2013 Paper F1 QandA Sample Download v1

Practice Questions and Answers
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ACCA Paper F1: Accountant in Business
Tony Surridge Online Limited, 2013
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ACCA Paper F1: ACCOUNTANT IN BUSINESS Practice Questions and Answers

Published by Tony Surridge Online Limited in 2013
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Contents
Copyright statement For the ladies only 10 Golden Rules for a Computer-based Examination Computer based exams
ACCA Paper F1 Accountant in Business: Practice Questions and Answers
+AddVance Study Text
Syllabus
The structure of the syllabus Level of assessment - Intellectual demand Guided learning hours Guide to exam structure Guide to examination assessment Aim Main capabilities Relational diagram of main capabilities Detailed syllabus Approach to examining the syllabus
Study guide
A. The business organisation, its stakeholders and the external environment Business organisation, structure, functions and governance Accounting and reporting systems, controls and compliance Leading and managing individuals and teams Personal effectiveness and communication in business Professional ethics in accounting and business
B.
C.
D. E.
F.
Your Study Material

The syllabus outline and our Questions and Answers pathway through it (2 screens). Click here In ADDITION there are FIVE tests. Click below. Diagnostic Test 1 Diagnostic Test 2 Diagnostic Test 3 Diagnostic Test 4 Diagnostic Test 5 Diagnostic Test 6 59 Quickies Test Questions Questions Questions Questions Questions Questions Questions Answers Answers Answers Answers Answers Answers Answers
This link is open for the sample
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CONTENTS
The syllabus outline and our pathway through it . Sub-topic This free sample shows two topics (shaded pink) Cover The purpose and types of business organisation The business organisation structure and design The formal and informal business organisation Organisational culture in business Stakeholders in business organisations Information technology and information systems in business Committees in the business organisations Fundamental principles of ethical behaviour and corporate codes of ethics Governance and social responsibility in business Political and legal factors affecting business Macro-economic factors and micro economic factors Social and demographic factors Technological factors Competitive factors Function of accounting in business Principles of law and regulation governing accounting and auditing Financial systems, procedures and related IT applications The relationship between accounting and other business functions Accounting and finance functions within business Pages Questions Answers
24 25 26 33 35 37 41 44 46 48 55 57 63 64 64 67 68 75 75 78
126 127 128 141 149 155 161 171 173 177 190 193 204 204 205 210 211 225 226 230
Click to the next screen to continue our pathway
Either click to your selected topic or scroll, screen by screen, through the questions and answers
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The syllabus outline and our pathway through it . Sub-topic Questions Internal and external auditing and their functions Internal controls and security within business organisations Fraud and fraudulent behaviour and their prevention in business, including money laundering Leadership, management and supervision Individual and group behaviour in business organisations Team formation, development and management Motivating individuals and groups Recruitment and selection of employees, managing diversity, and equal opportunity Personal effectiveness techniques Communicating in business Learning and training in work Review and appraisal of individual performance Pages Answers
85 88 94 99 103 104 105 111 114 117 119 123
244 249 259 266 279 282 284 297 304 310 319 327
When you meet someone better than yourself, turn your thoughts to becoming his equal. When you meet someone not as good as you are, look within and examine your own self. Confucius
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Questions covering the topics in the syllabus
QUESTIONS

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The purpose and types of business organisation
Which of the following types of organisation has/have a separate legal personality? Types 1 2 3 4 A B C D Sole trader Partnership Public limited company Private limited company Type 1 only Types 2 and 3 only Types 1 and 4 only Types 3 and 4 only
Private enterprise would not describe: A B C D a sole trader a professional body a partnership a public limited company
Which of the following is not a feature of co-operative societies? A B C D Constitution as corporate bodies with limited liability Distribution of surpluses in proportion to the value of members purchases Political or religious affiliation Democratic control of the societys affairs
Which of following organisations is normally found in the public sector? A B C D Companies listed on a stock exchange Charities Professional institutes Schools
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The business organisation structure and design

5 Which of the following concepts place the customer at the centre of organisational decisionmaking? A B C D Product concept Production concept Sales concept Marketing concept
In relation to organisational structures which of the following is the correct definition of the term span of control? A B C The number of employees that a manager is directly responsible for The number of managers an employee reports to The number of management levels in an organisational structure
Which one of the following is a potential advantage of decentralisation? A B C D More accountability at lower levels Improved control by senior management Improved risk management at the operational level Better cooperation of decision making across the organisation
Which of the following is the main role of marketing? A B C D To persuade potential customers to convert latent need to expenditure To maximise sales volume To identify and anticipate the needs of potential customers To inform potential customers of goods and services offered
Computer printing devices are relative cheap to buy, however the cartridges required to operate them are expensive. What kind of pricing strategy is this? A B C D Price skimming Price penetration Captive product pricing Jewel in the Crown (or Goldylocks) pricing
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A key decision under place when reviewing the marketing mix decisions is whether to sell direct or to sell indirect (through intermediaries). Is this statement true or false?
