OCR Business Studies for AS

Transcription

1 Size and structure of a business 5 Revision questions (38 marks; 40 minutes) 1 Analyse why both small and large businesses can operate successfully within the same environment. (8) Reasons why small and large businesses survive: to provide competition to provide choice to provide different levels of quality to target different market segments located differently Tesco as against a local store to provide different levels of service accessibility. Analysis marks given for showing the implications to stakeholders of the different types of business. 8 marks Level 3 Analysis of information in context (8-7) Level 2 Application of knowledge in context (6-4) Level 1 Knowledge and understanding of business concepts (3-1) 2 Explain why the tertiary sector is an important part of the production process. (6) Tertiary sector provides direct and indirect services such as advertising and healthcare which support production and without which they could not function. For example, no factory producing cars can operate without transportation, insurance banking and advertising. 6 marks Level 2 Application of knowledge in context (6-4) Level 1 Knowledge and understanding of business concepts (3-1) 3 How important is it that a business has the objective of growth? Give reasons for your answers. (12) This is an evaluative question shown by the command words how important. This calls for analysis of growth as an objective and some judgment about how important it is in terms of other objectives such as market share, profit, satisfying shareholders and market share.

2 Size and structure of a business 5 Reasons for growth may include: entrepreneur ambition economies of scale product development globalisation new technology. 12 marks Level 4 Evaluation and judgement of information in context (10-12) Level 3 Analysis of information in context (9-7) Level 2 Application of knowledge in context (6-4) Level 1 Knowledge and understanding of business concepts (3-1) 4 Using an example, explain the meaning of the term diseconomy of scale. (4) Diseconomies of scale occur when a business becomes so large that unit costs start to rise. Example: Production processes are ever-changing and often incur vast amounts of investment in new machinery and skills in order to increase production. At first the business may be able to control all areas of the business but as the business gets bigger it becomes more difficult to oversee processes, store stock etc. This will result in poor quality or missed deadlines meaning higher costs. 5 The computer games industry is dominated by a few large businesses, such as Microsoft, Sony and Nintendo. Analyse the economies of scale they might enjoy. (8) Economies of scale the games industry might enjoy: technological risk bearing managerial financial. Analysis marks are given for outlining the implications to the games industry of achieving these economies of scale. It is important that the ones selected apply to the games industry. Example: The major players in the games industry are global companies who employ and run many centres across the world. Businesses such as these are able to enjoy technical economies of scale through specialisation and ability to buy more effective capital equipment to continually develop and manufacture games in this ever changing market.

3 Size and structure of a business 5 8 marks Level 2 Level 1 B1 Data response Candidate selects at least two economies of scale and analyses them in context. Good analysis of just one would result in a maximum of 5 marks. Candidate selects one or more economies and explains them with little or no reference to the games industry. (8-5) (4-1) (20 marks; 25 minutes) (Refer to questions on page 34 of the textbook.) 1 Is the work of the Ugandan villagers in the primary, secondary or tertiary sector? (1) primary sector. 2 What would be the opportunity cost of the farmers who put countless hours of work into forming a new cooperative? (3) time that could be spent producing coffee and thus earning money. 3 Outline one risk for the farmers and one risk for the Fairtrade organisation in forming a new co - operative with high guaranteed prices for the coffee beans. (6) 1 mark should be given for each point identified, plus up to an additional 2 marks for development of the answer. Possible risks for the farmers include: their coffee may become less competitive due to the high price this could lead to a fall in demand and possibly a subsequent fall in profit. Possible risks for the Fairtrade organisation include: those who are not part of the cooperative could face a fall in demand and thus loss of income and financial difficulties, which may result in bad publicity for Fairtrade. 4a Into which of the three sectors will the Gumutindo cooperative move if it starts its own production plant? (1) the secondary sector, as it will be manufacturing the coffee.

4 Size and structure of a business 5 4b Discuss whether producing coffee ready for sale would definitely increase the income levels of the 3000 members of the cooperative. (9) if they are able to produce the coffee efficiently it should lead to an increase in income it is possible that competing producers will benefit from economies of scale that the cooperative is not yet able to enjoy, and therefore its product may not be competitive.

