May/June 2018

GKA is a food retailer with 300 shops in places where average consumer incomes are low. It sells a narrow selection of own-label products, including breakfast cereal and toothpaste. GKA carries out no promotion or market research. The Managing Director stated: ‘Last year our market share rose to 5%. Profit went up by 40%. By keeping costs low, we can provide customers with quality products at low prices.’ GKA plans to open 100 shops in areas where average consumer incomes are high. The Managing Director has to decide whether GKA should alter its pricing strategy (method) as the business grows.

Marketing strategy

SJD works in the private sector. It manufactures steel for construction firms. SJD plans to make 3500 of its 9000 employees redundant. The Operations Director said: ‘Cheap steel imports and high business tax rates are harming our business. There are also ethical issues that we must deal with. The Government should do more to support steel producers. Some of our competitors intend to shut their factories and move to other countries. SJD may need to do the same.’

Business and the international economy

IBH is a private limited company owned by a family. It produces a range of children’s shoes by using batch production. The market is highly competitive. Like many businesses, IBH needs finance for several reasons. The Finance Director has been examining some financial data. An extract appears in Table 1. Some directors want IBH to move into the women’s shoe market and would like to know whether its performance is improving. Table 1: Extract from financial data for IBH ($000): Revenue: 2016 = 400, 2017 = 480. Gross profit: 2016 = 240, 2017 = 320. Profit: 2016 = 120, 2017 = 120. Non-current liabilities: 2016 = 100, 2017 = 200.

Analysis of accounts

Ben runs a small gardening business that he launched 15 years ago. He thinks that offering a quality service is vital to his success. His business has several stakeholder groups, including 2 full-time workers and 4 part-time workers, all of whom have worked for him for several years. Ben expects each worker to carry out whatever task he tells them to do. Every worker receives an hourly wage rate. They also earn a bonus if customers recommend the business to other people. Ben is always considering further ways to raise his workers’ motivation.

Motivating employees

Five years ago, Adele set up a dance school. Each year she pays herself a salary and earns $1000 profit. The school provides a range of dance and exercise classes for children. It is operated as a sole trader business. Adele thinks that choosing the correct pricing method matters. She plans to grow the business by opening a second dance school. According to her business plan, she expects this to cost $8000. Adele cannot decide whether a bank loan is the best source of finance for this expansion.

Business finance: needs and sources

JSF operates in the private sector. It has 50 production workers who run machines. JSF manufactures a selection of household goods, including towels and bed sheets. Most of the output is sold to retail businesses, which pay JSF after two months. The business is allowed two weeks’ credit to pay its suppliers. The Finance manager has just completed a cash flow forecast. He said: ‘Cash outflows are too high. I have already cut the budget for market research to zero. Training costs are $1000 per month and cannot be reduced because training is important.’ The Finance manager is considering other ways to improve cash flow.

Cash-flow forecasting and working capital

DPC runs 200 takeaway pizza outlets. More than 75% of its pizzas are ordered via e-commerce. The Managing Director believes that 2017 was a successful year. She commented: ‘Looking to the future, there are signs that the economy is expanding. However, DPC faces several difficulties. The Government plans to raise the minimum wage to $5 per hour. DPC also has to react to environmental pressures. Food waste and litter from used pizza boxes are problems. Complaints from the local community about this are too high.’

Economic issues

JKL produces clocks using job production. JKL sources all raw materials locally and exports 60% of its products. The business also has high fixed costs. JKL employs 30 skilled workers. Many work part-time, and delegation is encouraged. Each day, all workers receive an email from management so that they stay informed about production issues. The Human Resources Director said: ‘I think it is more cost-effective to try to retain our existing workers rather than to recruit new employees.’ The Director wants to cut barriers to communication, because he understands that effective communication matters if JKL is to achieve its objectives.

Internal and external communication

Identify and explain two ways a business plan could have assisted Peter during the setting up of Value Gym.

Marketing, competition and the customer

Identify and explain four reasons that show why profit matters to Peter.

Business objectives and stakeholder objectives

Identify and explain two legal controls that could influence Peter when he is recruiting and employing staff.

Costs, scale of production and break-even analysis

Identify and explain one benefit and one drawback of leasing all the equipment used in the business. Benefit. Explanation. Drawback. Explanation.

Business finance: needs and sources

Consult Appendix 1.

Organisation and management

Explain the external cost caused by large quantities of litter left on the beach.

Environmental and ethical issues

Identify and explain four economies of scale DH could gain when it takes over a rival.

Enterprise, business growth and size

Identify and explain two reasons why cash flow forecasting is significant for Hilda.

Cash-flow forecasting and working capital