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The strategic marketing process for a new product has three strategic elements: A B C D targeting/analysis/positioning competitive analysis/choice/action research/market mapping/action analysis/targeting/implementation
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Market research carried out as part of the strategic planning process will typically fall under which of the following headings? A B C D Conditioned research/ Ad hoc Research/Test trials Primary research/ Secondary research/ Prototype testing Desk research/ Field research/In house research In house research/Field research/Ad hoc trials
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When considering the sequence in which marketing activities take place, targeting is done first followed by market segmentation. Is this statement true or false?
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A company with a marketing orientation believes that: A B C D products should be made according to the entitys competence and then sold actively and aggressively meeting customer needs better than competitors is the key to corporate success the level of sales, advertising and sales promotion is critical to corporate success differentiating goods and services is the key to competitive advantage
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The marketing mix is best described as: A B C D
a mix of people from the marketing, design, purchasing and finance departments who are in charge of reviewing the companys product selection the mix of experts in the marketing department who formulate marketing tactics the mix of market planning and field selling that integrate to obtain corporate objectives a set of marketing decisions blended to produce desired results
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In the context of the evaluation of the marketing mix, which of the following are the two main product issues to consider? A B C D Quality and Price Price and Promotion Place and Promotion Definition and Positioning
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Which of the following pricing strategies is aimed at gaining market share? A B Penetration pricing Price skimming
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Deciding which products or services to produce is usually part of: A B C D strategic planning operational planning production planning budget planning
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The predominant form of business entity is: A B C D sole traders and partnerships limited liability partnerships limited liability companies quoted companies
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Which of the following is an advantage of decentralisation? A B C D Improved local decisions Increased goal congruence More coordination horizontally between managers at the same level Reduced need for vertical reporting
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The entrepreneurial structure is typical of which of the following? A B C D large and successful entities dominated by a powerful individual Small companies in their early days Risk taking entities of all sizes Fast growing companies
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Which of the following organisations could be said to be fully owned and democratically controlled by its members? A B C D Local government council Privately owned hospice funded from donations A fast-food franchise chain A wholesale cooperative
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Which of the following is strategic by nature? A B C D Planning to enhance a customer-relationship management system on the entitys e-commerce website Negotiating with an outsourcing organisation concerning the production of a sub-assembly for one of the entitys major products Planning to design a paper-free workflow system which would ultimately restrict paper only to the mail-room Planning to develop a market in China
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Which of the following is one of the three planning levels? A B C D Budget planning Divisional planning Project planning Operational planning
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Which of the following organisations are only found in a public sector? A B C D Military units Schools Hospitals None of the above
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The public sector is normally concerned with: A B C D making profit from the sale of goods and services the provision of basic government services raising funds by subscriptions from the population in general to provide common services providing services to targeted groups funded from charitable donations
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Sole traders, partnerships, private limited companies and public limited companies would all be considered as private sector organisations. Is this statement true or false?
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Ten people are the only shareholders in a private limited liability company. This is a company that is not listed on a recognised stock exchange. This means that: A B C D they are responsible for the debts of the company they cannot be asked to pay the debts of the company the company cannot become legally bankrupt the total debts carried by the company cannot exceed a specified figure (in the UK this would be 1,000,000)
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When considering the roles of different departments, which one of the following is likely to be concerned with identifying and satisfying customer needs? A B C D Customer Support Service Research and Development Marketing Credit Control (in the Treasury Department)
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Downsizing is the process of removing layers of management . Is this statement true or false? A B True False
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Which of the following can be delegated? A B C D Obligation Authority Liability Responsibility
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Conflicting demands over allocation of resources is most likely to be disadvantage from which type of organisational structure? A B C D Divisional Matrix Geographical Entrepreneur
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The line authority relates to . Which phrase completes the sentence? A B C D Scalar chain Ownership versus control Span of control Number of managerial levels
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A narrow span of control is likely to lead to a tall management structure. Is this statement true or false? A B True False
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Which one of the following listed below does not have an organisation structure as defined by Peter Drucker: A B C D political parties charities shareholders in a quoted company retail companies
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A college departmental head is considering the use of temporary staff (supply teachers) to fill shortages due to maternity and sickness leave. Which level of planning is involved here? A B C Tactical Strategic Operational
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Selling at a low price with the intention of damaging weaker competitors is referred to as A B C D price skimming. opportunistic pricing. penetration pricing. predatory pricing.
