Cambridge International Examinations

Cambridge International Advanced Level

Haris Tariq Rahim - A2

* 8 5 9 5 7 5 4 0 4 8 *

BUSINESS 9609/32
Paper 3 Case Study October/November 2018
3 hours
Candidates answer on the Question Paper.
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Write your Centre number, candidate number and name in the spaces at the top of this page. If you need
additional answer paper ask the invigilator for a continuation booklet.
Write in dark blue or black pen.
You may use an HB pencil for any diagrams, graphs or rough working.
Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.

Section A
Answer all questions.
Section B
Answer one question.
You are advised to spend no more than 40 minutes on Section B.

Refer to the Insert for the case study for this Paper.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 20 printed pages and 1 Insert.

DC (RCL (GO)) 153643/2

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Section A

Answer all questions in this section.

1 Analyse the benefits to DLR of the elasticity concept when developing the new marketing plan.

A marketing plan refers to a detailed report on a marketing

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strategy which contains research findings, objectives,

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marketing mix and budget.

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Elasticity on the other is the measure of the responsiveness

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of demand to a change in one of its determinants example

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price elasticity of demand, income elasticity of demand ,

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advertising elasticity of demand. The knowledge of elasticity

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- price elasticity of demand will help the business make

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decisions about the pricing, for example if one sets the price
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too high, according to the law of demand which states an

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increase in the price leads to a fall in the demand of that

..........................................................................................................................................................

good, so the pricing has to be done very carefully otherwise

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problems can occur such as fall in sales volume.

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Moreover, knowledge of Promotional elasticity of demand

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will also be instrumental since it will guide the managers or

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the owners of the business of how much to spend on the

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marketing budget. This again is very important because

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business which spend lots of money on the marketing

..........................................................................................................................................................

budget usually experience an increase in sales volume

..........................................................................................................................................................

since money is spent on advertisements and on the

..........................................................................................................................................................

product itself.
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Income elasticity of demand is another measure. It refers

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to the change in the level of demand of a good due to the

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changes in income(Y). The knowledge of YED will help

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DLR understand the impact of expected changes in income

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on demand. This again is very advantageous because

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if the levels of income fall, people eventually stop demanding

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expensive or highly priced goods/services, so if DLR

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would be aware of the income changes, they would be

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able to price the goods adequately.

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The concept of elasticity will be important also because

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DLR intends to increase prices for accommodation they

..........................................................................................................................................................

will need to consider the impact of PED on demand.

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Secondly, the knowledge of PED will also help DLR to make

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decisions about the discounts to be offered when sales will

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not made properly, for example off-peak season. The

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promotional elasticity of demand will influence the design

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of the marketing plan to achieve the goal of a 10% share

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of the holiday park market.

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The extract also mentions about the increase in the

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minimum wage in 2019, and with the help of YED, DLR

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can increase costs of whatever they are providing. Even

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the growth of 3.5% in the GDP can be important and its

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effect will only be analyzed when YED will be calculated.

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The concept of elasticity will basically help DLR in

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problems which can effect the survival of the business.

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2 (a) Refer to Appendix A and lines 74–79. Produce a forecast Income Statement for the year
ending 30 September 2019. Assume no other changes.
Revenue - 88 Million dollars
...................................................................................................................................................
Cost of Sales - 10.5 M
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Gross Profit- 77.5 M
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Expenses - 55 M
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Operating Profit - 22.5 M
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Financial expenses - 5 M
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Profit before tax - 17.5 M
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Corporate tax 15% - 2.625 M
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Profit for the year - 14.875 M
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Dividends - 5.95 M
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Retained Earnings - 8.925 M
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(b) Using your result to 2(a) calculate the forecast gross profit margin for 2019.
Gross Profit Margin= GP/Revenue * 100
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77.5/88 * 100 = 88.1%
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(c) Discuss the usefulness of forecast Income Statements to the directors of DLR.

The income statement forecast is one of the main

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statements within a business plan. It shows a

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business’s financial performance over an accounting

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period. Income statements are considered very important

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for directors because of the numerous uses. It shows

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strongly increasing revenue and profit and this would

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support application for finance, and the directors can

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use this statement to encourage investment into the

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company which again is very important.

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Income statements are also useful for directors when

...................................................................................................................................................

they are seeking finance, because all financial instituions

...................................................................................................................................................

request an Income statement before they decide to lend

...................................................................................................................................................

the money to the company. The interest which has to be

...................................................................................................................................................

paid is used to determine whether the profit the business

...................................................................................................................................................

making is sufficient to cover the interest payments on

...................................................................................................................................................

any loans. The finance may have been needed for

...................................................................................................................................................

the investments undertaken such as upgrade to the

...................................................................................................................................................

facilities or a new IT system.

