‘A’ LEVEL BUSINESS STUDIES

REVISING STRATEGIES

ANSWERING TECHNIQUES

PAPER 1

QUESTIONS & SOLUTIONS BOOKLET

Tinofamba nevanofamba

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1. Identify any two factors that may cause a firm to relocate. [2]

 Dying market
 Exhausted raw materials
 Stiff competition
 Political influence
 Increase in costs of production in the area

2 a) List three stakeholders that might wish to compare the size of one business to another. [3]

 Business owner
 Customer
 Investors

b) State and explain any two factors that are taken into consideration when measuring the size
of a business. [4]
 Market size
 Number of employees
 Size of capital
 Volume of sales
Plus explanation

3 a) What is the importance of small business operations in your country? [4]

 Developing personal relationships

Small businesses are well placed to build personal relationships with customers,
employees, and suppliers. With a small business you know who you are dealing with; you
can 'put a face' to the person you are in contact with. Person-to-person interaction is as
important as ever in building strong relationships.

 Responding flexibly to problems and challenges

In a small business there is little hierarchy or chain of command. Large businesses may
have set ways of operating and establish procedures that are hard to change. Small
businesses are often far more flexible. It can also reach a quick decision on whether or
not it can do what is required.

 Inventiveness and innovation

Small businesses are well positioned to introduce and develop new ideas. This is due to
their owners not having to report or seek approval from anyone else.

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  Low overheads
Due to the small scale of operation, small businesses have lower overhead costs. They
operate in small premises with low heating and lighting costs, and limited rent and rates
to pay. Low costs result in lower prices for consumers.

 Catering for limited or niche markets

Large firms with high overheads must produce high levels of output to spread costs. By
contrast, small firms are able to make a profit on much lower sales figures.

b) Explain the difficulties faced by small firms in their operations. [4]

 Lack of planning and research

 Money management

4 Musendo Pvt Ltd sells computers to small businesses around the country. It is suffering cash
flow problems at the moment. How might this firm improve on its cash flow? [4]

 Cut stocks
Reduce the amount of cash tied up by buying and holding raw materials or goods for
resale. This can be done by (a) ordering less stock from suppliers and/or (b) offering
discounts on stocks held to encourage customers to buy (ideally for cash).

 Delay payments to suppliers

A dangerous game, but widely used in business. By taking longer to pay bills owed, a
business can reduce cash outflows (at the risk of damaging relationships with suppliers
though).

 Reduce the credit period offered to customers

This is easier said than done. By asking customers to pay for their purchases quicker, a
business can accelerate cash inflows. However, there is no guarantee that customers will
agree. They may need to be given a financial incentive, such as a prompt-payment
discount.

5 a) Distinguish between marketing and selling. [4]

Marketing refers to the analysis and evaluation of information about human needs and
wants in order to satisfy them effectively whereas selling refers to getting a product to a
customer at a given price

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b) Explain any two factors that influence demand for a product. [4]

 Price
Usually viewed as the most important factor that affects demand. Products have different
sensitivity to changes in price. For example, demand for necessities such as bread, eggs and
butter does not tend to change significantly when prices move up or down
 Income levels
When an individual’s income goes up, their ability to purchase goods and services increases,
and this causes demand to increase. When incomes fall there will be a decrease in the
demand for most goods
 Consumer tastes and preferences
Changing tastes and preferences can have a significant effect on demand for different
products. Persuasive advertising is designed to cause a change in tastes and preferences and
thereby create an increase in demand.
 Competition
Competitors are always looking to take a bigger share of the market, perhaps by cutting their
prices or by introducing a new or better version of a product
 Fashions
When a product becomes unfashionable, demand can quickly fall away.

