Unit 1.

1 Nature of Business Activity DRAFT

Unit 1.1 Nature of Business Activity

Task 1: Complete the missing words

A ………………. is an organization that uses inputs, known as factors of ……………….…., to produce
goods and services. …………… are physical products, such as pens, televisions and clothing.
………………. are intangible products such as education, health care and foreign holidays.
………………….. is the process of using factor inputs (also known as the …………. of …………….….)
to generate the ……….. of either a good or service. These are then purchased by ……………… (people or
businesses that buy the product) and then used by the ……………. (the end user, be it a business or
a person).

Task 2: Vocabulary quiz

a Identify the correct stage of production from the clues below.

Stage of Production Description

Transformation of primary resources into manufactured goods
for sale
Extraction of natural resources such as farming and mining
Provision of services such as distribution and after-sales care

b Find the correct factor of production from the given definitions.

Factor of Production Definition

An individual who has the skills and ability to take risks in
organizing the other three factors of production to generate output
in a profitable way
All natural resources that are used in the production process,
e.g. wood, water, physical land and minerals
Non-natural or manufactured resources used to further the
production process, e.g. money, buildings, machinery, tools and
vehicles
Physical human effort and psychological intellect used in the
production process

c Identify the correct functional department in each case below.

Functional Department Functional Roles

Prepares accounts such as profit and loss accounts and balance
sheets and manages the money of the business
Manufactures goods in order to meet quality standards, targets and
deadlines
Conducts research to meet the needs of customers and arranges
promotional activities to sell the firm’s products
Handles recruitment, training and the general welfare of the
workforce

2 © Paul Hoang & IBID Press

DRAFT Unit 1.1 Nature of Business Activity

Task 3: Explain …

a Three advantages of specialization

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b Two disadvantages of specialization

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c Three qualities of successful entrepreneurs

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Task 4: Multiple choice

1 The resources used in the production process are collectively known as
A Human capital resources
B Raw materials
C Working capital
D Factors of production

2 Specialization does not benefit from

A Monotony of doing same job
B Productivity from specialization
C Products that are mass produced
D Increased competitiveness

3 The difference between the cost of the inputs in the production process and the price of the final
output is known as
A Income
B Revenue
C Added value
D Profit

4 Which of the following is not an example of primary production?

A Agriculture
B Fishing
C Mining
D Coaching

5 Which occupation does not exist in the tertiary sector?

A Estate agent
B Secretary
C Machinist
D Librarian

© Paul Hoang & IBID Press 3

Unit 1.2 Types of Organization DRAFT

Unit 1.2 Types of Organization

Task 1: Complete the missing words

A ………… ………..… is a business owned and run by a single person. Such firms are very common
partly because there are few legal procedures involved in setting up the business. The owner bears all the
risks of running the business but has full ………..… and gets to reap all ………..… that the business
makes. However, the owner also has……….…...… ………..….., meaning that s/he may need to sell
personal possessions in order to meet any debts that the business may encounter.
An ordinary …………....… is an alliance of between 2 and 20 individual owners who are jointly
responsible for the affairs of the business. The joint owners will usually sign a mutually agreed contract
known as the ………..… …. ………..……… Most, if not all, of the partners in the business face unlimited
liability for any debts the business might incur. Partners that simply place their money into the business as
an investment but without any direct involvement in the business are known as ………..…. …………..…
These partners enjoy limited liability.
Limited companies are owned by …………...… who have limited liability. This is because all limited
companies are ………….…..… businesses, i.e. the organizations are treated as a separate legal identity
from their owners. Shareholders get one ……….. for each share that they hold in the company. ………..…
limited companies tend to be relatively small companies that are owned by family members. In order to
become a ………..… limited company, the firm has to sell shares to the public for the first time, known as
an ………..… ………..… ………..… (IPO). In return for their investment, shareholders are given a
proportion of the company’s profits (if any) in the form of ………..… payments, which are usually paid
………..… a year. The declared payment is paid on each share that a shareholder owns, so the more shares
held the higher the total payout will be. Shareholders also buy shares in the hope that there is a ………..…
………..…, i.e. the share price rises.

Task 2: Vocabulary quiz

Identify the key terms from the clues given. Hint: the answers are in alphabetical order.

Key Term Definition

Altruistic businesses that operate predominantly in the private sector with
the objectives of a promoting a worthwhile cause
Term used to describe a private limited company offering its shares on the
stock exchange, thereby changing its legal status to a public limited
company
Private sector businesses that do not primarily aim to make a profit for its
owners
The sale of public sector organizations or assets to private individuals and
companies, thereby transferring these to private sector ownership
Sector in which businesses are run and owned by the government in order
to provide communal services for society, e.g. state education and health
care
An investor in a partnership that does not get involved in the day to day
management of the business
The marketplace for buying and selling second-hand company stocks and
shares
The limitless amount of debt that the owner(s) of a business can incur if
things do not go well

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DRAFT Unit 1.2 Types of Organization

Task 3: True or false?

