May/June 2018

GKA operates as a food retailer. It runs 300 shops in locations where average consumer incomes are low. Its product line is narrow and includes own-label items such as breakfast cereal and toothpaste. GKA carries out neither promotion nor market research. The Managing Director stated: ‘Last year our market share rose to 5%. Profit grew by 40%. By keeping costs low, we are able to supply customers with quality products at low prices.’ GKA plans to launch 100 more shops in places where average consumer incomes are high. The Managing Director has to decide if GKA ought to alter its pricing strategy (method) as the business grows.

Marketing strategy

SJD operates in the private sector and produces steel for construction businesses. It intends to make 3500 of its 9000 employees redundant. The Operations Director commented: ‘Cheap steel imports and high business tax rates are harming our business. We also face ethical issues that need a response. The Government ought to do more to support steel producers. Some rivals are planning to shut their factories and move to other countries. SJD may have to follow the same course.’

Business and the international economy

IBH is a private limited company owned by one family. It produces a range of children’s shoes using batch production. The market is highly competitive. As with many businesses, IBH needs finance for several purposes. The Finance Director has been examining some financial information. An extract is shown in Table 1. Some directors want to move into the women’s shoe market and would like to know whether IBH’s performance is improving.

Analysis of accounts

Ben runs a small gardening business that he set up 15 years ago. Ben thinks that giving a high-quality service is vital to his success. Ben’s business has several stakeholder groups, including 2 full-time and 4 part-time workers who have all worked for him for several years. Each worker is expected to carry out whatever task Ben tells them to do. All workers are paid an hourly wage. They also get a bonus if customers recommend the business to other people. Ben is always considering other ways to raise his workers’ motivation.

Motivating employees

Five years ago, Adele set up a dance school. Each year, Adele pays herself a salary and earns $1000 profit. The school provides children with a selection of dance and exercise classes. It operates as a sole trader business. Adele thinks choosing the correct pricing method is very important. She plans to grow the business by launching a second dance school. Her business plan predicts that this expansion will require $8000. Adele is unsure whether a bank loan is the most suitable source of finance for this growth.

Enterprise, business growth and size

JSF operates as a private-sector business. It employs 50 production workers who run machines. JSF produces a variety of household goods, such as towels and bed sheets. Most of its output is sold to retail businesses, which pay JSF after two months. The business is allowed two weeks’ credit to settle payments to its suppliers. The Finance manager has only just completed a cash flow forecast. He commented: ‘Cash outflows are too high. I have already cut the market research budget to zero. Training costs are $1000 per month and cannot be cut because training is important.’ The Finance manager is considering other methods of improving cash flow.

Cash-flow forecasting and working capital

DPC runs 200 takeaway pizza outlets. More than 75% of its pizzas are ordered through e-commerce. The Managing Director believes 2017 was a successful year. She remarked: ‘Looking ahead, there are signs that the economy is growing.’ Even so, DPC faces several challenges. The Government intends to raise the minimum wage to $5 per hour. DPC also has to react to environmental pressures. Food waste and litter from discarded pizza boxes are problems. Complaints from the local community about this are too high?

Economic issues

JKL makes clocks by using job production. It sources all its raw materials from local suppliers and sells 60% of its products overseas. The business has high fixed costs. JKL employs 30 skilled workers. Many work part-time, and delegation is encouraged. Every day, management sends all employees an email so they stay informed about production problems. The Human Resources Director said: ‘I believe it would be more cost-effective to keep our current workers than to hire new employees.’ The Director also wants to cut communication barriers, because he understands that effective communication is vital if JKL is to achieve its objectives.

Internal and external communication

Rosa is a prosperous entrepreneur. Her company produces beauty products that she makes, including hand and face creams. She employs 5 production workers, and Rosa likes to stay in charge of everything else, including design and marketing. Rosa advertises the business through social networks. She said: ‘Raising added value matters. I expect revenue to rise by 300% in 2018. At this pace of growth, I will need a larger factory. I would like to have customers in other countries, so I hope there are no import quotas!’ Rosa has to choose whether to keep expanding the business or leave it small.

Enterprise, business growth and size

ASZ is a public limited company. It manufactures a variety of garden tools, including digging forks and wheelbarrows, using production methods that have stayed the same for many years. All of ASZ’s products are sold through a wholesaler. The Marketing Director is thinking about altering the channel of distribution by selling products straight to retailers. To support decision making, the Operations Director has prepared some revenue and cost data (see Table 1). ASZ is also planning to introduce new technology, which will change production methods.

Costs, scale of production and break-even analysis

AUC operates as a bank. Its organisational structure is tall, with many layers and a lengthy chain of command. Most of its customers are small businesses from the tertiary sector. In the previous year AUC recorded a loss of $60m. The new Managing Director has to lift employee motivation as well as cut costs. 20% of its 19 000 employees will be made redundant. She said: ‘Keeping customer loyalty is important. We will need to tell our customers that 500 of our 2000 retail bank branches are going to close.’

Organisation and management

CLG operates six airports in country L. The directors plan to enlarge its main airport by adding another runway for aircraft to land on and take off from. That will cost $300m. Selecting an appropriate finance source will matter. The Managing Director said: ‘CLG may be able to provide 50 extra flights each day. There are environmental pressures, including the loss of green spaces and additional pollution. There will also be external benefits. I hope the Government approves the building of the new runway.’ Interest rates rose in 2017.

Business finance

Identify and explain two ways in which a business plan might have helped Peter when he was setting up Value Gym.

Marketing, competition and the customer

Identify and explain four reasons that profit matters to Peter.

Business objectives and stakeholder objectives

Identify and explain two legal controls that may affect Peter when recruiting and employing workers.

Costs, scale of production and break-even analysis

Identify and explain one advantage and one disadvantage of leasing every item of equipment used by the business.

Business finance

See Appendix 1.

Organisation and management

Explain the externalities for each of the following: External cost of large amounts of litter left on the beach: External benefit of a new motorway from Main City to Downtown:

Environmental and ethical issues

Identify and explain four economies of scale that DH may gain when it acquires a competitor. Economy of scale 1: Explanation: Economy of scale 2: Explanation: Economy of scale 3: Explanation: Economy of scale 4: Explanation:

Costs, scale of production and break-even analysis

Identify and explain two reasons why cash flow forecasting matters for Hilda. First reason: Why this matters: Second reason: Why this matters:

Cash-flow forecasting and working capital

Identify and explain four entrepreneurial characteristics that contributed to the success of the two partners.

Enterprise, business growth and size

Identify and explain one advantage and one disadvantage to AH of trading as a business partnership rather than as a private limited company.

Types of business organisation

Calculate Gross profit margin in 2017.

Analysis of accounts

Refer to Appendix 3. Identify and explain how the exchange-rate movement could affect: AH. AH’s customers.

Business and the international economy