IB Business Management

MULTIPLE CHOICE QUESTIONS PACK

Mohit Chainani
How to use this resource

This comprehensive 268-page resource pack contains 735 multiple choice questions (MCQ),
written specifically to match the content in the SL and HL Business Management syllabus
(last exams November 2022). It can be used as a revision tool for students as they approach
their final exams, as end-of-topic tests, as homework tasks and/or classroom review
exercises.

Each question comes with a full explanation so students can understand the reasoning
behind the answer. For HL students, the quantitative questions are fully explained, with the
full working out shown. For units of the syllabus that have HL additional content, these
questions appear in red text font.

About the author

Mohit Chainani studied the IB Diploma Programme at Sha Tin College,

English Schools Foundation in Hong Kong, where he scored a Level 7 in
both Business Management and Economics. He graduated from HKUST
with a Bachelor’s degree in Finance and Accounting. Mohit has a passion for
teaching, and has taught IB Business Management and IB Economics, with
all of his students achieving excellent examination results.

He credits his academic and professional successes to his parents, Priya and Bharat
Chainani, and mentors Paul Hoang, Darrell Zawada and Sam Cleary.

Aside from work, Mohit enjoys ice hockey, Muay Thai and is an ardent follower of cricket.

Thank you for purchasing this Multiple Choice Questions Pack. Please note that the resource
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only – redistribution is strictly prohibited.

We invite you to visit our website for our other resources to support IB Business Management
and Economics students and teachers: www.level7education.com

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IB Business Management – Multiple Choice Questions Pack

Unit Content Page

1.1 Introduction to business management 4
1.2 Types of organizations 13
1.3 Organizational objectives 22
1.4 Stakeholders 28
1.5 External environment 32
1.6 Growth and evolution 41
1.7 Organizational planning tools (HL only) 51

2.1 Functions and evolution of human resource management 56

2.2 Organizational structure 73
2.3 Leadership and management 84
2.4 Motivation 91
2.5 Organizational (corporate) culture (HL only) 102
2.6 Industrial/employee relations (HL only) 109

3.1 Sources of finance 114

3.2 Costs and revenues 121
3.3 Break-even analysis 126
3.4 Final accounts (some HL only) 131
3.5 Profitability and liquidity ratio analysis 141
3.6 Efficiency ratio analysis (HL only) 147
3.7 Cash flow 153
3.8 Investment appraisal (some HL only) 158
3.9 Budgets (HL only) 165

4.1 The role of marketing 170

4.2 Marketing planning (including introduction to the four Ps) 177
4.3 Sales forecasting (HL only) 189
4.4 Market research 197
4.5 The four Ps (product, price, promotion, place) 206
4.6 The extended marketing mix of seven Ps (HL only) 218
4.7 International marketing (HL only) 222
4.8 E-commerce 226

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IB Business Management – Multiple Choice Questions Pack

Unit Content Page

5.1 The role of operations management 232
5.2 Production methods 236
5.3 Lean production and quality management (HL only) 241
5.4 Location 248
5.5 Production planning (HL only) 253
5.6 Research and development (HL only) 260
5.7 Crisis management and contingency planning (HL only) 264

Topics in red text are for HL Only.

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IB Business Management MCQ Revision Pack 1.1 Introduction to Business Management

1. Which of the following is not one of the four factors of production?

A. Land
B. Machinery
C. Capital
D. Enterprise

2. An iPhone selling for $649 costs $280 to produce. What is the value added in the
production process?

A. $280
B. $349
C. $369
D. $649

3. Money is an example of which of the following factors of production?

A. Enterprise
B. Labour
C. Capital
D. Land

4. Those who use a product or service are called ____________, and those who
only buy it, but not necessarily use it, are called ____________.

A. Buyers, sellers
B. Consumers, customers
C. Consumers, vendors
D. Customers, consumers

5. Goods are __________ items, generally produced by the __________ and/or

_________ sectors of an economy.

A. Tangible, secondary, tertiary

B. Tangible, primary, secondary
C. Physical, primary, quaternary
D. Intangible, secondary, services

6. Which business function handles staffing duties such as recruitment, personnel

training, performance appraisals and dismissals?

A. Marketing
B. Finance and accounts
C. Operations management
D. Human resources

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IB Business Management MCQ Revision Pack 1.1 Introduction to Business Management

7. Which business function is involved with handling money/funds, making payments

and preparing income statements, balance sheets and cash flow statements?

A. Marketing
B. Finance and accounts
C. Operations
D. Human resources

8. Refer to the table below. Which product’s production process added the most
value?

Product A Product B Product C Product D

Selling Price $617 $912 $1,050 $325
Costs per unit $438 $460 $750 $179

A. Product A
B. Product B
C. Product C
D. Product D

9. Which business function is in charge of identifying customer requirements and

promoting a firm’s products?

A. Marketing
B. Finance and accounts
C. Operations
D. Human resources

10. Which business function is in charge of all aspects of the production process,
quality management and conducting research and development?

A. Marketing
B. Finance and accounts
C. Operations
D. Human resources

11. Which of the following activities is not a primary sector activity?

A. Farming
B. Vehicle assembly
C. Mining
D. Fishing

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IB Business Management MCQ Revision Pack 1.1 Introduction to Business Management

12. Which of the following activities is not a secondary sector activity?

A. Transportation
B. Bridge construction
C. Aircraft manufacturing
D. Brewing beers

13. Which of the following activities is not a tertiary sector activity?

A. Gold mining
B. Healthcare
C. Education
D. Retail

14. Which of the following activities is not a quaternary sector activity?

A. Financial planning
B. Travel blogging
C. Consulting
D. Public transportation

15. Which of the following activities would most likely be considered a quaternary
sector activity?

A. Data mining
B. Legal counselling
C. Tourism
D. Catering

16. As an economy develops, it will shift from being a predominantly ___________

economy, to a predominantly _________ economy, and eventually into an
economy that derives the majority of its income from the _________ sector.

A. Primary sector, secondary sector, tertiary

B. Primary sector, agricultural, secondary
C. Tertiary sector, secondary sector, primary
D. Secondary sector, tertiary sector, primary

17. Which of the sectors below is most likely to create the least value added?

A. Primary sector
B. Secondary sector
C. Tertiary sector
D. Quaternary sector

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IB Business Management MCQ Revision Pack 1.1 Introduction to Business Management

18. An economy which derives the majority of its national income from the tertiary or
quaternary sectors is likely to be __________, while an economy that derives the
majority of its income from the secondary sector is likely to be _____________.

A. Developing, developed
B. Developed, developing
C. Developed, less economically developed countries
D. Developing, less economically developed countries

19. The activity by which an individual takes financial risks in a business venture is
called ____________.

A. Innovation
B. Intrapreneurship
C. Entrepreneurship
D. Chief executive

20. When an individual employee in a large multinational company is highly

innovative, he/she is called a(n) ____________.

A. Entrepreneur
B. Intrapreneur
C. Creative director
D. Platform developer

21. Which of the following is not likely to be an obstacle facing a business start-up?

A. Lack of funds
B. Lack of high-quality staff
C. Low production costs
D. Marketing issues

22. Which of the following would typically not be found in the business plan for a start-
up?

A. Balance sheet
B. Product outline
C. Marketing
D. Finances

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IB Business Management MCQ Revision Pack 1.1 Introduction to Business Management

23. Refer to the diagram below illustrating a typical process of setting up a new firm.
Which of the following Options best fits the blank label (2.)?

1. Have a
5. Satisfy legal business idea
requirements

4. Obtain
2.
initial funding

3. Develop a
business plan

A. Formally register the business

B. Conduct market research
C. Hire key personnel
D. Borrow money from the bank

24. Which sector of the economy provides services to other businesses?

A. Primary sector
B. Secondary sector
C. Tertiary sector
D. Quaternary sector

25. Which business functions involves researching the wants and needs of
customers?

A. Operations management
B. Human resource management
C. Finance
D. Marketing

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IB Business Management MCQ Revision Pack 1.1 Introduction to Business Management

1.1 Answers

Question Answer Explanation

The four factors of production are: land, labour, capital (which

includes machinery) and enterprise. Land refers to natural
resources uses in production, labour refers to the human resources
that contribute to producing something. Capital refers to all
1 B
manufactured resources used in production, such as machinery.
Enterprise refers to the risk-taking and entrepreneurial abilities that
some people have in organizing factors of production in a profitable
way. The correct answer is therefore Option B.
Value added refers to the difference between the final selling price
and the total costs of production incurred to produce that item. If a
2 C production process adds value, the final selling price will be greater
than the sum of the cost of factor inputs. Thus, value added = $649
– $280 = $369.
Money is a facilitator of production, not a productive resource or
factor input. Thus Option C is the correct answer. Option A is
incorrect because it refers to the entrepreneurial abilities some
people have in organizing factors of production to generate profit.
3 C Option B refers to the human effort used in production. Option D
refers to natural resources, such as water, wood and physical land.
Capital, Option C, refers to manufactured resources used in
production, such as tools and machinery. Money is a form of capital,
so this is the correct answer.
Consumers are those who actually use (and thereby consume) a
product or service, while customers include anyone who purchases
the product, but does not necessarily use it. For example, if you buy
4 B
an iPhone for yourself for daily use, you would be a consumer. If
you bought 50 iPhones to resell, you would be a customer (of
Apple).
Goods, such as potatoes, iPhones, tennis balls, and cars are all
tangible items. The primary sector of an economy is where tangible
raw materials and natural resources are extracted, and the
5 B secondary sector of an economy is where tangible output from the
primary sector is converted into manufactured goods, such as
iPhones, tennis balls and cars. Hence, Option B is the correct
answer.
The human resources (HR) function is responsible for all staffing-
related duties, such as recruitment of new staff, training and
development of new and existing staff, regular performance
6 D appraisals and dismissals. The HR division also needs to comply
with local legislation, and needs to ensure the company has the
appropriate personnel, with relevant skills, to help the organization
achieve its goals.

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IB Business Management MCQ Revision Pack 1.1 Introduction to Business Management

The finance and accounts division is responsible for handling the

organization’s funds in the most efficient way possible. Finance and
accounts are responsible for investing in new projects, acquiring
7 B
resources, making payments to suppliers and staff, and preparing
financial statements such as the income statement, balance sheet
and cash flow statement.
Value Added = Final selling price – Cost of production per unit
VA for Product A = $617 – $438 = $179
VA for Product B = $912 – $460 = $452
8 B
VA for Product C = $1,050 – $750 = $300
VA for Product D = $325 – $179 = $146
Hence, Option is the correct answer.
The marketing division is in charge of identifying customer
9 A requirements through market research. They are also involved in
promoting a firm’s products, for example, through advertisements.
The operations department is the division that is in charge of the
entire production process. It manages raw material stocks, selects
10 C
the production methods used, ensures quality standards are
adhered to, and conducts research and development.
Primary sector activities are those involved in natural resource/raw
material extraction. For example, farming tomatoes, mining for iron
ore, or fishing are all examples of extracting natural resources.
11 B However, vehicle assembly is a manufacturing activity (thus a
secondary sector activity), which involves converting the output
from the primary sector into finished goods. Thus, vehicle assembly
is not a primary sector activity.
Transportation is a tertiary sector activity because it revolves
around providing a service. Options B, C and D all describe
12 A
secondary sector activities, which essentially convert the output
from the primary sector into finished goods.
Tertiary sector activities revolve around providing services to
individual customers or firms, such as healthcare, education and
13 A
retail. Gold mining involves resource extraction and is thus a
primary sector activity.
A quaternary sector activity consists of those activities that revolve
around creating or sharing knowledge and information. Financial
planning, travel writing and consulting all involve knowledge
14 D transfer and are thus examples of quaternary sector activities.
Public transportation, however, is an example of a tertiary sector
activity which just provides a service, but does not involve
knowledge creation or transfer.

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IB Business Management MCQ Revision Pack 1.1 Introduction to Business Management

A quaternary sector activity consists of those activities that revolve

around creating or sharing knowledge and information. Data mining
involves specialists creating insights from raw data and sharing this
with their clients or employers. The other options are examples of
15 A
tertiary sector activities. Note that the quaternary sector is a subset
of the tertiary sector, but the quaternary sector activities typically
involve creating or sharing knowledge, while tertiary sectors simply
provide the services.
As an economy develops, it undergoes sectoral change. Sectoral
change refers to the transformation of a developing economy from
one that relies mainly on the primary sector, to one that focuses on
16 A
production (manufacturing), and eventually to one that earns the
largest share of its total national income through providing services
(i.e. the tertiary or quaternary sectors).
The primary sector, which revolves around natural resource
development and extraction, is likely to add very little value,
because the selling price of natural resources such as fruits,
vegetables and meat is likely to be relatively low. The secondary
17 A sector adds more value because it creates finished goods that are
ready for sale, and actually have productive value to their buyers.
The tertiary and quaternary sectors add even more value by
providing essential services that customers are otherwise unable to
access themselves.
Developed countries are those which attain most of their total
national income from the services sectors, i.e. the tertiary and
quaternary sectors. Developing nations are those that derive most
18 B of their income from the secondary (manufacturing) sector. Less
economically developed countries (Options C and D) are typically
those which rely mainly on natural resource extraction for income
(i.e. the primary sector). Thus Option B is the correct answer.
Entrepreneurship is the activity by which an individual takes
financial risks in a business venture. For example, Facebook co-
founder Mark Zuckerberg engaged in entrepreneurship when he
19 C developed a business idea and took financial risks when scaling up
Facebook into the worldwide platform it is today. Option B is
incorrect because it simply refers to an innovative employee acting
like an entrepreneur within an existing organization.
An intrapreneur refers to an innovative employee acting rather like
an entrepreneur within a large organization. Option A is incorrect
20 B because it refers to individuals who take financial risks by investing
in a business venture, but for their own, personal benefit, i.e. they
are owners, founders or co-founders, rather than employees.

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IB Business Management MCQ Revision Pack 1.1 Introduction to Business Management

A new firm is likely to face a lack of initial funds (Option A), so may
face liquidity problems. Being new, it may also be ineffective in
attracting high-quality personnel (Option B). Marketing issues
21 C (Option D) may arise if the firm has not met customer requirements.
Option C is incorrect because a new firm is most likely to face
relatively high production costs, as it is unlikely to achieve
economies of scale.
A typical business plan is likely to include a product outline (Option
B) which describes the product and its unique selling point. The
marketing section of the business plan (Option C) outlines the
market research conducted, and the marketing approaches to be
22 A adopted. The finances section (Option D) outlines the projected
finances of the firm, such as expected sales forecasts, and how it
intends to obtain financing. However, it is unlikely that a business
plan of a start-up will include a balance sheet (Option A) as this can
only be completed once a business has started trading.

After having a business idea that has significant potential, the

entrepreneur must conduct market research (Option B) to
determine whether the idea is genuinely feasible or not, or if any
modifications would be required to the product to better satisfy the
23 B
market’s needs and wants. Option A is a part of step 5 (satisfying
legal requirements), and Option C occurs after the firm is officially
set up. Option D is incorrect because the business plan is needed
before trying to obtain finance from a bank (step 4).
The tertiary sector (Option C) refers to businesses providing a
service, e.g. insurance, security, and consultancy services. The
primary sector (Option A) involves extracting natural resources for
24 C
production. The secondary sector (Option B) is involved in
manufacturing and construction. The quaternary sector (Option D)
is engaged in the creation or sharing of knowledge or information.
The marketing department (Option D) is responsible for identifying
the needs and wants of customers in order to meet these
demands. Hence, Option D is the correct answer. The operations
management department (Option A) is responsible for production
25 D
of finished goods and/or providing services. HRM (Option B) is
about managing employees within an organization. The function of
the finance department (Option C) is to manage the organization’s
money.

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IB Business Management MCQ Revision Pack 1.2 Types of Organizations

1. The public sector is owned and controlled by _____________.

A. The government
B. Individuals and households
C. Shareholders
D. The general public

2. What does limited liability refer to?

A. Shareholders’ personal assets cannot be claimed by creditors for money

owed by the firm
B. The maximum a shareholder can lose is equal to their initial investment,
but nothing more
C. The directors are exempt from adhering to company law and legislation
D. Both (A) and (B)

3. Which of the following is not a for-profit organization?

A. Public-private partnerships
B. Sole traders
C. Limited liability companies
D. Non-governmental organizations

4. If an individual wants full and total control over a firm and wishes to minimize the
legal bureaucracy in setting up, which of the following is most suitable?

A. Partnership
B. Sole proprietorship
C. Private limited company
D. Public limited company

5. Which of the following is not a valid advantage of a sole proprietorship?

A. The proprietor has limited liability

B. The proprietor has total control and more flexibility
C. Fewer legal formalities are required
D. The proprietor does not have to share profits with others

6. Which of the following is not a disadvantage of being a sole trader?

A. Unlimited liability
B. Limited availability of, and access to, funds
C. Time consuming to set up
D. Continuity challenges

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IB Business Management MCQ Revision Pack 1.2 Types of Organizations

7. Who do the profits made by a sole trader belong to?

A. The government
B. The sole trader
C. Employees
D. Shareholders

8. Which of the following is not a characteristic of partnerships?

A. Limited liability for all members

B. A deed of partnership is drawn out
C. Shared control, ownership and profits
D. Greater continuity

9. Which of the following is not an advantage of a partnership?

A. Larger amounts of capital can be raised by selling shares to friends and

family
B. There is greater continuity compared with sole traders
C. There is a greater wealth of knowledge and expertise than setting up as
sole traders
D. Corporate confidentiality is relatively high as financial statements do not
have to be released to the public

10. Which of the following is not a disadvantage of partnerships?

A. Financial resources are pooled

B. Partners have unlimited liability
C. Profits are shared with all partners
D. Conflicts in decision-making are more likely to occur

11. Which of the following is not a characteristic of a company (corporation)?

A. There is a separation of ownership and control

B. Shareholders have limited liability
C. Profits are distributed amongst managers and directors
D. They can be either privately or publicly owned

12. Which of the following is not a feature of a private limited company?

A. Shares cannot be traded on a stock exchange

B. Transfer of ownership has to be agreed upon by all shareholders
C. Shares are usually sold to friends and family
D. An initial public offering has to be made after formally registering the
business

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IB Business Management MCQ Revision Pack 1.2 Types of Organizations

13. Which of the following is not a feature of a public limited company?

A. They have undergone an initial public offering (IPO)

B. Shares are sold and traded through a stock exchange
C. It can have up to 20 shareholders
D. Financial statements must be released to the public

14. Which of the following is not an advantage of private limited companies?

A. Lenders will be more willing to lend them funds compared to

unincorporated businesses
B. The separation of ownership and control provides limited liability to
shareholders
C. It is easy to raise large amounts of additional share capital
D. Since the firm and the owners are separate legal entities, there is greater
continuity

15. Which of the following is not a disadvantage of private limited companies?

A. Disclosure of financial statements may be required

B. Shares cannot be sold publicly on a stock exchange
C. There are more legal formalities compared to an unincorporated business
D. Certain shareholders have unlimited liability

16. Which of the following are advantages of a public limited company?

i. Large amounts of share capital can be raised to fund expansion

ii. Raising external finance is easier as being a listed company attracts investors
iii. There is greater continuity than in unincorporated firms
iv. They have a high degree of privacy

A. i + ii
B. ii + iii
C. i + ii + iii
D. ii + iii + iv

17. Which of the following is/are disadvantage(s) of public limited companies?

A. Disclosure of financial statements to the general public

B. High costs of compliance to stock exchange requirements
C. Heightened threat of a takeover
D. All of the above

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IB Business Management MCQ Revision Pack 1.2 Types of Organizations

18. Which of the following is not an example of a for-profit social enterprise?

A. Micro-financiers
B. Non-governmental organizations
C. Cooperatives
D. Public-private partnerships

19. Which of the following is not a characteristic of a cooperative?

A. They are non-profit social enterprises

B. They can be consumer, worker or producer cooperatives
C. They aim to create value for their members in a sustainable manner
D. They are democratically controlled

20. Which of the following are advantages of a cooperative?

i. They are socially desirable

ii. The democratic system incentivises employees
iii. Members have limited liability
iv. It is easy to attract new members because financial returns are
substantial

A. ii + iii
B. i + iii
C. i + ii + iii
D. ii + iii + iv

21. Small, low-interest loans may be provided to low-income individuals who would
not otherwise have access to funds from traditional lenders like banks to improve
their standards of living. What is this called?

A. Grants
B. Microfinance
C. Cooperative financing
D. Subsidies

22. What is it called when an organization is owned and controlled by both the
government and a private sector firm simultaneously?

A. Cooperative
B. Non-profit social enterprise
C. Limited liability company
D. Public-private partnership

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IB Business Management MCQ Revision Pack 1.2 Types of Organizations

23. Which of the following are advantages of public-private partnerships (PPPs)?

i. PPPs are typically more efficient than government operated organizations

ii. Combining private and public funds helps eliminate funding shortfalls
iii. There is a large opportunity cost involved in using government funds
iv. There are conflicting interests between the profit-driven private sector entity
and the service-motivated government entity

A. i + ii
B. i + ii + iii
C. ii + iv
D. iii + iv

24. Which of the following is not an example of a non-profit social enterprise?

A. Charities
B. Non-governmental organizations (NGOs)
C. Public-private partnerships (PPPs)
D. All of the above

25. Which of the following is not a disadvantage of a non-profit social enterprise?

A. They may be relatively inefficient

B. They receive tax exemptions and incentives
C. There is a risk of fraud
D. There is significant bureaucracy involved

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IB Business Management MCQ Revision Pack 1.2 Types of Organizations

1.2 Answers

Question Answer Explanation

The public sector is owned and controlled by the government, ad

aims to provide necessities such as public transportation,
1 A
infrastructure, healthcare and education. Hence, Option A is the
correct answer.
Limited liability is a feature arising from incorporated companies
where the maximum amount that a shareholder can lose is the initial
amount he/she invested in the shares of the company, and nothing
beyond that. The company is a separate legal entity from the
2 D
shareholders due to the separation of ownership and control.
Hence, creditors cannot claim the personal assets of the
shareholders to recover their losses. Thus, Option D is the correct
answer.
For-profit organizations are those that aim to achieve a profit, such
as sole traders (Option B), partnerships, limited liability companies
3 D (Option C) and public-private partnerships (Option A). Non-
governmental organizations (Option D), such as Oxfam, do not
place profits as an organizational objective.
A sole proprietorship is a business owned by one person who takes
on unlimited liability by accepting no legal separations between the
firm and the proprietor. Since such a firm is owned by one person,
4 B
that individual has total decision making power. A sole
proprietorship involves fewer legal formalities compared to limited
companies or partnerships.
A sole proprietorship is an example of an unincorporated business,
implying that its proprietor faces unlimited liability to creditors. Only
5 A incorporated companies (private or public limited companies) have
a separation of ownership and control, which gives them limited
liability.
Being a sole trader comes with unlimited liability for the proprietor
(Option A). In the event of a default, the proprietor’s personal assets
can be claimed by creditors to recover their money. Having just one
owner causes limited financial infusions into the venture (Option B),
6 C
and lenders may be unwilling to provide funds to unincorporated
entities. Continuity challenges arise (Option D) if the sole trader
goes on holiday, is unwell, or passes away. Option C is a
disadvantage of limited companies, not a sole proprietorship.
A sole proprietorship is a business owned by one person, and thus
all profits (or losses) belong to the sole trader. Note that the
government may have some stake on the profits in the form of taxes
7 B
placed on the sole trader for the income he/she earns (Option A),
but not a direct stake on the profits generated. Hence, Option B is
the correct answer.

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IB Business Management MCQ Revision Pack 1.2 Types of Organizations

Partnerships are unincorporated firms, implying that there is no

separation of ownership and control, implying unlimited liability for
either some or all partners in the partnership. Hence, Option A is
the correct answer. A deed of partnership (Option B) is often
developed to outline the key roles, responsibilities and rights of
8 A
each partner. Decision making is also shared due to the shared
ownership, and profits are distributed as per the deed of partnership
(Option C). There is also greater continuity (Option D), as the
temporary absence of one partner does not shut down the
business.
While partnerships are indeed more likely to be able to raise more
financing because multiple partners can contribute capital, money
9 A
cannot be raised by selling shares, because it is an unincorporated
firm.
Several disadvantages of partnerships exist. For example, most
partnerships expose all partners to unlimited liability (Option B).
Profit sharing (Option C) also reduces the income each individual
partner can earn from the venture. Finally, since partnerships may
10 A
not always agree with one another, it is likely conflict will occur at
some point regarding the decisions being made (Option D). Option
A however is an advantage of partnerships, where financial
resources (and entrepreneurial expertise) can be pooled together.
A company (or corporation) can either be a private or public limited
company (Option D). There is a separation of ownership and control
(Option A) that gives the shareholders limited liability (Option B), i.e.
they can only lose the initial investment they made by buying the
11 C
company’s shares; creditors cannot claim shareholders’ personal
assets in the case of a default. However, profits are distributed
amongst shareholders, not managers or directors. Hence, Option C
is the correct answer.
A private limited company is a type of limited liability corporation. Its
shares cannot be traded publicly on a stock exchange, so an IPO
is not possible; hence Option D is the correct answer. Instead, the
shares must be sold or transferred privately with the consent of all
12 D existing shareholders at the time of the transaction. Since such
firms are typically smaller than public limited companies, their
shares are sold to friends and family (Option C). However, an initial
public offering is only made by when a company wishes to become
public and list on a stock exchange.

A public limited company is one which is listed on a registered stock

exchange (Option B). The initial listing process is called an initial
public offering (Option A). After being listed on a stock market, new
shares can be sold through the exchange, and shareholders can
13 C
openly trade their shares. Annual financial statements, which have
been audited, have to be released to the general public (Option D).
However, there is no limit to the maximum number of shareholders,
so Option C is the correct answer.

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IB Business Management MCQ Revision Pack 1.2 Types of Organizations

Private limited companies cannot easily raise share capital (Option

C) because they cannot sell their shares to the general public, so
cannot raise significant funds by selling additional funds; only public
14 C limited companies can do that. While initial funding may primarily
consist of share capital from family and friends, it may not be easy
to raise large amounts of additional share capital, and bank loans
or other sources of finance may be more relevant.
A private limited company provides limited liability to all its
shareholders due to the separation of ownership and control.
Hence, Option D is not a valid disadvantage. Note that only
15 D
unincorporated businesses such as sole proprietorships and
partnerships expose their owners to unlimited liability, not
incorporated businesses.
Option iv. is incorrect because public limited companies have the
least level of privacy, with significant disclosure requirements.
However, public entities can indeed raise significant capital through
issuing shares (Option i) on a stock exchange. Being listed (Option
16 C
ii) also adds credibility to the firm, and thus it becomes easier to
raise external sources of finance. Continuity arises (Option iii) as
the firm is considered a separate legal entity, so the passing of a
shareholder does not impact the existence of the firm.
Public limited companies come with their fair share of drawbacks.
Financial statements must be disclosed, at least annually, to the
17 D public (including competitors). Costs of compliance with stock
exchange requirements are significant. Also, as shares are traded
publically, there is a greater threat of a takeover.
Non-governmental organizations promote a particular social cause,
such as human or animal rights. NGOs are run primarily by
18 B volunteers, and do not aim to make a profit. Hence, Option B is the
correct answer. The entities in Options A, C and D are all examples
of for-profit social enterprises.
Cooperatives are examples of for-profit social enterprises, which
aim to create value for their members in a sustainable way (Option
C). Members, such as employees, shareholders, directors and
19 A managers all have limited liability. They also have voting power, and
thus the cooperative is democratically controlled (Option D).
Cooperatives can be consumer, worker or producer cooperatives
(Option B).
A cooperative involves a democratic system which enables each
member to have voting power on key decisions of the organization,
incentivising and motivating members. Since cooperatives have a
social cause to pursue, rather than profit maximisation, they are
20 C
socially desirable. Members also have limited liability. However, it
may be difficult to attract new members (Option iv), especially
shareholders, because cooperatives do not aim to maximise profit
and generate large returns; they just aim to achieve some profits.

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IB Business Management MCQ Revision Pack 1.2 Types of Organizations

Microfinancing involves providing small, low-cost loans to low-

income individuals who would not otherwise have access to finance
21 B from traditional lenders like commercial banks. Options A and D are
incorrect because grants and subsidies typically do not require
interest payments.
A public-private partnership (PPP) is an organization where
ownership and control is shared by both the government and one
or more private sector firms. The private sector firm(s) is(are)
22 D typically responsible for the day-to-day management of the
organization, but with continual government oversight. Note that a
PPP is a for-profit social enterprise, and can be in the form of a
limited liability company (Option C).

A PPP is generally more efficient than a venture operated solely by

the government, because the private sector entity is less likely to be
as bureaucratic as the government in its strive for productivity and
profits (Option i). Costly projects (Option ii) can also be undertaken
23 A
if both private and public sectors contribute. However, PPPs are
generally large, costly projects which bring with them significant
opportunity costs (Option iii). Conflicting interests (Option iv) are
also likely to arise because of the private entity’s profit motive.
Non-profit social enterprises are organizations which aim to benefit
society through their activities. Charities and non-governmental
24 C organizations are examples (Options A and B). Public-private
partnerships are examples of for-profit social enterprises, so this is
the correct answer.
Non-profit social enterprises, such as a charity or non-governmental
organization, receive significant tax exemptions and incentives from
25 B the government because the work they do contributes positively to
society’s well-being. Options A, C and D are all valid disadvantages
of such organizations.

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IB Business Management MCQ Revision Pack 1.3 Organizational Objectives

1. Which of the following statements best defines a vision statement?

A. A statement of a firm’s aims, values and the fundamental purpose of the

business
B. An illustration of a company’s aspirations for the future
C. An outline of how an organization is to achieve its aims and objectives in
the long term
D. A short, captivating phrase used in branding and advertising

2. Which of the following statements best defines what a mission statement is?

A. An explanation of a firm’s aims, values and fundamental purposes of

existence
B. Short-term plans to achieve an organization’s tactical objectives
C. An outline of how an organization is to achieve its aims and objectives in
the long term
D. A short, captivating phrase used in branding and advertising

3. Which of the following statements best defines an ‘aim’?

A. Broad, unquantifiable long term goals providing direction to internal

stakeholders as implied in the mission statement
B. SMART goals that a firm wishes to achieve, thus providing motivation to
employees
C. Short-term plans to achieve an organization’s tactical objectives
D. How an organization is to achieve its aims and objectives in the long term

4. Which of the following statements best defines what an ‘objective’ is?

A. A broadly defined long term goal found in the mission statement

B. How an organization is to achieve its aims and objectives in the long term
C. Short term targets for sales staff
D. Clearly-defined, measurable targets a firm wishes to achieve

5. Which document relates to a firm’s concise and inspiring affirmation of its purpose,
thereby guiding what it does?

A. Vision statement
B. Mission statement
C. Business plan
D. Job description

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IB Business Management MCQ Revision Pack 1.3 Organizational Objectives

6. Objectives should be SMART. What does the acronym SMART stand for?

A. Short-term, monetary, achievable, realistic, time-bound

B. Short-term, marketable, authentic, realistic, transient
C. Specific, marketable, achievable, restrained, technical
D. Specific, measurable, achievable, realistic, time-bound

7. Which of the following are reasons for which firms set ethical objectives?

i. It increases customer loyalty

ii. It motivates employees
iii. It improves the corporate image
iv. It reduces compliance costs

A. i + ii
B. ii + iii
C. i + ii + iii
D. i + iii + iv

8. What does the acronym SWOT stand for?

A. Strategy, working capital, opportunity cost, tactics

B. Strengths, weaknesses, opportunities, threats
C. Strategy, weaknesses, opportunities, tactics
D. Strategic direction, weaknesses, obstacles, tactics

9. Which of the following is not a valid reason to conduct a SWOT analysis?

A. To assess and identify potential growth opportunities

B. To aid strategic planning
C. To assess and evaluate market position
D. To determine a firm’s growth strategy

10. Which of the following would be classified as strengths in a SWOT analysis?

i. High market share

ii. Low employee turnover
iii. Strong brand image
iv. Growth of e-commerce industry

A. i + ii
B. ii + iii
C. i + ii + iii
D. All of the options

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IB Business Management MCQ Revision Pack 1.3 Organizational Objectives

11. Which of the following are disadvantages of a SWOT analysis?

i. It is a static rather than dynamic business model

ii. It can be subjective and vulnerable to bias
iii. It does not prioritise or ‘weight’ issues quantitatively so is rather simplistic
iv. It needs to be frequently updated

A. i + ii
B. i + ii + iii
C. iii + iv
D. i + ii + iii + iv

12. Which of the following best describes the primary function of the Ansoff Matrix?

A. To determine the growth strategy of a firm or its products

B. To assess the current and future situation of a firm or product and the
external factors that can affect it
C. To determine the firm’s key stakeholders based on their levels of power
and interest
D. To identify the root causes of an issue the firm is facing

13. Market penetration is a _________ targeting _________ markets with _________

products.

A. Low-risk strategy, existing, existing

B. Medium-risk strategy, existing, new
C. High-risk strategy, new, new
D. Medium-risk strategy, new, existing

14. When vehicle manufacturers develop new car models and release them into
existing markets, this is called a ____________ strategy, which is a __________
strategy.

A. Market penetration, low-risk

B. Product development, medium-risk
C. Market development, medium-risk
D. Diversification, high-risk

15. Which of the following is an example of a market development strategy?

A. When Apple launched and began selling its Apple smartwatch

B. When a car manufacturer begins to produce aircraft engines
C. When an electronics manufacturer begins exporting to other countries
D. When a clothing retailer introduces a loyalty scheme and does more
advertising

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IB Business Management MCQ Revision Pack 1.3 Organizational Objectives

1.3 Answers

Question Answer Explanation

A vision statement is an abstract illustration of an organization’s

long term aspirations, providing inspiration to internal stakeholders
and guidance on the strategies that may need to be adopted to
1 B achieve that vision. Hence, Option B is the correct answer. Option
A is incorrect because it describes a mission statement. Option C
defines strategy, not the vision itself. Option D defines a slogan,
used as part of a firm’s marketing.
A mission statement is a concrete outline of a firm’s aims, values
and fundamental purpose, enabling stakeholders to know why a
2 A business is doing what it is doing. Option B is incorrect as it defines
tactics. Option C defines strategies. Finally, Option D is incorrect
because it defines a marketing slogan.
An aim is a broad, unquantifiable long-term goal stating what the
organization wants, and is implied in a firm’s mission statement. For
example, an aim of a clothing retailer may be “to provide
3 A outstanding service”. Option B is incorrect because it defines
organizational objectives (that are specific, measurable,
achievable, realistic and time constrained). Option C defines tactics,
and Option D defines strategies.
An objective is a well-defined and measureable target that an
organization wishes to achieve. For example, an objective may be
4 D
“to achieve sales revenues of $20 million in China by 2020.”
Objectives can be strategic, tactical or operational.
A mission statement is a succinct statement of its purpose. Hence,
the correct answer is Option B. A vision statement (Option A)
declares where the organization would ultimately like to be, in the
5 B
very long term. A business plan (Option C) can be produced for any
project in order to meet organizational goals. A job description
(Option D) is used as part of the recruitment process.
To be effective, objectives must be designed according to five
criteria (the acronym SMART). They must be: specific and precise
6 D to avoid confusion, measurable (i.e. quantifiable), achievable,
realistic and reasonable, and have a time-frame by which they
should be achieved.
Ethical objectives do not reduce compliance costs (Option iv), but
rather, increase them. Customers are also more likely to be loyal to
an ethical firm (Option ii) compared to an unethical firm. Setting
7 C
ethical objectives and being socially responsible is likely to motivate
employees (Option ii) because the corporate image of the firm is
improved (Option iii).

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IB Business Management MCQ Revision Pack 1.3 Organizational Objectives

A SWOT analysis is a management tool that assess the current and

future situation of a firm or product and the external factors that can
affect it. It stands for: strengths, weaknesses, opportunities and
8 B
threats. Strengths and weaknesses refer to internal factors, while
opportunities and threats are the external factors influencing the
firm or product.
A SWOT analysis is a management tool that assess the current and
future situation of a firm or product and the external factors that can
affect it. It can be used to identify potential growth opportunities
9 D (Option A), aid strategic planning (Option B), and evaluate market
position (Option C) by analysing strengths and weaknesses
compared to competitors. The Ansoff Matrix is used to help
determine growth strategy (Option D), not SWOT analysis itself.
A strength is a favourable internal factor the firm possesses
compared to its competitors. Options i, ii and iii are all internal
factors that benefit the firm over its competitors, and are thus
10 C
considered strengths. The growth of ecommerce as an industry,
however, is an external and industry-wide factor providing growth
opportunities for all firms.
While a SWOT analysis can help assess the current and future
situation of a firm or product and the external factors that can affect
it, it only assesses these issues at a point-in-time. This also means
it needs update in order to remain valid. It can also be somewhat
11 D
subjective and vulnerable to any bias on the part of the creator.
Since it does not prioritise or ‘weight’ issues quantitatively, it may
be difficult to assess the most important factors facing the firm.
Hence, all the options are potential drawbacks of SWOT analysis.
The Ansoff Matrix is a tool used by management to determine the
growth strategy a firm or product is to adopt. The strategies that can
be adopted are: market penetration, product development, market
12 A development and diversification. Option B is incorrect because it
describes the function of a SWOT analysis, and Option C is the
function of a stakeholder map. Option D refers to the value of using
a fishbone diagram.
Market penetration is a low-risk strategy that requires the firm to
target existing markets with existing products. This is a growth
strategy that aims to increase the firm’s market share, e.g. by using
13 A loyalty schemes, adding distribution channels or increasing
advertising expenditure. Option B refers to product development
strategy, Option C refers to diversification strategy, and Option D
refers to market development strategy.

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IB Business Management MCQ Revision Pack 1.3 Organizational Objectives

A product development strategy refers to launching new products

in a firm’s existing markets, such as when vehicle manufacturers
14 B
release new car models. This is a medium-risk strategy because it
often involves significant investment in new product development.
A market development strategy involves a firm selling existing
products in new markets. Thus, Option C is the correct answer as
the electronics manufacturer begins to export its good for sale in
15 C
other countries. Option A is incorrect as it refers to a product
development strategy. Option B refers to a diversification strategy.
Option D refers to a market penetration strategy.

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IB Business Management MCQ Revision Pack 1.4 Stakeholders

1. Which of the following is not an example of internal stakeholders?

A. Customers
B. Employees
C. Shareholders
D. Directors

2. Which of the following is not an example of external stakeholders?

A. Suppliers
B. The government
C. Shareholders
D. Lenders

3. What is a situation arises when directors wish for large bonuses and perks, such
as company cars, while shareholders wish for higher dividends?

A. Stakeholder conflict
B. Crisis management
C. Corruption
D. Contingency planning

4. Which of the following best describes the primary function of stakeholder

analysis?

A. To determine a firm or product’s growth strategy

B. To assess the current and future situation of a firm or product and the
external factors that can affect it
C. To determine the firm’s key stakeholders based on their levels of power
and interest
D. To identify the driving and restraining forces of change

5. What level of effort should organizations commit to those stakeholders who have
low power and low interest in the firm?

A. Minimal
B. Maximum
C. Medium
D. Ignore

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IB Business Management MCQ Revision Pack 1.4 Stakeholders

6. How should firms behave with those stakeholders who have low power but high
interest in the firm?

A. Commit minimal effort

B. Keep them informed
C. Keep them satisfied
D. Commit maximum effort

7. How should firms behave with those stakeholders who have high power but low
interest in the firm?

A. Commit minimal effort

B. Keep them informed
C. Keep them satisfied
D. Commit maximum effort

8. Which of the following stakeholder group would most likely be in quadrant D?

Level of interest
Low High
Level of Low A B
power High C D

A. Lenders
B. Suppliers
C. Employees
D. Both (A) and (B)

9. Under what circumstance will customers possess a high level of power?

A. When there is a large number of substitute products

B. When there are only a few, large clients in the market
C. When there are a few suppliers in the market
D. Both (A) and (B)

10. Which of the following is least likely to be a method used to resolve stakeholder
conflicts?

A. Arbitration
B. Governmental intervention
C. Compensation
D. Improving effectiveness of communications

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IB Business Management MCQ Revision Pack 1.4 Stakeholders

1.4 Answers

Question Answer Explanation

Stakeholders are people or organizations with a direct interest in a

firm. Internal stakeholders include any member of the organization
1 A itself. Employees, directors and shareholders are examples of
internal stakeholders. Customers (Option A) are external
stakeholders because they are not members of the organization.
External stakeholders are people or institutions with a direct interest
in the organization, but are not members of the firm. Examples
2 C include suppliers, the government, and lenders (such as banks).
Since shareholders are members of the firm, they are internal
stakeholders.
Stakeholder conflict refers to the negative engagement between
stakeholders due to contrasting views and desires. There is a
natural conflict of interests between directors and shareholders,
3 A
because of self-interests. Directors want significant bonuses and
perks but these incur expenses to the business, while shareholders
want to maximise profits so that they can receive higher dividends.

A stakeholder analysis (or stakeholder map) is a method of

determining who the firm’s key stakeholders are, by assessing their
relative level of power and interest in the organization. Option A is
4 C
incorrect because it describes the purpose of the Ansoff Matrix,
Option B defines the purpose of a SWOT analysis, and Option D
describes the purpose of a force field analysis.

During situations of conflicting stakeholder interests and objectives,

a firm should not prioritise those stakeholders with low power and
5 A low interest in the firm, as they are not key stakeholders. Hence,
minimal effort (Option A) should be dedicated towards satisfying
their objectives.

Stakeholders with low power but high interest should be kept

informed, for example, by frequently updating them on key
decisions. Option A is relevant only for those stakeholders with low
6 B
power and low interest. Option C applies to those with high power
and low interest. Option D is enacted for those stakeholders with
high power and high interest, i.e. the key stakeholders.

Stakeholders with high power but low interest should be kept

satisfied, for example, by asking for their advice and input for key
decisions. Option A is relevant only for those stakeholders with low
7 C
power and low interest. Option B applies to those with low power
and high interest. Option D applies to stakeholders with high power
and high interest, i.e. key stakeholders.

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IB Business Management MCQ Revision Pack 1.4 Stakeholders

Quadrant D is likely to include lenders (Option A). Lenders have

significant legal power over the firm and are likely to take significant
interest in the operation and performance of the firm to assess the
8 A
recoverability of their loan. Suppliers and employees, on the other
hand, are unlikely to have significant power, and so would not be
considered key stakeholders.
Customers have a high level of power when there are numerous
substitute products that they could easily switch to using/buying
(Option A). Customer power is also enhanced when there are only
a few, large clients in the market buying the product (Option B). In
9 D
such circumstances, the firm has to keep these significant
customers satisfied. Option C is incorrect because the number of
suppliers in the industry does not directly impact the level of power
held by customers.
Arbitration (Option A) can be used to create an agreement between
conflicting stakeholder groups. Compensation (Option C) can be
paid to resolve disputes or motivate employees for higher
10 B productivity and performance. Improved communications (Option
D) can be used to update various stakeholders with key decisions.
However, it is rare for a firm to seek governmental intervention
(Option B) to resolve stakeholder conflicts.

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IB Business Management MCQ Revision Pack 1.5 External Environment

1. Which of the following factors is not part of a STEEPLE analysis?

A. Ethical
B. Economic
C. Capacity
D. Legal

2. What is a STEEPLE analysis conducted to assess?

A. A firm’s internal environment

B. A firm’s market position
C. The historical market performance
D. The external environment

3. Opportunities are __________ factors that can potentially benefit a business,

whereas threats are _________ factors that can potentially harm a business.

A. External, external
B. External, internal
C. Internal, internal
D. Internal, external

4. Which of the following are valid benefits of a STEEPLE analysis?

i. It is a relatively simplistic, easy-to-use tool

ii. It promotes proactive management thinking
iii. It helps identify the root causes of problems being faced by the business
iv. It helps identify potential opportunities and threats

A. i + iii + iv
B. ii + iii + iv
C. ii + iii
D. i + ii + iv

5. Which of the following is not an example of a social factor?

A. Population size
B. E-commerce
C. Fashions and tastes
D. Level of education

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IB Business Management MCQ Revision Pack 1.5 External Environment

6. Which of the following is not an example of a technological factor?

A. E-commerce utilization
B. IT infrastructure
C. Carbon footprints
D. Level of automation

7. Which of the following is not an example of an economic factor in the external

business environment?

