BUSINESS
Resources & Revision
Teachers Answers
Sample answers are provided for the questions in the book. In some cases, the
answers provided contain more points than would be required in an exam. This
is done in order to illustrate the range of possible points that students can
provide.
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Contents
Answers to Unit 1 – People in Business
1.1 Introduction to People in Business
1.2 Conflict in the Marketplace (Contract Law)
1.3 Conflict in the Marketplace (Consumer Law)
1.4 Conflict in the Workplace (Industrial Relations)
Unit 1 Resources & Revision Pit Stop
Answers to Unit 2 - Enterprise
2.1 Entrepreneurs & Enterprise
Answers to Unit 3 - Management
3.1 Introduction to Management
3.2 Management Skills of Leadership & Motivation
3.3 Management Skill of Communication
3.4 Management Activities of Planning, Organising & Controlling
Units 2 & 3 Resources & Revision Pit Stop
Answers to Unit 4 - Managing
4.1 Human Resource Management
4.2 Managing Change
4.3 Managing Business and Household Insurance
4.4 Managing Business and Household Tax
4.5 Business and Household Finance
4.6 Monitoring Business Finances using Accounts
Unit 4 Resources & Revision Pit Stop
Answers to Unit 5 – Business in Action
5.1 Identifying Opportunities
5.2 Marketing
5.3 Getting Started in Business
5.4 Business Expansion
Unit 5 Resources & Revision Pit Stop
Answers to Unit 6 - Domestic Environment
6.1 Industries and Sectors in the Economy
6.2 Types of Business Organisation
6.3 Business, the Economy & Community Development
6.4 Government & Business
6.5 Ethical, Social & Environmental Responsibilities in Business
Unit 6 Resources & Revision Pit Stop
Answers to Unit 7 – International Environment
7.1 Ireland & the Global Economy
7.2 Ireland & the European Union
7.3 Global Business
Unit 7 Resources & Revision Pit Stop
Answers to Exam Revision ABQs
Revision ABQs covering Units 1,2,3
Revision ABQs covering Units 2,3,4
Revision ABQs covering Units 3,4,5
Revision ABQs covering Units 4,5,6
Revision ABQs covering Units 5,6,7
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Business Resources & Revision Answers
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Unit 1 – People in Business
Unit 1 – People in Business
1.1 Introduction to People in Business
1. Business Terms
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2. Putting theory into practice . . . The
Jelly Bean Factory
1. Identify five important stakeholders in The Jelly Bean Factory business.
• Peter and Paul Cullen - the entrepreneurs
• Enterprise Ireland – the investors
• Consumers of gourmet jellies
• Suppliers of ingredients and packaging to the Jelly Bean Factory
• Government, who want the business to obey the law and pay its taxes
2. Name one example of an interest group that could represent employees in The Jelly Bean
Factory.
SIPTU – could represent employees
3. Identify one example of an interest group that could represent employers.
ISME or IBEC
4. Explain the difference between an entrepreneur and an investor.
• Entrepreneurs take the initiative to invest their own time and money to set up a business.
• Investors don’t take the initiative or invest their time. They simply invest their money.
5. List five brief examples of possible conflicts between stakeholders in a business like The
Jelly Bean Factory.
• Investors want profits as quickly as possible, but entrepreneurs may want to reinvest profits
in growing the business.
• Employees want more wages but owners want to maximise profits.
• Suppliers want to charge higher prices; owners of the Jelly Bean Factory want to pay lower
prices for supplies.
• Consumers want prices as low as possible; owners want prices as high as possible.
Government wants to collect more taxes, owners want to pay less taxes.
6. Explain the difference between competitive and co-operative business relationships.
• A co-operative business relationship involves . . . adopting a win/win approach to
stakeholders. It assumes that it is better to work in partnership with stakeholders and not
against them.
• A competitive business relationship involves . . . stakeholders adopting a win/lose approach.
It asumes that only one stakeholder can win and therefore each should seek to take
advantage of the other.
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Business Resources & Revision Answers
1.2 Conflict in the Marketplace (Contract law)
1. Business Terms
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2. Putting theory into practice . . .
Sonic Promotions
1. Do customers who bought tickets have a contract with Sonic Promotions? Give a reason for
your answer.
• Yes. Customers made an offer, Sonic Promotions accepted the offer, and exchanged money
and tickets as consideration.
2. List four ways in which a contract can be terminated
• Through performance (fulfilment) of the contract by all parties involved.
• By agreement among all the parties to terminate the contract.
• Through frusration where an unforeseen event makes the contract impossible to complete.
• Through the breach of a condition (an essential element) of a contract.
3. List three legal remedies open to consumers for a breach of contract
• Rescind (cancel) the contract.
• Sue for financial compensation in the courts.
• Seek ‘specific performance’ by getting a court order to compel the other side to honour the
contract.
4. List three circumstances in which a person canot legally enter into a legal contract:
• Anyone under 18 (except for normal purchases made by under 18 year olds)
• If someone is intoxicated
• If someone is insane or ‘not of sound mind’ at the time of agreeing to the contract
NB: question asked about ‘a person’, not companies so should not mention ultra vires.
5.
Every valid contract must . . .
True
Contain an offer
Yes
Be written
Be agreed by all parties
Yes
Yes
Be signed by all parties
Involve some form of consideration/value
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False
Yes
Yes
Unit 1 – People in Business
1.3 Conflict in the Marketplace (Consumer Law)
1. Business Terms
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2. Putting theory into practice… Cycle
World
1. Name the law that protects Dave in this case.
• Sale of Goods and Supply of Services Act 1980
2. List the legal rights of Dave and the legal responsibilities of Cycle World.
• Dave has the right to receive a bicycle of merchantable quality
• Dave has the right to receive goods fit for the purpose intended
• Cycle World are responsible for the defective chain
• Cycle World must resolve the complaint about the defective chain themselves
3. Outline one method of solving the problem.
• Dave should be aware of his legal rights. Go to Cycle World bringing his receipt of purchase.
Ask to speak to the manager. Explain what happened. Request the problem be repaired as
required by law.
3. Putting theory into practice… Cosy
Homes DIY
1. Name the law that protects the consumer in this case.
• Sale of Goods and Supply of Services Act 1980 (because the paint did not match the colour
on the tin and was therefore not fit for purpose)
Or
• Consumer Protection Act 2007 (because can also be argued that the sample tin was a form
of advertising promotion and this law prohibits false advertising or false / misleading
product descriptions.)
2. Outline one non-legislative (non-legal) method of solving the problem.
• Call into Cosy Homes DIY store, bring the receipt, the sample tin of paint plus one of the
seven delivered. Ask to speak to the manager. Explain what happened and request the
correct colour paint or a full refund.
3. Explain one legal right of Stephen and one duty of the shop in this case.
Right of Stephen:
• To receive the correct colour paint, fit for the purpose intended.
• To receive a new delivery of correct paint or a full refund.
Duty of shop:
• To take the complaint seriously
• To resolve the matter, even if it is the paint manufacturer’s fault
• To refund Stephen his money if the shop is unable to resolve the matter
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Business Resources & Revision Answers
4. Putting theory into practice… The
on-line marketplace
1. Explain what is meant by the term ‘caveat emptor’
A legal term meaning ‘let the buyer beware’. It means that consumers are always expected to use
a reasonable degree of common sense.
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Unit 1 – People in Business
1.4 Conflict in the Workplace (Industrial Relations)
1. Business Terms
Column 1 is a list of business terms; Column 2 is a list of explanations. Match the two lists by placing the
letter of the correct explanation under the relevant number in the box below.
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2. Putting theory into practice…
Rock Construction
1. Rock Construction electricians are engaged in unofficial dispute. Distinguish between an
official and an unofficial dispute.
Official disputes must comply with the Industrial Relations Act 1990, i.e. they must have majority
support of union members involved, have support of the union and of ICTU. Unofficial disputes
do not comply with this law.
2. Name the law that sets out the rules for regulating / governing industrial disputes.
Industrial Relations Act 1990
3. Rock management and union went to the LRC for conciliation and the Labour Court for
arbitration. Distinguish between arbitration and conciliation.
• Conciliation means getting an independent third party (such as the LRC) to assist in
resolving a dispute by getting both sides to understand the other’s views. Conciliator does
not recommend any solution.
• Arbitration means getting a third party (such as the Labour Court) to listen to both sides
and then to recommend a solution.
4. Give three examples of a fair dismissal:
• A competent employee who keeps turning up late to work despite being given warnings.
• A dishonest employee who steals from the business.
• New equipment makes an employee’s job redundant.
5. Give three examples of an unfair dismissal:
• Dismissing someone without following fair procedures
• Employer cannot prove that the employee was incompetent
• Employer cannot prove that the employee was dishonest
• Employer cannot prove that the job was redundant
• Employer engages in constructive dismissal by harrassing or bullying an employee to leave.
6. List
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five possible causes of conflict in any workplace.
Poor pay
Poor working conditions (e.g. very long hours)
Unfair dismissals
Discrimination against staff
Poor communication between managers and staff leading to misunderstandings and distrust
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Business Resources & Revision Answers
•
•
unrealistic demands made by employees or employers of each other
Agressive personalities and communicaiton styles.
7. Name the most appropriate organisation to resolve the following conflicts.
(a) An employer wants advice on how to prevent industrial disputes.
Labour Relations Commission
(b) An employee is sacked because he joined a trade union.
Employment Appeals Tribunal
(c) An employer and trade union are unable to resolve a dispute in the LRC.
Labour Court
(d) An employee is not promoted because of ‘her nationality’.
Equality Authority
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Unit 1 – Resources and Revision Pit Stop
Unit 1 –
Resources & Revision Pit Stop
1. Explain the following terms.
Manager:
Person responsible for running a business (or part of a business) and
achieving its goals.