The function of wisdom is to discriminate between good and evil. Cicero
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An approach of producing goods or purchasing inventory only when required is referred to as A B C D just-in-time. ad hoc. level capacity strategy. plan-do-check-act (PDCA) quality.
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Public relations activity can be used within marketing as part of A B C D marketing decision support activities. a promotional mix. customer feedback processes. segmentation practices.
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Effective product promotion is centred on A B C D production processes. customers and communication. bonuses for sales staff and product quality. effective systems of monitoring and control.
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Conventional marketing wisdom suggests that for successful segmentation of markets, segments must be A B C D relatively unsophisticated in their needs. economic, efficient and effective measurable, accessible and substantial. currently lacking in providers.
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Analysing a market into sub-groups of potential customers with common needs and behaviours in order to target them through marketing techniques is called A B C D market research. market development. segmentation. product adaptation.
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Which ONE of the following perspectives of strategy is where an organisation avoids radical strategies but instead takes small steps based on what has been done before and worked in the past? A B C D Ecological Positioning Bounded rationality Logical incrementalism
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In a multi-divisional organisation producing a range of products for different markets, the business level strategy of each unit or division is mainly concerned with A B C D setting the direction for the organisation. the competitiveness of a particular division. the efficiency of production, marketing and other functions. alignment of strategy with other organisations.
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In the typical hierarchical organisation, the requirement of a lower-level manager to answer to a higher-level manager in the chain of command is referred to as A B C D authority. empowerment. accountability. super ordination.
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When designing an organisational structure, or reviewing the effectiveness of an existing structure, the first thing that must be clarified is A B C D informal organisational relationships. objectives of the organisation. size of organisation. division of labour.
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Decisions about acquisitions, mergers and sell-offs occur at which ONE of the following levels? A B C D Functional level Corporate level Business level Competitive level
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Questions covering the topics in the syllabus
ANSWERS

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The purpose and types of business organisation
Answer D When a limited company is formed public 3 or private 4 the Registrar of Companies issues a Certificate of Incorporation, which gives the company a separate legal personality. This means that it can do the legal things that are available to an ordinary person, e.g. it can own property, employ people, and be involved in legal action. Sole traders 1, and partnerships 2, do not have this: the business will be a separate accounting entity i.e. accounts are prepared for the business as distinct from the individuals but not a separate legal personality. Anyone making a legal contract with a sole trader or partners does so with them as individuals, and does not make a contract with the traders business.
Answer B Private enterprises are business organisations which are owned and operated by certain clearly identified individuals who are also entitled to the rewards of the undertaking. They include sole traders - Distractor A, partnerships - Distractor C, private limited companies, public limited companies Distractor D and holding companies (private or public limited companies which control other companies by virtue of holding 51% or more of their voting shares). A professional body B is not in this category, but would fall into the category of not-for-profit (NFP) organisations, which exist to confer benefits or promote objectives which may, or may not, involve commercial activities.
Answer C The first successful co-op was founded in 1844 by Rochdale textile workers to buy foodstuffs at wholesale prices and sell them to members at market prices: the profits or surpluses were then divided among members in proportion to the value of their purchases. Co-operative trading is today applied to retail, wholesaling, farming and agriculture. In the UK, co-operatives are limited liability companies, under the Industrial and Provident Societies Acts, A. The principles of cooperative trading include distribution of surplus by dividend B, democratic control (one man one vote) D, open membership and political and religious neutrality so C is the odd one out, and the answer here.
Answer D All the organisations, except for schools, are normally part of the private sector. (The word used is normally there are of course some schools found in the private sector.)