A. Economic growth rates

B. Inflation rates
C. Interest rates
D. Legislation

8. Which of the following are examples of ethical factors in a STEEPLE analysis?

i. The level of corruption

ii. The level of transparency
iii. Trade policies
iv. The rate of resource depletion

A. i + ii
B. ii + iii
C. i + ii + iv
D. iii + iv

9. Which of the following is not an example of a political factor?

A. Trade policies
B. Political stability
C. The choice of fiscal and monetary policies in force
D. The state of the economy

10. Which of the following is not an example of a legal factor?

A. Trade policies
B. Consumer protection legislation
C. Competition laws
D. Employment ordinances

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IB Business Management MCQ Revision Pack 1.5 External Environment

11. Which of the following is not an example of an ecological factor?

A. Resource depletion
B. Climate change
C. Unemployment rates
D. Carbon footprints

12. Higher inflation, which causes higher costs of production, is an example of a(n)
______________ threat.

A. Political
B. Economic
C. Legal
D. Social

13. Currency depreciation is an economic factor that is a(n) _________ to exporters

and a(n) ________ to importers.

A. threat, opportunity
B. opportunity, threat
C. threat, threat
D. opportunity, opportunity

14. An ageing population is a(n) __________ factor that would be considered a(n)
_________ to an e-commerce business.

A. Economic, opportunity
B. Economic, threat
C. Social, opportunity
D. Social, threat

15. If a nation experiences increasing employment rates, this is a(n) ____________

opportunity.

A. Economic
B. Ecological
C. Social
D. Political

16. If a country is facing low, stagnant levels of economic growth, but relatively high
levels of inflation, this is a(n) ____________ threat.

A. Social
B. Legal
C. Economic
D. Political

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IB Business Management MCQ Revision Pack 1.5 External Environment

17. What is the business cycle?

A. Fluctuations in the level of economic activity

B. The most extreme and lowest point of a recession
C. The general long term growth trend experienced by an economy
D. A period of economic expansion

18. What does a trough in the business cycle represent?

A. The most extreme and lowest point of a recession

B. A decline in the rate of economic growth
C. A period of economic recovery
D. The peak of an economic boom

19. If a country is prone to frequent, large swings in the value of its currency, this is
a(n) __________ ___________.

A. Political, threat
B. Political, opportunity
C. Economic, threat
D. Economic, opportunity

20. For a firm trying to establish itself in a foreign market, increasing protectionist
measures are an example of a(n) ___________ ___________.

A. Political, opportunity
B. Political, threat
C. Economic, opportunity
D. Economic, threat

21. A large and well-educated workforce is an example of a(n) ____________

_____________.

A. Economic threat
B. Economic opportunity
C. Social threat
D. Social opportunity

22. Increased automation in a particular industry is a(n) _____________.

A. Economic opportunity
B. Social threat
C. Technological opportunity
D. Ecological threat

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IB Business Management MCQ Revision Pack 1.5 External Environment

23. If a country has poor internet access and low levels of mobile connectivity, this
would be considered as a(n) ___________ threat.

A. Economic
B. Technological
C. Social
D. Ecological

24. An increase in the national minimum wage is considered a(n) ___________ threat
to businesses in that country.

A. Legal
B. Ecological
C. Economic
D. Social

25. A global financial crisis would be a(n) ___________ threat for luxury car
manufacturers.

A. Political
B. Economic
C. Social
D. Environmental

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IB Business Management MCQ Revision Pack 1.5 External Environment

1.5 Answers

Question Answer Explanation

A STEEPLE analysis is a tool to analyse the external environment

that a business operates in. It considers the social, technological,
1 C economic, ethical, political, legal and ecological factors affecting the
organization. Whilst capacity (Option C) does affect business
operations, it is not an external factor in its own right.

A STEEPLE analysis is a management tool used to analyse the

external business environment (Option D) that a business operates
2 D in. By considering the social, technological, economic, ethical,
political, legal and ecological factors affecting a firm, it can provide
insight into potential opportunities and threats facing a firm.

Opportunities and threats are both external factors that can benefit
or harm a business. The internal factors that a favourable compared
3 A to competitors are called strengths, while internal factors that are
detrimental compared to competitors are called weaknesses. A
STEEPLE analysis focuses on (external) opportunities and threats.
A STEEPLE analysis is a relatively simple tool for management to
utilize. By promoting proactive thinking and brainstorming,
managers can be more prepared for current and future
4 D opportunities and threats, aiding them in their planning and
decision-making. It does not, however, help identify the root causes
of problems being faced by the firm (Option iii) – that is the function
of a fishbone analysis.
Social factors are those concerning the attitudes, values and
attributes of a society, such as population size, level of education,
5 B
fashions and tastes and demographics factors. Option B is incorrect
because e-commerce is a technological factor.

Technological factors refer to advances in technology, which create

both opportunities and threats for businesses. Technological
factors include the level of adoption and utilization of e-commerce
6 C (Option A), the quality and security of the IT infrastructure (Option
B), and the level of automation (Option D) as new technologies can
increase productivity and efficiency. Carbon footprints (Option C)
are related to ecological influences, not technological ones.

Economic factors are those related to the state and health of the
economy as a whole. Higher economic growth rates and low and
stable inflation rates (Options A and B) are beneficial to businesses.
7 D
The level of interest rates (Option C) affects the amount of spending
and investment occurring in a country, and thereby the level of
demand for a firm’s products. Legislation (Option D) is a legal factor.

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IB Business Management MCQ Revision Pack 1.5 External Environment

Ethical factors include the level of corruption (Option i) and the level
of transparency (Option ii). The higher the level of corrupt behaviour
present in an economy, the greater the threat to businesses. The
greater the level of legal, bureaucratic and procedural transparency,
8 A
the greater the opportunities and stability for businesses. Trade
policies (Option iii) is an example of a political factor, while resource
depletion (Option iv) is an example of an ecological (environmental)
factor.

Political factors include the choice of trade policies, e.g. the extent
of protectionist measures such as quotas or tariffs on imports, or
subsidies to domestic suppliers. Political stability is a major political
9 D factor. The choice of fiscal and/or monetary policies used also
impact the level of economic activity, but are these policies are
enacted by the government. However, the state of the economy
(Option D) is an economic factor.
Legal factors include consumer protection legislation, competition
laws (to prevent monopolies dominating industries and abusing
their market power), employment ordinances (to protect employees
10 A from exploitation and unfair practices at work) and environmental
legislation (to protect the environment and ensure sustainable
economic growth). Trade policies (Option A) are examples of
political factors.
Unemployment rates refer to economic factors, rather than
ecological factors. Options A, B and D are examples of ecological
factors. High rates of resource depletion (Option A) represents a
11 C lack of sustainable, long-term business viability. Climate change
(Option B) causes more extreme weather that can disrupt business
operations. Green technologies reduce a firm’s carbon footprint
(Option D).
Economic factors (Option B) are those related to the state and
health of the economy as a whole, such as the rate of inflation. A
high rate of inflation can lead to higher costs of production (for
12 B
example, because raw materials are more expensive). When costs
of production are high, the competitiveness of domestic firms’
products is reduced, posing a threat to businesses.

Currency depreciation is a fall in the value of the domestic currency

in terms of another foreign currency. It makes domestic exporters’
products more price competitive (as they are relatively cheaper for
13 B other nations to purchase), and is therefore an opportunity for
exporters. However, importers face a threat because their products
are now relatively more expensive for customers in the domestic
economy (whose currency has depreciated).

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IB Business Management MCQ Revision Pack 1.5 External Environment

An ageing population is a social factor because it considers the

demographics of a nation. An ageing population is likely to be a
14 D
threat to an e-commerce firm because the elderly are less likely to
adopt and utilize ever-changing e-commerce platforms.

The rate of employment (or unemployment) is an economic factor.

When employment is high, disposable incomes rise, so the overall
15 A
level of demand and investment is high. So, this represents an
economic opportunity.

The level of economic growth and the rate of inflation are key
economic factors in a STEEPLE analysis. Low levels of economic
growth present threats to the income (which could go into a
16 C
recession), whilst high rates of inflation make a country’s producers
less competitive. Thus, the combination of stagnant economic
growth and high inflation poses a threat to businesses.

The business cycle illustrates the fluctuations in the level of

economic activity. An economy will typically go through periods of
expansion, recession, recovery and expansion (growth) again, over
17 A time. Option B refers to a trough, which is only one point in a
business cycle, while Option C refers to the long-term trend, rather
than fluctuations in economic activity. Option D depicts only one of
several stages in the business cycle.

A trough represents the most extreme point of a recession, after

which the economy tends to begin its recovery period. Thus, Option
A is correct. Option B represents slowing rates of economic growth,
18 A but not necessarily a turning point in the business cycle. Option C
illustrates the event (a recession) that occurs after the trough is
reached. Option D refers to the inflexion point of an economic
boom, after which a recession begins.
Exchange rates are economic factors in a STEEPLE analysis.
Large swings in a nation’s exchange rate is a threat to businesses
19 C because the value of their foreign earnings fluctuates. Moreover,
such swings do not help business planning, budgeting and
forecasting.
Political factors include the choice of trade policies (for example,
the use of protectionist measures, such as quotas or tariffs on
imports). If a firm is attempting to enter a foreign market where the
20 B extent of protectionist measures is rising, this a threat because its
products may not be as competitive as those of domestic producers
(if tariffs are imposed). The market size may also be severely limited
if quotas are imposed.

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IB Business Management MCQ Revision Pack 1.5 External Environment

Social factors are those concerning the attitudes, values and

attributes of people in a society, e.g. the population size, level of
education, fashions and tastes, and demographics factors. Thus,
21 D
this is a social opportunity (Option D) because a highly educated
workforce provides firms with the ability to manufacture or provide
high-quality products that typically hold greater value.

If an industry is facing a trend of increased automation, this is a

technological opportunity. Machinery is typically more efficient and
22 C
productive compared to humans, helping companies save costs,
and provide potentially higher quality, standardised output.
Poor IT infrastructure is considered a technological threat because
it limits the scope of business operations, especially conducting e-
23 B commerce. Firms that rely significantly on online sales and
distribution will face substantial threats to their operations and
profitability.
National minimum wage laws are classified under legal factors
because they represent legal standards and requirements that
24 A businesses must comply with. Since firms will now have to pay
higher wages to their employees, raising their costs of production
and competitiveness, this is considered a threat.

Factors related to the financial wellbeing of a country are

considered to be economic factors. A global financial crisis causes
25 B unemployment, and therefore lower disposable incomes. As
incomes fall, the demand for luxury cars reduces, because fewer
people can afford them. Thus, this is a threat to car manufacturers.

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IB Business Management MCQ Revision Pack 1.6 Growth and Evolution

1. What is term used to describe a reduction in average cost of production arising

from a firm operating on a larger scale?

A. Diseconomies of scope
B. Economies of scale
C. Economies of scope
D. Fixed-cost spreading

2. If fixed costs are $200,000 and the variable costs associated with producing
50,000 shoes is $400,000, what is the average cost (per shoe)?

A. $4
B. $8
C. $12
D. $14

3. If fixed costs are $200,000 and the variable costs associated with producing
80,000 shoes is $640,000, what is the average cost (per shoe)?

A. $2.50
B. $8.50
C. $10.50
D. $12.00

4. If fixed costs are $200,000 and the average variable cost per shoe is $8, what is
the total profit that would be earned if the average selling price per shoe was $30,
and 80,000 shoes are sold?

A. $1,280,000
B. $1,560,000
C. $1,750,000
D. $2,200,000

5. What are internal economies of scale?

A. Cost savings due to factors within the firm’s control

B. Cost savings occurring due to improved infrastructure
C. Cost savings occurring due to industry growth
D. Cost savings occurring due to technological progress

6. Which of the following is not an example of an internal economy of scale?

C. Availability of specialist labour

A. Managerial economies of scale
D. Marketing economies of scale
B. Purchasing economies of scale

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IB Business Management MCQ Revision Pack 1.6 Growth and Evolution

7. When a firm can utilize highly efficient machinery and automation techniques to
mass produce its output and reduce average cost, this is a _____________
economy of scale.

A. Financial
C. Purchasing
D. Specialisation
B. Technical

8. When a large firm can borrow money at a lower cost compared to a small firm,
this is a _____________ economy of scale.

A. Technical
B. Risk-bearing
C. Purchasing
D. Financial

9. Which option is not an example of external economies of scale?

A. Regional specialization and expertise

B. Technological advancements
C. Improvements in infrastructure
D. Risk-bearing economies

10. If an area possesses significant production support services and an abundance

of highly skilled labour, allowing firms to reduce their average costs, what is this
referred to as?

A. Regional specialization
B. Managerial economies
C. Internal economy of scale
D. Marketing economies

11. What are internal diseconomies of scale?

A. Reductions in average costs that arise when the firm operates on a larger
scale
B. Increases in average costs that arise when the firm operates on a larger
scale
C. Reductions in average costs that arise when the industry grows as a
whole
D. Increases in average costs that arise when the industry faces problems
such as traffic congestion, higher rental expenses and labour shortages

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IB Business Management MCQ Revision Pack 1.6 Growth and Evolution

12. What is not an example of internal diseconomies of scale?

A. Increased bureaucracy
B. Communication and coordination breakdowns
C. Increased rental expenses
D. Alienation of lower level employees from management

13. What is not a factor causing external diseconomies of scale?

A. Traffic congestion
B. Increased rental expenses
C. Shortages of labour
D. Economic downturns

14. Which option is not a benefit of being a small firm?

A. Ability to provide personalised services

B. Flexibility
C. Easy access to funds
D. Greater freedom in decision-making

15. What is not a benefit of being a large organization?

C. Ability to provide additional value-added services

D. Enhanced access to finance, high-quality labour and distribution channels
A. High brand recognition and loyalty
B. Increased flexibility to changes in the market

16. What are mergers, acquisitions and franchising examples of?

A. External growth
B. Internal growth
C. Diseconomies of scale
D. Economies of scale

17. Which of the following is not a valid method of achieving internal growth?

A. Mergers and takeovers

B. Providing superior trade credit facilities
C. Increasing investment
D. Developing superior products

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IB Business Management MCQ Revision Pack 1.6 Growth and Evolution

18. What is not an advantage of organic growth?

A. Control and ownership of the organization is maintained

B. Less risky compared to inorganic growth
C. It is relatively cheaper
D. It prevents diseconomies of scale

19. What is not an advantage of external growth?

A. It reduces or eliminates competition

B. It is quicker than organic growth
C. It can help raise market share and market power
D. It is cheaper and less risky compared to organic growth

20. When two companies come together to form a new, combined entity, this is called
a(n) ____________; when one company buys out a controlling interest in another
firm, this is called a(n) ___________.

A. Merger, acquisition
B. Acquisition, strategic alliance
C. Joint venture, acquisition
D. Strategic alliance, joint venture

21. What is not an advantage of mergers and acquisitions as a method of external

growth?

A. They allow for quick diversification

B. They allow for higher market share and market power
C. They limit the extent of culture clashes
D. They allow for economies of scale to be achieved

22. What is not a disadvantage of mergers and acquisitions?

A. They are prone to organizational culture clashes

B. They reduce a firm’s market power
C. They are expensive and highly risky
D. Diseconomies of scale may occur

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IB Business Management MCQ Revision Pack 1.6 Growth and Evolution

23. What is the main difference between a joint venture and a strategic alliance?

A. A joint venture involves forming a new legal entity whereas a strategic

alliance does not
B. A joint venture facilitates geographic diversification whereas strategic
alliances facilitate product diversification
C. A joint venture involves pooling resources whereas a strategic alliance
involves one company renting the productive resources of another
D. A joint venture is done between the private and public sector, whereas a
strategic alliance involves parties from only the private sector

24. What is not an advantage of a joint venture?

A. Synergies can be created when resources are shared

B. Risks are spread
C. Economies of scale can be achieved
D. Culture clashes are limited

25. What is not a disadvantage of joint ventures and strategic alliances?

A. Culture clashes are likely

B. There are enhanced financial risks to each party
C. Diseconomies of scale may set in
D. There may be a dilution of the individual brands

26. What is the business model where a firm sells the legal rights to trade under its
brand name?

A. Acquisition
B. Franchise
C. Joint venture
D. Strategic alliance

27. What is not an advantage of franchising as a method of growth for the franchisee?

A. Regular royalty payments are received

B. Entrepreneurial abilities and flexibility of franchisees are encouraged
C. Relatively low risk
D. Rapid expansion and increased market presence

28. What is unlikely to be a drawback of franchising as a model of growth?

A. The franchisor’s image is at risk if a franchisee is unprofessional

B. Diseconomies of scale can arise
C. Entrepreneurial potential of franchisees is not fully utilized
D. Clash of corporate cultures

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IB Business Management MCQ Revision Pack 1.6 Growth and Evolution

29. Which option is least likely to be a benefit of multinational companies to a host

nation in a less economically developed country?

A. They create jobs and boost gross domestic product

B. They facilitate knowledge and technology transfers
C. They are likely to operate more responsibly than local firms
D. They intensify domestic competition

30. When a firm acquires another business that operates at a different stage in the
chain of production, this is called _________ integration.

A. Vertical
B. Horizontal
C. Conglomerate
D. Multinational

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IB Business Management MCQ Revision Pack 1.6 Growth and Evolution

1.6 Answers

Question Answer Explanation

Economies of scale refer to the reduction in average (per-unit)

production costs arising from operating on a larger scale. This
1 B
occurs because total fixed costs, which are constant and unrelated
to the level of output, are ‘spread’ over a larger quantity of output.
Average cost = (total fixed costs + total variable costs) / number of
2 C units produced
Average cost = (200,000 + 400,000) / 50,000 = $12

Average cost = (total fixed costs + total variable costs) / number of

3 C units produced
Average cost = (200,000 + 640,000) / 80,000 = $10.50

Average cost = (total fixed costs + total variable costs) / number of

units produced
4 B Average cost = [200,000 + (80,000 × 8)] / 80,000 = $10.50
Total profit = ($30 selling price – $10.50 average cost) × 80,000
shoes = $1,560,000
Internal economies of scale are those that occur due to factors
within the firm’s control (Option A), when the firm operates on a
5 A larger scale. The other options are all examples of external
economies of scale, which occur on an industry level and are not
controlled by the firm.
Internal economies of scale are those which occur due to factors
within the firm’s control, which occur when the firm operates on a
6 A larger scale. Managerial, purchasing and marketing economies of
scale are all considered internal. Option C however is an example
of an external economy of scale.
Technical economies of scale are cost savings that come about
when a firm invests and utilizes efficient machinery to produce its
7 D output. While the initial investment cost may be high, machines are
likely to be more efficient and productive, and reduce average costs
of production, especially when the item is mass-produced.
Financial economies of scale are those that come about when
8 D larger firms can borrow at lower interest rates (costs) than smaller
firms because they are considered more credit-worthy.

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IB Business Management MCQ Revision Pack 1.6 Growth and Evolution

External economies of scale refer to the reductions in average costs

a firm faces when the entire industry or region grows. Regional
specialization and expertise imply an abundance of specialized
labour and production support services in the area. Technological
9 D
advancements boost productivity and efficiency for the industry as
a whole. Infrastructural improvements increase overall efficiency,
especially in transportation. Risk-bearing economies of scale arise
from diversification, but are an internal economy of scale.
Regional specialization refers to when a particular area becomes
reputed and focused on producing a certain type of good or service.
It is an example of an external economy of scale because it enables
10 A
firms in the area to experience lower average costs of production,
for example, because of the high quality of support services and
abundance of skilled labour.
Internal diseconomies of scale refer to the increases in average
costs arising from the firm getting too large to manage efficiently.
Beyond a certain point (scale or size), diseconomies of scale are
11 B experienced, e.g. due to communication breakdowns. Option A is
incorrect because it refers to economies of scale; Option C refers to
external economies of scale; and Option D refers to external
diseconomies of scale.
Internal diseconomies of scale are factors within the firm that cause
average costs to rise as the scale of operations increases. Examples
include increased bureaucracy, communication and coordination
12 C
breakdowns, detachment of senior management from junior
employees and complacency. Increased rental expenses (Option C)
is an external factor causing diseconomies of scale.
External diseconomies of scale are external, industry/region-wide
factors that cause an increase in average costs of production.
Examples include traffic congestion, higher rental expenses and
13 D
labour shortages. An economic downturn (Option D) does not cause
diseconomies of scale, as it is not associated with an increase in the
scale of production for businesses.
Smaller firms are less likely to have easy access to funds as they
14 C are perceived to be relatively risky compared to larger, more
established firms.
Large organizations are not as flexible to changes in the market
place as smaller firms can be. This is because the large firm is likely
15 D to have significantly more commitments in place than a small firm.
For example, a large firm cannot change its product portfolio
overnight in response to feedback from customers.
External growth refers to when a firm works with other firms to
16 A achieve growth, e.g. through mergers, acquisitions or franchising.
Thus, Option A is the correct answer.

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IB Business Management MCQ Revision Pack 1.6 Growth and Evolution

Internal growth refers to whenever a firm expands through its own

resources, rather than with a third party. Mergers and takeovers
17 A
(Option A) are types of external growth, as they involve working with
another firm to achieve growth.
Organic growth does not prevent diseconomies of scale from arising
(Option D). For example, excessive internal growth can cause
18 D
communication breakdowns, alienation of junior employees and
unnecessary bureaucracy, thus reduces productivity and efficiency.
External growth can be used to eliminate, if not reduce, competition
(Option A), e.g. through an acquisition, implying the firm has less
market rivals to compete with. It is also a quicker method (Option B)
than organic growth, as new ideas and technologies can be
19 D
acquired without having to go through the R&D process first. Thus,
market share and power can be raised (Option C). However, it is
typically more expensive and riskier than organic growth, so Option
D is the correct answer.
A merger occurs when two firms agree to form a new entity, while
20 A an acquisition refers to when one company buys out a controlling
stake in another firm. Hence, Option A is the correct answer.
M&As are relatively quick methods for a firm to achieve
diversification of products and markets (Option A), and to raise
market share and power (Option B). By increasing the scale of
21 C operations, economies of scale are also likely (Option D). However,
M&As are prone to culture clashes between the two (or more) firms
due to differences in management approaches, organizational
norms and formal structures.
Mergers and acquisitions are quick methods to gain market power,
thus Option A is the correct answer. Combining firms together can
lead to organizational culture clashes (Option A) due to differences
22 B in organizational norms and management approaches. M&As are
highly risky methods of growth (Option C) as they require significant
investment. An organization that becomes too large also
experiences diseconomies of scale (Option D).
Both joint ventures and strategic alliances involve two or more firms
agreeing to work together for mutual benefit, but a joint venture
23 A
involves the creation of a new legal entity, whereas a strategic
alliance does not. Hence, Option A is the correct answer.

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IB Business Management MCQ Revision Pack 1.6 Growth and Evolution

A joint ventures refers to a partnership agreement between firms

that agree to share risks, investment costs and returns from a
business venture. When firms combine resources, synergies can be
created (Option A) and risks can be spread (Option B). Having larger
24 D
operations also makes economies of scale more achievable (Option
C). However, culture clashes are likely (Option D) due to differences
in management approaches and organizational structures between
the firms.

Joint ventures and strategic alliances actually spread and reduce

risks to each party (Option B). Valid disadvantages include the
higher likelihood of culture clashes (Option A) from the difference
between the firms, such as organizational structures and
25 B
management approaches. If the firms become too large, they may
lose productive efficiency and experience diseconomies of scale
(Option C). Partnering with another firm may also cause a loss of
individuality of each brand (Option D).
A franchise is a business model where one firm sells the legal rights
to another firm or individual to trade products under its brand name.
26 B For example, Subway, McDonald’s and Starbucks all use the
franchise model, whereby individual firms or individuals buy the right
to set up a store using the franchise’s brand name.
Individual franchisees are unlikely to be allowed to deviate from the
27 D product line or business model decided by the franchisor, limiting
entrepreneurial scope.
The franchisee inherits the business model of the franchisor,
28 D including its corporate culture, i.e. the way it does things. Hence, it
is unlikely there would be organizational cultural clashes.
Multinational companies are unlikely to act more responsibly,
especially when they operate in less economically developing
countries. For example, they may unethically exploit cheap labour
to boost their competitiveness and maximise profit margins. Their
29 C
operations may also cause irreparable harm to the environment.
They can also reduce or eliminate domestic industries, thus cause
unemployment, through anti-competitive behaviours such as
predatory pricing.
Vertical integration can occur when a firm acquires another business
30 A operating in an earlier or later stage in the chain of production. For
example, iron miners may own steel factories.

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IB Business Management MCQ Revision Pack 1.7 Organizational Planning Tools (HL Only)

1. What is the purpose of a fishbone diagram?

A. Determine the root cause of a problem being faced by the firm

B. Quantify possible outcomes based on the probability of their occurrence
C. Examine the driving and restraining forces of a decision
D. Sequentially illustrate the schedule of a project

2. What are the 4 Ms of a fishbone diagram?

A. Management, methods, morale, motivation

B. Management, manpower, machines and materials
C. Management, methods, measurement, materials
D. Methods, machines, manpower, morale

3. Which of the following is not an advantage of using a fishbone diagram?

A. It is easy to use
B. It encourages systematic brainstorming
C. It is an objective, quantifiable tool
D. It displays numerous weaknesses of the firm

4. What is the purpose of a decision tree?

A. Quantify possible outcomes based on the probability of their occurrence

B. Determine the root cause of a problem being faced by the firm
C. Illustrate the sequence of activities and schedules of a project
D. Compare the driving forces against the restraining forces of a decision

5. In a decision tree, a square represents a _________ node, while a circle

represents a _________ node.

A. Probability, value
B. Chance, decision
C. Decision, chance
D. Decision, restraining

6. Assume a chance node from which there is a probability of success of 65%, and
a probability of project failure of 35%. The expected payoff if the project is a
success is $650,000, and the expected payoff from a failed project is $200,000.
What is the expected value at this chance node?

A. $460,000
B. $492,500
C. $525,000
D. $557,500

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IB Business Management MCQ Revision Pack 1.7 Organizational Planning Tools (HL Only)

7. With reference to the data below, what is the expected profit from the project?

Outcomes Probabilities Costs/Revenues ($)

Investment cost (32,000,000)
Highly successful 45% 65,000,000
Average success 35% 45,000,000
Failure 20% 18,000,000

A. $96.00 million
B. $25.55 million
C. $16.60 million
D. $14.00 million

8. With reference to the data in the table below, where should the company invest
its new project?

Country Outcomes Probabilities Costs/Revenues ($)

Investment cost (30,000,000)
China Success 60% 35,000,000
Failure 40% 15,000,000
Investment cost (24,000,000)
Vietnam Success 55% 38,000,000
Failure 45% 22,000,000
Investment cost (42,000,000)
Brazil Success 50% 30,000,000
Failure 50% 20,000,000

A. Brazil
B. China
C. Vietnam
D. Cannot be determine

9. Which of the following is not an advantage of decision tree analysis?

A. It is a more objective (quantifiable) way of analysing decisions

B. It takes into account risks (multiple outcomes)
C. It provides visual representation of a decision
D. It takes qualitative factors into account

10. Which of the following is not a valid criticism of decision trees analysis?

A. It only considers and analyses positive outcomes

B. It relies on subjective estimates of outcomes and expected values
C. The probabilities used are vulnerable to manipulation
D. Qualitative issues are ignored

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IB Business Management MCQ Revision Pack 1.7 Organizational Planning Tools (HL Only)

11. What is the purpose of a force field analysis?

A. Compute the expected value of a project

B. Analyse the external environment the firm operates in
C. Compare the driving forces against the restraining forces of a decision
D. Determine the opportunities and threats faced by the business

12. In a force field analysis, those factors which encourage change are called
___________, while those that discourage change are called __________.

A. Chance nodes, decision nodes

B. Successes, failures
C. Strategic requirements, pitfalls
D. Driving forces, restraining forces

13. Which of the following are disadvantages of a force field analysis?

i. Weights may be assigned subjectively

ii. Omission of certain forces may significantly affect the final decision
iii. It gives a visual representation of an issue
iv. It quantifies the relative importance of forces

A. ii + iv
B. i + ii
C. i + iii
D. i + ii + iii + iv

14. What is a planning tool that visually depicts the sequencing and scheduling of
activities in a project called?

A. Force field analysis

B. Decision tree
C. Cause and effect model
D. Gantt chart

15. Which of the following is not a benefit of using a Gantt chart?

A. It is a decision-making tool
B. It shows the linkages between activities in a project
C. It enables quick corrective action to be taken
D. It plans a project logically to maximise efficiency

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IB Business Management MCQ Revision Pack 1.7 Organizational Planning Tools (HL Only)

1.7 Answers

Question Answer Explanation

A fishbone diagram is a tool to identify and determine the root

causes of a particular problem being faced by a firm. Option B is
1 A incorrect because it describes the purpose of a decision tree.
Option C defines the purpose of a force field analysis. Option C is
the purpose of a Gantt chart.
The 4 Ms that can be used in a fishbone diagram to assess the
causes of a particular problem are given by Option B. Management
style can directly affect morale levels. A lack of manpower can
2 B
reduce efficiency and overburden employees. Faulty machinery
can affect the quality of output and the efficiency of the production
process. Low-quality materials can cause health and safety risks.
A fishbone diagram is a simplistic, visual cause-and-effect model
that encourages systematic brainstorming of the numerous
potential causes of an issue being faced by the firm. However, it is
3 C
not objective and does not quantify any information, making it
difficult for users to ascertain the relative importance of a particular
cause.
A decision tree is a quantitative decision-making tool used to
quantify the value of possible outcomes of the different options
4 A
available to a firm, based on the probability of their occurrence.
Hence, Option A is the correct answer.
In a decision tree, a square represents a decision node, i.e. a point
at which a decision must be taken, e.g. whether or not to initiate a
5 C new project. A circle represents a chance node, from which stem
branches indicating the value of a particular outcome and the
probability of this outcome.

6 B Expected value = (650,000 × 0.65) + (200,000 × 0.35) = $492,500

Expected value of revenues = (65m × 45%) + (45m × 35%) +

(18m × 20%)
7 C Expected value of revenues = $48.60m
Expected profit = expected revenues – investment cost =
$48.6m – $32m = $16.6m
Expected profit Brazil = ($30m × 50%) + ($20m × 50%) – $42m
= -$17 million
Expected profit China = ($35m × 60%) + ($15m × 40%) – $30m
= -$3 million
8 C
Expected profit Vietnam = ($38m × 55%) + ($22m × 45%) –
$24m = $6.8 million
Since Vietnam has the highest expected profit, investment
should be in Vietnam.

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IB Business Management MCQ Revision Pack 1.7 Organizational Planning Tools (HL Only)

Decision tree analysis is a relatively more objective method of

analysing decisions because it quantifies outcomes, despite the
probability and outcome values being subjective estimates.
9 D Decision tree analysis also considers multiple outcomes and risks,
and provides a visual representation of this information. However,
a drawback of decision tree analysis is that it does not consider
qualitative factors, such as employee morale.
Decision tree analysis relies heavily on managerial estimates of the
revenues from a particular outcome (Option B), which may be
flawed or inaccurate. The process of assigning probabilities to
outcomes (Option C) is also highly subjective and vulnerable to
10 A
manipulation by those with underlying motives. Qualitative factors,
such as employee morale, (Option D) are also ignored. However, a
decision tree considers all possible outcomes, positive and
negative, so Option A is incorrect.
A force field analysis aims to compare the driving forces against the
restraining forces of a particular decision. In the process, each
driving and restraining force is weighted in terms of importance from
11 C
1 to 5 (5 being the most important) to aid decision-making. Option
A is incorrect because that is done through a decision tree, and
Options B and D are done through a STEEPLE analysis.
Driving forces are factors that encourage change in an organization,
e.g. cheaper rental expenses, greater access to a larger customer
base, reduced staffing needs, and increased competitiveness.
12 D
Restraining forces are those factors that discourage change from
occurring, e.g. higher staff training costs, increased equipment
maintenance costs, and increased likelihood of technical issues.
A force field analysis involves some degree of subjectivity in
assigning weights to each driving and restraining force, implying a
vulnerability to manipulation. Moreover, if certain forces are
13 B overlooked, underestimated or overestimated in terms of their
importance, it may significantly impact the final decision
undertaken. Options iii. and iv. are advantages of force field
analysis as a decision-making tool.
A Gantt chart is a visual depiction of the sequencing and scheduling
of various activities in a project, indicating the links between
14 D
activities and the time that is required for each activity to be
completed.
The Gantt chart is a project planning tool, not a decision-making
tool. Gantt charts do however show the linkages between activities
in a project and illustrate the time required for each activity to be
15 A completed. Using a Gantt chart can maximise the efficiency of a
project, by helping managers sequence activities in the most
productive way possible. It also indicates when a project begins to
go off track, and so enables quick corrective action to be taken.

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IB Business Management MCQ Revision Pack 2.1 Functions and Evolution of HRM

1. Which of the following statements best describes the purpose of human resource
planning (also known as workforce planning)?

A. The number of workers leaving a company that need to be replaced

B. Satisfying a firm’s short-term and long-term personnel needs
C. The extent to which labour can change locations or job functions
D. Determining senior management’s annual bonuses for the current year

2. Which of the following is not an example of a human resource management duty?

A. Staff training and development

B. Disciplinary procedures
C. Identifying customer requirements
D. Performance appraisals

3. Which of the following data is least likely to be used by the human resources
division when conducting workforce planning?

A. Current and forecasted sales

B. Labour turnover
C. Historical trends
D. Balance sheets

4. What does labour turnover refer to?

A. Percentage of total staff leaving an organization in one year

B. Number of new staff being hired in one year
C. Percentage of total staff of provided pay-hikes in one year
D. Number of staff provided training and development activities

5. A country with a positive net birth rate will face a(n) _________ supply of human
resources; a country with a negative net migration rate will face a(n) _________
supply of human resource.

A. Decreasing, increasing
B. Decreasing, decreasing
C. Increasing, decreasing
D. Increasing, increasing

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IB Business Management MCQ Revision Pack 2.1 Functions and Evolution of HRM

6. Which of the following scenarios would not lead to an increase in the size of a
country’s workforce?

A. A positive net birth rate

B. A net emigration
C. An increase in female participation in the workforce
D. An increase in the retirement age

7. What does geographical mobility of labour refer to?

A. Extent to which workers have accommodation in different regions of the

country
B. Extent to which workers can switch between jobs
C. Extent to which workers can move to different places to work
D. Extent to which workers are rotated to different offices for work

8. What does occupational mobility of labour refer to?

A. Amount of variety workers are provided by their employers

B. Extent to which workers have multiple qualifications
C. Extent to which workers can move to different places to work
D. Extent to which workers are able to switch between jobs

9. Which of the following is not a consequence of an ageing population?

A. Amount of variety workers are provided by their employers

B. Alterations of spending preferences and patterns
C. A fall in the need for social welfare facilities
D. A decline in the geographical and occupational mobility of labour

10. What is the process of assessing a job role in terms of its nature, tasks and
responsibilities called?

A. Job classification
B. Job hunting
C. Job analysis
D. Job description

11. What is a document detailing the duties and responsibilities of a particular job
called?

A. Job description
B. Job analysis
C. Person specification
D. Employment offer

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IB Business Management MCQ Revision Pack 2.1 Functions and Evolution of HRM

12. What is a document that details the skills, work experience, qualifications and
characteristics of the ideal candidate for a particular job called?

A. Job description
B. Job analysis
C. Résumé
D. Person specification

13. Which of the following document(s) is not likely to be required for an applicant to
submit when applying for a job?

A. Résumé
B. Application form
C. Labour department approval letter
D. Cover letter

14. What is the process of comparing a candidate’s application form and résumé to
the job description and person specification called?

A. Job analysis
B. Shortlisting
C. Candidate assessment
D. Psychometric assessment and evaluation

15. Which of the following is not a benefit of using interviews in the selection process?

A. They allow two-way, face-to-face dialogue

B. They allow applicants to obtain more information about the job and
company
C. They are very time-efficient
D. The firm is able to obtain information that cannot be displayed on paper,
such as the candidate’s social and presentation skills, and enthusiasm.

16. Which of the following is not a valid test that can be used in the candidate testing
stage of recruitment?

A. Aptitude tests
B. Ethnicity tests
C. Psychometric tests
D. Intelligence tests

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IB Business Management MCQ Revision Pack 2.1 Functions and Evolution of HRM

17. Which of the following tests is best suited to assessing a potential candidate’s
personality?

A. Aptitude tests
B. Psychometric tests
C. Trade tests
D. Intelligence tests

18. What is a set of tests that assess a candidate’s verbal, logical, numerical
reasoning and general knowledge called?

A. Aptitude test
B. Psychometric test
C. Trade test
D. Intelligence test

19. If an insurance salesperson has to sit an entrance exam focused on industry

regulations, this is referred to as a(n)

A. Aptitude test
B. Psychometric test
C. Trade test
D. Intelligence test

20. What is the practice of hiring individuals who already work for the company for
other positions called?

A. Recruitment and selection

B. Employee induction
C. Internal recruitment
D. Performance appraisal

21. Which of the following is not an advantage of recruiting internally?

A. It is cost and time-effective

B. There is lower risk of hiring an unsuitable candidate
C. There is a greater pool of applicants to hire from
D. It provides motivation

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IB Business Management MCQ Revision Pack 2.1 Functions and Evolution of HRM

22. Which of the following are disadvantages of recruiting internally?

i. There is a smaller pool of applicants to hire from

ii. Fresh, new ideas are not infused into the business
iii. Internal conflict and politics may be encouraged
iv. An additional vacancy must now be filled

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

23. Internal recruitment has the potential to increase ____________ in the firm.

A. Conflict
B. Morale
C. Salaries
D. Both (A) and (B)

24. What is the practice of hiring individuals from outside the firm called?

A. External recruitment
B. Employee induction
C. Internal recruitment
D. External poaching

25. Which of the following is not a method of external recruitment?

A. Employee referrals
B. Promotions
C. Head-hunters
D. University campus exhibitions

26. Which of the following is not an advantage of external recruitment?

A. External recruits may bring unique skills and experiences

B. There is an infusion of “fresh blood” into the firm
C. There is a greater pool of candidates to select from
D. It is cheaper than internal recruitment

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IB Business Management MCQ Revision Pack 2.1 Functions and Evolution of HRM

27. Which of the following describe types of training can a firm provide its employees?

A. On the job
B. Off the job
C. Cognitive
D. Spatial

28. Induction training is a form of ____________ training.

A. On the job
B. Off the job
C. Mentoring
D. Behavioural

29. When an experienced employee provides support and guidance to a newer

employee, this is referred to as _________, which is a form of ___________
training.

A. Induction, on the job

B. Mentoring, off the job
C. Mentoring, on the job
D. Supportive behaviour, off the job

30. Which of the following is not an example of off the job training?

A. Seminars or conferences
B. Workshops
C. Distance or eLearning
D. Understudying

31. When training is meant to improve the mental skill levels of employees to boost
their work performance, this is called ____________ training.

A. On the job
B. Off the job
C. Cognitive
D. Behavioural

32. Which of the following does cognitive training not focus on improving?

A. Time management
B. Leadership skills
C. Problem solving skills
D. Logical, verbal and visual reasoning skills

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IB Business Management MCQ Revision Pack 2.1 Functions and Evolution of HRM

33. Which of the following does behavioural training not focus on improving?

A. Self-control
B. Team-working skills
C. Leadership skills
D. Conflict resolution and stress management

34. Which of the following is/are advantage(s) of off the job training?

i. External knowledge can be transferred into the organization

ii. A wider breadth of training can be provided
iii. It is cheaper than on the job training
iv. Loss of productivity while staff are away from work

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

35. The process of formally evaluating an employee’s performance against a job

description is called _____________.

A. Appraisal
B. Job analysis
C. Mentoring
D. Interviewing

36. Which of the following is not a benefit of appraisals?

A. They aid professional development

B. They help identify training needs
C. They allow managers to receive feedback from employees
D. They are a cost and time effective way to ensure performance

37. Which of the following is not a valid form of appraisal?

A. Formative
B. Summative
C. 360-degree
D. Associative

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IB Business Management MCQ Revision Pack 2.1 Functions and Evolution of HRM

38. The form of appraisal that occurs on an ongoing basis by a senior employee to
assess an employee’s performance, identify strengths and weaknesses and
determine training needs is called __________ appraisal.

A. Formative
B. Summative
C. 360-degree
D. Self

39. The form of appraisal that occurs on periodically by the employee’s line manager
to assess performance and achievements is called __________ appraisal.

A. Formative
B. Summative
C. 360-degree
D. Self

40. When everyone directly collaborating with an employee is used in the appraisal
process, this is called __________ appraisal.

A. Formative
B. Summative
C. 360-degree
D. Self

41. Which of the following is not a valid reason to dismiss an employee?

A. Incompetence
B. Ethnicity
C. Misconduct
D. Legal requirements

42. When does constructive dismissal occur?

A. When an employer makes it very difficult for an employee to continue

working there
B. When a firm can no longer afford to employ someone
C. When an employee engages in gross misconduct
D. When an employee loses his/her job due to incompetence

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IB Business Management MCQ Revision Pack 2.1 Functions and Evolution of HRM

43. What is the main difference between dismissal and redundancy?

A. Dismissal occurs due to contractual breach or incompetence while

redundancy occurs when a firm can no longer afford to hire someone
B. Dismissal occurs due to gross misconduct while redundancy occurs when
employees volunteer to leave in return for a severance package
C. Dismissal occurs due to incompetence while redundancy occurs when
employees engage in regular misconduct
D. Dismissal occurs when employees leave the organization for better
opportunities elsewhere while redundancy occurs due to legal
requirements such as retirement age.

44. What is the concept of working out of traditional office spaces by using technology
and electronic forms of communication called?

A. Technological facilitation
B. Teleworking
C. Capital intensity
D. Homeworking

45. Which of the following is not an advantage of teleworking?

A. It enables flexible working hours

B. Less commuting is required
C. Less rental expenses as less office space is needed
D. There is increased training and development

46. Which of the following are disadvantages of teleworking?

i. Workers face more isolation and less team-working opportunities

ii. Management of off-site employees is more difficult
iii. Workers are more dependent on IT systems
iv. Employees may face fewer distractions

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

47. What is a worker who handles multiple jobs and assignments simultaneously
referred to as?

A. Portfolio worker
B. Part-time worker
C. Job-switcher
D. Flexible worker

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IB Business Management MCQ Revision Pack 2.1 Functions and Evolution of HRM

48. What is the process of transferring out internal activities such as customer
support, manufacturing, catering and security to external providers called?

A. Offshoring
B. Outsourcing
C. Re-shoring
D. Off-loading

49. What does offshore outsourcing refer to?

A. Utilizing foreign providers in foreign nations to perform business activities

B. Transferring overseas operations back to the home country
C. Transferring out of internal activities to an external provider
D. Relocating business activities overseas

50. Which of the following are disadvantages of outsourcing?

A. Subcontractors may engage in unethical behaviours

B. Quality management is more challenging
C. It distracts a firm from focusing on its core activities
D. Redundancies may be caused

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IB Business Management MCQ Revision Pack 2.1 Functions and Evolution of HRM

2.1 Answers

Question Answer Explanation

Human resource planning aims to satisfy a firm’s short-term and

long-term staffing requirements. For example, an event
1 B
management company would need to plan to hire additional part-
time staff for large events.
Human resource management refers to the function of maximising
employee performance to achieve organizational objectives, for
example, through training and development to increase the quality
2 C
of human capital, performance appraisals to ensure employees
work to their potential and grow and enacting disciplinary
procedures to ensure compliance with rules.
Current and forecasted sales data can indicate how busy the office
will be, and helps determine the likely number of employees each
division will require. Labour turnover indicates how many workers
3 D will leave and need to be replaced. Historical trends such as prior
years’ seasonal fluctuations in workforce requirements can be used
as reference. Option iv. is unlikely to be referred to by the human
resources division.
Labour turnover is the percentage of total staff that leave the firm
during a particular time period, typically one year. Labour turnover
4 A
= number of staff leaving / total number of staff x 100%. Thus.
Option A is the correct answer.
A positive net birth rate implies that more births are happening than
deaths, and so the availability of human capital (labour) rises,
allowing firms a greater pool of workers from which they can hire. A
5 C
negative net migration rate implies that more people are leaving
(emigrating) the nation than coming into the nation to work,
reducing the supply of human resources to firms.
A positive net birth rate implies more births than deaths, therefore
increasing the population. An increase in female participation in the
workforce and an increase in the retirement age both add additional
6 B workers into a nation’s labour force, and thus increase the supply
of labour available to firms to pick from. However, a net emigration
implies more people leave the country than enter, reducing the
resident population.
Geographical mobility refers to the ability and flexibility of workers
to move to different locations to work. The greater the geographical
mobility of labour, the greater the supply of labour. Option B is
D
7 incorrect because it refers to occupational mobility. Option D is
incorrect because it is dependent upon the geographical mobility of
a firm’s workers.