True / False
a A public limited company can advertise its shares and have them quoted on a stock
exchange.
b The liability of shareholders is limited to the amount of their investment.
c All businesses have an aim to make profit for their owners.
d Survival is the main aim of businesses in the long term.
e A Stock Exchange represents the market where second-hand shares can be bought
and sold.
f Public corporations are also known as public companies.
g A not-for-profit organization is any organization that does not primarily aim to
make a profit.
h Public companies are examples of private sector businesses.
i All non-governmental organizations (NGOs) operate in the private sector.
j ‘Limited liability’ means that if a firm is unable to pay back its debts, the owners
of the business can lose everything, including their personal possessions.
k Pressure groups can constrain as well as foster business activity.

Task 4: Explain one …

a Benefit of staying small as a business

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b Purpose of companies holding an Annual General Meeting (AGM)

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c Feature of the private sector

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d Difference between a Public Corporation and a Public Company

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e Advantage of being a private limited company

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© Paul Hoang & IBID Press 7

Unit 1.3 Organizational Objectives DRAFT

Unit 1.3 Organizational Objectives

Task 1: Complete the missing words

The ........... of a business are concerned with its long-term goals and stem from an organization’s
................. statement. Hence, aims are a general statement of a firm’s intentions, e.g. to expand into
overseas markets. Aims tend to be ..................... rather than quantitative in nature.
A business will tend to find it difficult to satisfy all its stakeholders simultaneously due to their own
c.................... objectives. For example, shareholders are likely to demand that the business aims for
................. maximization whilst employees will strive to maximize their own .............. and benefits
(thereby potentially reducing the profits of the business).
Organizations are increasingly concerned with the possible impact of their actions on the environment and
society. This is largely because of the increased public awareness and concern for the planet’s natural
environment. Adverse business activity could lead to unwanted publicity from pressure groups. Such
negative exposure can destroy customer ................. and the ................. of the business. Unethical business
practices might also adversely affect the firm’s suppliers, employees, creditors and investors. Ultimately,
ignoring ethics and social ........................ can seriously harm a firm’s profitability. Hence, there are ever
more driving forces pushing businesses to behave in a socially responsible way.

Task 2: Match the terms

Read the definitions and match them with the correct business terms from the list below.

Term Definition
a Strategy i The long-term goals of a business that provide direction for
setting its objectives and targets
b Aims ii This declaration sets out the vision of an organization to
provide a shared purpose and direction for all those involved in
the firm
c Mission statement iii Refers to the obligations that a business has towards its
stakeholders and society as a whole
d Objectives iv The medium-term to long-term actions of a business (what
needs to be done, the resources needed to do it and the time
frame in which to accomplish it) in order to achieve its aims
and objectives
e Social responsibility v The (very) long-term desire or aspiration of an organization
f Vision vi The medium-term to long-term goals and targets of an
organization, e.g. survival, diversification and growth

Task 3: Odd one out

Select the odd one out from each of the options below.
a Tactical objectives Operational objectives Strategic objectives Secondary objectives
b Growth Sales maximization Survival Acquisition
c To control To select To direct To motivate
d To improve quality of To become the To reduce To improve
customer service world’s market leader absenteeism and productive efficiency
labour turnover

12 © Paul Hoang & IBID Press

Unit 1.5 External Environment DRAFT

Task 5: Vocabulary quiz

All the key terms below refer to external factors that present either threats or opportunities for businesses.
Identify the key term from the given definitions. Hint: all key terms appear in reverse alphabetical order.

Key Term Definition

This refers to the series of fluctuations in the GDP of an economy over
time. The phases (‘recession’, ‘slump’, ‘recovery’, and ‘boom’) are
dependent on both the level of employment and income and wealth in a
country.
As a form of protectionism, this tax is imposed on imported products. It is
levied by a government to reduce the competitiveness of foreign imports.
This occurs when there has been a decline in the level of economic
activity for at least two consecutive quarters (half a year). Features include
lower levels of consumption and investment expenditure in the economy.
This refers to any form of government measure used to defend domestic
businesses (and hence jobs) from international competition, e.g. imposing
a tariff on foreign imports.
This is a government macroeconomic policy designed to control the
economy by managing the money supply mainly via changes in interest
rates and exchange rates.
This refers to the cost of money to consumers and firms. The higher this
is, the lower the amount of borrowing tends to be whilst savings are
encouraged. At the same time, firms may delay investment projects due to
the higher costs.
Arguably the most important macroeconomic objective which measures
the percentage change in the general price level of a country over the
preceding 12 months.
This is a category of tax that is charged on goods and services, e.g. VAT,
GST and excise duties.
This refers to an increase in the value of a country’s total output of goods
and services, per time period (usually per year).
This is a type of tax that is paid directly from the income, wealth or profit
of an individual or a business, e.g. income tax and corporation tax
respectively.