5 Business ownership 6 Revision questions (25 marks; 25 minutes) 1 Explain two differences between a sole trader and a partnership. (4) Greater levels of finance are likely to be available, as there are more owners to invest in the business. Access to a wider range of skills different partners may possess different skills that are valuable to the business, e.g. an understanding of financial management, marketing expertise. Potentially less profit going to individual partners, as any profit made by the business has to be shared. The number of owners a sole trader means a single owner, whereas a partnership can consist of between 2 and 20 owners. 2 In your own words, try to explain the importance of establishing a separate legal entity to separate the business from the individual owner. (4) It reduces risk levels as the owner can lose only what they put into the business, whereas if there is no separate identity the owner can lose personal possessions if the firm goes bankrupt. 3 You can start a business today. All you have to do is tell the Inland Revenue (the taxman). Outline two risks of starting in this way. (4) 1 mark should be awarded for each point with an additional mark for development. a lack of planning may affect the chances of success a lack of research may affect the chances of success without establishing limited liability, personal assets could be lost if the business runs up debts. 4 Briefly discuss whether each of the following businesses should start as a sole trader, a partnership or a private limited company: (a) a clothes shop started by Claire Wells with 40,000 of her own money plus 10,000 from the bank; it is located close to her home in Wrexham (3)

6 Business ownership 6 1 mark should be allocated for making a logical decision, plus up to an additional 2 marks for the explanation of the decision. the fairly large amount of start-up capital invested means Claire has already risked a lot to start this business; to limit this risk it may be wise to have limited liability, therefore a private limited company may be the best option furthermore, clothing shops have a relatively poor rate of success another reason to have limited liability. (b) a builders started by Jim Barton and Lee Clark, who plan to become the number one for loft extensions in Sheffield; they ve each invested 15,000 and are borrowing 30,000 from the bank. (3) 1 mark should be allocated for making a logical decision, plus up to an additional 2 marks for the explanation of the decision. it could be argued that they should form a partnership as there are two of them and they are borrowing relatively little at the moment it could equally be argued that they should form a limited company as, in order to be the number one for loft extensions in Sheffield, they will probably need to borrow considerably more in the future; also, being in the building industry is quite risky in terms of the impact of economic activity and the chances of legal action, so it may be better to form a limited company. 5 Explain the possible risks to a growing business of making the jump from a private limited company to going public, then floating its shares on the stock market. (5) Up to 2 marks should be allocated for making a credible suggestion, plus up to an additional 3 marks for the development of the answer. loss of control of the business short-termism due to the divorce of ownership and control pressure from shareholders to increase profit when the business may have other objectives. 6 In what way may the type of business organisation affect the image of the business? (2) Limited company status may make a business more credible to customers, investors and banks.

7 Business ownership 6 Furthermore, floating on the stock exchange can provide publicity and have a positive impact on the firm s image. Revision exercises B1 Data response (20 marks; 20 minutes) (Refer to questions on page 41 of the textbook.) 1a Calculate the number of sole traders in the UK; then calculate the number of limited companies. (3) Number of sole traders (66% of 3,600,000) = 2,376,000 Number of limited companies (24% of 3,600,000) = 864,000 1b Explain two possible reasons why there are so many more sole traders than companies. (6) because they are easier to set up because many small businesses choose to stay sole traders and never become limited companies. 2 What proportion of British businesses operate with unlimited liability? (1) British businesses operating with unlimited liability include sole traders (66%) and partnerships (10%), so 76% or nearly 8 out of Dr Fraser s research also shows that one in five businesses is principally owned by a woman, and that 93% are owned by white and 7% by non-white ethnicity. (a) Examine two possible reasons why women are so much less likely to own a business than men. (6) circumstance women are more likely to look after children, which would make it more difficult for them to run a business confidence women may be less confident in their business ability women may be more risk averse than men women may not be as career-minded as men.

8 Business ownership 6 6 marks Level 2 Application of knowledge in context (6-4) Level 1 Knowledge and understanding of business concepts (3-1) (b) The % figures for non-white business ownership are slightly below the number of non-whites in the population (between 8 and 9%). Outline two reasons that might explain this. (4) a larger percentage of non-whites may have moved to the UK only recently and are therefore less likely to have started a business a larger percentage of non-whites may have moved to the UK only recently and therefore may find it harder to get finance a higher percentage of non-whites have poor education unemployment levels are higher among non-whites. B2 Data response (20 marks; 25 minutes) (Refer to questions on page 42 of the textbook.) 1a The name of the business is Devoted 2 Vintage. Does that suggest it s a sole trader or a private limited company? (1) sole trader as private limited companies names are followed by Ltd. 1b Bearing in mind your answer to 1a, outline two factors Bernice should remember about the legal structure of the business she is running. (6) she has limited liability and therefore is at personal risk if the business fails it may be difficult for her to gain finance from banks and investors as they may be less inclined to trust individuals than companies. 6 marks Level 2 Application of knowledge in context (6-4) Level 1 Knowledge and understanding of business concepts (3-1)