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The business organisation structure and design

5 Answer: D The market concept (or marketing concept) holds that the key to achieving organisational goals consists in determining the needs and wants of target markets (customers) and delivering the desired satisfactions more effectively and efficiently than competitors Answer A The span of management or control, or span of supervision, relates to the number of subordinates that a superior can supervise effectively. Answer A Decentralisation increases the accountability of managers at the lower level. B, C and D are not correct statements. Answer: C Marketing is a management process through which goods and services move from initial concept to the customer. The main roles of marketing managers are: (i) (ii) (ii) (iv) 9 targeting a customer group (segmentation) analysing the buying behaviour of the customer group (market research) positioning a marketing mix for the customer group repositioning the market mix as the market environment changes.
Answer: C Captive product pricing is used where customers must buy more than one type of product which are used together, such as a computer printer and toner powder. The first product (the computer printer) is set at a low price but the second (the toner power) is expensive, once the customer is captive. This pricing strategy is sometimes referred to as iceberg pricing (only the tip of the iceberg can be seen above the surface, but a large and dangerous part it hides beneath the surface and is not so easily seen). Market skimming strategy Some companies favour setting high prices for new products to 'skim' the market - they estimate the highest price that can be charged given the comparative benefits of their new products versus the available substitutes. Market penetration pricing strategy Some companies favour setting low prices for new products to penetrate the market. It sometimes relates to a 'more for less' pricing philosophy. If a company prices at a low price (less than its perceived value) it will gain a higher-than-average market share because buyers will be getting extra value for their money. Penetration pricing often comes down to companies simply setting lower prices on their new products compared to competitors.
The answer continues on the next screen ....

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"Goldilocks" pricing (sometimes called "jewel in the crown" pricing) The term Goldilocks Q pricing is commonly used to describe the practice of providing a "gold-plated" version of a product at a premium price in order to make the next-lower priced option in the line look more reasonable priced; for example, encouraging customers to see business-class airline seats as good value for money by offering an even higher priced first-class option. The name derives from the Goldilocks story, in which Goldilocks chose neither the hottest nor the coldest porridge, but instead the one that was "just right". More technically, this form of pricing exploits the general cognitive bias of aversion to extremes. 10 Answer: TRUE Products can be sold directly (e.g. through the companys own retail outlets, or by website selling) or through intermediaries such as wholesalers and independent retailers.
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Answer: A First a potential customer must be identified (and targeted). The buying behaviour of the customer must then be analysed so that an appropriate marketing mix (of decisions) can be positioned for the customer.
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Answer: C Market research involves acquiring information about the customer in order to decide the appropriate marketing mix. Test Therefore tests or trials are not part of market research because they are testing the marketing mix which comes later in the cycle.
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Answer: False A market needs to be segmented in order to identify targets. Segmentation is the initial part of Q targeting. Market segmentation is the process of dividing a market into groups who have unique needs, wants and buying behaviour or who might want different products and services so that a distinct marketing mix can be offered to them.
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Answer: B A, C and D are correct statements. However B is the statement that most closely relates to a marketing orientation (referred to in the question). The modern marketing orientation (or marketing concept) is about identifying and meeting profitably the needs of the customers. Customer needs can be current or created by extending, modifying and adapting the provision of the products currently available. The development of an integrated marketing strategy for the Integrator involves four main tasks. (i)
Segmentation (or targeting) This involves profiling, or segmenting, the market and targeting (identifying) potential customers. This phase of the marketing effort involves dividing the market into distinct sub-sets of needs. This would enable the entity to develop and design its marketing mix for different groups of potential customers. The answer continues on the next screen ....
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(ii) Market research Carrying out market research to establish the need and behaviour of the targeted customers would help establish attitudes of the targeted customers in regard to such matters as prestige, style, pricing, special needs, colour, packaging appeal and so on. The findings and conclusions arising from the research enable management to decide on the company's marketing strategy. (iii) Positioning the marketing mix The development of the integrated strategy for the entity would cover four elements. The marketing mix involves decisions concerning the product, price, place and promotion. The elements are linked in that a marketing strategy followed in one aspect must be aliened to and make sense in the context of strategies followed in the other three aspect (iv) Repositioning the marketing mix As time goes by and the market environment changes then management must also be prepared to change, or reposition the marketing mix. For example, in times of economic recession, it may be appropriate to reduce the selling price of a product, change its mode of selling and redesign its promotion platform. Overall, the role of marketing involves a difficult balancing act of both satisfying customer wants, or latent needs, obtaining competitive advantage, whilst at the same time meeting corporate objectives.
