. products in decline to be eliminated and new
products introduced. Product life cycle helps firms to decide on the
appropriate product mix and make decisions as to what pricing,
promotion and place to adopt at each stage. Candidates can come up with
their own examples of product and show how the marketing mix can
change as the product goes through the stages of a product life cycle.
· Answers might suggest extension strategies for promising products e.t.c.
4. A firm is building a new factory to produce tinned foods. Evaluate a
marketing plan that this firm could introduce to attract new customers. [25]
Answer
Answers should include;
· Explanation of marketing plan – detailed report containing marketing objectives,
budgets, strategy.
· Product to be developed to appeal to customers for example tinned food to be free
from poisons.
· Promotion - to be adequate and to reduce elasticity of demand.
· Place- firm to locate itself to be able to deal with the expansion of this market
sector.
· Plan needs to be evaluated i.e. likely chances of success or factors that might limit
its success.
· Are the company’s marketing objectives clear and are budgets sufficient?
5. To what extent do you agree with the statement that” setting a high
promotion budget, business could guarantee their future success” [25]
Answers should consider the benefits and limitations of having a high promotional
budget to the success of a business.
· Can the firm afford a promotion campaign?
· Will it always lead to increased sales?
· What factors will influence the success of this business?
· What about advertising elasticity of demand?
· How important is an integrated marketing mix?
· Why re the other aspects of the marketing mix such as price likely to be
important factors, in the success of this business too?
(b) Discuss how other elements of the marketing mix might be affected by
a business pricing decisions.’ [15]
Answer
· Cost of production.
· Availability of substitutes.
(b) Answers can consider the strategies a firm can use when prices are increased or
reduced;
· Place – price charged affects the place of distribution. For example a high price
should be accomplished by selective distribution.
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Page 33
7. Assume a business has decided to lower its prices for all its products.
Evaluate other changes to the marketing mix that the business might need to
adopt. [25]
Answer
Answers should discuss the relationship of price with other elements of the marketing
mix.
Product
Promotion.
8. Discuss the factors a firm should take into account when selecting the most
appropriate distribution channel for a new product. [25]
Answer
· Technical complexity.
· Size
· Value.
· Quality aspects.
9. (a) Explain the difference between mass marketing and niche marketing.
[10]
(b) To what extent might sales forecasts be useful for a business such as
Bata. [15]
Answer
a) Mass marketing is a strategy of designing and selling with mass appeal. The plan
is to sell the product to as many consumers as possible so prices are often quite
low and profit margins too. I there is no market segmentation.
b) Answers should analyse how forecasting might assist businesses. The answer
should include an evaluation of why sales forecasting might not aid the business
greatly.
11a) With the aid of appropriate examples show how important packaging is to the
success of a product? [15]
b) Show how packaging relates to other elements of the marketing mix? [10]
Part (a) requires a detailed description of how packaging helps to promote product and
parts (b) requires an explanation of the role of packaging in supporting the other elements
f the marketing mix.
A a) Packaging provides convenience, protection and ease of use. In addition
packaging provides a competitive edge for another wise standardised product
category.
- Product differentiation enabled by a distinctive package and by packaging
improvements overtime.
Turn -Up College ‘A’ Level Management revision book
Page 36
b) - Packaging helps identify the product especially when the colours, logos and
designs
on the package are used as themes in advertising
- It provide a unique promotional opportunity providing a constant reminder of the
product
- Packaging prompts the memory of the customer
- Packaging can be used to extent the life of the product by revitalizing interest n
the product itself
12 Why might demand for a firm’s product fall and what action could it take in response
to such a situation? [25]
Explain briefly the various reasons for a products decline and the strategies to remedy
the fall should be discussed.
A- The declines of sales are a result of more intense competition with competitors
bringing a better product.
- Technological advances which make a product absolute or changes in consumer
needs
- Strategies-
- Repositioning to secure new market segments
- Advertising to ensure market position by attempting to differentiate the product
from a greater number of competitors.
- Changes made to packaging or product design.
- Totally redesigning the product or withdrawing it.
- Withdrawal can be followed by a harvesting strategy to milk the brand for
additional profits by withdrawing all marketing expenditure.
- Modifying the product will aim to reintroduce the product.
- It requires formulation of a new marketing mix as product is treated as a new
product.
- Distributors need to be convinced to stock the new brand as sales have been
declining.
- Consumers should be given coupons or price promotions to induce trial as many
consumers were lost during decline.
The answer for part (a) should explain the importance of new product to a firm, and
part (b) should discuss on the use of value analysis.
A a) Developing new products has greater beverage profits than any other growth
strategy
- Growth relies on new products –firms can occasionally depend on market growth
for sales gains
- Products in the decline stage need improvements and line expenses are developed
- Optimisation of the situation faced by any particular firm usually calls for certain
types of new products and activity designed to yield these products can be vital to
the firm.
- The team will decide on the optimal product characteristics that is serving the
purpose but at low cost.
15 a) Why do you feel that price is important as an element of the marketing mix? [8]
b) Who should make the pricing decision in a business, the accountant or the
marketing director? How the approach to pricing decision might differs?
b) If financial parameters are the basic concern of the firm, the accountant with his cost-
oriented outlook may be more appropriate in making pricing decisions.
- Cost oriented pricing objectives rely on the internal company criteria rather than
external market driven criteria for pricing.
- The company establishes an objective of recouping costs and obtaining a
predetermined target return on investment.
- The company my also maintain sufficient price margins to finance advertising and
sales promotions.
- The objectives require cost as the basis for establishing price and the accountant who
is in a position to understand more clearly the finances of the company can set a price
to achieve the objectives.
- In the case of basis of consumer responses, demand-oriented pricing objectives may
be set.
- The marketing director can set price levels because he/she will be in a better position
to recognise price sensitivities of consumers.
- The marketing manager is in better position to appreciate the consumers’ price
awareness, price expectations and consumer price responses.
- Consumer responses to prices in various segments are established.
- Profits can be maximized if companies introduce different brands to different
segments with prices geared to the price sensitivities of each segments.
- Separate product lines can be established and prices set to meet the needs of each
segment.
16 a) Why has marketing become more important in organizations in recent years? [12]
b) Using examples, show how the characteristics of a business which is market oriented
differ from one which is product oriented?
CHAPTER 3
People In Organization
3. Structured Questions
Answer
(a) Noise, jargon, lack of feedback, in consistent words and action, etc.
(b) Managers should ensure feedback so that they are assured that workers really
understood what is being communicated.
2. Faulty communication devices should be repaired. This will also ensure that
effective communication is attained.
Answer
(a) A job description – gives information about the job and job title, subordinates,
superiors, etc.
Job specification – gives details of the expected personal skills to be able
perform in a specified job.
- It might be costly
- Can lead to labour turnover.
4. (a) In what ways may the grapevine turnover be useful to managers? [3]
(b) If change is evitable, why then do employees resist it? [4]
Advantages of grapevine
Advantages
- Specialization leads to efficiency
- Improved communication
- Improved chances of promotion.
However
- Workers can lose sight of organizational objectives.
Answer
Answer
Advantages
Disadvantages
Answer
Improved quality
Improved productivity
Improved worker loyalty
Improved sales and profits
(b) Perceptions on type of motivation depends on the nature of the workers. Some
workers (Theory X) prefer financial incentives while some workers (Theory Y) prefer
non- financial incentives.
11. Outline the factors that influence the span of control within an organisation. [4]
A. Span of control is the number of subordinates that a supervisor can effectively
lead.
12 a) Distinguish clearly between the functions of staff and line managers [4]
b) Why is there often conflict between these two groups? [3]
A a) In a line organisation, top management delegates authority to middle management
who in turn redelegate to lower management.
- Staff authority is the right of one member of an organisation to offer advice to
other members.
- Line authority is the right of a manager to demand accountability from
subordinates or others or performance of assigned responsibilities.
- Line authority encompasses the set of rights and expectations associated with the
traditional superior- subordinate relationship.
