The Association of Business Executives

QCF
Introduction to Business
Suggested Answers


Unit Title: Introduction to Business
Unit Code: 4IB
QCF Level: 4
Session: December 2012


STRUCTURE OF PAPER: Answer BOTH sections
SECTION A: Answer ALL SIX questions Q1Q6 14 marks
each
SECTION B: Answer ONE question Either Q7 or Q8 16 marks
TOTAL MARKS AVAILABLE FOR THE PAPER 100 marks



SECTION A
Candidates must answer ALL SIX questions in this section.
Section A is worth 84% of the total marks available for the paper.

Question 1

Q1
(a)

Distinguish between the corporate objectives and corporate strategies of a business.
Corporate objectives are the goals established for the whole organisation such as
appropriate example
Corporate strategy is the plan devised in order for the organisation to achieve a specific
objective.
Maximum Marks for (a) 6 marks
Q1
(b)

Identify and explain four ways in which the commitment of a business to its
shareholders might conflict with its commitment to staff.
Candidates are expected to focus upon the overriding shareholder objective of profit
maximisation and how this might clash with other obligations. Rather than simply
produce an exhaustive list a number of examples might include any of the following:

Profit v Wages/Salaries paid
Profit v Working Conditions
Profit v Health and Safety
Profit v Pension provisions/Fringe benefits
Maximum Marks for (b) 8 marks
Total Maximum Marks for Q1
14
marks


Question 2

Q2
(a)

Define the term primary sector.
Primary sector Involves the extraction and production of raw materials, such as coal,
wood and steel.
Maximum Marks for (a) 2 marks
Q2
(b)

Explain one advantage and one disadvantage for a business of operating as a sole
trader.
Possible advantages include:
Total control of the business by the owner.
Cheap and easy to start up few forms to fill in and to start trading the sole
trader does not need to employ any specialist services, other than setting up a
bank account and informing the tax offices.
Keep all the profit as the owner, all the profit belongs to the sole trader.
Business affairs are private competitors cannot see what you are earning, so
will know less about how the business works and how it succeeds.
Possible disadvantages include:
Unlimited liability a sole trader is responsible for all of the debts of the
business and their personal possessions may be at risk if the business fails.
Can be difficult to raise finance, because they are small, banks will not lend
them large sums and they will not be able to use any other form of long-term
finance unless they change their ownership status.
Can be difficult to enjoy economies of scale, i.e. lower costs per unit due to
higher levels of production. A sole trader, for instance, may not be able to buy in
bulk and enjoy the same discounts as larger businesses.
There is a problem of continuity if the sole trader retires or dies what
happens to the business next?
Maximum Marks for (b) 4 marks


Q2
(c)

Identify and explain two differences between the services provided by the public sector
and those provided by the private sector. In each case, give reasons for your answer.
Candidates may take the following approach:

Example 1
Public sector organisations seek to provide services cheaply or free of charge whilst
private sector organisations will look to charge a price that will enable them to make as
large a profit as possible. This is because it needs to ensure that , rather than fulfil a
social objective for the wider community, it can maximise returns to its shareholders.
Maximum Marks for (c) 8 marks
Total Maximum Marks for Q2
14
marks




Question 3

Q3
(a)

Define the term business cycle.
The business cycle shows the regular pattern of upturns and downturns of the level of
output in an economy over time.
Maximum Marks for (a) 2 marks
Q3
(b)

Outline three effects upon a business of a downturn in the business cycle.
In a recession we would expect businesses that are adversely affected to observe the
following:
Falling demand due to consumers cutting back on expenditure.
Low levels of capacity utilisation.
Falling profit levels/losses being incurred.
Falling levels of investment.
Increased redundancies.
Increased number of businesses closing down.
Maximum Marks for (b) 6 marks
Q3
(c)

Identify and explain three external influences on a business.
Possible influences include:
Interest rates;
Exchange rates;
Inflation;
Unemployment;
Government legislation;
Technology;
Environmental;
Cultural;
Moral;
Ethical
Example interest rates will affect a business because if they rise then it will increase
the amount of interest that they pay on loans and may reduce the profits of the
organisation.
Maximum Marks for (c) 6 marks
Total Maximum Marks for Q3
14
marks


Question 4

Q4
(a)

Identify and explain two factors that might affect a business decision regarding which
production process to use.
Possible Factors include:

The nature of the product many products require a specific method of
production e.g. construction projects are usually specific tasks and thus are often
examples of job production.
The size of the market fast moving goods such as canned drinks are normally
produced using flow production because the market is so big.
Technology the current state of technology will affect all decisions concerning
how to produce.
The stage of development a business has reached when firms set up, they
often produce small levels of output and employ job or batch production
methods. As they grow and enjoy higher grow levels, they may switch to flow
production.
Maximum Marks for (a) 4 marks
Q4
(b)

Explain what is meant by economies of scale, and suggest how small firms manage to
survive and prosper without these.
Economies of scale occur when an increase in output leads to a reduction in the average
costs of production.