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Occupational mobility of labour refers to the extent to which workers

can switch between jobs. For example, fresh graduates are more
8 D likely to be very occupationally mobile because they are more
willing and able to switch careers when young, compared to older
individuals with familial commitments.
Ageing populations bring with them an increase in the dependency
ratio, i.e. more people (e.g. retirees) in a household have to be
supported by fewer income-earning members. There is also a
9 C change in spending preferences towards healthcare products
rather than education for example, and a decline in the mobility of
labour, both geographical and occupational. However, there is an
increase in the need for social welfare facilities like public hospitals.
Job analysis involves analysing a job in terms of what it entails, by
looking at the key roles and responsibilities that must be performed.
By knowing the nature of the job, a firm can then produce a job
10 D
description (an outline of exactly what the job position requires the
employee to do) and a person specification (an outline of the ideal
candidate for the job).
A job description defines the job title and explains the duties and
11 A responsibilities that an employee would have to fulfil when holding
that job title.
A person specification is a document detailing the skills, prior work
12 D experiences, qualifications and personality traits of the ideal
candidate.
Option C is only used in special circumstances. A résumé outlines
a person’s skills, work experiences, education and qualifications.
An application form is a standardized form used to categorize and
13 C
preliminarily assess candidates. A cover letter is a short letter
written by the applicant explaining why he/she should be
considered for the position.
Shortlisting refers to the process of comparing an applicant’s
application form and résumé to the job description and person
specification, to filter out incompatible candidates and invite only
14 B the most appropriate candidates for interviews. Option A is incorrect
because a job analysis outlines the nature of a particular job (i.e.
what it entails), and is used to create the job description and person
specification.
Interviews are not time-efficient. Interviews, apart from being very
time-consuming themselves, require significant planning and
15 C
preparation (for example, in terms of the questions to ask a
particular candidate).

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It is illegal in most places to differentiate based on race or ethnicity,

especially in the recruitment process. Valid tests include aptitude
16 B tests which measure particular skills, psychometric tests which
assess attitudes and personality, and intelligence tests which
measure verbal, logical and numeral reasoning ability.
Psychometric tests assess a candidate’s attitudes, personality and
17 B
level of motivation.
Intelligence tests aim to assess a candidate’s level of intelligence,
18 D by administering numerical, verbal and logical reasoning tests.
They also examine an individual’s general knowledge.
A trade test is one which seeks to assess a candidate’s industry-
specific knowledge and skill levels. For example, insurance
19 C
salespeople have to possess knowledge about industry regulations
and ethical standards.
Internal recruitment refers to when a firm hires someone who
already works for the company and places them into another vacant
20 C
position. For example, a part-time teaching assistant may get a full-
time position when a vacancy arrives.
Advantages of internal recruitment include saving money (e.g. on
job advertisements) and saving time (e.g. on interviews, as the
candidate is already known). Since the candidate’s abilities are
21 C already known, risk is reduced. Motivation is also provided if
employees feel good performance is rewarded with promotions.
However, there are likely to be fewer applicants, which may prevent
a better, external candidate from getting the job.
Recruiting internally means there is a smaller pool of applicants to
consider, and so the firm may not select the best possible candidate
for the position. Moreover, outsiders may bring fresh ideas to help
the business become more competitive, but internal recruiting does
22 D
not allow this. In the competition to get promoted, conflict and office
politics may be increased, reducing morale. Finally, it can be more
time-consuming because an additional vacancy is created that
needs to be filled.
Internal recruitment refers to when a firm hires someone who
already works for the company and places them into another vacant
position. Because employees now compete for promotions, office
23 D
politics and internal conflict may rise. However, the prospect of
good performance being rewarded with promotions may
alternatively serve as a motivator, and raise morale.
External recruitment involves hiring individuals from outside the
24 A firm. Induction (Option B) refers to helping new recruits adjust to
their new positions.

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External recruitment involves hiring individuals from outside the

firm. Employee referrals involve an employee recommending
someone he/she knows from outside the firm for a particular
25 B
vacancy. Head-hunters poach good employees from competing
firms, and thus bring in people from outside the firm. Campus visits
also involve hiring individuals from outside the firm.
External recruitment brings in people with unique skills and
experiences. Thus fresh blood is infused into the business.
Moreover, external recruitment increases the pool of candidates the
26 B
firm can select from, increasing the likelihood of getting the ideal
candidate. However, it is more expensive compared to internal
recruitment.
All four are possible methods of training. On the job training refers
to training employees while they are at the work location. This
27 D includes induction training and mentoring. Off the job training refers
to providing off-site training. Cognitive training involves training
employees’ mental ability. Option D is not a valid form of training.
On the job training refers to training employees while they are at the
work location. Induction training is a form of on the job training
aiming to support new employees in adapting to the firm’s people,
28 C
policies and standard operating procedures. Mentoring is another
form of on the job training, involving an experienced employee
providing support and guidance to a lesser experienced employee.
Mentoring is a form of on the job training where an experienced
29 C employee (such as a senior manager) provides support, guidance
and access to his/her expertise to a newer employee.
Being an understudy involves closely observing a more senior
employee at the workplace, and is thus a form of on the job training.
30 D
Options A, B and C all take place outside the workplace, and so are
valid examples of off the job training.
Cognitive training involves trying to boost employees’ mental skills
31 C and abilities, for example, in terms of memory, judgement and
reasoning, to improve their performance at work.
Cognitive training involves trying to boost employees’ mental skills
and abilities, for example, in terms of time management, problem
solving and logical, verbal and visual reasoning, to improve their
32 B
performance and productivity at work. Leadership skills are
improved by behavioural training which seeks to bring about
positive behavioural changes amongst employees.
Behavioural training seeks to bring about positive behavioural
changes amongst employees, for example, by improving their
33 A team-working, leadership and stress management skills, and
enhancing their conflict resolution abilities to create a more
productive and inclusive work environment.

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Off the job training allows the knowledge held by external experts
to be brought into the company due to the transfer of knowledge.
Such experts may not exist internally. A wider breadth of training
34 B can also be provided. However, it is likely more expensive
compared to on the job training, and productivity and output is lost
when workers are away from the workplace to train. Thus Options i
and ii are advantages, while iii and iv are disadvantages.
Appraisal refers to the process of formally evaluating an employee’s
35 A performance against the tasks involved in their job role on a regular
basis.
Appraisals aid professional development of staff by setting them
targets and providing formal feedback from a more senior
employee. The two-way dialogue between the appraiser and
36 D appraisee also enables management to identify training needs,
because feedback is received from employees (which also provides
insight into employees’ opinions on people, processes and plans).
However, they are costly and time consuming activities.
Formative appraisal refers to ongoing assessment of an employee’s
performance, with the purpose of identifying strengths and
weaknesses to determine training needs. Summative appraisal
37 D refers to periodic assessment of performance (against a
benchmark) and an employee’s achievements. 360-degree
appraisal involves getting feedback from everyone collaborating
directly with the employee.
Formative appraisal refers to ongoing assessment of an employee’s
performance, with the purpose of identifying strengths and
weaknesses to determine training needs. Summative appraisal
refers to periodic, not ongoing assessment of performance (against
38 B
a benchmark) and an employee’s achievements. 360-degree
appraisal involves getting feedback from everyone collaborating
directly with the employee, and self-appraisal involves employees
assessing themselves against various criteria.
Summative appraisal refers to period assessment of an employee’s
performance against certain benchmarks. It also involves
39 B
examining the employee’s level of contribution by looking at the
person’s achievements, and is conducted by a line manager.
360-degree feedback/appraisal involves gathering the professional
opinions of everyone directly collaborating with the appraisee,
regarding his/her job performance. This is primarily done through
40 C
interviews or questionnaires. An individual’s managers, peers,
subordinates, clients or suppliers may all be requested to provide
opinions.

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Dismissal refers to the termination of a person’s employment

contract. This can occur due to incompetence (a lack of ability to
perform the job satisfactorily), misconduct (minor or major
41 B
misdemeanours such as lateness, drunkenness or theft), or due to
legal requirements such as a lack of valid qualifications. Ethnicity is
not a valid reason to dismiss an employee.
Constructive dismissal occurs when an employer makes it very
42 A difficult for an employee to continue working there, for example, by
repeatedly harassing a particular member of staff.
Dismissal can occur due to a breach in contract (e.g. due to regular
misconduct/gross misconduct) or incompetence (a lack of ability to
43 A perform one’s job satisfactorily). Redundancies occur when a firm
can no longer afford to hire as many employees, and so have to let
go of some workers.
Teleworking refers to using technology and electronic forms of
communication to work out of the traditional ‘office’. For example,
insurance company sales staff are rarely required to sit in the office
44 B
for the majority of the day. Instead, they are free to visit clients
throughout the working day, using smart devices to communicate
and conduct business activities with various stakeholders.
Teleworking enables flexible working hours as individuals can
choose when to begin and end work, provided they achieve their
targets. Less commuting is required, especially in the case of
45 D homeworking, a sub-category of teleworking. Since there are less
workers in the corporate office spaces, rental expenses can be
minimized, raising the firm’s profitability. However, there are likely
to be fewer training and development opportunities.
Teleworking causes workers to work alone more often than in
teams. This causes isolation and potentially boredom. Managing
workers off-site is also more difficult than managing all employees
in a centralised location. Workers also become more heavily
46 C
dependent on a working IT system, and any technological issues
may paralyse business activity and productivity. Option iv. is
incorrect because ill-disciplined employees may face more
distractions, reducing their productivity.
A portfolio worker is one who handles multiple jobs and
assignments simultaneously. For example, someone writing an
47 A economics workbook may also be working on an application
development project with another firm, and teaching on a part-time
basis in the evenings.
Outsourcing refers to the transferring out of internal activities to an
48 B external provider. For example, customer service activities may be
outsourced to call centres.

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Offshore outsourcing involves utilizing foreign providers in foreign

nations to provide business functions. Apple, for example, designs
products in California, but contracts significant manufacturing
49 A
activities to Foxconn in China. Option B is incorrect because it refers
to re-shoring, Option C refers to outsourcing and Option D refers to
offshoring.
Outsourcing allows a firm to focus on its core activities. For example,
product design is a core activity for Apple. Through outsourcing,
50 C Apple reduces the time and effort required to be dedicated to
manufacturing their products, enabling them to spend more time
designing products.

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IB Business Management MCQ Revision Pack 2.2 Organizational Structure

1. What is it called when an employee is held answerable for the completion and
performance of a certain set of tasks?

A. Responsibility
B. Accountability
C. Delegation
D. Decentralization

2. In a school, the head of Mathematics is __________ for the Mathematics

teachers, while the Mathematics teachers are __________ to the head of
Mathematics.

A. Accountable, responsible
B. Accountable, delegating tasks
C. Responsible, accountable
D. Dividing tasks, responsible

3. What is the passing on of authority and decision-making power to other

employees called?

A. Job enlargement
B. Job enrichment
C. Chain of command
D. Delegation

4. The number of hierarchical layers is ____________ to the span of control.

A. Directly proportional
B. Inversely proportional
C. Equal
D. Unrelated

5. What is not a valid advantage of having a narrow span of control?

A. Communication with subordinates is made easier for managers

B. Managers have more control
C. It reduces managerial payroll expenses
D. It fosters greater team cohesiveness and productivity

6. The more experienced and skilled the managers, the ________ the span of
control; whilst the more complex the tasks, the ________ the span of control.

A. Narrower, narrower
B. Narrower, wider
C. Wider, narrower
D. Wider, wider

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IB Business Management MCQ Revision Pack 2.2 Organizational Structure

7. Which of the following are advantages of having a wide span of control?

i. It reduces managerial payroll expenses

ii. The speed of communications between hierarchical levels is increased
iii. Managers have more control over employees
iv. Team spirit is maximised

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

8. Which of the following is least likely to have a relatively wide span of control?

A. A pen manufacturer
B. A cleaning contractor
C. An investment bank overseeing a merger
D. A factory mass producing jute bags

9. What is the official line of authority through which commands are passed down in
a firm called?

A. Line manager
B. Chain of command
C. Hierarchical structure
D. Span of control

10. The process of eliminating hierarchical levels is called __________. This

_________ the span of control.

A. Delayering, widens
B. Delayering, narrows
C. Flattening, narrows
D. Streamlining, widens

11. Which of the following is not an advantage of delayering?

A. It reduces managerial payroll costs

B. The speed of communications between hierarchical levels is increased
C. Staff workloads are reduced
D. Delegation is promoted

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IB Business Management MCQ Revision Pack 2.2 Organizational Structure

12. Which of the following is a consequence of delayering?

A. It causes stress to employees due to the possibility of redundancy

B. Workloads increase
C. Decision-making slows down
D. All of the above

13. When decision-making power is concentrated in the hands of just a few members,
the organization is a ____________ one.

A. Decentralized
B. Centralized
C. Tall
D. Both (A) and (C)

14. A firm where the board of directors makes key decisions but spreads out some
degree of decision-making power to other employees in the organizations is a
___________ organization

A. Decentralized
B. Centralized
C. Flat
D. Both (A) and (C)

15. Which of the following is not an advantage of centralization?

A. Only the most qualified people are the ones who make decisions
B. Morale is likely to be higher than in a decentralized firm
C. The speed of decision-making is enhanced
D. There is more control over a firms operations

16. Which of the following is/are disadvantage(s) of centralization?

i. Decision-making may be delayed due to the heavy workload decision-
makers
ii. It makes the firm inflexible
iii. Employees may lack motivation
iv. Inefficiencies are more likely to leak into the firm

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

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IB Business Management MCQ Revision Pack 2.2 Organizational Structure

17. Which of the following is not an advantage of decentralization?

A. Morale is likely to be higher than in a centralized firm

B. Team-working is encouraged
C. The firm is more flexible
D. There is more control over the firm’s operations

18. Which of the following is not a characteristic of decentralized organizations?

A. There is a higher likelihood of mistakes being made

B. Senior management has less control
C. Coordination is more difficult
D. Less team working takes place

19. A __________organization has few layers in its organizational hierarchy and a

relatively __________ chain of command.

A. Flat, long
B. Flat, short
C. Tall, long
D. Tall, short

20. A vertical organization has ________ layers in its organizational hierarchy, a

_________ span of control, and a relatively __________ chain of command.

A. Many, narrow, long

B. Few, wide, short
C. Many, wide, short
D. Many, narrow, short

21. What is the organizational structure of a firm that has multiple strategic business
units likely to be organized by?

A. Function
B. Product
C. Region
D. A matrix structure

22. Assume a firm has an Asia Pacific director, a Europe director and a North America
director. What is this firm’s organizational structure likely to be organized by?

A. Function
B. Product
C. Region
D. A matrix structure

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IB Business Management MCQ Revision Pack 2.2 Organizational Structure

23. Assume a firm is organized in terms of departments such as human resources,

finance, accounting, market and operations. What is this firm’s organizational
structure likely to be organized by?

A. Function
B. Product
C. Areas of expertise
D. A matrix structure

24. Which of the following types of firms is most likely to use project-based
organization?

A. Construction firms
B. Restaurant chains
C. Software development firms
D. Both (A) and (C)

25. Which of the following is not an advantage of having a project-based organization

structure?

A. It provides more continuity

B. It can provide motivation to employees
C. It raises the firms productivity
D. It raises the firm’s flexibility

26. What is it called when employees from different areas of expertise within the firm
come together to work on projects?

A. Organization by function
B. Flat organizational structure
C. Tall organizational structure
D. Matrix structure

27. Which organizational structure is least likely to have a formal chain of command
or hierarchy?

A. A tall organizational structure

B. A shamrock organization
C. A matrix structure
D. A flat organizational structure

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IB Business Management MCQ Revision Pack 2.2 Organizational Structure

28. In Charles Handy’s Shamrock Organization theory, which of the following is not
one of the ‘leafs’ of employees?

A. Core staff
B. Ancillary staff
C. Outsourced workers
D. Peripheral workers

29. According to Charles Handy’s Shamrock Organization theory, the trend has been
to __________ the number of core staff, and __________ the number of
peripheral workers.

A. Increase, reduce
B. Increase, increase
C. Reduce, reduce
D. Reduce, increase

30. Part-time salespeople would be considered __________ workers, while those in

contracted marketing agency would be considered ___________ workers.

A. Core, peripheral
B. Peripheral, core
C. Core, outsourced
D. Peripheral, outsourced

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IB Business Management MCQ Revision Pack 2.2 Organizational Structure

2.2 Answers

Question Answer Explanation

Accountability refers to an employee being held answerable and
responsible for the completion of a certain set of tasks assigned to
him/her, to a satisfactory level of performance. Option A is incorrect
as responsibility refers to being in charge of and managing other
1 B
stakeholders, such as subordinates. Option C is incorrect as it
refers to giving other people authority. Option D is a type of
organizational structure, which involves delegation of decision-
making power.
Responsibility refers to being in charge of other employees. Thus,
the head of Mathematics is responsible for the teachers in his/her
Department. Accountability refers to the Mathematics teachers
2 C
being held answerable to the head of department, for the
completion of a certain tasks, such as teaching a Mathematics unit
succesfully.
Delegation is the process of pasing on authority and decision-
making power to other employees. For example, the head of
3 D
research at an investment bank may authorise a junior analyst to
publish his/her research on the company website.
The more the number of hierarchical layers in an organization, the
smaller the span of control tends to be, as fewer people report to
4 B
each manager. When there are very few layers, managers tend to
have a wider span of control, as more subordinate report to them.
A narrow span of control implies that there are numerous layers in
the organizational hierarchy, with each layer having a manager.
5 C Thus, the number of managers in such a firm is relatively high, so
managerial payroll expenses are high. Thus, Option C is the correct
answer.
Highly skilled and experienced managers can control more staff
relatively easy compared to junior managers who are still learning
6 C the ropes. Highly complex tasks are likely to have a narrower span
of control, because clarity in communication and delegation of
responsibilities are vital.
A wide span of control implies that there are few layers in the
organizational hierarchy, and therefore fewer managers. With fewer
managers, payroll costs are reduced. Since there are fewer levels
7 B for key decisions and communications to flow through, the speed of
information dissemination between hierarchical levels is increased.
However, managers have less control over employees, and team
spirit is more likely to be maximised in smaller teams.

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IB Business Management MCQ Revision Pack 2.2 Organizational Structure

The activity of overseeing a merger (Option C) is likely to be a highly

complex one, requiring efficient communication between
employees. Thus it is likely to exhibit a narrow span of control. On
the other hand, manufacturing pens (Option A) or jute bags (Option
8 C
D) are relatively simple tasks, and so can have a wide span of
control. Cleaning contractors (Option B) do not need to closely
monitor cleaning activities, and so can also have a wide span of
control.
The chain of command refers to the official line of authority through
which a command is passed down in a firm. Option A is incorrect
because although a line manager is only one party to the passing
9 B
down of messages from senior management. Option C describes
the overall organizational structure (e.g. whether it is flat or tall), and
Option D refers to the number of people reporting to a manager.
Delayering refers to eliminating layers of the hierarchy to flatten the
organizational structure. With fewer layers in the structure, there are
fewer managers, and so each manager now has to be responsible
10 B for more subordinates, effective widening the span of control.
Option D is incorrect because the term streamlining is more
associated with the concept of lean production, not necessarily with
the hierarchical structure.
Delayering refers to eliminating layers of the hierarchy to flatten the
organizational structure. With fewer layers in the structure, staff
11 C
workloads rise. Thus Option C is not a valid advantage of
delayering.
Delayering refers to eliminating layers of the hierarchy to flatten the
organizational structure. Since certain positions may be eliminated
in the process, employees may stress out about any looming
12 C
redundancies, demotions or additional workload. Since managers
now have to deal with larger teams, decision-making is likely to slow
down.
A centralized organization is one where decision-making is done by
just a few members, usually the senior management team. There is
little consultation with other employees. Option A is incorrect
13 B
because it refers to an organization where decision-making power
is spread across the organization, not just concentrated in the
hands of few.
A decentralized organization is one where the CEO and board of
directors make key strategic decisions, such as those of capital
investments for the future, but consult other staff members and
14 D
provide them with some degree of decision-making power.
Decentralized organizations are likely to have flatter organizational
structures.
Option B is an advantage of decentralized firms. When employees
are given responsibility and entrust with decision-making power, it
motivates them. However, if employees feel like mere pawns of
15 B
senior management in a centralized organization, they are unlikely
to be very motivated. Options A, C and D are all valid advantages
of centralization.

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IB Business Management MCQ Revision Pack 2.2 Organizational Structure

Centralization involves a small, select group of senior executives

making key decisions for a firm. In such a case, it is easy for them
to get overloaded with numerous decisions to make, delaying
decision-making and potentially reducing the quality of decisions
16 C
made. Centralization also renders firms inflexible because talents
and ideas from employees are not exploited, and so this worsens
motivation and morale too. However, it is likely to be more efficient
compared to a decentralized structure.
When a firm considers the opinions of its staff and gives the
decision-making authority, it is likely to motivate employees. A
decentralized firm also involves team-working, and people
17 D collaborating with their colleagues, which is more likely to produce
innovative ideas. The firm is thus more flexible. However, senior
managers have less control over the firm’s operations compared to
a centralized organization.
Decentralization involves giving more employees decision-making
power, however, if employees are not competent or qualified, there
is a high chance of mistakes and incorrect decisions being made.
18 D Senior managers also have less control, and may find it more
difficult to coordinate business activities efficiently. However,
Option D is incorrect because a decentralized firm requires more
collaboration and team working than a centralized firm.
A flat organization has few layers in its organizational structure, thus
giving managers a wider span of control. Since decisions made by
19 B senior employees only have to be passed down through a few
levels of hierarchy, there is a relatively short chain of command.
Thus Option B is the correct answer.
A vertical (or tall) organization has many layers comprising its
organizational hierarchy, thus giving it a narrow span of control, as
numerous managers are hired to handle only a handful of
20 A
employees each. Because a key decision has to be passed down
through many levels of hierarchy, there is a relatively long chain of
command.
Organization by product is appropriate for firms operating in multiple
lines of businesses, where each line requires its own expertise.
Option A is incorrect because it refers to organizing a firm by
21 B business functions such as finance and accounting, operations and
marketing. Option C is incorrect because it refers to a firm
organized by geographical location. Option D involves employees
with different expertise coming together to work on projects.
Organization by region refers to when a firm is organized by
geographic location. Here, each region (Asia Pacific, Europe and
North America) has its own regional director who oversees
operations for those markets. Option A is incorrect because it refers
22 C
to organizing a firm by business functions, Option B refers to an
organizational structure based accommodating different lines of
business, and Option D involves employees with different expertise
coming together to work on projects.

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IB Business Management MCQ Revision Pack 2.2 Organizational Structure

Organization by function refers to when a firm is structured in terms

of the different business roles, such as those listed above. Note that
each department will indeed have its own area of expertise,
23 A however, the correct term terminology is to say the firm is organized
by function. Option B is incorrect because it refers to an
organization structure based on accommodating different strategic
business units and lines of business.
Project-based organization refers to when a firm organizes its
human capital by project. Firms using project-based organizational
structures are usually those that derive their income on a project-
24 D by-project basis. Construction firms and software developers earn
money based on the projects the complete, rather than by
continuously selling the same product for a long period of time like
a restaurant would.
Project-based organization refers to when a firm organizes its
human capital by project. The main issue of such a structures arises
25 A when workers have to move between projects, because this causes
significant discontinuity. Options B, C and D are all valid
advantages.
A matrix structure is a type of project-based organizational structure
where employees from different departments come together to work
temporarily on a project. For example, employees from marketing,
26 D
finance, accounting, production and human resources may come
together during new product development to provide inputs. Thus
Option D is the correct answer.
A matrix structure is a type of project-based organizational structure
where employees from different departments come together to work
temporarily on a project as a team. In such a structure,
27 C communication is free-flowing between all members, and few
formal chains of command exist within the team. Option D is
incorrect, because a clear chain of command is still likely to exist,
even if it is a short one.
Charles Handy’s Shamrock Organization theory proposes three
categories of workers. The core staff are full-time, vital employees
handling day-to-day operations. Peripheral workers are part-time
28 B individuals employed as and when required by the firm. Outsourced
workers are external individuals who are contracted to carry out
certain work for the firm. Option B, ancillary staff, is not one of the
‘leafs’ of employees.

Charles Handy’s Shamrock Organization theory suggests that firms

29 B are likely to reduce the number of core staff through restructuring,
and increase their reliance on part-time peripheral workers.

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IB Business Management MCQ Revision Pack 2.2 Organizational Structure

Peripheral workers are part-time individuals employed as and when

required by the firm, such as salespeople who are hired on an
hourly basis during periods of high demand. Outsourced workers
30 B
are external individuals who are contracted to carry out certain work
for the firm, such as marketing agencies. Note that Options A and
C are incorrect because core staff are full-time, internal employees.

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IB Business Management MCQ Revision Pack 2.3 Leadership and Management

1. Which of the following is not one of the functions of management according to

Henri Fayol?

A. Planning
B. Problem solving
C. Coordinating
D. Organizing

2. Which of the following is not one of the three key roles of managers according to
Charles Handy?

A. To be ‘general practitioners’ for any issues arising within the firm

B. Confronting problems
C. Coordinating efforts
D. Balancing cultural mixes

3. __________ suggested that for management to be effective, managers and

leaders must adopt a ‘helicopter approach - an ability to rise above a situation and
look at the big picture, rather than focusing on minor details.

A. Henri Fayol
B. Charles Handy
C. Peter Drucker
D. John Adams

4. ____________ believed that a firm’s employees are the most important

component to success, and that firms should be relatively decentralised.

A. Henri Fayol
B. Charles Handy
C. Peter Drucker
D. Frederick Taylor

5. Which of the following is not one of the functions of management, according to

Peter Drucker?

A. Measuring and assessing performance

B. Developing people
C. Establishing organizational objectives
D. Balancing a firm’s cultural mixes

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IB Business Management MCQ Revision Pack 2.3 Leadership and Management

6. A ___________ inspires, motivates and influences people while a ____________

focuses on achieving operational objectives.

A. Leader, manager
B. Leader, employee
C. Board of directors, leader
D. Manager, leader

7. A leader who is authoritative and does not consult subordinates in decision-

making is called a(n) ___________ leader.

A. Situational
B. Paternalistic
C. Laissez-faire
D. Autocratic

8. Which of the following is not an advantage of an autocratic leadership style?

A. It enables quick decision making

B. It allows for effective two-way communication to take place
C. It provides employees with clarity over their roles
D. It is very effective when critical decisions need to be made

9. Which of the following is not a valid disadvantage of using an autocratic leadership

style?

A. Creativity and innovation are discouraged

B. It demotivates employees
C. It slows down decision-making
D. It does not develop the internal talent pool

10. A leader that sees employees as family members is called a(n) _________ leader.

A. Situational
B. Paternalistic
C. Laissez-faire
D. Autocratic

11. A leader who sees employees as family members, but less capable than
themselves is adopting a(n) _______________ leadership style.

A. Paternalistic
B. Autocratic
C. Democratic
D. Laissez-faire

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IB Business Management MCQ Revision Pack 2.3 Leadership and Management

12. Which of the following is not an advantage of a paternalistic leadership style?

A. It can motivate staff

B. It can ensure harmonious relationships at work
C. It promotes loyalty to the leader and the firm
D. It is appropriate for innovative firms

13. Which of the following is least likely to be a disadvantage of a paternalistic

leadership style?

A. Decision-making is centralized
B. Communication is mainly top-down
C. Paternalistic leaders may not always make the best decisions
D. Labour turnover tends to be lower compared with an autocratic leadership
style

14. A leader who consistently delegates authority and involves subordinates in

decision-making through discussion and active participation is called a(n)
__________ leader.

A. Democratic
B. Paternalistic
C. Laissez-faire
D. Autocratic

15. Which of the following is not an advantage of a democratic leadership style?

A. Two-way communication is facilitated

B. It enables quick decisions to be made
C. Collaboration leads to higher morale
D. The firm takes advantage of employees’ innovative potentials

16. Which of the following is not a disadvantage of a democratic leadership style?

A. It can be time consuming and expensive

B. It can result in disagreements and disharmony
C. Workers are unable to voice their opinions
D. It is ineffective when critical decisions need to be made quickly

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IB Business Management MCQ Revision Pack 2.3 Leadership and Management

17. A __________ leadership style is one where the leader delegates significant
authority to subordinates and provides them with the freedom to carry out tasks
in their own way, with minimal supervision.

A. Democratic
B. Paternalistic
C. Laissez-faire
D. Situational

18. Which of the following are advantages of a laissez-faire leadership style?

i. It is motivational
ii. It encourages creativity and innovation
iii. It makes coordination easy and time-efficient
iv. It encourages slack (complacency)

A. i + ii
B. ii + iii
C. iii + iv
D. i + ii + iii + iv

19. A leader who is willing and able to change leadership style according to the
circumstances being faced is called a(n) ___________ leader.

A. Democratic
B. Laissez-faire
C. Situational
D. Authoritarian

20. For a situational leader, which of the following factors is least likely to affect the
choice of leadership style adopted?

A. Organizational structure
B. Salary
C. Level of skills of employees
D. Tasks on hand

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IB Business Management MCQ Revision Pack 2.3 Leadership and Management

2.3 Answers

Question Answer Explanation

Henri Fayol prescribed 5 key functions of management: planning,

commanding, controlling, coordinating and organizing. Thus,
1 B Options A, C and D are valid options. Option B refers to one of the
functions of management according to Charles Handy, not Henri
Fayol.
Charles Handy proposed three key roles of management: 1. To be
like a general ‘doctor’ solving issues, such as low productivity or
2 C high employee turnover, 2. To confront problems and dilemmas,
and 3. To balance cultural mixes. Coordinating efforts (Option C) is
a component of Henri Fayol’s 5 principal functions of management.
Charles Handy believed that managers and leaders can only be
effective and efficient, if they are able to rise above a situation to
3 B look at the big picture, rather than being fixated on minor issues or
details. They must thus be generalists, and refrain from
micromanaging their subordinates.
Drucker believed that a firm’s employees were vital to its success,
and that decentralisation should be encouraged because managers
4 C
are less likely to know the intricacies of each individual employee’s
work.
Drucker suggested 5 key functions of management: 1. Measuring
and assess performance against objectives, 2. Developing people,
3. Establishing and communicating organization objectives for the
5 D firm to achieve, 4. Communicating with employees and motivating
them, 5. Organizing jobs and human capital efficiently and
effectively. Option D is one of the three functions of management
proposed by Handy.
A leader strives to inspire, motivate and influence others in the
organization. A leader sets the culture and tone of a firm and has a
6 A firm vision. A manager on the other hand focuses on achieving
operation objectives, and follows the organizational culture,
managing other people, and making tactical decisions.
An autocratic leader is one who believes in formal chains of
7 D command, where consultation with subordinates in decision-
making is rare or non-existent.
An autocratic leadership style enables quick decision-making, as
the leader does not consult workers (which could be a time
consuming process). Thus, it is effective during a crisis or when
8 B decisions need to be made immediately (Option D). For low skilled
jobs, employees are provided clarity over their roles (Option C).
However, because of the lack of consultation, only one-way, top-
down communication occurs, so Option B is the correct answer.

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IB Business Management MCQ Revision Pack 2.3 Leadership and Management

An autocratic leadership style involves no consultation with

employees regarding their opinions and ideas, thus discouraging
creativity and innovation (Option A). It is also likely to demotivate
staff who may not feel valued (Option B). It does not nurture and
9 C
develop internal talents for future managerial positions (Option D).
However, an autocratic leadership style is likely to speed up
decision-making, not slow it down. Thus, Option C is the correct
answer.
A paternalistic leader is one that sees their subordinates as family
members. Consultation may occur, but the leader guides and
protects his/her team. Option A is incorrect because it refers to a
leader who changes leadership style as per the circumstances
10 B
being faced. Option C refers to a leader who is very comfortable
with delegating responsibility and authority to others. Option D
refers to a leader who believes in formal chains of command and
does not consult subordinates in decision-making.
A paternalistic leadership style is one where the leader, despite
11 A considering employees like family members, feels that his/her
subordinates are relatively less capable.

A paternalistic leadership style is not effective in a firm with a flat

12 D organization structure that requires innovation and creativity,
because the leader makes the decisions.

A paternalistic leadership style involves key decisions being made

at the top, and communication is primarily top-down (but less so
than with an autocratic leader). This can be demotivating for the
13 D
workforce. Lower labour turnover (Option D) is an advantage to
organizations, as there is some consultation with employees and
they feel their interests are looked after by the paternalistic leader.
A democratic leader is one who is willing to delegate authority and
consult subordinates in decision-making, so Option A is the correct
answer. Option B refers to a leader who sees subordinates as
14 A family members, so guides and protects them. Option C refers to a
leader who is very comfortable with delegating responsibility and
authority to others. Option D represents an authoritative leader who
never consults subordinates.

A democratic leadership style involves two-way communication, as

subordinates are consulted in the decision-making process.
Collaborative working environments are also likely to better satisfy
15 B
individuals’ social needs, so motivate them more. Thus, creativity
and innovative potential are more effectively utilised. However, this
slows down decision-making, so Option B is the correct answer.

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IB Business Management MCQ Revision Pack 2.3 Leadership and Management

A democratic leadership style may result in disagreements and

conflict during the consultation process. This causes disharmony
and negatively affect working relationships. It is also time
16 C
consuming and expensive to gather everyone’s views (Option B),
and thus is ineffective when critical decisions need to be made
quickly (Option D).

A laissez-faire leader is one who delegates authority and

17 C responsibility to his/her team and allows them to carry out jobs in
their own preferred ways. There is no micromanagement involved.

A laissez-faire leadership style can be motivational as employees

have freedom to carry out tasks in any effective way they wish. It
also encourages individuals to be creative, and thus helps the firm
become more innovative. However, coordination is more difficult
18 A
and time-consuming (Option iii) and slack (complacency) can occur
because of the minimal levels of supervision (Option iv). Thus,
Options i. and ii. are advantages, while Options iii. and iv. are
disadvantages.

Situational leaders are ones who can actively vary their leadership
19 C style to suit the circumstances being faced. They are not confined
to any one style of leadership.

Organizational structure (Option A), the level of employees’ skills

(Option B), the quantity and complexity of tasks on hand (Option D)
20 B
determine the choice of leadership style adopted. Salary (Option B)
is less likely to impact leadership style, even for a situational leader.

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IB Business Management MCQ Revision Pack 2.4 Motivation

1. Which of these statements does not describe motivation?

A. The aspiration to progress in the workplace

B. The desire to achieve goals and targets
C. The need to do something in return for money
D. The willingness to work

2. Who came up with the idea of a differentiated piece rate wage system to motivate
the workforce?

A. Abraham Maslow
B. Frederick Herzberg
C. Frederick W. Taylor
D. John Adams

3. Who suggested that managers are the ones responsible for organizing the
successful completion of a task, and waged-staff should have little to no input into
the way processes are designed at work?

A. Frederick W. Taylor
B. Daniel H. Pink
C. Frederick Herzberg
D. John S. Adams

4. Which of the following is not a valid criticism of F.W. Taylor’s motivation theory?

A. Non-physical contributions are ignored

B. Worker preferences, which directly impact motivation, are ignored
C. It is only effective in firms that require high levels of physical output
D. It does not explain what happens after an individual reaches his or her
self-actualization

5. In Abraham Maslow’s hierarchy of needs, food and shelter are considered

___________ needs, and recognition and respect are considered ____________
needs.

A. Security, social
B. Security, self-actualization
C. Physiological, self-esteem
D. Physiological, social

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IB Business Management MCQ Revision Pack 2.4 Motivation

6. When a natural disaster destroys the people’s homes, which need in Maslow’s
hierarchy of needs is this affecting?

A. Security
B. Physiological
C. Social
D. Self-actualization

7. On which of the following statements is Maslow’s hierarchy of needs based on?

A. All humans have a comparable set of motives

B. Some motives are more required than others
C. For higher motives to be activated, lower level needs must be satisfied
D. All of the above

8. In Maslow’s hierarchy of needs, which need is representative of the human desire

for friendship, inclusion and love?

A. Physiological
B. Esteem
C. Social
D. Self-actualization

9. In Maslow’s hierarchy of needs, which need is representative of the human desire

to ‘become the best they can be?

A. Self-actualization
B. Esteem
C. Social
D. Advancement

10. An ‘employee of the month’ system at an insurance firm is most likely to satisfy
which of the following needs in Maslow’s hierarchy of needs?

A. Self-actualization
B. Esteem
C. Social
D. Advancement

11. One of the driving forces for working in investment banking is status. Which need
does status satisfy?

A. Esteem
B. Social
C. Self-actualization
D. Security

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IB Business Management MCQ Revision Pack 2.4 Motivation

12. One of the driving forces for working in investment banking is status. Which need
does status satisfy?

A. Esteem
B. Social
C. Self-actualization
D. Security

13. One of the driving forces for obtaining one’s doctorate (PhD) is the ability to
research and learn while facing new challenges. Which need does this relate to
most in Maslow’s hierarchy of needs?

A. Esteem
B. Social
C. Self-actualization
D. Security

14. Which of the following are criticisms of Maslow’s hierarchy of needs theory?

A. Needs are difficult to measure and quantify objectively

B. Different people may have a different order of needs
C. It assumes no motivating factors exist after self-actualization is achieved
D. All of the above

15. Which of the following theorists developed the terms ‘hygiene/maintenance

factors’ and ‘motivators’?

A. Abraham Maslow
B. Frederick Herzberg
C. Frederick Taylor
D. John Adams

16. In Frederick Herzberg’s motivation theory, maintenance factors are typically

__________ factors, while motivators are mainly ___________ factors.

A. Emotional, physical
B. Emotional, psychological
C. Physical, psychological
D. Psychological, physical

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IB Business Management MCQ Revision Pack 2.4 Motivation

17. Herzberg believed a ___________ style of leadership was most relevant, and that
firms should actively train and improve the capabilities of their employees.

A. Autocratic
B. Democratic
C. Paternalistic
D. Situational

18. Providing workers with a larger variety of tasks to do is called _________.

A. Job enlargement
B. Job enrichment
C. Job rotation
D. Job empowerment

19. Providing workers with a with more challenging tasks to provide a sense of
achievement is called _________.

A. Job enrichment
B. Job enlargement
C. Job empowerment
D. Job rotation

20. Giving workers more authority and decision making power over how they go about
their jobs is called ___________.

A. Motivation
B. Encouragement
C. Job empowerment
D. Job enrichment

21. Organizational policies and rules, working conditions and job security are
_____________, while career advancement opportunities, recognition and
responsibility are ___________.

A. Motivators, hygiene factors

B. Maintenance factors, motivators
C. Hygiene factors, job enrichment
D. Physiological needs, self-actualization needs

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IB Business Management MCQ Revision Pack 2.4 Motivation

22. When people do something because they feel obligated to by the nature of their
job, this is called __________. When people do something because they
genuinely want to, this is called __________.

A. Performance, desire
B. Obligated action, intrinsic drive
C. Responsibility, internal drive
D. Movement, motivation

23. ______________ first suggested the theory that employees should receive a
remuneration in line with their efforts contributed.

A. Abraham Maslow
B. John Adams
C. Frederick Herzberg
D. None of the above

24. Which of the following is not one of the three intrinsic factors motivating a person
in Daniel Pink’s theory of motivation?

A. Autonomy
B. Equity
C. Mastery
D. Purpose

25. If a worker is paid $5.50 per hour worked, what is this an example of?

A. Salary
B. Wage
C. Time rate
D. Both (B) and (C)

26. If a tailor is paid $95 for every suit they make, what is this an example of?

A. Wage
B. Time rate
C. Piece rate
D. Both (A) and (C)

27. Which of the following is not an advantage of using a piece rate wage system?

A. Productivity is rewarded
B. Quality control improves
C. It incentivises and motivates employees to work hard
D. It enhances fairness in compensation

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IB Business Management MCQ Revision Pack 2.4 Motivation

28. Which of the following is not a valid criticism of using a piece rate wage system?

A. There is greater emphasis on producing high-quality output

B. Greater quality control and supervision is required
C. Fluctuating income levels may demotivate staff
D. Internal competition increases

29. A cars salesperson earns a fixed monthly salary of $1,000 and a commission of
5% of the selling price of each car sold. If a salesman sells cars worth $145,000
in a month, what is his total compensation for the month?

A. $8,250
B. $7,250
C. $8,700
D. $9,250

30. Lisa earns a fixed monthly salary of $2000 and a commission of 30% on all value
of all insurance policies she sells. In 2016 she sold $85,000 worth of insurance
plans. Her tax rate is 15%. What is her take-home pay after taxes are deducted?

A. $49,500
B. $25,500
C. $42,075
D. $45,000

31. What is a financial reward system in which staff receive more pay if the firm earns
more profit called?

A. Commission
B. Performance-related pay
C. Profit-related pay
D. Fringe payments

32. What is it called when a company provides managers with a company car, and
employees with an onsite gym and canteen?

A. Commission
B. Performance-related pay
C. Profit-related pay
D. Fringe payments

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IB Business Management MCQ Revision Pack 2.4 Motivation

33. Which of the following is not a form of non-financial reward?

A. Fringe benefits
B. Job enrichment
C. Empowerment
D. Job enlargement

34. Which of the following are potential benefits that may arise from job rotation?

A. Training costs are minimized

B. It makes work less repetitive
C. It develops the internal talent pool
D. It encourages flexibility

35. How is overspecialisation best remedied?

A. Empowerment
B. Job enrichment
C. Job rotation
D. Autonomy

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IB Business Management MCQ Revision Pack 2.4 Motivation

2.4 Answers

Question Answer Explanation

Motivation is the desire, drive and willingness to do something, so

Options A, B and D all describe motivation. Doing something in
1 C return for money (Option C) is how workers can be motivated, rather
than what motivation actually is. In addition, motivation is not driven
purely by financial factors.

Frederick W. Taylor believed that money was the primary

motivating factors, and that those who are more efficient and
2 C
productive should be rewarded, while those employees who do not
meet output targets should be penalized.

Taylor believed that it was a manager’s responsibility to plan,

administrate and monitor task completion in the most efficient way
3 A possible. He believed that waged-staff should have little, if any,
input or decision-making power regarding process design and
implementation in the workplace.
Self-actualization is an aspect of Abraham Maslow’s hierarchy of
needs, not Frederick Winslow Taylor’s scientific management
theory. Hence, this is the correct answer. Taylor did not incorporate
4 D the impacts of non-physical contributions of employees (Option A),
especially in professions requiring high levels of mental and
creative output. Worker preferences (Option B), which directly affect
worker morale, are also ignored in Taylor’s theory.
Physiological needs include food, shelter and clothing – based
needs for survival. Safety needs are those required to make
employees feel secure, such as job security. Social needs
represent the needs to feel loved and accepted, such as team
5 C
working and mentoring opportunities. Self-esteem needs are the
desires people have to receive recognition and power. Self-
actualization needs include opportunities to develop one’s skills and
face new challenges.
Shelter is a basic necessity for survival (a physiological need), and
if people don’t have adequate shelter and homes, any higher level
6 B
needs such as the need for self-actualization through challenging
work will not motivate employees.
Maslow’s hierarchy of needs suggests that humans have five
similar sets of needs – physiological, safety, social, esteem and
self-actualization needs. Basic physiological and safety needs form
7 D the foundation for higher needs to be achieved – i.e. without
satisfying the lower level needs, a higher level need such as a
person’s self-esteem needs cannot be satisfied. Thus all of the
statements are correct.