- Staff authority gives specialist advice and service to line superiors and this
performs two supporting roles.
- The flow of authority is upwards.
b) Since both line and staff functions co-exist there is a tendency for conflicts to arise.
- Line personnel feel that staff personnel are intruding in their lines authority and
that they do not understand the ‘real work’ of the organisation.
- Technical jargon used staff people might not be easy to understand especially by
the staff people thus making communication difficult.
- Both must work together co-operatively for the organisation to be effective and
efficient.
- Adequate time is available to make better decisions; participants are called more
time to give inputs in reaching a decision.
16 Besides strike action, what other ways might the workforce use to bring pressure
on management for better working conditions?
A. Collective bargaining- it is the discussion procedure whereby union
representatives negotiate with management representatives set the terms and
conditions for a specified number of years.
17 What is the importance of job evaluation “in the management of a firm? [4]
Job evaluation is the comparison of jobs by the use of formal and systematic
procedures to compare their relative work in the organisation.
- It is important when organisations wish to establish internal equity among
the different jobs in the organisation.
- After jobs are formally evaluated they are grouped unto classes, families
or grades and within each class jobs are arranged in order of importance
and ranges of pay are established with the aid of wage surveys.
- Job evaluation process permits both external and internal pay comparisons
as well as means of making individual pay level decisions.
- Job evaluation based on a job analysis, job classes pay grades and a pay
structure can be established.
- Communication of pay policies can ensures that each employee perceives
the method as fair and equitable.
18 a) State three things you would look for if you thought morale in a fir was falling [3]
b) Explain why the management of a firm would wish to maintain a high level of
morale among its employees.
A a) Low morale results in job dissatisfaction and lowered productivity
- Absenteeism is high and burden increases.
- Decreased effort and lateness.
- Complaints and regret advice.
- Quitting the job.
- Seek transfer from present post.
b)- To reduce absenteeism and staff turnover to make staff more receptive to new ideas
and schemes implemented by top management.
- To have a highly cooperative, trainable and flexible in operational requirements
thus resulting overall higher productivity for the firm.
19 How relevant are the ideas of F.W. Taylor to present day management? [6]
- Taylor’s studies proposed for scientific management.
- The efficiency techniques of scientific management such as time and motion
studies have made it aware that the tools and physical movements involved in a
task can be made more efficient and rational.
- The stress on scientific selection and development of workers has made us
recognise the importance of both ability and training in increasing worker
effectiveness.
- Work design encouraged managers to seek the “one betray” of getting a job done.
- Scientific management pointed to the way of professionalisation of management.
20 State and explain two reasons why a firm might prefer to appoint a new company
accountant by internal promotion rather than recruiting externally. [4]
A- It affects the morale of existing employee and the satisfaction of ego needs and
self- actualisation of the employed individuals.
- Workers reduce their contribution to the organisation when they feel that their
prior efforts will never be rewarded and recognised in some way meaningful such
as promotion.
- It deteriorates the sense of loyalty employees have towards the organisation.
- Employee turnover will be high and company will incur high costs of recruiting
new staff and train.
21. What applications do you consider McGregor’s X and Y theory has in the work
situations? [6]
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Essay Questions
With reference to theories of motivating. Discuss the extent to which workers can
be motivated by financial rewards. [25]
Answer
Answers should support the use of financial incentives and highlight the methods of
financial rewards such as, bonuses, commission, piece rate system, measured day work
etc.
Theories to support the use of financial incentives should be examined such as, F.W
Taylor, McGregor’s Theory X.
Answers should also highlight the need for non –financial incentives and mention the
methods of such incentives such as, job rotation, job enrichment, job enlargement, job
design etc.
Theories to support the use of non – financial incentives should also be observed such as;
Maslow’s Pyramid of needs, Hezerberg’s Two-factor theory.
Disadvantages of delegation
· Costly - mistakes.
Answer
Answers should highlight the importance of effective communication in a business such
as:
· Quality of decision-making is increased.
· Staff motivation.
· Speed of reaction to changes in the market is increased.
· Co –ordination between departments will be enhanced.
· Improved problem solving by all organization.
· Improved management.
· Communication ensures a business to become open in order to interact with all of
its stakeholders.
b) Answers to include:
4. Assume two companies are deciding to merge. Evaluate how the managers
might deal with the Human Resources Management problems that are likely
to occur. [25]
Answer
Answer
Definition of effective communication.
Methods to improve communication with meetings, groups, newsletters, IT. Etc.
Analysis of how these could improve effective communication.
BUT
May be time consuming, cost of its access all staff, communication overheard if widely
used staff not used to 2 –way communication better communication may need a change
of culture and leadership style.
May lead to reduced quality.
Provides little security over pay.
Cannot be used if each product is different.
Disadvantages
· Co –ordination by top managers becomes difficult.
· Loss of control and ineffective communication may lead to inconsistence relating
to organization policy.
· Decisions may pursue manager’s interests instead of corporate goals.
7. (a) Outline the problems that might arise from a poorly motivated
workforce. [10]
Answer
b) Answers should give the strengths and weaknesses of the following schemes.
· Quality circles
· Management by objectives
· Work improvement committees
· Work excellent committees.
8. Evaluate how each of the following might affect the success of a business.
a) Marketing.
b) Human Resources Management. [25]
Answer
a) Marketing.
· Proper research and development will result in approved products.
· Proper promotion increases sales and profits.
· Proper pricing increases market share.
· Proper distribution ensures that the products are widely accepted by customers.
Answer
(a) Answers should highlight the measures a manager might use to assess
effectiveness of training such as:
· Level of motivation of workers.
· Level of productivity.
· Number of customer’s complaints.
· Quality of products.
· Level of industrial disputes.
· Level of morale among workers.
· Skill levels.
The answer for part (a) should state and explain the case of high labour turnover and part
(b) high lights the importance of communication in managing labour turnover.
A a) Lack of status.
- Poor work conditions.
- Poor relationship with peers.
- Lack of security
- Poor relationships with subordinates.
- Poor or hostile relationship with supervisor.
- Lack of adequate or motivating supervision.
- Ambiguous or absolute company policy and poor administration.
- Actual or perceived poor career prospect.
- Lack of opportunity to advance.
- Lack of interest in the job.
b. Increase of communication between the employees and their manager or
supervisors.
- Proper channels to air grievances should be set up to the mutual benefits of all parties.
- Management should understand the needs of the dissatisfied workers.
- Unions should appreciate the company’s need for lower costs and good learning in order to
provide continued employment.
- Management should consult workers through tier union about the ever widening range of company
problems.
11 a) What are the main responsibilities of the Personnel department within an organisation? [10]
b) How might the performance of a Personnel Department be assessed? [15]
Part (a) should discuss the role of the personnel department and (b) the methods used to evaluate the
effectiveness of the Personnel department’s efforts
A a)Main responsibility
- Employee resourcing- i.e. acquisition and organisation of employees, forecast the organisations
labour requirements for its future as well as to ensure that sufficient labour of various types is
available in order too achieve the organisation’s overall goals.
- This covers recruitment and selection.
- Employee training and development.
- Training can be formal or informal, induction/orientation of new staff on the job or off the job
training. The aim of training would be to ensure that the company’s employees possess the
necessary skills, knowledge and aptitude to perform their job requirements effectively.
- Performance appraisal- which is done in order to determine employees pay, promotion and
development.
- Health, safety and welfare issues- within the legal framework, the personnel department on behalf
of the company have a legal obligation to maintain a safe working environment and failure to
carry out the responsibility could render the company to criminal prosecution.
- Remuneration issues- it implements pay policy as well as designing pay schemes that are able to
recruit and retain staff. Maintaining employee/industrial relations- it negotiates with employee or
trade unions over pay and working conditions as well as dealing with staff grievances and
maintaining discipline within the workforce.
b) Indicators of effectiveness
- Productivity as measured by employee performance, low rates of absenteeism and turnover.
- Quality of work life- as measured by-employee job involvement, satisfaction, stress and accidents.