Task 6: The economic environment

a Describe how an increase in interest rates should dampen the rate of inflation in the economy.
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b Explain why a higher exchange rate is not necessarily good for the economy.
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c Explain the positive correlation between a change in interest rates and a change in the exchange
rate.
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22 © Paul Hoang & IBID Press

DRAFT Unit 1.5 External Environment

d Outline why inflation might make a country less internationally competitive.

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e Describe how an increase in income tax rates could help to reduce inflationary pressures in a
country.
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f Identify the missing labels in the diagram below.

v.
Gross i. iv.
Domestic Trend
Product
($)
Economic activity

ii. iii.

Time

g Use the data below to calculate the annual rate of inflation. Round your answer to two decimal
places and show all your working.
Year CPI

Year 2 110.0
Year 1 106.5

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______________________________________________________________________________

Task 7: Multiple choice

1 Political factors affecting businesses do not directly include
A Legislative changes
B Import taxes
C The government’s relationship with other nations
D Floating exchange rates

2 Social factors in the external business environment take account of changes in

A Exchange rates
B Company tax rates
C Customs, habits and tastes
D Interest rates

© Paul Hoang & IBID Press 23

DRAFT Unit 1.7 Growth and Evolution

Task 4: True or false?

True / False
a Economies of scale are the reduction in costs achieved through increased output.
b Organic growth comes from increased sales revenue and profits, the latter of which
is invested back in the business.
c A conglomerate merger takes place between two firms that are in different lines of
business.
d A demerger takes place when a firm splits into smaller firms or sells a number of
of its subsidiaries.
e Expanding overseas is an example of diversification as a growth strategy.
f Growth through horizontal mergers or acquisitions does not represent any growth
in the industry.
g Private limited companies cannot be taken over.
h A franchisee offers a franchise to a franchisor.
i Conglomerates tend to be large multinationals that operate in many countries.

Task 5: Ansoff’s Matrix

a Ansoff’s Matrix is a framework for devising growth strategies for a business. True or False?

b Market penetration is the least risky strategy for growth. True or False?

c The highest risk strategy for growth is called …………..….…..

d Skimming as a pricing strategy is most likely to feature in which of Ansoff’s growth strategies?
…………… ……………

e Risk-bearing economies of scale may be enjoyed if a business pursues which growth strategy?
………………

f According to Ansoff, aiming to increase market share would be a feature of which growth
strategy? …………… ………………

g Innovation and new ideas are features of which strategy for achieving growth? ……………
………………

h ‘Buy One, Get One Free’ offers will help a business to increase its market share. True or False?

i Fill in the missing table below using the four growth strategies from Ansoff’s Matrix.
Markets
New Existing
New
Products

Existing

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Unit 1.7 Growth and Evolution DRAFT

j Explain why it is difficult to penetrate a saturated market.

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k Explain why diversification carries huge risks as a growth strategy.

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Task 6: Explain the difference between …

a Franchisee and Franchisor

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b Management buy-in and Management buy-out

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c Acquisitions and mergers

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Task 7: Multiple choice – Economies and diseconomies

1 Which of the following is not a reason a firm may choose to demerge (break up)?
A To avoid falling profits in the business
B To focus on a smaller range of products and services
C To enjoy economies of scale
D To focus more specifically at a target market

2 Internal diseconomies of scale can be caused by

A The exercise of control by managers being weakened with a larger workforce
B Being unable to purchase stock at a discounted price
C Traffic congestion causing delays to delivery of important stock
D Advertising costs to a global audience

3 Technological economies of scale can only be feasible for a business if

A Banks lend money for business to purchase the highly expensive technology
B Capital equipment is capable of producing mass units of a product in a short time
C There is sufficient market demand for the product
D There is an economic boom

4 External economies of scale are cost savings available to the whole ………… as a result of its
…………..
A Industry, location
B Business, location
C Market, size
D Business, size

36 © Paul Hoang & IBID Press

DRAFT Unit 2.2 Organizational Structure

Task 3: Crossword – Vocabulary quiz

1 2 3

4 5 6

10 11

12 13

14 15

16

17

18 19

20 21

22

Clues Across Clues Down

4 The official path that instructions are passed on 1 The person directly above you in the organization
7 Management guru who argues for flatter structures 2 Structure with many levels in the hierarchy
8 Such structures help to improve communication 3 Long-term goal, often expressed as a statement
9 Personnel organized into a group 5 The top person in a company
10 Holding someone responsible for their actions 6 Removing layers in the hierarchy to cut costs
13 The size (number) of the firm’s employees 11 Teams formed naturally, through unofficial means
16 The act of passing down responsibility to others 12 The levels or ranks in an organization chart
19 The yearly meeting held for all key stakeholders 14 Person with authority and responsibility for staff
20 Person who inspires their team and staff 15 Span of control that encompasses many people
22 A sense of duty for others in your team 17 Flexible organizational structure for projects
18 A particular job that needs to be done
21 Type of authority over those directly below you

