Business management Higher level Paper 2 Monday 1 May 2017 (morning) 2 hour 15 minutes Instructions to candidates yy Do not open this examination paper until instructed to do so. A clean copy of the business management formulae sheet is required for this examination paper. Section A: answer one question. Section B: answer two questions. Section C: answer one question. yy A calculator is required for this examination paper. yy The maximum mark for this examination paper is [70 marks].
Section A Answer one question from this section. 1.
Bart Furniture (BF)
Bart Furniture (BF) is a wholesaler that stocks furniture. In 2015, BF purchased more stock than usual in order to take advantage of discounts that several furniture manufacturers were offering. However, much of this new stock did not sell.
Table 1: Financial information, for BF, for 2015 and 2016
Acid-test/quick ratio Cash Cost of goods sold Creditors Current ratio Debtor days Debtors Long-term debt Sales revenue Short-term debt Stock Stock turnover in days
2015 2.21 $2000 $12 166 $1000 A 30 days $1973 $14 000 $24 000 $800 $4000 X
stock turnover in days for 2015 (X) (show all your working);
current ratio for 2015 (A) (show all your working);
(iii) debtor days for 2016 (Y) (show all your working).
Referring to information in Table 1 and your calculations, explain the change in BF ’s liquidity between 2015 and 2016.
Geo Dynamics (GD)
Geo Dynamics (GD) is an engineering company. On 1 January 2016, GD purchased new machinery at a cost of $50 000 rather than leasing it. GD’s financial manager researched further information: The machinery has a useful life of four years. Its residual or scrap value will be $8000. The engineering industry uses a 40 % depreciation rate per annum. Technology in this industry is changing rapidly.
GD’s financial manager has not yet decided on which depreciation method (such as straight line or reducing/declining balance) to use for the new machinery.
(a) Describe one disadvantage for GD of leasing.
Calculate the value (also known as net book value) of new machinery at 31 December 2017 using the straight line depreciation method (show all your working).
Calculate the value (also known as net book value) of new machinery at 31 December 2017 using the reducing/declining balance method, applying the industry depreciation rate of 40 % per annum (show all your working).
(d) Explain one advantage for GD of using the straight line balance depreciation method.
Section B Answer two questions from this section. 3.
Health Star (HS)
Health Star (HS) is a private limited company providing management consultancy services for public sector organizations like hospitals. HS is well known for its creativity and for helping customers achieve budget targets. HS’s consultants are all shareholders, receive high salaries and profit-related pay. HS also gives its consultants freedom and encouragement to be intrapreneurs. The consultants’ work performance is appraised on a monthly basis using formative appraisal.
Recently, several pressure groups have protested against the high fees charged by HS. “The high fees are outrageous!” said Elaine Hall in a local news report. “Public sector hospitals need to use their resources for patient care and not for employing expensive consultants.”
In response to the pressure groups, HS is considering two options proposed by two senior consultants, Dan and Lauren: Option 1: Dan has suggested that HS should set up a charity to create educational services for children with long-term health problems. The charity will be funded partly through donations and partly through HS’s own profits. The charity, Health Star Education (HSE), will finance qualified teachers to visit hospitals. HS’s consultants are also expected to volunteer to read to sick children. Option 2: Lauren has suggested that reducing the high fees should be the priority. She suggests that new, untested software could be developed by her project team to significantly reduce the costs of treatment for patients. Consequently, HS could charge public sector hospitals a lower fee.
(a) Describe one possible objective of a public health organization.
(b) Explain two characteristics of an intrapreneur at HS.
(c) Explain one advantage and one disadvantage for HS of using formative appraisal.
Recommend which of Option 1 and Option 2 HS should implement.
Secco Vineyards (SV)
Secco Vineyards (SV ) is a family-owned business producing wine in Sonoma, California. In 1947, SV opened using cost-plus (mark-up) pricing. For SV ’s customers, the wines were medium priced and available in local grocery stores.
In 1977, Joe Secco, grandson of the founder, created a new strategy. He re-branded SV ’s wine for a niche premium market. SV began to sell directly to customers at its winery instead of in local grocery stores. SV stopped using cost-plus (mark-up) pricing and began charging much higher prices. Regular wine tastings and promotional events were held at its winery. At these events, wine experts would promote SV ’s wines by creating an elegant experience based on a luxurious culture of wine consumption. SV ’s physical evidence in its marketing mix became much more important.
However, SV has recently faced intense competition and sales have fallen. Local wine producers and overseas competitors have entered the market with similar market positioning. In order to maintain its brand image, SV has not changed its pricing strategies.
SV conducted secondary market research about other possible markets in the US for its premium wines. The research suggested that other possible markets for high-quality wines, such as those of SV, exist. As a result, SV is considering two new options to increase sales in addition to its current distribution channel: Option 1: open a business-to-consumer (B2C) e-commerce store Option 2: sell SV wines to wholesalers serving the whole of the US market for premium wines.
(a) Describe one characteristic of a niche market.
With reference to SV, explain one advantage and one disadvantage of using secondary market research.
Given the intense competition, explain two pricing strategies SV might consider.
Recommend which of Option 1 and Option 2 SV should consider in order to increase sales.
Gen Y Limited
Gen Y Limited is an internet start-up business owned by Zack Johnson. Zack owns 80 % of the shares and venture capitalists own the other 20 %. Gen Y has specialist programmers and coders who create innovative market research data reports for clients. These data reports have revolutionized Gen Y ’s clients’ ability to understand and respond to customers in their markets.
To retain the best programmers, employees are given cognitive training and are empowered to make decisions and take risks. They are also regularly praised for the impact that their reports are having on their clients’ decision making. One day a week, employees can work on their own “dream, but risky, projects”. Intrapreneurship is strongly encouraged at Gen Y. However, Gen Y lacks the capital to develop some of these projects into future revenue streams.
Virtually all of Gen Y ’s costs are fixed – salaries. As of 2017, Gen Y has not yet generated a profit. Without more revenue they will have to reduce the number of programmers. Petra, a new investor, is being considered to provide fresh capital to invest in Gen Y. Ownership of Gen Y will change to: Zack Venture capitalists Petra
40 % 20 % 40 %
Petra believes in intrapreneurship but is concerned that “dream” projects are not generating profits. She has said that if she is going to invest in Gen Y two conditions must be met: Management at Gen Y will change to an autocratic leadership style. Programmers will be expected to meet sales targets. As a result, programmers will have no autonomy.
(a) Outline two features of an autocratic leadership style.
(c) Explain one reason, other than increased sales revenue, why it is important that Gen Y generates new revenue streams.
Apply Daniel Pink’s motivation theory to the programmers at Gen Y.
Discuss whether Zack should sell Petra half of his shares with her conditions.
Section C Answer one question from this section. The organizations featured in sections A and B and in the paper 1 case study may not be used as a basis to your answer. 6.
With reference to an organization of your choice, examine the impact of globalization on innovation.
With reference to an organization of your choice, examine the impact of ethics on organizational strategy.
With reference to an organization of your choice, discuss the ways in which culture can promote or inhibit change.