May/June 2019

Y2M is a bus operating company in the public sector. A key aim for it is to break even on every bus route. Most of its rivals operate in the private sector. Y2M wants more customers to travel by bus. The Finance Director has been studying the cost figures in Table 1 because Y2M intends to reconsider its pricing methods. She is concerned that other businesses pay workers a higher wage rate and that some of its drivers may leave. She said: ‘Matching that wage rate would raise variable cost to $2.20 per passenger per journey.’

Costs, scale of production and break-even analysis

Kate is an entrepreneur. 2 years ago, she gave up her role as a fashion designer with a multinational company. She set up BBB, a women’s sportswear clothing business. BBB aims at a market segment of high income consumers. BBB’s products are sold in 3 retail shops as well as via its website. Kate said: ‘I spotted a gap in the market and accepted the risk. Securing the finance I needed from the bank was not easy. I enjoy making decisions such as using leaflets to advertise the clothes.’ BBB’s revenue target for next year is $500 000.

Enterprise, business growth and size

BVC produces a variety of paints. It sells 60% of its output overseas. The Managing Director has been examining BVC’s cash-flow forecast in Table 2. He commented: ‘Success is not just about our return on capital employed.’ He is concerned about the arrival of new legal controls designed to protect the environment. As a result, BVC would need to use fewer chemicals in the production of paint. He believes these new legal controls would be bad for business.

Cash-flow forecasting and working capital

FGH is a private limited company with a tall hierarchical organisational structure. It is a book retailer that intends to acquire one of its competitors for $800m. If the takeover goes ahead, FGH would operate 6 500 bookshops in 20 countries. The Managing Director of FGH said: ‘We expect total costs to fall by $300m each year after the takeover. We will end all off-the-job training for employees.’ The Managing Director believes that FGH would gain from becoming a public limited company, although some of the other directors are unsure whether this is a good idea.

Organisation and management

PLK is a social enterprise that provides training for young people who leave school without any qualifications. PLK chefs train the young people to prepare food, and this food is then sold at local markets or sporting events. Selecting the most suitable promotion method is important. The manager of PLK believes that, in order to increase profit, it is better to increase prices than to use cheaper food ingredients.

Marketing mix

JNK manufactures pottery such as plates and bowls for the mass market, and it does so by using batch production. Quality control matters. JNK employs 30 unskilled workers, all of whom are paid the legal minimum wage. To maintain motivation, JNK makes use of job enrichment. Because demand has risen, JNK is considering replacing its old machines with new technology. The Managing Director believes that some of the low cost materials bought by JNK may have been made using child labour. A competitor of JNK has lately brought in a new ethical policy.

Production of goods and services

REW has received many awards for the design and style of its carpets and rugs. The wool it uses all comes from local suppliers. REW's objective for this year is to survive and stay in business. The Managing Director is worried that the country's Gross Domestic Product has been falling for some time. During the recession, the Managing Director plans to begin selling REW's products in other countries. Market research indicates that demand would be high.

Economic issues

George has spent 10 years working in a small flower shop. He dislikes his manager’s autocratic leadership style and wants to move on. He must choose between setting up his own business and buying a BunchesRUs franchise. The franchise would cost him $5000$, but BunchesRUs would supply training and support. Whichever route he takes, George will need finance and will have to recruit 2 part-time employees. George understands that developing customer relationships will matter to his business’s success.

Types of business organisation

EGT makes a wide range of teas in different flavours. It operates batch production. The tea leaves, which are the chief raw materials, are supplied by local farmers. Because factory space is restricted, EGT cannot run an automated production line. The factory’s ageing machines frequently stop working. One employee handles quality control. EGT does not gain from economies of scale. The Human Resources manager recognises that poor motivation is an issue among its 80 employees. She intends to apply her understanding of Maslow’s hierarchy of needs to raise motivation. The owners want output to rise, but they cannot afford to relocate EGT to another site.

Production of goods and services

CYN produces a variety of children’s toys. Over the past 10 years, CYN’s revenue has risen by 15% each year. In 2018 CYN’s total revenue reached $900 000. The Managing Director stated: ‘The toy market is becoming increasingly competitive in country J. I never expected the rate of growth to be so high. CYN cannot meet demand and we have decided to stop all marketing promotion for 6 months.’ The Managing Director wants CYN to spend more time developing new products. Figure 1: Percentage breakdown of CYN’s revenue in 2018. The pie chart shows the following labelled sections: exports 10%, wholesalers 35%, direct to retailers 55%.

Marketing mix

Hashim is an entrepreneur. He intends to begin as a sole trader by setting up a small gift shop beside a well-known tourist attraction. His market research suggests that sales are most likely to be highest from October to June. His first business collapsed within 6 months of start up because financial planning was poor. This time, Hashim has prepared a cash-flow forecast, shown in Table 1, as part of his business plan. His parents have agreed to provide an interest free loan to cover the shop rent. He hopes to secure trade credit from suppliers.

Cash-flow forecasting and working capital

SWQ operates 200 clothing shops in country A. It buys all inventory from 3 local clothing manufacturers. The Marketing Director must decide whether to switch suppliers. SWQ could source inventory from country C, a low cost country. He showed the newspaper article in Figure 2 to the other directors. He said: ‘Read this newspaper article. We serve a mass market and our customers expect low prices. Switching suppliers to manufacturers in country C would affect our stakeholders.’ Figure 2: Newspaper article. The article is headed ‘Factory life in country C’ and says the following: ‘You can see why many retailers are buying from country C. 15-hour days for wages of $2 a week. A spokesperson for one pressure group said: ‘Today I saw 8-year-old children sewing buttons onto suits and it is legal in this country.’’

Business objectives and stakeholder objectives

Identify and explain one benefit and one drawback to SA of launching new products in a niche market.

Marketing mix

Identify and explain the ways in which the two stakeholder groups below could be affected by SA’s expansion plans. Shareholders Local community

Business objectives and stakeholder objectives

Identify and explain two ways SA might use lean production in its factory.

Organisation and management

Identify and explain two opportunities and two threats that globalisation creates for businesses in Country Z.

Analysis of accounts

Identify and explain one benefit and one drawback to WA of developing new products.

Business objectives and stakeholder objectives

Identify and explain two tertiary sector business examples that contribute to WA’s success.

Business activity

Identify and explain how two stakeholder groups of WA are likely to be affected by the drop in profit in 2018.

Motivating employees

Calculate the monthly total cost of making 100 pieces of furniture.

Costs, scale of production and break-even analysis

Identify and explain two reasons why the Government assisted Peter in launching his new business.

Marketing mix

Identify and explain two possible reasons why Peter's former employer failed.

Recruitment, selection and training of employees

Identify and explain two reasons why developing customer relationships is important for VC.

Market research

Identify and explain one benefit and one drawback to VC from using job production. Advantage - a positive effect. Disadvantage - a negative effect.

Analysis of accounts