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IB Business Management MCQ Revision Pack 2.4 Motivation

Social needs represent the needs to feel loved and accepted. Such
needs can be satisfied by an inclusive and friendly working
8 C
environment, providing opportunities to receive mentorship or work
in teams and develop strong relationships.
Self-actualization represents an individual’s desire for self-fulfilment
– to become the best person they possibly can. Self-actualization
9 A
needs are satisfied by providing opportunities to develop one’s skills
and face new challenges. It is the highest level need.
Esteem needs represent the desires people have to be recognised
and respected. Such needs can be satisfied through internal
10 B promotion and recognition. Because ‘employee of the month’
systems focus on recognizing the efforts and performance of an
individual, this satisfies a person’s esteem needs.
Esteem needs represent the desires people have to be recognised,
respected and hold a position of status. Option B is incorrect
because it refers to the needs to feel loved and accepted, Option C
11 A
represents the human desire to become the best a person can
possibly be, and Option D represents the desire to have physical
and financial safety.
Esteem needs represent the desires people have to be recognised,
respected and hold a position of status. Option B is incorrect
because it refers to the needs to feel loved and accepted, Option C
12 A
represents the human desire to become the best a person can
possibly be, and Option D represents the desire to have physical
and financial safety.
Self-actualization needs are satisfied by providing opportunities to
develop one’s skills and face new challenges. Thus, the challenges
13 C
and learning opportunities that are faced in the process of obtaining
a PhD relate to self-actualization needs.
Levels of needs in Maslow’s theory can be difficult to objectively
measure and quantify – for example, how can a firm measure the
level of esteem needs being satisfied for each employee? Different
14 D people may also have a different hierarchy, and the theory does not
describe what motivates people after they have satisfied the self-
actualization level. Thus, all of the above are valid criticisms of the
model.
Frederick Herzberg coined the terms ‘hygiene (or maintenance)
factors’ and ‘motivators’ while investigating the causes of employee
satisfaction and dissatisfaction at the workplace. Hygiene factors,
15 B such as wages, organizational rules and policies, and working
conditions must be to an acceptable standard, or else
dissatisfaction results. Motivators, such as recognition and career
advancement increase the level of satisfaction.

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IB Business Management MCQ Revision Pack 2.4 Motivation

Hygiene factors, such as wages, organizational rules and policies,

and working conditions must be to an acceptable standard, or else
dissatisfaction results. These are physical factors that workers
16 C
come to expect from an employer. Motivators, such as recognition,
career advancement and responsibility increase the level of
satisfaction, and are considered psychological factors.
Herzberg believed in a democratic style of leadership to maximise
17 B the level of motivation within employees, because such a style
makes employees feel valued.
Job enlargement refers to providing workers with a larger range and
18 A variety of tasks to fulfil, although they may not necessarily more
challenging tasks.
Job enrichment refers to providing workers with more challenging
and meaningful tasks to carry out. This provides them a sense of
19 A
value by showing that the firm trusts in their abilities, and can lead
to a sense of achievement upon task completion.
Job empowerment refers to delegating decision making power and
authority to employees about how they go about their jobs. Job
20 C
enrichment can provide motivation (Option A) and encouragement
(Option B) to employees.
Hygiene (maintenance) factors include: organizational policies and
rules, working conditions, job security, pay and good working
21 B relationships. Motivators include: career advancement
opportunities, recognition, responsibility, job enrichment and
achievement.
Movement occurs when people do certain things because they feel
they must, as per their job roles and expectations of them by their
22 A
firm. Motivation on the other hand is intrinsic, and occurs because
people want to do something.
John Adams’ Equity theory posits that an employee’s remuneration
should accurately reflect their efforts and contributions. A fair
23 B balance between what an employee puts in (such as effort) and
what they get out of the job (remuneration or recognition) is required
to maintain motivation levels.
Daniel Pink’s theory lies on three intrinsic factors that motivate
people: autonomy, mastery and purpose. Autonomy refers to the
ability to have control over one’s work. Mastery refers to the ability
24 B to attain greater expertise and skillsets in fields a person deems
important. Purpose refers to a person’s desire to do things that
actually matter. Option B, equity, is a constituent of John Adams’
equity theory of motivation.
A time rate is a wage where the worker is paid based on the number
of hours worked. Option A is incorrect because salaries are
25 D
predetermined compensation that is independent of the number of
hours worked.

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IB Business Management MCQ Revision Pack 2.4 Motivation

A piece rate is a wage where the worker is paid based on the

number of units of output produced, in this case, suits. Option B is
26 D
incorrect because a time rate is a wage determined by the number
of hours worked, not the quantity of output produced.
A piece rate is a wage where the worker is paid based on the
number of units of output produced. This however may result in
27 B
workers rushing to complete more units, compromising quality in
the process. Thus Option B is not an advantage.
As a piece rate wage system rewards workers based on the number
of units produced, workers may rush to complete more units and
compromise quality in the process. Consequently, the need for and
28 A
expenses of quality control rises. A poor economy may also cause
fluctuating income levels, unlike in the case of a salary. Workers
may also compete unhealthily amongst each other, fuelling conflict.

29 B Total compensation = $1,000 + (0.05 x $145,000) = $8,250

Total compensation = ($2,000 × 12) + (0.30 × $85,000) = $49,500.

30 C
Take-home pay after tax deduction = $49,500 × (1-0.15) = $42,075
Profit-related pay is for reward system where a firm that has
achieved higher profits pays its staff more, most frequently through
31 B an annual bonus. Option B is incorrect because it refers to a system
where people are paid bonuses or increments for achieving
personal targets.
Fringe payments (benefits) are forms or remuneration (often in kind)
that are provided as a perk in addition to an employee’s basic
32 D
remuneration package. Company cars, gyms and canteens are all
examples of fringe benefits.
Fringe payments (benefits) are forms or remuneration (often in kind)
that are provided as a perk in addition to an employee’s basic
remuneration package. Fringe payments are financial reward
33 A
systems because they have a clear monetary worth – for example,
a free or subsidised company canteen costs the firm a quantifiable
amount of money per employee.
Job rotation is a form of non-financial reward that allows employees
to experience different roles within the firm. This provides variety
and makes work less repetitive, while also developing employees’
34 A
talents and capabilities. Thus flexibility is promoted. However, job
rotation requires more training to be provided, raising training and
development expenses.
Job rotation is most likely to remedy the problem of
overspecialisation because it encourages employees to gain new
skills and knowledge across multiple job roles. Note that job rotation
35 A is a form of job enlargement. Autonomy, which may arise through
empowerment, does not necessarily solve overspecialisation
because it simply leads to individuals having more authority over
the current, existing job roles.

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IB Business Management MCQ Revision Pack 2.5 Organizational (Corporate) Culture (HL)

1. Which of these statements best describes ‘culture’?

A. The attitudes, beliefs and values within a firm

B. The number of levels in the corporate hierarchy
C. The size of the firm, and how much trust managers have in subordinates
D. The nature of the business

2. Which of the following factors is least likely to impact a firm’s culture?

A. Financial performance
B. Reward (remuneration) systems
C. Nature of the business
D. Organizational structure

3. What is the ability of an individual to adapt and blend into different cultures called?

A. Cultural intelligence
B. Global mindedness
C. Flexibility
D. Easy-goingness

4. What is the existence of a difference between the prevailing and desired culture
at an organization called?

A. Cultural quotient
B. Cultural gap
C. Divergence of values
D. Power culture

5. Which of the following is not one of the three levels of corporate culture posited
by Edgar Henry Schein?

A. Espoused values
B. Shared basic assumption
C. Unity
D. Artefacts

6. The style of employee interactions within a firm would be classified under which
of Edgar Schein’s three levels of corporate culture?

A. Espoused values
B. Shared basic assumption
C. Behavioural tendencies
D. Artefacts

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IB Business Management MCQ Revision Pack 2.5 Organizational (Corporate) Culture (HL)

7. According to Charles Handy, a _______ culture exists when decision-making

power is highly centralized in the hands of only a few senior employees.

A. Role
B. Power
C. Task
D. Person

8. When a firm is highly structured, with clear roles, responsibilities and guidelines
for staff to follow, there is a _________ culture prevalent in the firm.

A. Role
B. Power
C. Task
D. Person

9. When a firm tends to focus on getting the job done, through empowering diverse
teams and disregarding formal job titles, a ________ culture is likely to exist.

A. Role
B. Power
C. Task
D. Person

10. In a firm where individuals seem themselves as superior to the organization, and
typically have employees with similar qualifications and expertise, a ________
culture is likely to exist.

A. Role
B. Power
C. Task
D. Person

11. Which of the following firms is most likely to have a person culture?

i. A law firm
ii. An accounting firm
iii. An internet start-up
iv. Google

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

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IB Business Management MCQ Revision Pack 2.5 Organizational (Corporate) Culture (HL)

12. Refer to the diagram below of Deal and Kennedy’s organizational culture model,
and determine what is to go into boxes (a) and (b).

Feedback and reward

Rapid Slow
High Tough-guy macho (a)
Risk
Low (b) Process

A. (a) bet-the-company; (b) work-hard, play-hard

B. (a) bet-the-company; (b) inert
C. (a) risk-taking; (b) triviality-focused
D. (a) work-hard, play-hard; (b) bet-the-company

13. According to Deal and Kennedy’s organizational culture model, which of the
following organizations is most likely to have a tough-guy macho culture?

A. The police force

B. Pharmaceutical companies
C. Insurance companies
D. All of the above

14. According to Deal and Kennedy’s organizational culture model, which of the
following organizations is most likely to have a process culture?

A. Oil exploration and extraction firms

B. Aircraft manufacturers
C. Stock exchanges
D. Government divisions

15. Which of the following theorist(s) suggested the idea of a firm having either an
adaptive or an inert corporate culture?

A. Rob Goffee and Gareth Jones

B. Terrence Deal and Allan Kennedy
C. John Kotter and James Heskett
D. Charles Handy and Edgar Schein

16. Which of the following theorist(s) analysed the sociability and solidarity
dimensions of organizational culture, and said that a good culture would score
highly on both dimensions?

A. John Kotter and James Heskett

B. Geert Hofstede
C. Terrence Deal and Allan Kennedy
D. Rob Goffee and Gareth Jones

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IB Business Management MCQ Revision Pack 2.5 Organizational (Corporate) Culture (HL)

17. Which of the following is not one of the five dimensions of culture according to
Geert Hofstede?

A. Power-distance
B. Short-term versus long-term orientation
C. Uncertainty avoidance
D. Sociability and solidarity

18. __________ refers to the extent to which employees are accepting or unequal
distribution of authority and decision-making power.

A. Uncertainty avoidance
B. Short-term versus long-term orientation
C. Power-distance
D. Individualism versus collectivism

19. A firm with ______ uncertainty avoidance will prefer routine over flexibility and will
tend to see _________ employee loyalty to the firm.

A. Higher, higher
B. Higher, lower
C. Lower, higher
D. Lower, lower

20. Which of the following are possible reasons for culture clashes?

A. Internal growth of the firm

B. Mergers or acquisitions
C. Changes in the senior management and leadership
D. All of the above

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IB Business Management MCQ Revision Pack 2.5 Organizational (Corporate) Culture (HL)

2.5 Answers (HL)

Question Answer Explanation

Corporate culture refers to the overall attitudes, beliefs and values

1 A within a firm. It defines what employees perceive as ‘normal’ in the
business.
Remuneration systems, nature of the business and organizational
structure are likely to impact a firm’s culture much more than
financial performance can. For example, a cohesive culture is likely
2 A to arise if the reward systems are fair and generous. A car
dealership will have a more aggressive culture than a charity, and
a firm with a highly decentralized structure may have a more
innovative culture than a highly centralized one.
Cultural intelligence (quotient) refers to the ability to adapt to
different cultures, for example, when changing job or during a
3 A
merger or acquisition. Option C is likely to be a personal trait of
people with a high cultural quotient.
A culture gap exists whenever the prevailing culture is different from
the desired culture. Option A refers to the ability to adapt to different
4 B
cultures, Option C is a cause of culture gaps, and Option D refers
to an organization where decision-making is highly centralized.
Edgar Schein suggested three levels of corporate culture. Artefacts
are the tangible or visible elements of a culture, such as dress code,
furnishings, and the style of employee interaction. Espoused values
5 C represent the values the firm deems important, and can be found in
the mission statement, branding and in slogans. Shared basic
assumptions are the values expressed subconsciously through
behaviour. Option C is thus not one of the three levels.
The style of human interactions would be classified under the
artefacts level of corporate culture. Artefacts also include other
tangible or visible elements of a culture, such as dress code,
6 D furnishings, and organizational history. Option A is incorrect
because espoused values represent the values the firm deems
important, and Option B are the values expressed subconsciously
through behaviour.
A power culture exists whenever decision-making is done
7 B exclusively by a few senior members of a firm, i.e. decision-making
is highly centralized.
A role culture exists in very highly structured firms where each
employee has clear and specific roles and formal guidelines to
8 A
follow. Such a culture is likely to be seen in very bureaucratic
organizations with numerous layers in the organizational hierarchy.

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IB Business Management MCQ Revision Pack 2.5 Organizational (Corporate) Culture (HL)

A task culture exists in a firm that focuses on getting a task done.

Diverse teams with experts from different areas may be brought
9 C
together to accomplish a specific job. Formal job titles are relatively
unimportant compared to a firm with a role culture.
A person culture exists in a firm where most employees have similar
skills, qualifications and expertise. They believe the organization
10 D exists only to facilitate their work, and see themselves as superior
to the firm. Examples of firms with a person culture include
accounting and legal firms.
A person culture exists in a firm where most employees have similar
skills, qualifications and expertise. All accountants and lawyers
have to pass similar industry qualifications in order to work in that
field. Thus Options i and ii are correct. An internet start-up is more
11 B
likely to have an entrepreneurial culture, as it is one that prioritises
new product development and innovation. Google is likely to have
a mix of an entrepreneurial and task culture because of the nature
of the firm.
A bet-the-company culture exists when a firm takes significant risks
without rapid feedback and reward. Examples of such companies
include pharmaceutical firms which invest significantly in new
12 A drugs, but wait years to see any results. A work-hard, play-hard
culture exists in a firm which takes relatively low risks, but has very
quick feedback and reward systems. Examples include restaurants
and hotels.
A tough-guy macho culture is one where the organization takes high
risks and has rapid feedback and reward systems in place. An
example is in the police, where the organization is faced with high
13 A security risks and any actions by the police receives rapid feedback
from the public. Pharmaceutical companies (Option B) is likely to
face a bet-the-company culture, while insurance firms (Option C)
are likely to face a process culture.
A process culture is one where the firm takes low risks and has
relatively slow feedback and reward systems in place. Government
divisions can be highly bureaucratic and time-wasting even for
14 D
trivial, low-risk decisions. Thus Option D is the correct answer.
Options A and B are likely to have a bet-the-company culture, and
Option C is likely to have a tough-guy-macho culture.
Kotter and Heskett suggested that a firm can have two types of
15 C organizational cultures – an adaptive culture that is eager for
change and innovation, or an inert culture that repels change.
Goffee and Jones suggested that a good culture would have high
sociability and high solidarity. Sociability refers to the extent to
16 D
which employees get along and care for each other, while solidarity
refers to how united employees are within a firm.

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IB Business Management MCQ Revision Pack 2.5 Organizational (Corporate) Culture (HL)

Geert Hofstede suggested five dimensions of culture: 1. Power

distance, 2. Short-term versus long-term orientation, 3. Uncertainty
avoidance, 4. Individualism versus collectivism, and 5. Masculinity
17 D
versus femininity. Option D is incorrect because it was suggest as
the two dimensions of culture in Goffee and Jones’ theory on
organizational culture.
Power-distance refers to how accepting people are of having
different levels of power and authority in the firm. A firm with a high
power-distance culture will have a more centralized decision-
18 C
making system than a firm with a low power-distance culture which
believes in equal distribution of power, delegation and
empowerment.
Uncertainty avoidance refers to the extent to which employees
prefer having a fixed routine over a flexible one. Thus employees
with high uncertainty avoidance will prefer a formal structure and
19 D
patterns compared to people with low uncertainty avoidance.
Because high uncertainty avoidance people prefer continuity, they
are likely to stay loyal to their employers.
All of the mentioned points can lead to culture clashes. For
example, internal growth where a firm expands its operations into
another nation can lead to culture clashes because of a lack of
understanding of cultural norms. Mergers and acquisitions involve
20 D
two cultures coming together, and so are prone to culture clashes.
Changes in management or leadership affects the strategic
direction and working norms, potentially causing culture clashes
too.

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IB Business Management MCQ Revision Pack 2.6 Industrial/Employee Relationships (HL)

1. What is the process of negotiation over working conditions and pay between an
employer and employees (or their representatives) called?

A. Trade union action

B. Industrial action
C. Collective bargaining
D. Work-to-rule

2. What is an organization that exists primarily to protect the interests of a group of

workers called?

A. Labour union
B. Negotiators
C. White-collar unions
D. General unions

3. Which of the following is not one of the functions carried out by a trade union?

A. Processing salaries and wage payments

B. Pushing for better working conditions
C. Providing financial support to members
D. Bargaining for higher pay

4. When employees deliberately work at the slowest pace allowable, in order to

minimise efficiency and productivity, what is this known as?

A. Work-to-rule
B. Slowdown
C. Strike
D. Collective bargaining

5. What is the main benefit to workers of go-slows compared to strike action?

A. They gain the goodwill of employers

B. They still get paid
C. They gain more bargaining power in negotiations
D. They maintain the level of output, thereby not affecting customers

6. When individuals in the workplace follow each and every company policy strictly,
what form of industrial action is taking place?

A. Strike
B. Collective bargaining
C. Go-slow
D. Work-to-rule

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IB Business Management MCQ Revision Pack 2.6 Industrial/Employee Relationships (HL)

7. What is the term that describes an outright refusal by employees to work?

A. Industrial action
B. Resignation
C. Strike
D. Work-to-rule

8. Which of the following is not a form of industrial relations method available to

employers?

A. Collective bargaining
B. Appraisals
C. Redundancy threats
D. Contract alterations

9. What is the term used to describe the process of using a mediator to help
facilitate negotiations during the conflict resolution process?

A. Conciliation
B. Arbitration
C. Employee participation
D. Industrial democracy

10. When an independent party acts like a ‘judge’ during conflict resolution and
decides on a legally binding outcome, what is this called?

A. Employee participation
B. Arbitration
C. Conciliation
D. Both (A) and (B)

11. Which of the following is an example of employee participation?

A. Team working
B. Share ownership schemes for employees
C. Works councils
D. All of the above

12. What is the term used to describe the agreement whereby employers are
allowed to conduct negotiations with one main trade union, rather than several
subordinate ones?

A. No strike agreement
B. Single-union agreement
C. Working committee
D. None of the above

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IB Business Management MCQ Revision Pack 2.6 Industrial/Employee Relationships (HL)

13. Which of the following cause resistance to change?

i. Low tolerance to change

ii. Miscommunication and misinformation
iii. Different people interpreting situations differently
iv. Different management experiences

A. i + ii
B. ii + iii
C. i + ii + iii
D. iii + iv

14. A person with low concern for others but high concern for himself is likely to
_________ during conflict resolution, whereas a person with low concern for
himself and high concern for others is likely to ________.

A. Compete, surrender
B. Compete, collaborate
C. Collaborate, surrender
D. Compromise, collaborate

15. Which of the following is not a valid approach to dealing with resistance to
change?

A. Work-to-rule
B. Communicating the change
C. Involving employees
D. Providing training and support

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IB Business Management MCQ Revision Pack 2.6 Industrial/Employee Relationships (HL)

2.6 Answers

Question Answer Explanation

Collective bargaining refers to the negotiation of working

conditions and pay between an employer’s and employees’
representatives. Option C is incorrect because industrial action is
1 C
an umbrella term for any technique used by employees to get
what they want – for example, collective bargaining, work-to-rule
and strikes.
A labour (trade) union is an organization that protects the interests
(financial and non-financial) of a group of workers in a firm or
2 A
industry. Options C and D are incorrect because they are
examples of the various types of labour unions that exist.
A trade union will typically push the company to provide better
working conditions (Option B). When members are struggling
financially, some unions may provide financial support (Option C).
3 A
It will also try to bargain for higher pay for their members (Option
D). However, Option A is the correct answer as it is the duty of a
firm’s finance and accounts department to process remuneration.
A slowdown is a form of industrial action where workers aim to
reduce their efficiency and productivity by working slower (but at a
4 B pace where they are still in compliance with the terms and
conditions of their employment contract). Option A is incorrect as it
refers to when employees abide by every rule to reduce output.
Workers still get paid during a slowdown, but not during a strike.
5 B This is because with go-slows, employees are still working, albeit
much slower than normal.
A work-to-rule is a form of industrial action where employees
follow strictly every company policy to slow down productivity and
output. They also do the bare minimum according to their contract,
6 D such as leaving on-the-dot, and not putting in any additional effort
than what is required as per their contract. Option C is incorrect
because it refers to when workers aim to reduce their efficiency
and productivity by working slower.
A strike occurs when employees temporarily refuse to work until
their demands are met. It is a form of industrial action (Option A),
7 C but does not constitute collective resignation (Option B). Work-in-
rule (Option D) still requires people to work, albeit at a much
slower pace.

Appraisals (Option D) is the correct answer as they are not a form

8 B of industrial relations management, but used to review and assess
performance.

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IB Business Management MCQ Revision Pack 2.6 Industrial/Employee Relationships (HL)

Conciliation refers to the process of using a mediator to help

resolve differences between employers and employees. The
independent mediator will individually meet each party, and
9 A
encourage compromise and a mutually beneficial outcome.
Neither side is legally bound to the mediator in conciliation, unlike
in arbitration.
Arbitration occurs when two parties request a third, independent
party to hear out the arguments of both sides and decide on a final
10 B
outcome. This decision is legally binding for both parties,
irrespective of the outcome or decision.
All three options are valid examples of employee participation
because they involve and engage workers. Team working (Option
A) allows workers to come together to solve problems. Share
11 D ownership schemes (Option B) provide employees with a sense of
belonging, ownership and purpose. Works councils (Option C)
take into account employee opinions regarding organization-wide
issues.
A single-union agreement is an agreement where the employer
12 B only has to deal with one major trade union that represents all
employees, even if multiple other, smaller unions exists.
People with self-interests prioritise their own interests (Option A)
over the benefits that may arise from change. Miscommunication
causing misinformation (Option B) may result in workers not
13 C realising the rationale behind the change. Different employees
may also interpret situations differently (Option D). However,
management experiences (Option C) have no direct correlation
with resistance to change.
People with a low concern for others but a high concern for their
own preferred outcomes are likely to adopt a competitive style to
conflict resolution, to ensure their needs are met before the needs
14 A
of others. On the other hand, someone with high concern for
others, but little for themselves, is like to surrender to the needs
and preferred outcomes of the other party.
It is important to communicate the need for and details of the
change (Option B). Involving employees during the change
process can help provide a sense of ownership, and reduce
15 A reluctance to change (Option C). Training and support can
facilitate and remove anxieties over looming changes (Option D).
Option A, however, is not a valid method of conflict resolution, but
a form of industrial action.

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IB Business Management MCQ Revision Pack 3.1 Sources of Finance

1. What does capital expenditure refer to?

A. Money invested in the acquisition of fixed assets

B. Money available for the day to day operations of a firm
C. Monetary payments to sustain the daily operations such as wages, rent
and energy
D. Money received from the sale of assets

2. What are payments for daily operations such as wages, advertising, water and
electricity costs called?

A. Working capital
B. Capital expenditures
C. Revenue expenditures
D. Cash outflows

3. Which of the following is not an internal source of finance?

A. Sale of assets
B. Personal savings
C. Retained profits
D. Share capital

4. When a firm is given the ability to pay a supplier at a later date, usually after one
to two months this is called (a) _________. An example of such a facility also
arises when using ____________.

A. Trade credit, credit cards

B. Hire purchase, credit cards
C. Goodwill, debt factoring
D. Subsidy, debt factoring

5. The first time a firm offers its shares to the general public, it is called a(n)
____________; subsequent offerings of additional shares are called
_____________.

A. Share placement, additional share issue

B. Initial public offering, share placement
C. Initial public offering, oversubscriptions
D. Initial public offering, administrative issuances

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IB Business Management MCQ Revision Pack 3.1 Sources of Finance

6. A debenture is a _______ loan providing regular __________. They provide

______ voting rights.

A. Long-term, interest payments, no

B. Short-term, dividends, no
C. Short-term, interest payments, significant
D. Long term, dividends, no

7. What is a facility that allows a firm or person to temporarily use more money than
their bank account holds called?

A. Short-term loan
B. Overdraft
C. Debt-factoring facility
D. Trade credit

8. Which of the following is the main advantage of an overdraft facility?

A. It provides flexibility in the face of cash flow problems

B. Interest rates are lower than those on long term loans
C. It provides long term funding
D. All of the above

9. What are sums of money that do not have to be paid back given by the
government to firms called?

A. Stockholders’ equity
B. Subsidies
C. Cash injections
D. Grants

10. What is a per-unit payment to producers to encourage greater output by reducing

costs of production called?

A. Grant
B. Business angel
C. Subsidy
D. Venture capital

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IB Business Management MCQ Revision Pack 3.1 Sources of Finance

11. What is the primary difference between venture capital and business angels?

A. Venture capitalists are institutional investors while business angels are

high net worth individuals
B. Venture capitalists are high net worth individuals while business angels
are institutional investors
C. Venture capitalists require a stake in the business while business angels
don’t
D. Venture capitalists risk their own savings, while business angels risks the
money of their institutional investors

12. What does debt factoring refer to?

A. Selling one’s accounts receivable at a discount

B. The facility whereby a firm can withdraw more funds than their bank
account holds
C. The analysis of how efficient different debtors are at repaying amounts
owed
D. The interest expense that builds up due to trade credit facilities being used

13. What is the primary difference between leasing and hire purchase?

A. In leasing the lessee acquires ownership, but in hire purchase the lessee
does not
B. Leasing is short term while hire purchase is for long term purchases
C. In leasing the lessee does not acquire ownership, but in hire purchase the
lessee does
D. Leasing involves a lump sum security deposit while hire purchase does
not

14. The short term refers to a period of less than _______ months, while the medium
term refers to a period of _______ to ________ years. Anything with a later
maturity date is considered long term.

A. 6, 1, 3
B. 12, 1, 5
C. 12, 1, 3
D. 6, 1, 5

15. Which of the following is not an advantage of leasing as an external source of

finance?

A. Lessors conduct necessary maintenance

B. System upgrades are the responsibility of the lessor
C. It minimizes capital expenditures
D. The lessee acquires ownership at the end of the lease contract

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IB Business Management MCQ Revision Pack 3.1 Sources of Finance

16. Sources of finance found within the firm are __________ sources of finance.

A. Internal
B. External
C. Short term
D. Long term

17. Which of the following is a bank loan not likely to include?

A. Periodic interest repayments

B. Periodic principal repayments
C. Dividends
D. Collateral

18. Which of the following are valid criticisms of share issuances?

i. It dilutes ownership and control of existing shareholders

ii. It is a costly and bureaucratic procedure
iii. It increases a firm’s gearing ratio
iv. It creates significant cash outflows

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

19. What is leasing most appropriate to fund?

A. Equipment procurement
B. Property acquisitions
C. Inventories
D. Salaries

20. What is the benefits of receiving venture capital funding?

A. Access to expertise
B. Access to contacts and networks
C. Access to funding that may not be provided by traditional lenders like
banks
D. All of the above

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IB Business Management MCQ Revision Pack 3.1 Sources of Finance

3.1 Answers

Question Answer Explanation

Capital expenditure is the monetary investment in the acquisition of

fixed assets such as land and machinery. Option B is incorrect
1 A because it refers to working capital, Option C defines revenue
expenditures, and Option D simply represents the funds flowing in
when a firm sells assets.
Revenue expenditures are the payments necessary to sustain daily
operations, such as those mentioned above. While they are indeed
cash outflows (Option D), the term cash outflow is an umbrella term
2 C
for any money flowing out of the business for any purpose. Capital
expenditures (Option B) is incorrect because it represents the
investments into fixed asset purchases.
An internal source of finance is one generated from the business
itself, such as through a sale of assets owned by the business,
personal savings of proprietors, or retained profits from previous
3 C
years. Option D is an external source of finance because money
flows into the firm from external stakeholders when they purchase
shares.
Trade credit is the facility extended by a supplier to customers to
buy and acquire the product now, but pay for it at a later date.
4 C Because a credit card holder can effectively purchase products
using the card now and pay later, the use of credit cards are
examples of trade credit.
The first time a private firm offers its shares to the general public on
a stock exchange to become a public company, it is called an initial
5 B public offering. Any subsequent offerings of shares to raise
additional share capital are called share placements or share
issues.
A debenture is a long-term loan that provides holders with regular
and consistent interest payments. They however do not provide any
6 A
voting rights or ownership, but have priority over ordinary
shareholders when the firm is liquidated.
An overdraft is a short-term facility allowing the firm or individual to
temporarily use more money than their bank account holds, albeit
with a relatively high interest rate imposed on excess withdrawals.
7 B
Option D is incorrect because it refers to the facility provided by
creditors to customers to buy and acquire a product now, but pay
for it at a later date.
An overdraft is a short-term facility allowing the firm or individual to
temporarily use more money than their bank account holds. They
8 A
however come with relatively high interest rates, and are only viable
in the short term.

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IB Business Management MCQ Revision Pack 3.1 Sources of Finance

A grant is a sum of money given to a firm by a government with no

9 D requirement of repayment. It is intended to boost the financial health
and competitiveness of certain industries.
A subsidy is a per-unit payment made by the government to
10 C suppliers to help reduce their costs of production and consequently
increase output.
The primary difference between venture capital and business
angels is that venture capitalists are institutional investors while
business angels are high net worth individuals. Venture capitalists
11 A
thus risk the money of their institutional investors, while business
angels risks their own personal funds. Note that it is likely both will
require ownership in return for their investments.
Debt factoring involves selling a firm or individual’s accounts
receivable for a 15-25% discount. When faced with cash flow
problems because debtors are not repaying amounts owed quickly
12 A
enough, selling the rights over this debt to a third party and receiving
75-85% of the funds quickly can alleviate a cash flow problem.
Option B is incorrect because it refers to an overdraft facility.
The primary difference between leasing and hire purchase is that in
leasing, the lessee does not acquire the product’s ownership at the
end of the lease period. For example, a tenant does not acquire
13 C
ownership of a home after a two-year lease contract. In hire
purchase transactions, the purchaser does acquire ownership
eventually.
The short term refers to a period of 12 months or less. For example,
accounts payable and overdrafts are short term. The medium term
14 B refers to a period of 1 to 5 years, and includes bank loans, lease
agreements or hire purchase contracts. The long term refers to a
period longer than 5 years, such as a mortgage.
In a leasing contract, routine maintenance and system upgrades
are usually done by the lessors, alleviating responsibility from the
shoulders of the lessee. Capital expenditures are also required, as
15 D
the firm only pays rent on the assets leased, but does not purchase
them outright. However, the lessee does not acquire ownership at
the end of the lease contract.
Sources of finance found within the firm, such as retained earnings,
personal savings and the sale of assets are considered internal
16 A sources of finance. Internal sources of finance can be both short
term (such as personal funds and asset sales) and long term (such
as retained earnings).

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IB Business Management MCQ Revision Pack 3.1 Sources of Finance

A bank loan is an external source of finance where a bank provides

a sum of money to a borrower at a certain interest rate. The
borrower has to regularly pay back a portion of the principal (loan
17 C amount) and pay the interest expenses associated with the loan.
The bank is also likely to require collateral to secure the loan.
Dividends however are not part of a loan, because they are simply
distribution of a firm’s earnings to shareholders.
Share issuances dilute the ownership and control of existing
shareholders because they now hold smaller proportions of the
outstanding equity of the firm. Share issuances have also become
very costly and bureaucratic procedures with a plethora of legal
18 B
formalities to be done. However, share issuances do not increase
a firm’s gearing because equity is not long term debt. Option iv. is
incorrect because a share issuance is likely to cause large cash
inflows.
Leasing is most appropriate to fund the procurement of equipment
because it allows a firm access to the productive resources without
having to conduct any significant capital expenditures. Option B,
19 A
property acquisitions, will be financed through mortgages. Options
C and D are more likely to be funded through short term loans or
overdraft facilities.
Venture capital financing provides significant access to expertise
and knowledge. Venture capital firms also have large networks and
influential contacts who can help a firm grow. Moreover, small firms
20 D
that cannot gain (sufficient) funding from banks or the government
can gain access to significant capital through venture capital
investment.

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IB Business Management MCQ Revision Pack 3.2 Costs and Revenues

1. What are costs that have to be paid regardless of the level of output called?

A. Variable costs
B. Stubborn costs
C. Fixed costs
D. Direct costs

2. What are costs that are directly proportional to the level of output called?

A. Variable costs
B. Indirect costs
C. Fixed costs
D. Direct costs

3. What are costs which contain both a fixed and variable cost component called?

A. Fixed costs
B. Indirect costs
C. Direct costs
D. Semi-variable costs

4. What is the distinguishing factor between direct and variable costs?

A. Direct costs need not be directly proportional to the level of output

B. Direct costs are always fixed costs
C. Direct costs need not be traceable to the production of any particular
product
D. There are no distinguishing factors between direct and variable costs

5. Which of the following is not an example of an indirect cost?

A. Energy (lighting) costs

B. Rent
C. Mortgage fees
D. Security

6. Which of the following is not an example of fixed costs?

A. Mobile phone service costs

B. Loan interest payments
C. Rent
D. Manager salaries

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IB Business Management MCQ Revision Pack 3.2 Costs and Revenues

7. Assume a firm has fixed costs of $125,000 per month, and a variable cost per unit
of $85. What is the firm’s total costs at an output level of 30,000 units per month?

A. $2,350,000
B. $2,425,000
C. $2,500,000
D. $2,675,000

8. Assume a firm has fixed costs of $3,071,025 per year, and a variable cost per unit
of $256. What is the firm’s total costs at an output level of 82,000 units per year?

A. $21,150,025
B. $24,063,025
C. $29,500,000
D. $31,018,025

9. Assume a firm has total costs of $2,500,000 per year. Fixed costs are $300,000.
200,000 units of output are produced in the year. What is the firm’s variable costs
per unit?

A. $11.00
B. $12.00
C. $12.50
D. $14.00

10. Assume a firm has total costs of $7,750,000 per year. 480,000 DVD players are
produced in the year at a variable cost per unit of $12.50. What is the firm’s fixed
costs?

A. $1,750,000
B. $5,500,000
C. $7,125,000
D. $13,750,000

11. Assume a firm has total costs of $7,750,000 per year. 480,000 DVD players are
produced in the year at a variable cost per unit of $12.50. What is the firm’s
average costs per unit?

A. $12.50
B. $13.75
C. $16.15
D. $28.65

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IB Business Management MCQ Revision Pack 3.2 Costs and Revenues

12. With reference to the table below, what is the firm’s total revenue assuming it sells
products X, Y and Z?

Product Price ($) Quantity Sold

X 45 3,000
Y 52 3,500
Z 47 2,100

A. $350,000
B. $372,107
C. $385,192
D. $415,700

13. Assume a firm has fixed costs of $23,250,000 per year. 1,440,000 coffee
machines are produced in the year at a variable cost per unit of $37.50. If the
selling price per coffee machine is $65, what is the total profit or loss made if all
the units produced are sold?

A. ($8,500,000) loss
B. $16,350,000 profit
C. $39,600,000 profit
D. $70,350,000 profit

14. Which of the following is not an example of a revenue streams?

A. Net income
B. Transaction fees
C. Franchise royalty fees
D. Interest income

15. Assume a firm has pays rent of $24,000 per year, management salaries of
$185,000 per annum and incurs other fixed costs of $45,000. Their output has a
variable cost of $22 per unit, and the selling price of their product is $28. If the firm
sells 9,500 units of output this year, what is the profit (or loss) they have made?

A. $12,000 profit
B. $75,500 profit
C. ($197,000) loss
D. ($215,750) loss

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IB Business Management MCQ Revision Pack 3.2 Costs and Revenues

3.2 Answers

Question Answer Explanation

Fixed costs are those costs and expenses that have to be paid
1 C regardless of the level of output. Examples include rent and
managerial salaries.
Variable costs are those costs that are directly proportional to the
level of production. Option B is incorrect because it refers to
overhead costs that cannot clearly be tracedto the production of any
2 A particular product, such as auditing fees. Option C refers to costs
that are unaffected by the level of output, and Option D refers to
costs that can clearly be traced to the production of a certain
product, but do not necessarily vary directly with the level of output.
Semi-variable costs are those costs with both a fixed and variable
cost component. Up to a certain level of output, costs are fixed, but
3 D beyond this level of output, variable costs apply. For example,
mobile service plans may allow a subscriber 20 free text message,
and charge a per-text cost thereafter.
The distinguishing factor between direct and variable costs are that
direct costs do not need to be directly proportional to the level of
output. Option A is therefore the correct answer. Thus a direct cost
4 A
can be variable or fixed in nature. Option B is thus rendered
incorrect. Option C is incorrect because direct costs need to be
traceable to the production of a particular product.
Indirect costs are those costs which cannot be traced back to the
production of any particular product. Examples include energy
5 C costs, rental expenses and security service fees. Option C is a
direct cost because it can directly be traced to the purchase of
property on which production may occur.
Fixed costs are any costs that do not change with the level of output.
6 A Mobile phone service plans have both a fixed and variable element,
and are thus classified as semi-variable costs.
Total costs = fixed costs + variable costs
7 D
Total costs = $125,000 + ($85 × 30,000 units) = $2,675,000
Total costs = fixed costs + variable costs
8 B
Total costs = $3,071,025 + ($256 × 82,000 units) = $24,063,025
Total costs = fixed costs + variable costs
9 A 2,500,000 = $300,000 + (VC × 200,000 units)
VC per unit = $11
Total costs = fixed costs + variable costs
10 A 7,750,000 = fixed costs + ($12.50 × 480,000 units)
Fixed costs = $1,750,000

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IB Business Management MCQ Revision Pack 3.2 Costs and Revenues

Average costs = Total costs / total quantity produced

11 C
Average costs = 7,750,000 / 480,000 = $16.15 (2dp)
Total revenue = Price × Quantity Sold
12 D Total revenue = ($45 × 3,000) + ($52 × 3500) + ($47 × 2,100) =
$415,700
Profit (or loss) = Total revenues – total costs
Profit (or loss) = ($65 × 1,440,000) – {23,250,000+($37.50 ×
1,440,000)}
13 B
Profit (or loss) = ($65 × 1,440,000) – {23,250,000+($37.50 ×
1,440,000)}
Profit = $16,350,000
A revenue stream is any source of income for a firm. Net income
reflects the firm’s earnings after all costs and expenses have been
deducted from revenues. Option A is thus not a revenue stream.
14 A Transaction fees, (e.g. online movie ticket bookings) can provide a
considerable boost to total revenue. Franchise royalty fees
represent a consistent flow of earnings to the franchisor. Interest
income from bank deposits can also provide additional revenue.
Profit (or loss) = Total revenues – total costs
Profit (or loss) = Total revenues – (total fixed costs + total variable
costs)
15 C
Profit (or loss) = ($28 × 9,500) – {(24,000 + 185,000 + 45,000) +
($22 × 9,500)}
Profit (or loss) = ($197,000) loss

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IB Business Management MCQ Revision Pack 3.3 Breakeven Analysis

1. What does contribution refer to?

A. The money generated per sale that is used to contribute towards paying
fixed costs
B. Selling price – variable costs – fixed costs per unit
C. Selling price – variable costs – direct costs
D. Both (A) and (C)

2. Assume a firm sells its output for $649. Variable costs per unit are $456, and total
fixed costs are $2,500,000, and 5,000 units of output were sold this year. What is
the contribution per unit?

D. -$307
A. $193
B. $649
C. $1,105

3. Assume a firm sells its output for $45. Variable costs per unit are $41, and total
fixed costs are $150,000, and 72,150 units of output were sold this year. What is
the total contribution?

D. -$438,600
B. $138,600
C. $288,600
A. $3,246,750

4. Assume a firm sells its output for $90. Variable costs per unit are $82, and total
fixed costs are $300,000, and 144,300 units of output were sold this year. What
is the total profit?

C. $577,200
D. $854,400
B. $1,154,400
A. $1,454,400

5. Which of the following is not a valid use of contribution analysis?

A. Conducting breakeven analysis

B. Managing product portfolios
C. Set prices
D. Position mapping

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IB Business Management MCQ Revision Pack 3.3 Breakeven Analysis

6. What does the breakeven point refer to?

A. The level of output where there are neither profits nor losses
B. The level of output where fixed costs are covered by sales revenue
C. The level of output where variable costs are equal fixed costs
D. The point at which profits begin to exceed fixed costs

7. Which of the following equations is used to determine the breakeven level of

output?

A. Fixed costs / (selling price – average variable costs per unit)

B. Selling price / (fixed costs – contribution per unit)
C. Fixed costs / selling price
D. Total sales revenue / contribution per unit

8. A shoe manufacturer faces fixed costs of $30,000 per month. Variable cost per
shoe is $15, and selling price is $40. What is the breakeven level of output?

D. 750 shoes
B. 1000 shoes
C. 1200 shoes
A. 2000 shoes

9. A printer manufacturer faces fixed costs of $475,000 per month. Selling price is
$100 per printer. The breakeven level of output is 9,500 printers per month. What
is the average variable cost per unit?

A. $45.00
B. $47.50
C. $50.00
D. Cannot be determined

10. A calculator manufacturer has fixed costs of $40,000 per month. Total variable
cost $30,000. The calculators sell for $10 per unit. Using the TR=TC approach,
what is the breakeven level of output for this firm?

A. 3000 calculators
B. 5000 calculators
C. 7000 units
D. Cannot be determined

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IB Business Management MCQ Revision Pack 3.3 Breakeven Analysis

11. A product has a per-unit contribution of $8. Total fixed costs are $7600. If the
product sells for $15, and 1950 units are sold, what is the profit (or loss)
generated?

A. ($3000) loss
B. $8000 profit
C. $15,600 profit
D. $21,650 profit

12. If a firm has a breakeven level of output of 3,000 units, but sold 7,500 units of
output in the most recent quarter, the margin of safety in units is ________, and
the margin of safety in percentage is ________.

B. 3,000; 75%
C. 4,500; 150%
D. 7,500 units; 40%
A. 7,500; 250%

13. A firm wishes to achieve profits of $15,000. The product they sell retails for $35,
with variable costs per unit of $15. Rental expenses are $8,000, and management
salaries for the month total $17,000. What is the level of output required to achieve
the profit target?

A. 1000 units
B. 2000 units
C. 3000 units
D. 4000 units

14. A game console manufacturer has fixed costs of $61,200 per month. Variable
costs per unit equal $195. The consoles sell for $399 each. Assuming they sold
235 units this month, what is the margin of safety?

A. -65 units
B. -10 units
C. 75 units
D. 125 units

15. Which of the following are valid criticisms of breakeven analysis?

A. It assumes every unit produced is sold

B. It assumes costs functions are linear
C. It is a static model
D. All of the above

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IB Business Management MCQ Revision Pack 3.3 Breakeven Analysis

3.3 Answers

Question Answer Explanation

Contribution is the money left over after all variable and direct costs
have been deducted from selling price. This money contributes to
1 C
paying off fixed costs. Contribution is used in calculating a firm or
product’s breakeven point.
Contribution per unit = selling price – average variable cost per unit
2 B
Contribution per unit = $649 - $456 = $193
Total contribution = Contribution per unit x quantity sold
Total contribution = (selling price – average variable cost per unit)
3 C
x quantity sold
Total contribution = ($45 - $41) × 72,150 = $288,600
Total profit = total contribution – total fixed costs
4 B Total profit = {($90 - $82) × 144,300} – $300,000
Total profit = $854,400
Contribution is the money that contributes to paying off fixed costs.
Contribution is used in calculating a firm or product’s breakeven
point Contribution can also be used to optimise a product portfolio,
by investing in high-contribution items. Firms want a positive
5 D
contribution, and so contribution analysis indicates what price to set
to achieve this. Contribution however is unlikely to be used in
position mapping, which considers customer perceptions of a
brand.
The breakeven point is the level of output where the firm makes no
6 A profits and no losses. Sales revenues equal total costs of
production at this output level.
The breakeven level of output can be calculated through the
formula in Option A. The concept underlying breakeven analysis is
7 A to measure the contribution made by each unit sold to covering
fixed costs. Once variable costs are deducted from sales revenue,
the remaining revenue can be used to pay for the firm’s fixed costs.
Breakeven level of output = fixed costs / (selling price – average
8 C variable cost per unit)
Breakeven level of output = $30,000 / ($40 - $15) = 1200 shoes
Breakeven level of output = fixed costs / (selling price – average
variable cost per unit)
9 C
9,500 printers = $475,000 / ($100 – average variable cost per unit)
Average variable cost per unit = $50
Total revenue = total costs
Price x quantity sold = total fixed costs + total variable costs
10 C 10Q = 40000 + 30000
10Q = 70000
Q= 7,000 calculators

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IB Business Management MCQ Revision Pack 3.3 Breakeven Analysis

Profit (or loss) = total contribution – total fixed costs

11 B
Profit (or loss) = ($8 × 1,950) – $7,600 = $8,000
Margin of safety in units = actual quantity sold – breakeven quantity
Margin of safety in units = 7,500 – 3,000 = 4,500 units.
12 B
Therefore, the margin of safety as a percentage is 4,500 / 3,000 =
150%
Target profit = total revenue – total costs
15,000 = 35Q – 15Q - 8,000 - 17,000
13 B
40,000 = 20Q
Q = 2000 units
Breakeven level of output = fixed costs / (selling price – average
variable cost per unit)
Breakeven level of output = $61,200 / ($399 - $195) = 300 game
14 A
consoles
Margin of safety = actual output – breakeven output = 235 – 300 =
-65 units
Breakeven analysis assumes every unit the firm produces is sold.
This may not be the case for many firms. Breakeven analysis also
assumes costs functions are linear, and ignores economies of scale
15 D or bulk-purchase discounts given to customers. The model is also
static rather than dynamic, and unable to continually adjust to
changes in the external environment such as exchange rate
fluctuations.