© Paul Hoang & IBID Press 67

DRAFT Unit 2.4 Leadership and Management

Task 4: Crossword – Leadership and management

1 2

3 4

5 6 7 8 9

10

11

12

13

Clues Across Clues Down

1 An authoritarian style of management 2 One of the core functions of management as suggested
3 Contingency theorist who suggested that there is by Henri Fayol
no single best way to lead 4 Style of management most suited to firms with highly
5 Managers that act in what they believe to be in the skilled and competent staff
best interest of their subordinates 5 All managers participate in this key function
11 Senior managers make these types of decisions 6 Theories that suggest a person’s leadership/management
12 Targets and objectives, in short, should be: style depends on their characteristics
specific, measurable, agreed, realistic and time 7 The highest ranking level of managers
constrained 8 The customs and norms within an organization
13 The lowest level of management, also known as 9 Management style will affect the level of this driving
supervisory management force in an organization
10 An official leader or manager established by the
organization, rather than through natural flair or charisma

Task 5: Multiple choice

1 The management style that sees the leader allowing subordinates to achieve targets in their own
way is known as
A Laissez-faire
B Democratic
C Autocratic
D Paternalistic

2 Which management or leadership style is most suitable during a hostile takeover?

A Authoritarian
B Autocratic
C Democratic
D Paternalistic
© Paul Hoang & IBID Press 79
Unit 3.1 Sources of Finance DRAFT

Unit 3.1 Sources of Finance

Task 1: Classification of income and expenditure

Classify the following into either assets or liabilities and whether they represent an expense or a source of
income (revenue) for a large book publisher by marking the appropriate columns.

Category Asset Liability Expense Revenue

Bank interest receivable
Bank loans
Bank overdrafts
Debentures
Insurance premiums
Motor vehicles
Rent accruals

Task 2: Vocabulary quiz

Identify the key terms from the clues given. Hint: the answers are in reverse alphabetical order.

Key Term Definition

The most common type of shares issued by a limited company, which
gives holders voting rights and dividends based on the company’s profits.
A long-term source of finance which requires the borrower to provide
property and land as collateral (security guarantee) to the lender in case
the borrower defaults on the loan.
Refers to the generation of finance from within an organization’s own
resources and funds, e.g. retained profits, working capital or the sale of
fixed assets.
Refers to the original sales of a company’s shares on to the stock market,
by offering its shares to the general public for the first time.
This source of finance allows firms the chance to use assets without
having to pay for them in one lump sum. Once the final repayment
(instalment) has been made, the asset legally belongs to the business.
A long-term source of finance which gives holders a fixed rate of return
(interest) but without any ownership or voting rights.
The spending on items considered as fixed assets, such as: land,
buildings, machinery and motor vehicles.

106 © Paul Hoang & IBID Press

DRAFT Unit 3.2 Investment Appraisal

Unit 3.2 Investment Appraisal

Task 1: Complete the missing words

Investment is the ……………. used to increase the productive capacity and operations of a business. It can
include the purchase of buildings, equipment machinery and motor vehicles.
The …………….. …………… method of investment appraisal measures the length of time it takes for an
investment project to generate enough profit to recoup the cost of investment. It is quick to calculate but
does not tend to favour ………….. …………. projects, i.e. those with a long payback period.
[HL Only] The average rate of return (ARR) measures how much profit, on average, an investment
project generates as a ………….. of the investment cost.
Net present value looks at the …………………… cost of money because money received in the future is
worth less than it is today. Discounted cash flow is another technique which is based on opportunity cost of
money and …………… …………. forecasts.

Task 2: Explain the relationship between …

a [HL Only] The discount rate and the Net Present Value
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b Contribution and Payback period

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c Interest rates and the level of gearing

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Task 3: True or false?

True / False

a Considering the future value of money, the higher the interest rate, the less money
is worth if received in the future.
b Investment appraisal is a forward-looking decision-making tool.
c Discounting is important to account for the future value of cash flows.
d Payback uses the flow of profits to assess the feasibility of an investment.
e The Accounting rate of return and the Net present value methods of investment
appraisal are expressed in percentage terms.
f [HL Only] The higher the value of the ARR, the more financially feasible an
investment project tends to be.
g The NPV is relatively easier to calculate than the Payback period.