6 Explain two ways in which a football club might reduce its break-even level. [4]

 Increasing selling prices of tickets as long as the number of tickets sold will not decline
significantly.
 Reducing the amount of fixed costs

7 Mr B. Banda is an old and experienced tailor who uses job production in making suits for his
customers.
Outline the advantages and disadvantages he is likely to encounter in his business. [6]

Advantages

 Product usually high quality

 Producer meets individual customer needs
 Greater job satisfaction – involved in all stages of production

Disadvantages

 Cost of producing one unit or job is higher

 Labour –intensive
 Requires investment in skills and training

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8 a) State two sources of internal and two sources of external finance for a firm. [4]
Internal sources of finance include :

 Sale of Stock,
 Sale of Fixed Assets,
 Retained Earnings
 Debt Collection.

External sources of finance include:

 Loan from banks,

 Debenture,
 Trade Credit,
 Factoring,

b) Outline the factors considered by a firm when sourcing finance. [4]

 The amount required

 Type of expenditure/Purpose for which the capital is required
 The length of time for which the money is required
 The size, status and ability of the business to borrow
 The business’s current level of gearing
 The business’s level of reserves and profits
 The cost of the source of finance

9 a) What is a training programme? [2]

Training is a program that helps employees learn specific knowledge or skills to improve
performance in their current roles. Development is more expansive and focuses on
employee growth and future performance, rather than an immediate job role.

b) State and explain any two reasons for high labour turnover in an organisation. [4]

 Poor remuneration
 Inappropriate leadership style
 Poor working conditions

10 a) What is an autocratic leadership style? [2]

Autocratic leadership is a management style wherein one person controls all the
decisions and takes very little inputs from other group members. Autocratic leaders make
choices or decisions based on their own beliefs and do not involve others for their
suggestion or advice.

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b) Explain the circumstances in which an autocratic management style may be
appropriate. [4]

This type of leadership style is only effective in organisations where the nature of work
requires quick decision-making. The sole responsibility of the decision and the outcome
is with the leader. It is considered to be a flexible leadership style but some would argue
that it is outdated now.

Autocratic leadership will be helpful in situations where a business faces constant change
or a crisis. It will be able to react to the situation promptly compared to other leadership
styles, because of streamlined organizational structure and quick decision-making ability.

11 a) State and explain any two non-financial methods of motivation. [4]

 Job Enlargement
Involves adding extra, similar, tasks to a job. In job enlargement, the job itself remains
essentially unchanged. However, by widening the range of tasks that need to be
performed, hopefully the employee will experience less repetition and monotony.
With job enlargement, the employee rarely needs to acquire new skills to carry out the
additional task. A possible negative effect is that job enlargement can be viewed by
employees as a requirement to carry out more work for the same pay!

 Job Rotation
Involves the movement of employees through a range of jobs in order to increase interest
and motivation.

For example, an administrative employee might spend part of the week looking after the
reception area of a business, dealing with customers and enquiries. Some time might
then be spent manning the company telephone switchboard and then inputting data onto a
database.

Job rotation may offer the advantage of making it easier to cover for absent colleagues,
but it may also reduce' productivity as workers are initially unfamiliar with a new task.
Job rotation also often involves the need for extra training.

 Job Enrichment
Job enrichment attempts to give employees greater responsibility by increasing the range
and complexity of tasks they are asked to do and giving them the necessary authority. It
motivates by giving employees the opportunity to use their abilities to the fullest.
Successful job enrichment almost always requires further investment in employee
training.

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 b) Comment on Herzberg’s ideas on motivation. [3]

According to the Two Factor Theory of Frederick Herzberg people are influenced by two
factors. Satisfaction and psychological growth was a factor of motivation factors.
Dissatisfaction was a result of hygiene factors.

Hygiene factors are needed to ensure an employee does not become dissatisfied. They do
not lead to higher levels of motivation, but without them there is dissatisfaction.

Motivation factors are needed in order to motivate an employee into higher performance.
These factors result from internal generators in employees.

12. a. State two factors which indicate falling morale in a firm

 increased rates of accidents

 increased labour turnover
 increased customer complaints
 increased machinery breakdown

b. Explain why management of a firm would wish to maintain a high level of morale
among its workers.
This will be done so as achieve

 low rate of labour turnover

 low levels of absentism
 low rate of accidents
 low levels of machinery breakdown

13 a. What are the main causes of high labour turnover

 poor working conditions

 inappropriate leadership style
 hostile relationship with superiors or peers
 unclear company policies and objectives
 poor remuneration
 lack of job security

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14. a. Name any two methods of communication.