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IB Business Management MCQ Revision Pack 3.4 Final Accounts

1. Which of the following is not a principle or ethical value of the accounting

profession?

A. Integrity
B. Punctuality
C. Professional competence and due care
D. Objectivity

2. What is a financial statement illustrating a firm’s results from its trading activities
over a period of time called?

A. Balance sheet
B. Trade-exchanges sheet
C. Cash flow statement
D. Income statement

3. Which of the following is not a component of an income statement?

A. Profit & loss account

B. Expenditure account
C. Appropriation account
D. Trading account

4. In which of the following ways can net profit after interest and tax be appropriated?

i. Retained earnings
ii. Dividends
iii. Interest expenses
iv. Rental expenses

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

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IB Business Management MCQ Revision Pack 3.4 Final Accounts

5. With reference to the table below, what is the gross profit being earned?

Sales revenue $183,250

Rental expenses $36,000
Cost of sales $47,125
Interest expenses $3,777
Salaries $82,571
Dividends $2,000

A. $10,000
B. $13,777
C. $96,348
D. $136,125

6. With reference to the table below, what is the net profit being earned?

Sales revenue $183,250

Rental expenses $36,000
Cost of sales $47,125
Interest expenses $3,777
Salaries $82,571
Dividends $2,000

A. ($3,575) loss
B. $13,777
C. $14,700
D. $96,348

7. With reference to the table below, what is the amount of retained earnings for the
year?

Sales revenue $183,250

Rental expenses $36,000
Cost of sales $47,125
Interest expenses $3,777
Taxes $2,127
Salaries $82,571
Dividends $2,350

A. $9,300
B. $11,427
C. $12,500
D. $13,777

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IB Business Management MCQ Revision Pack 3.4 Final Accounts

8. On 2 January, a firm reopens with $375,770 in worth of stock. Throughout the

year, the firm makes stock purchases of $452,000, and ends the year with
$521,125 in ending inventory. What is the costs of goods sold?

A. $306,645
B. $444,895
C. $1,348,895
D. Cannot be determined

9. Which of the following is not a relevant method to boosting gross profit?

A. Reduce expenses
B. Raise the product’s price
C. Shift to cheaper suppliers and intermediaries
D. An improved marketing strategy

10. With reference to the table below, what is the gross profit being earned?

Sales revenue $1,525,018

Rental expenses $325,000
Opening stock $289,455
Stock purchases $82,011
Closing stock $133,087
Interest expenses $37,050
Salaries $415,111
Retained earnings $612,815

A. $834,478
B. $1,024,500
C. $1,184,487
D. $1,286,639

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IB Business Management MCQ Revision Pack 3.4 Final Accounts

11. With reference to the table below, what is the amount of dividends declared this
year?

Sales revenue $1,525,018

Rental expenses $325,000
Opening stock $289,455
Stock purchases $82,011
Closing stock $133,087
Interest expenses $37,050
Salaries $415,111
Retained earnings $212,815

A. $221,663
B. $296,663
C. $673,824
D. $834,478

12. An asset expected to stay within the business and be used for business activities
for over 12 months is called a _______ asset, while assets likely to be used up or
converted into cash within 12 months are called _______ assets.

A. Direct, indirect
B. Fixed, variable
C. Fixed, current
D. Long-term, fixed

13. Debts that must be paid back within 12 months are called ________ liabilities,
while debts that have a maturity of over 12 months are called _______ liabilities.

A. Current, fixed
B. Direct, indirect
C. Long-term, current
D. Current, long-term

14. A firm has $32,500 in cash, $17,750 due from debtors, and $45,000 in stock.
Creditors are owed $25,250 and a 6-month loan of $42,000 is outstanding. What
is the firm’s working capital?

A. -$7,500
B. $28,000
C. $70,000
D. $73,000

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IB Business Management MCQ Revision Pack 3.4 Final Accounts

15. With reference to the table below, what is the firm’s net assets?

Fixed assets $1,500,000

Accumulated depreciation of fixed assets $300,000
Cash $85,000
Accounts receivable $45,000
Current liabilities $65,000
Long-term bank loans $485,000

A. $65,000
B. $780,000
C. $950,000
D. $1,015,000

16. With reference to the table below, what is the firm’s share capital?

Fixed assets $1,500,000

Accumulated depreciation of fixed assets $300,000
Cash $85,000
Accounts receivable $45,000
Current liabilities $65,000
Long-term bank loans $485,000
Retained earnings $225,000
A. $555,000
B. $950,000
C. $1,015,000
D. $1,275,000

17. Which of the following is not an example of a current asset?

A. Cash
B. Debtors
C. Machinery
D. Inventories

18. Which of the following is not an example of a fixed asset?

A. Buildings
B. Debtors
C. Plant
D. Intangible assets

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IB Business Management MCQ Revision Pack 3.4 Final Accounts

19. Which of the following is/are current liability/liabilities?

A. Overdrafts
B. Taxes due to the government
C. Short-term loans
D. All of the above

20. In a balance sheet, what would ordinary share capital be classified as?

A. A fixed (long-term) asset

B. A current asset
C. A liability
D. Stockholders’ equity

21. Which of the following is not an example of an intangible asset?

A. Goodwill
B. Copyrights and patents
C. Share capital
D. Trademarks

22. A machine costs $125,000, and has a residual (salvage) value at the end of its 5-
(HL) year useful life of $20,000. What is the annual depreciation expense of this
machine?

A. $21,000
B. $25,000
C. $29,000
D. $105,000

23. A machine with a 7-year lifespan costs $9,500, and records annual depreciation
(HL) under the straight line method of $1,150. What is the salvage value of this
machine?

A. $1,357
B. $1,450
C. $1,500
D. $1,521

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IB Business Management MCQ Revision Pack 3.4 Final Accounts

24. A commercial machine costing $35,000,000 with a 20-year expected life and a
(HL) salvage value of $2,500,000 is depreciated at a rate of 3% per year.
The depreciation expense in the first year is __________, and the net book value
is _________.

A. $700,000; $34,300,000
B. $750,000; $34,250,000
C. $975,000, $34,025,000
D. $1,050,000; $33,950,000

25. A piece of manufacturing equipment costing $21,500 has a 3-year lifespan, at the
(HL) end of which it will be resold to scrappers for $3,500. The depreciation expense
would be _______ using the straight line method and _______ using the declining
balance method (at a 40% rate).

A. $6,000, $7,200
B. $6,000, $8,600
C. $7,500, $8450
D. $7,500, $10,000

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IB Business Management MCQ Revision Pack 3.4 Final Accounts

3.4 Answers

Question Answer Explanation

Professional accountants must be integral (honest), objective

(unbiased, with no conflicts of interest), exercise professional
1 B
competence and due care, and maintain their clients’ confidentiality.
Thus Option B is not an ethical principle.
An income statement is a financial statement that illustrates a firms
2 D results from its trading activities, such as total revenues, costs of
goods sold, expenses and net income (profit).

An income statement is comprised of the trading account

(calculating gross profit), the profit & loss account (showing net
3 B
profit after expenses are deducted from gross profit), and the
appropriation account (exhibiting how net income is distributed).
Net profits can be appropriated either in the form of retained
earnings, or through dividend payments to shareholders. Note that
4 B the calculation of net profit after interest and tax already deducts
interest expenses and rental expenses, and so Options iii. and iv.
are incorrect.
Gross profit = Sales revenue – Cost of sales
5 D
Gross profit = $183,250 – $47,125 = $136,125
Net profit = sales revenue – cost of sales - expenses
6 B Net profit = $183,250 - $47,125 - $36,000 -$3,777 - $82,571 =
$13,777
The appropriation account shows how net income is distributed,
either as dividends or as retained earnings. Net profit after interest
7 A and tax stands at $11,650 ($183,250 - $47,125 - $36,000 -$3,777 -
$2,127 - $82,571), and $2,350 is used for dividends. Thus, the
remainder, $9,300 must be retained earnings.
Cost of goods sold = opening stock + purchases – closing stock
8 A
Cost of goods sold = $375,770 + $452,000 - $521,125 = $306,645
Gross profit = sales revenue – cost of goods sold. Gross profit does
9 A
not include expenses in its calculation, unlike net profit.
Gross profit = sales revenue – cost of goods sold
Gross profit = sales revenue – (opening stock + purchases – closing
10 D stock)
Gross profit = 1,525,018 – (289,455 +82,011 – 133,087)
Gross profit = $1,286,639

The appropriation account shows how net income is distributed,

either as dividends or as retained earnings. Net profit this year is
$509,478 (gross profit – rental expenses - interest expenses –
11 B
salaries). Since $212,815 of $509,478 net profits have been
retained by the firm for future internal use, the remainder, $296,663,
represents the dividends that have been declared.

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IB Business Management MCQ Revision Pack 3.4 Final Accounts

Fixed assets are those assets expected to be used for business

operations for over 12 months from the balance sheet date.
Examples include property, plant and equipment. Current assets
12 C
are those which are expected to be used or converted into cash
within a period of 12 months from the balance sheet date, such as
cash itself, debtors (accounts receivable) and inventory.
Current liabilities are those debts which must be paid back within
12 months, such as overdrafts, trade credit provided by suppliers,
13 D and any short-term borrowings. Long-term liabilities are those which
have a maturity of over 12 months, such as mortgages, bonds and
long-term borrowings.
Working capital = current assets – current liabilities
Working capital = ($32,500 + $17,750 + $45,000) – ($25,250 +
14 B
$42,000)
Working capital = $28,000
Net assets = (fixed assets less depreciation) + working capital –
long-term liabilities
15 B Net assets = ($1,500,000 - $300,000) + ($85,000+$45,000-
$65,000) – $485,000
Net assets = $780,000
Net assets = total share capital + retained earnings
Net assets = ($1,500,000 - $300,000) + ($85,000+$45,000-
16 A $65,000) – $485,000 = $780,000
Thus: $780,000 = total share capital + $225,000
Total share capital = $555,000
Machinery is typically considered a fixed asset because it is
17 C expected to remain within the business for more than 12 months
and actively contribute to business operations.
Debtors (accounts receivable) are considered current assets
because one would expect them to pay their dues within 12 months
18 B in most circumstances. Buildings are expected to last well over 1
year, as are plants (factories) and intangible assets such as patents
and copyrights.
Current liabilities are debts which have a maturity of less than 12
months from the balance sheet date. Overdrafts are short-term
sources of finance, likely to be paid back very quickly due to the
19 D high interest rates associated with them. Taxes are to be paid every
year, and short-term loans are classified as those with a due date
of less than 12 months. Thus all of the mentioned are examples of
current liabilities.

Share capital is classified under the stockholders’ equity section of

20 D a balance sheet, because it represents a source of funds for the
business, and the investment put in by shareholders.

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IB Business Management MCQ Revision Pack 3.4 Final Accounts

Intangible assets are non-physical, fixed assets that generate

income for firms. Examples include goodwill, copyrights, patents
and trademarks, all of which are non-physical (cannot be touched)
21 C
but contribute to income generation. Option C, share capital, is a
source of finance, not a use of funds, and is thus not an intangible
asset because it does not directly lead to income generation.
The straight line method of depreciation is relevant in this question.
Annual depreciation = (purchase cost – residual value) / lifespan
22 A Annual depreciation = ($125,000 – $20,000) / 5 = $21,000
Note that Option A represents total accumulated depreciation at the
end of 5 years ($21,000 per year × 5 years).
Annual depreciation = (purchase cost – residual value) / lifespan
23 B $1,150 = ($9,500 – residual value) / 7
Residual value = $1,450

End of Year Depreciation Net book value ($)

expense ($)
0 - 35,000,000
24 C
1 ($35,000,000 – 34,025,000
$2,500,000) × 3% =
$975,000

Straight line method:

Annual depreciation = (purchase cost – residual value) / lifespan
25 A Annual depreciation = ($21,500 - $3,500) / 3 = $6,000
Declining balance method:
($21,500 - $3,500) × 40% = $7,200

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IB Business Management MCQ Revision Pack 3.5 Profitability and Liquidity Ratio Analysis

1. What does the gross profit margin describe?

A. Gross profit earned per dollar of revenue

B. Costs incurred per dollar of products sold
C. Gross profit earned per dollar of capital employed
D. Gross profit earned per dollar of net profit earned

2. With reference to the table below, which firm has the highest gross profit margin?

Company A Company B Company C Company D

($millions) ($millions) ($millions) ($millions)
Gross Profit 15 19 13 21
Capital 87 95 43 58
employed
Revenue 25 31 27 34

A. Company A
B. Company B
C. Company C
D. Company D

3. With reference to the table below, which firm has the highest gross profit margin?

Company E Company F Company G Company H

($millions) ($millions) ($millions) ($millions)
Revenue 29 33 18 42
Cost of goods 17 14 12 24
sold
Expenses 21 9 5 4
Capital 87 95 43 58
employed

A. Company E
B. Company F
C. Company G
D. Company H

4. Which of the following actions would not help in raising a firm’s gross profit
margin?

A. Optimising the marketing mix

B. Using cheaper raw material suppliers
C. Reducing fixed and indirect costs
D. Cutting the number of staff employed in the manufacturing process

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IB Business Management MCQ Revision Pack 3.5 Profitability and Liquidity Ratio Analysis

5. Which of the following actions would not help in raising a firm’s net profit margin?

A. Reducing fixed costs such as rental expenses

B. Reducing indirect costs such as insurance expenses
C. Boosting gross profit margins
D. All of the above

6. With reference to the table below, which firm has the highest net profit margin?

Company W Company X Company Y Company Z

($millions) ($millions) ($millions) ($millions)
Gross profit 7 12 14 23
Total 3 7 12 27
expenses
Cash 4.5 3.1 2.6 7.7
Revenue 10 15 21 35

A. Company A
B. Company B
C. Company C
D. Company D

7. With reference to the table below, which firm has the highest net profit margin?

Extreme Fitness Ltd.

($millions)
Sales Revenue 38
Cost of sales 13
Capital expenditure 1
Interest expenses 2.5
Advertising expense 4
Insurance premiums 0.2
Working capital 7
Rents 4
Salaries and wages 9

A. -8.50%
B. -7.11%
C. 11.32%
D. 13.95%

8. Return on capital employed (ROCE) is a(n) ____________ ratio.

A. Profitability
B. Efficiency
C. Liquidity
D. Capital adequacy

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IB Business Management MCQ Revision Pack 3.5 Profitability and Liquidity Ratio Analysis

9. What formula is used to calculate ROCE?

A. Total dividends / capital employed × 100%

B. Net profit after interest and tax / total share capital × 100%
C. Net profit before interest and tax / capital employed × 100%
D. Gross profit / net profit after interest and tax × 100%

10. With reference to the table below, what is the ROCE?

Gross profit $3,575,000

Net profit before interest and tax $725,550
Net profit after interest and tax $602,603
Cash $2,895,000
Loan capital $6,500,000
Ordinary share capital $8,250,125
Retained profits $1,275,850

A. 3.18%
B. 3.83%
C. 4.53%
D. 5.76%

11. What are ratios which seek to assess the ability of a firm to meet short-term
obligations called?

A. Profitability ratios
B. Efficiency ratios
C. Liquidity ratios
D. Current ratios

12. If a firm has $7,589 in cash and $17,833 worth of stock on hand, and $14,751 in
current liabilities due to suppliers, what is the current ratio?

A. 0.51
B. 1.21
C. 1.74
D. 2.25

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IB Business Management MCQ Revision Pack 3.5 Profitability and Liquidity Ratio Analysis

13. With reference to the table below, what is the firm’s quick ratio?

Cash in bank $14,311

Inventory $42,155
Accounts receivable (debtors) $18,123
Trade creditors payable $24,012
Overdraft $952
Taxes payable $4513

A. 1.10
B. 1.25
C. 2.15
D. 2.53

14. Typically, one would like their firm’s _________ to range between 1.5-2, and their
firm’s ________ to be at least 1.

A. Quick ratio, current ratio

B. ROCE, net profit margin
C. Current ratio, gearing ratio
D. Current ratio, acid test ratio

15. Which of the following statements about ratio analysis is invalid?

A. Historical performance is not indicative of future performance

B. Interfirm comparisons may not be valid due to accounting differences
C. Only qualitative factors are considered
D. Organization objectives may differ, making inter-firm comparisons
inappropriate

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IB Business Management MCQ Revision Pack 3.5 Profitability and Liquidity Ratio Analysis

3.5 Answers

Question Answer Explanation

The gross profit margin is a profitability ratio describing the portion

of gross profit earned per dollar of revenue. For example, if a firm
earns $100 in revenue from selling a product which incurs costs of
1 A
production of $30, gross profit stands at $70. The gross profit
margin would thus be 70% ($70/$100), indicating that for every
dollar of revenue, 70 cents are gross profit.
Gross profit margincompany A = $15 / $25 = 60.00%
Gross profit margincompany B = $19 / $31 = 61.29%
2 D Gross profit margincompany C = $13 / $27 = 48.15%
Gross profit margincompany D = $21 / $29 = 61.76%
Thus Company D has the highest gross profit margin.
Gross profit margin = (revenue – cost of sales) / revenue
Gross profit margincompany E = ($29-$17)/$29 = 41.38%
3 B Gross profit margincompany F = ($33-$14)/$33 = 57.58%
Gross profit margincompany G = ($18-$12)/$18 = 33.33%
Gross profit margincompany H = ($42-$24)/$42 = 42.86%
Gross profit is equal to revenue less costs of sales. The gross profit
margin therefore only considers direct costs incurred in production,
not fixed or indirect costs such as rent which are considered
4 C expenses and factored into net profit (Option C). Thus, optimising
marketing mix (Option A) can help boost sales and therefore
revenue, using cheaper suppliers (B) reduces costs of sales, as
does cutting the number of staff used in production (Option D).
Net profit refers to the profit left over from revenues after all costs
of production and expenses are deducted. Thus any method to
5 C
raise revenues or reduces costs and expenses can lead to an
improvement in the net profit margin.
Net profit margin = (gross profit – expenses) / revenue
Net profit margincompany W = ($7-$3) / $10 = 40.00%
6 A Net profit margincompany X = ($12-$7) / $15 = 33.33%
Net profit margincompany Y = ($14-$12) / $21 = 9.52%
Net profit margincompany Z = ($23-$27) / $35 = 11.43%
Net profit margin = (Sales revenue – cost of sales – expenses) /
revenue
Net profit margin = ($38 - $13 - $2.5 - $4 - $0.2 - $4 - $ 9) / $28 =
13.95%
7 D Note that capital expenditure is neither a cost nor an expense. It
slots into the balance sheet and cash flow statement. Working
capital is simply a measure of current assets less current liabilities,
and does not factor into the income statement or net profit
computations.

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IB Business Management MCQ Revision Pack 3.5 Profitability and Liquidity Ratio Analysis

ROCE is an efficiency ratio which calculates how efficiently a firm

is utilizing its resources. Option A is incorrect because profitability
ratios like the gross and net profit margin measure profit as a
8 B
proportion of revenue. Option C is incorrect because liquidity ratios
such as the current and quick ratio measure firms’ ability to pay off
short term debt. Option D does not need to be known.
ROCE is calculated by the formula given in Option C. Note that
capital employed is the sum of share capital + retained profit + loan
9 C capital. Net profit before, not after, interest and tax is used to
eliminate the effect of tax rate and interest rate changes on core
profitability of the firm.
ROCE = Net profit before interest and tax / capital employed
ROCE = Net profit before interest and tax / (loan capital + share
10 C
capital + retained profit)
ROCE = $725,550 / ($6,500,000+$8,250,125+$1,275,850) = 4.53%
Liquidity ratios are those which assess the ability of a firm to meet
11 C short term liabilities. Examples include the current and acid test
(quick) ratios. Thus Option C is correct.
Current ratio = current assets / current liabilities
12 C
Current ratio = ($7,589+$17,833) / ($14,571) = 1.74
Quick (acid test) ratio = (current assets – stock) / current liabilities
13 A
Current ratio = ($14,311+$18,123) / ($24,012+$952+$4,513) = 1.10
Ideal current ratios lie in the range of 1.5 to 2, while a respectable
acid test (quick) ratio is expected to be greater than 1. Thus Option
D is correct. Option B is incorrect because ROCE is an efficiency
14 D
ratio and net profit margin is a profitability ratio with no specified
ideal ranges unlike liquidity ratios. The gearing ratio also does not
have an ideal range.
Ratio analysis utilizes past period performance in computing
various ratios. Past performance is not necessarily indicative of
what the future may hold for a firm. Differences in accounting
policies may also render interfirm comparisons meaningless.
15 C
Moreover, if firms have different objectives and pursue different
strategies, ratio comparisons may hold little value. However, Option
C is incorrect because ratio analysis only considers quantitative, not
qualitative factors.

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IB Business Management MCQ Revision Pack 3.6 Efficiency Ratio Analysis (HL)

1. What do efficiency ratios assess?

A. The number of times a firm sells its inventory within a year

B. A firm’s ability to meet its short term obligations
C. Profit as a proportion of sales revenue
D. How well a firm is utilizing its resources

2. Which of the following is not an efficiency ratio?

A. Debtor days
B. Creditor days
C. ROCE
D. Gearing

3. What does the stock (inventory) turnover ratio measure?

A. How many times a firm’s inventory is used per time period

B. How many days it takes a firm to recover its accounts receivable (debtors)
C. The value of all inventory sold per time period
D. The total potential sales revenue that can be generated from selling all a
firm’s inventory

4. What is the formula for the stock turnover (in days)?

A. Cost of goods sold / average stock

B. Average stock / cost of goods sold × 365
C. Debt / sales revenue × 365
D. Cost of goods sold / average inventory × 365

5. With reference to the following data, what is the stock turnover (number of times
per year) ratio?

Sales revenue $1,275,113

Cost of goods sold $675,000
Opening inventory $150,000
Closing inventory $100,000
Debtors $122,300

A. 4.50 times
B. 5.40 times
C. 5.52 times
D. 6.75 times

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IB Business Management MCQ Revision Pack 3.6 Efficiency Ratio Analysis (HL)

6. With reference to the following data, what is the stock turnover (number of days)
ratio?

Sales revenue $3,415,216

Cost of goods sold $2,850,000
Opening inventory $1,415,000
Closing inventory $825,000
Average inventory $1,120,000
Debtors $645,525
Accounts payable $315,600
Net profit margin 7.12%

A. 2.54 days
B. 76.20 days
C. 125.00 days
D. 143.44 days

7. Which of the following methods would not help improve a firm’s stock turnover
ratio?

A. Implementing a just-in-time stock management system

B. Divesting unpopular or obsolete items from the firm’s product line
C. Hold lower stock levels
D. Hold greater stock levels

8. Which of the following ratios measures the number of days it takes a firm to collect
its debt from customers who have purchased on credit?

A. Creditor days ratio

B. Collection days ratio
C. Acid test ratio
D. Debtor days ratio

9. What is the formula to calculate debtor days (in number of days)?

A. Average stock / cost of goods sold × 365

B. Debt / sales revenue × 365
C. Creditors / cost of goods sold × 365
D. Debt / cost of goods sold

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IB Business Management MCQ Revision Pack 3.6 Efficiency Ratio Analysis (HL)

10. With reference to the table below, what is the debtor days ratio (in number of
days)?

Sales revenue $6,755,000

Cost of goods sold $4,950,000
Opening inventory $3,245,000
Closing inventory $3,125,000
Average inventory $3,185,000
Debtors $1,125,000
Creditors $1,015,000
Capital employed $14,500,000

A. 59.50 days
B. 60.79 days
C. 62.25 days
D. 82.95 days

11. What is the formula to calculate the creditor days ratio?

A. Creditors / sales revenue × 365

B. Capital employed / creditor days
C. Creditors / debtors × 365
D. Creditors / cost of goods sold × 365

12. If a firm owes its supplier $125,015 at the end of the year, and costs of goods sold
have been $1,015,000, what is the firm’s creditor days ratio?

A. 8.12 days
B. 35.75 days
C. 44.96 days
D. Cannot be determined

13. The gearing ratio is calculated by the formula _____________, and measures the
efficiency of the firm’s ___________.

A. Loan capital / capital employed, inventory control systems

B. Loan capital / capital employed × 100, capital structure
C. (Current assets – inventory) / current liabilities, liquidity management
D. Net profit before interest and tax / capital employed × 100; capital
structure

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IB Business Management MCQ Revision Pack 3.6 Efficiency Ratio Analysis (HL)

14. A higher gearing ratio makes a firm ________ vulnerable to increases in interest
rate because they are _________ dependent on external, interest-bearing
sources of finance.

A. Less, less
B. Less, more
C. More, less
D. More, more

15. With reference to the table below, what is the firms gearing ratio?

Net profit before interest and tax $1,475,000

Current assets $395,998
Current liabilities $327,122
Inventory $185,000
Loan capital $1,500,000
Share capital $3,500,000
Retained profits $250,000

A. 16.91%
B. 28.57%
C. 30.00%
D. 74.25%

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IB Business Management MCQ Revision Pack 3.6 Efficiency Ratio Analysis (HL)

3.6 Answers (HL)

Question Answer Explanation

Efficiency ratios assess how well a firm utilizes its resources.

1 D Examples of efficiency ratios are: inventory turnover, debtor days,
creditor days and gearing.

ROCE is a profitability ratio measuring a firm’s net profit before

2 C interest and tax generated from its total capital employed. Thus
Option C is the correct answer.

The stock (inventory) turnover ratio measures how many times a

firm’s inventory is used per time period. Option B is incorrect
3 A
because it defines the debtor days ratio, and Options C and D are
not valid ratios for this syllabus.
Stock turnover can be calculated in terms of days or number of
times per time period. Option B illustrates the formula to be used
when calculating the number of days it takes a firm for one stock
4 B
turnover cycle, while Option A calculates stock turnover in terms of
the number of times per period. Option C is incorrect because it
calculates the debtor days ratio.
Stock turnover (number of times) = cost of goods sold / average
stock
5 B
Stock turnover (number of times) = $675,000 /
[($150,000+$100,000)/2] = 5.4 times

Stock turnover (number of days) = average stock / cost of goods

sold × 365
6 D
Stock turnover (number of days) = $1,120,000 / $2,850,000 × 365
= 143.44 days

A firm can improve its stock turnover ratio by implementing a just-

in-time stock management system which aims to reduce average
stock held by the firm (Option A). Divesting unpopular/obsolete
7 D items ensure slow-selling stock does not stay in a firm’s inventory
(Option B) also boosts the ratio. Holding lower stock levels means
inventory has to be replaced more often, improving the ratio (Option
C). However, a higher stock level worsens the ratio.
The debtor days ratio is a measure of how long a firm take to collect
its accounts receivable from customers who have purchased on
credit. The lower the debtor days ratio, the better, as it implies the
8 D
firm is collecting its debts owed to it efficiently. Option A is incorrect
because it represents the number of days it takes the firm to repay
its creditors (e.g. suppliers).

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IB Business Management MCQ Revision Pack 3.6 Efficiency Ratio Analysis (HL)

The debtor days ratio is calculated by using formula B. Option A is

incorrect because it calculates the stock turnover ratio, Option C
9 B
calculates the creditor days ratio, and Option D is not a valid ratio
in this syllabus.
Debtor days ratio (in number of days) = Debt / sales revenue × 365
10 B Debtor days ratio (in number of days) = $1,125,000 / $6,755,000 ×
365 = 60.79 days
The creditor days ratio calculates how long it takes a firm to repay
11 D its creditors, such as its suppliers who may have extended trade
credit to the firm. It is calculated using the formula in Option D.
Creditor days = creditors / cost of goods sold × 365
12 C
Creditor days = $125,015 / $1,015,000 × 365
The gearing ratio is a measure of a firm’s long-term liquidity and
efficiency is capital structure. Option B contains the correct formula.
13 B
Note that capital employed consists of loan capital, share capital
and retained profits.
A high gearing ratio implies that a firm is utilizing significant levels
of long-term, interest bearing external debt in its capital structure
compared to a firm with low gearing which would rely on internal
14 D
funds. Thus the highly geared company is more exposed and
vulnerable to any hikes in interest rates. Option D is the correct
answer.
Gearing = loan capital / capital employed × 100
Gearing = loan capital / (loan capital + share capital + retained
15 B profits) × 100
Gearing = $1,500,000 / ($1,500,000 + $3,500,000 + $250,000) ×
100 = 28.57%

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IB Business Management MCQ Revision Pack 3.7 Cash Flow

1. What is the money available to pay for day to day operational costs called?

A. Cash
B. Working capital
C. Profit
D. All of the above

2. Assume a firm sells goods costing $40,000 for $55,000. It provides the customer
with 70% trade credit (i.e. the customer pays only 30% of the price as a down
payment). The profit earned is __________, and the cash received is _________.

A. $15,000, $12,000
B. $15,000, $16,500
C. $15,000, $28,000
D. $15,000, $55,000

3. What is the time lag that occurs between when a firm pays its operational and
production expenses, and when a firm receives cash from the sale of a product
called?

A. Cash flow cycle

B. Cash inflow/outflow cycle
C. Working capital cycle
D. Operating cycle

4. The term _________ describes how efficiently an asset can be converted into
cash.

A. Liquidity
B. Solvency
C. Conversion rate
D. Working capital cycle

5. Which of the following is not a reason to develop a cash flow forecast?

A. External lenders may wish to see them before loaning money

B. They illustrate the level of gearing of a firm
C. They help identify and plan for periods of liquidity problems
D. They encourage better financial control

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IB Business Management MCQ Revision Pack 3.7 Cash Flow

6. In a given cash flow forecast, the closing balance in June would become the
____________ of July.

A. Closing balance
B. Working capital
C. Net cash flow
D. Opening balance

7. From the information in the table below, the net cash flow in December is
________, and the closing balance on December 31st is _________.

Closing Balance – 30th November $150,000

Cash inflows in December $78,000
Cash outflows in December $63,000

A. $72,000, $15,000
B. $87,000, $135,000
C. $15,000, $165,000
D. Cannot be determined

8. From the information in the table below, the opening balance on April 1 st is
__________ and the net cash flow in April is ___________.

Closing Balance – 31st March $192,500

Cash sales $117,100
Raw material purchases $48,950
Salaries paid $32,350

A. $192,500, $35,800
B. $35,800, $228,300
C. $309,600, $68,150
D. Cannot be determined

9. Which of the would not cause a cash flow problem?

A. Understocking
B. Over borrowing
C. Poor credit control
D. Seasonal demand fluctuations

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IB Business Management MCQ Revision Pack 3.7 Cash Flow

10. Which of the following strategies would not be effective in alleviating a cash flow
problem?

A. Investing in more efficient machinery

B. Minimizing cash outflows (e.g. by holding less stock)
C. Securing alternative sources of finance
D. Boosting cash inflows (e.g. through an enhanced marketing mix)

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IB Business Management MCQ Revision Pack 3.7 Cash Flow

3.7 Answers

Question Answer Explanation

Working capital is the money a firm has available to pay for day to
day costs, to ensure the firm’s operations do not come to a
standstill. Working capital is the difference between current assets
1 B and current liabilities. Thus, cash is a component of working capital
as cash is a current asset. Other current assets include debtors and
inventories. Note that profit refers simply to the difference in total
revenues and total costs.
Cash refers to the current asset businesses hold, either on hand or
at the bank. Profit refers to the excess of revenues over costs. In
2 B this case, $15,000 in profits are recorded ($55,000 less $40,000
cost of goods), but $16,500 ($55,000 × 30% down payment) cash
is received.
The working capital cycle illustrates the time lags occurring between
when a firm pays its operational and production expenses (such as
3 C
employee salaries/wages and raw material costs), and when it
receives cash from customers. Options A, B and D are irrelevant.
Liquidity describes the efficiency with which an asset can be
4 A converted into cash. For example, bank deposits are highly liquid,
but raw materials may be relatively illiquid.
Lenders are very likely to wish to see a cash flow forecast from its
borrowers before loaning out funds. A firm will also be able to
identify and plan for periods of liquidity problems, for example, by
5 B initiating an overdraft facility just before that period. This thereby
encourages greater financial control over outflows. However, a
cash flow forecast cannot illustrate the gearing of a firm, as that is
depicted in the balance sheet.
The closing balance of one month will become the opening balance
of the next month in a cash flow forecast. Option B is incorrect
because working capital refers to the money available for the day
6 D to day running of the business and is calculated by subtracting
current liabilities from current assets, and Option C refers to the
difference between cash inflows and cash outflows in a given period
of time.
Net cash flow is the difference between total cash inflows and total
cash outflows in a given period. Thus, in December, net cash flow
is $15,000 ($78,000 - $63,000). Remember that the closing balance
7 C of one month will become the opening balance of the next month,
thus the opening balance in December is $150,000. After adding
December’s net cash flows to this balance, the closing balance of
$165,000 is found.

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IB Business Management MCQ Revision Pack 3.7 Cash Flow

The closing balance of one month will become the opening balance
of the next month, thus the opening balance in April is $192,500.
8 A
Net cash flow is the difference between cash inflows ($117,100)
and cash outflows ($48,950 + $32350), which equal $35,800.
Understocking leads to cash outflows being reduced as less stock
purchasing and stockholding costs are incurred. Thus Option A is
unlikely to cause a cash flow problem. Over borrowing can raise
9 A cash outflows in the form of interest payments, and poor credit
control may cause cash inflows to slow down, causing cash flow
issues. Seasonal demand fluctuations can reduce cash inflows
during particular periods of the year, causing liquidity issues.
Investing in machinery involves a short term cash outflow, and so
would worsen the cash flow problem as more money would be
10 A
flowing out of the business. Options B, C and D are all valid
methods to improve a firm’s cash flow situation.

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IB Business Management MCQ Revision Pack 3.8 Investment Appraisal

1. Which of the following statements bests describes payback period?

A. The time required for an investment to earn enough profit to cover the
initial investment cost
B. The average profit divided by the initial investment amount
C. The sum of discounted cash flows less the initial investment amount
D. The time required for a project to provide a return of over 25% above the
initial investment cost

2. Which of the following payback periods would a mining firm typically prefer?

A. 18 months
B. 24 months
C. 45 months
D. 60 months

3. Assume the following net cash flows are generated from a project. What is the
payback period if the initial investment required is $2,750,000?

Year NCF ($)

1 1,100,000
2 775,000
3 575,000
4 300,000
5 125,000

A. 3 years
B. 3 years 6 months
C. 3 years 10 months
D. 4 years

4. Assume the following profits are generated from a project. What is the payback
period if the initial investment required is $8,880,000?

Year Profit ($)

1 2,250,000
2 3,750,000
3 2,900,000
4 1,125,000

A. 2.55 years
B. 2.75 years
C. 2.87 years
D. 3.00 years

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IB Business Management MCQ Revision Pack 3.8 Investment Appraisal

5. Which of the following is not an advantage of the payback period method?

A. It is simplistic and quick to calculate

B. It allows firms to compare which project breaks-even the quickest
C. Payback period focuses on liquidity by considering whether an investment
pays off within its lifespan
D. It promotes short-termism in decision-making

6. Which of the following is not a valid criticism of the payback period method of
investment appraisal?

A. It focuses on time rather than on profits generated

B. It assumes constant net cash flows per month
C. It leads to short-termism in decision-making
D. It is the most complex method of investment appraisal

7. What is the formula for calculating average rate of return?

A. (Contribution x number of units sold) / initial investment cost × 100%

B. Total profit / initial investment cost × 100%
C. Average annual profit / initial investment cost × 100%
D. Revenue – (cost of goods sold + expenses)

8. Assume the following profits are generated from a project. What is the average
rate of return (ARR) if the initial investment required is $8,880,000?

Year Profit ($)

1 2,250,000
2 3,750,000
3 2,900,000
4 1,125,000

A. 2.87 years
B. 12.50%
C. 27.89%
D. 28.22%

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IB Business Management MCQ Revision Pack 3.8 Investment Appraisal

9. Assume the following profits are generated from a project. What is the average
rate of return (ARR) if the initial investment required is $5,750,000?

Year Profit ($)

1 3,100,000
2 2,775,000
3 1,575,000
4 1,300,000
5 925,000

A. 27.25%
B. 28.50%
C. 33.65%
D. 168.26%

10. Assume the following net cash flows are generated from a project. What is the
average rate of return (ARR) if the initial investment required is $800,000?

Year Net cash flows ($)

1 475,000
2 350,000
3 275,000

A. 8.00%
B. 12.50%
C. 14.45%
D. 37.50%

11. A firm is considering whether to invest $300,000 into a new ecommerce platform.
Projected net cash flows from the ecommerce platform are shown in the table
below. The platform has a life of 6 years before an overhaul is required.

Year Net cash flows ($)

1 65,000
2 95,000
3 125,000
4 140,000
5 145,000
6 115,000

The payback period of this investment is ______________ years, and the ARR is
_________.

A. 3 years + 1 month; 21.39%

B. 3 years + 2 months, 21.39%
C. 3 years + 1 month; 23.95%
D. 3 years + 2 month; 23.95%

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IB Business Management MCQ Revision Pack 3.8 Investment Appraisal

12. What is the present value of $2,500,000 to be received in 5 years if the prevailing
(HL) discount rate is 0.9057?

A. $1,958,750
B. $2,250,000
C. $2,264,250
D. $2,267,500

13. A firm is considering whether to build a new factor. The new factory would
(HL) increase total output by a value of $30 million per annum, but cost $20 million per
year in operational costs and expenditures. The factory will cost $45 million to
construct, and has a life of 7 years. Interest rate is 6%. What is the NPV of this
investment?

A. $2,267,500
B. $2,264,250
C. $1,958,750
D. $2,250,000

14. A firm is considering whether to purchase a new machine. The new machine
(HL) would increase revenues by $325,000 per year, and incur costs of $175,000 per
year. The initial investment is $450,000, and the machine has a useful life of 3
years. Interest rate is 8. What is the NPV of this machine?

A. $122,500
B. $600,000
C. $150,000
D. -$63,450

15. A firm is considering whether to invest $300,000 into a new ecommerce platform.
(HL) Project net cash flows from the ecommerce platform are shown in the table below.
The platform has a life of 6 years before an overhaul is required, and the current
interest rate is 4%. What is the NPV of this investment?

Year Net cash flows ($)

1 65,000
2 95,000
3 125,000
4 140,000
5 145,000
6 115,000

A. $182,150.75
B. $375,125.50
C. $291,191.50
D. $219,911.00

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IB Business Management MCQ Revision Pack 3.8 Investment Appraisal

3.8 Answers

Question Answer Explanation

Payback period is a method of investment appraisal that seeks to

determine how long it takes a project to break-even on its initial
1 A investment cost. Thus, Option A is correct. Option B is incorrect
because it describes the average rate of return, and Option C
describes the net present value approach (HL only).
Payback period is a method of investment appraisal that seeks to
determine how long it takes a project to break-even on its initial
2 A investment cost. The quicker a project covers its initial investments,
the better, and so a firm would typically prefer the shortest payback
period possible.

Year NCF ($) Cumulative NCF ($)

1 1,100,000 1,100,000
2 775,000 1,875,000
3 575,000 2,450,000
4 360,000 2,810,000
3 C 5 125,000 2,935,000

Payback occurs between years 3 and 4. At the end of year 3, the

project still needs to earn $300,000 to breakeven. The monthly
profit made in year 4 is $30,000 ($360,000/12 months) implying 10
more months’ worth of profits are required, and so the project
breaks even in 3 years and 10 months.

Year Profit ($) Cumulative profits

earned ($)
1 2,250,000 2,250,000
2 3,750,000 6,000,000
4 C 3 3,300,000 8,900,000
4 1,125,000 10,025,000
Payback occurs between years 2 and 3. At the end of year 2, the
project still needs to earn $2,880,000 to breakeven. The portion of
year 3’s profit required is $2,880,000/$3,300,000 = 0.8727. Thus
2.87 (2dp) years is the payback period for this project.

By emphasising on the time required to breakeven on an

investment, the payback period does not focus its attention to the
actual amount of profits generated and the long-run potential of an
5 D
investment, and suggests managers should just select the project
with the shortest breakeven time. This may lead to a firm foregoing
potential profits, especially in the long-term.

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IB Business Management MCQ Revision Pack 3.8 Investment Appraisal

Payback period does not focus its attention to the actual amount of
profits generated and the long-run potential of an investment, but
rather, just the length of time required to recoup an investment. It
6 D
also assumes constant net cash flows per month, an unrealistic
assumption. Moreover, income earned after payback is ignored
entirely.
Average rate of return (ARR) calculates the average annual profit
generated by an investment as a ratio of its initial investment cost.
Thus Option C is the correct answer. Note that the ARR is to be
7 C
expressed as a percentage, enabling comparison between
projects. Option D is incorrect because it simply calculates income
before taxes.
Total profit = 2,250,000 + 3,750,000 + 2,900,000 + 1,125,000 =
$10,025,000
ARR = (Total profit / lifespan of project) / initial investment cost ×
8 D 100%
ARR = (10,025,000/4 years) / 8,880,000 × 100% = 28.22%
Note: only payback period is calculated in terms of years. ARR is
calculated as a percentage.
Total profit = 3,100,000+2,775,000+1,575,000+1,300,000+925,000
= $9,675,000
9 C ARR = (Total profit / lifespan of project) / initial investment cost ×
100%
ARR = (9,675,000/5 years) / 5,750,000 × 100% = 33.65%
Total net cash inflows = 475,000+350,000+275,000 = $1,100,000
Expected profit = $1,100,000 – $800,000 investment cost =
$300,000
10 B
ARR = (Total profit / lifespan of project) / initial investment cost ×
100%
ARR = (300,000/3 years) / 800,000 × 100% = 12.50%
Payback occurs between years 3 and 4. The shortfall at the end of
year 3 is $15,000. 15,000 shortfall /140,000 year 4 net cash flows =
11 B 0.1071. Thus, the PBP is 3.1071 years, or 3 years and 2 months.
The ARR = [(685,000 total net cash flows – 300,000 initial
investment)/6 years] / 300,000 initial investment = 21.39% (2d.p.)

12 C Present value = 2,500,000 × 0.9057 = $2,264,250

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IB Business Management MCQ Revision Pack 3.8 Investment Appraisal

Year Net cash flows Discount Present

($millions) factor (6%) values
($millions)
1 10 0.9434 9.4340
2 10 0.8900 8.9000
3 10 0.8396 8.3960
4 10 0.7921 7.9210
13 B
5 10 0.7473 7.4730
6 10 0.7050 7.0500
7 10 0.6651 6.6510

Sum of present values = $55.825 million

NPV = Sum of present values – investment cost = $55.825 million -
$45 million = $10.825 million

Year Net cash flows Discount Present

($millions) factor (6%) values
($millions)
1 150,000 0.9259 138,885
2 150,000 0.8573 128,595
14 D 3 150,000 0.7938 119,070

Sum of present values = $386,550

NPV = Sum of present values – investment cost = $386,550 -
$450,000 = -$63,450

Year Net cash flows Discount Present values

($) factor (6%)
1 65,000 0.9615 62,497.50
2 95,000 0.9246 87,837.00
3 125,000 0.889 111,125.00
15 C 4 140,000 0.8548 119,672.00
5 145,000 0.8219 119,175.50
6 115,000 0.7903 90,884.50

Sum of present values = $591,191.50

NPV = Sum of present values – investment cost = $591,191.50 -
$300,000 = $291,191.50

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IB Business Management MCQ Revision Pack 3.9 Budgets (HL)

1. Budgets are forward-looking financial plans of expected revenues and

__________.

A. Profits
B. Expenditures
C. Cash flows
D. All of the above

2. When remedial action is taken to ensure budgeted performance is actually

achieved, what is it called?