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Answer: D The marketing mix is a blend of different marketing decisions. Traditionally the decisions related to product, price, promotion and place. However more recently, particularly with the advent of selling from websites, three more Ps have been added to the mix: People, Physical presence and Process. Refer to the diagram on the next screen.
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Answer: D The question refers to the evaluation of the marketing mix, which presumes the entire mix. A, B and C each refer to parts of the mix. The entire mix would be evaluated against its definition (the clearness of its intention) and its positioning (the particular customer group).
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Answer A Market penetration pricing strategy Some companies favour setting low prices for new products to penetrate the market. It sometimes relates to a 'more for less' pricing philosophy. If a company prices at a low price (less than its perceived value) it will gain a higher-than-average market share because buyers will be getting extra value for their money. Penetration pricing often comes down to companies simply setting lower prices on their new products compared to competitors. Market skimming strategy Some companies favour setting high prices for new products to 'skim' the market - they estimate the highest price that can be charged given the comparative benefits of their new products versus the available substitutes. They set the high price to compensate for the low volume that will usually result.
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Fact Sheet: The Marketing mix

This diagram might help you recall the elements in the marketing mix
MARKETING MIX DECISIONS
<<< Market research <<< Buyer behaviour analysis
PRODUCT (MIX)
PRICE (MIX)
PROMOTION (MIX)
PLACE (MIX)
Variants Quality Specification (colour, size, weight, etc.) Features Functionality Packaging Services Guarantees/warranties
List price Discounts (bulk/ early payment) Allowances Payment methods Credit terms
Branding (image draw) Sales promotion Personal promotion Advertising Public relations
Direct marketing Market channels
McArthys Marketing Mix extended by the inclusion of three additional Ps
PEOPLE (MIX)
PROCESS (MIX)
PHYSICAL EVIDENCE (MIX)
Call-centre specialism. Quality of technical support. Online B2B sales staff (e.g., instant cost rating) Online B2C sales staff. Online training to equip staff.
Download facility. Secured online payments. Order tracking facility. Online customer support (e.g. Frequent Q&As). Invoice tracking Mass customisation.
Customer-to-customer (C2C) feedback (e.g. Amazon Books) Download trials (e.g. Microsoft) Online experience/trial (e.g. video demonstrations)
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Product A Product/service mix decisions are made by senior management. A budget is planned on the basis of the products or service mix that has already been decided.
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Answer: C It is a tricky question. There are not so many partnerships so A and B are excluded. There are far more limited liability (private) companies than companies that are quoted on a regulated stock exchange. (Note: if in doubt exclude the options that are obviously incorrect.)
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Answer: A Statements B, C and D are incorrect when related to advantages of decentralisation. Goal congruence is made more difficult when decisions are delegated. Goal congruence is the state which leads individuals or groups to take actions which are in their best interests and in the best interests of the organisation. It is an ideal state, but one that is difficult to achieve. Horizontal coordination is made more difficult when more people at the same level make decisions. Delegation results in more vertical reporting (much of which relates to control), not less.
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Answer: B Q Another tricky question. An entrepreneur is a person who has possession of a new enterprise, venture or idea, and assumes significant accountability for the inherent risks and the outcome. He or she is an ambitious leader who combines land, labour, and capital to often create and market new goods or services. (Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 6. ISBN 0-13-063085-3). Most definitions refer to entrepreneurs taking decisions at the early stage of a business. Answer: D A cooperative (often referred to as a co-op or coop) is defined as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. It is a business organisation owned and operated by a group of individuals for their mutual benefit. A cooperative may also be defined as a business owned and controlled equally by the people who use its services or who work at it. In essence, a cooperative is an entity that is owned and managed jointly by those who use its facilities and services. An example of a cooperative would be a group of trading organisations, where any profits available for disposal are allotted to members in proportion to the value of their purchases.
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Consumers' cooperative shops in the UK formed the world's first mass cooperative movement
Members, citizens or customers do not own a local government authority, a privately owned hospice funded from donations nor a fast-food franchise chain.
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Answer: D Strategy is the overarching, long-term plan of operations that will achieve the economic and other objectives of the organisation. It is part of the four levels of business planning: goals, strategy, tactics and operations. Business strategy normally relates to product-market direction and competitive advantage. Planning to develop a market in China would be strategic. Distractors A, B and C are all tactical, in other words they are plans which are used to execute agreed strategy.
