May/June 2017

QCH is a multinational business that produces a range of luxury cars. In the previous year, it earned a profit of $700m. One of QCH’s objectives is to break into new markets. QCH plans to begin making cars in country C, which is a fast-growing economy. The Finance Director said: ‘Meeting customer needs matters. We could create a joint venture or establish our own factory. Either choice would be costly, at $800m. I believe QCH’s move into country C could also benefit other businesses there.’

Types of business organisation

Josh runs an office cleaning company. His client base includes both large and small businesses. Josh employs 6 full-time cleaners, and each one receives off-the-job training. Josh thinks that the newest cleaning equipment increases added value. He remarked: ‘Customers are pleased with the service. I am always sending text (SMS) messages to workers about extra work.’ Josh has been examining his balance sheet. He is unsure whether a bank loan is the best finance option for buying new equipment. The new equipment will cost $60 000.

Statement of financial position

Wilde Soup Stop (WSS) produces a variety of soups and hot drinks. It owns 30 shops and has franchised its name to 10 other shops in country Z. The Marketing Director said: ‘Results from our focus groups show that being an ethical business is important.’ WSS plans to broaden its product range so that it also includes curries and cakes. WSS will have to alter its brand image. The Marketing Director cannot decide whether sponsorship or newspaper advertising should be the main method of promotion. Fig. 1: Current logo for WSS. The logo contains the words “Wilde Soup Stop” and a picture of a bowl of soup with steam rising from it.

Marketing mix

GKK manufactures plastic bottles for a variety of products, from food to chemicals. It sources its raw materials from a low-cost country. GKK has a broad organisational structure with a short chain of command, so delegation is possible. The Government intends to bring in new legal controls to safeguard the environment. The Operations manager commented: ‘The Government may meet one of its objectives, but what impact does that have on GKK? This is a competitive market, so prices matter.’ He aims to raise efficiency and intends to adopt lean production.

Production of goods and services

Cheung runs a small clothing retail outlet in the city centre that sells fashion wear for children. Because the market is highly competitive, Cheung understands that market research matters. He is concerned about how an increase in shop rent will affect his costs. Cheung commented: ‘I will have to pay this higher rent as it is a good location. I need to increase revenue or reduce costs.’ He sources all his supplies from a wholesaler in a nearby town. He is considering purchasing straight from a clothing manufacturer in another country.

Costs, scale of production and break-even analysis

LWM carries out batch production to manufacture car tyres in 15 different sizes. In the previous year, LWM sold 60 million tyres, of which 40 million were the most popular size. The Finance Director has been examining the financial figures shown in Table 1. She stated: ‘Liquidity is important. I need to use some ratio analysis to assess business performance. In the year before, our Return on Capital Employed was 33%.’ The directors are concerned about stronger competition, yet they are unable to agree on the best response for LWM.

Analysis of accounts

Five years earlier, Manisha began baking cakes at home. These cakes are sold for celebrations, including weddings and birthdays. She now runs a small shop and employs 3 people. Product quality is vital for her business. Manisha said: ‘I have benefited from the economic boom but I did not expect demand to increase by 500% each year. Somehow I have managed to cope with higher interest rates and all the challenges of being a sole trader. The business is profitable at last but I have to work every day.’ A friend has offered to become Manisha’s business partner.

Types of business organisation

Steppa is a private-sector shoe manufacturer. It employs 200 workers, and all of them are paid a high hourly wage rate. The Human Resources Director said: ‘We use a democratic leadership style. Employees are an important stakeholder group. Happy workers are good for business. Revenue increased by 10% last year.’ The director cannot understand why so many workers leave the business each year. She is considering other non-financial ways of motivating employees.

Motivating employees

CFE produces high-quality steel for shipbuilding. 40% of its output is exported. CFE’s machinery is old and often breaks down. CFE intends to downsize (reduce) its workforce and 1200 of its 2100 skilled employees could be made redundant. The Managing Director says demand has fallen because of recession in some economies. A trade union spokeswoman asked: ‘Where are the opportunities from globalisation?’ This action will influence many stakeholder groups. There must be some other method for CFE to cut costs.’

Business objectives and stakeholder objectives

PCB is a public limited company. It manufactures a well-known brand of mobile (cell) phones. Because it operates in a competitive market, pricing matters. PCB wants to expand its product range. It plans to produce luxury headphones since demand for them is rising quickly. The Operations Director must choose whether PCB should create its own headphones brand or acquire an existing producer. In both cases, the finance would come from a share issue.

Enterprise, business growth and size

C&P Designs is a partnership business run by Cory and Phoebe. They produce handmade jewellery. Phoebe works at home making all the jewellery, including necklaces and bracelets. C&P pay for materials when they are ordered, but they let customers take one month to settle payment. Cory looks after the accounts and the shop. He is concerned about cash flow, as Table 2 shows. Cory said: ‘The bank will not increase our overdraft. We should ask customers to pay more quickly.’ Phoebe believes advertising would raise sales, but she is worried about legal controls.

Cash-flow forecasting and working capital

TUKAN produces a variety of soft drinks through flow production. Employees are paid well, but they receive no non-financial rewards. A large proportion of staff leave the business each year. A reason often given for leaving is that they have no part in decision-making. In the last year, TUKAN’s revenue rose by $25m, yet profit did not rise. The Managing Director said: ‘The economy is currently in the growth stage of the business cycle. Even so, efficiency has to improve. Lean production methods could be useful. We also need to hire a new Operations manager who may have ideas about this.’

Production of goods and services

Identify and explain two methods by which TT could achieve quality production.

Achieving quality production

Identify two motivational theories and explain how TT could use them to help raise worker motivation.

Motivating employees

Identify two communication barriers that may occur in TT and explain how each one could be reduced.

Internal and external communication

Identify and explain one reason why TT requires short-term finance and one reason why TT requires long-term finance.

Analysis of accounts

Identify two financial statements the directors must examine before CC expands. Explain why they would want to review each of these statements.

Income statements

Identify and explain two reasons why on-the-job training matters for new employees at CC.

Recruitment, selection and training of employees

Variable cost = $0.80 for each chocolate bar. Predicted sales come to 100 000 chocolate bars each week at a price of $1 per unit.

Types of business organisation

Fizz Bomm is at the development stage of the product life cycle. Identify and explain four other stages in Fizz Bomm’s product life cycle.

Marketing mix

Identify and explain two kinds of tertiary businesses that supply services SC is likely to use.

Business activity

Identify and explain two reasons that might lead SC employees to join a trade union.

Marketing strategy

Identify and explain one benefit and one drawback of making each product to the customer’s exact requirements.

Achieving quality production

Identify four communication methods SC could use with its stakeholders. For each method, explain one situation in which it could be used.

Analysis of accounts