A. Budgetary rectification
B. Budgetary control
C. Variance analysis
D. Variance minimization

3. Which of the following is not a valid reason to do budgeting?

A. Identify cost and profit centres

B. Motivate staff
C. Hold people accountable
D. Control expenses

4. Which of the following are potential drawbacks of budgeting?

i. They are static and inflexible, not dynamically implemented

ii. It is very time consuming
iii. Managers competing for larger budgets may lead to conflict
iv. They lead to overspending

A. i + ii
B. ii + iii + iV
C. i + ii + iii
D. i + iii + iv

5. Which of the following best describes the term ‘cost centre’?

A. A division incurring costs and profits

B. The highest-cost division in the firm
C. A division only incurring costs, but no profits
D. The core cost structure of the company and its products

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IB Business Management MCQ Revision Pack 3.9 Budgets (HL)

6. Which of the following would not typically be considered a profit centre?

A. An insurance sales team

B. A consulting firm
C. The advertising team
D. A retail outlet

7. Determine the whether the variances below are favourable (F) or adverse (A).

Budgeted Actual revenues Variance

revenues or or expenses ($)
expenses ($)
Sales revenue 240,000 265,000 1.
Raw materials 125,000 118,000 2.
costs
Advertising 18,000 20,000 3.
expenditure

A. 1. Adverse; 2. Favourable; 3. Adverse

B. 1. Favourable; 2. Adverse; 3. Adverse
C. 1. Adverse; 2. Adverse; 3. Favourable
D. 1. Favourable; 2. Favourable; 3. Adverse

8. “Pure Fabrics Ltd. has budgeted 150 hours of labour at an hourly rate of $6 to
assemble 3000 coffee machines. At the end of the period, managers find they
required 160 labour hours to produce all 3000 coffee machines.”

What is the variance in this situation?

A. $60 (Adverse)
B. $120 (Favourable)
C. $960 (Adverse)
D. $180,000 (Favourable)

9. The table below summarizes the regional sales budgets and actual results of
Jumbo Ltd. What is the overall variance in this situation?

Region Budgeted sales Actual sales

North 3,100,000 2,950,000
East 2,775,000 2,825,000
South 1,575,000 1,550,000
West 1,300,000 1,450,000

A. $25,000 (Favourable)
B. $50,000 (Favourable)
C. $150,000 (Adverse)
D. $250,000 (Adverse)

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IB Business Management MCQ Revision Pack 3.9 Budgets (HL)

10. A farmer sells tomatoes, potatoes and carrots. The table below shows his
budgeted versus actual sales in metric tons, and also his budgeted versus actual
price received. What is the overall variance in this situation?

Commodity Budgeted sales Actual sales Budgeted Actual

(metric tons) (metric tons) Price per ton Price per
($) ton ($)
Tomatoes 25 18 1150 1075
Potatoes 50 50 350 365
Carrots 40 38 440 400

A. $9,500 (Adverse)
B. $11,050 (Adverse)
C. $11,800 (Favourable)
D. $14,500 (Favourable)

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IB Business Management MCQ Revision Pack 3.9 Budgets (HL)

3.9 Answers (HL)

Question Answer Explanation

A budget is any financial plan of expected revenues, profits,

expenditures or cash flows. They are forward-looking, because they
1 D are plan for the future. An example of a sales budget may be to
achieve sales of $20 million in North America in the 2017/18 fiscal
year.
Budgetary control refers to any action taken to ensure budgeted
performance is actually achieved. Option C is incorrect because it
2 B
refers to analysing the differences between actual and budgeted
results, not taking remedial action.
Budgeting does not facilitate the identification of cost and profit
centres. Thus, Option A is the correct answer. Budgeting does,
however, help motivate staff by providing them with targets. By
3 A
comparing budgets to actual expenditure, overspending can be
controlled, and people can be held accountable for their
performance.
Budgets are static, inflexible financial plans made at the beginning
of a time period. They are not necessarily updated even when there
are changes in the external environment. Budgeting is also very
4 C time consuming, as they have to be planned, set, monitored and
managed. However, budgets do not lead to overspending, but
rather, curb it by increasing control on cash outflows and
expenditures.
A cost centre is a division that only incurs costs, but no profits. For
example, the human resources (HR) department of a firm does not
5 C directly generate any profits, but incurs costs such as the salaries
of HR staff. Option A is incorrect because it refers to a profit centre,
such as a retail store.
The advertising team does not directly generate profit, but does
incur costs in terms of the salaries of advertising executives. Thus
6 C
it is a cost centre. Options A, B and D all generate profits and incur
costs, making them profit centres.
A variance that is financially desirable is considered a favourable
variance, while one that is damaging and undesirable is called an
adverse variance. Since actual revenues exeed planned revenues,
7 D this is favourable. Since actual costs of raw materials are lower than
budgeted, this is also favourable. However, since actual advertising
expenditure is greater than budgeted advertising expenses, this is
adverse and unfavourable.
Budgeted labour costs = 150 hours × $6/hour = $900
Actual labour costs = 160 hours × $6/hour = $960
8 A Variance = actual costs – budgeted costs = $960 - $900= $60.
Since actual costs are greater than budgeted costs, this variance is
adverse.

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IB Business Management MCQ Revision Pack 3.9 Budgets (HL)

Budgeted sales = 3,100,000+2,775,000+1,575,000+1,300,000 =

$8,750,000
Actual sales = 2,950,000+2,825,000+1,550,000+1,450,000 =
9 A $8,775,000
Variance = actual sales – budgeted sales = $25,000. Since actual
sales revenues are greater than budgeted, this is a favourable
variance.

Commodity Budgeted Actual sales Variance ($)

sales revenues ($)
revenues ($)
10 B Tomatoes 28,750 19,350 9,400 (A)
Potatoes 17,500 18,250 750 (F)
Carrots 17,600 15,200 2,400 (A)
Overall 11,050 (A)

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IB Business Management MCQ Revision Pack 4.1 The Role of Marketing

1. ______ are basic human necessities such as food, water and shelter, while
______ are human desires, such as cars, smartphones or gaming consoles.

A. Wants, needs
B. Needs, wants
C. Requirements, preferences
D. Intangibles, perishables

2. Which of the following is not one of the four P’s of marketing?

A. Product
B. Place
C. Promotion
D. Perishability

3. Which of the following departments is the marketing department likely to liaise

with?

A. Finance and accounting

B. Human resources
C. Operations management
D. All of the above

4. Which of the following words is not a characteristic of ‘services’?

A. Intangible
B. Homogenous
C. Perishable
D. Heterogeneous

5. Which of the following is not one of the three additional elements of the marketing
mix of services (in addition to product, place, promotion and price)?

A. Process
B. Personalization
C. Physical evidence
D. People

6. What is it called when a firm focuses on meeting the needs and wants of
customers with an outward-looking approach to marketing?

A. Market orientation
B. Product orientation
C. Market research
D. Commercial marketing

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IB Business Management MCQ Revision Pack 4.1 The Role of Marketing

7. When a firm has an inward-looking marketing approach where it innovates and

hopes the market will like the products, it is a ______________ firm.

A. Product oriented
B. Market oriented
C. Globally oriented
D. None of the above

8. Which of the following is not a valid advantage of being a market oriented firm?

A. Enhanced flexibility to changes in market requirements

B. New products have a greater chance of success
C. Risk is minimized
D. The firm is more able to focus on internal quality and design

9. Which of the following is an advantage of being a product oriented firm?

A. It enables the firm to focus on quality and design

B. There is relatively low risk involved
C. It enables the firm to do what it does best - innovate
D. The firm has greater control over its internal operations

10. Marketing strategies aimed at generating profits is referred to as _________

marketing, while marketing strategies aiming to bring about positive change
without the profit motive is referred to as ________ marketing.

A. Commercial, sceptical
B. Commercial, social
C. Misleading, social
D. Economical, purposeful

11. Market orientation is a strategy involving which of the following Options?

A. Producing innovative, revolutionary products

B. Research into consumer needs and wants
C. Developing products a firm can, rather than what consumers want
D. All of the above

12. ___________ refers to the number of potential customers in a given market.

A. Market size
B. Customer base
C. Market capitalization
D. Population

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IB Business Management MCQ Revision Pack 4.1 The Role of Marketing

13. A market with significant setup costs is likely to have _______ barriers to entry,
and relative _______ competitors than a market with few to no barriers to entry.

A. High, high
B. High, few
C. Few, high
D. Few, few

14. What is the proportion of the total sales revenue of a particular industry owned by
a single firm referred to as?

A. Market power
B. Concentration ratio
C. Market share
D. Market leadership

15. If an industry’s total sales revenue is recorded at $7875 million in 2016, and the
market leader-firm recorded sales of $2035 million, what is its market share?

A. 23.75%
B. 25.84%
C. 32.69%
D. 75.15%

16. If an industry’s total sales revenue is recorded at $325 million in 2016, and a firm
holds 7% market share, what is its annual revenues in 2016?

A. $15.75 million
B. $20.50 million
C. $22.75 million
D. Cannot be determined

17. A firm with 32% market share sells $24 million worth of goods in a year. What is
the total industry’s sales revenues?

A. $31.68 million
B. $57.25 million
C. $65.00 million
D. $75.00 million

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IB Business Management MCQ Revision Pack 4.1 The Role of Marketing

18. With reference to the table below, what is the industry’s 3-firm concentration ratio?

Total industry revenue $3.95 billion

Company A $857 million
Company B $638 million
Company C $599 million
Company D $421 million

A. 45.00%
B. 53.01%
C. 62.53%
D. 63.67%

19. With reference to the data in the table below, which industry is least competitive?

Industry A 3-firm concentration ratio 76%

Industry B 3-firm concentration ratio 52%
Industry C 3-firm concentration ratio 37%
Industry D 3-firm concentration ratio 94%

A. Industry A
B. Industry B
C. Industry C
D. Industry D

20. Which of the following are valid marketing objectives for a non-profit entity?

A. Higher sales
B. Achieve market leadership
C. Higher market share
D. Generating attention about a cause

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IB Business Management MCQ Revision Pack 4.1 The Role of Marketing

4.1 Answers

Question Answer Explanation

Needs include items such as food, water and shelter, all of which
are necessary for survival. Wants are the desires for other, non-vital
1 B
products, such as cars and phones, without which people can still
survive.
The four key aspects that marketers have to consider are: Product,
Place, Promotion and Pricing. Marketers have to ensure the
customers’ needs and wants are satisfied with the appropriate
2 D product, distribute the products in the right places (distribution
channels) to ensure consumers have access to them, ensure
adequate awareness and desire to purchase the product through
promotion, and determine the price to sell the products at.
The marketing department is likely to liaise with all other divisions.
For example, the marketing department will liaise with the finance
and accounting teams to develop an appropriate budget. Marketing
3 D will also instruct human resources to increase staffing when they
expect significant market demand or when new products are being
launched. Market research will also provide the operations
department with guidance on production requirements.
Services are intangible, i.e. not physical or ‘touchable’, compared
to goods. They are also perishable in the sense that they are used
when the service is consumed. Services are also heterogeneous
4 B
(non-standardized), because they are bound to be slight differences
in service delivery based on the customer and the service provider
in question.
Services, in addition to the 4Ps, need consideration of process,
physical evidence and people. Process refers to the way service
5 B delivery is conducted. People refers to the customer service the
client faces when using a service. Physical evidence refers to the
visible elements associated with a service when it is delivered.
Market orientation occurs when a firm adopts an outward-looking
approach to marketing, i.e. it strives to discover and meet
customers’ needs and wants. Option B is incorrect because it refers
6 A
to when a firm is inward-looking in its marketing approach and
focuses on innovating. Product oriented firms produce what they
can, and hope the market will appreciate and purchase the product.
Product orientation occurs whenever firms focus on innovating and
producing what they can, rather than focusing on the exact needs
and wants of the market. Innovative firms like Apple and Google
7 A tend to be product oriented. Option B is incorrect because market
orientation refers to when a firm adopts an outward-looking
approach to marketing, producing exactly what the customers need
and want.

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IB Business Management MCQ Revision Pack 4.1 The Role of Marketing

Being a market oriented firm means the firm has greater knowledge
of changing market requirements because more market research is
done compared to a product oriented firm, allowing the firm to be
8 D
more flexible to market desires. Thus, this enhances the chance of
success for new products too, minimizing risk. However, Option D
is an advantage of being product-oriented.
Being a product oriented firm enables the firm to focus on quality
and design and thus do what it does best. Product oriented firms
tend to be hi-tech firms requiring constant innovation. The firm also
9 B attains greater control over its internal operations. However, being
product oriented firm typically brings more risks than being market
oriented, as changes in market needs and wants may not be
responded to by the firm. Thus Option B is incorrect.
Commercial marketing is the use of marketing strategies to
generate profits. Social market is the use of commercial marketing
10 B
ideas and techniques to bring about positive change in society,
without having a profit motive.
Market oriented firms need to do significant market research into
the needs and wants of consumers, and produce products that
satisfying those needs. It is thus an outward-looking approach.
11 B
Options A and C refer to product oriented, innovative firms, which
produce products they specialise in, hoping that the market will
purchase them.
Customer base refers to the number of potential clients existing in
a given market. For example, the customer base for pens is much
12 B larger than that of airplanes. Additionally, China has a much larger
customer base than Singapore because of its vastly bigger
population.
High barriers to entry are present if setup costs are high, a handful
of existing firms already hold significant economies of scale, or if
13 B
legal barriers such as patents and copyrights exist. In such markets,
there are likely to be relatively few competitors.
Market share refers to the portion of a total industry’s sales revenue
achieved by a single firm. Thus the correct answer is Option C.
Option A is incorrect because it is a result of having high market
14 C share. Option B is incorrect because it refers to the sum of the
market shares of the top few players in the industry. Option D is
incorrect because it refers to the firm with the greatest market share
and dominance.
Market share = firm’s sales revenue / total industry’s sale revenue
15 B × 100
Market share = $2035 / $7875 × 100 = 25.84%
Market share = firm’s sales revenue / total industry’s sales revenues
× 100
16 C
0.07 = firm’s sales revenue / $325 million × 100
Firm’s sales revenue = $22.75 million

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IB Business Management MCQ Revision Pack 4.1 The Role of Marketing

Market share = firm’s sales revenue / total industry’s sales revenue

× 100
17 B
0.32 = $24 million / total industry’s sales revenues × 100
Total industry’s sales revenues = $75 million
CR3 = combined sales revenue of top three firms / industry revenue
18 B × 100
CR3 = (857 + 638 + 599) / (3950) × 100 = 53.01%
Industry D is likely to have the least competitive industry because
the top three firms account for 94% of the market. All the rest of the
firms in the industry only make up 6% of the market. Industry C is
19 D
likely to be the most competitive industry of the four industries,
because market share is well distributed amongst players other
than the top-three.
A non-profit entity, as the name suggests, cares little about sales,
market share or leadership. It prioritises raising awareness about
20 D
the cause it operates for. Thus Option D is the correct answer.

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IB Business Management MCQ Revision Pack 4.2 Introduction to the 4Ps

1. What is a review of a firm’s current marketing position is called?

A. Marketing plan
B. Marketing analysis
C. Marketing audit
D. Marketing strategy

2. What is a product sold to another firm to be used in another production process is

called?

A. Consumer good
B. Producer product
C. Perishable good
D. Raw material

3. What is a long-lasting good sold to an end-user, such as people in the general

public, referred to as?

A. Consumer good
B. Consumer durable
C. Consumer specialty product
D. Producer good

4. What are soft drinks, toiletries and candy bars examples of?

A. Fast-moving consumer goods

B. Consumer specialty product
C. Consumer durables
D. Producer good

5. What are diamonds and designer clothes examples of?

A. Consumer durables
B. Consumer specialty product
C. Producer good
D. Convenience goods

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IB Business Management MCQ Revision Pack 4.2 Introduction to the 4Ps

6. Which of the following factor(s) would a firm take into account when setting a
product’s price?

i. Product demand
ii. Competition
iii. Aims and objectives
iv. Managerial bonuses

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

7. A product with limited supply is likely to fetch a _______ price than a product with
abundant supply. A monopoly firm, operating in a market with few significant
competitors, is likely to charge a ______ price than a firm competing with
numerous competitors.

A. Lower, lower
B. Higher, higher
C. Lower, higher
D. Higher, lower

8. Electronic products are likely to ________ in price as time goes by. Antiques are
likely to ________ in price as time goes by.

A. Decrease, decrease
B. Decrease, increase
C. Increase, decrease
D. Increase, increase

9. The decision over what tangible aspects and visible elements should exist during
the provision of a service is referred to as the ________ decision.

A. Product
B. People
C. Place
D. Physical environment

10. Payment methods and after-sales services relate to the ________ aspect of the
services marketing mix.

A. Place
B. Product
C. Payment
D. Process

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IB Business Management MCQ Revision Pack 4.2 Introduction to the 4Ps

11. Which of the following is not one of the 7Ps of a service’s marketing mix?

A. Payment
B. People
C. Physical environment
D. Product

12. The decision over how to distribute a firm’s products to customers is the ________
decision.

A. Product
B. Transportation
C. Dissemination
D. Place

13. The use of expensive, mass-media to promote a firm’s products is referred to as

_________________ promotion.

A. Below the line

B. Mass media
C. High-budget
D. Above the line

14. What is viral marketing an example of?

A. Above the line promotion

B. Online promotion
C. Ecommerce
D. Below the line promotion

15. Which of the following is not a means of promotion?

A. Sales promotions
B. Sponsorships
C. Wholesalers
D. Advertising

16. What is the perception people hold of a brand relative to competitors called?

A. Customer satisfaction
B. Positioning
C. Leadership
D. Physical environment

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IB Business Management MCQ Revision Pack 4.2 Introduction to the 4Ps

17. If a company is perceived to be inferior to its rivals, what does it need to improve?

A. Market share
B. Market segmentation
C. Demographics
D. Positioning

18. Which of the following factors is least likely to limit the effectiveness of a firm’s
marketing strategies?

A. Costs of production
B. Cyclical factors
C. Legal environment
D. Sources of finance

19. What is a group of customers with similar requirements and characteristics is

referred to as?

A. Target market
B. Sample market
C. Consumer profile
D. Market segment

20. What is the practice of personalising the marketing mix for each market segment
referred to as?

A. Market segmentation
B. Market analysis
C. Targeting
D. Consumer profile development

21. Which of the following is not a way to segment a market?

A. By demographics
B. By psychographics
C. By geographic factors
D. By academics

22. Segmenting a market according to people’s hobbies is an example of

segmentation by _____________.

A. Psychographics
B. Geographical factors
C. Demographics
D. Discrimination

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IB Business Management MCQ Revision Pack 4.2 Introduction to the 4Ps

23. Segmenting a population into groups based on their socio-economic class is an

example of segmentation by _____________.

A. Psychographics
B. Geographical factors
C. Demographics
D. Wealth

24. Which of the following methods of segmentation is most likely to be used by an

expensive private school?

A. Geographical location
B. Religion
C. Ethnicity
D. Socio-economic class

25. Which of the following is not a benefit of doing market segmentation?

A. Enhanced growth opportunities

B. It is very time efficient and objective
C. Improved understanding of customer requirements
D. Enhanced sales

26. What is it called when a firm markets its products exclusively to a very specific
and well-defined segment of the population called?

A. Mass marketing
B. Commercial marketing
C. Niche marketing
D. Social marketing

27. What is it called when a firm markets its products to a wide audience while ignoring
the specific needs of individual segments?

A. Commercial marketing
B. Mass marketing
C. Social marketing
D. Niche marketing

28. What can anti-drug government campaigns be considered as?

A. Social marketing
B. Mass marketing
C. Commercial marketing
D. Both (A) and (B)

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IB Business Management MCQ Revision Pack 4.2 Introduction to the 4Ps

29. What is a visual representation depicting how customers perceive a brand relative
to others called?

A. Boston matrix
B. Product life cycle
C. Position map
D. Promotional mix

30. What is a product that sells for a high price but is made of low quality components
referred to as?

A. Premium product
B. Cowboy product
C. Bargain product
D. Economy product

31. Which of the following car brands is an example of a premium brand?

A. Toyota
B. Honda
C. Kia
D. BMW

32. Which of the following is not an advantage of position mapping?

A. It indicates exactly what aspects need to be improved upon

B. It indicates how customers perceive the brand
C. It guides repositioning strategies
D. It allows more appropriate marketing mixes to be implemented

33. Which of the following is not one of the three competitive strategies for market
positioning suggested by Michael Porter?

A. Outsourcing
B. Cost leadership
C. Differentiation
D. Focus

34. A firm that aims to become attain the cheapest costs of production in its industry
is one that is pursuing the ________ strategy.

A. Efficiency
B. Differentiation
C. Cost leadership
D. Both (B) and (C)

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IB Business Management MCQ Revision Pack 4.2 Introduction to the 4Ps

35. Which of the following statements would Michael Porter agree with?

A. A firm must choose between cost leadership, differentiation or focus

strategies
B. A firm cannot pursue multiple competitive strategies simultaneously
C. High quality and low cost cannot be achieved simultaneously
D. All of the above

36. Imagine a firm that focuses all its attention on developing food items for people
with dairy allergies. Such a firm is said to be using the ________ strategy.

A. Niche market
B. Cost leadership
C. Differentiation
D. Focus

37. What is a feature that separates a brand from its competitors called?

A. Core competency
B. Competitive edge
C. USP
D. Differentiation

38. What is the process of making a brand or product unique and different to
competitors called?

A. Competency development
B. Feature acquisition
C. Cost leadership
D. Differentiation

39. Which of the following is not an advantage of differentiation?

A. It allows a firm to charge higher prices

B. It can provide economies of scale
C. It enhances brand recognition
D. It enhances brand loyalty

40. Which of the following is not a valid criticism of differentiating products?

A. It is expensive
B. It prevents economies of scale being fully exploited
C. It may confuse customers
D. It reduces distribution (placement) Options

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IB Business Management MCQ Revision Pack 4.2 Introduction to the 4Ps

4.2 Answers

Question Answer Explanation

A marketing audit is typically done before the preparation of a

marketing plan (which outlines the firms marketing objectives and
1 C strategies). The marketing audit stands to analyse a firm’s current
marketing mix position in terms of its strengths, weaknesses,
opportunities and threats.
A producer product refers to any product (good or service) sold to
other firms to be used in their production process. For example, raw
materials and machinery are producer products, because they are
2 C
sold to firms who use them to produce other final goods. Option A
is incorrect because it refers to goods and services sold to an end-
user, such as people in the general public, rather than firms.
Consumer durables are long-lasting products sold to private
individuals rather than firms. Examples include refrigerators and
3 B
vehicles. Option A, while correct, is not the best answer, because a
consumer good need not be long-lasting.
Fast-moving consumer goods (FMCGs), also known as
convenience products, are products that are sold relatively quickly
4 A
for relatively cheap prices, such as soft drinks, toiletries and candy
bars.
Consumer speciality products refers to high-value produce sold to
5 B private individuals for personal use, such as diamond jewellery and
designer clothing.
A firm is likely to take into account several factors such as product
demand, competition and its own aims when setting price.
6 C However, it is unlikely for the firm to consider managerial bonuses
when setting prices, as profit-related pay is based on the entire
firm’s profits.
A product with limited supply, such as oil or gold, is likely to fetch a
much higher price due to its scarcity than a product with abundant
7 B supply, such as vegetables. A firm with less competition will be able
to charge a relatively higher price compared to a firm in a highly
competitive market which.
Electronic products such as smartphones and cameras are likely to
reduce in price as time goes by because of technological
8 B
obsolescence and advancements. Antiques, due to their scarcity,
grow in value as time goes by.

The provision of services involves three additional ‘Ps’ in the

marketing mix – people, process and physical environment.
9 C
Physical environment refers to the tangible aspects and visible
elements of a service, such as decoration and cleanliness.

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Process, in a service’s marketing mix, refers to the way in which a

service is delivered. This involves a consideration of the payment
10 D
methods enabled, and the after-sales services on offer. Thus
Option D is the correct answer.
The 7Ps of a service’s marketing mix include: Product, Price, Place,
Promotion, People, Process and Physical environment. Thus
11 A
Option A is incorrect. Note that payment methods factor into the
process consideration of a service’s marketing mix.
Place, in the 4Ps, refers to the way in which customers can access
and purchase a firm’s products. Place refers to making a decision
12 D
over which distribution channels to utilize, such as direct selling,
wholesaling or retailing.
Above the line (ATL) promotion refers to promoting products
through mass-media channels such as television and radio
13 D advertising. Option A is incorrect because it refers to using non-
mass media channels such as packaging and giving out free
samples.
Below the line (BTL) promotion refers to promoting products using
non-mass media channels. Viral marketing relies heavily on word
of mouth rather than mass-media (ATL promotion), and is thus an
14 A
example of BTL promotion. Option C is invalid because it refers to
the buying and selling of products through the internet, not only
marketing them.
Promotion can be done through sales promotions such as price
reductions, sponsorships to raise brand awareness and visibility,
advertising in ATL or BTL channels or gaining good publicity
15 C
through celebrity endorsement. Option C is incorrect because
wholesalers are not a form of promotional activity, but rather a
distribution channel.
Positioning refers to the perceptions and opinions held by people of
16 B
a brand held relative to other competing brands.
Positioning refers to the way people perceive a brand compared to
its rivals. If a brand is seen to be inferior to competitors, it needs to
work on its positioning to improve the way people feel about the
17 D
brand. Option A is incorrect because market share relates to the
share of total industry revenues earned by a single firm, not the way
a firm is perceived amongst potential customers.
A firm with higher than average costs of production simply may not
be able to compete in terms of price with competitors. A poor
economy may limit the effectiveness limit product demand. Legal
18 D constraints to promotional activities may limit the range of marketing
strategies that can be implemented. Option D however is unlikely to
directly impact the effectiveness of marketing strategies, as it simply
refers to where funds are procured from.

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IB Business Management MCQ Revision Pack 4.2 Introduction to the 4Ps

A market segment refers to a group of customers who have similar

needs, wants and characteristics (such as age, gender and race).
19 D Option A is incorrect because a target market refers to the group of
people a firm aims its products at. Note that this target market may
have segments within it too.
Targeting refers to the process of personalising and distinguishing
each market segment’s marketing mix. By providing a different,
more appropriate marketing mix for each market segment, a firm
20 C raises its chances of success. Option A is incorrect because market
segmentation refers to the process of breaking down a market into
groups (segments) that have similar requirements and
characteristics.
Market segmentation can be done according to demographics such
21 D as age, gender and race, or by psychographics such as religion,
values and status, or also by geographic location.
Psychographic factors, such as hobbies, religion or status, are
22 A factors relating to people’s lifestyle preferences and emotions. Thus
Option A is the correct answer.
Segmentation by demographics refers to segmenting based on
23 C population factors, such as socio-economic class and income
levels, race and age.
An expensive private school is likely to segment the population of
potential students by socio-economic class and family wealth,
because only the richest may be able to afford the school. While
24 D geographical location (Option A) may be important, it is unlikely to
be the most important factor to segment by. A school is also not
likely to discriminate based on religion or ethnicity (Options B and
C).
Market segmentation allows a firm to discover new growth
opportunities (Option A). By understanding customer requirements
better (Option C), a firm also increases its chances of success, and
25 B is able to target each segment individually through personalised
marketing mixes, potentially raising sales (Option D). However,
market segmentation is unlikely to be time efficient, and the method
of segmentation may be subjective.
Niche marketing is the marketing of products to a specific and well-
26 B defined market segment. For example, Rolls Royce markets its
products to very high net worth, respected individuals only.
Mass marketing refers to whenever a firm markets its products to a
large, relatively undefined audience, ignoring individual segments.
The aim is to reach as many potential customers as possible. Note
27 B
that Option C is incorrect because, although social marketing can
use mass marketing as a medium, social marketing relies on
creating positive social change without aiming to generate a profit.

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Anti-drug campaigns by governments aim to create positive change

in society without having an underlying profit incentive (unlike in
28 D commercial marketing). Because these campaigns aim to reach as
many people as possible, drug users and non-drug users, these
campaigns are also a form of mass marketing.
A position map is a visual representation of how a brand is
29 C perceived relative to competitors, based on the price and quality
variables.
A cowboy product is a good or service that is of low quality but
relatively high price. Option A is incorrect because it refers to a high
30 B price, high quality product. Option C is incorrect because it refers to
a lowly priced yet relatively high quality product. Option D is
incorrect because it refers to a lowly priced low quality product.
A premium brand or product is one that sells for a relatively higher
price compared to competitors and is of superior quality. Because
BMW sells higher performance vehicles compared to the other
31 D Options, at a higher price, it is perceived to be a premium brand.
Options A and B come somewhere between being bargain and
economy brands, while Option C is likely to be considered an
economy brand.
Position mapping does not indicate exactly what aspects need to
be improved upon because it only considers two major factors, and
does not break them down. It does however indicate how customers
32 A perceive the brand (Option B), guiding repositioning strategies
whenever necessary (Option C) and allowing more appropriate
marketing mixes to be implemented (Option D). Thus Option A is
the correct answer.
Outsourcing is not one of the three competitive marketing
positioning strategies. Option B refers to the endeavour to become
the lowest cost producer of a certain product, Option C refers to
33 A
producing unique products through innovation to gain a competitive
advantage, and Option D refers to focusing on a particular market
segment.
A firm pursuing the cost leadership strategy is one that tries to
34 C achieve the lowest cost of production in its industry. This may be
done by increasing productive efficiency (Option A).
Michael Porter suggested that three competitive strategies exist –
cost leadership, differentiation and focus strategies. To be
successful, a firm must choose either one of these strategies,
35 D because focusing on multiple would not enable the firm to be good
in anything. He also said that high quality (e.g. through
differentiation) and low cost (e.g. through cost leadership) cannot
simultaneously be achieved.
The focus strategy is one where a firm focuses on meeting the
needs and wants of a specific market segment or niche market,
36 D
such as the market for dairy-free food. Option A is incorrect
because it is not a valid competitive strategy in itself.

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IB Business Management MCQ Revision Pack 4.2 Introduction to the 4Ps

A unique selling point is a feature or characteristic that makes a

brand or product stand out amongst competition. It provides a
reason for customers to select the brand over competing brands. A
37 C USP allows a firm to gain a competitive edge (Option B) Option A
is incorrect because it refers to a firm’s key skills or resources that
make a firm stand out. Option D is incorrect it refers to the process
of making a firm stand out from competitors.
Differentiation refers to the process of developing features or skills
that make a brand or product stand out amongst competition. For
example, Rolls Royce has differentiated its cars by making them
38 D
highly luxurious and expensive. Option C is incorrect because cost
leadership is a positioning strategy that can be used to differentiate
a firm.
Differentiation is less likely to provide economies of scale compared
to standardization because mass production is made more
39 B complex. Thus Option B is incorrect. It does however allow a firm to
charge higher prices by adding value to the product. Brand
recognition and loyalty is also enhanced with differentiation.
Differentiation is very expensive because it requires significantly
more resources, for example, during product development,
40 D production and marketing, than standardisation. Making unique
products may also prevent economies of scale being achieved, and
having too much differentiation may end up confusing customers.

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IB Business Management MCQ Revision Pack 4.3 Sales Forecasting (HL)

1. Which of the following sales forecasting techniques involves looking at past data
and trends in order to predict future trends?

A. Market research
B. Time series analysis
C. Extrapolation
D. All of the above

2. If a firm has had sales growth of 7% per annum for the past five years, and the
marketing team forecasts sales growth of 7% this year too, what is the sales
forecasting technique being used called?

A. Extrapolation
B. Time series analysis
C. Inference
D. Market research

3. Which of the following is not a key element of a time series analysis?

A. Deliberate variations
B. Seasonal variations
C. Cyclical variations
D. Random variations

4. Which of the following items is least likely to experience seasonal variations in

demand?

A. Textbooks
B. Refrigerators
C. Easter eggs
D. Hotels

5. What does standard deviation measure?

A. Difference between the greatest and smallest data points

B. Difference of a variable from the mean
C. Most frequent data point that arises in a data set
D. Sum of all items divided by the number of items

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IB Business Management MCQ Revision Pack 4.3 Sales Forecasting (HL)

6. With reference to the data in the table below, what is simple average sales over
the six-month period?

Month: January February March April May June

Sales ($) 150,000 175,000 160,000 170,000 150,000 140,000

A. $157,500
B. $160,000
C. $170,000
D. $172,500

7. With reference to the data in the table below, what is the three-point moving
average sales from March to May?

Month: January February March April May June

Sales ($) 150,000 175,000 160,000 170,000 150,000 140,000

A. $155,000
B. $160,000
C. $163,750
D. $167,333

8. With reference to the data in the table below, what is the variation between the
three-point moving average sales from January to March and the actual sales
recorded in February?

Month: January February March April May June

Sales ($) 300,000 350,000 310,000 340,000 300,000 280,000

A. -$37,667
B. -$30,000
C. +$25,000
D. +$30,000

9. With reference to the data in the table below, what is the four-point moving
average sales from January to April?

Month: January February March April May June

Sales ($) 450,000 525,000 480,000 510,000 490,000 420,000
A. $491,250
B. $502,500
C. $575,000
D. $655,000

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IB Business Management MCQ Revision Pack 4.3 Sales Forecasting (HL)

10. With reference to the data in the table below, what is the four-point moving
average sales from February to May?

Month: January February March April May June

Sales ($) 450,000 525,000 480,000 510,000 490,000 420,000

A. $471,550
B. $501,500
C. $595,000
D. $605,125

11. With reference to the data in the table below, what is the centred trend for the
period January-April and February-May?

Month: January February March April May June

Sales ($) 450,000 525,000 480,000 510,000 490,000 420,000

A. $495,250
B. $496,250
C. $992,500
D. Cannot be determined

12. With reference to the data in the table below, what is the variation in March from
the centred trend for the period January-April and February-May?

Month: January February March April May June

Sales ($) 450,000 525,000 480,000 510,000 490,000 420,000

A. -$17,083
B. -$16,250
C. +$21,250
D. Cannot be determined

13. According to the table below, the mean sales are ________, and the modal sales
are _______.

Week: 1 2 3 4 5
Sales ($) 2,500 3,100 5,600 5,700 3,100

A. $3,500, $3,100
B. $4,000, $3,100
C. $4,225, $3,100
D. $5,000, $4,000

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IB Business Management MCQ Revision Pack 4.3 Sales Forecasting (HL)

14. According to the table below, the median sales are ________, and the sales range
is _______.

Week: 1 2 3 4 5
Sales ($) 2,500 3,100 5,600 5,700 3,100
A. $3,100, $900
B. $3,100, $3,200
C. $3,100, $5,600
D. $4,000, $3,100

15. With reference to the table below, what is the four-point moving average for the
first four weeks?

Week: 1 2 3 4 5
Sales ($) 2,500 3,100 5,600 5,700 3,100
A. $4,000
B. $4,225
C. $4,375
D. $4,525

16. Using the data in the table below and the four-point moving average method, what
is the centred trend?

Week: 1 2 3 4 5
Sales ($) 2,500 3,100 5,600 5,700 3,100
A. $4,100
B. $4,200
C. $4,300
D. Cannot be determined

17. Using the table below, compute the variation in month 3 from the centred trend.

Week: 1 2 3 4 5
Sales ($) 7,500 9,300 16,800 17,100 11,100

A. -$3,675
B. -$3,225
C. +$3,225
D. +$3,675

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IB Business Management MCQ Revision Pack 4.3 Sales Forecasting (HL)

18. Using the table below, compute the variation in March from the centred trend.

Month Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Sales($) 2150 1755 1520 1375 1250 1150 1175 675 1200 1400 1975 2315

A. -$67.50
B. -$35.25
C. +$57.50
D. +$145.00

19. Which of the following is not a benefit of sales forecasting?

A. It can help a firm improve its liquidity position across the year
B. It guides production and inventory management
C. It helps secure external sources of funding
D. It is based on historical data

20. Which of the following is/are limitations of sales forecasting?

i. Predictions may be inaccurate

ii. Past data may not fully reflect what the future holds
iii. Garbage in garbage out
iv. It overcomplicates inventory management

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

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IB Business Management MCQ Revision Pack 4.3 Sales Forecasting (HL)

4.3 Answers (HL)

Question Answer Explanation

Extrapolation is a quantitative sales forecasting technique that

involves analysts looking at trends found in past data and extending
1 C (extrapolating) these trends into the future. Market research (Option
A) refers to any activity designed to find out customers’ needs,
wants and preferences.
Extrapolation is a quantitative sales forecasting technique where
analysts look at trends found in past data and extend these trends
2 A
into the future. Thus the technique being used is called
extrapolation (Option A).
A time series analysis seeks to uncover seasonal, cyclical and
random variations and trends occurring in sales, to allow firms to
make better estimations of future period sales. Seasonal variations
3 A refer to fluctuations in sales between certain periods of time, cyclical
variations refer to sales fluctuations being caused by the state of
the economy, and random variations are sales fluctuations due to
inexplicable, unpredictable factors.

A product has seasonal demand if its sales fluctuate between

months of the year. For example, textbooks are typically bought at
the beginning of the school year. Hotels are most busy and
4 B experience greater sales during holiday or peak business seasons.
Easter eggs are mainly bought during Easter. Refrigerators (Option
B) however are bought all year round, and thus do not experience
seasonal demand.
The standard deviation is a statistical indicator that can be utilized
in sales forecasting to determine the difference of a variable from
the arithmetic mean (average). Thus Option B is correct. Option A
5 B is incorrect because it refers to the range, Option C refers to the
mode and Option D refers to the mean (average). A high standard
deviation indicates that sales fluctuate significantly from the
average.
Mean = ($150,000 + $175,000 + $160,000 + $170,000 + $150,000
6 A + $145,000)/6
Mean = $157,500
Mean = ($160,000 + $170,000 + $150,000)/3
7 B
Mean = $160,000
3-point moving average = ($300,000 + $350,000 + $310,000)/3
3-point moving average = $320,000
8 A
Sales in February = $350,000
Variation = +30,000

Mean = ($450,000 + $525,000 + $480,000 + $510,000)/4

9 A
Mean = $491,250

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IB Business Management MCQ Revision Pack 4.3 Sales Forecasting (HL)

4-point moving average = ($525,000 + $480,000 + $510,000 +

10 B $490,000)/4
4-point moving average = $501,250
Centred trend = 4-point moving averageJan-April + 4-point moving
11 B averageFeb-May
Centred trend = ($491,250 + $501,250) / 2 = $496,250
Centred trend = 4-point moving averageJan-April + 4-point moving
averageFeb-May
12 C
Centred trend = ($491,250 + $501,250) / 2 = $496,250
Variation = $496,250 - $480,000 = -$16,250
Mean = ($2,500 + $3,100 + $5,600 + $5,700 + $3,100)/5
Mean = $4,000
13 B
Mode = $3,100 because it is the most frequently appearing sales
number in the data set.
Median is the midpoint of the range. Arranging the numbers in
ascending order shows us that $3,100 is the median (the middle
14 B
number of the data set).
Range = $5,700 - $2,500 = $3,200
4-point moving average = ($2,500+$3,100+$5,600+$5,700)/4 =
15 B
$4,225
4-point moving averageweek 1-4 = ($2,500+$3,100+$5,600+$5,700)/4
= $4,225
16 C 4-point moving averageweek 2-5 = ($3,100+$5,600+$5,700+$3,100)/4
= $4,375
Centred trend = ($4,225+$4,375)/2 = $4,300
4-point moving averageweek 1-4 =
($7,500+$9,300+$16,800+$17,100)/4 = $12,675
4-point moving averageweek 2-5 =
17 D
($9,300+$16,800+$17,100+$11,100)/4 = $13,575
Centred trend = ($12,675+$13,575)/2 = $13,125
Variation from week 3 = $16,800 - $13,125 = +$3,675
4-point moving averageJan-Apr =
($2,150+$1,755+$1,520+$1,375)/4 = $1,700
4-point moving averageFeb-May =
18 A
($1,755+$1,520+$1,375+$1,250)/4 = $1,475
Centred trend = ($1,700+$1,475)/2 = $1,587.50
Variation in March = $1,520 - $1,587.50 = -$67.50
Sales forecasting can help a firm improve its liquidity position by
giving managers an indication of costs and revenues in the months
or years to come. Knowing the expected level of sales also guides
19 D production quantities and informs manager about inventory needs.
Sales forecasts may also be necessary to secure external sources
of funding. However, because it is based on past data, predictions
may not be accurate, making Option D a disadvantage.

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IB Business Management MCQ Revision Pack 4.3 Sales Forecasting (HL)

A criticism of sales forecasting is that due to the numerous

assumptions that may be made in a sales forecasts, predictions
may not be accurate. Past data may also not fully reflect future
conditions. If past data used in sales forecasted is inaccurate, too
20 C
outdated or biased, then the results from sales forecasting will also
be inappropriate (garbage in garbage out). However, forecasting is
likely to improve inventory management, not necessarily
overcomplicate it.

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IB Business Management MCQ Revision Pack 4.4 Market Research

1. Market research conducted as and when required for a specific problem that the
business is facing is called ______ market research.

A. Ad-hoc
B. Continuous
C. Intermittent
D. Primary

2. The market research required to create a monthly ‘Top-10’ table is likely to be

________.

A. Continuous
B. Ad-hoc
C. Secondary
D. Primary

3. Which of the following is not a primary role of market research?

A. To provide information regarding customer tastes and preferences

B. To boost net income
C. To determine customers reactions to price changes
D. To help firms improve their marketing mixes

4. Market research that involves getting first-hand, new data is called ________
research.

A. Continuous
B. Ad-hoc
C. Secondary
D. Primary

5. Which of the following is not a method of primary research?

A. Surveys
B. Newspaper articles
C. Interviews
D. Observations

6. Primary market research that is structured and conducted in-person (face-to-face)

is best described as a(n) _________.

A. Self-completed survey
B. Informal research
C. Interview
D. Online survey

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7. Which of the following is not a benefit of using surveys as a means of primary

research?

A. Both qualitative and quantitative data is collectable

B. Data collection is relatively easy
C. They are cheap so cost effective
D. Bespoke research requirements can be met

8. Which of the following is not a valid criticism of using surveys as a means of

primary research?

A. A large sample size is necessary

B. It is time consuming and costly
C. It can be difficult to filter out bias in respondents’ answers
D. Respondents may feel pressure to conform to the norm in an open forum
discussion

9. Which of the following is not a benefit of using primary research?

A. It is relatively quick to collect

B. It is more relevant to the research needs of individual businesses
C. Information collected is unique to the firm
D. Information is more valid and up-to-date

10. Which of the following is not a valid criticism of using primary research?

A. It can be monotonous and repetitive to conduct

B. Results are available to the general public, including rivals
C. There is potential for bias and subjectivity
D. Poor research design can lead to inaccurate results

11. Which of the following is not a benefit of using secondary research?

A. Data meet the specific firm’s individual needs

B. It is more expensive than conducting primary research
C. It is relatively time consuming and difficult to collect
D. It provides a narrow breadth of information for the firm

12. Which of the following is not a valid criticism of using secondary research?

A. Data may be irrelevant or incomplete

B. Sources are limited compared to primary sources
C. It is relatively time consuming to collect
D. The information is available to everyone, rivals included

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13. Which of the following is not a method of desk research?

A. Market analyses
B. Trade journals
C. Government reports
D. Focus groups

14. Which of the following is not a valid advantage of using focus groups?

A. They attract mainly extroverts

B. Detailed questions and discussions can take place
C. Behavioural observations can be made
D. They can be representative of a firm’s target market segment(s)

15. Before launching a new motorcycle, what is the motorcycle manufacturer most
likely to use?

A. Trade journals
B. Surveys
C. Observations
D. Consumer panels

16. What is the best method of primary research for researching the queuing time for
a ride in a theme park?

A. Focus groups
B. Observation
C. Consumer panels
D. Questionnaires

17. Which of the following statements about secondary market research is true?

A. It can be sourced internally or externally

B. It involves the collection of new information
C. Methods include the use of consumer panels
D. Data are exclusive to the market researcher

18. What is a survey question asking respondents to check (tick) off their age group
a form of?

A. Secondary research
B. Qualitative research
C. Quantitative research
D. Both (A) and (C)

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19. Which of the following is not an advantage of qualitative research?