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Answer: D In the context of the Anthony hierarchy (referred to in Section 1.d. of the syllabus) there are three levels of management decisions: Strategic Tactical (or executive) Operational These are shown in the diagram on the next screen.
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Answer: A Most governments want to control military organisations and make private armies illegal.
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Answer: B
Q
Public sector organisations often make profit from the sale of goods and services (distractor A) such as the London Underground Transit System (the Tube) - but this is done only to assist in pursuit of their main objective which is the provision of basic government services. Distractors C and D are not the concern of public sector organisations but relate more to private charities. (Note: government raise most of their money by taxation or trade, which is different from subscription.) 27 Answer: True
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Answer: B
Q
Limited liability is a concept whereby a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. In other words, if a company with limited liability is sued, then the plaintiffs are suing the company, not its owners or investors. A shareholder in a limited company is not personally liable for any of the debts of the company, other than for the value of his investment in that company. This usually takes the form of shares held in the company and any unpaid dividends. The same is true for the members of a limited liability partnership and the limited partners in a limited partnership. By contrast, sole proprietors and partners in general partnerships are each liable for all the debts of the business (unlimited liability).
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Fact Sheet: Characteristics of the strategic, tactical and operational levels in the organisation
Strategic managers will make decisions which: decide the entitys direction and set the long- and medium-term objectives require high cost investment and associated risk have uncertain results influence the operations of the different departments are non-routine and proactive
Strategic management
WHAT TO DO!
The types of information and support they need include: predictive as well as historical data which concerns the WHOLE entity data which is compact and summarised (and yet with the ability to drill down into more detail as required) data which relates to external (environmental) factors as well as internal factors
Executive (tactical) management
The types of information at this level of management include: historical, current and prediction data data which is relevant to the department some data summarised, and some detailed (such as sales trends, budget results, and so on)
Executives make decisions which: involve the medium-term implementation of the strategy (policy) involve departmental performance monitoring, measurement and control are partly routine and partly non-routine are both reactive and proactive
HOW TO DO!
Operational management
The types of information at this level of management relate to:
Operational managers make decision which: involve a short time scale (sometimes very shortterm) are routine (rules and regulations based) have predictable outcomes
DO!
current activities specific activities (within departments or activities) measurable events, such as overtime hours works, kilograms of material used, etc. data which is detailed
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Answer: C The British Institute of Marketing defines marketing as: The creative management function which promotes trade and employment by assessing consumer needs and initiating research and development to meet them. It co-ordinates the resources of production and distribution of goods and services, determines and directs the nature and scale of the total effort required to sell profitably the maximum production to the ultimate user. Although distractors A, B and D are in some part involved with customers their main remit is not concerned with identifying and satisfying customer needs.
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Answer B Downsizing refers to a process where a company or a firm simply reduces its work force in order to cut the operating costs and improve efficiency. It has become a legitimate option for business growth strategies. It is in fact, the most preferred option of companies to sustain operating costs and comply with the existing scope of the business. Downsizing does not necessarily result in delayering. Delayering is a term in corporate restructuring that refers to a planned reduction in the number of layers of a management hierarchy. Delayering does not necessarily result in downsizing.
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Answer: B Delegation describes a condition when the authority to make specific decisions is passed down to units and people at lower levels in the organisation's hierarchy. Responsibility, obligation and liability cannot be delegated to subordinates.
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Answer: B A matrix organisation superimposes one group of specialists on another group of specialists, such as a group or interdisciplinary team of project specialists on a functional (line) structure. A main disadvantage attributed to this type of organisational structure is that it can be a cause of conflict and tension between function and product managers which can lead to conflicting demands over the way resources are allocated between them. Answer: A In line authority one finds a superior with a line of authority running to a subordinate. This graduation of authority is found in most organisations as an uninterrupted scale or series of steps. Hence this hierarchical arrangement has been referred to as the scalar principle in organisation: The clearer the line of authority from the ultimate authority for management in an enterprise to every subordinate position, the more effective will be responsible decision making and organised communication. In many large organisations, the steps are long and complicated, but even in the smallest, the very act of organisation introduces the scalar principle. Line authority, therefore, becomes apparent from the scalar principle as being the relationship in which a superior exercises direct supervision over a subordinate an authority relationship in direct line or steps.