- Legal compliance as measured by costs of fines for legal violations, costs of contracts lost for non-
compliance and the value of community goodwill and general reputation.
- Data should be gathered in all of these areas and should be used a s general indicators of how well
the entire personnel department is doing.
12. Discuss the factors which influence an individual’s performance at work. [25]
A. Factors affecting job performance
- Ability- in terms of skills required or experience.
- Interest in doing the job.
- Opportunity to advance.
- Clearly defined goals.
13 a) What might be the causes and consequences of poor industrial relations among
workers? [12]
b) What action could be taken by managers to improve industrial relations among
production line workers? [13]
A a) Conflict of interest- as workers wish to satisfy their needs, they vary in the
manner they try to satisfy them thus leading to conflict.
- Informal groups- dissatisfaction from one or two members can affect and
influence morale of other members.
- Informal groups in conflict affect the ease with which activities are carried out in
an organisation.
- Perception of unfairness in terms of remuneration promotion and recognition.
CHAPTER 4
PRODUCTION
4. Structured Questions
Structured Questions
Explain any two methods used to monitor and ensure quality of products.
[4]
Answer
Methods might include:
T&M
Quality circle
Zero deficts
Quality assurance
Production Engineering
Bench making
(b) Explain one way of using the results of work-study to improve productivity.
[3]
Answer
(a) Systematic measurement of working methods and timings with the aim of
identifying best practices and realistic output targets.
3. (a) What I meant by the term “value added” when applied to production?
[2]
(b) How would you assess the productivity of a shoe manufacturer using the concept
of “value added.” [4]
Answer
(a) Value added – it is a concept that describes the process of adding value to inputs
so that the same inputs can be sold at a higher price.
(b) Skin, leather and threads are put together to produce a shoe that is these inputs are
added value to and a shoe is produced. Inputs bought at $500 000 for example Finished
goods that is a Shoe is produced and sold at $2 000 000.
4. Describe any two types of plant layouts found in manufacturing firms. [4]
Answer
Product lay out (line layout) – machinery and equipment lined up according to the
sequence of operations performed on a product in flow production.
Combined product/ process layout – a combination of the product layout and process
layout.
Answer
Lean productions are all the activities aimed at reducing waste and improving quality.
Activities include Just In Time, Cell production and Flexible Specialism.
6. Explain the terms “fixed cost” and ‘variable cost’ and give two examples of
each. [4]
Answer
Fixed costs are costs that do not vary with out. These costs are fixed/ constant at
whatever level of output.
Variable costs are costs that change as output changes. Variable costs increase as output
increases, fall as output falls.
Answer
- Quality produced by the subcontracted firm may be low.
- Capacity of subcontracted firm may be low.
- Costs of subcontracting
- Relief on company’s resources especially workers as it is already operating at
full capacity.
Answer
- Value analysis balances economic manufacture, aesthetics and function, taking a
multi- disciplinary approach.
- Costs are reduced while value to customer is not reduced.
9. Explain the term “buffer stock’. What factors might a company consider
when determined the level of buffer stock? [3]
- Supplier reliability
- Storage space
- Usage rate
- Lead time
- Changes in the prices of inputs.
10. What do you understand by the term “quality”? Explain how a company
might investigate and monitor the level of quality of its production. [5]
4.1.1 Answer
Quality is not an absolute but is fitness for function as perceived by the customer.
T&M
Quality circle
- Zero deficts
- Bench marking
A (i) Fixed costs are costs which do not vary with the level of activity in the short run.
Variable costs are costs which respond proportionately to changes in the volume of
output or level of activity.
A firm may use the concept of fixed and variable costs under breakeven analysis to
determine the price of a product given a target profit and a chosen level of output
Example: Fixed costs are = $10 000 000
Variable costs = $50 per unit
Chosen level of output= 240 000 units
Target profit = $300 000
Break even analysis can be used to calculate the price that needs to be set to
achieve the target profit of $300 000. Total contribution of $100 000.00 plus 300
000 should be obtained from 240 000 units of output.
The firm has to charge a price of $504 + 54,20 = $104,20 to achieve the profit
target from its chose level of output.
A Economic order quantity is the optimal quantity to reorder an item that minimises the
total variable costs incurred in buying and maintaining that particular item in
inventory.
b) Two factors that must be considered in deciding how much of a product to order
include inventory procurement costs i.e the costs of placing an order, receiving an
order and of handling received merchandise and costs of maintaining an item in an
inventory- insurance costs and interest on invested capital.
14. State and explain factors management should consider whether to make or buy some
components.
15. The following information relates to a company producing one single product.
Fixed costs $50 000, Direct material costs $5 per unit; Direct labour costs $9 per
unit, Variable overheads $2 per unit selling price $20 per unit.
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16 Explain the advantages and limitations of Critical Path Analysis as a control tool for
management. [5]
Advantages
- Allows managers to experiment without spending vast amount of time, money or
resources.
- Allows “what if analysis”.
- Allows continuous up- date of the network once the project has started,
- Can be computerised.
- Probabilities can be built in.
- It is proactive rather than reactive.
Disadvantages
- Costs time and money if applied incorrectly.
- Only as accurate as the data input.
5. Essay Questions
Answer
a) Suitability of flow production techniques.
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· Where individual products move from one stage to the other as soon as they are
ready, without having to wait for any other products.
· Where there is a large ready market.
· Where demand for products is high and consistent.
· Where standardized products are produced.
b) Answers should give the strengths and weaknesses of lean production methods.
However
Answer
a) Costs of holding stock might include
· Insurance
· Warehouse rent.
· Obsolescence.
· Opportunity cost of cash tied up.
· Damage.
3. (a) Why is it important for businesses to aim for the efficient management
of stocks. [10]
(b) Outline and discuss any two techniques a business might use to manage
stocks. [15]
Answer
a) Answer need to give a balanced account of both costs of holding stocks and the
costs of not holding stocks.
b) Answers should discuss the relative strengths and weaknesses of at least two
methods of improving stock.
(i) Contribution.
Answers(i) Contribution
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· Used for assessing dropping products, new products, and special orders.
· As output increases, variable costs also increase, for example wages, direct
material costs.
Fixed costs remain fixed as output changes also called indirect costs for example rent,
depreciation.
Strengths
On break – even points, margin of safety and profit at different levels of output.
Chart could be amended to show the possible impact on profit and break even point of a
change in price.
Limitations
It assumes that fixed costs will remain the same throughout the year, but fixed costs are
likely to change at different level of output. Neither variable costs nor selling prices are
likely to be linear. Discounts, overtime pay and special delivery changes contribute to
non – linearity. It assumes that costs can clearly be classified into fixed and variable cost,
yet some costs are semi - variable.
The technique is appropriate for single product firm, multi –product firms will be forced
to draw several charts.
5. “Product quality guarantees a successful business”. To what extent do you
agree with this statement?
Answer.
Answers should consider the role of product quality in helping a business achieve
success. Answers should highlight the limitations of emphasizing too much on quality.
Strengths
BUT
Maintaining quality is costly and can lead to rigidity and waste of resources.
6. Analyse the factors a firm might consider when deciding to operate a just –
in –time production system. [25]
Answer
· Production staff must be multi – skilled and prepared to change jobs at short notice
· Accurate demand forecasts will make J.I.T system a much more successful policy.
b) Examine the ways a firm can use to increase capacity utilization. [15]
Answer
· A firm operating at full capacity utilizes all the capacity i.e. 100%
· A firm operating at 80% capacity utilization is operating 20% below full capacity.
· Sub contracting.
· Shifting existing personnel from area of low demand to area of high demand.
Answer
Answers should define value analysis and go on to explain the usefulness of value
analysis.
· Can suggest ideas that allow the product to be made more cheaply and still appeal
to customers.
· Suggestions of different types of materials to be used in the product that cuts costs
and not appearance.
BUT
The value of value analysis depends in its ability to coming up with a product, which is
cheaper to produce than the original design and still offer customers good looks and value
for money.