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Income statements are useful for directors because

...................................................................................................................................................

they help in identifying when the business is making

...................................................................................................................................................

profits or when it is forecasted to make profits.This

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again is very important, since it can be a decision tool

...................................................................................................................................................

for the business.

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They can be used as a monitor for the performance of

...................................................................................................................................................

the overall business. For directors and DLR as a business

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it will be important to know the bottom line net income.

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The bottom line net income refers to the entity’s income

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minus the cost of goods sold, expenses and taxes for

...................................................................................................................................................

an accounting period. Directors can use it to establish

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% relationships between the expenses and revenue to

...................................................................................................................................................

spot trends in operating profit ratios, and even for the

...................................................................................................................................................

comparison of actual results to the projected results.

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Thus it is said to monitor performance.

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When talking about attracting new investments into the

...................................................................................................................................................

business, DLRbusiness, will need DLR will need toto prepare

prepare these statements
these statements
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for the investors to see. The investors will always look

...................................................................................................................................................

at the income before tax to establish their returns on their

...................................................................................................................................................

investment, and this value can only be found with the

...................................................................................................................................................

help of income statements.

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Income statements will also be important to the

...................................................................................................................................................

directors of DLR because they can be used to guide

...................................................................................................................................................

decisions about the future spending and even the cost

...................................................................................................................................................

issues. This again is very advantageous, because if the

...................................................................................................................................................

directors would feel that they need more finance this

...................................................................................................................................................

statement will help them in time, and delays will be

...................................................................................................................................................

avoided, and any problem related to finance can be

...................................................................................................................................................

solved immediately.
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Conclusively, after reading this one can see that the

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forecast income statements can be very useful to the

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directors of DLR, especially the forecast statements

...................................................................................................................................................

would help the directors set budgets essential in

...................................................................................................................................................

controlling future spending. However more information

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such as quantitative data will be also needed to make

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the future decisions of the business. And its a dynamic

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market which again limits the usefulness.

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3 Recommend changes the Human Resources Director could make to DLR’s human resource
strategy. Justify your recommendation.

DLR currently uses a ‘hard approach’ to human resource management

..........................................................................................................................................................

which refers to a staff management system in which the workers are

..........................................................................................................................................................

considered a resource that needs to be controlled to achieve the best

..........................................................................................................................................................

possible profit and competitive advantage, and when a business uses

..........................................................................................................................................................

this approach to HRM, the business experiences issues such as the

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high labour turnover, demotivated employees etc and all of this is

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disadvantageous for the future of the business, as costs increase over

..........................................................................................................................................................

time and when labour turnover increases, the reputation of the business
..........................................................................................................................................................

is also affected.
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Mercy Clant, the new Human Resource Management director has

..........................................................................................................................................................

identified the problems mentioned above, and wants to change the

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overall working environment which will mainly involve changing the

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approach to HRM. The first change should be changing from the

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hard approach to the ‘soft’ HRM approach which involves employees

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in the decision making and allows employees greater control over

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4 (a) Refer to Table 1. Calculate for 2018:

(i) capacity utilisation

Capacity utilisation= current output/max output*100

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1300/1800*100= 72.2%
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(ii) the number of apartments that must be occupied each day for DLR to break even.

Break even = fixed costs/ contribution per unit

...........................................................................................................................................

contribution per unit = Selling price - VC

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Contribution= 84.50—11.50= 73
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Break even = 81000/73 = 1109.56 or 1100 per day.

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(b) Discuss the importance to DLR of increasing capacity utilisation.

Capacity utilisation is a measure of the extent to which

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the productive capacity of a business is being used.

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It can be defined as the percentage of total capacity that

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is actually being achieved in a given period. It is often

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used as a measure of productive efficiency which

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means that increasing capacity utilisation will refer

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to increasing productive efficiency which is very

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important and advantageous for a business.

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5 Assess the extent to which any two of the forecast changes in Table 3 could influence DLR’s
future decision-making.

Table 3, shows the external influences on DLR, and these

..........................................................................................................................................................

external influences have to be considered very importantly

..........................................................................................................................................................

in order to avoid problems in the operations of the business

..........................................................................................................................................................

in the long-term and short-term periods. External influences

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include the changes in the economy, example rise in the

..........................................................................................................................................................