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Answer: A There is an implicit dynamic between the span of control of managers and the length of the hierarchical structure the wider the span the flatter the organisation, with narrow spans tending to result in tall organisational structures. A simple example, as shown in the diagram below, may help illustrate the fact. Of course, spans of control are not constant for all managers and at all levels of managers, but the example still helps to show the dynamic between spans and structure. Organisation with Narrow Spans
Organisation with Wide Spans
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Answer: C The other three fall within Druckers definition of an organisation structure. Whilst many writers refer to the process of organisation and to the organisation of a company, the expression 'organisation' is very much over used, and should be avoided in this context. Structure is a far better term, and has been defined by Drucker as: ".... a means for attaining the objectives and goals of an institution.' Drucker, P.F., 'The practice of management', (London: Heinemann, 1979)) If we accept Drucker's definition then an organisation (structure) consists of: 1. Basic structures - the formal allocation of people and resources to tasks which have to be carried out and the provision of coordinative mechanisms (job descriptions, organisation charts and the constitution of boards, committees and working parties). The answer continues on the next screen ....
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2.
Operating mechanisms - indications to organisational members of what is expected of them (standing orders or operating procedures, standards of performance, reward and appraisal systems, planning schedules and systems for communication). Decision mechanisms - provisions for assisting decision-making and its associated processing requirements.
3.
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Answer: C The example here is of short-term control and is thus operational.
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Answer: D In business and economics, predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices without losing money, they go out of business or choose not to enter the business. Price skimming (distractor A) involves setting high prices for new products to 'skim' the market. A company estimates the highest price that can be charged given the comparative benefits of their new products versus the available substitutes. Opportunistic pricing (distractor B): involves charging customers unreasonably high prices when goods or services are in short supply. Penetration pricing (distractor C) is the pricing technique of setting a relatively low initial market entry price, often lower than the eventual market price, to attract new customers. The strategy works on the expectation that customers will switch to the new brand because of the lower price. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term. Penetration pricing can be used as a competitive ploy to switch customers from a stronger competitor without specifically targeting the customers of weaker competitors.
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Answer: A Just-in-time (JIT) is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs. To meet JIT objectives, the process relies on signals or Kanban between different points in the process, which tell production when to make the next part. Kanban are usually 'tickets' but can be simple visual signals, such as the presence or absence of a part on a shelf. Implemented correctly, JIT can dramatically improve a manufacturing organisation's return on investment, quality, and efficiency. Ad hoc (distractor B) means impromptu or unplanned. Capacity planning is the process of determining the production capacity needed by an organisation to meet changing demands for its products. In the context of capacity planning, "capacity" is the maximum amount of work that an organisation is capable of completing in a given period of time. Level capacity strategy (distractor C) has the aim of maintaining a level capacity of production by producing for inventory in market downtimes and selling from inventory when the market need exceeds its production capacity. The answer continues on the next screen ....
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PDCA (plan-do-check-act) (distractor D) is an iterative four-step problem-solving process typically used in business process improvement. It is also known as the Deming cycle, PLAN Establish the objectives and processes necessary to deliver results in accordance with the expected output. By focusing on the expected output the approach differs from other techniques in that the completeness and accuracy of the output specification is also part of the improvement. Implement the new processes. Often on a small scale at first.
DO
CHECK Measure the new processes and compare the results against the expected results to ascertain any deviations. ACT Analyse the deviations to determine their cause.
PDCA is not an approach specific to producing goods or purchasing inventory only when required.
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Answer: B Promotion represents all of the communications that a marketer may use in the marketplace. Promotion has four distinct elements - advertising, public relations, word of mouth and point of sale. A certain amount of crossover occurs when promotion uses the four principal elements together. Public relations can be used to build rapport with customers (and for that matter with employees, investors and other stakeholders) and common activities include speaking in the public arena, working with the media and press releases, sponsorship deals, exhibitions, conferences, seminars or trade fairs and events. Distractors A, C and D are not classified as public relations.
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Answer: B Promotion is one of the four aspects of the promotional mix (sometimes called the communication mix). The other three parts of the promotional mix are advertising, personal selling, and public relations. Media and non-media marketing communication are employed for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability. Examples include: contests , point of purchase displays and rebate (marketing). Product promotions can be directed at either the customer, sales staff, or distribution channel members (such as retailers). Distractors A, C and D are activities not related to product promotion.