Answer
10. Analyse the quantitative and qualitative factors that will influence the
location of firms. [25]
Answer
Quantitative factors might include:
· Site costs
· Transport costs
· Revenue generation.
Qualitative factors
· Infrastructure
· Management preferences e.g. quality of life i.e. some managers may prefer to
locate near schools for their children, sport facilities and shops.
· Clustering the benefits of businesses in the same industry locating in the same area
is quite high.
· State and public opinions e.g. government may decide to divert business away from
some area and attracting them to others to ensure development takes place across
the country.
b) Absorption costing is when all manufacturing costs are charged as product costs
regardless of whether or not they may change in relation to production levels.
It is appropriate when:
- Managers maintain that inventories should carry a fixed cost component because
both variable and fixed manufacturing overheads are necessary to produce goods.
It is inappropriate
- It does not differentiate between the fixed and variable costs so managers where
accustomed to looking at operations from a break-even analysis and flexible
budget viewpoint find that the absorption statement fails to go along with cost-
volume- profit analysis.
- When firms want to taken an additional contracts utilizing spare capacity.
- All parallel chains of activities are also dawn in the diagram and the alternative
ties to complete the project can be calculated.
- The path which takes the longest time is the critical path because it is the shortest
time in which the project can be completed.
b) It helps management to know what jobs have to be done and when. It helps in the
efficient use of men and material and it minimises expensive delays in a project.
- It permits the manager to exercise control by determining the overall effects of a
delay in the completion of a task.
- It makes it possible to figure the effect on the schedule of a reallocation of
resources from one task to another.
- It improves communications- the network diagram provide a common frame of
reference for all the different parties involved in a project such as designers,
managers, extractors and employees.
- Managers are provided with an opportunity to compare different methods of
reducing the project goal.
- By identifying critical tasks, network analysis allows managers to apply their
attention where it is most needed.
- In a complex project, the critical path may change a number of times as estimates
prove inaccurate.
13 a) How might a firm set “standard costs” for the production of one of its products?
[10]
b) How and to what extent is budgeting control a useful management tool? [15].
- It coordinates the various segments of the organisation and makes each manager
aware of how the different activities fit together.
- It serves as a communication device with which the various managers can
exchange information concerning goals, ideas and achievements.
- It motivates management in form of the goals to be achieved especially the self-
imposed budget estimates.
CHAPTER 5
Finance in Business
6. Structured Questions
Answer
- Sound business plan
- Collateral security
- Guarantee by company
- State of economy
- Competitors
- Previous banking history
2. What advantages does the use of index numbers bring to decision making?[3]
Answer
- Simplifying complex numbers
- Simplifying raw numbers
- Putting different numbers onto comparable basis.
- Allowing perception of change over time
- Facilitating forecasting
- Allowing aggregation
Answer
NB: These are funds not obtained from third party foe example sale of new equity or
loans.
Answer
Internal Sources
- Retained profits
- Dividend retention
- Sale of existing fixed assets.
External Sources
6. Discuss the likely implications for the hotel industry of an increase in direct
taxation. [8]
Answer
However it is necessary to investigate the particular market segment, the price elasticity
of demand and the relative size of the tax increase.
Answer
(a) Gearing (sometimes called leverage) is a measure of the financial risk of the
company for potential lenders.
(b) Shareholders – high gearing reduces amount of dividend paid to ordinary
shareholders.
But it also reduces chances of dilution of equity.
Creditors: high gearing brings insecurity it as it increases risk of non payment. This will
reduce willingness of creditors to advance further loans.
Answer
Answer
10. (a) In capital budgeting, what is meant by the term leasing? [2]
(b) Evaluate leasing as a source of finance. [5]
Answer
(a) Leasing is a form of long –term hire of fixed assets such as buildings, vehicles or
equipment.
11a) What does the return on capital employed ratio tell you? [2]
a) What uses would you expect the management of a firm to get from the use of this
ratio? [5]
A a) The return on capital employed is the net profit after tax achieved by the
company divided by the average investment on total assets
- This ratio tells the effectiveness of employing all resources available (whether
they are from ordinary or preference shareholders, creditors or bankers).
b) The return on capital employed could be compared with ratios of previous years to
get a picture of the profitability of the company. If the ratios continue to fall year after
year, management has to take corrective action to reverses the poor performance.
- If the company has been consistently earning a rate of returns below forecasted rate of
returns or the industry average management should review its operations.
overstretched its resources badly affecting the firm and forcing it to declare
bankruptcy.
15 Explain how the stock valuation methods a firm chooses might affect its reported
profit [4]
A. FIFO refers to taking value of stock according to the buying order as the cost of
sale i.e. the assumption is that the oldest stock is being issued first.
- The method increases the cost of raw material or stocks and the reported profits
will most probably be inflated as the stocks used sold are those purchased earlier
at a lower cost.
- On the other hand if costs of stocks have gone down an inflated loss will be
reported.
LIFO-Assumes that the last items of stock purchased are the first to be issued or sold
and
thus the stock remaining is valued at the cost of the earlier purchases.
- If cost of stocks purchased increases, the reported profits will be lower as the
stocks used are those recently purchased at a higher cost. If prices of stocks fall,
profits will be inflated.
16. A company uses a depreciation method for its fixed assets based on historic costs.
What difficulties might be faced during a period of inflation? [3]
A. In inflationary periods, depreciation based on historic costs will undervalue the
actual cost of depreciation expense.
- This is due to the fact that the depreciation expense incurred is not increasing at
the inflation rate.
- Assuming an operating expense of depreciation, net profits will be overstated in
the profit and loss statement due to higher costs of goods sold and a lower
depreciation expense.
- The Balance Sheet will show a book value of the asset due to depreciation rate
distorted by the inflationary rate.
17 Why might production managers be anxious to ensure that a sufficient allowance for
depreciation is made against the plant and machinery under their control? [4]
A Depreciation is the allocation of capital expenses across the useful life of an asset.
It accounts for the loss of value, and allocate the cost of asset overtime.
The production manager would want to ensure sufficient allowance to reflect
correctly the amount of operating expenses incurred during every financial period as
well as to plan for adequate funds to replace the asset at the end of its useful life
- Depreciation is also important to prevent obsolescence of the assets where
technology has allowed more efficient and effective assets to be introduced
perhaps even at a lower cost.
9. Essay Questions
1. (a) Using the information in the table below, calculate financial efficiency
ratios.
Table 1.
Debtors 16 23
Turnover
[10]
b) Evaluate any two ways in which a business might improve its finance
efficiency. [15]
Answer
Ratio may include debtors’ collection period, creditors’ collection period, stock turnover
ratios.
Sales
2000 = 16 x 365
200 1
= 29 days
2001 = 23 x 365
250 1
= 34 days
· Reduce debtors’ payment period to increase cash inflow though this can be
discourage customers.
· Increase creditors payment period but this can leads to poor credit worthiness of am
bus.
· Debt factoring.
· Leasing.
2. (a) . Using the information given below, calculate the current gearing ratio.
[10]
(b) Evaluate possible methods a firm can use to finance the purchase of a
machine. [15]
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Answer
Answers should explain the need for gearing. Calculations should be done.
Equity
= 15 000
45 000
=1:3
Or
Capital employed
= 15 000 x 100
60 000
= 25%
A firm that relies too much on-borrowed funds is said to be highly geared. While a
firm that relies a lot on equity finance is said to be lowly geared. This company is
lowly geared as only 25% of capital employed is borrowed. Over 50% highly geared
less than 50% lowly geared.
· Debentures shares
· Preference shares
· Leasing
· Hire purchase
· Mortgage. Etc.
(iii) Equity
[10]
Answer(a) (i) Debt factoring
· Capital that is used for the day today operations of he business rather than for long
–term investment. Current assets les current liabilities. if too small business may
face liquidity problems.
(iii) Equity – finance belonging to owners of he firm. For example ordinary share
capital general reserves.