Investors:
People who provide a business with the finance it needs.
Profits:
What is left after all business costs and expenses are paid.
Industrial Relations: The quality of relations that exists between the managers and employees
in a business.
Trade union:
Organisations that represent the views and interests of employees in
matters concerning pay and conditions of employment.
Contract:
A legally binding agreement (can be enforced in a court of law if
necessary.
Compensation:
Money paid to make up for damage caused.
2. List the different stakeholders with whom Zero Cosmetics is in conflict.
• Investors - are unhappy with the level of profit being ploughed back into the business.
• Employees - their wages are not keeping up with employees in similar firms.
• Customers - product quality standards are declining.
• The transportation firm (a supplier) – they cancelled a contract which led to the loss of
€300,000 worth of damages.
3. Outline three consequences that could arise for Zero Cosmetics if these conflicts are left
unresolved.
• May become more difficult to raise finance from investors in future.
• Skilled employees may leave to work for rival firms offering better pay and conditions.
• Sales may decline as reputation for quality declines.
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Business Resources & Revision Answers
Unit 2 – Enterprise
2.1 Entrepreneurs & Enterprise
1. Business Terms
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2. Putting theory into practice . . . Sean
Gallagher, entrepreneur
1. Briefly outline eight characteristics and skills found in an entrepreneur like Sean Gallagher.
• confident and proactive
• determined, highly motivated
• innovative, creative
• realistic risk taker
• decisive yet flexible
• able to identify business opportunities
• able to manage their time
• able to set goals and plans
• able to manage stress
• able to get along with people
2. List four examples of enterprise in action in different areas of life.
• Organising a surprise party
• Renovating and repairing your own house
• Students setting up a school mini-enterprise
• Students setting up a Leaving Cert study group
• Local people setting up a Tidy Towns group
• Someone opening a new shop
3. Identify three reasons why people like Sean Gallagher might become entrepreneurs.
• Desire for independence / to be one’s own boss
• Personal satisfaction of doing work that one enjoys
• To earn a living
• Opportunity to be creative
4. If you became an entrepreneur and set up a successful business that earns you millions,
what would you do with the money?
• Personal student answer required
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Unit 3 – Management
Unit 3 – Management
3.1 Introduction to Management
1. Business Terms
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2. Putting theory into practice . . . DALY
MANAGEMENT
1. Identify an example of the following management activities and skills in Siobhan’s life:
(a) Planning revision timetable
• Planning to meet friends at the weekend
• Planning how to spend pocket money
(b) Leading
• Becoming hockey team captain
• Being elected spokeperson for the Debs committee
(c) Organising
• Getting sports gear ready
• Getting books and materials ready for school the night before
• Organising the students’ Debs committee
(d) Motivating
• Talking to students in 6th year explaining about plans for the Debs Ball and trying to
generate interest and a good attendance
(e) Controlling
• Checking study timetable to ensure that revision is ‘on track’
• Monitoring how she spends her money
(f) Communicating
• Talking to the school authorities about plans for the Debs Ball
• Talking to other students
3. Putting theory into practice . . . MANAGING
EMERGENCIES
1. Is John O’Shea a manager or an entrepreneur? Give a reason for your answer.
Both – he is an entrepreneur because he set up GOAL. He is a manager because he also runs the
organisation.
2. Outline three differences between an entrepreneur and a manager.(HL)
• Unlike managers, entrepreneurs spend a lot of time looking for opportunities for new
businesses
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Business Resources & Revision Answers
•
•
Unlike managers, entrepreneurs take the initiative to set up new businesses
Unlike managers, entrepreneurs take personal risks such as investing their own money in
new business ideas
3. List three management skills that could be used in GOAL.
• Leadership skills are needed to provide direction to manage staff and volunteers
• Motivation skills are needed to encourage staff and volunteers to give their best
• Communications skills are needed to persuade the public to donate money
4. List three management activities that could be used in GOAL.
• Planning what disaster relief projects get priority
• Organising relief supplies and volunteers
• Controlling how donations are spent to ensure value for money
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Unit 3 – Management
3.2 Management Skills of Leadership & Motivation
1. Business Terms
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2. Putting theory into practice . . .
DIGITAL WORLD
1. Name one leadership style and give two reasons why you would recommend Grace adopt it
with her staff.
• Democratic leadership.
• Getting staff input can lead to better quality decisions.
• Sharing decision-making could be less stressful for Grace (compared to autocratic style).
• Staff will feel more valued and motivated in their work.
2. List two ways that Maslow’s hierarchy of needs could assist Grace in motivating her staff.
• By creating a friendlier workplace, Grace can help staff meet their social needs
• By providing staff with praise for work well done, Grace can help meet their esteem needs
• By providing staff with more responsibility in their jobs, Grace can help them satisfy their
self-actualisation needs.
3. Describe two ways that McGregor’s Theory of Motivation could assist Grace in choosing
how to motivate staff in Digital World.
• By providing interesting and challenging work (Theory Y)
• By consulting regularly with staff and encouraging their ideas
• By not relying solely on financial rewards
• By not threatening staff or constantly watching them
4. Draw and label a diagram illustrating Maslow’s hierarchy of needs.
Self-actualisation
needs
Self-esteem needs
Social needs
Safety needs
Physical needs
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Business Resources & Revision Answers
3.3 Management Skill of Communication
1. Business Terms
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2. Putting theory into practice . . . GLENISK
ORGANIC DAIRY
1. List five types of internal communication that could be used in Glenisk.
• Face to face meetings between Glenisk staff
• Telephone calls between Glenisk staff
• Emails between Glenisk staff
• Health and safety notices on walls
• Letters and memos sent out to staff by Vincent Cleary
2. List five types of external communication used by businesses like Glenisk.
• Telephone calls to suppliers
• Using company website to communicate with public
• Advertising posters to communicate with consumers
• Product brochures for retailers
• Text messages to farmers and other suppliers
• Emails to retailers
• Face to face meetings with banks and investors
3. List four factors that Glenisk’s Vincent Cleary should consider when deciding on the most
effective methods of communications to use to send an important message in business.
• Timing of the message
• Degree of accuracy required
• Keep it as brief and to the point as possible
• Use an appropriate medium of communication
• Speed of communication
• Cost of method of communication
• Is a written record required?
• Will it allow for easy feedback from receiver?
4. List five barriers to effective communications in Glenisk.
• Poor timing
• Sending inaccurate information
• Badly worded or confusing message
• Using an inappropriate medium of communication
• Medium used is too slow or unreliable; receiver not listening / misunderstands / mistrusts
the sender
5. List three items that might appear on an agenda at a Glenisk business meeting.
• Minutes of the last meeting
• Financial update
• Marketing and sales report
• Any other business
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Unit 3 – Management
6. Describe two functions of the Data Protection Acts 1998 & 2003.
• Ensures that the date stored by organisations is accurate
• Ensures that the data stored is only used for legal purposes
• Sets out the legal rights of individuals (the data subjects)
• Sets out the legal responsibilities of organisations (the data controllers)
7. Illustrate the following Net Profit figures for a book shop using (a) a bar chart and (b) a
line graph
Year
Year 1
Year 2
Year 3
Year 4
Year 5
Net Profit
€8000
€12000
€18000
€24000
€30000
8. What do the following stand for?
AGM Annual General Meeting
EGM Extraordinary General Meeting
ICT
Information and Communications Technologies
EDI
Electronic Data Interchange
AOB
Any Other Business
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Business Resources & Revision Answers
3.4 Management Activities of Planning,
Organising & Controlling
1. Business Terms
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2. Putting theory into practice . . .
Glen Dimplex
1. Glen Dimplex uses SWOT analysis. Explain what is meant by a SWOT analysis.
S Strengths that the business should defend and build upon
W Weaknesses that the business should fix
O Opportunities that the business could exploit
T Threats that the business should try to avoid or defend itself against
2. Distinguish between a Glen Dimplex Strategic Plan and a Glen Dimplex Tactical Plan.
Glen Dimplex’s strategic plans are general long-term plans for 5 or more years. Glen Dimplex’s
tactical plans are more specific and are for shorter periods of time (e.g. 6 months, 1 year)
3. When Glen Dimplex managers are planning, what does S.M.A.R.T. stand for?
S Specific – plans should be clear and specific about what is required
M Measurable, i.e. how will Glen Dimplex know if the plan is successful?
A Agreed, i.e. have the support of the staff who must implement the plan
R Realistic in terms of goals set and resources available to achieve them
T Timed, i.e. allow sufficient time for proper implementation
4. Glen Dimplex uses a geographic organisational structure. Draw a simple functional
organisational structure that could be used by the business.
C.E.O.
Europe
Marketing
Finance
North
America
Australia
Far East
Production
Marketing
Finance
Production
5. List four types of control that can be used by Glen Dimplex management
• Stock control
• Credit control
• Financial control
• Quality control
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Unit 2 & 3 – Resources & Revision Pit Stop
Units 2 & 3 –
Resources & Revision Pit Stop
1. Identify four ways that Sean and Kieran demonstrated entrepreneurial characteristics. Refer
to the text in your answer.
• Confident enough in their own abilities to set up their own enterprise
• Determined to succeed even though they are competing in a competitive market
• Innovative by creating new experimental flavours
• Risk-takers – “invested their own savings”
• Realistic risk takers – they started small in Dingle and only expanded as the business
became successful
• Decisive yet flexible – were willing to change strategy and charge higher prices to cover costs
• Able to identify an opportunity for an Irish quality ice cream brand
• Able to set goals and plan – by opening their own speciality ice cream shops
2. List three internal and three external methods of communication that could be used by
Murphy’s Ice Cream.