9 Business ownership 6 2 As Bernice expands the business to develop online, should she consider changing the legal structure of the business? If so, why and how? (6) if the expansion includes raising substantial finance, it may be sensible to form a limited company customers may not wish to use an internet-based firm that is not a limited company. 3 Discuss how well Bernice has done so far in setting up her first business. (7) Positive points might include: spotted a potential gap in the market assuming that demand for vintage clothes exists good product knowledge Bernice s own interest in vintage clothes has given her some understanding of customer tastes, as well as knowledge of suppliers and competitors (the charity shops) evidence of secondary research being carried out the celebrity magazines appear to support Bernice s idea that vintage clothes could be popular an understanding of the need to promote the business by setting up a website this could act as an additional channel of distribution as well, especially if this proves to be a niche market. Negative points might include: a lack of research to establish the extent of demand, especially in the local area are sales going to be high enough to cover costs? how long is the interest in vintage clothes likely to continue is it likely to be a short-term fad? Evaluative points might include: in the absence of any financial or sales data, it is impossible to judge the success of the start-up given the likelihood of limited demand for vintage clothes, a more cautious approach might have been to establish an online store, rather than renting/buying a shop.

10 Business ownership 6 B3 Data response (28 marks; 40 minutes) (Refer to questions on page 42 of the textbook.) 1 Explain the role of the board of directors in a public limited company. (4) Role of Board of Directors: to make strategic decisions to recruit senior managers to publish accounts to attend Board Meetings to call an AGM to coordinate and oversee the main functions of the business. 2 Analyse two ways in which Polar plc might finance the proposed expansion. (6) Costs to be considered include factory, refurbishment, warehousing, labour costs, running costs, any other costs involved in franchising, e.g. marketing. Analysis should take account of what the finance is used for and the implications to the business in terms of risk, time and cost. Internal: retained profit, sale of assets, working capital External: mortgage, loan, overdraft, share capital 6 marks Level 2 Level 1 Selects appropriate methods of finance in terms of the context and shows implications to the business of this decision. Selects methods of finance in the context of the business with little or no analysis. (6-4) (3-1) 3 Explain two disadvantages for Polar plc of franchising their operations abroad. (6) Disadvantages of franchising abroad: communication quality of service

11 Business ownership 6 cost of travel culture, language, legislation difficulties of distance in terms of training and advice. The important thing here is that the answer refers both to the type of business, the fact that they will be operating abroad and the product/service that is being referred to in the question. 4 Polar plc has many stakeholders. Which stakeholders would be most affected by the decision to expand? Give reasons for your answer. (12) Stakeholders who might be affected: employees customers shareholders suppliers lenders. This question requires candidates to select stakeholders which would be affected and to analyse the effect on them in terms of this expansion. Evaluation requires candidates to make some judgment based on their previous analysis about which stakeholder might be most affected by this change. 12 marks Level 4 Level 3 Level 2 Level 1 Candidate selects and analyses at least two appropriate stakeholder groups in terms of the expansion and comes to a supported judgment about which is most affected by the expansion. Candidate analyses the effects on at least two stakeholder groups in terms of the expansion. Candidate selects one or two stakeholder groups and explains how they might be affected by the expansion. Candidate selects one or two stakeholder groups with limited understanding in terms of the context of the business. (12-10) (9-7) (6-4) (3-1)

12 Corporate objectives and stakeholders 7 Revision questions (30 marks; 30 minutes) 1 What is meant by a stakeholder? (2) A stakeholder is any person, or group of people, who have an interest in a business, e.g. customers, employees, owners, shareholders, lenders, suppliers, government, community. 2 Distinguish between the shareholder and stakeholder concepts. (3) Shareholder concept refers to the idea that business prioritises the expectations of the shareholder as most important. Therefore, increased market share and increased profit may be the main objectives driving these businesses. Stakeholder concept refers to the idea that businesses have responsibilities beyond the shareholder and that other stakeholders need to be considered. In these cases corporate social responsibility, quality and the needs of the customer are the main objectives of business. 3 Some people believe that an increasing number of firms are now trying to meet their social responsibilities. Explain why this might be the case. (3) Possible reasons include: pressure groups government legislation climate change international agreements, e.g. Kyoto media pressure. Any reasonable suggestion developed in terms of social responsibility.

13 Corporate objectives and stakeholders 7 4 Outline two responsibilities a firm may have to each of the following stakeholders: (a) Its employees (4) payment /reward working conditions/safe environment job security (b) Its customers (4) quality goods and services value for money competitive prices (c) The local community (4) employment putting something back, e.g. sponsorship use local suppliers 5 Some managers reject the idea of stakeholding. They believe a company s duty is purely to its shareholders. Examine one point in favour and one point against this opinion. (6) Shareholder concept: Reasons for: increased investment increased value of the business increased profit levels have power to takeover or sell shares have some say at AGM Reasons against: social/customer reaction image of business media response long-term interest of the company social expectations 6 What factors are likely to determine whether or not a firm accepts its responsibilities to a particular stakeholder group? (4) Factors affecting a firm s response to stakeholder groups: firms objectives, e.g. profit, expansion, social responsibility business culture media pressure legislation economic environment demographic changes