· Cash management – change the strange ways of getting rid of surplus cash attend
of year. Pay off trade creditors or short- term loans by reducing cash and current
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liabilities –it will not reduce cash shortages but will improve management, reduce
stocks, debtors e.g. through discounts.
4. (a) Why might profitable businesses have cash flow problems. [10]
(b) Evaluate three methods managers might use to improve the cash flow
of a business. [12]
Answer
a) Answer should highlight that profit is different from liquidity. Profit is not
prepared on cash terms.
· Reduction of stocks.
· Cash management.
· Debt factoring.
· Overdraft.
(ii) Overtrading
(iii) Overdraft
(iv) Liquidity.
[10]
(i) Capital Expenditure and revenue Expenditure. Give examples to explain your
answer.
(iii) Liquidity –it is to do with the amount of cash available to meet short-term
obligations. Measured using the current asset ratio and the acid test ratio.
(b) (i) Capital Expenditure – expenditure for the ratio purchases of assets that
last more than one year (fixed assets) e.g. machinery.
Revenue Expenditure - spending on all costs and assets that will last less than one
year such as wages. Salaries, telephone etc.
(ii) Long –term sources –to finance the purchases of fixed assets for
example debentures.
(iii) Short-term sources – to finance working capital needs for example debt
factoring.
· For expansion.
· A business will need finance to provide for working capital requirements that is
day-to-day operations.
· To finance export.
Disadvantages.
· The lease agreement may place restriction on the use of certain products.
· Leasing does not benefit the leasee, as he cannot enjoy residual value. Etc.
Answer
· Retained profits.
· Sale of assets.
· Reduction in debtors.
· Reduction in stock.
Disadvantages.
· There is increased risk of company failure due to high interest payments; more
assets are pledged reducing control over the assets.
· Amount required.
· Gearing ratios.
· Risky ventures.
· Size of business.
Answer
a) Money markets are markets for short –term securities. The instruments mature
in less than one year. For example treasury bills, NCDs and bankers acceptance.
· Debt finance increases the risk of a company while equity finance is less risky.
10. Evaluate the possible sources of finance for incorporated companies. [25]
Answer
NB: Examples of such companies include public limited and private limited
companies.
· Sources of finance for such business may be divided into short –term and long-term
sources.
· Short term sources are meant to finance working capital needs for example debt
factoring, trade credit, short-term loans etc.
· Debentures
· Shares
11 In what ways would accounting information when prepared for internal management,
different from that compiled for the use by other interested parties? [10]
A. In this question the students should identify the differences between internal and
external users giving examples of both groups. Having identified groups such as
management, employees, owners, creditors, government and consumers there should
ensure a discussion of the information needs of the different parties.
- For certain external purposes information is mandatory in order to comply with either
the Companies Acts or the Accounting profession’s Statement of Standard
Accounting Practice.
b. Outline a method by which a firm might predict future liquidity problems and explain
how these may be averted. [20]
A- The method required is a forward Cash flow forecast.
- The student can illustrate by a table to present or describe an opening cash
position, projected revenue, expenditure, borrowing, etc and the resultant cash
position. This will indicate the likely cash needs of the business available for
investment.
- The second part of the question requires a discussion of the various forms of
raising short term finance and/ or delaying payment.
- This should include overdraft arrangements, stock reduction, delaying, payment to
creditors, debtor payment encouragement and growing popularity of factoring. If
the liquidity problem is seen as long –term then a description of restructuring the
company’s capital should be included.
13 Explain the problems an accountant might face in dealing with the following
items:
a) Valuation of fixed assets. [9]
b) Valuation of stocks. [9]
c) The provision of bad debts. [7]
Budgeting control provides feedback necessary to evaluate the financial results on the
basis of management by exception:
: Favourable variances will be investigated to determine whether corrective action
can be taken to improve future performance.
CHAPTER 6
Accounting
7. Structured Questions
Answer
(a) A budget is a formal quantitative statement of the resources set aside for
carrying out planned activities over given periods of time.
(b) Advantages of budgets
- Budgets convey on formation on a key organizational goal – profit.
- Budgets establish clear and unambiguous of standards performance for a
set time period – usually a year.
- Budgets are means of co-ordinary the activities of the organization.
2. The profits a company makes have been low for several years. Explain why
shareholders might be concerned at a decision to borrow more capital. [3]
Answer
Borrowing means interest has to be paid. Since profits are low this will have a large
effect on dividends and could remove them altogether. This will be higher gearing.
Answer
Profit & loss account – contains the profits and loss, trading activities.
Balance Sheet – contains the current and fixed assets, net worth of the business current
and long –term liabilities.
Cash flow statement – shows the sources and uses of finance. Shows the cash inflows
and outflows.
Answer
5. Why would the analysis of a company’s own accounts be inadequate for the
decision making process to management? [4]
Answer
- Company accounts can be window dressed.
- Company accounts are historical in nature, hence cannot be used for decision-
making.
- Company accounts do not incorporate non- quantitative data such as level of
skill of workers.
Answer
(a) Depreciation is the loss of value of fixed assets. It is the wear and tear of an
asset.
(b) - Need to make a provision
- Failure to charge historic cost, less residual value, over useful life can
overstate profit
- Can lead to overstated value of asset.
Answer
- To avoid overstating profits and value of asset.
- The effect of charging depreciation does not affect the cash flow of a
company as depreciation is a non- cash item.
- Depreciation spreads the cost of an asset throughout its useful life – matching
concept.
- Depreciation has the effect of understating profits as it is treated like an
expense in the Profit and Loss Account.
8. With the aid of an appropriate example sketch a cash flow forecast with cash
balances each month. [5]
Answer
Cash flow forecast shows the forecast Cash inflows and outflows.
Stocks $ 6 000
Debtors $ 40 000
Cash $ 1000
Current Liabilities $ 32 000
Capital employed $175 000
= 40 000 + 1000
32 000
= 1.28 : 1
COMMENT
Wisebuy Ltd will not face any problems in meeting short – term liabilities because both
ratios reveal a healthy liquidity position.
The current ratio lies within the required range of 1.5 – 2 and the acid test ratio is also
within the required range of 0,5 – 1.
8. Essay Questions
(ii) Prudence
Answer
a (i) Double entry –is the dual aspect of recording in accounts. Each
transaction is recorded twice in the books of accounts. One as debit and
the other as credit. Example sold goods for cash. Double entry requires
that cash be debited and sales be credited.
b. Answers should highlight the uses of a balance sheet and limitations of balance
sheets; balance sheets show much of businesses but only; a snapshot is shown,
balance sheet ignore, qualitative factors etc.
(b) Distinguish between the straight lie and the reducing balance methods
of depreciation. [20]
Answer
a) Depreciation –is loss of value of assets due to wear and tear. It is charged to
spread the cost of an asset through its useful life.
· Calculated as cost less residual value over the expected life in years.
· It is unrealistic to assume that the asset will lose value at a constant rate each year.
· Reduces the value of an asset by a constant percentage of the net book value.
· Depreciation is greater in early years but falls with the asset’s useful life.
4. (a) Explain the purpose of a company’s Balance sheet and profit and loss
account. [10]
a) Balance sheets.
Uses:
However:
· Definition of budgets.
· Motivate staff and HODs they seem to be problems for businesses in area.
· Give targets -could improve performance if budgets are tied with performance.
However.
· Sticking too much on budgets can prevent firms from taking up initiative.
6. A firm has just purchased new machinery. Advise its management on how to
depreciate the new machinery. Justify your answer. [25]
Answer
Briefly explain why firms need to depreciate their assets e.g. to spread the cost of an
asset. Explain the two methods of depreciation, straight line method and reducing
balance method.
Finally, choose the straight line method as the machine is likely to be used consistently
through the life of an asset, evaluate the usefulness of depreciation e.g. a lot of guess
work is involved, depreciation is a non – cash –item.
(b) Discuss why the owners of a private limited company might wish to
convert it into a public limited company. [15]
Answer
a) Published accounts include profit and loss account and balance sheet.