(a) Internal
• Verbal conversations between Sean and Kieran
• Sending text messages to staff
• Health and safety signs in the factory and shops
(b) External
• Visual appearance of the shop front
• Advertising in magazines
• Company website
• Telephoning suppliers
• Writing letter to a supermarket chain requesting a meeting
3. Briefly outline why (a) leadership and (b) motivation skills will have to become more
important to Sean and Kieran as the enterprise grows and as staff are hired to assist in the
business.
(a) Leadership:
• Needed to delegate work to newly recruited staff
• Needed to set an example of the attitudes and behaviours expected of staff
• Needed to provide clear direction to staff and the business
(b) Motivation
• Will help staff to work hard and productively
• Will encourage staff to be innovative and intrapreneurial
• Will help to maintain positive industrial relations
• Will help to retain skilled and experienced staff in the business
4. Briefly describe how each of the management activities are necessary to running Murphy’s
Ice Cream.
• Planning is necessary so that Murphy’s knows what flavours to produce in what quantities,
and where and when to open new shops.
• Organising is necessary to identify what work needs to be done, who will do it, and to
create a clear chain of command in the business.
• Controlling is necessary to ensure that Murphy’s has enough stock, maintains high quality
standards, effective credit and financial control to be profitable.
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Business Resources & Revision Answers
5. As Murphy’s Ice Cream expands, the entrepreneurs will need to learn how to motivate
different staff. According to Maslow’s theory, what level of needs are being met by each of
the following initiatives:
Level on Maslow’s hierarchy of needs
(a) Providing family-friendly working time
Social
(b) Luxury company cars for sales reps
Esteem
(c) Basic salary
Physical
(d) Pensions for staff on retirement
Safety
(e) Free employee medical insurance and treatment
Safety
(f) Christmas parties and ‘get togethers’
Social
(g) Company sports activities
Social
(h) Interesting and personally fulfilling work
Self-actualisation
(i) Prestigious job titles
Esteem
(j) Proper rest and lunch breaks
Physical
(k) Paying college fees for part-time study
Self-actualisation
(l) Providing overtime pay
Physical
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Unit 4 – Managing
Unit 4 – Managing
4.1 Human Resource Management (HRM)
1. Business Terms
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2. Putting theory into practice . . .
Dublin Zoo
1. List seven elements involved in human resource management.
• HR planning
• Staff recruitment and selection
• Staff training and development
• Appraising staff performance
• Rewarding staff performance
• Maintaining positive industrial relations
• Resolving any grievances or industrial disputes
2. List five steps that Dublin Zoo should follow when recruiting new zoo keepers.
• Prepare a job description
• Prepare person specification
• Advertise vacancy
• Shortlist applicants
• Interview
• Check references
• Make offer to successful applicant
3. What do the following letters stand for?
(a) C.V.
Curriculum Vitae
(b) H.R.M.
Human Resource Management
4. Outline five measures that an organisation like Dublin Zoo can take to improve the
relationship between employers and employees.
• Employ well-trained managers with good HR skills
• Recruit staff with a positive attitude
• Communicate regularly, openly and honestly
• Have a simple and clear staff grievance procedure in place
• Provide attractive financial and non-financial rewards to staff
• Respect staff
• Create a friendly and co-operative workplace environment
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Business Resources & Revision Answers
5. Dublin Zoo uses flat rates of pay. Distinguish between flat rates and piece rates of pay.
• Flat rates of pay are based on working a standard number of hours every week
• Piece rates of pay are based on the number of items an employee produces or sells.
6. Outline six non-financial rewards that Dublin Zoo can provide to its staff.
• Good job satisfaction
• Shorter working hours per week
• Longer holidays
• Less stressful work (not feeding the crocodiles!)
• Providing a workplace free of discrimination, bullying or harrassment
• Safe and pleasant working environment
• Flexible working arrangements such as job sharing or flexi-time
• Job enlargement (e.g. having zoo keepers who, besides looking after the animals, also take
tours and work in the shop)
• Job enrichment (e.g. training zoo keepers in veterinary skills so that they can be more
involved with caring for the animals)
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Unit 4 – Managing
4.2 Managing Change
1. Business Terms
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2. Putting theory into practice . . . Zest
Fruit Drinks
1. Frank is described as having a ‘controlling management style’. Distinguish between a
controller manager and a facilitator manager.
• Controllers have an autocratic style, facilitators are more democratic.
• Controllers distrust staff, facilitators trust their staff.
• Controllers regard their staff as lazy and dislike work, facilitators see them as being able to
enjoy their work and be ambitious
2. Explain the four stages involved in forming a successful team.
• Forming – team members meet and get to know one another
• Storming – disagreements may arise over how to get work done
• Norming – team establishes rules, roles and responsibilities for getting things done.
• Performing – team settles down with all members working together to achieve their shared
goals
3. List three initiatives that could be introduced to Zest to improve its quality standards.
• Zest should recruit quality conscious staff
• Frank should adopt a facilitator style of management and motivate and empower his staff to
improve quality standards
• Frank should lead by example and demonstrate strong quality awareness in all his work
• Greater teamwork should be encouraged, including the use of quality circles
• Zest could introduce a quality assurance system (e.g. Q mark or a suitable ISO standard)
4. Outline two benefits of a team-based organisational structure for Zest Fruit Drinks.
• Improved staff communications
• Faster decision making
• Better quality decision-making
• Improved employee motivation and job satisfaction
• Improved quality standards leading to increased sales
5. What do the following letters stand for:
T.Q.M.
Total Quality Management
I.C.T.
Information and Communications Technologies
C.A.D.
Computer Aided Design
C.I.M.
Computer Integrated Manufacturing
E.D.I.
Electronic Data Interchange
J.I.T.
Just In Time
6. List two benefits of employee empowerment to Zest Drinks.
• Zest can harness a wider range of staff skills and talents for the business
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Business Resources & Revision Answers
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•
•
•
•
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Increased staff motivation,
Increased levels of staff innovation and intrapreneurship
Increase staff job satisfaction
Reduced staff absenteeism
Reduced levels of staff turnover
Managers will have more time to concentrate on growing the business
7. ‘Controller’ or ‘Facilitator’ manager?
Quote
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Controller
‘Employees dislike and will always resist change.’
Yes
‘Toilet breaks will not be tolerated!’
Yes
Facilitator
‘Employees can be trusted to work on their own if the
work is interesting and challenging.’
Yes
‘Are there any problems you need help with?’
Yes
‘Do you need any extra training to advance your career?’
Yes
‘Employees are lazy and must be forced to work.’
Yes
‘Just do as I say and don’t ask questions.’
Yes
‘Have that work finished by 2 pm or else . . .’
Yes
‘All decisions must by approved by the manager.’
Yes
Unit 4 – Managing
4.3 Managing Business & Household Insurance
1. Business Terms
1
2
3
4
5
6
7
8
9
10
11
D
B
E
F
C
I
A
G
J
K
H
2. Putting theory into practice . . . PRO-SATELLITE
LIMITED
1. List four different types of insurance policy that the Pro-Satellite business should have and
give a reason for each one.
• Property insurance on premises to protect against fire, flood and other accidents
• Motor insurance to protect against damage to company vans
• Public liability insurance to protect against claims for losses suffered by members of the
public (e.g. company ladder falling on them)
• Product liability insurance to protect against claims arising from using Pro-Satellite’s
products or services (e.g. electrocution)
• Employer liability insurance to protect against claims from staff who may injure themselves
working for the business (e.g. falling off a ladder)
• Consequential loss insurance to protect against the loss of sales arising from some accident
(e.g. while premises are flooded)
• Fidelity guarantee insurance to protect against dishonesty by employees (e.g. stealing
valuable files or technology)
2. Calculate the amount of compensation that will be paid to Pro-Satellite Limited arising from the
flood damage.
350,000
————— X 100 = €77,777
450,000
3. Louie and Sharon’s house and contents were valued at €100,000 but they insured them for
€80,000. A fire caused €2,000 of damage to the contents. Calculate the compensation to
be paid to the owners.
Workings
80,000
———— X 2000 = €1600
100,000
25
Business Resources & Revision Answers
3. Putting theory into practice . . . Aviva’s strange but true insurance claims!
1. List three similarities between insurance for a household and for a business.
• Both must identify possible risks
• Both must insure against possible risks
• Both must fill out insurance proposal forms
• Both must fill out insurance claim forms if they want to make a claim
• Both must keep insurance policies up to date
• Both must store insurance documents in a safe place
2. List three differences between insurance for a household and for a business.
• Businesses normally have more potential risks than households (e.g. insuring against
product risks, dishonest staff)
• Businesses, especially large ones, can suffer far greater financial losses than households
• Businesses pay PRSI for their employees, while households only pay it for themselves
• Businesses can treat insurance bills as a legitimate business expense to reduce their tax bills,
households cannot.
26
Unit 4 – Managing
4.4 Managing Business & Household Tax
1. Business Terms
1
2
3
4
5
6
7
8
9
10
11
12
K
D
L
B
G
I
E
J
H
C
F
A
2. Putting theory into practice . . . Woodie’s
DIY Limited
1. Identify three types of insurance that Woodie’s should have.
• Public liability insurance (e.g. injury caused by items falling from high shelves)
• Product liability insurance for the product sold
• Property insurance on Woodies’ premises
• Employer liability insurance if they get injured while at work
2. Does Woodie’s pay PRSI? Give a reason for your answer.
• Yes. PRSI is a compulsory social insurance payment for employees. It has two parts:
• Employees’ PRSI is paid by Woodies’ employees as a percentage of their gross wages
• Employers’ PRSI is paid by Woodies for each of their employees
3. Identify three types of taxes that Woodie’s Limited could be expected to pay as a business.
• Corporation tax on profits, because Woodies is a limited company
• VAT is paid on goods sold
• Capital gains tax is paid on any profits made from the sale of a company asset (e.g. selling a
warehouse)
• Commercial rates are paid to local authorities
• Customs duties are paid by Woodies on any goods they import from outside the EU.