A. It provides insight into behavioural trends

B. Responses are factual and measurable
C. Information collected can be ‘richer’ and more detailed
D. A lower level of responses may suffice

20. Which of the following is not an advantage of quantitative research?

A. It is relatively easy and quick to collect

B. Results are easier to analyse
C. The factuality and measurability of responses are enhanced
D. It is more flexible than qualitative research

21. What is the group of all potential customers making up a market referred to as?

A. Sample size
B. Quota sample
C. Market capitalization
D. Population

22. A form of sampling in which the researcher selects a certain number of people
from each market segment and then grouped according to characteristics (such
as age or gender) is called __________ sampling.

A. Stratified
B. Random
C. Convenience
D. Quota

23. The form of sampling that relies on segmentation is called __________ sampling.

A. Random
B. Stratified
C. Cluster
D. Snowballing

24. Which sampling method arbitrarily by chance selects anyone in the population for
market research?

A. Random
B. Stratified
C. Cluster
D. Snowballing

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25. The form of sampling that involves breaking down the population into
geographical regions and then randomly interviewing people from each region is
called _________ sampling.

A. Geographical
B. Snowballing
C. Cluster
D. Stratified

26. When a television reporter interviews people walking nearby, this is an example
of _________ sampling.

A. Snowballing
B. Geographical
C. Convenience
D. Stratified

27. Which of the following is not a disadvantage of stratified sampling?

A. Appropriate strata may be difficult to determine

B. Population data may be expensive to procure
C. People are selected indiscriminately
D. It is difficult to subdivide the population into representative subgroups

28. Mistakes caused by human error are referred to as __________ errors, while
those caused by poor sample design are referred to as __________ errors.

A. Sampling, non-sampling
B. Non-sampling, sampling
C. Subjective, sampling
D. Subjective, unrepresentative

29. When an inappropriate sampling methodology is used, this causes a ________

error.

A. Sampling
B. Non-sampling
C. Research
D. Unrepresentative

30. When a researcher incorrectly records data, this is referred to as a _______ error.

A. Research
B. Unrepresentative
C. Sampling
D. Non-sampling

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4.4 Answers

Question Answer Explanation

Ad-hoc market research refers to market research conducted

whenever the firm requires. It is one-off and has the purpose of
1 A helping solve a particular issue the firm is facing. Option B is
incorrect because it refers to market research that is done on an
ongoing basis.

Continuous market research is a style of market research that is

done on an ongoing basis, rather than a one-off basis (ad-hoc
2 A market research). Thus, Option A is the correct answer. Note that
continuous market research can be done in the form of primary
and/or secondary research.

Market research provides firms with an insight into what customers

want and need, and what the current market trends are (Option A).
Thus, firms can improve their marketing mixes (Option D). Market
3 B research can also help firms to determine their prices (Option C).
However, the primary role of market research is not to boost net
income, but to gain a better understanding of customer
requirements.

Primary research involves a researcher obtaining first-hand new

4 D data, through methods such as surveys, interviews and making
observations. Hence, Option D is the correct answer.

Primary research involves a researcher obtaining first-hand, new

5 B data. Newspaper articles (Option B) contain information already
obtained by someone else, so are forms of secondary research.

An interview (Option C) is a form of structured primary research

6 C conducted in-person (face-to-face). Hence, the correct answer is
Option C.

Surveys can be expensive and are time consuming, especially

7 C when trying to obtain a large sample that is representative of a
target market. Thus, Option C is the correct answer.

For a survey to be sufficiently representative, a large sample size

may be necessary (Option A). Designing surveys, collecting
responses and interpreting data are also likely to come at a cost
8 D and be time consuming (Option B). Respondent bias can be very
difficult to filter out (Option C), thus potentially making results
inaccurate. However, Option D is a disadvantage of focus groups,
not surveys.

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Primary research is relatively costly and time consuming compared

to secondary research where someone else has already collected
the data. However, it is more relevant and specific to a firm’s
9 A research requirements (Option B). Data is also unique and
exclusively held by the firm (Option C), potentially providing a
competitive edge. Finally, data is more valid and up-to-date (Option
D) as it is collected when required by the firm.

Primary research, unlike secondary research, results are not

available to the public unless the firm decides to release it to the
10 B
public. It is typically exclusive and confidential to the firm collecting
it. Thus, Option B is the correct answer.
Secondary research is research that is already collected by
someone else so has to be filtered to meet a firm’s individual needs.
11 A
Thus, secondary data must be screened for validity and relevance.
Therefore, Option A is the correct answer.
Option C is correct because secondary research is typically
considered less time consuming and cheaper to collect than
primary research. Valid criticisms include the risk of attaining
12 C
irrelevant and incomplete data (Option A) and data that are
publicly available even to rivals (Option D). Option B is invalid as
secondary sources tend to be readily available.
Secondary research refers to using data already collected by
someone else. Valid examples of secondary research sources
include market analyses (Option A), trade journals (Option B), and
13 D
government reports (Option C). Focus groups (Option D), however,
are a form of primary research as they involve the first-hand
collection of new data.
A focus group involves inviting groups of people for discussion over
key marketing issues. This provides marketers with insight into what
their target market segments (Option D) feel. Detailed questions
and discussions (Option B) can take place, and can be recorded for
14 A
future review. Behavioural observations (Option C) can also be
made to pick-up on non-verbalised opinions and feelings of
participants. However, only extroverts (Option A) tend to participate
or speak up, and the opinions of reserved people may go unnoticed.
A consumer panel refers to a focus group comprised of people who
belong to the firm’s target segment(s). For example, a motorcycle
15 D
manufacturer is likely to include (loyal) motorcycle riders and
enthusiasts in the group, to provide expert feedback.

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Observation is likely to be the most accurate form of primary

research in this scenario (Option B). Focus groups (Option A) and
consumer panels (Option C) are unlikely to provide accurate or up-
16 B
to-date information, as few respondents would record (or recall) the
exact number of minutes spent waiting in line. Questionnaires
(Option D) may be prone to bias.

Secondary market research can be sourced internally (by

individuals within the firm already) or externally (by external parties
17 A
such as the government or the media). The other options refer to the
use of primary research.

Quantitative market research (Option C) includes closed questions

such as asking respondents to mark/check/tick off their age group.
18 C
Such questions allow researchers to obtain measurable, factual
information, rather than opinions.

Qualitative research is not as factual and measurable as quantitative

research is. Thus, Option B is the correct answer. Thus, the resulting
19 B
data can be highly detailed and rich in nature, and a lower number
of responses may still provide sufficient data for analysis.

Quantitative research is typically less flexible than qualitative

research, because the questions tend to be closed rather than open
20 D
ones. Thus, Option D is the correct answer. Options A, B and D are
all valid advantages of conducting quantitative research.

Population refers to the total of all potential customers in a particular

21 D
market. Hence, Option D is the correct answer.

Quota sampling refers to the sampling technique where researchers

select a number of candidates from different market segments,
22 D
group them together according to various characteristics and then
conduct market research on them.

Stratified sampling is a sampling method where the population is

segmented into various strata that share similar characteristics. A
23 B
number of respondents from each stratum is selected based on the
proportion of the population comprised in that stratum.

As the name suggests, random sampling selects anyone in the

24 A population for market research based on an arbitrary method,
allowing all respondents an equal chance of being selected.

Cluster sampling involves identifying the population by the

geographical area (cluster) they reside in, and then interviewing
25 C
people within certain clusters randomly. Hence, Option C is the
correct answer.

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Convenience sampling refers to the practice of using people that are

26 C easy to reach and gather for research purposes. Hence, Option C is
the correct answer.

It may be difficult to determine the appropriate strata while doing

stratified sampling (Option A), especially because the process may
be subjective. Accurate, up-to-date population data may also be
27 C difficult and expensive to produce (Option B). This population data
may also be difficult to subdivide into representative subgroups
(Option D). However, people are not selected indiscriminately
(Option C) – that is an issue with random sampling.

Human errors or behaviours that cause errors in market research

are referred to as non-sampling errors, while those errors caused by
28 B
poor sample design (such as a small or unrepresentative market
size) are referred to as sampling errors.

Sampling errors are caused by poor sample design or methodology.

29 A
Thus, Option A is the correct answer.

Human errors such as incorrect data entry are examples of non-

30 D
sampling error. Thus, Option D is the correct answer.

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IB Business Management MCQ Revision Pack 4.5 The 4 Ps

1. What are the 4 Ps of marketing?

A. Product, Price, Place, Production

B. Production, Planning, Promotion, Price
C. People, Physical environment, Place, Product
D. Place, Promotion, Price, Product

2. What does a product life cycle illustrate?

A. Which products generate the most revenue for a firm

B. The stages a product goes through from design to withdrawal
C. Which products have the highest market share and market growth
D. How long it takes a product to goes through R&D

3. Which of the following represents the correct order of phases in a typical product
life cycle?

A. Launch, R&D, Growth, Maturity, Extension

B. R&D, introduction, growth, maturity, decline
C. Introduction, maturity, growth, decline, extension
D. Launch, R&D, maturity, growth, withdrawal

4. A firm is likely to be unprofitable during the ________ stage of the product life
cycle, but profitable during the ________ stage.

A. Launch, decline
B. R&D, launch
C. Introduction, maturity
D. Growth, maturity

5. During the maturity stage, a firm faces all of the following except?

A. Increasing sales revenues

B. Increasing sales growth rates
C. Price competition
D. Economies of scale

6. Price reductions, repackaging and selling products in new markets are all
examples of ______________ that are implemented when a product reaches
__________.

A. Profit maximisation, growth

B. Sales promotions, growth
C. Revenue maximisation, decline
D. Extension strategies, saturation

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7. What is the BCG matrix?

A. A product portfolio analysis tool

B. A visual illustration of the various stages a product goes through in its life
C. A marketing planning tool helping a firm determine its product and market
development strategies
D. An illustration of how a product or brand is perceived in a market

8. What is a product that has low market share but sells in a high market growth
industry referred to as in the BCG Matrix?

A. Cash cow
B. Question mark
C. Dog
D. Star

9. Which of the following statements is not relevant to question marks in the BCG
Matrix?

A. Have high market share

B. Operate in high growth markets
C. Use significant funds generated by cash cows
D. May have a poor marketing mix

10. What is a product with high market share and relatively low market growth referred
to as in the BCG Matrix?

A. Stars
B. Question marks
C. Dogs
D. Cash cows

11. During which stage of the product life cycle is marketing effort most prominently
directed towards retaining customers?

A. Launch
B. Growth
C. Maturity
D. Decline

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12. Which of the following statements of criticism of the BCG matrix is false?

A. It fails to explain the root causes of a product position in the matrix

B. It assumes high market share brings high profits
C. It only uses two dimensions upon which investment/divestment decisions
are to be made
D. It is a static model

13. Which of the following is not a valid role of branding?

A. To build brand awareness and loyalty

B. To cut marketing expenses
C. To help create a legal identity for the brand
D. To help create the desired corporate image

14. What is it called when a firm launches new products under an existing brand
name?

A. Brand extension
B. Brand development
C. Market development
D. Multi-brand strategy

15. In a BCG matrix, stars can be turned into cash cows through the _________
strategy where a firm enjoys the strong cash flows and profits of a star; dogs
should be ________ to free up cash flows.

A. Hold, harvested
B. Harvest, divested
C. Build market share, harvested
D. Hold, divested

16. The pricing strategy where a firm adds a particular amount or percentage of profit
to the unit cost while determining its price is called __________ pricing.

A. Cost-plus pricing
B. Price skimming
C. Marginal pricing
D. Fixed pricing

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17. High-tech products involving significant new product development costs, such as
the latest televisions are most likely to use __________ pricing.

A. Cost-plus pricing
B. Price skimming
C. Penetration pricing
D. Price leadership

18. If a firm prices its products with all prices rounded slightly down, for example,
$49.99, or $395, it is utilizing _________ pricing.

A. Psychological pricing
B. Price leadership
C. Price discrimination
D. Predatory pricing

19. Which of the following are examples of firms using price discrimination?

i. Public transport discounts for students and the elderly

ii. Airlines charging higher prices during holiday season
iii. Petrol stations providing cheaper fuel on certain days of the week
iv. Zara charging different prices for different clothes

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

20. Which of the following is not a requisite condition(s) for price discrimination to
occur?

A. The firm must have enough market power to set prices

B. Transparency should be minimized
C. The firm must be able to segment and separate customers
D. Different market segments must have varying willingness to pay

21. Which of the following is not an advantage of penetration pricing?

A. It facilitates market entry

B. It is likely to build market share quickly
C. It gives the product a high-quality image
D. It raises brand awareness quickly

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22. Which of the following is not an advantage of price skimming?

A. It helps recoup R&D costs quickly

B. It is sustainable in the long-run
C. Large profit margins can be enjoyed
D. A high-quality image may be established

23. Which of the following is not an advantage of loss leader pricing?

A. It is likely to attract customers and encourage brand switching

B. It can help sell off old inventory
C. It can help increase sales of other products
D. It acts as a barrier to entry for new entrants

24. Which of the following is not a valid disadvantage of predatory pricing?

A. It may be illegal
B. It may lead to a price war
C. It is unsustainable
D. It acts as a barrier to entry for other firms

25. Which of the following is not an example of ATL promotion?

A. Cinema advertising
B. Newspaper advertising
C. Outdoor advertising
D. Branding

26. Which of the following is not an example of BTL promotion?

A. Newspapers
B. Slogans
C. Logos
D. Sponsorship

27. What are promotional techniques that involve salespeople directly persuading
clients to purchase products called?

A. Sales promotions
B. Public relations
C. Personal selling
D. Sales pitches

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28. Making large charitable donations, television interviews and press conferences
are examples of ____________.

A. Sales promotions
B. Public relations
C. Personal selling
D. Advertising

29. What are lucky draw competitions, discount offers and giving out free samples
examples of?

A. Sales promotions
B. Public relations
C. Personal selling
D. Advertising

30. The use of technology to disseminate promotional messages is called

__________ marketing.

A. Electronic marketing
B. P2P marketing
C. Social media marketing
D. Guerrilla marketing

31. What are the middle-people in the chain of distribution between manufacturers
and consumers called?

A. Agents
B. Wholesalers
C. Retailers
D. Intermediaries

32. Which of the following is not an advantage of using wholesalers in the distribution
chain?

A. The wholesaler bears the inventory storage costs

B. The manufacturer needs to deal with less buyers
C. All distribution activities and issues are handled by the wholesaler
D. The wholesaler becomes responsible for marketing a firm’s products

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33. Which of the following factors is least likely to influence the choice of distribution
channel?

A. Cost
B. Stock control system
C. Market size
D. Customer location

34. Assume a manufacturing firm first sells its products to a specialised agent, who
resells goods to wholesalers, who resells goods to retailers, who sell the product
to consumers. This firm has a ____________________.

A. Zero-level channel chain

B. One-level channel chain
C. Two-level channel chain
D. Three-level channel chain

35. A producer that directly sells its products to the final consumer is using a _______
level channel chain.

A. Zero
B. One
C. Two
D. Three

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4.5 Answers

Question Answer Explanation

The 4 Ps of marketing are: place, promotion, price and product.

Note that three additional P’s (people, process and physical
environment) are added to these four for the marketing of services.
1 D Place refers to the choice of distribution channels, promotion refers
to the choice of ATL or BTL strategies adopted, price refers to how
a product is priced relative to competitors, and product refers to the
actual good or service being produced and developed.
A product life cycle is a visual representation of the stages a product
goes through, from R&D, to introduction, growth, maturity and
decline. While a product life cycle does indeed display sales
2 B revenues on one of its axes, it does not serve the purpose of
providing a comparison of which products generate the greatest
revenues (Option A). Neither does it display market share or growth
(Option C).
A product life cycle is a visual representation of the stages a product
goes through. The correct order of phases is: R&D, introduction
3 B (launch), growth, maturity and decline. Note that when a product
reaches saturation during the maturity stage, the firm is likely to
implement extension strategies to extend this life cycle.
During the launch (introduction) stage, a firm is unlikely to be
profitable because the firm experiences high costs and expenses
related to the product launch, yet face limited brand and product
4 C awareness. During the growth stage, the firm faces increasing sales
and potentially decreasing costs of production if economies of scale
are achieved, increasing profitability. Thus, Option C is the correct
answer.
During the maturity stage, a firm faces peak revenues, because
brand and product awareness is at its highest. However, the rate of
5 B
sales revenue growth is likely to be falling compared to the growth
stage.
Extension strategies are techniques used to lengthen a product’s
life cycle, for example, by reducing price, repackaging and selling
products in new markets. Extension strategies are implemented
6 D
when a market becomes saturated or enters decline. Note that
saturation refers to when a market contains numerous competitors
and sales revenues have peaked or begun to fall.
The BCG matrix is a product portfolio analysis tool that indicates to
managers which products should receive more marketing effort and
7 A
investment, by looking at the market share and market growth
dimensions.

A question mark is a product with low market share in a high growth

8 B market. Such products may be suffering from a poor marketing mix,
and are prominent users of funds generated by cash cows (Option

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A), which are products with high market share in low growth
markets.

Question mark products are those with low market share in a high
growth market. Such products are likely to be suffering from a poor
marketing mix, or other chronic issues that do not let it be
9 A
competitive and desired by customers. Because of their low market
share, they require significant support from the funds generated by
cash cows.
Cash cows are products which have relatively low market growth
but significant market share. Option A is incorrect because it refers
to products with high market share and high market growth. Option
10 D
B refers to a product with low market share but high market growth,
while Option C refers to a product with low market share and low
market growth.
During the maturity stage of the product life cycle, a firm’s marketing
efforts are likely to be directed towards maintaining brand loyalty
11 C and preventing customers from switching to competitors. This is
because a mature market is likely to be one with many established
competitors.
The BCG matrix is not a static model because the funds generated
from cash cows are used to promote question marks into stars and
12 D stars into cash cows. Cash cows (and potentially stars) also fund
dogs. Thus Option D is incorrect. Options A, B and C are valid
criticisms of the BCG matrix.
Branding creates awareness and loyalty, because people begin to
associate the brand with their products and its characteristics. It
helps differentiate a brand from others by providing a unique name
13 B
and image, and creates a legal identity to protect the brand from
imitations. Finally, branding can be used to create a particular
image for the brand. It does however raise marketing expenses.
Brand extension refers to the strategy of launching new products
under an existing brand name to enlarge the firm’s product portfolio
under an already well established brand name to increase the
chances of success. Option B is incorrect because it refers to the
14 A
process of improving a brand name. Option C is incorrect because
it refers to the strategy of launching existing products in new
markets, and Option D is incorrect because it refers to having
multiple brands to target different markets and segments.
The harvest strategy involves using the strong cash flows and
profits of stars to turn them into cash cows. The divestment strategy
should be used on dogs (and sometimes question marks) to free up
15 B cash flows. Thus, Option B is correct. Note that the hold strategy
involves maintaining cash cows in their current positions, and the
build market share strategy is used to convert question marks into
stars by investing funds to enable them to gain market share.

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Cost-plus (mark-up) pricing involves adding a particular amount or

percentage of profit to the unit cost to determine the final selling
price. For example, if a firm faces a unit cost of production of $20,
16 A and applies a 30% profit margin, it will sell its output for $26 ($20 x
1.3). Option B is incorrect because it refers to setting a high price
initially, and then gradually reducing price as competition enters the
market. Options C and D are not valid pricing methods.
Price skimming is a pricing strategy utilized by high-tech firms
facing significant new product development costs. A high price is
set initially to recoup these costs, but as competition enters the
17 B
market, selling price is reduced. Note that Option D is incorrect
because it refers to when the market leader sets prices, and
competitors follow suit.
Psychological pricing involves setting a slightly rounded down price
to make customers feel like they are getting a product at a bargain.
Option B is incorrect because it refers to when the market leader
18 A sets prices, and competitors follow suit. Option C is incorrect
because it involves selling the same products at different prices to
different people, and Option D is incorrect because it involves
temporarily slashing prices to drive out competition.
Price discrimination refers to the practice of charging different
customers different prices for the same product. In each of the four
cases, the same good or service is provided, but different rates are
19 C
charged according to i. age, ii. time of year, iii. time of week. Option
iv. is incorrect because it involves a retailer charging different prices
for different clothes, not the same clothes.
For price discrimination to occur, a firm must have some degree of
price-setting power (Option A) in the market. The firm should also
20 B be able to segment their customer groups (Option C), with each
market segment having its own willingness to pay that can be
exploited (Option D). Option B is not a requisite condition.
Penetration pricing involves setting prices low during market entry
to steal market share from established competitors. This facilitates
21 C successful market entry, helps raise market share and raises brand
awareness. However, a brand that sets prices very low may not be
seen as a high-quality producer.
Price skimming is a pricing strategy in which a high price is set
initially to recoup new product development costs, but as
competition enters the market, selling price is reduced. During the
high-price period, relatively higher profit margins can be enjoyed,
22 B
and a high quality image may be formed amongst those who
perceive higher price as higher quality. However, it is unsustainable
in the long-run, as competitors with similar products may undercut
prices, stealing market share and sales.

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IB Business Management MCQ Revision Pack 4.5 The 4 Ps

Loss leader pricing attracts customers and encourages brand

switching by selling certain items at lower than cost. In the process,
old, obsolete inventory can also be sold off, and customers are
23 D
likely to be interested in other products too. It does not however
typically act as a barrier to entry to new market entrants – that is an
advantage of predatory pricing.
Predatory pricing is often illegal because it serves to drive out
competition and is anti-competitive. It may also lead to a price war
if competitors retaliate by lowering their prices too, making it
24 D
unsustainable in the long run as profitability is diminished. However,
an advantage is that it is a barrier to entry for other firms wanting to
enter the market (Option D).
ATL promotion refers to the use of paid mass media to promote a
firm’s products. Examples include cinema, newspaper and outdoor
25 D advertising (e.g. commercial billboards). Branding however is a
form of BTL advertising, which does not use mass media or external
media firms to promote a firm. Thus Option D is the correct answer.
Option A, newspapers, is not a valid method of BTL promotion
because it involves the use of paid mass media to promote a firm’s
products. Slogans are simply memorable phrases, logos use
26 A shapes, words and images to create a visual association to a firm
or brand, and sponsorship involves a firm directly providing
resources for a cause in exchange for publicity. None of these three
require paid mass media.
Personal selling refers to when salespeople convince clients to
purchase products, through sales presentations, meetings and
telemarketing. Option A is incorrect because sales promotions refer
27 C to short-term measures used to stimulate demand. Option B is
incorrect because public relations aim to achieve good media
coverage to maintain corporate image. Option D is incorrect
because it is only one method of personal selling.
Public relations refers to the activities done by a firm to achieve
28 B good media coverage and maintain a positive corporate image. This
can be done through the methods suggested above.
Sales promotions are short term methods used to stimulate
demand, and can be done through the methods suggested above.
Thus, Option A is the correct answer Option B is incorrect because
29 A it refers to achieving good media coverage and maintain a positive
corporate image. Option C refers to when salespeople convince
clients to purchase products, and Option D is incorrect because it
is only one method of personal selling.

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IB Business Management MCQ Revision Pack 4.5 The 4 Ps

P2P marketing refers to using technology to disseminate

promotional messages, for example, through emails and social
media networks. Option A is incorrect because it is not a valid term,
30 B Option C is incorrect because it refers to relying on social networks
to gain traffic and attention by creating content users will share and
make popular, and Option D is incorrect because it relies on
unconventional methods.
Intermediaries are the middle-people facilitating the movement of
31 D goods from producers to consumers, such as agents (Option A),
wholesalers (Option B) and retailers (Option C).
Wholesalers are intermediaries who purchase large quantities from
the manufacturer and then resell the inventory in smaller batches to
retailers. They thus bear all inventory storage costs. The
manufacturer also then only has to deal with the wholesaler, rather
32 D
than numerous smaller retailers. The wholesaler also handles
distribution, reducing the manufacturer’s workload. However, the
manufacturer takes on a risk by passing on marketing
responsibilities to the wholesaler. Thus Option D is incorrect.
While all of the factors may influence the choice of distribution
channel used, the stock control system factor is least influential. For
example, high cost products are more likely to be sold through
exclusive retailers. Larger markets are likely to need more
33 B widespread distribution outlets than products with small markets.
Customers situated in rural areas may benefit more from
ecommerce than department stores in city centres. However, the
choice of stock control system, e.g. JIT vs JIC, may not be as
important.
The above scenario depicts a three-level channel because three
intermediaries (agents, wholesalers and retailers) help move a
product from manufacturer to consumer. Option A is incorrect
34 D
because zero-level channel chain is one where a firm directly sells
its output to the final consumer. Option B involves one intermediary
in the distribution chain, and Option C involves two intermediaries.

When a producer sells its output directly to the final consumer,

without the support of any intermediaries, they are using a zero-
35 A
level channel chain. Option B involves a single intermediary, Option
C involves two, and Option D involves three intermediaries.

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IB Business Management MCQ Revision Pack 4.6 The Extended Marketing Mix 7Ps (HL)

1. Which of the following is not one of the additional 3 Ps of marketing?

A. Process
B. Production
C. Physical evidence
D. People

2. Payment methods, delivery options and customer services are a part of the
__________ consideration when marketing services.

A. Process
B. Performance
C. Physical evidence
D. People

3. The marketing of services needs to include the extended marketing mix because
services are __________, __________ and ___________.

A. Intangible, perishable, homogenous

B. Perishable, homogenous, heterogeneous
C. Intangible, perishable, heterogeneous
D. Inseparable, inconsistent, intangible

4. A service provider investing in training and development for its employees is

attempting to improve the __________ aspect of the extended marketing mix.

A. People
B. Physical evidence
C. Performance execution
D. Professionalism

5. A service firm that is attempting to streamline the sequence of activities in a

service is trying to improve the __________ aspect of the extended marketing
mix.

A. Performance execution
B. Product
C. Process
D. Physical evidence

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IB Business Management MCQ Revision Pack 4.6 The Extended Marketing Mix 7Ps (HL)

6. A cinema chain that is upgrading the size of its screens is focusing on improving
the __________ aspect of the extended marketing mix.

A. Product
B. Promotion
C. Physical evidence
D. Process

7. The physical evidence aspect of a service can help improve the ___________
aspect of the extended marketing mix.

A. People
B. Process
C. Place
D. Product

8. Assume a private hospital has luxurious rooms, lobbies, offices and very well-
dressed staff compared to a government hospital. It can be said that the private
hospitals ____________ aspect of the extended marketing mix is acting as a
differentiator.

A. People
B. Process
C. Physical evidence
D. Payment systems

9. When courier firms like DHL and FedEx compete on delivery times and getting
the parcel to the customer without any damage, they are competing on the
__________ aspect of the extended marketing mix.

A. People
B. Process
C. Performance
D. Physical evidence

10. An airline that advertises itself as having the most friendly and well-trained cabin
crew is competing on the __________ aspect of the extended marketing mix.

A. People
B. Process
C. Performance
D. Physical evidence

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IB Business Management MCQ Revision Pack 4.6 The Extended Marketing Mix 7Ps (HL)

4.6 Answers (HL)

Question Answer Explanation

The additional 3 Ps of marketing are: Process, Physical evidence
and People. Process refers to the way service delivery is
conducted, and includes a consideration of payment methods,
1 B queuing time and after-sales services. Physical evidence refers to
the visible elements associated with a service, such as decoration
and cleanliness. People refers to the customer service the client
faces while using a service.
Process refers to the way a service is delivered, including the
payment methods accepted, delivery Options provided, queuing
time and after-sales services. Option B is not a valid consideration
2 A in the 7Ps of services marketing, Option C refers to the visible
elements of a service, such as decoration and cleanliness, and
Option D is incorrect because it refers to the customer service
clients receive.
Services are intangible, i.e. they are not physical items that can be
touched. Services are also perishable because they cannot be kept,
unlike physical goods. They are used at the time of consumption.
3 C
Finally, services are heterogeneous, meaning that they vary from
person to person, because each customer will likely to receive a
different experience. Thus Option C is the correct answer.
People refers to the employees delivering a service, and the quality
of service received by customers from employees. Investing in
training and development helps improve the quality of service
4 A provided. Thus Option A is the correct answer. Option B is incorrect
because it refers to the visible elements of a service, such as
decoration and cleanliness. Options C and D do not form the
extended marketing mix for services.
Process refers to the way a service is delivered, and includes a
consideration of the sequence of activities in a service. It thus
relates to the operation aspects of a service. Other considerations
5 C include queuing times, procedures, delivery Options and after-sales
care. Option D is incorrect because physical evidence refers to the
visible elements of a service, not the operational aspects. Options
A and B do not form the extended marketing mix of services.
Physical evidence refers to all the tangible elements of a service,
such as the size of a cinema screen. A larger screen is likely to
provide greater customer satisfaction as the cinema service is
6 C made more attractive. Option D is incorrect because process refers
to the operational aspects of a service, not the visible elements of
it. Options A and B do not form the extended marketing mix of
services.

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IB Business Management MCQ Revision Pack 4.6 The Extended Marketing Mix 7Ps (HL)

Physical evidence refers to all the tangible elements of a service.

For example, a well-decorated office with a beautiful view is likely
7 A
to motivate employees to perform their jobs better. Note that
Options C and D do not comprise the extended marketing mix.
Physical evidence refers to all the tangible elements of a service,
such as a hospital’s rooms, lobbies, offices and the quality of staff’s
attire. Patients are likely to choose the private hospital (assuming
8 C
they can afford it) over the government hospital because the visual
elements are much more appealing. Thus the emphasis on physical
environment acts as a differentiator.
Process refers to the way a service is delivered, for example, how
quickly and safely a parcel reaches customers. Courier firms are
therefore competing on the process aspect. Option A is incorrect
because competing on the people aspect would involves training
9 B and development to ensure the quality of service provided is
superior, Option D is incorrect because it would involves installing
superior visible elements during service delivery, such as enhanced
decoration. Option C is not one of the aspects of the extended
marketing mix.
People refers to the employees delivering a service, and the quality
of service received by customers from employees. When an airline
advertises itself as having the best cabin crew in the industry, it is
thus competing on the people aspect of the services marketing mix.
10 A
Option B is incorrect because it refers to the operational aspects of
service delivery, and Option D refers to the visible elements of a
service, such as the size of TV screens on-board an aircraft. Option
C is not a valid aspect of the marketing mix.

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IB Business Management MCQ Revision Pack 4.7 International Marketing (HL)

1. ___________ refers to when a firm sells its products to buyers in other nations.

A. E-commerce
B. Exporting
C. Licensing
D. Joint ventures

2. When a business sets up its own production facilities and offices in a foreign
market, what is this called?

A. Direct investment
B. Franchising
C. Licensing
D. Exporting

3. When two or more firms agree to pool their resources into a new endeavour,
without setting up a new legal entity, this is a _____________.

A. Joint venture
B. Strategic alliance
C. Direct investment
D. Merger

4. Which of the following is not true regarding exporting as a method of market entry?

A. It is relatively high risk

B. Tariffs may be faced
C. Transportation costs may be high
D. Exchange rate fluctuations impact the exporter’s competitiveness

5. Which of the following is not an advantage of direct investment as an international

market entry method?

A. Local partners’ expertise helps overcome social and cultural barriers

B. The business comes closer to its customers
C. The business becomes more immune to the effects of exchange rate
fluctuations
D. It helps overcome protectionist measures implemented by the foreign
market

6. Which of the following is untrue about entering foreign markets?

A. It increases brand recognition

B. Risks are spread
C. It extends the life cycle of a firm’s products
D. It reduces working capital requirements

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IB Business Management MCQ Revision Pack 4.7 International Marketing (HL)

7. Selling the same product in different markets using the same marketing approach
is called __________ marketing.

A. International
B. Standardised
C. Global
D. Commercial

8. What does globalization refer to?

A. Marketing of a firm’s products in overseas nations

B. The practice of marketing products across the world using the same
marketing approach
C. Adapting marketing mixes to cater to local needs and preferences
D. The growing integration of world economies

9. When a firm sells it output to poorer countries, it may have to reduce its products’
prices. This is an example of a firm taking into account ___________ factors.

A. Demographic
B. Political
C. Socioeconomic
D. Ethical

10. What is the commercial transfer of ideas, values and traditions from one nation to
another called?

A. Cultural exports
B. Intellectual property rights exchange
C. International trade
D. Cultural trade

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IB Business Management MCQ Revision Pack 4.7 International Marketing (HL)

4.7 Answers (HL)

Question Answer Explanation

Exporting is a method of international market entry where a firm

sells its products in overseas markets, without physically setting up
there themselves. Option A, e-commerce, can facilitate exporting.
1 B
Licensing involves selling the rights to produce a certain product to
other firms. Joint ventures involves two or more firms pooling
resources, sharing risks and returns of a new business entity.
When a firm sets up its own production plants and offices in a
foreign market, it is called direct investment. Option B is incorrect
because it involves allowing other firms to operate under a specific
2 A brand name, Option C refers to selling the rights to produce a
certain product to other firms, and Option D involves selling a firm’s
products in a foreign market without physically setting up in that
market.
A strategic alliance occurs when firms pool resources, share risks
and returns from a new business endeavour. Unlike in a joint
venture (Option A), no new legal entity is formed in a strategic
alliance. Option C is incorrect because it involves a firm investing in
3 B
its own proprietary production plants and offices in a foreign market,
without any pooling of resources. Option D is incorrect because a
merger involves two firms coming together to become a single
entity.
Exporting is a relatively low-risk method of market entry because
the firm does not need to make any large investments into setting
up facilities abroad. Thus Option A is incorrect. However, tariffs and
4 A high transportation costs may be faced, which can erode price
advantages an exporting firm has over domestic producers in the
foreign nation. Fluctuations in the exchange rate also affect export
competitiveness and profitability.
Option A is incorrect because it is an advantage of strategic
alliances and join ventures. Direct investment does not require
having partners. However, the advantage is that the business
comes closer to customers, allowing them to better judge product
5 A
tastes and preferences. The issue of exchange rate fluctuations
also becomes less relevant because the firm operates within the
markets it sells to. It also overcomes protectionist measures such
as tariffs, as products are locally produced.
International marketing increases brand recognition because the
firm receives greater international exposure. Risks are also spread
by operating in multiple markets simultaneously. Product life cycles
6 D can also be extended, especially if domestic markets are saturated
or in decline. However, international marketing raises working
capital requirements, as more funds are needed for day to day
expansion activities.

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IB Business Management MCQ Revision Pack 4.7 International Marketing (HL)

Global marketing refers to when a brand markets its products using

the same marketing approach across global markets. Option A is
incorrect because international marketing just refers to marketing a
firm’s products in overseas nations, usually with a modified
7 C
marketing mix to suit each foreign nation. Global marketing is an
extension of international marketing. Option C is not a valid term,
and Option D simply refers to marketing a firm’s products with an
intention to earn profits.
Globalization refers to the increasing integration and
interdependence of world economies with and upon one another.
8 D Option A is incorrect because it refers to the definition of
international marketing, Option B defines global marketing, and
Option C refers to the concept of glocalization.
Socioeconomic factors are those concerned with the people’s
economic and social position, measured by factors such as
incomes and educations. Because the firm is taking into account
9 C
incomes, this is an example of a socioeconomic factor. Option A is
incorrect because demographic factors concern themselves with
population.
Cultural exports refer to the commercial transfer of ideas, values
and traditions between nations. For example, the idea of Halloween
10 A
spread across the world to become a commercial event and bring
commercial opportunities for firms across the world.

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IB Business Management MCQ Revision Pack 4.8 Ecommerce

1. Which of the following statements best describes e-commerce?

A. Promoting a firm’s products through the internet

B. Buying and selling products through the internet
C. Using social networks to boost brand awareness
D. Businesses selling producer goods and services to other businesses

2. Which statement about e-commerce is incorrect?

A. It facilitates personal interaction with counterparties

B. It eliminates geographical boundaries and barriers
C. It is available 24/7
D. It has broken down traditional barriers to entry

3. E-commerce has __________ price transparency benefitting _________.

A. Increased, customers
B. Increased, producers
C. Decreased, customers
D. Decreased, producers

4. E-commerce typically _________ the number of intermediaries in the distribution

chain, and _________ competition.

A. Increases, increases
B. Increases, reduces
C. Reduces, increases
D. Reduces, reduces

5. Which of the following is not an example of a B2B e-commerce?

A. Corporate banking
B. Vehicle spare parts online retailing
C. Amazon
D. Alibaba

6. Facebook and iTunes would be classified as _________ platforms.

A. B2B
B. B2C
C. C2B
D. C2C

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IB Business Management MCQ Revision Pack 4.8 Ecommerce

7. eBay is an example of a ____________ e-commerce platform.

A. B2B
B. B2C
C. C2B
D. C2C

8. Which of the following is not an advantage of e-commerce for firms?

A. It reduces rental expenses

B. It raises price transparency
C. It allows firms to offer a larger product portfolio
D. it provides an additional channel of distribution

9. Which of the following is/are disadvantage(s) of e-commerce for firms?

i. It increases the risk of product imitation
ii. It is fully reliant on technology working as intended
iii. It is unsuitable for the sale of certain products
iv. It reduces packaging requirements

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

10. Which of the following is not an advantage of e-commerce for consumers?

A. Consumers may receive products for lower prices

B. It raises ease of purchasing
C. It provides convenient payment systems
D. It reduces the risk of fraudulent trading and identity theft

11. E-commerce tends to _________ the flexibility with which firms can respond to
changes in the market. E-commerce tends to _________ operating overheads.

A. Increase, increase
B. Increase, decrease
C. Decrease, increase
D. Decrease, decrease

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IB Business Management MCQ Revision Pack 4.8 Ecommerce

12. Which of the following products are consumers least likely to buy online?

A. Bananas
B. Books
C. Phones
D. Computers

13. Twitter is a __________ business. YouTube is a ___________ business.

A. C2C, C2C
B. B2C, B2C
C. B2B, C2B
D. C2C, B2C

14. E-commerce is likely to reduce the relative significance of ____________ in the

marketing mix.

A. People
B. Processes
C. Physical evidence
D. All of the above

15. What is the increased visibility of prices brought about by e-commerce referred to
as?

A. Price aggregation
B. Price competition
C. Price comparability
D. Price transparency

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IB Business Management MCQ Revision Pack 4.8 Ecommerce

4.8 Answers

Question Answer Explanation

E-commerce is the buying and selling of products via the internet
(Option B). Option A is incorrect because it only considers
promotion, rather than the entire process of trading a product
1 B online. Option C is incorrect because it refers to social media
marketing. Option D is incorrect because it only represents one
form of e-commerce, i.e. B2B, while e-commerce can also facilitate
B2C, C2B, and C2C trading.
E-commerce does not facilitate as much personal interaction with
clients compared to traditional channels, such as retailing. Thus
Option A is incorrect. Technology is relied upon to provide an
2 A impersonal service. However, e-commerce has enhanced the
geographical reach of business (Option B), increased availability of
services because technology can operate 24/7 (Option C), and has
broken down traditional barriers to entry (Option D).
E-commerce has increased the level of price transparency by
making it easier to make price comparisons. This has benefitted
3 A customers greatly, as it forces producers to become more
competitive in their pricing strategies, because customers will
rationally search for the cheapest provider.
E-commerce reduces the number of intermediaries in distribution
networks by reducing manufacturers’ reliance on agents,
wholesalers and retailers. Because of the relatively lower set-up
4 C
costs associated with e-tailing compared to retailing, the level of
competition has intensified, as barriers to entry are broken down.
Thus Option C is the correct answer.
Amazon, the online retailer, is a B2C e-commerce platform because
it caters to end-users, i.e. customers. Options A, B and C are all
5 C
examples of B2B services which connect business to other
businesses.
B2C refers to e-commerce services that connect businesses to end
users (customers). Facebook allows firms to advertise their
products to their target markets, directly linking them to potential
6 B
customers. iTunes allows businesses (artists and music
companies) to sell their products to customers over the internet, and
is thus also a form of B2C e-commerce.
C2C means to consumer-to-consumer. It is an e-commerce
platform where private individuals (consumers) can trade products
directly with each other. Option A is incorrect because it refers to
7 D when e-commerce facilitates trade between firms, Option B is
incorrect because it refers to e-commerce platforms enabling
businesses to sell to the public via the internet, and Option C is not
required for this course.

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IB Business Management MCQ Revision Pack 4.8 Ecommerce

E-commerce helps reduce rental expenses (Option A) because

fewer retail outlets are required. E-commerce also allows firms to
offer broader product portfolios (Option C), because inventory
needs are reduced, and there are no shelf-space limitations. It also
8 B
provides an additional channel of distribution. However, the internet
has promoted price transparency, which pushes firms to be more
competitive in pricing. Thus Option B is an advantage for users of
e-commerce.
E-commerce increases the risk of product imitation because
product designs and specifications are openly available for almost
anyone to view online. It is also reliant on functioning technology –
9 C any breakdowns can lead to lost business. Certain products, like
speciality or perishables are also unlikely to be viable to online
selling. However, Option iv. is incorrect as it is an advantage of e-
commerce for firms, as packaging costs reduce.
E-commerce can potentially lead to lower prices for the end-user
because few intermediaries are use in the distribution chain. Ease
of purchasing increases because people can buy anywhere,
10 D anytime. Most e-commerce platforms also provide multiple
payment systems, increasing convenience. However, the risk of
fraudulent trading and identity theft rises, as users cannot always
validate the counterparty’s identity and intentions.
E-commerce tends to increase the flexibility with which a firm can
respond to market changes and competitors’ tactics. For example,
11 B
new products can be advertised much quicker by updating a
website rather than through direct mail.
People are least likely to purchase perishables like bananas online
because of their limited shelf life. As e-commerce usually requires
delivery services to be performed, it is inappropriate to sell or buy
12 A
fresh fruit online unless delivery is rapid. Consumers are much
more likely to be comfortable in buying books, phones and
computers online, because these products are not perishable.
Both Twitter and YouTube can be considered to be primarily B2C
businesses, because they cater to the end-user. Note that these
13 B firm may also engage in C2C activities (for example, when people
sell belongings their belongings on Twitter); although this is not the
primary (main) use of Twitter and YouTube.
E-commerce is likely to reduce the relative significance of the
extended marketing mix (people, processes and physical
evidence). For example, few to no real people are required to
14 B
deliver an e-commerce based product. Processes tend more
standardised, and less visible elements (physical evidence) are
required.

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IB Business Management MCQ Revision Pack 4.8 Ecommerce

Price transparency refers to the increased openness and visibility

of prices, often due to price aggregation done by aggregators
(websites which provide a comparison of the range of prices of the
15 D
same product from different producers). A result of price
transparency and comparability is increased price competition.
Thus the correct answer is Option D.

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IB Business Management MCQ Revision Pack 5.1 The Role of Operations Management

1. Which of the following statements is incorrect?

A. Production decisions impact all other divisions within the firm

B. Mass production and capital intensity output require a large amount of
investment
C. Making customized products enables the marketing team to sell these at
a higher price
D. Quaternary sector firms are not involved in the production process

2. In which of the following firms is operations management a business function of?

i. Primary sector firms

ii. Secondary sector firms
iii. Tertiary sector firms
iv. Quaternary sector firms

A. ii only
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

3. When a firm relies on workers to produce its output, rather than machinery, it can
be described as a ______________ firm.

A. Secondary sector
B. Tertiary sector
C. Labour-intensive
D. Capital-intensive

4. A firm which has an entirely automated production system manufacturing pens is

likely to be a ____________ firm.

A. Secondary sector
B. Quaternary sector
C. Labour-intensive
D. Economically sustainable

5. Which of the following is not a measure included in the “triple bottom line” measure
of sustainability?

A. Social sustainability
B. Legal sustainability
C. Environmental sustainability
D. Economic sustainability

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IB Business Management MCQ Revision Pack 5.1 The Role of Operations Management

6. Removing gender inequalities in recruitment (hiring) practices is an example of

which of the following?

A. Legal sustainability
B. Social sustainability
C. Ecological sustainability
D. Economic sustainability

7. What is over-production a threat to?

A. The value added process

B. Social sustainability
C. Economic sustainability
D. Secondary sector output

8. What is the operations management division of an organization in charge of?

A. Handling staffing matters such as recruitment, training, performance

appraisals and dismissals
B. Identifying customer requirements and promoting a firm’s goods and/or
services
C. All aspects of the production process and quality management
D. All of the above

9. Which of the following is not an example of a method to achieve ecological

sustainability?