14 Corporate objectives and stakeholders 7 world/trade agreements environmental agreements, e.g. Kyoto Revision exercises B1 Data response (30 marks; 35 minutes) (Refer to questions on page 47 of the textbook.) 1 Distinguish between shareholders and stakeholders. (4) Shareholders are people or businesses who own a part of a company. Each share is valued on a daily basis and the shareholder receives a part of the annual profits as a dividend. A stakeholder is any person or group of people who have an interest in a business, e.g. customers, employees, owners, shareholders, lenders, suppliers, government, community 2 Analyse the possible reasons for the growth in popularity of the stakeholder view in recent years. (8) Reasons for growth in stakeholder view: climate change legislation media pressure international agreements business reputation sophisticated market customer information.

15 Corporate objectives and 7 stakeholders 8 marks Level 2 Level 1 Analysis would include the selection of two or three possible reasons and the implications of this move towards stakeholder approach. Knowledge of reasons why the stakeholder approach has grown in popularity. (8-5) (4-1) 3 Examine the factors which might influence whether a firm adopts the stakeholder or shareholder approach. (8) Factors influencing stakeholder approach: balance of objectives stakeholder power and influence media influence social expectations added value. Factors influencing shareholder approach: shareholder power profit objectives business culture economic climate/inflation global influences. This requires an analysis of these influences showing how and why they would affect the approach of a business to its responsibilities. 8 marks Level 2 Candidate selects one or two factors for each approach and (8-5) analyses them in terms of the business. Level 1 Candidate selects at least one factor for each approach. (4-1)

16 Corporate objectives and 7 stakeholders 4 Discuss the view that the interests of shareholders and stakeholders necessarily conflict. (10) This question requires the candidate to recognise that shareholders are stakeholders and, therefore, in terms of some of the objectives of stakeholders, there will be no conflict. Example: Turnover and profit are two of the main measures of success for a business. Without profit the shareholders cannot be paid a dividend, lenders will not be repaid, suppliers may not be paid and the business may not have sufficient money to put anything back into the community. Therefore, it is in the interests of many stakeholders that a business makes a profit. It is, however, the extent to which profit is a priority above and to the exclusion of other objectives that will contribute to conflict. Shareholders are driven by the profit that a business makes to the exclusion of other objectives. Customers, however, want competitive prices which give value for money. It is often the case that, in a drive to reduce costs, quality is the victim and this can conflict with the expectations of the customer. Rationalisation of a business in terms of employing technology instead of people may result in redundancies and poor service in businesses such as banks where the idea of personal service has all but disappeared. In this case there is an obvious conflict between the objectives of the customer, employees and shareholders. 10 marks Level 3 Level 2 Level 1 B2 Case study Candidate identifies both arguments and comes to a conclusion about the extent of the conflict. Candidate analyses both cases with little or no judgment or conclusion. Candidate identifies interests of each stakeholder group with little or no analysis. (10-8) (7-5) (4-1) (30 marks; 40 minutes) (Refer to questions on page 47 of the textbook.) 1 Explain two possible reasons why BP went wrong in its attitude to human and environmental safety in its US operations. (6) 1 mark should be allocated for each reason given plus up to an additional 2 marks per reason for development. Possible reasons include: poor management lack of accountability poor communication company culture.

17 Corporate objectives and 7 stakeholders 6 marks Level 2 Application of knowledge in context (6-4) Level 1 Knowledge and understanding of business concepts (3-1) 2 Given the evidence in the case study, comment briefly on the statement at the top of the box, taken from BP s website. (4) There is little evidence in the case study that BP lives by this statement or even adheres to much of it. It is possible that the company does delegate accountability but possibly to the point where nobody at the top is really accountable for anything. This could actually be a large part of the problem. 3 Discuss whether BP was taking a shareholder or stakeholder approach to its decision-making during the period covered by the text. (10) They are clearly taking a shareholder approach as their actions seem to be driven largely by profit. Their treatment of employees serves as evidence that they are not taking a stakeholder approach. In such a profit-driven industry it is likely that the vast majority of companies are taking a shareholder approach. 10 marks Level 4 Evaluation and judgement of information in context (10-9) Level 3 Analysis of information in context (8-7) Level 2 Application of knowledge in context (6-4) Level 1 Knowledge and understanding of business concepts (3-1) 4 Is it time for stronger government controls on business activities? (10) The case material suggests that it may be time for stronger controls on business. It may not be necessary as consumers are becoming more and more aware and concerned by business actions. Some would argue that intervention into business activity should be kept to a minimum in order not to stifle business activity.