4. Outline three differences between managing taxation in a household and managing tax for
a business like Woody’s DIY
• They pay different types of taxes
• Different tax collection systems are used (PAYE income tax is automatically deducted from
employees’ wages)
• Businesses have far more tax credits / allowances that they can claim
• Businesses can claim VAT refunds on their purchases
• Businesses act as unpaid tax collectors for the government
5. Lynn Coulter is an assistant manager in Woodie’s. List five types of taxes that Lynn could
pay as a householder.
• PAYE income tax
• VAT on household purchases
• PRSI on income
• Universal Social Charge – a type of income tax
• Motor tax on car ownership
• Deposit Interest Retention Tax (DIRT) on bank deposits
• Capital Acquisitions Tax on gifts and inheritances
27
Business Resources & Revision Answers
4.5 Managing Business & Household Finance
1. Business Terms
1
2
3
4
5
6
7
8
9
10
D
E
F
H
J
I
A
G
C
B
2. Putting theory into practice . . .
Sunrise Limited
1. What is a bank overdraft?
Short term loans that may be available to a customer with a current account
2. In which month(s) will Sunrise Limited need a bank overdraft?
February (-€700 short of cash) and March (€2400 short of cash)
3. Outline three reasons why Sunrise Ltd. would need to prepare a cash flow forecast.
• Assists Sunrise in planning by predicting the size and timing of cash flows
• Assists financial control by identifying when the business may run low on cash and need
additional finance
• Assists the business to identify how much additional finance may be needed
4. List two ways in which Sunrise Ltd. could persuade their customers (debtors) to pay on
time.
• Give discounts to customers who pay promptly
• Refuse to sell on credit to customers who are slow payers. Accept cash payments only.
5. Complete the following grid by listing three types of short, medium and long term finance
that could be used by Sunrise Limited.
(a)
Short-term
finance
Overdraft
Medium-term
Long-term
finance
finance
Hire purchase
Equity & retained earning
(b)
Credit purchases Leasing
Grants
(c)
Factoring debts
Debenture loans
Term loans
6. Complete the following grid by listing three types of short, medium and long term finance for a
household.
28
(a)
Short-term
Medium-term
Long-term
finance
finance
finance
Credit purchases Hire purchase
Savings
(b)
Bank overdraft
Leasing
Gifts / Inheritances
(c)
Unpaid bills
Term loans
Mortgages
Unit 4 – Managing
7. Distinguish between hire purchase and leasing:
• Hire purchase means buying an item now but paying for it in installments over a period of
time
• Leasing means renting an item over a period of time
8. Outline five criteria that Sunrise should use when selecting a suitable source of finance for
the business.
• Purpose of the finance should match the type of finance
• Amount of finance required
• Cost of the finance
• Control implications for the business or assets of the business
• Risk to the business (e.g. effect on cashflow if bank cancelled overdraft)
9. List five pieces of information that a bank would look for before providing a loan to
Sunrise Limited.
• Amount required
• Purpose of the loan
• Evidence of good business reputation and credit worthiness
• Ability to repay sum involved
• Copy of Sunrise’s current business plan
• Security (collateral) that may be available
10. Outline three ways in which a Sunrise employee can pay money out of his household
current account.
• Writing cheques out his current account cheque book
• Setting up ‘standing orders’ to make automatic payments out every month
• Setting up ‘direct debits’ to allow bills to be paid automatically from the current account
• Cash withdrawals from ATM machines
11. Jimmy Cumiskey has a current account and a deposit account for his household finances.
Distinguish between a deposit and a current account.
• A deposit (savings) account pays interest on savings. However, Jimmy cannot make payments
or withdrawals by cheque, standing order, direct debit or use an ATM card on this account.
• A current account does not pay interest but does allow payments and withdrawals to be made
using cheques, standing orders, direct debits or using an ATM card.
Date
Details
12 June
Lodgement
14 June
Cheque
21 June
ATM
24 June
Lodgement
Cheque No. Debit
6
Credit
Balance
500
500
200
300
100
200
300
X
12. Name the above household document.
• Bank statement
13. What is the balance in the box marked X?
• €500
14. Explain the letters ‘ATM’.
• Automatic Teller Machines – allows holders of current accounts to withdraw money from
their accounts without going into their bank.
29
Business Resources & Revision Answers
4.6 Monitoring Business Finances using Accounts
1. Business Terms
1
2
3
4
5
6
7
8
9
10
G
H
I
J
D
A
E
F
C
B
2. Putting theory into practice . . .
THE BUSINESS OF SOCCER
1. Explain the terms highlighted in bold.
• High gearing - Having a high level of long term fixed interest debt compared to equity capital
• Current ratio - Measures a firm’s ability to pay its current liabilities, such as creditors, bank
overdraft.
• Insolvent - A business is insolvent when it does not have access to enough cash to pay its bills.
2. List three reasons why a football club like Manchester United needs to keep financial
records.
• To assist managers in monitoring and controlling the Club’s finances
• To measure profitability of the club
• To ensure the club is maintaining sufficient working capital
• To prevent the club becoming too highly geared
• To show the owners and investors how well the club is performing financially
• To show potential investors and banks how well the club is performing financially
• To show suppliers that the club is financially stable and able to pay for credit purchases
• To show the tax authorities that the club is paying the correct amount of corporation tax
3. Distinguish between a (a) Profit & Loss Account and (b) a Balance Sheet.
• A P&L account measures the profitability of a business over a period of time.
• A balance sheet measures the wealth of a business (including assets and liabilities) at a
particular point in time.
4. List four pieces of information a Balance Sheet can provide to a manager.
• Value of fixed assets (e.g. premises)
• Value of current assets (e.g. cash on hand, debtors, stock)
• Value of total assets (fixed and current)
• Value of current liabilities (e.g. creditors)
• Value of working capital (current assets less current liabilities)
• Value of equity capital invested by owners
• Value of long term loans and debentures
5. Distinguish between a debtor and a creditor.
• Debtors owe money to a business. As long as they are likely to pay, they are an asset
• Creditors are people to whom a business owes money. They are a liability
30
Unit 4 – Managing
6. Briefly explain why a business would calculate the Debt / Equity Ratio.
• Reveals the proportion of long term borrowed by the business compared to the equity
invested by the owners.
• It provides information that can assist in management control of the business finances
• For instance, it shows managers how easily it can pay its long term debts.
• It can also reveal how easily it might be able to secure a long term loan. A lowly geared
business will find it easier to borrow long term finance
7.
True
False
Cash is a current liability.
False
Land is a fixed asset.
False
Creditors are a current asset.
False
Ordinary shares are a liability.
False
Bank overdraft is a fixed asset.
False
2. Putting theory into practice . . .
Ark Limited
1. Calculate the gross margin and the net margin for Ark Limited for Year 2 and Year 1.
Comment on the trend.
Gross Margin Year 1
6,000
————- = 10%
60,000
Gross Margin Year 2
20,000
———— = 20%
100,000
The increase in the Gross Margin from 10% to 20% is a positive trend.
Net Margin Year 1
3,000
———
= 5%
60,000
Net Margin Year 2
5,000
———— = 5%
100,000
Comment:
• Despite a doubling of the Gross Margin, the Net Margin has remained steady at 5%.
• While 5 % is a reasonable result, it should be increasing along with the Gross Margin.
• No increase suggests that expenses are increasing significantly and cancelling out the
gains made in the Gross Margin. This is a cause for concern.
31
Business Resources & Revision Answers
2. Calculate the working capital ratio and the acid test ratio for Ark Limited for Year 2 and Year
1. Comment on the trend.
Year 1 Working Capital Ratio
60,000
———— = 1.5
40,000
Year 2 Working Capital Ratio
40,000
———— = 0.5
80,000
Year 1 Acid Test Ratio
50,000
———— = 1.25
40,000
Year 2 Acid Test Ratio
20,000
———— = 0.25
80,000
Comment:
• In Year 1, Ark Limited had a good working capital ratio while the Acid Test ratio was
excellent – i.e. the company could access enough finance quickly to meet all its current
liabilities.
• However in Year 2, the working capital ratio has declined dramatically and to a
dangerously low level of just 0.5. This means that the firm could only meet half of its
current liabilities from its current assets. The situation is even more serious when stock
is excluded and we look at the Acid Test result of just 0.25.
• Ark Limited urgently needs an injection of working capital of at least €40,000 to remain
solvent and able to pay all its bills.
3. Kilimanjaro Limited is Ark’s biggest competitor.
Year 2
Long Term Loans
€310,000
Ordinary Share Capital
€210,000
Reserves
€98,000
Overdrafts
€56,000
Year 1
€307,000
€150,000
€55,000
€76,500
Calculate the Debt / Equity Ratios for Kilimanjaro Ltd. for each year. Comment on the
trend.
Year 1
307 : 205 = 1.5 : 1 or 150%
Year 2
310 : 308 = 1 : 1 or 100%
Comment
• In year 1, Kilimajaro had a very poor debt:equity ratio with debts one and a half times
larger than equity capital (ordinary shares and reserves).
• In year 2, the situation has improved significantly. Debt and equity capital are now
almost equal. Although debt levels are still very high, this is a very positive development.
This change has arisen because the company has significantly increased its levels of
equity capital.
32
Unit 4 – Resources & Revision Pit Stop
Unit 4 –
Resources & Revision Pit Stop
1. Using this information, calculate the following ratios and comment on the trend.
Year 1
Year 2
Year 3
Year 4
Year 5
Gross Profit Margin?
37.5%
36.8%
22.2%
21.4%
28.6%
Net Profit Margin?