· Profit and loss account –trading account to give gross profit, profit and loss account
to give net profit.
Turn -Up College ‘A’ Level Management revision book
Page 97
· Balance sheet –list of assets, list of liabilities and net worth of a business.
· Economies of scale.
· Mass production.
However
· Payback period.
Answers should give numerical examples of projects and use those values to calculate
Payback period.
Answers should also consider the fact that quantitative techniques ignore qualitative
factors such as the level of motivation of workers changes in the environment.
9. Briefly explain how a cash flow forecast is drawn. Evaluate the usefulness of
a cash flow forecast to a business of your choice. [25]
Answer
· List of receipts of cash from e.g. sales, sale of assets, donations etc.
· The difference between total cash received and opening cash and the payments.
10. (a) Explain the following (i) LIFO (ii) FIFO [10]
(b) Explain how the results of LIFO and FIFO will affect the final
accounts figures. [15]
Answer
i) LIFO
Understates profits because cost of sales is at recent prices. Closing stock values are
outdated as they are stock bought earlier therefore, balance sheet value are unrealistic.
ii) FIFO
Overstates profit because cost of sales is of outdated prices. Balance sheet values are
quite realistic as they bear current prices
CHAPTER 7
INFORMATION FOR DECISION MAKING
Structured Questions
Answer
Total Float – the delay an activity may suffer from scheduled, which does not threaten
the minimum project duration provided nothing else on the path is delayed.
Free float – the delay which an activity may suffer from scheduled which does not
threaten the EST of the immediately following activities.
Answer
Possible Sources – bought in data from Market Research companies government
statistics, local authority statistics, local population and existing members, etc.
Limitations
- Cost
- Time
- Accuracy
- Sample size
- Simple frame etc.
Answer
- Potential demand
- Information about competitors
- Prices and price elasticity of demand
- Likely frequency of use
- Range of complementary services required.
- Demand for these demographic distribution of potential users.
(c) Explain why Pay Back Period may not be a good way of deciding whether to
invest in this factory. [4]
Answer
(a) The period of time in which the initial capital will just be repaid.
(b) Total capital required = $2000
After 4 years = $1700
Required = $300
This is 300/ 600 of years = 6 months
Payback Period is 4 years = 6 months
(c) Because payback is long and therefore there is risk/ uncertainty / time value
of money/ returns after year 5 are very much higher.
Answer
Desk research (secondary) uses available information from firm’s figures for example
sales, or competition or government and other sources of statistics.
- Field research (primary) collection of raw or original data done specifically for the new
(or existing) product in question.
Answer
Methods of presenting data may include;
- Bar charts
- Pie Charts
- Line graphs
- Tables
- Histograms
- Histiriograms
- Cumulative frequency curves
Turn -Up College ‘A’ Level Management revision book
Page 102
7. Give two reasons why data may be presented in a misleading way. [2]
Answer
Reasons might include:
- Window dressing
- Lack of knowledge
- Inaccurate research results
- To attract investors
- To evade tax
- To mislead competitors
9. A firm has a choice between two projects, A and B. The initial investment are as
follows:
Project A $40 000
Project B $60 000
The probability of success for project A is 0,5 with a cash inflow of $80 000. if it
fails, the inflow will be $40 000.
The probability of success for project B is 0,6 with a cash inflow of $100 000. If it
fails, the inflow will be $40 000.
Answer
Pay off
0,5 80 000
(a)
0,5
40 000
A
016
100 000
B
= $16 000
10. Explain how network analysis might improve the management of the
company’s cash flow. [8]
Answer
11. Why is it unwise to make decisions basing on quantitative factors only. [3]
Answer
Non- quantifiable variables are ignored for example.
- Competition
- Skills of the workforce
- Level of motivation
Also quantitative information might be incomplete and misleading.
12a) State and explain the nature of two different methods of sampling [4]
b) In what circumstances might each of these be the preferred method? [4]
Stratified Sampling
- The target population can be divided into segments with different characteristics.
The information about the segments can be used to design the sampling plan.
- Specifically, separate sampling pans can be drawn for each of the stratum.
b) Random sampling have many nice properties especially simplicity but may not be the
most efficient procedure.
Stratified sampling- certain segments of the population may be considered key areas
for marketing strategy and a researcher may want a relatively large number of sample
points in these segments, while at the same time other strata may be sufficiently
important potentially that they cannot be totally ignored.
- Stratified sampling ensures adequate representation of key subgroups of the
population
- Costs of sampling across strata may be quite different.
13 Outline two ways in which a firm producing a new product might research its like
market. [4]
A Consumer demographic and consumer life style are two possible ways which firm
producing new product might research
Consumer demographics are statistics that are used to describe the population
size, gender, age, location, housing and mobility, income and expenditure,
occupation and marital status.
Consumer life styles describe both social (like reference group and culture and
psychological (like personality and attitude) characteristics of the consumers.
9. Essay Questions
1. For a project to be completed, the following activities should be under taken, B,C
follow A, E , follow B, D followed C, G follows E, H follows F
I follow G and D.
a) Draw a network diagram of this project showing all earliest start times and latest
finished times. [10]
b) Identify the critical path and state the minimum project duration. [2]
c) Evaluate the usefulness of this technique for managing a building project. [10]
ABEI = 19Days
ACDI = 15Days
The critical path is path ABFH. The duration of the project is 24 days.
· Identify critical activities, which determine the overall duration of the project.
Limitations
· Requires skilled and motivated staff especially when attempting to make up for
lost time.
· Only experienced managers can identify the cheapest option for switching
resources from non –critical activities. Etc.
Answer should;
· Draw a decision tree diagram and use it to explain how a decision is reached using
decision tree analysis.
a) It is a useful analytical tool for clarifying the range of alternative courses and their
possible outcomes.
However;
· Calculation is complicated.
· By giving an exact result, it can mislead business users to believing that the precise
process without risks and uncertainty. Etc.
3. The following are the cash flows for a company that is planning to purchase a
machine.
1 $60 000
2 $70 000
3 $100 000
4 $150 000
5 $160 000
100
= 2 years 8 months.
Initial investment
Average profit = 60 000 +700 000 +100 000 +150 000 +160 000
= 108 000
200 000
b) Answers should give the strength and weaknesses of the Net present value
method of investment appraisal.
· Consider all the cash flows throughout the life of an asset etc.
Weaknesses.
· Difficult to compute
Methods may be split into secondary research and primary research methods.
· Observation – i.e. the firm must observe the general fashion trends in the country.
This method is good for getting behaviour related data.
· Survey method – good for getting information on attitudes and views survey
methods might include:
(i) Telephone
(iii) Questionnaires
These methods should be looked at from the point of view of their strengths and
weaknesses.
· Applicable.
Answer
Decision trees
Linear programming
Network analysis
Good answers will give numerical examples and use the numerical examples to show
how a chosen decision tree might help managers choose a decision.
7. The following are the forecasted net cash flows in million dollars of Tatty
Limited
0 (5,0) (60)
1 2,5 40
2 2,5 30
3 2,5 30
Year1 0,91
2 0,83
3 0,75
c) Assume that Tatty decides to build a new factory. Evaluate the advantages and
disadvantages to Tatty of locating the factory in your country. [10]
Answer
Initial investment
Option A Option B
23,8
b) Advantages
· Skilled labour.
· Political stability.
Disadvantages.
· Unstable currency.
(b) Evaluate any two techniques of he survey method of collecting data. [15]
Answer
Field research is more costly in terms of time and research as compared to desk research.
· Personal interviews.
· Postal survey.
· Telephone survey.
· Panel survey.
· Group interviews.
- Answers should identify any three data presentation methods briefly explain
them.
· Bar chart – used when the absolute size or magnituded of the results need to be
presented and compared.
· Pie charts - visually useful to show the relative importance of segments of the
total.
10. (a) Evaluate the usefulness of the following methods of analyzing data;
(i) Mean
(ii) Median
(iii) Mode
(iv) Range
a) Answers should outline the strengths and weaknesses of each of the methods e.g.