Gross Domestic Product of the economy, or changes in

..........................................................................................................................................................

the interest rates. Gross Domestic Product refers to the

..........................................................................................................................................................

output of an economy, and rising GDP basically indicates

..........................................................................................................................................................

an increase in the level of output. Interest rates are also

..........................................................................................................................................................

an important external influence and it basically refers to the

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cost of borrowing on the loan taken by the financial

..........................................................................................................................................................

institutions.
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Exchange rates is another external influence metioned

..........................................................................................................................................................

in the Table provided. Exchange rates are also a very

..........................................................................................................................................................

important influence on DLR since these rates affect the

..........................................................................................................................................................

price of imports exports. External influences also include

..........................................................................................................................................................

the ageing population, the minimum wage and the infras

..........................................................................................................................................................

tructure of the economy the business is operating in.

..........................................................................................................................................................

Infrastructure enables the business to operate properly,

..........................................................................................................................................................

and minimum wage refers to the legal requirements for the

..........................................................................................................................................................

firms to pay to their employees. Competition between firms

..........................................................................................................................................................

and the Internet, both are also external influences, and

..........................................................................................................................................................

changes in them can surely influence DLR’s decision

..........................................................................................................................................................

making in the future.

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The first change that will influence DLR’s future decision

..........................................................................................................................................................

making will be the improvement in the infrastructure.

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This includes the improvement in the railway and the road

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links which may improve the outlook of the firms, as

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DLR does depend on customers being able to travel,

..........................................................................................................................................................

because if the modes of transportation will be weak,

..........................................................................................................................................................

then people might avoid indulging in the activities which

..........................................................................................................................................................

involve using such methods of transportation. But if these

..........................................................................................................................................................

improve, this will impact the businesses involved, eventaully

..........................................................................................................................................................

leading to more demand. Basically the improved —

..........................................................................................................................................................

infrastructure will make it easier for customers to travel

..........................................................................................................................................................

in Country Z, eventually leading to the boost in the demand.

..........................................................................................................................................................

Improved infrastructure leads to efficiency also.

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The second forecast change mentioned in Table 3 that

..........................................................................................................................................................

will influence DLR’s future decision making will be the

..........................................................................................................................................................

growth in the Gross Domestic Product of the economy.

..........................................................................................................................................................

As mentioned before, growth in the GDP means the

..........................................................................................................................................................

output of the economy is increasing. The growth in GDP

..........................................................................................................................................................

is around 3.5% which is also advantageous, because

..........................................................................................................................................................

it will indicate the boost in the incomes- household

..........................................................................................................................................................

incomes, which means again people will demand more

..........................................................................................................................................................

since disposable income will be more than before. This

..........................................................................................................................................................

indicates an increase in the demand for the normal

..........................................................................................................................................................

goods. The income elasticity of demand will have to be

..........................................................................................................................................................

calculated for the holiday parks, as it refers to the changes

..........................................................................................................................................................

in the income to the change in the quantity demanded of

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a product or service.
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Section B

Answer one question from this section.

6 Discuss the importance to DLR’s future profitability of business planning.

7 Discuss whether DLR’s use of strategic choice techniques can eliminate risk when taking strategic
decisions.

Write the question number here: ......................7

Strategic choice is a key element of the strategic decision
..........................................................................................................................................................

making process. It is concerned with the identification of

..........................................................................................................................................................

different strategic options and deciding between them.

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There are a number of logical techniques available to

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assist managers in making strategic choices.

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The Force Field Analysis is the first choice. This identifies

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restraining and driving forces for a strategic decision.

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Decision trees refer to diagrams that set out the options

..........................................................................................................................................................

connected with a decision and the outcomes and

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economic returns that may result. The primary limitation

..........................................................................................................................................................

concerns the accuracy of data used. Probabilities of

..........................................................................................................................................................

events occurring may be based on past data. Ansoff

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Matrix is another strategic choice technique. It refers to

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growth strategies categorized according to the market and

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the product. Moreover the investment appraisal techniques

..........................................................................................................................................................

can also come under this, such as Net Present Value, the
..........................................................................................................................................................

Payback Period (etc).

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The techniques attempt to apply a more scientific approach

..........................................................................................................................................................

to decision making which is very important and

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advantageous for the business since it can improve

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the quality of the decisions being made and also ensure

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that all factors are being considered. When the quality of

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the decisions are improved this leads to more efficiency

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in the business, eventually leading to lesser disruptions

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and errors in the future operations of the business which

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makes the survival of the business easier. The Force

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Field Analysis can be useful for the business also when

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the business is considering how to overcome the

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restraining factors for a change in the business, for example

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the restraining factor for improving the IT of the business

..........................................................................................................................................................

will be that it will be extremely costly, and there will be an

..........................................................................................................................................................

opportunity cost. However in the case of the Force Field

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Analysis, it will encourage consideration of relevant factors

..........................................................................................................................................................

that will influence the outcome of a decision. When all the

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factors are being considered properly, it can surely eliminate

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the risk when making these strategic decisions.

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To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International
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the live examination series.

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