18.7%
23.7%
5.6%
7.1%
2.9%
Comment
• The Bandit Pizza Company was a very profitable business in Years 1 and 2. However, the
Gross Profit Margin has declined sharply from Year 1 to Year 4 due to increased cost of sales.
Year 5 indicates that the Gross Margin is beginning to improve again.
• The Net Profit Margin was very high in years 1 and 2, indicating that the firm’s profitability
was exceptionally high. However it has declined rapidly in Years 3 -5.
• To begin improving profitability again, the firm needs to increase sales while maintaining or
reducing the cost of sales and expanses.
2. Explain the following terms:
• Term loan: A medium term loan, usually for between 1 and 5 years repaid in monthly
instalments.
• Overdraft: A short term loan (repayable in less than one year) provided by a bank to a current
account holder.
• Insurance: A method of managing risk involving taking out an insurance contract whereby the
insured pays a fee (premium) and in return will receive compensation in the event of a
specific financial loss occurring.
• Cashflow forecast: A financial document showing the expected flows of money in and out of
a business / household over a period of time.
3. List the types of insurance that you consider most suitable for a business like The Bandit
Pizza Company.
• Property
• Employer liability insurance.
• Motor insurance (for the home delivery service)
• Consequential loss insurance
4. Outline the different types of taxes that The Bandit Pizza Company may have to pay.
• Corporation tax (because it is a limited company)
• VAT on goods sold
• Commercial rates to local authorities
• Employers PRSI
5. Describe three types of internal and external communication that you think are essential to
The Bandit Pizza Company.
Internal:
• Meetings between staff members
• Noticeboards on the premises
• Phone and text messages between staff
External:
33
Business Resources & Revision Answers
•
•
•
Company website
Advertising flyers pushed through letterboxes to attract customers
Emails to suppliers
6. (a) List three types of short-term finance that The Bandit Pizza Company could use to
finance the running of the business.
• Overdrafts
• Trade credit
• Factoring debts
• Invoice discounting
(b) List three types of medium-term finance that The Bandit Pizza Company could use to
finance the running of the business.
• Hire purchase
• Leasing
• Term loan
34
Unit 5 – Business in Action
Unit 5 – Business in Action
5.1 Identifying Business Opportunities
1. Business Terms
1
2
3
4
5
6
7
8
9
10
11
12
E
A
J
H
I
G
B
L
F
D
K
C
2. Putting theory into practice . . .
1. Developing Facebook as a successful business took time. List the seven stages that a business
idea should go through before being launched.
• Idea generation
• Product screening
• Concept development
• Feasibility study
• Prototype development
• Test marketing
• Production and launch
2. Identify the two main types of market research that could be used when researching the
market for a new internet based business.
• Desk research
• Field research
3. Putting theory into practice . . . BREAKING EVEN AT CROKE PARK
1. List three benefits to the GAA of using beak-even analysis when assessing the feasibility of a
new business idea.
• Can calculate the amount of sales required to break even
• Can illustrate the possible effect of a change in fixed costs on profitability
• Can show the possible effects of a change in variable costs on profitability
• Breakeven graphs are a very effective way of communicating financial information quickly and
visually.
2. Explain how the GAA can distinguish between fixed costs and variable costs.
• Fixed costs are incurred regardless of the number of products produced or sold. For the GAA,
this would be the number of tickets sold. Examples include pitch maintenance, public liability
insurance, interest payments on loans, electricity. These costs are incurred regardless of
whether 10 or 100,000 tickets are sold for a match.
• Variable costs change depending on how many units are produced or sold. For the GAA,
35
Business Resources & Revision Answers
variable costs could be the cost of food and refreshments sold to spectators or cost of cleaning
up grounds after a match. These can vary depending on the size of the crowds at a match.
€
ue
Breakeven point
n
ve
tal
To
Re
S
FIT
PRO
l
Tota
s
cost
Fixed costs
Q
Breakeven quantity
3. Label the following diagram for the GAA indicating:
• Fixed costs
• Total Costs
• Total Revenue
• Break-even point
• Area where profits incurred
• Area where losses incurred
36
Unit 5 – Business in Action
5.2 Marketing
1. Business Terms
1
2
3
4
5
6
7
8
9
10
11
12
13
14
E
F
M
H
A
J
K
C
B
N
G
D
L
I
2. Putting theory into practice . . . SKODA
CARS
1. Briefly describe a simple marketing mix that could be applied to marketing Skoda cars.
• Product – introduce sporty, soft top models
• Price – charge lower prices than competitors to build up market share (i.e. penetration
pricing)
• Place – sell cars through authorised dealers and over the internet
Promotion – advertise on the internet and in car magazines
2. List four factors that should be considered when designing a product.(20 marks)
• Be practical to use
• Be aesthetically pleasing to look at
• Will work with suitable packaging (where packaging is needed)
• Can be easily branded with product name and logo
• Likely product life cycle and how this could be extended as far as possible
3. Identify four factors which influence the choice of distribution outlet.
• Is it an effective way to reach the target market?
• Will it fit with the desired product imade?
• How easy is it to distribute the product?
• What are the costs of distributing the product along different channels?
• What are the implications for cash flow of different distribution channels? Selling direct to
consumers can mean cash on delivery. Selling through retailers or wholesalers can mean
having to offer long periods of credit before getting paid.
4. List three methods of promotion that could be used by Skoda to promote a new car model
• Advertising on television, radio, internet or the cinema
• Using sales promotions, such as money off coupons in magazines
• Direct selling
• Public relations in the press to generate positive news reports
37
Business Resources & Revision Answers
5. Draft and label a product life cycle diagram.
Product development:
Market research identifies a
market niche. A product,
such as Finches Orange, is
designed and test
marketed. A marketing
strategy and mix is
planned. Due to research
costs and initial low sales,
the product will generate a
negative cashflow during
this stage.
Launch: The product is
launched onto the market.
Typically there is a high
expenditure on distribution
and product promotion to
build customer awareness.
Growth: The product
becomes known and
accepted and sales begin
to rise rapidly, generating a
positive cashflow. Money
may have to be invested in
expanding production to
keep up with demand while
also ensuring that quality is
maintained.
Maturity: Sales start to
level off. Product is
generating strong
profits that justify the
heavy expenditure in
the earlier stages. Rival
‘copy-cat’ products may
enter the market. Firms
often use special offers
to keep consumers
interested and so
increase sales.
Saturation: Sales flatten out.
Radical changes may be
necessary in the marketing
mix to hold or increase sales.
Competitive advertising and
sales promotions often
become common to prevent
sales going into decline. This
is the stage for Coca-Cola in
Ireland at present.
Decline: Sales fall along with
profitability. The marketing manager
needs to determine whether to stop
producing the product, let sales die
out ‘naturally’ or try to rescue the
product by redesigning the marketing
mix. When sales of Cidona and Club
Orange began to decline, a decision
was taken to increase advertising and
change the brand image to appeal to
younger customers.
Fig. 2 The stages of the product life cycle.
6. Identify three main functions of advertising.
• Launch a new product by increasing product awareness among the target market
• Maintain existing levels of sales by running reminder advertising to sustain interest
• Rescue a product in decline by improving its image among the target market
38
Unit 5 – Business in Action
5.3 Getting Started in Business
1. Business Terms
1
2
3
4
5
6
7
8
9
10
G
E
I
D
A
F
H
J
C
B
2. Putting theory into practice . . . Nutri-Science
1. Explain the term batch production and use an example to illustrate your answer.
• Manufacturing a limited number of identical products at a time
• Batch production is used by Nutriwise. It is also used when baking loaves of bread
commercially.
2. List four forms of business organisation available to an entrepreneur like Louise Grubb.
• Sole trader
• Partnership
• Limited companies
• Co-operatives
3. Outline three benefits for Louise in setting Nutri-Science up as a private limited company.
• Can raise finance by selling shares
• Owners (the shareholders) have the benefit of the protection of limited liability
• Ownership can be transferred by selling shares in the company
• Employee motivation can be boosted by giving / selling them shares in the business where
they work
• Limited companies can have a more solid image than sole traders or partnerships
4. List three sources of long-term finance available to Nutri-Science when it was being set up.
• Equity finance provided by Louise
• Grants (e.g. from the local County Enterprise Board)
• Debenture loans from a bank
5. Outline five piece of information that Nutri-Science should include in its business plan
• Profile of the entrepreneur behind the business, Louise Grubb
• Description of the market for animal nutrition products
• Description of Nutri-Science’s products
• Description of the production process, premises and equipment
• Description of marketing strategy and mix
• Description of management structure
• Description of costs and sources of finance to be used
• Projected profits
6. Identify one major difference between:
(a) A sole trader and a limited company
Sole traders have unlimited personal liability for the debts of their business. In a limited
company, the shareholders only risk the value of their investment
(b) A sole trader and a partnership
A sole trader does not have to share business profits with anyone else. In a partnership, the
39
Business Resources & Revision Answers
profits (or losses) must be shared according the Deed of Partnership agreement.
(c) A partnership and a limited company
Partners in a business partnership have unlimited liabiity for any debts of the business.
Company shareholders have the legal protection of limited liability according to the amount
of their investment.
(d) A limited company and a co-operative
The members who own a co-operative share profits and losses equally. The shareholders
who own a company share profits/losses according to the number of shares they own in the
business.
7. Identify two advantages to Nutri-Science of subcontracting production.
• Can be more cost-effective than producing good in-house
• No production means there are less staff to manage
• Simplies managment
8. Identify two disadvantages to Nutri-Science of subcontracting production.
• Less control over quality and delivery times of goods
• Can be more expensive as subcontractors need to make a profit for themselves
• Subcontractors may decide to become competitors and copy Nutri-Science’s products
9. Match the description with the production method
Job
Batch
Produced by robots on an automated assembly line.