Possible reasons include:
Personalised service
Convenience
Opening hours
Small firms offering specialised products
Availability of credit.
Maximum Marks for (b)
10
marks
Total Maximum Marks for Q4
14
marks


Question 5
Q5
(a)

Define the term primary market research.
Primary market research is the gathering of new data, which has not been used before.
Maximum Marks for (a) 2 marks
Q5
(b)

Identify and explain one advantage and one disadvantage to a business associated with
this form of market research.
Possible advantages of PMR:
Data can be collected that directly applies to the issue being researched
Only that business can access that data which might give it marketing
advantages over rival firms
Possible disadvantages of PMR:
It can be expensive to collect and may take longer than desk research
The sample taken might not be representative
If the research method is flawed, the findings will also be flawed.
Maximum Marks for (b) 4 marks
Q5
(c)

Explain how each component of the marketing mix might change between the
introductory stage and the maturity stage of a businesss life cycle.
A possible approach to this question might be:
Introduction: For example, at the birth stage of a product the accent will be on product
development as market research identifies any changes needed. Promotion will
concentrate on developing product awareness among the identified target market.
Pricing strategy will be either "skim" pricing if the product is seen as innovative or
luxurious or "penetration" pricing in order to gain rapid market share. Initially the product
will be "placed" in a limited geographical area or among a limited number of retail outlets
in order to gain essential market feedback.
Maturity: Similarly at the mature stage the mix will change again as it seeks to
encourage repeat sales from its loyal customers. Price discounts and special promotions
may be used to hold on to market share and existing distributors. Firms will start to
consider extension strategies which might include developing a wider product range,
entering new markets or changing the packaging. Once it is no longer profitable to
continue production, advertising will cease and prices will be reduced to clear remaining
stocks.
Maximum Marks for (c) 8 marks
Total Maximum Marks for Q5
14
marks


Question 6
WD Caravans Ltd makes mobile holiday homes and rents a factory on an industrial site in Cardiff.
Each mobile home sells for 20,000. The production costs are as follows:
Rent = 260,000
Salaries = 200,000
Business insurance = 50,000
Advertising = 90,000
Materials = 2,000 per mobile home
Labour = 6,000 per mobile home
Q6
(a)

Calculate how many mobile homes WD Caravans Ltd would need to produce to break
even. Show your workings.
FC/(Selling Price VC per unit)
600,000/(20,000 - 8,000)
BEP = 50 caravans
Maximum Marks for (a) 4 marks
Q6
(b)

Calculate how much profit/loss would be made if 80 mobile homes were sold. Show your
workings.
TR = 20,000 * 80 = 1,600,000
TC = 600,000 + (8,000 * 80 ) = 1,240,000
Profit = 360,000
Maximum Marks for (b) 4 marks
Q6
(c)

Identify and explain three potential problems that could lead to lower levels of sales that
those needed to break even.
Possible Reasons might include:
Selling Price of the product if the price of the product is deemed too expensive
at the market price then it might struggle to sell sufficient units to recoup the
initial financial outlay.
Change in economic conditions if the product is a luxury item and the economy
takes downturn then consumers might cut back on expenditure of a particular
product, thereby preventing it from achieving its BEP.
Ineffective market research if market research is inaccurate then the actual
demand for a particular product may be insufficient to recover the costs of
production.
Maximum Marks for (c) 6 marks
Total Maximum Marks for Q6
14
marks


SECTION B
Candidates must answer ONE (AND ONLY ONE) question from this section
Each question carries 16 marks.
Section B is worth 16% of the total marks available for the paper.

EITHER Question 7

Q7
(a)

Define the term job enrichment, and explain why it should improve staff motivation.
Job enrichment is an attempt to give employees greater responsibility by vertically
extending their role within the production process.

Job enrichment should improve motivation as not only does it meet the social needs of
the workforce, but it also allows workers to use their new experiences to how to improve
the production process. Moreover, if workers are given responsibilities for budgets
through JE then they can become more motivated by being managers of their own work.
Maximum Marks for (a) 4 marks
Q7
(b)

Identify and explain three advantages and three disadvantages of offering pay related to
performance e.g. piecework.
Advantages of offering pay related to performance include:

Motivating all employees, not just the high fliers (who may not need motivating
through this method anyway, although it is necessary to avoid demotivating them
by under rewarding achievements);

Increasing the commitment of employees to the organisation by encouraging
them to identify with its mission, values, strategies and objectives;

Reinforcing existing culture and values where these foster high levels of
performance, innovation and team work;

Helping to change the culture where it needs to become more results and
performance orientated, or where the adoption of new values should be
rewarded;

Discriminating consistently and fairly on the distribution of rewards to employees
according to their contribution;

Reinforcing a clear message about the performance expectations of the
organisation, for example by focusing on key performance issues.

Disadvantages of offering pay related to performance include:

There may be disputes about how performance is measured and whether an
employee has done enough to be rewarded i.e. who decided the rate?

Rewarding employees individually does very little to encourage teamwork which
might lead to demotivation and therefore reduce motivation and, in turn, output.



There is doubt about whether performance-related pay actually does anything to
motivate employees. This may be because the performance element is usually
only a small percentage of total pay.

Merit payments are effectively permanent increases in salary, yet the quality of
performance in future years may not justify this payment.

They are dependent on the quality of appraisal which can be arbitrary, subjective
or inconsistent, especially when the appraisers have not been adequately trained

Maximum Marks for (b)
12
marks
Total Maximum Marks for Q7
16
marks




OR Question 8

Q8
(a)

Identify and explain two possible reasons why a business might offer induction training
to its new employees.
Possible reasons for induction training might include:
Introduction to other employees.

Physical layout of the workplace.

Essential procedures, such as for claiming expenses, payment of wages, etc.

Important safety provisions, such as fire evacuation procedures.

General information about the organisation history and development, trading
policies, company projects, responsibilities of each department, HR policies and
procedures, etc.
Maximum Marks for (a) 4 marks
Q8
(b)

Explain the possible consequences to a business of minimising the training budget.
Possible consequences include:
Increased labour turnover thereby increasing additional recruitment costs.
Unskilled (or under skilled) staff will not be as productive and may be less
equipped to adapt to change.
Increased accidents, thereby running the risk of legal action against the business
and reducing the public image of the organisation.
Reduced possibility of employees knowing and being able to work towards the
objectives of the organisation.
Workers become increasingly inflexible and unable to adapt to change.
Maximum Marks for (b)
12
marks
Total Maximum Marks for Q8
16
marks