Total marks: 80 · Duration: 75 minutes
Instructions to candidates
• Answer ALL questions in both Section A and Section B. • Write your answers in the spaces provided on the Question Paper. • You may use a calculator. • All working must be clearly shown. • The businesses described in this Question Paper are fictitious. • The number of marks is given in brackets [ ] at the end of each question or part question.
Paper
Section A — Structured Questions (56 marks)
Question 1
Samir owns a small business making hand-crafted furniture. He operates as a sole trader and employs three workers. Samir is considering expanding his business by taking on a partner.
(a) Define the term sole trader. [2 marks]
(b) Identify two advantages to Samir of taking on a partner. [2 marks]
(c) Explain two disadvantages to Samir of changing from a sole trader to a partnership. [4 marks]
Question 2
DataLink Ltd is a private limited company that provides cloud storage services to businesses. The company's finance director has prepared the following financial information:
| Financial data for DataLink Ltd | Year 1 | Year 2 |
|---|---|---|
| Revenue | $450,000 | $520,000 |
| Cost of sales | $180,000 | $240,000 |
| Expenses | $150,000 | $160,000 |
| Capital employed | $600,000 | $650,000 |
(a) Calculate the gross profit for DataLink Ltd in Year 2. [2 marks]
(b) Calculate the net profit margin for DataLink Ltd in Year 2. [3 marks]
(c) Calculate the return on capital employed (ROCE) for DataLink Ltd in Year 2. [3 marks]
Question 3
EcoClean manufactures environmentally-friendly cleaning products. The operations manager is considering two methods of production:
Method A: Batch production using automated machinery Method B: Flow production using a fully automated assembly line
The following cost data has been estimated:
| Method A (Batch) | Method B (Flow) | |
|---|---|---|
| Initial investment | $80,000 | $250,000 |
| Variable cost per unit | $3.50 | $2.00 |
| Expected output per year | 40,000 units | 100,000 units |
(a) Define the term flow production. [2 marks]
(b) Calculate the total cost of Method A if 40,000 units are produced. [2 marks]
(c) Explain two advantages to EcoClean of using Method B (flow production). [4 marks]
(d) Recommend which method of production EcoClean should use. Justify your answer. [6 marks]
Question 4
TechNova is a technology business that designs mobile phone applications. The marketing director is planning the launch of a new gaming app aimed at teenagers aged 13-18.
The business has gathered the following primary market research data from a survey of 500 teenagers:
| Question | Response |
|---|---|
| Would you download a free gaming app? | Yes: 85% No: 15% |
| How much would you pay for an app? | Free only: 40% Up to $2.99: 35% Up to $4.99: 20% More than $5: 5% |
| Preferred method of hearing about new apps | Social media: 65% Friends: 20% App store recommendations: 10% Other: 5% |
(a) Identify two methods of primary market research TechNova could have used. [2 marks]
(b) Explain one advantage and one disadvantage to TechNova of using primary market research. [4 marks]
(c) Analyse the market research data and recommend a pricing strategy for the new gaming app. Justify your answer. [6 marks]
Question 5
Global Foods plc is a multinational company that produces snack foods. The Human Resources Director is concerned about high labour turnover, which currently stands at 28% per year.
Recent employee surveys revealed the following main concerns:
- Low wages compared to competitors
- Limited opportunities for promotion
- Repetitive work on production lines
- Poor communication between management and workers
(a) Define the term labour turnover. [2 marks]
(b) Calculate how many employees left Global Foods plc last year if the total workforce was 850 employees. [2 marks]
(c) Explain two possible costs to Global Foods plc of high labour turnover. [4 marks]
(d) Recommend two methods Global Foods plc could use to reduce labour turnover. Justify your answer. [6 marks]
Section B — Extended Response (24 marks)
Question 6
ReadMore Ltd is a medium-sized book retailer operating 15 shops in city centres across the country. For the past three years, sales revenue and profits have declined by an average of 12% per year. The main reason is increased competition from online retailers who can offer lower prices and home delivery.
The Board of Directors is considering two strategic options:
Option 1: Close 8 of the 15 shops and invest heavily in developing an e-commerce website and distribution system. This would require redundancies of 60 staff members and an investment of $2 million in digital technology.
Option 2: Keep all 15 shops open and reposition the business to focus on customer experience. Each shop would include coffee shops, reading areas, and host author events and book clubs. This would require an investment of $1.5 million in shop refurbishment and additional staff training.
Additional information:
- ReadMore Ltd currently employs 180 staff
- The business has cash reserves of $1.8 million
- A bank has offered a loan of $1.5 million at 7% annual interest
- 65% of ReadMore's customers are aged over 45
- Market research shows younger customers (aged 18-35) prefer to buy books online
Evaluate these two strategic options and recommend which option ReadMore Ltd should choose. [12 marks]
Question 7
Zarin Manufacturing produces sports equipment and has experienced rapid growth over the past five years. Annual revenue has increased from $2 million to $8 million. The Managing Director, Chen Wei, wants to continue growing the business and is considering the benefits and drawbacks of different growth strategies.
Chen Wei is considering:
- Internal (organic) growth by developing new products and opening a factory in a neighbouring country
- External growth through a takeover of SportsTech Ltd, a competitor with an annual revenue of $3 million and an established distribution network in three countries
Financial information:
| Zarin Manufacturing | SportsTech Ltd | |
|---|---|---|
| Annual revenue | $8 million | $3 million |
| Net profit margin | 15% | 8% |
| Current employees | 120 | 85 |
| Market share | 12% | 5% |
Chen Wei is concerned that rapid expansion could lead to diseconomies of scale. However, investors are pressuring the business to grow market share quickly to compete with larger multinational competitors.
Discuss whether Zarin Manufacturing should pursue internal growth or external growth through the takeover of SportsTech Ltd. [12 marks]