Each product is a unique design.
Yes
Yes
Typically requires the lowest skilled labour.
Yes
Products are produced in identical groups.
Requires flexible, highly skilled labour.
Requires the heaviest financial investment in machinery
and equipment.
40
Mass
Yes
Yes
Yes
Unit 5 – Business in Action
5.4 Business Expansion
1. Business Terms
1
2
3
4
5
6
7
8
B
G
E
A
C
D
H
F
2. Putting theory into practice . . . Fyffes
PLC
1. Outline four ways that an Irish business like Fyffes could expand.
• Increase domestic sales of bananas
• Export bananas to other countries
• Diversify into vegetables and other food products
• Form a strategic alliance with another company
• Acquire another business
• Merge with another firm
2. List three advantages of expansion to Fyffes.
• Increase in economies of scale and yield greater profits for Fyffes
• A larger company may be less vulnerable during economic recessions or depressions
• Expanding into owning its own plantations and shipping company helps to protect is supply
of bananas and other fruit.
3. List three possible disadvantages of business expansion to Fyffes.
• Large companies are more difficult to manage
• Internal communications can become slower and more complicated when there are many
different levels of management spread across wide geographic areas
• Can be difficult to maintain team spirit and motivation in larger firms
• Larger firms can find it slower and more difficult to adapt to change and new threats and
opportunities.
41
Business Resources & Revision Answers
Unit 5 –
Resources & Revision Pit Stop
Jacob Fruitfield Limited
1. Explain the terms
• Entrepreneur: A person who has the initiative and takes the risk of starting a new enterprise
• Enterprise Ireland: State agency responsible for promoting the development of indigenous
Irish firms with exporting potential
• Business Plan: a management document setting out who will run the business, the
product/service to be provided, production methods, marketing strategy, human resource
plan, sources of finance and expected profitability.
• Investors: People who provide the finance needed to set up or expand a business
• Staff Morale: The level of enthusiasm, motivation and commitment among staff
• Highly geared: having a debt-equity ratio considerably greater than 1:1 (or in other words
considerably more than 100%)
• Marketing mix: the four ‘Ps’ used to turn a marketing strategy into a reality: product, price,
place and promotion
• Brand: A distinctive name given to a product to distinguish it from competitors’ products
• Absenteeism: The number of staff missing from work on an average day. This could be due to
illness, unapproved absences.
2. Having a well-prepared business plan was essential to Michael Carey when raising finance.
List five elements of a business plan.
• Description of the entrepreneur and key managers who will be running the business
• Description of the market, including size, main competitors and rival brands
• Description of the products that the business will provide
• Production methods to be used
• Marketing strategy including marketing mix to use
• Human resource strategy
• Sources of finance
• Profit forecasts
3. Explain trade credit, retained profits and a long-term loan as methods of financing business
expansion for Jacob Fruitfield.
• Trade credit is only a short term source of finance and is unsuitable for financing long term
expansion
• Retained earnings are a low cost, low risk source of long term finance. There are no interest
payments and it does not have to be repaid to anyone. It would be suitable for financing Jacob
Fruitfield’s expansion.
• Long term loans are suitable for financing business expansion. However the loan and interest
will have to be repaid regardless of the profitability of the firm.
4. Michael Carey got the idea for his business by contacting Enterprise Ireland. List six other
possible sources of new business ideas for an aspiring entrepreneur.
• Hobbies and interests
• Skills and knowledge
• Frustrating experiences
• Brainstorming ideas
• Friends and family may have ideas
• Media, such as interent, radio, television, magazines
42
Unit 5 – Resources & Revision Pit Stop
•
•
•
Networking and making business contacts
Copying / adapting existing ideas
Franchising business ideas
43
Business Resources & Revision Answers
Unit 6 – Domestic Environment
6.1 Industries and Sectors in the Economy
1. Business Terms
1
2
3
4
5
6
7
8
F
F
A
G
H
C
E
B
2. Putting theory into practice . . . BOSTON SCIENTIFIC
1. Is Boston Scientific operating in the primary, secondary or tertiary sector of the economy?
• Secondary sector – because it is a manufacturing business
2. Identify two reasons why was Boston Scientific attracted to locating a factory in Tipperary.
(a) Low Irish Corporation taxes
(b) IDA Ireland provided grants of €12,000 to the company for every job created.
3. Identify two risks to Ireland of relying on transnational firms to create employment.
• TNCs have no loyalty to the country and can relocate to other countries if they want
• Profits made by TNCs are repatriated to their home country
4. List the four factors of production.
• Land
• Labour
• Capital
• Enterprise
5. Outline four trends facing Irish manufacturing industry.
• Automation means declining levels of employment in manufacturing
• Ireland has high labour and other costs compared to other countries
• Increased low cost competition from Eastern Europe and the Far East (especially China)
• Manufacturing business are relocating production to lower cost countries
• Irish manufacturing is dominated by TNCs who use Ireland as a low tax exporting base within
the EU.
• Agribusiness has become the main Irish owned element of the manufacturing sector.
44
Unit 6 – Domestic Environment
6.2 Types of Business Organisation
1. Business Terms
1
2
3
4
5
6
7
8
F
C
A
E
G
H
B
D
2. Putting theory into practice . . .
CUISINE DE FRANCE
1. Outline two benefits of a Sole Trader as a type of business organisation.
• Ease of formation
• Sole trader does not have to share profits
• Sole trader has full control over business decision-making
2. Cuisine de France started off as a private limited company. Explain what is meant by a
private limited company.
• Registered with the Companies Registration Office. Owned by shareholders who share profits
/ losses. Shareholders have the protection of limited liability
3. Outline two benefits to Pat and Ronan of a using a limited company as a type of business
organisation.
• They become shareholders in Cuisine de France. As shareholders, they have the protection of
limited liability, that is, they only risk the money they invest in the business.
• If they need to raise more finance, they can sell shares in the business to investors.
• Shares can be given or sold to staff to increase their motivation.
4. Identify the two documents required to form a private limited company.
• Memorandum of Association
• Articles of Association
5. Name the law that governs formation of a limited company.
• Companies Acts 1963-1999
6. List four pieces of information contained in a firm’s Memorandum of Association.
• Name of the company
• Address
• Objective (purpose) of the business
• Amount of share capital
• Names of founding shareholders
7. List four reasons why a business might change its legal structure over time.
• To raise finance (e.g. by selling shares or bringing in a business partner)
• To acquire new skills (e.g. by bringing in a skilled partner to the business)
• To lower the personal risk for the owners (e.g. becoming a limited company)
• To increase sales and future profits (e.g. by forming a strategic alliance)
• To allow the main owners to regain full control over a business (e.g. changing from a PLC to
a private limited company)
8. Explain the term ‘franchising’ and illustrate your answer with an example.
• Renting permission to use someone else’s complete business formula, including the name,
logo, product / service idea. Examples: McDonalds, Abrakebabra, Supermacs, Pizza Hut.
45
Business Resources & Revision Answers
9. Company responsibilities – Tick who is responsible for what
Shareholders Board of
Directors
Company
Chairperson
Submits annual returns to
the CRO
Appoint the managing
director/CEO
Decide on the size of
dividends to be paid to
shareholders
Looks after the day-to-day
management of the
business
Maintains register of
shareholders
46
Managing
Director / CEO
3
Speaks on behalf of the
board of directors
Elect the board of
directors
Company
Secretary
3
3
3
3
3
3
Unit 6 – Domestic Environment
6.3 Business, the Economy & Community
Development
1. Business Terms
1
2
3
4
5
6
7
8
9
E
D
A
G
F
I
C
B
H
2. Putting theory into practice . . .
1. List five factors that can influence where a business like CRH could locate new premises.
• Cost of land or premises
• Availability of grants or tax incentives
• Proximity to customers / main markets
• Proximity to supplies of raw materials (e.g. gravel), important services (banking)
• Availability and quality of local utilities (e.g. electricity, water, waste)
• Availability of good transport links (e.g. motorways, seaports, airports)
• Availability of good communications (e.g. high speed broadband)
• Local supply of skilled labour
• Local housing and facilities for employees (e.g. schools, shops) if employees have to move to
the area
2. Outline three effects that a rise in interest rates can have on a business like CRH.
• Sales: Borrowing will become more expensive for CRH customers. They may be less able to
afford to build, thereby reducing sales of CRH products.
• Costs: Higher interest rates will mean the CRH’s own business loans will become more
expensive, reducing the company’s profitability.
• Confidence: Overall, CRH’s confidence and that of its customers can be undermined. This can
lead to plans for business expansion being scaled back, deferred or even cancelled
3. Identify three effects that a fall in economic activity could have on CRH.
• Lower sales for CRH products
• CRH costs may decline as suppliers offer more competitive prices in order to stay in business
• CRH’s managers’ business confidence in the future could decline resulting in any plans for
business expansion being scaled back, deferred or even cancelled
4. Outline three effects that a rise in inflation can have on CRH’s business.
• Prices charged by CRH suppliers can rise, leading to an increase in costs
• CRH staff may look for pay rises to keep up with inflation. Pay rises would increase costs.
• Inflation can make CRH’s customers more sensitive to prices and more willing to ‘shop
around’ to competitors in order to get the best deals.
• High rates of inflation can make it difficult for businesses to budget, prepare accurate cash
flow forecasts and generally plan and manage a business. This can reduce the firm’s
willingness to invest in expansion.
5. List three effects that the presence of a business like CRH could have on a local community.
• Creates jobs by directly employing local people
• Creates jobs indirectly by company and its staff buying local goods and services (e.g. in local
shops, garages)
47
Business Resources & Revision Answers
•
•
•
More jobs, creates more local prosperity, improves local quality of life and less vandalism and
crime
Successful local businesses act like a vote of confidence in the local community. This can
encourage other businesses to locate locally.