© Paul Hoang & IBID Press 111

Unit 3.4 Budgeting [Higher Level Extension] DRAFT

Unit 3.4 Budgeting [Higher Level Extension]

Task 1: Complete the missing words

………………… refers to the art of financial control in an organization. A …………… is a financial plan
which an organization strives to achieve and allows the organization to check its progress against the
budgeted figures. A budget should reflect the ………… of an organization, e.g. if the firm plans to replace
expensive capital equipment, then this amount should be incorporated into the budget plan. Budgets can be
used for any quantitative variable, e.g. s………, c………, profit, staffing, advertising expenditure and
capital expenditure.
In reality, it is likely that there will be deviations from the budget plan. Variance analysis is a management
tool used to calculate differences in the actual and budgeted figures. A ……………… variance occurs
when the …………… outcome is better than the budgeted (planned) outcome. An …………… variance
occurs when the actual outcome is ………… than the budgeted plan. Variance analysis also looks at the
reasons for the differences that occur and can therefore be a useful analytical tool in assessing the success
of a strategy.

Task 2: Calculations and analysis

a Complete the missing figures for Danny and Demi’s Hair Salon Ltd. The first one has been
completed for you.

Actual Outcome
Variable Budgeted ($) Variance ($) Variance (F/A)
($)

Wages 4,000 4,200 200 Adverse

Salaries 4,500 4,500
Stock 1,800 1,850
Revenue 15,750 290 Favourable
Direct costs 2,950 250 Favourable

b Give two examples of ‘stock’ that is likely to be held by Danny and Demi’s Hair Salon Ltd.
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c Give two examples of direct costs likely to be incurred by Danny and Demi’s Hair Salon Ltd.
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Task 3: Explain …

a The difference between adverse budgets and budget deficits

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b The difference between budgets and forecasts

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122 © Paul Hoang & IBID Press

DRAFT Unit 3.5 Final Accounts

Task 4: Formulae
Identify the key terms from the clues given. Hint: the answers are in reverse alphabetical order.

Formula Key Term

Opening stock plus purchases less closing stock
Net profit after tax less Retained Profit
Sales revenue less cost of goods sold
Gross profit less expenses
Net profit less Gross profit
Sales revenues less total costs of production
Net profit after tax and interest less Dividends

Task 5: Calculations

a Slater Tiling Company has an opening stock of $35,000, a closing stock of $30,000, and has
purchased stock during the year costing $95,000. Calculate the firm’s cost of goods sold (COGS).
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b Ortega Clothing Company has expenses of $123,000 and a net profit of $321,000. Calculate the
firm’s gross profit.
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______________________________________________________________________________

c Hooper Toys Ltd purchases goods at $10,000 and manages to sell these for $18,000. State the:
i cost of goods sold
ii the sales revenue
iii the gross profit
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______________________________________________________________________________

d Complete the missing figures from the accounts of Constance Curtains Ltd.
Profit And Loss Account Balance Sheet
$ $
Turnover 800,000 Fixed assets 350,000
Cost of goods sold 450,000 Current assets 250,000
Gross profit i Current liabilities 180,000
Expenses 85,000 Assets employed iv
Operating profit ii Loan Capital 150,000
Corporation tax 53,000 Share Capital v
Net profit iii Capital employed vi

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Unit 3.5 Final Accounts DRAFT

e Work out the value of net profit from the following information:
Turnover $200,000
Cost of sales $80,000
Expenses $45,000
Non-operating income $24,000
Interest receivable $1,200
Interest payable $13,000
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______________________________________________________________________________
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f [HL Only] Assume that Pitarch Car Hire Co. bought a vehicle for $35,000 with an expected life
of 4 years. Its residual value is estimated to be $7,000. Calculate the straight line depreciation
per year.
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g [HL Only] Assume that equipment bought by a manufacturer costing $15,000 has a useful life
of 5 years. Annual depreciation is charged at 40%. Calculate the book value of the asset after
two years.
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______________________________________________________________________________

Task 6: Multiple choice – Profit and loss

1 The Trading Account gives details of
A The current value of the organization
B Overheads and other costs of production
C The cost of goods sold
D The net profit (or loss) made during a trading period

2 If expenses are greater than gross profit for a business, then the business
A Has performed well
B Has made an overall loss
C Can distribute a share of the profit to shareholders
D Has a positive net profit balance

3 In which account would overheads and expenses appear?

A Appropriation account
B Balance sheet
C Profit and Loss account
D Trading account

4 Which statement below cannot be applied to Gross Profit?

A Expressed as a percentage to allow for historical and inter-firm comparisons
B Appears on the Trading Account
C Calculated as Sales less Cost of Goods Sold
D Calculated by Sales less Cost of Sales

128 © Paul Hoang & IBID Press

DRAFT Unit 3.6 Ratio Analysis

d [HL Only] Given the limited information below, which company has performed better in the
short term and which company has the better potential in the long term?
Alpha Toys Ltd Beta Toys Ltd

Dividend per share $0.50 $0.50

Earnings per share $0.60 $0.80
Current price per share $12.00 $13.00

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______________________________________________________________________________
______________________________________________________________________________
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e Given the limited information below, which company represents the higher risk to a potential
investor?
Jake Clothing Ltd Luke Clothing Ltd

Capital employed $1,000,000 $1,200,000

Debentures $100,000 $150,000
Mortgage $350,000 $280,000

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______________________________________________________________________________
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______________________________________________________________________________

Task 3: Vocabulary quiz

Identify the key terms from the clues given. Hint: the answers are in inverse alphabetical order.