(i) Mean
Advantages
Disadvantages
(ii) Median
Advantages
Disadvantages
(iii) Mode
Advantages
(iv) Range
Advantages
· Gives the highest figure and lowest figure for stock holding purposes.
Disadvantages
Years 0 1 2 3 4 5 6
(ii) On the basis of your calculations in b (i) which project should be selected?
(iii)Suggest and explain four factors that might be taken into account when
making an investment decision. [8]
c. One factor to take account of is the firm’s belief in the future. It must take into
consideration forecasts about demand, costs, inflation, taxation etc in order not
create a picture of the future market.
- A second factor is the alternative is projects available. This is where the various
investment appraisal techniques can be used to decide which one is most
profitable given due consideration to the cash flows.
- Another factor is the investor’s attitude to risk- investment decisions are often on
a lager scale, therefore it is important to recognize the firm’s attitude to risk and
project uncertainty.
- The final factor is finance- is the finance available internally or must the firm use
extend sources? The cost of the finance is not only problem as one must also consider
how it affects the firm’s gearing and its liability to future interest payments.
CHAPTER 8
DATA RESPONSE QUESTIONS
1. DATA RESPONSE QUESTIONS
Siyalamukela Hotel is situated at the Beitbridge Border Post. Most of the customers are
foreign tourists from South Africa. However, the hotel has conference facilities used by
local business.
A rise in the exchange rate for the country’s currency has recently affected the hotel’s
profits.
Gumede, the Managing Director, employs three managers, one for each of the functional
areas:
· Finance
· Marketing
· Catering
Gumede has delegated authority over budgets and managing of staff to each of the
functional managers. He looks after the buying of stock and customer care. Once a year
he and other managers discuss the ways of managing working capital.
Gumede’s accountant has advised him that the business is currently holding too much
working capital as revealed by the extract Balance Sheet below.
The Hotel’s employees receive a low basic wage together with extra payments given by
customers are encouraged to name the member of staff that they found most helpful; the
member of staff will then receive a further bonus from the business. Many of the staff are
unhappy with their pay, as it is only the employees who deal directly with the public who
can receive the additional payments. Another hotel in the city has introduced high
monthly salaries for all their staff. This other hotel is attracting staff away from
Siyalamukela Hotel. Gumede is thinking of introducing the same payment system at
Siyalamukela Hotel.
(c) Evaluate two ways Gumede can use to improve the management of working
capital. [6]
(d) Would you advise Gumede to change to a salary only based pay system at
Siyalamukela hotel. Justify your answer. [6]
Answer
(a) (i) Exchange rate – rate at which one currency exchanges with the other
currencies. For example 1 Pula = Z$30 000.
(ii) Working capital is the money needed to finance day-to-day
operations. Calculated as Current Assets – Current Liabilities
(ii) Siyalamukela does not suffer from liquidity problems though it is holding
too much cash which is lying idle. This is shown by the two ratios far
exceeding the required standards.
(c) Ways might include: - investing surplus cash in short –term profitable activities
like Treasury Bills, Reducing creditors, paying workers in advance instead of
holding too much cash.
(c) Answers should discuss the advantages and disadvantages of a salary based
payment system.
Siyazama Ltd
Siyazama Ltd is a small firm that manufactures a range of shoes. This firm started
operating in June 2001 and recently it has been hard hit by competition form some
other small emerging shoe manufacturers. Competitors have lowered prices to
increase their market share. Siyazama is trying to cut costs to improve its
competitiveness.
The Finance Manager, Rudo Ncube, has proposed that they acquire a new
machine, which will improve both the speed and the quality of production. The
machine costs $300 000. It will be depreciated over a five-year period. It is likely
to have a residual value of $20 000. The following are the estimated net cash
inflows of this investment:
(b) (i) Using the straight line method, calculate the annual depreciation of the
new machine. [4]
(ii) Explain why Siyazama Ltd have to charge depreciation on their
assets. [2]
(iii) Calculate the average rate of return (ARR) of the investment in the
new machine. Briefly explain what your result means. [4]
(c) Analyse the problems Siyazama Ltd is likely to be facing as a small firm. [6]
Answer
(a) (i) Quality is not an absolute term, but it describe as the degree to which a
produce meets specified standards.
(ii) Depreciation is the rate at which a fixed asset loses value. It is the rate of wear
and tear of an assets.
= $56 000
= $88 400
The managing director feels the business should simply focus on a much tighter control
of stock.
The company is planning to use Just – In – Time production.
(b) Calculate the price elasticity of demand for Lotion Pee. [4]
(i) The production capacity of Lotion Pee is 15000 bottles per month.
Calculate the expected level of capacity utilization, following the
reduction in price. [4]
(c) Calculate one efficiency ratio from the data in the passage. [4]
(d) Analyse the factors that Cosmetic – Specialist Company have considered when
deciding to operate a Just – In –Time production system. [12]
Answer
(b) PED = % Q
% Price
Therefore = 20 = 1,6
12
= 12 000 x 100%
15 000
= 80%
= 2000 + 4000
2
= 6000
2
= 3000
- Reliability of suppliers
- Level of motivation of workers
- Length of lead time
- Amount of time the customer is prepared to wait for his order.
- Degree of computerization of processes.
-
Guxy’s Electrical Goods Ltd is a vibrant company that manufactures consumer electrical
goods. This company is based in Bulawayo and is owned by a young graduate called
Gugu Xaba. The owner wishes to expand the business and open more branches at various
growth points. This move has been seen as a positive response to government’s policy of
rural electrification. The main benefit would be lower unit costs – both land and labour
are cheaper at the growth points than in towns. Government policies are also in support of
firms locating at growth points.
Sales revenue since 1995 has increased by 50%. The following are the financial results
for 2002:
Sales revenue $500 million
Gross profit $300 million
Net profit $50 million
Capital employed $130 million
(c) (i) Outline a suitable method of sampling Gugu can use. [3]
(ii) Explain whether secondary data might be useful to Guxy’s Electrical Goods Ltd
in researching the market. [6]
(d) Discuss the importance of Human Resources Management for the success of the
new factory. [10]
Answer
= 50 x 100 = 38,5%
130
(ii) Secondary data might be useful because it is cheaper and less time wasting
while at the same time it might not be useful because it is outdated and
might not fit the purpose for which it is collected.
(d) Answers should discuss the roles of Human Resources Management such as:
- Recruitment, selection, staffing, health and safety, remuneration, motivation.
However, this department might be costly in terms of resources needed to keep it going.
Noah Nxumalo is the sole owner of Bellerways Builders Ltd. This company has been
contracted by the government to participate in the building of houses under Garikayi or
Hlalani Kahle Housing Scheme. It is believed that Betterways Builders Ltd will increase
its capacity utilization and profit margin per house as a result of this project. Rapid
expansion of Bellerways Builders Ltd is also expected to result from this sub contraction.
However, diseconomies of scale are also expected to arise.
Noah is very concerned about the short time period allowed for the contract. The
government wants the job completed in 30 weeks. The network diagram below shows the
estimated durations for each activity of the contract.
D
E
A
8 WEEKS
6 WEEKS
10 WEEKS 10 WEEKS
G
C F
4 WEEKS
6 WEEKS
B
8 WEEKS
(c) Discuss the likely advantages to the government of subcontracting this project to
Butterways Builders Ltd. [8]
(d) Outline the likely diseconomies of scale Betterways Builders Ltd is likely to face
as a result of its expansion. [10]
Answer
(a) (i) Diseconomies of scale – increase in per unit cost as scale of production
increase. Also said to be disadvantages experienced by firms when they grow too large.
(ii) Subcontracting letting another firm produce on another’s behalf so as to
relieve the subcontractor of too much pressure.
Fashionwise Ltd
Fashion wise Ltd, manufactures uniforms for nurses, domestic workers and factory
workers. The Managing Director has asked the Production Manager and the Marketing
manager to carry out research on the following options.