CRH may provide sponsorship to local sporting and cultural activities
3. Putting theory into practice . . . Moneyhill
1. List three benefits of business enterprise to a local community like Moneyhill.
• more jobs
• less vandalism and crime
• more local self confidence can encourage local people to set up their own business
• better quality of life
2. Identify three measures that could attract entrepreneurs and new business to locate in the
area.
• Less crime and vandalism (because it makes insurance cheaper, easier to attract staff and
customers)
• Grants for new business start-up
• Tax incentives (e.g. reduced commercial rates)
• Easy planning permission for new businesses
3. List three ways that County Enterprise Boards can assist local community development.
• identifying local assets and resources that can be developed
• providing training courses for aspiring entrepreneurs and existing small businesses
• provide grants towards business start-up expenses
• provides mentoring services by matching aspiring entrepreneurs with experienced business
people.
4. Name two other organisations that can assist local community development.
• LEADER programmes (in rural areas)
• Area Partnership Companies
48
Unit 6 – Domestic Environment
6.4 Government and Business
1. Business Terms
1
2
3
4
5
6
7
E
D
G
A
C
B
F
2. Putting theory into practice . . . Glanbia
PLC
1. Outline three effects that high levels of taxation on employee wages and business profits
can have on Glanbia.
• Glanbia staff may look for higher wages to increase their take home pay. This could cause
industrial relations problems.
• If Glanbia agree to pay higher wages, this will increase costs and reduce profitability
• Higher taxes on Glanbia profits may discourage the company investing in expansion
• Higer taxes on profits may discourage some investors from investing in Glanbia if they expect
that the return on their investment is likely to be reduced
2. List three ways in which government spending can impact on Glanbia.
• High levels of government spending can boost overall demand in the economy and increase
Glanbia’s sales in Ireland
• Government spending on infrastructure will make it easier for the firm to do business in the
future
• Government spending on education will make it easier for Glanbia to recruit talented staff.
• Prudent and sensible government spending can increase Glanbia’s confidence in the Irish
economy and encourage the firm to invest in expansion in Ireland
3. Outline three ways in which the government can affect the success of Glanbia PLC.
• Government spending effects the overall level of demand in the economy and can affect the
level of Glanbia’s Irish sales
• Government taxation on profits reduces the amount left for owners and available as finance
for ploughing back into the business
• government laws and regulations (e.g. equality, industrial relations, environmental, consumer
rights) mean that Glanbia management devote considerable time to ensuring that they obey
the law.
• government grants available from Enterprise Ireland can assist Glanbia in entering new export
markets
4. Identify and explain three taxes relevant to Glanbia PLC.
• Corporation tax, paid on Glanbia’s profits
• Income taxes, paid by Glanbia’s employees
• Customs duties, paid on any raw materials that Glanbia may import from outside the EU
5. Explain what is meant by:
(a) a budget surplus: government tax revenue exceeds government spending
(b) a budget deficit: government tax revenue is less than government expenditure
(c) a balanced budget: Government tax revenue and expenditure are equal (also known as a
neutral budget)
6. Identify five reasons why governments may intervene in business and economic affairs.
• To promote enterprise and job creation
49
Business Resources & Revision Answers
•
•
•
•
To regulate the conduct of business affairs to ensure fair and responsible behaviour
To provide essential services (e.g. schools, hospitals)
To provide essential infrastructure (e.g. roads, sewerage, water supplies)
To achieve more balanced regional development across the country
7. Distinguish between the role of Enterprise Ireland and IDA Ireland.
• Enterprise Ireland promotes the growth of Irish owned export businesses
• IDA Ireland encourages foreign firms to locate in Ireland as a base for producing goods and
services for export to other countries
8. If a bank gets into financial difficulty, it may be nationalised to protect the wider economy.
(a) What is meant by ‘nationalisation’?
Transferring ownership of a business from the private sector to the publc sector (which is
State-owned)
(b) What is meant by ‘privatisation’?
Transferring ownership of a business from the publc sector (State-owned) to the private
sector.
9. List one state body that provide services to business in the following areas
50
Service Area
State Organisations
Economic planning
Government Departments such as Department
of Finance, Department of Enterprise
Collecting taxes
Revenue Commissioners
Regulating businesses
Equality Authority
Food Safety Authority
Health & Safety Authority
Enterprise development
Enterprise Ireland
City and County Enterprise Boards
Transport
Bus Éireann
Iarnrod Eireann
Marketing
Bord Bia
Human resources
Labour Relations Commission
Unit 6 – Domestic Environment
6.5 Ethical, Social and Environmental
Responsibilities in Business
1. Business Terms
1
2
3
4
5
B
E
D
C
A
2. Putting theory into practice . . . Jupiter Waste Disposal Limited
1. Briefly explain the following terms:
(a) Tertiary sector: refers to agriculture, fishing, mining, forestry
(b) Secondary sector: refers to manufacturing, construction industries
(c) Tertiary sector: refers to service industries (e.g. retailing, banking)
(d) Agribusiness: refers to manufacturing firms that use agricultural products as their raw
material (e.g. Glanbia)
(e) Ethics: the moral rules that guide decision making
(f) Social responsibility Refers to the obligation of of businesses to respect the interests of all
stakeholders
2. Identify the effects of All Away Waste’s unethical behaviour on three of its stakeholders.
• Jupiter’s employees’ lost their jobs because of the firm’s illegal and unethical behaviour
• The local community suffered from polluted water supplies and other negative effects
• Investors in Jupiter lost their money
• Suppliers to goods and services to Jupiter lost a customer
• Government lost a source of tax revenue (from taxes on profits and employee wages)
3. List four ways that managers can encourage ethical behaviour among their staff.
• Strong leadership and clear example should be set by senior managers
• Introduce a code of ethics to guide business decision-making
• Ensure effective management control to quickly detect and respond to unethical business
conduct
• Staff induction training should emphasise the importance of ethical conduct among staff
• Clear disciplinary procedures should be put in place to deal with any unethical conduct
discovered.
4. Outline six social responsibilities of business.
• Fair and safe treatment of employees
• Honest and open communications with investors
• Fair treatment of suppliers, including paying bills on time
• Selling safe and reliable goods to customers at fair prices
• Paying correct taxes to the government
• Protecting the quality of life of the local community
5. List five characteristics of an environmentally-friendly business.
• Conducts regular environmental audits
• Produces goods that are durable and capable of having along lifespan (no ‘built-in’
obsolescence
• Produces goods in an environmentally-friendly manner (e.g. minimising pollution and
waste) that does not encourage excessive consumption
51
Business Resources & Revision Answers
•
Products are designed for easy reuse, repair or recycling after use.
6. An environmental audit is . . .
• An independent study of the iimpacts of a business on the enviornment, incliding what is
produced, how it is produced, how it is marketed and how the goods produced will be
disposed of after use.
7. List five environmental issues facing businesses today
Environmental Issue
Causes
Climate change
Emissions of carbon dioxide from economic activities
Destruction of natural resources
Unsustainable consumption of natural resources
Air pollution
Dirty production processes and technologies; poor waste
management
Water pollution
Dirty production processes and poor waste management
Waste disposal
Excessive waste, too little reuse or recycling
Intensive farming / agribusiness
Excessive use of chemicals by farmers and agribusiness
8. Identify three benefits to a business of meeting its environmental responsibilities
• Enhances a firm’s brand image and reputation
• Increased customer loyalty
• Better abot to attract and retain high quality, ethically-minded staff
• Reduced waste canlead to significant cost savings and increased profitability
• Avoid fines for pollution
• Avoid negataive publicity
• Ethical and socially resonsible forms are more likely to be able to attract investors, loans and
grants than irresonsible firms, who will be seen as more risky.
52
Unit 6 – Resources & Revision Pit Stop
Unit 6 –
Resources & Revision Pit Stop
1. Is Innocent Drinks operating the primary, secondary or tertiary sector of the economy?
• Secondary sector
2. Identify three possible legal structures that a group of friends could use when setting up a
new enterprise.
• Partnership
• Limited Company
• Co-operative
3. List three possible sources of long term finance that innocent could use to finance the
expansion of the business.
• Equity finance
• Long term loan / Debenture loan
• Sale and Leaseback of Innocent’s premises
4. Identify two benefits of equity finance for Innocent’s expansion.
• No interest is charged
• No loss of control of the business
5. Economic recession hit Innocent Drinks hard. Explain what is meant by an economic
recession.
• Economic growth ceases and the economy may begin to shrink. General level of business
sales fall, profits fall, unemployment rises
6. List one effect of an economic recession on Innocent drinks.
• Consumers are likely to have less money to spend and smoothie drinks are not an essential
item. Innocent sales are likely to decline
7. List three benefits of business for a community
• Businesses create jobs
• Businesses pay commercial rates that help to finance local services such as road
maintenance, public lighting, libraries and parks
• Many businesses provide sponsorship for local sports and cultural activities.
8. List
•
•
•
•
•
three characteristics of co-ops as a form of business organisation.#
Co-ops are owned by the members of the co-op
One member, one vote rule applies at AGMs
Profits are shared equally among members of a co-op
Co-ops pay Corporation taxes on their profits
Co-op members have the protection of limited liability
53
Business Resources & Revision Answers
Unit 7 – International Environment
7.1 Ireland and the Global Economy
1. Business Terms
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
E
F
D
H
I
J
K
B
M
N
C
O
A
L
G
2. Putting theory into practice . . .
Shopping for guaranteed Irish
1. Identify three reasons why Ireland imports goods and services.
• It’s not possible to produce everything in Ireland
• Climate is unsuitable to product many goods (e.g. pineapples, bananas)
• Many Irish firms do not have the size and economies of scale to produce goods at an
affordable price (e.g. car production)
• Some goods require specialist expertise to product that is simply not available in Ireland
(e.g. producing jet aircraft)
• Importing provides greater choice for consumers
2. Explain the term ‘invisible exports’.
• Invisible exports are services that generate sales income from foreign customers e.g. tourism,
banking, consultancy services.