Key Term Definition

Ratios that look at the level and value of a firm’s profits.
Measures overall profit (after all costs have been deducted) as a
percentage of sales revenue.
Ratios that look at a firm’s ability to pay its debts.
Ratios that look at how well a firm is using its resources.
The ratio that measures the number of days it takes, on average, for a
[HL Only] business to pay its lenders.

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Unit 3.6 Ratio Analysis DRAFT

Task 4: True or false?

True / False

a A highly geared firm is generally more vulnerable to changes in interest rates.

b A highly geared firm is more at risk during a recession.
c Shareholders are more concerned about dividend earnings than capital growth.
d It is considered too risky to invest in a firm with a gearing ratio of 50% or above.
e Capital employed is the sum of equity capital plus long-term liabilities.
f Profits tend to be more volatile in businesses with high gearing.
g Highly geared firms are seen as being a risky investment as they are unlikely to
make much profit.

Task 5: Fill in the blanks

a When the value of a firm’s stock (inventory) increases, the acid test ratio will ……...

b A firm that has a long working capital cycle will tend to prefer to use the ……... …….. ratio in
order to measure its liquidity.

c When stock levels fall, the stock turnover ratio will ……....

d [HL Only] When the value of creditors rise, the creditor days ratio will ……....

Task 6: Odd one out

Select the odd one out from each of the options below.
a Acid test Gearing Net profit margin Current
b Debtor days Stock turnover Gross profit margin ROCE
c ROCE EPS GPM NPM
d Cash Stocks Debtors Creditors

Task 7: High or low?

Explain whether the following financial ratios should, ideally, be high or low.

a [HL Only] Creditor days

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b [HL Only] Debtor days

______________________________________________________________________________
______________________________________________________________________________

c Stock turnover
______________________________________________________________________________
______________________________________________________________________________

138 © Paul Hoang & IBID Press

Unit 4.3 Product DRAFT

Task 3: Identify the company

Identify the company from its given brands and registered trademarks. Hint: think about ‘Brands’….
Company Industry Brands and Trademarks
Automobiles M3, M5, M6, X5, Z4, Mini
Cosmetics Fire & Ice, Flex, Ultima, Eterna, Charlie
Electronics QuickTime, Mac OS X, Macintosh, iPod
Confectionary Kit Kat, Smarties, Nescafe, Perrier, Nestea, Dreyer’s
Luxury fashion CD, Fahrenheit, Dune, Poison
Electronics Cybershot, PlayStation, PSP, Walkman

Task 4: Product portfolio analysis

a Products that have low market share in a high growth market are known as question marks.
True or false?

b The Boston Matrix can be used to assess the portfolio of strategic business units for a company.
True or false?

c Assuming that Stars, in the Boston Matrix, maintain their relative market share they will
eventually become cash cows. True or false?

d The Boston Matrix could be useful for a business trying to manage a diverse range of products in
its portfolio. True or false?

e Product portfolio management is the responsibility of all managers in an organization.

True or false?

f What is the name given to the category of products in the Boston Matrix that has high or rising
market share within a growing market? ……………

g Portfolio management is not used to achieve which goal?

i Maximize the profitability of the portfolio
ii Provide balance in a firm’s portfolio
iii Determine customer perceptions of the portfolio
iv Support the corporate strategy

h Products that have suffered from relatively inferior marketing or product quality are known as
i Wild cards
ii Dogs
iii Cash Cows
iv Stars

i According to the Boston Consultancy Group, a firm that has too many ….. will suffer from
poor …..
i Problem children, Cash flow
ii Dogs, Cash flow
iii Dogs, Profit
iv Question marks, Profit

162 © Paul Hoang & IBID Press

Unit 4.4 Price DRAFT

4 Identify the factor that does not directly affect the demand for Chan & Cahill Financial Services.
A Consumer confidence levels in stock and financial markets
B Income levels of customers
C The fee of using their financial services
D A change in qualifications needed to work in financial services

5 Which of the following prices is the best example of psychological pricing?

A $9.95
B $8.50
C $1.00
D $0.25

Questions 6–8 relate to the information given in the following table.