A. Preservation
B. Recycling
C. Adopting green technologies
D. Eradicating discrimination

10. For a business to earn a profit on its sales, its production process must
___________.

A. Add value
B. Be capital-intensive
C. Be labour-intensive
D. Adopt lean production

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IB Business Management MCQ Revision Pack 5.1 The Role of Operations Management

5.1 Answers

Question Answer Explanation

Production is the process of organizing resources in order to

1 D produce a good or to provide a service. Hence, quaternary sector
firms (Option D) are involved in production.

Operations management is a required business function in all

business sectors, because all sectors produce either goods
2 D
(primary and secondary sectors), services (tertiary sector) or
information (quaternary sector).

A labour-intensive organization is one that relies on human capital

(people) to produce its output, rather than machinery. Note that
3 C
firms can be labour or capital intensive in any sector of the
economy.

A firm that manufactures output from the primary sector into final
goods, such as pens, is operating in the secondary sector. As the
4 A
firm in question has a completely automated production system, it
relies more on machinery to produce its output than human effort.

The triple bottom line evaluates a firm’s performance in terms of

environmental, economic and social sustainability. Thus, Option B
5 B
is incorrect. Laws may change in order to observe ecological,
economic and social sustainability.

Social sustainability refers to maximizing the quality of life for

people within a society, for example, by providing jobs (and
6 B therefore higher household incomes) to women too. By removing
social hurdles such as gender discrimination, human resources are
allocated more efficiently in society.

Economic sustainability refers to using resources, natural and man-

made, efficiently and responsibly. Over-production involves an
inefficient allocation of these resources, and poses a threat to
7 C economic sustainability, especially as it causes pollution and waste.
Moreover, a firm that depletes all its raw materials and other non-
renewable resources will struggle to produce in the long run, limiting
its long term profit potential and threatening its survival.

The operations management division of an organization is in charge

of managing all aspects of the firm’s production processes,
8 C including quality management. Option A is incorrect as it refers to
the duty of the human resources (HRM) division, and Option B
explains the function of the marketing division.

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IB Business Management MCQ Revision Pack 5.1 The Role of Operations Management

Options A, B and C are valid methods to achieving higher ecological

sustainability because they involve using natural resources more
efficiently, to prevent jeopardising the availability of natural
9 D
resources for future generations. Option D, however, is a method to
achieve greater social sustainability, as it helps improve the quality
of life faced by people within society.

A firm’s production process must add value in order for it to

generate profits. Only when the production process adds value
does the selling price of output rise above its costs of production.
10 A
Value can be added regardless of whether the production process
is lean, labour intensive or capital intensive. Thus, Option A is the
correct answer.

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IB Business Management MCQ Revision Pack 5.2 Production Methods

1. Which method of production is most suitable to producing movies (films)?

A. Mass production
B. Batch production
C. Job production
D. Cellular production

2. Which of the following is not an advantage of job production?

A. High quality output is produced

B. Production flexibility is maximised
C. Workers are likely to be more motivated
D. Standardised output is produced

3. Which of the following is not applicable to job production?

A. A long working capital cycle may be faced

B. It is very capital intensive
C. It is difficult to enjoy economies of scale
D. Production is time consuming

4. Which form of production is most likely to be used to produce bread in a bakery?

A. Job production
B. Batch production
C. Flow production
D. Mass production

5. Which of the following is not an advantage of batch production?

A. Lower average unit costs of production compared to job production

B. Customers receive greater choice than with job production
C. A high price can be charged due to the product’s uniqueness
D. Risks are spread due to the ability to produce a variety of products

6. Which of the following statements is not true regarding batch production?

A. There is no flexibility
B. Downtime occurs between batches
C. Inventory storage costs rise
D. Workers may feel demotivated due to the monotony of work

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IB Business Management MCQ Revision Pack 5.2 Production Methods

7. The main difference between mass and flow production is that the latter

A. Involves a larger scale of production

B. Involves a smaller scale of production
C. Produces standardised goods
D. Relies on using more workers

8. Which of the following firms is most likely to use flow production?

A. A local bakery
B. A local school
C. A furniture manufacturer
D. A national newspaper printing press

9. Which of the following is most likely to use mass production?

A. Bottled water producers

B. Fashion (clothing) retailers
C. Holiday agents
D. Bespoke tailors

10. Which of the following is not an advantage of mass and flow production?

A. Technical economies of scale are achieved

B. Labour costs are lowered
C. Output is highly standardised
D. Workers are likely to be more motivated due to specialization

11. Which of the following is not a valid criticism of mass and flow production?

A. Production is inflexible
B. Set-up and operational costs are relatively high
C. The firm is likely to experience limited economies of scale
D. Relatively low profit margins can be received

12. When independent teams have the responsibility of effectively carrying out a
particular part of the production process, what is this called?

A. Mass production
B. Cellular manufacturing
C. Job production
D. Batch production

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IB Business Management MCQ Revision Pack 5.2 Production Methods

13. Which of the following is not an advantage of cellular manufacturing?

A. Workers have greater autonomy

B. Workers are held accountable and responsible for quality assurance
C. Training costs are minimized
D. Productivity rises due to specialization

14. Which of the following is not a disadvantage of cellular production?

A. Economies of scale are not achieved

B. Output is lower than in traditional flow or mass production
C. Internal conflict within teams may occur
D. Set-up, training and operational costs are relatively high

15. A cookie shop is likely to use _______ production, whereas an oil refinery is likely
to use ________.

A. Flow, batch
B. Flow, job
C. Batch, job
D. Batch, flow

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IB Business Management MCQ Revision Pack 5.2 Production Methods

5.2 Answers

Question Answer Explanation

Job production refers to a method of production in which products

are custom-made to the client’s requirements. For example, a
1 C
movie is made uniquely, with a highly specific and tailor made
storyline. Thus, Option C is the correct answer.

Job production involves making custom products as per client

requirements. Typically, highly skill labour is used, allowing high
quality output to be produced (Option A). As this method strives to
2 D meet customer requirements, it is highly flexible (Option B).
Workers are also likely to be more motivated (Option C) due to the
variety involved and the quality of the final product. Unique products
are produced, not standardised output (Option D).

Job production tends to be more labour-intensive than capital-

3 B intensive, as it relies on highly skilled workers to produce high
quality output. Thus, Option B is the correct answer.

Batch production occurs when (identical) products are produced in

4 B groups. As a bakery produces batches of bread at regular intervals
to keep the produce fresh, it uses batch production.

Batch production involves making identical products in groups.

5 C Hence, the bread cannot usually command a high price, especially
as it is not unique. Thus, Option C is the correct answer.

Downtime (Option B) occurs between batches as machines may

need maintenance. Batch production can involve large levels of
stock, causing inventory storage costs to rise (Option C). The
6 A repetitive nature of work that arises from the division of labour in
batch production means worker motivation may suffer (Option D).
However, batch production does provide flexibility to meet various
customer demands, e.g. a bakery produces numerous food items.

Flow production is continuous, so involves a larger scale of

7 A
production than batch production. Thus, Option A is correct.

A national newspaper printing press (Option D) is most likely to use

flow production as it involves a very large scale of output. The
8 D production process is highly automated and capital intensive, with
little need for human interference. Production can also occur all-day
long. Option, B and C are likely to use batch production.

A bottled water producer is most likely to use mass production

9 A because it involves large-scale production of a homogeneous
(identical) product. Hence, Option A is the correct answer.

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IB Business Management MCQ Revision Pack 5.2 Production Methods

Mass and flow production enable technical economies of scale to

be achieved (Option A), as a very large scale of output is produced.
As production is more capital-intensive, less labour needs to be
hired (Option B), reducing labour costs. Output is also very
10 D
standardized in terms of quality (Option C), leading to fewer defects
and product returns. However, workers are less likely to be
motivated (Option D) due to the repetitive nature of work due to
specialization and division of labour.

Mass and flow production are highly inflexible (Option A) to design

changes or customer requirements, i.e. once the production
process begins, changes are difficult to implement. Being capital-
intensive, the set-up and operational costs are very high (Option B).
11 C
Relatively low profit margins may also be received (Option D) since
only standardized output is produced. However, because of the
large scale of production, economies of scale (Option C) are likely
to be achieved – this is a benefit, as average costs fall.

Cellular manufacturing involves breaking down the production

process, and assigning teams (cells) with the responsibility to
12 B effectively and efficiently carry out a particular part of the production
process. Each person within a cell is multi-skilled, and can carry out
all the required tasks of that particular cell.

Cellular manufacturing requires workers to be trained to carry out

13 C all the potential tasks assigned to their team (cell). This raises
training costs. Thus, Option C is the correct answer.

Economies of scale are still likely to be achieved, just not to the

14 A extent as in flow or mass production. Thus, Option A is the correct
answer.

A cookie shop is likely to use batch production when it bakes groups

15 D (‘batches’) of identical cookies. An oil refinery relies on highly
automated systems on a large scale, and thus uses flow production.

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IB Business Management MCQ 5.3 Lean Production and Quality Management (HL)

1. Which of the following statements refers to lean production?

A. Streamlining processes to reduce waste and increase efficiency

B. Continuously finding ways to improve the production process
C. Using a just-in-time inventory management system to minimize buffer
stock requirements
D. A highly automated production system producing a very large scale of
output

2. Which of the following is not something lean production aims to do?

A. Increase resource flexibility

B. Minimise wastage
C. Manage the supply chain
D. Utilise just-in-case production systems

3. Which of the following is not a source of waste (“muda”)?

A. Chemical waste
B. Overproduction
C. Excess worker movement
D. Waiting time

4. What is the term used to describe the concept of achieving small yet continuous
improvements to increase productivity and efficiency?

A. Empowerment
B. Kaizen
C. Kanban
D. Andon

5. What is the name of the stock control system which aims to minimise buffer stock
requirements by ensuring raw materials are received just before they are used in
production?

A. Lean production
B. Kaizen
C. Just-in-time
D. Just-in-case

6. Which of the following is incorrect about a JIT inventory management system?

A. Raw materials are delivered just before they are required for production
B. Finished goods are immediately dispatched to customers
C. JIT is used frequently in mass production of motor vehicles
D. JIT involves a card system to ensure efficient stock usage

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IB Business Management MCQ 5.3 Lean Production and Quality Management (HL)

7. With respect to Kanban, which of the following is not true?

A. It is a method of lean production

B. It involves audio-visual control systems
C. It uses a card-based system to ensure efficient stock management
D. It manages workflow processes

8. What is the name of the method of lean production that utilises audio-visual control
systems to indicate the status of particular aspects of the production process?

A. Andon
B. Kanban
C. Kaizen
D. Benchmarking

9. ____________ refers to a sustainable, waste-free production model in which all

material inputs can be recycled or reused, or are consumable or compostable.

A. Kanban
B. Flow production
C. Cradle-to-cradle manufacturing
D. Ecological sustainability

10. What is the traditional approach to quality management called, in which

supervisors inspect a sample of the output?

A. Quality assurance
B. Quality control
C. Quality standards
D. Total quality management

11. Which of the following features does not determine a product’s quality?

A. After-sales services
B. Reliability
C. Durability
D. Price

12. Quality control is ___________ whereas quality assurance is ___________.

A. Quality standard-oriented, efficiency-oriented

B. Process-oriented, product-oriented
C. Product-oriented, process-oriented
D. Efficiency-oriented, customer satisfaction-oriented

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IB Business Management MCQ 5.3 Lean Production and Quality Management (HL)

13. QC is _____________ whereas QA is _____________.

A. Reactive, proactive
B. Proactive, reactive
C. Preventative, corrective
D. Expensive, Cheap

14. Which of the following are advantages of quality control?

i. It prevents substandard output reaching the end-user

ii. It is cheaper than quality assurance
iii. It prevents mistakes being made in the first place
iv. It strives to achieve zero defects

A. i + ii
B. ii + iii
C. i + iii
D. i + ii + iii + iv

15. Which of the following is untrue regarding quality assurance?

A. Employee motivation improves

B. Increased employee participation generates new ideas
C. It is reactive rather than proactive
D. It reduces costs of wastage and reworking

16. What is the term for small groups comprised of employees who come together to
assess quality and make recommendations to improve the quality of output?

A. Kaizen groups
B. Focus groups
C. Quality control
D. Quality circles

17. Which of the following is not an advantage of quality circles?

A. They promote team working and team cohesiveness

B. They are cost-effective
C. They lead to quality improvements
D. They boost employee morale

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IB Business Management MCQ 5.3 Lean Production and Quality Management (HL)

18. When a firm compares its products, processes and performance to that of its
competitors or its own historical performance, what is this called?

A. Benchmarking
B. Quality assurance
C. Lean production
D. Quality management

19. Which of the following is not a benefit of total quality management (TQM)?

A. Production costs are reduced

B. Corporate image is improved
C. Employee morale is improved
D. Bureaucracy is reduced

20. Which of the following is not a valid criticism of implementing total quality
management (TQM)?

A. It is expensive to set up and maintain

B. There is a time lag before the benefits of TQM are experienced
C. Reworking costs rise
D. It requires total commitment from every employee

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IB Business Management MCQ 5.3 Lean Production and Quality Management (HL)

5.3 Answers

Question Answer Explanation

Lean production refers to the streamlining of operations and

processes to reduce wastage and increase efficiencies. Thus,
Option A is the correct answer. Option B is a method of lean
1 A
production, called Kaizen. Option C is another example of lean
production, called just-in-time (JIT) production. Option D is incorrect
because it defines flow production.
Lean production aims to increase resource flexible (Option A), for
example, through a multi-skilled workforce. It also aims to reduce
wastage (Option B) by eliminating processes that do not add value
to output. Lean production also involves managing the supply chain
2 D
well (Option C). One method of lean production is JIT production,
not JIC production (Option D), which is the tradition stock control
system requiring buffer stocks. Hence, Option D is the correct
answer.
The sources of “muda” (waste) include: overproduction, excess
worker movement, waiting times, over-processing, defective output,
3 A unnecessary transportation, and excessive inventory stockpiling.
Thus, Option A (chemical waste) is not valid – it is an example,
rather than a source, of waste.
Kaizen refers to the process of making continuous small,
incremental improvements to the various processes to achieve
4 B
greater efficiency and productivity. Hence, Option B is the correct
answer.
Just-in-time (JIT) is an inventory management system which aims
to minimise buffer stocks by having stock of raw materials and
components delivered as and when required in the production
5 C process. Hence, Option C is the correct answer. Option A is
incorrect as lean production is an umbrella term for any method of
production that reduces waste and increases efficiency, of which
JIT is an example.
A JIT inventory management system is one where raw material and
components are delivered just before they are needed in the
production process (Option A), reducing the need for storage. Any
finished goods are dispatched immediately to further minimise
6 D
storage costs (Option B). It is frequently used in car manufacturing
where each vehicle component arrives just when it is needed to be
installed (Option C). Hence, Option D is the correct answer, as it
refers to Kanban, rather than JIT.
Kanban is a method of lean production in which cards are used to
indicate what needs to be produced, quantities required, and
production deadlines. It helps manage workflow processes by
7 B
classifying new tasks, work-in-progress, activities undergoing
testing, and completed projects. Option B is a feature of Andon, not
Kanban.

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IB Business Management MCQ 5.3 Lean Production and Quality Management (HL)

Andon is a method of lean production relying on audio-visual control

8 A systems that indicate the status of particular aspects of the
production process. Hence, Option A is the correct answer.
Cradle-to-cradle (C2C) design and manufacturing is a sustainable
production model that aims to minimise waste by ensuring all
9 C material inputs are recyclable or reusable, or consumable or
compostable, making production sustainable for generations to
come.
Quality control (QC) refers to the most traditional form of quality
management in which a supervisor periodically examines output for
defects, and ensures the products are in compliance with quality
10 B standards (Option C). Option A is incorrect because it refers to the
quality management approach that aims to prevent mistakes.
Option D is incorrect because it refers to including every worker in
quality assurance, not just a few supervisors.
A product’s quality can be determined through factors such as after-
sales services (Option A), reliability (Option B), and durability
11 D (Option C). Price, however, is not necessarily indicative of quality,
e.g. cowboy products have low quality but sell for a relatively high
price.
QC refers to the traditional approach to quality management, in
which supervisors inspect a sample of the output. This is product-
oriented because it solely looks at the final product being made,
12 C
rather than the production process itself. QA is process-oriented
because it aims to prevent mistakes, by improving the production
process itself.
QC is considered to be reactive because the quality controllers
check the final products after they have already been
manufactured. QA, on the other hand, looks to prevent mistakes
13 A from occurring in the first place, by placing the responsibility on
workers (rather than only quality control inspectors in QC) to check
and maintain quality at a high standard. Note that QA is more
expensive than QC, thus Option D is incorrect.
Quality control prevents substandard output reaching the
consumers (Option i.). It is also cheaper than quality assurance as
fewer workers have to be trained to check for quality (Option ii.).
Hence, Option A is the correct answer. However, QC is a reactive
14 A
rather than proactive method of quality management, so does not
prevent mistakes (Option iii.). Quality control also has an accepted
reject rate, unlike in quality assurance where the aim is to achieve
zero defects.
Quality assurance (QA) improves employee motivation (Option A)
as employees are given the responsibility to produce and maintain
high quality products. Employee participation also generates new
15 C
ideas (Option B) regarding quality. QA effectively reduces wastage
and reworking costs (Option D). However, Option C does not occur
as QA is proactive and preventive, rather than reactive like QC.

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IB Business Management MCQ 5.3 Lean Production and Quality Management (HL)

Quality circles (Option D) are small groups of employees

16 D volunteering to assess the quality of output and to make
recommendations to improve quality.
Quality circles are not necessarily cost-effective, as employees
have to be suitable qualified and trained in the process of identifying
problems and making feasible suggestions. Quality circles do,
17 B however, promote working in teams and boost team cohesiveness
(Option A), therefore helping to improve morale (Option D) as
employees feel more valued. This can lead to improvements in
quality (Option D), such as by aiming to prevent defects.
Benchmarking (Option A) refers to when a firm compares its
18 A products, processes (operations) and performance to that of its
competitors or its own historical performance.
Total quality management (TQM) is likely to result in an increase in
bureaucracy, as it requires all processes to be well-documented,
19 D
assessed and examined in detail. Thus, Option D is the correct
answer.
TQM aims to reduce the reject rate to zero, thereby reducing
20 C reworking costs by doing everything right the first time. Thus, Option
C is the correct answer.

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IB Business Management MCQ Revision Pack 5.4 Location

1. What is a region with high unemployment being provided financial assistance by

the government called?

A. Developing area
B. Enterprise zone
C. Less developed region
D. Structurally-deficit zone

2. What is a firm that is indifferent to location, i.e. it receives no cost advantages by

locating in a particular zone, called?

A. Brick and mortar enterprise

B. Flexible organization
C. Footloose organization
D. Location-independent firm

3. What is the reluctance to relocate referred to as?

A. Clustering
B. Geographical immobility
C. Industrial inertia
D. Relocation inconvenience

4. Bottled water is an example of a _____________ product.

A. Bulk-increasing
B. Bulk-reducing
C. Producer
D. Weight-losing

5. It makes sense for ___________ industries to locate close to their customers, and
for ___________ industries to locate close to their raw material sources.

A. Bulk-increasing, bulk-reducing
B. Bulk-reducing, bulk-increasing
C. Bulk-reducing, weight-losing
D. Weight-gaining, bulk-increasing

6. What is the act of transferring internal business activities to external

subcontractors to reduce costs referred to as?

A. Insourcing
B. Offshoring
C. Outsourcing
D. Relocating

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IB Business Management MCQ Revision Pack 5.4 Location

7. Which of the following is not an advantage of subcontracting?

A. It allows the firm to focus on its core activities

B. It cuts costs and improves profitability
C. Staff morale increases
D. The subcontractor provides specialised services

8. Which of the following is not a valid criticism of subcontracting?

A. Cultural issues and barriers may be faced

B. igh costs of monitoring subcontractor’s performance may be incurred
C. Potential conflict may arise with the subcontractor
D. Quality is in the hands of the subcontractor

9. When a firm uses external subcontractors in a foreign nation to produce its

products, what is this called?

A. Offshore outsourcing
B. Offshoring
C. Outsourced offshoring
D. Outsourcing

10. What is it called when a firm uses its own staff and resources to conduct activities
that would have otherwise been outsourced?

A. Empowerment
B. Insourcing
C. Offshoring
D. Reshoring

11. Which of the following is not an advantage of offshoring?

A. It limits the extent of cultural issues

B. Labour laws may be less stringent overseas
C. Lower operational costs may be achieved
D. The firm can concentrate on its core activities

12. Which of the following is not an advantage of insourcing?

A. It allows the firm to concentrate on its core activities

B. It creates jobs domestically
C. It develops employees’ skills
D. Using internal resources might be cheaper than using external
subcontractors

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IB Business Management MCQ Revision Pack 5.4 Location

13. Which of the following is not a disadvantage of insourcing?

A. Internal staff may not possess the requisite skills or experience

B. It involves making some employees redundant
C. It limits a firm’s international presence
D. Staff training costs may rise

14. Assume you buy a new computer from Apple, and receive complementary
technical support over the phone for a one-year period from a third-party,
specialist IT-support organization situated in India. What is this an example of?

A. Insourced subcontracting
B. Offshore outsourcing
C. Offshoring
D. Outsourcing

15. When a school hires a caterer to run its canteen, what is it an example of?

A. Insourcing
B. Offshore outsourcing
C. Offshoring
D. Outsourcing

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IB Business Management MCQ Revision Pack 5.4 Location

5.4 Answers

Question Answer Explanation

An enterprise zone (or assisted area) is a region identified by the

government as having high rates of unemployment, and
1 B consequently relatively low incomes. The government provides
such areas financial incentives to encourage firms to set up there,
such as low-interest loans, subsidies and grants.
A footloose organization is one that is unaffected by location, and
2 C receives no cost benefits by situating in one location compared to
another.
Industrial inertia refers to the reluctance managers may have in
3 C relocating a firm’s operations, even if competitive advantages lie in
relocating the firm elsewhere.
Bulk-increasing products are those that gain weight during the
production process, such as bottled water and canned foods.
4 A Option B is incorrect because it refers to a product sold to a firm to
be used in the production process of another item. Bottled water is
a consumer good because it is used by the end-user.
Bulk-increasing industries should locate closer to their customers to
reduce transportation costs, because such industries process
5 A products that gain weight during the production process. Bulk-
reducing firms should locate closer to their raw material sources to
minimize transportation costs too.
Outsourcing involves the transfer of internal business activities to
external subcontractors with the aim of reducing costs. For
example, office cleaning activities are often outsourced to third
6 C
party cleaners, to allow the business to focus on its work, increase
productivity and reduce costs. Option B is incorrect because it
involves relocating business functions overseas.
Subcontracting involves the transfer of internal business activities
7 C to external subcontractors, potentially causing staff redundancies,
and lowering morale. Thus Option A is incorrect.
Outsourcing incurs high costs of monitoring the subcontractors,
because the uality of a firm’s output lies in the hands of the
subcontractor who produces the product. Potential conflict may
arise too, which can damage business continuity. Thus Options A,
8 A
B and C are valid disadvantages of subcontracting. Option is
incorrect because it is more a limitation of offshoring, when firms
relocate business activities overseas and face cultural barriers to
success.
Offshore outsourcing occurs when a firm uses an external
9 A subcontractor overseas to produce its output or conduct certain
business activities.

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IB Business Management MCQ Revision Pack 5.4 Location

Insourcing occurs when a firm uses its staff and resources to

conduct activities that would have otherwise been outsourced, for
example, to take advantage of expertise within the firm, or reduce
10 B
costs. Firms that are dissatisfied with their outsourcing strategies,
for example, due to low subcontractor quality, may also insource
certain tasks.

Firms that offshore are likely to run into cultural issues when they
11 A
relocate business activities into overseas markets.

Option A is the correct answer because it is an advantage of

outsourcing, when certain business activities are transferred to
12 A external subcontractors. Insourcing involves a firm using its own
staff to conduct such activities which may have been outsourced,
and so does not let the firm focus on its core activities.
Insourcing does not require employee redundancies, as staffing
requirements are likely to rise, not fall. Valid disadvantages include
staff not possessing the required level of skill, experience and
13 B qualifications. This may require additional investment into staff
training and development It also limits a firm’s international
presence, as the firm’s operations are more centralised in fewer
locations.
This is an example of offshore outsourcing because it involves
Apple using an external subcontractor overseas to produce its
conduct its after-sales services activities. This is different from just
14 B outsourcing which only requires a transfer internal business
activities to an external contractor domestically, and differs from
offshoring which involves a firm relocating its operations overseas
and conducting the activities itself.
Outsourcing refers to transferring internal business activities to an
15 D external third party contractor, such as a caterer who conducts all
food and beverage provision activities to students.

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IB Business Management MCQ Revision Pack 5.5 Production Planning

1. Which of the following is not a reason for supply chain management?

A. To ensure efficient movement and storage of stocks

B. To achieve lean production
C. To procure the most cost-efficient methods of product transportation
D. To boost an organization’s liquidity ratios

2. What is the minimum level of stock held by a firm called?

A. Buffer stock
B. Re-order quantity
C. Re-order level
D. Margin of safety

3. A ______ stock control system does not have any buffer stock.

A. Just in case
B. Just in time
C. Buffer stock
D. Supply chain

4. Which of the following is not an advantage of adopting a JIT stock control system?

A. It reduces wastage
B. Stock holding costs are eliminated
C. Cash flow is improved
D. Greater economies of scale are achieved

5. Which of the following is not a drawback of adopting a JIT stock control system?

A. It relies heavily on technology

B. It eliminates the use of buffer stocks
C. It is inflexible in catering for sudden increases in demand
D. It relies heavily on efficient suppliers

6. Which of the following is not an advantage of using a JIC stock control system?

A. It is flexible enough to meet a sudden increase in demand

B. Lower costs of storage compared to a JIT stock control system
C. It allows production to continue, even if suppliers delay deliveries
D. Bulk-buying economies of scale can be achieved

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7. Which of the following is not a disadvantage of a JIC stock control system?

A. There is significant reliance on suppliers

B. Storage costs are high
C. There is a higher risk of stock being obsolete
D. Inappropriate method for perishable products

8. Which of the following is not a consequence of stockpiling?

A. Certain stock may perish or become obsolete

B. Higher costs of storage
C. Lost sales if customer orders cannot be fulfilled
D. Poor liquidity and cash flow position

9. Which of the following is not a consequence for a firm experiencing frequent stock-
outs?

A. Lost sales
B. Production coming to a halt
C. Lower customer loyalty
D. High storage costs are incurred

10. What is the name used to describe the time lag that occurs between placing an
order of stock and receiving the delivery?

A. Just-in-time
B. Lead time
C. Flexitime
D. Overtime

11. What does the economic order quantity refer?

A. The quantity of stock that minimizes storage costs

B. The level of stock required to be held as a buffer
C. The minimum level of stock required in a JIC stock control system
D. The ideal level of stock, balancing inventory needs and storage costs

12. _________ have a quicker usage rate than _________.

A. FMCGs, consumer durables

B. Consumer durables, FMCGs
C. Fixed assets, current assets
D. Specialty products, current assets

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IB Business Management MCQ Revision Pack 5.5 Production Planning

13. The shorter the lead time, the _________ the buffer stock level. The higher the
stock holding costs, the __________ the optimal stock level.

A. Higher, higher
B. Higher, lower
C. Lower, lower
D. Lower, higher

s
14. Capacity utilization is a measure of ____________.

A. Efficiency
B. Liquidity
C. Return on capital employed
D. Productivity

15. Assume a lightbulb manufacturer can produce 2.5m lightbulbs per month. In
January and February, it produced 1.75m and 1.95m lightbulbs respectively. It
can be said that the manufacturer’s capacity utilization rose by ____.

A. 7%
B. 8%
C. 11%
D. 78%

16. With reference to the following data, what is the firm’s capacity utilization rate?

Variable costs $8/unit

Fixed costs $12,000
Selling Price $13/unit
Monthly demand 23,000 units
Raw material lead time 2 weeks
Raw material re-order quantity 200kg
Raw material buffer stock 1 ton
Monthly productive capacity 40,000 units

A. 75.00%
B. 73.91%
C. 57.50%
D. 36.75%

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IB Business Management MCQ Revision Pack 5.5 Production Planning

17. With reference to the table below, how do the four firms (competing in the same
market) rank in terms of their labour productivity, from highest to lowest?

Company Total Monthly Total Monthly Revenue ($)

Output (units) labour hours used
A 300,000 1,500 $2,400,000
B 250,000 1,300 $2,250,000
C 112,500 450 $2,750,000
D 475,000 3,200 $3,562,500

A. C, A, D, B
B. C, B, A, D
C. D, C, A, B
D. C, A, B, D

18. Assume a firm has fixed costs of $200,000 per month and a productive capacity
of 150,000 units per month. Capacity utilization in February and March was 80%
and 70% respectively. Calculate the change in average fixed costs during these
two months.

A. +$0.55
B. +$0.23
C. -$0.15
D. -$0.37

19. A firm is deciding whether to make or buy 3,000 new office desks. It can make
these for a variable cost per unit of $45 per desk, and would allocate $45,000 in
fixed costs to this order. Alternatively, the firm can buy the desks from a supplier
at a price of $70 per desk, less 10% discount due to the bulk order. The firm’s cost
to make is $________ while its cost to buy is $________.

A. $135,000, $210,000
B. $180,000, $189,000
C. $180,000, $210,000
D. $162,000, $189,000

20. A firm receives a special order for 25,000 kettles. These kettles can be made in-
house with direct costs of $13 per unit, but machine upgrades of $57,500 would
be required. Alternatively, the firm can purchase these kettles for $15 per unit from
an external manufacturer. By purchasing the kettles instead of making them, the
firm would save $________ in costs.

A. $12,500
B. $10,000
C. $7,500
D. $5,000

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IB Business Management MCQ Revision Pack 5.5 Production Planning

5.5 Answers

Question Answer Explanation

Supply chain management (SCM) involves controlling the
movement of raw materials through the production process and
through to the end-user in a cost-effective manner. SCM requires
stock control to ensure efficient levels of inventory and stock
1 D movements (Option A). By identifying waste, SCM also helps
achieve lean production (Option B). It also requires the firm to
identify the most cost-efficient modes of transportation (Option C).
However, SCM does not directly boost liquidity ratios, as it can be
an expensive operation.
Buffer stock refers to the minimum level of stock held by a firm.
Option B is incorrect as it refers to the quantity of an order for
additional stock. Option C refers to the amount of stock that triggers
2 A
the firm to reorder stock, due to the time lag involved in delivering
the order. Option D is a term used in break-even analysis, not
production planning.
A JIT stock control system aims to eliminate buffer stock
requirements to minimize storage costs by having stocks delivered
3 C as and when required in the production process and dispatching
finished goods immediately. A JIC stock control system uses a
buffer stock, in case of unexpected and detrimental changes.
A JIT stock control system eliminates the need for buffer stocks, so
minimizes storage costs (Option B) by having stocks delivered as
and when required in the production process. Wastage is thus
required (Option A) as inventory does not perish, get damaged or
4 D
become obsolete while waiting to be used. The liquidity position
also improves (Option C) as cash is not tied up in inventory.
However, due to smaller order quantities, economies of scale are
less likely to be achieved.
As a form of lean production, JIT eliminates the need for buffer
stocks. This is advantageous (rather than a drawback) because of
5 B
the costs associated with using buffer stocks, e.g. storage,
maintenance and insurance costs.

A JIC stock control system aims to keep a buffer stock in case of a

sudden increase in the demand for a product (Option A). As a buffer
stock exists, production can still continue even if suppliers deliver
6 B stocks late (Option C). As larger quantities of stock are purchased,
bulk-buying economies of scale (Option D) can also be achieved to
a greater extent compared to a JIT system. However, there are
higher costs of storage, so Option B is the correct answer.

A JIC stock control system relies less on timely and reliable

7 A suppliers than a JIT system, because it holds a buffer stock. Hence,
Option A is the correct answer.

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IB Business Management MCQ Revision Pack 5.5 Production Planning

Stockpiling may result in certain stocks perishing or being obsolete

because of the time spent waiting for it to be used (Option A). As
stockpiling involves building up large inventory levels, storage costs
8 C also rise (Option B). Money tied up in inventory causes poor liquidity
(Option D) because work-in-progress inventory may not be very
liquid as an asset. However, Option C is a cost to a firm
experiencing a stock-out, rather than stockpiling.
Stock-outs cause lost sales during the period of downtime (when no
production takes place). Stock-outs also cause production
stoppages (Option B) as there are no inventories to work with.
9 D Frequent stock-outs are likely to cause less customer loyalty
(Option C) because customers do not like unreliability. Option D is
the correct answer because it is a consequence of stockpiling, not
stock-outs.
Lead time (Option B) refers to the time lag that occurs between
when stocks are ordered and when they are received. Hence, this
is the correct answer. JIT (Option A) is a method of lean production.
10 B
Flexitime (Option C) and overtime (Option D) are terms used in
human resource management, rather than in operations
management.
The economic order quantity is the ideal level of stock that ensures
production goes uninterrupted but also minimises inventory storage
11 D costs. The economic order quantity occurs at the point where the
average cost curve reaches its minimum point. Option C is incorrect
as it refers to buffer stock.
Usage rate refers to the speed at which stocks are used up in the
production process. FMCGs tend to be relatively low-cost items that
are sold quickly, and thus have a high usage rate. Consumer
12 A durables, such as refrigerators, take up a much larger proportion of
peoples’ income, so require significant thought and time before a
purchase is made. Thus, consumer durables have a relatively low
usage rate.
If lead times are short, lower buffer stock levels can be held as the
producer knows new stock orders will be delivered soon (preventing
significant delays to production). The higher the stock holding costs,
13 C the lower the optimal stock level, because firms will want to
minimize the costs associated with holding stock, such as
warehousing, insurance and security. Hence, Option C is the
correct answer.
Capacity utilization is a measure of efficiency, by calculating the
14 A proportion of a firm’s total productive capacity that being used at
any point in time.

Capacity utilization in January = 1.75m / 2.5m × 100% = 70%

Capacity utilizationFebruary = 1.95m / 2.5m × 100% = 78%
15 B
Thus, capacity utilization has risen by 8% between January and
February.

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Capacity utilization rate = (actual production / productive capacity)

16 C × 100%
Capacity utilization rate = 23,000 / 40,000 × 100% = 57.50%

Labour productivity C = 112,500 / 450 = 250 units/labour hour

Labour productivity A = 300,000 / 1,500 = 200 units/labour hour
17 D
Labour productivity B = 250,000 / 1,300 = 192 units/labour hour
Labour productivity D = 475,000 / 3,200 = 148 units/labour hour

February output = 80% of 150,000 units = 120,000 units.

Average fixed costs in February = $200,000 / 120,000 = $1.67/unit
18 B March output = 70% of 150,000 units = 105,000 units.
Average fixed costs in February = $200,000 / 105,000 = $1.90/unit
Thus average fixed costs have risen by $0.23/unit

Cost to make = ($45 × 3000) + $45,000 = $180,000

19 B
Cost to buy = ($70 × 3000) × 0.9 = $189,000

Cost to make = ($13 x 25,000) + $57,500 = $382,500

20 C Cost to buy = ($15 x 25,000) = $375,000
Cost to buy – cost to make = $382,500 - $375,000 = $7,500

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IB Business Management MCQ Revision Pack 5.6 Research and Development

1. R&D is beneficial in __________ industries, but not likely to be profitable in

___________ industries.

A. Sunrise, sunset
B. Sunset, sunrise
C. Developing, developed
D. Developed, developing

2. Which of the following is not an advantage of conducting R&D?

A. The corporate image may improve

B. The opportunity cost is usually quite low
C. A first mover advantage might be gained
D. Higher prices can be charged

3. Which of the following is not true about conducting R&D?

A. There may be a high rate of failure

B. It is time consuming
C. It shortens a product’s life cycle
D. It is expensive

4. ____________ innovation refers to altering customer perceptions of a brand or

product.

A. Product
B. Process
C. Paradigm
D. Position

5. ____________ innovation refers to a radical form of innovation that is high-risk

and has the capability of changing the nature of a market.

A. Product
B. Process
C. Paradigm
D. Position

6. Automotive facelifts involve a car manufacturer updating certain features of a car

mid-life cycle, such as the headlights. What are these facelifts an example of?

A. Paradigm innovation
B. Position innovation
C. Incremental innovation
D. Radical innovation

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IB Business Management MCQ Revision Pack 5.6 Research and Development

7. What is the term used to describe the process of developing and improving a
product that already exists?

A. Position innovation
B. Paradigm innovation
C. Innovative creativity
D. Adaptive creativity

8. What type of innovation would the initial development of the iTunes Store be
considered an example of?

A. Innovative creativity
B. Revolutionary creativity
C. Economic innovation
D. Adaptive creativity

9. Adaptive creativity tends to be ____________, whilst innovative creativity tends

to be __________.

A. Radical, incremental
B. Incremental, radical
C. Fast-paced, disruptive
D. Disruptive, fast-paced

10. _________ are exclusive rights over a newly invented product or process,
whereas _________ provide legal protection to artists and authors.

A. Copyrights, patents
B. Patents, copyrights
C. Trademarks, patents
D. Copyrights, trademarks

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IB Business Management MCQ Revision Pack 5.6 Research and Development

5.6 Answers

Question Answer Explanation

R&D is beneficial for businesses in a sunrise industry, as there is

significant growth potential in the market. The likelihood of
1 A recouping costs of R&D and making profits is higher than in sunset
(declining) industries, where R&D is unlikely to result in any long-
term profits.
The opportunity cost of conducting R&D tends to be quite high, as
the failure rate of new products and ideas can be significant. Large
2 B
amounts of money spent on R&D may be better utilised elsewhere
in the firm. Thus, Option B is the correct answer.

The majority of new products and ideas tend to fail (Option A),
causing a loss on the investment. R&D can also be very time
3 C consuming (Option B) and expensive (Option D). However, R&D
typically extends a product’s life cycle, rather than shorten it. Hence,
Option C is the correct answer.

Position innovation (Option D) refers to innovation that aims to

change customer perceptions of an existing brand or product.
Option A is incorrect because it refers to innovation that leads to
4 D new products or upgrades to existing products. Option B is wrong
as it refers to R&D that improves or creates new production
methods or working procedures. Option C is wrong as it refers to
radical, high-risk innovation.
Paradigm innovation (Option C) occurs when R&D changes the
nature of a market. It is highly risky and radical. An example is the
5 C introduction of smartphones, revolutionizing the
telecommunications industry by adding functionality to traditional
phones.

Incremental innovation (Option C) refers to when a firm makes

6 C minor upgrades, such as in the case of an automotive facelift where
the manufacturer only updates certain select features.

Adaptive creativity (Option D) refers to developing and improving

7 D
an already existing product or process, in an incremental way.

Innovative creativity (Option A) is about creating new products or

processes, in a radical way. Such developments can change the
8 A
landscape of an industry, much like the iTunes Store did for the
mobile entertainment industry.

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IB Business Management MCQ Revision Pack 5.6 Research and Development

Adaptive creativity involves developing and improving an already

existing product or process further, incrementally; no major
9 B
changes occur. By contrast, innovative creativity tends to involve
creating entirely new products and/or processes radically.

Patents are the exclusive rights to production and ownership of a

newly invented product or process. This provides firms with an
incentive to engage in R&D, as the inventor’s efforts cannot (legally)
10 B be copied by others. Copyrights provide legal protection to artists
and authors, by preventing unethical business practices by making
it illegal for others to reproduce or plagiarise the work, without prior
written consent from the copyright owner.

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IB Business Management MCQ Revision Pack 5.7 Crisis Management and Contingency Planning

1. The way in which a firm reacts to a crisis is called _________________.

A. Contingency planning
B. Crisis management
C. Quantification of risks
D. Level of preparedness

2. When a firm brainstorms possible crises that may arise and possible methods to
respond, what is this called?

A. Crisis management
B. Crisis planning
C. Contingency planning
D. Crisis strategy

3. Which of the following risks represents an uninsurable risk?

A. Inventory theft
B. Patient medical record theft
C. Typhoons
D. Fire damage

4. Which of the following is not an advantage of contingency planning?

A. Planning helps reduce the risks associated with a crisis

B. Planning takes into consideration the safety of various stakeholders
C. It develops response strategies for all possible risks that may arise
D. It helps minimize losses

5. Which of the following is/are disadvantage(s) of contingency planning?

i. It is time consuming
ii. It is impossible to account for every possible disaster
iii. Crises may never occur
iv. It can only be done by large firms with significant funds

A. i
B. i + ii
C. i + ii + iii
D. i + ii + iii + iv

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IB Business Management MCQ Revision Pack 5.7 Crisis Management and Contingency Planning

6. Risks that are measurable, such as the repair costs of water damage during a
flood to a warehouse, are called _______________ risks

A. Inherent
B. Market-specific
C. Quantifiable
D. Uninsurable

7. What are quantifiable risks also known as?

A. Uninsurable risks
B. Insurable risks
C. Market risks
D. Business cycle risks

8. What is crisis management also known as?

A. Disaster recovery
B. Bankruptcy avoidance
C. Risk minimization
D. Risk avoidance

9. Contingency planning involves all of the following except?

A. Risk assessments
B. Scenario planning
C. Developing continuity plans and strategies
D. Responding to a crisis

10. A terrorist attack is an example of a(n) _______________ risk.

A. Uninsurable
B. Quantifiable
C. Unforeseeable
D. Operational

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IB Business Management MCQ Revision Pack 5.7 Crisis Management and Contingency Planning

5.7 Answers

Question Answer Explanation

Crisis management refers to the way in which a firm reacts to a
crisis such as a product recall, warehouse fire or natural disaster.
1 B Option A is incorrect because it refers to the process of developing
strategies to use in the case of a crisis. Options C and D are not
key terms.
Contingency planning refers to the process of preparing a firm to
reach effectively in the face of a crisis by developing strategies
2 C proactively to minimize a crisis’ impact on the firm. Option A is
incorrect because it refers to how the firm eventually reacts to the
crisis when it occurs. Options B and D are not valid key terms.
Uninsurable (unquantifiable) risks are major risks that are difficult to
measure objectively and numerically, such as the impact of a major
3 C
typhoon. Options A, B and D are examples of quantifiable risks as
they can be measured quantitatively.
Contingency planning reduces the risks associated with a crisis
because it has likely been foreseen (Option A). By taking into
account the safety of various stakeholders such as customers and
4 C employees, the firm is also more socially responsible, and has
relatively safer operations (Option B). Finally, losses in a crisis are
minimized as appropriate plans exist for most situations (Option D).
However, not every situation can be accounted for.
Contingency planning is time consuming because crisis response
strategies have to be mapped out for a variety of possible crisis
situations. It is also unrealistic to expect managers to account for
5 C
every single possible disaster that may occur, and so certain crises
may go unplanned for. When a crisis never occurs, management
time and effort is wasted.
Quantifiable risks include any risk that can be measured
numerically, such as repair costs due to water, fire or natural
6 C disaster damage. Thus Option C is the correct answer. Option D is
incorrect because it refers to unquantifiable risks – major risks that
are difficult to measure objectively and numerically.
Quantifiable risks include any risk that can be measured
numerically, such as repair costs due to water, fire or natural
7 B disaster damage. Because these risks can be priced, insurance
cover can be acquired. Thus these risks are insurable risks (Option
B).
Crisis management, the process of reacting to a crisis in a way that
minimizes loss and damage to the firm, is also known as disaster
8 A
recovery. The aim of crisis management may well be to avoid a
potential bankruptcy (Option A), but not necessarily so.

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IB Business Management MCQ Revision Pack 5.7 Crisis Management and Contingency Planning

Contingency planning requires managers to conduct risks

assessments and brainstorm possible areas for risk. This requires
scenario planning, i.e., considering possible scenarios that could
9 D
take place causing a crisis. After this step, managers are likely to
develop continuity plans and strategies to be used during crisis
management.
A terrorist attack, due to its totally unpredictable nature and the
difficulty in assessing its likelihood, and the amount of damage it
10 A may cause, is an example of an uninsurable (or unquantifiable risk).
Thus Option A is correct. Option B is incorrect because it refers to
risks that can be measured objectively and numerically.

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