Option A
To introduce a new range of clothing which is a fashion item. The target market is the
youth (both young men and women). The forecasted Net Cash Flows for this market are
as follows:
Option B
To extend the market for the existing product. This will mean either increasing capacity
utilization which is currently at 80% or subcontracting to meet demand. The forecasted
Net Cash Flows for this option are as follows:
Year 0 ($100 million)
1 $80 million
2 $70 million
3 $70 million
The managing director is keen to find out much more, so that he can propose ways of
raising funds to finance whichever option will be recommended.
(c) How useful might these results be to Fashionable Ltd’s directors? [4]
(d) Evaluate three ways of rising financial the Managing director can use. [12]
Answer
Option B
Average profits = 70 + 70 + 80
3
= 220/3 = 73,3
(ii) NPV =
Total 183,4
Less initial outlay 100,0
NPV 83,4
Option A
(c) These results will help managers of Fashionwise Ltd to choose option B because
both the ARR and NPV are higher than those of A. However managers of
Fashionable should note that these results are quantitative and might ignore the
qualitative information such as the level of motivation of workers.
(d) Answers should consider and evaluate long –term sources of finance. Long – term
sources of finance might include;
- Debentures
- Shares
- Mortgages
- Hire purchase
- Long- term loans
Sipho and Sibongo own and manage a small music shop in city centre of Bulawayo. The
shop stocks radio cassettes VHS and DVDs. The owners have recently introduced
spiritual books and stationery items like diaries, pens and writing pads.
The following table shows the sales data for all the products sold in this shop, for first
three months of year 2006.
Sales ($000)
January February March
VHS 5 3 2
DVDs 10 15 20
Radio Cassettes 4 2 1
Stationery 0 6 10
Sipho and Sibongo are concerned at the decline of Radio cassettes and VHS. Sipho has
argued that they stop selling these two products and concentrate on stationery. On the
other hand Sibongo has maintained that Radio cassettes and VHSs be maintained as they
make a positive contribution. He has also argued that penetrating the stationery market
may be a mammoth task for Music Fair Ltd. Music Fair has just employed an
experienced research assistant to research the market for stationery.
(b) (i) Calculate the price elasticity of demand for VHSs between February and
March. [4]
(ii) Briefly explain the significance of your result for (i). [2]
(c) Analyse the factors that Sipho and Sibongo should take into account in deciding
whether to stop selling VHSs and Radio Cassettes and stock more of DVDs.
[8]
(d) Discuss sources of formation that might help Sipho and Sibongo to make a
decision about whether to enter the stationery market. [10]
Answer
(a) (i) Market research – is the collection, analysis and presentation of data about
a market.
(ii) Contribution – is the revenue gained after covering direct costs. This
revenue contributes to the coverage of fixed cost.
= 1,67
(ii) The results show that demand for VHS is heavily affected by a change of
price. A s mall increase in price leads to a big change in quantity
demanded.
Mavuso PLC was founded many years ago by a young lady called Mavis Vuso. Mavuso
PLC manufactures a range of designer clothes. It is well known for its African outfits
which are exported to over five African countries. This company is based in Harare, the
capital city of Zimbabwe.
Mavis has controlled the business using an autocratic leadership style. This leadership
has worked for Mavuso PLC as most of the workers lack experience. How, as the
company is slowly expanding as sales and profits are increasing, this centralized structure
no longer seems appropriate.
Profits have increased for this company as a result of rising disposable incomes in most
countries. However cash flow problems have also set in despite the increase in profits.
Mavis has been worried about this for some time. She has gathered some recent
accounting data to analyse the financial efficiency. The following data concerning the
firm’s financial efficiency has been presented for the past two years.
31/12/2004 31/12/2005
Credit Sales $100 000 $200 000
Credit Purchases $90 000 $80 000
Creditors $40 000 $30 000
Debtors $50 000 $40 000
Although the company has been able to increase output, quality levels have fallen.
(b) (i) Calculate financial efficiency ratios for Mavuso PLC. [6]
(ii) Evaluate any two ways in which the business might improve it financial
efficiency. [8]
(c) Advise Mavis on how she can deal with quality problems facing the company.
[5]
Answer
(a) (i) Centralised structure – this a structure where all decisions refer back to
the top management. Lower level managers can not make decisions
without referring to the top managers.
(ii) Autocratic leadership style – leadership where the manager makes major
decisions without consulting their subordinates.
31/12/2004
(b) Debtors’ collection period = Debtors x 3
Credit Sales
= 50 000 x 365
100 000 1
= 182 days
= 40 000 x 365
90 000
= 162 days
31/12/2005
= 136 days
= 73 days
- Zero defects
- Production engineering
- Quality circles
Moneywise Ltd
Moneywise Ltd is a multi- product firm that has grown rapidly during the last two years.
The company has mainly three different units namely Grocery unit, Beverages unit and
the Fruits Unit.
The grocery unit specializes in breakfast cereals such as Pronutro, instant porridge and
soups in various flavours. The Beverages unit produces various cool drinks in flavours
such as orange, strawberry and mango. While the fruits unit produces tinned fruits such
as peach halves, mango in syrup and orange slices.
The popularity of the business has grown rapidly. Rapid economic growth has increased
consumer incomes in recent years and this has seen a substantial increase in demand for
Moneywise Ltd’s products. However, there are reports in the financial press that the
government is considering taking action to prevent inflation from rising too rapidly. The
predictions are that interest rates and direct taxes will rise and there will be reduction in
government expenditure projects such as hospitals and schools.
As with many small businesses, control over cash and working capital has proved to be a
problem. The bank has recently contacted the Managing Director of Moneywise to
inform him of the increasing overdraft. Also some customers have not paid their accounts
for several months so control over debtors is being lost.
An extract from the Accounts of Moneywise Ltd is shown below:
(b) (i) Analyse and comment on the liquidity of this business. [8]
(ii) Evaluate two ways in which the business could improve its cash flow
position. [10]
(c) Explain how the government policies aimed at reducing inflation will affect
Moneywise Ltd. [6]
Answer
(a) (i) Economic growth increase in per capital income. Increase in the standard
of living.
(ii) Direct taxes – taxes charged by government and collected directly from
the tax – pay. For example income tax, co-operation tax.
= 1,5:1
= 82 000 = 1,28:1
64 000
(ii) Ways of improving cashflow = debt fact, trade credit, overdraft, leasing,
disposal of surplus assets.
Owen and Given started their drawing business – three years ago. At first, they drew
building plans for individual house owners. The business quickly developed a reputation
for excellent and accurate plans and this won Owen and Given a lot of customers in the
large construction industry. Due to overwhelming demand, ten workers were employed
last year. Three full time staff deals with administration, finance and maintenance of
drawing equipment. All of the other staff is temporary drawing staff who are employed
on a six monthly contract. This drawing staffs are under the direct and close supervision
of Owen and Given. All drawing staff is paid a weekly wage plus a bonus worked on any
Turn -Up College ‘A’ Level Management revision book
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surplus on target number of plans. Recently there have been some complaints from
builders on the inaccuracies in drawings done by the drawing in absenteeism amongst
drawing staff and this has led to the cancellation of some orders from major construction
companies.
Owen and Given are considering buying an automated machine. The machine is
computer controlled. This would mean that none of the plans would be: hand made”
however plans drawn would always be of consistent quality.
The following are the likely costs and revenues associated with the use of the automated
machine.
(b) Using the information in the passage calculate the number of plans Quality
Drawing Ltd should draw to break even. [5]
(c) (i) Suggest possible reasons for the low levels of motivation of
Quality Drawing Ltd [4]
(ii) Discuss how the owners might improve the motivation of the drawing
staff. [8]
Answer
(a) (i) Variable costs – costs that increase with output. Such costs are called
variable cots because they vary with output.
(ii) Fixed costs – costs that does not change with output. Such costs remain
constant as output increases.
= 44 000
4 – 0,7
= 44 000
3,3
= 13 333
Problems