Cost of Raw Materials for A1 Bakery in June
Flour $10,600
Whipped cream $12,000
Fresh fruits $25,000
Output 11,900

6 Given the limited information, what is the break-even price?

A $3
B $4
C $5
D $6

7 Which of the following prices is not an example of cost-based pricing for A1 Bakery?
A $3.95
B $4.00
C $4.50
D $4.95

8 If the price is set at $6, then the mark-up per unit would be
A $1
B $4
C 20%
D 50%

9 Which statement cannot be applied to penetration pricing policies?

A Used when there are existing rivals
B Aims to establish higher market share
C Involves setting a relatively low price
D Prices set according to the average price level

172 © Paul Hoang & IBID Press

Unit 5.2 Costs and Revenues DRAFT

b McMahon Candies has monthly fixed costs of $3,000 and unit variable costs of $2. Its current
level of demand is 3,000 units each month. The average unit price is $6.
i Calculate the firm’s current average costs each month.
___________________________________________________________________________
___________________________________________________________________________
ii Calculate the safety margin for McMahon Candies.
___________________________________________________________________________
___________________________________________________________________________

c The following data refers to the cost and revenues of Sangu Toys Ltd. when operating at 2,000
units of output per month:
Item Cost/Revenue ($)
Price $15
Raw materials per unit $5
Overheads $500
Rent $2,000
Salaries $3,000

i Calculate the total cost of producing 2,000 units.

___________________________________________________________________________
___________________________________________________________________________
ii Calculate the profit made by Sangu Toys Ltd. if it manages to sell all its output.
___________________________________________________________________________
___________________________________________________________________________

d Rhapsody Sounds produces miniature speakers with the following monthly cost structures:

Total Output (speakers) Total Costs ($)

100 $5,000
200 $8,000
300 $11,000

i Assuming constant unit costs, what is the value of the monthly fixed costs for Rhapsody
Sounds?
___________________________________________________________________________
___________________________________________________________________________
ii What is the change in unit costs of production if Rhapsody Sounds changes from producing
100 units per month to 300 units per month?
___________________________________________________________________________
___________________________________________________________________________
iii If Rhapsody Sounds manages to produce and sell 200 units per month and wishes to make a
150% profit margin, what price should each unit be sold for?
___________________________________________________________________________
___________________________________________________________________________

202 © Paul Hoang & IBID Press

Unit 5.2 Costs and Revenues DRAFT

Task 5: What type of cost?

Identify the following costs for a restaurant as either fixed, variable or semi-variable in the table below.

Type of Cost Fixed Variable Semi-variable

Advertising/promotional materials
Equipment and tools
Furniture (e.g. tables and chairs)
Market research
Mobile telephone bills
Packaging materials
Premises and buildings
Food supplies
Staff salaries
Staff wages
Utility bills (e.g. gas and electricity)
Vehicles (e.g. delivery cars)

Task 6: Cost and revenue formulae

Identify the category of cost/revenue from the given formulae. The first one has been done for you.
Hint: answers appear in alphabetical order.

Type of Cost / Revenue Formula

Average cost Total Costs ÷ Quantity produced

Total revenue ÷ Quantity traded
Change in total costs ÷ Change in output level
Total Fixed Costs + Total Variable Costs
Unit price x Quantity traded
Unit Price – Average Variable Cost

Task 7: Multiple choice

1 Costs which are totally independent of the level of output are known as
A Fixed costs
B Direct costs
C Semi-variable costs
D Variable costs

2 Which of the following is not a fixed cost for a restaurant?

A Bank loan repayments
B Waiting staff wages
C Air conditioning bills
D Rent to the property owner

204 © Paul Hoang & IBID Press

DRAFT Unit 5.3 Break-even Analysis

Unit 5.3 Break-even Analysis

Task 1: Complete the missing words

Break-even occurs when a firm’s ……….. revenues equal its ……….. costs. The firm will make a ………..
if it operates below its break-even level of output. By contrast, if it is able to generate more revenue than
costs incurred in production then it will make a ………... Profit is the positive difference between
revenues and the ……….. of production, i.e. Total Revenues less Total Costs.
In order to calculate break-even, it is common to use the …………….... method by dividing the ………..
costs by the difference between the product’s selling price and its variable costs of production. For
example, if a manufacturer of wooden toy trains has fixed costs of $3,000 per month, with an average
variable cost of $10 and a selling price of $25, then its break-even level of output would be ……….. trains
per month.

Task 2: True or false?

True / False
a Cutting price will mean more sales and therefore a firm can break even quicker.
b The margin of safety can be negative.
c As the price of a product increases, the break-even level of output will fall.
d When variable costs rise, the break-even level of output will fall.
e When total costs rise, the margin of safety will fall.
f If selling price is $10, unit variable costs are $4 and fixed costs are $9,000 then the
break-even level of output is 1,400 units.
g A weakness of break-even analysis is that firms may have to, in reality, lower their
prices to sell more.
h The usefulness of a break-even analysis depends on the manager’s accuracy in
predicting costs, revenues and production levels.