 Verbal
 Verbal communication (written and oral communication). [2]

15. State any three ways of resolving disputes in a business enterprise.

 Consider the views of all parties involved
 Get to the root of the issue
 Accept people for who they are and who they are not
 Implement regular feedback meetings
 Have the team create a conflict resolution protocol where everyone buys in
 Have the team adopt communication

16 (a) Define the following terms:

(i) management buy-out [2]

This is when shares are bought from company’s shareholders by the managers of the
business (company), so that they become the owners.

(ii) contracting out [2]

this happens when a business cedes some of its non-core activities to another company so
that it concentrate on core competences

(b) Distinguish between a public limited company and a public corporation . [4]

A public limited company belongs to the public whereas a public corporation belongs to
the public sector. Examples of public limited company includes OK Zimbabwe Limited
whilst public corporations include Zimbabwe Broadcasting Corporation. (ZBC)

17. (a) List any two types of production methods. [2]

 job
 flow
 batch

(b) How can a manufacturer of cellphones improve the productivity of his workers? [4]

Productivity of workers can be improved through training or increasing their wages and
salaries. Another is that of improving working conditions and involving them in the
decision making process.

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18. Explain any two communication problems that are beyond the receiver’s control. [4]

Communication problems that are beyond the receivers control include network problems
and use of wrong channel of communication. Wrong channel will make the receiver
unable to understand the message.

19 (a) State and explain any two non-financial methods of motivation. [4]

The first non-financial method for motivation is including workers in the decision making
process. Workers also need to work where there is security to their jobs. Delegation of
duties and job rotation are other non-financial methods of motivation.

(b) Comment on Herzberg’s ideas on motivation. [5]

Herzberg’s ideas on motivation include hygiene factors and motivating factors. What this
means is whenever motivating factors are lacking, productivity will fall, for example,
delegation or promotional prospects. However if these are lacking at least hygiene factors
should be provided and these include increase in salaries or payment of bonuses.

20. Is democratic leadership necessarily a good management style? [4]

Democratic leadership is to a certain extend a good management style. It improves

rapport between managers and workers and encourages worker initiativeness. Democratic
leadership improves effective communication between workers and managers. However
democratic leadership at times is not a good management style because it is time
consuming due to consultations. Sensitive issues do not require involvement of all the
people.

21 (a) What is niche marketing? [2]

It is the process of identifying and exploiting a small segment of a larger market by

developing products to suit it.

(b) Evaluate the usefulness of market skimming. [4]

It is a pricing strategy that is used when introducing a product in the market at a higher
price and this will help in maximizing profits before competitors enter the market. It
usually works well when demand is inelastic. It attracts customers who believe that high
prices means high quality.

22 (a) What is benchmarking? [2]

It is when management identifies the best firm in the industry and then compares the
performance standards for improvement purposes.

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 (b) Assess the significance of maintaining quality in a business organisation. [5]

There are a lot of benefits to an organisation that maintains quality because it improves
its image and reputation. Customers will also spread the good image of the company
hence there will be an increase in sales and profits. Organisations that maintain quality
always attracts a large customer base. However a company that maintain quality is
usually affected by high training costs of its employees. It is also costly for the
organisation sourcing quality raw materials which might be expensive.

23. (a) Outline two advantages of the payback method. [2]

-it provides a quick initial screening device

-easy to use and calculate

(b) (i) What is investment appraisal? [2]

It is an investment technique which seeks to see the wisdom behind accepting or rejecting or
project.

(iii) Analyse the importance of Net Present Value as a method of evaluating

projects. [4]

This method takes into account the time value of money and it considers the whole life of
the project. The NPV rate of discount can be varied to allow for different economic
conditions. However it also need to be noted that it is a difficult method compared to
payback method. Its final result depends heavily on the rate of discount used.