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Answer: C Market segmentation is the subdividing of a market into distinct subsets of customers, where any subset may conceivably be selected as a market target to be reached with a distinct marketing mix.
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Market segmentation allows companies to treat similar customers in similar ways, whilst distinguishing between dissimilar customer groups. Each customer group has slightly different needs, and these can be satisfied by offering each group, or segment, a slightly different marketing mix setting. In addition to superior satisfaction of customer needs, segmentation encourages better analysis of marketing opportunities. Before investing in a potential market segment a company should use research to ensure that it is measurable, accessible and substantial. There are other criteria as shown in the mnemonic SAS FRAME on the next screen. Distractor A is not a valid reason for entering a market. After all, the companys product may be sophisticated. The measure of efficiency (included in distractor B) relates to the ratio of resources used (input) to results (output), and is not an appropriate basis for measuring a market segment. Distractor D may be part of the assessment but more measures are called for. For example, does the fact that the market lacks providers mean that it is not substantial?
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Answer: C
Q Q
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Answer: D A strategy of logical incrementalism is when an organisation avoids radical strategies but instead takes small steps based on what has been done before and worked in the past. It often results in large change over a lengthy period of time. (The hour-hand on a clock moves so slowly [incrementally] that movement cannot be detected, yet each 12 hours it moves through 360 .) Ecological, distractor A has no relevance here. Positioning (distractor B), in business terms, has come to mean the process by which marketers try to create an image or identity in the minds of their target market for a companys product, brand, or organisation. Bounded rationality (distractor C) is a concept based on the fact that the rationality of management decisions is limited by the information the managers have, the cognitive limitations of their minds, and the finite amount of time they have to make decisions. This contrasts with the concept of rationality as optimisation (i.e. doing the best thing). Another way to look at bounded rationality is that, because decision-makers lack the ability and resources to arrive at the optimal solution, they instead apply their rationality only after having greatly simplified the choices available. Thus the decision-maker is a satisficer, one seeking a satisfactory solution rather than the optimal one.
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Answer: B Distractors A and D are the responsibility of head-office (parent) strategy. Distractor C describes tactical and operational planning, not strategy.
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Criteria used to assess the attractiveness of a potential market segment

Part of market research activity involves assessing the attractiveness of the potential identified segment. Criteria may include:
S A S F R A M E
Stance (Is the stance in line with companys preferred market stance?) Acceptability (Does the segment help achieve the companys objectives?) Substance/suitability (Is the size, potential growth, opportunity for expansion, suitable?)
Feasibility (Does the company have, or can obtain, the necessary resources required by this segment?) Reach (Does the company have the ability to communicate with the potential buyers?) Accessibility (Are there formidable entry barriers and/or competitive threats?) Measurability (Can the size and growth potential be assessed?) Expansion potential. (Are there expansion opportunities?)
Memory jog: remember the criteria as: SAS
FRAME.
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45
Answer: C Accountability is often used synonymously with such concepts as responsibility, answerability, blameworthiness, liability, and other terms associated with the expectation of account-giving. Authority (Distractor A) is what Fayol defined as "the right to give orders and the power to exact obedience". Although he does not go much beyond defining the term, he does make several relevant points. (i) He recognises that authority does not merely derive from the official position occupied by the manager ("official authority") but also from his "intelligence, experience, moral worth, ability to lead .... ("personal authority").
(ii) He repeatedly emphasises the intimate association between authority and responsibility. Empowerment (distractor B) is the management practice of sharing power, information and resources with employees so they can take initiative and make decisions to solve problems and improve the quality of service and their productivity. It is based on the overarching concept of giving employees the authority, resources, skills, motivation and opportunity to make decisions as well as holding them accountable for the outcome of those decisions. Super ordination (distractor D) is of being superordinate or belonging to a higher rank or class. It is not relevant here. 46 Answer: B Distractors A, C and D are planned on the basis of B. 47 Answer: B
Q Q
Business level managers (distractor C) are responsible for business strategy. Corporate-level managers are responsible for deciding what business the company should operate in. Decisions about acquisitions, mergers and sell-offs are made at corporate level. The functional level of management (distractor A) is mainly responsible for departmental decisions, not corporate-wide decisions. A competitive level of management (distractor D) does not exist
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The marketing mix is best described as: A B C D

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The function of wisdom is to discriminate between good and evil. Cicero

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