Task 3: Calculating break-even

Smash Racquets Co. makes a profit of $10,000 on sales revenue of $50,000. Its fixed costs are $5,000 and
sales volume is 1,000 units per month. Calculate the following for Smash Racquets Co.

a Selling price
______________________________________________________________________________
______________________________________________________________________________

b Variable cost per unit

______________________________________________________________________________
______________________________________________________________________________

c Break-even level of output

______________________________________________________________________________
______________________________________________________________________________

d The margin of safety if Smash Racquets Co. expects to sell 600 units per month
______________________________________________________________________________
______________________________________________________________________________
© Paul Hoang & IBID Press 207
Unit 5.3 Break-even Analysis DRAFT

Questions 3e and 3f refer to the following information.

Fit-it Tyres Ltd. has fixed costs of $100,000. Its average selling price is $30 with unit variable costs
of $15. Use this information to calculate its:

e Unit contribution
______________________________________________________________________________
______________________________________________________________________________

f Break-even level of output

______________________________________________________________________________
______________________________________________________________________________

g Complete the missing labels in the break-even chart below.

(i) (ii)
(vi)
(iii)

(iv)

(v)

(vii)

h Explain why it is difficult to construct a break-even analysis for a multi-product firm.

______________________________________________________________________________
______________________________________________________________________________

i Outline two causes of a fall in a firm’s margin of safety.

______________________________________________________________________________
______________________________________________________________________________

Task 4: Multiple choice

1 Which of the following is not a direct cost of production for a car manufacturer?
A Raw materials
B Wages of production workers
C Factory rental costs
D Depreciation

2 A premium hotel can raise its revenues in a number of ways, except for:
A Reducing fixed costs
B Reducing its prices
C Reducing labour costs
D Raising prices during peak periods

208 © Paul Hoang & IBID Press

DRAFT Unit 5.7 Production Planning

Task 3: Interpreting JIC stock control diagrams

a Identify the five missing labels in the diagram below.

i.

40,000 ii.

30,000 iii.

20,000 iv.

v.

b Identify the:
i buffer stock
ii reorder quantity
iii reorder level from the above diagram.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

Task 4: Multiple choice

1 Which of the following is not a type of stock for a business?
A Work-in-progress
B Raw materials
C Ordinary shares
D Finished goods

2 Costs of a stock-out do not include

A Loss of sales
B Disgruntled customers
C Negative impact on cash flows
D Storage costs

3 Stockpiling means that a business

A Operates at a level lower than its buffer stock
B Produces on a larger scale to benefit from cost savings
C Builds up excessive levels of inventory
D Plans for a safe safety margin

© Paul Hoang & IBID Press 223

Unit 5.8 Project Management DRAFT

Unit 5.8 Project Management

Task 1: Complete the missing words

Network analysis (or ..................... ............. analysis) is a management decision making tool. It is generally
used for routine tasks for which the ..................... (or time) of each activity is known. It is important to
determine all the ..................... needed to complete the project and to identify all interdependent tasks. In
order to improve operational ....................., tasks which can be carried out simultaneously are also
identified. Once the network for the project is constructed, the ..................... path can be identified to show
the best course of action to take without delaying the ..................... of the project.

Task 2: True or false?

True / False
a The duration of activities in critical path analysis are not drawn to scale.
b There is no float time on the critical path.
c The critical path determines the shortest time possible that is needed to complete a
project.
d The first stage in any network analysis is to estimate the completion time of each
activity.
e The float is the amount of time that an activity can be delayed without affecting the
duration of the whole project.
f Network analysis helps managers to allocate resources needed to execute a project.

Task 3: Constructing a network

Complete the missing numbers in the network below and identify the critical path.

C
7

A B E
1 2 3 6
5 3 2

D
5
4
15

Critical path = ..................................................

228 © Paul Hoang & IBID Press

Unit 6 Business Strategy DRAFT

Unit 6 Business Strategy

Task 1: Strategic tools

a Porter’s Five Forces Analysis

Identify the competitive force from the given clues:
Force Description
The extent to which rival goods and/or services are available, and
their relative price, desirability and quality.
The purchasing power of customers in the industry.
The nature of barriers to entry to an industry, i.e. how easy (or
difficult) it is for new firms to enter the market.
The degree of competition between firms already in the industry.
The market power held by suppliers, vendors and subcontractors
to the industry.

b The Marketing Mix

Identify the correct element of the marketing mix (price, product, promotion or place) from the
given examples of marketing strategy for a fast food restaurant. An example has been done for you.
Element of the Marketing Strategy
Marketing Mix
Promotion Sponsors local sporting events
Wider menu options
Free home delivery service
‘Kids eat free’ campaign
‘Early bird’ discount
Eat for half-price on Tuesdays
Secures celebrity endorsement contract

c The Boston Matrix

Match the strategy with the categories in the Boston Matrix:
Product Category Strategy
A. Cash Cow X. Avoid, minimize or liquidate to improve
cash flow
B. Dogs W. Either sell off or invest in very heavily
C. Stars Y. Low investment due to low growth
D. Question marks Z. Invest to hold or improve market share

232 © Paul Hoang & IBID Press