24. Show how a producer of flour can benefit from bulk-buying economies of scale. [3]

The producer will buy wheat in large quantities thereby receiving bulk-buying discounts.
This discount will be passed on to the consumers buy getting flour at a cheaper price.
When demand for flour is elastic, the producer will realise more revenue.

25. (a) Identify two stakeholders who are interested in the accounts of a firm. [2]

-employees
-shareholders
-Creditors .e.t.c

(b) Define the following terms:

(i) zero budgeting, [1]

It is a budgeting process in which activities are analysed as if they are being started for
the first time.

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 (i) cost centre. [1]

It is a entity to which costs can be attributed

26. Distinguish between money market and capital market. [4]

The money market is a financial market where short term funds are raised, for example
overdrafts whilst the money market is a financial market where long term funds are
raised, for example debentures.

27.a) State how economic activities are classified [3]

• primary sector
• secondary sector
• tertiary sector

b) Explain how the state can intervene to constrain businesses in your country [4]
• through price control
• through increasing cooperate tax
• through increasing vat
• through increasing interest rates
• import/export control
• exchange rate control
• employment policy

28a) Distinguish between monetary policy and fiscal policy [2]

• fiscal policy-changes in government spending and taxing to regulate the level of
economic activities
• monetary policy-effort by monetary authorities to control the supply of money inthe
country and cost of borrowing [interest rates regulation]

b) State any two examples of external stakeholders of a business [2]

• government
• competitors
• customers
• suppliers
• media

29 How might management increase the willingness of employees to accept changes in an

organisation [4]
• educating the employees about the need for change
• offering advice;training and support
• manipulation and co-optation
• involving subordinates in the change process
• introducing change in chunks
• use of incentives
• hiring a champion of change
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30. To what extent is the knowledge of price elasticity of demand useful to a manufacturer
of shoes [4]

Positive
• helps in pricing decisions eg charge low price if demand is elastic inorder to
increase revenue
• helps to classify shoes ie whether necessities or luxuries
• helps the marketing manager to implement price descrimination strategies
• helps to predict the effect of price changes on quantity demanded
• prediction of revenue
Negative
• errors can be made during calculations
• calculations are time consuming
• it is based on assumptions
• it is a non starter to those managers who have a weaker mathematicalbackground

31 Explain the limitations of value analysis to a car manufacturer [4]

• the process is time consuming
• cheaper substitutes may not be easy to come by
• the substitute component may deform the product

32 Define the following terms

[a]capacity utilisation [1]
• it is the extent or degree to which a business is exploiting its available resources
/the degree to which a business is producing output
• proportion of maximum output capacity currently being achieved

[b] benchmarking
• it is the setting of competitive perfomance standards against which progress can
be measured
• identifying the best firms in the industry and then comparing the perfomance
Standards

33 [a] Discuss the usefulness of a work study programme to a largebusiness [4]

Positive
• it leads to improvements in work methods
• it leads to improvements in efficiency
• the best methods of performing a task can be identified
• improvements in machine utilisation
• can motivate employees non-financially
• determination of standard perfomance
• determination of standard time

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 Negative
• it is time consuming
• can demotivate workers if standard perfomance is not archieved
• it becomes inflexible as workers had to adhere to specified methodology
• difficult to apply to new jobs
• can be viewed with suspicion by workers

[b] How do producers classify costs of production ? [2]

 direct costs
 indirect costs

34 Explain the importance of break even analysis to a cement producer[4]

• it helps in pricing decisions
• helps the producer to know how many bags of cement he has to produce inorder
to make positive profits
• it provides guidelines to management on break-even points;margin of safety and
profit and loss at different levels of output
• enables comparisons between choices to show changes in situations

35 Why might a profitable business have liquidity problems [4]

• over- investment in fixed assets
• being over generous with credit terms
• tieing too much cash in stock
• effect of non-cash items like decrease in provision for bad debts
• increased debtor collection period
• reduced creditor payment period

36 State any two decision making tools [2]

• break even analysis
• critical path analysis
• cost benefit analysis
• decision trees
• investment appraisal

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