3. List three reasons why Irish firms export goods and services.
• To increase sales and business growth
• Helps firms achieve the economies of scale needed to survive against larger competitors
• Less dependence on the Irish market helps to spread the business risk.
4. Visible Imports
€900m
Visible Exports
€550m
From the above information, calculate the Balance of Trade. (Show workings). State whether it
is a surplus or a deficit.
less
=
54
€900m imports
€550m exports
€450m Balance of Trade deficit
Unit 7 – International Environment
3. Putting theory into practice . . . Zed
Candy
1. List five protectionist barriers that Zed Candy could encounter in international trade.
• Tariffs
• Quotas
• Embargoes
• Rules and regulations
• Subsidies
2. Outline six challenges that may face an Irish firm that wishes to enter export markets.
• Competition is intense in the globalised marketplace
• Irish firms often have very high transport and labour costs
• Language differences can cause communications difficulties
• Cultural differences can be significant
• Different countries require product designs to be changed to satisfy local laws and
regulations
• Many Irish firms lack the economies of scale needed to compete on price in the global
marketplace.
• Political risks and instability can make exporting to some countries very difficult.
55
Business Resources & Revision Answers
7.2 Ireland and The European Union
1. Business Terms
1
2
3
4
5
6
7
8
9
10
D
E
B
A
G
I
J
F
H
C
1. Putting theory into practice . . .
1. Describe three reasons why Greencore might want to export to customers in other European
Union countries.
• Provides Greencore with easy access to a very large and affluent market thanks to the Single
European Market policy.
• Can help Greencore to increase sales and profitability
• Reduces Greencore’s dependence on the small Irish market (and spreads business risk)
2. List three benefits of EU membership to Ireland.
• Access to a large and wealthy market
• EU membership has attracted many TNCs to locate in Ireland who would otherwise have
located elsewhere in the EU
• It has forced Ireland to improve laws protection employees, consumers and the
environment.
3. Outline three challenges facing Ireland as a member of the European Union.
• Ireland is now a net contributor to the EU budget
• Increased competition from other EU countries to attract TNCs to locate manufacturing
activities on their territory
• Proposal on EU tax harmonisation may mean losing the freedom to set many of our own
tax rates.
4. Name three important EU policies.
• Single European Market
• European Monetary Union
• EU Social Policy
• EU Competition Policy
• Common Agricultural Policy
5. Name the three main institutions involved in making EU policies and laws.
• The Council of the European Union
• The European Parliament
• The EU Commission
6. List three functions of the EU Commission.
• Proposes new laws
• Implements EU laws and policies
• Manages the EU budget
7. Identify and briefly explain the five stages that all propals must go through before
56
Unit 7 – International Environment
becoming EU law:
• Proposal stage – idea for a new law is proposed by the EU Commission
• Consultation stage – idea is sent to the EU Parliament, national governments and other
interested bodies for feedback
• Redrafting stage – to take into account feedback received
• Approval stage – final version of proposed new law is sent ot the European Council for
approval or rejection
• Implementation stage – if approved, the European Council (of Ministers) will decide how
the law should be implemented (i.e. by regulation, directive or decision).
57
Business Resources & Revision Answers
7.3 Global Business
1. Business Terms
1
2
3
4
5
C
A
E
D
B
2. Putting theory into practice . . .
1. List three possible attractions of Ireland as a manufacturing base for transnationals like
Pepsi.
• Low rate of Corporation Tax (tax on company profits)
• Skilled labour force
• Membership of the EU and easy export access to the rest of the EU
• Low levels of strikes / industrial unrest
2. Outline four reasons for the global growth of transnational corporations like Pepsi.
• Home market becomes saturated – look for new global opportunities
• Desire to achieve maximum economies of scale
• Deregulation and the spread of free trade agreements globally
• Improved transport and communications links.
3. Briefly illustrate what is meant by a global marketing mix and how it might apply to Pepsi
Cola.
• Means marketing a product with broadly the same marketing mix in different countries
across the globe, that is, the same tasting product, similar packaging (although language may
have to be changed), similar pricing strategies, similar channels of distribution, similar
advertising and promotion methods and messages.
4. Identify the benefits and risks to Pepsi of seeking to operate as a global business
Operating Globally
Benefits
Economies of scale
Large discounts from suppliers
Global brand recognition
Risks
Possible diseconomies of scale and
increased costs
Not adequately satisfying consumer needs
mean it could miss out on lucrative niche
markets
Fewer national brands means bigger risks,
especially of large global scale mistakes
5. List one advantage and one disadvantage of global business for Ireland
Advantage:
• Many global businesses have located exporting bases in Ireland. This creates employment
and generates considerable tax revenue for the government.
Disadvantage
• Global businesses have no loyalty to Ireland. They can relocate to other, cheaper countries
when it suits them
58
Unit 7 – International Environment
Unit 7 –
Resources & Revision Pit Stop
1. Explain what is meant by the term global business.
• Global businesses treat the world as a single, global marketplace, with goods produced
where it is cheapest regardless of where customers are located.
2. List the three benefits to a community of having an employer like eBay locate locally.
• Provides jobs and incomes directly for local people
• Buys raw materials and supplies from other local businesses
• Will attract more residents to an area, thereby making local schools, post offices, hospitals,
etc. more viable.
3. Describe four attractions of Ireland as a base for a global business like e-Bay.
• Access to the huge EU market
• Skilled and educated labour force
• Low rates of Corporation Tax compared to most other EU countries
• English language spoken in Ireland and Pepsi’s home market and HQ in the USA
• Political stability.
• Similarities in culture to the US
4. Identify four factors that could discourage foreign direct investment in Ireland.
• Higher corporation tax
• If Ireland were to leave the EU or the Eurozone
• Increased crime, civil disorder or political instability
• Increased strikes and industrial unrest
• Poor infrastructure (e.g. transport, energy, waste disposal facilities)
59
Business Resources & Revision Answers
Exam Revision
APPLIED BUSINESS QUESTIONS
There are seven Units in the Leaving Certificate Business syllabus. The
following questions are used to illustrate how questions from three syllabus
units can appear on the Higher Level examination paper. A rota system
applies to the selection of units for examination each year.
Year
Syllabus Units
2012 2013 2014
4,5,6 5,6,7 1,2,3
2015
2,3,4
2016
3,4,5
2017 2018 2019 2020
5,6,7 1,2,3 2,3,4 3,4,5
ABQs covering Units 1, 2 & 3
•
ABQ 1
ABC Insurance Ltd.
(Units 1, 2 & 3)
1. Evaluate Luke’s approach to motivating his staff. Refer to the text in your answer. (25
marks)
Comment: 5 points @ 5 marks each. The following are a selection of valid points that a student can
make to answer this question.
• According to McGregor’s theory of motivation, Luke has a Theory X approach to staff
motivation. This approach has a number of characteristics clearly demonstrated by Luke:
• Theory X managers have a negative ‘controller’ attitude. Luke has introduced “tight
management controls”
• Theory X managers believe that people are lazy, unambitious and are only motivated by
money. Luke thinks that his staff should “be grateful to have jobs”
• Theory X managers don’t trust their staff, are very controlling and have autocratic leadership
tendencies. Luke sees his job as “to give orders”
• A Theory X approach reduces staff motivation, reduces creativity and makes it harder to
recruit and retain talented and motivated staff, which undermines profitability. ABC is
suffering a ‘brain drain’ due to “poor morale” as talented staff leave to work for rival firms.
• This is an unsuitable way to motivate staff. I recommend that Luke adopt a more positive
Theory Y ‘facilitator’ approach.
• He should see that his staff can enjoy work, are ambitious and are motivated by more than
money.
• He should provide more encouragement and praise.
• He should adopt a more democratic leadership style.
• Theory Y approach can stimulate staff motivation, creativity and intrpreneurship.
• It will also be easier to recruit and retain good staff and profitability can be boosted.
60
Exam Revision – Applied Business Questions
2. Draft a memo to staff in ABC Insurance inviting them to attend a brainstorming meeting to
generate new ideas for improving the business. (25 marks)
Comment: Marks are allocated for laying out and each using each element of a memo correctly (6
elements @ 4 marks each + plus a bonus mark.
To:
From
Re:
Date:
All Staff
A. Advisor
Brainstorming meeting
3rd February
All staff are requested to attend a brainstorming meeting to generate ideas for
improving the business. The meeting will be held in the boardroom on 5th
February at 10 o’clock.
Signed
Advisor
3. Draft a report identifying two management activities that Luke Dillon needs to improve if
he is to ensure ABC Insurance’s long-term survival and prosperity. (30 marks)
Comment: Marks are allocated for laying out and each using each element of a report correctly (5
elements @ 3 marks each + 3 points @ 5 marks each for points made in the body of the report).
Title:
Improving ABC Management
Terms of Reference:
To identify two management activities that the Managing Director needs to improve to ensure
the long term survival and prosperity of the business.
Body of the Report
• Planning means clearly setting out goals and how these are to be achieved. It involves
analysing the situation (e.g. using a SWOT analysis), identifying a goal, drafting a plan to
achieve the goal and implementing the plan. Using a SWOT analysis are very useful when
planning. This would reveal that ABC Insurance has a major weakness in staff motivation
and a ‘brain drain’ of skilled staff.
•
Organising means bringing people and resources together to implement a plan. A matrix
(team) structure would be useful in promoting teamwork among staff. To be effective, the
Managing Director would need to adopt a more democratic or laissez faire style of
management.
Recommendations
• The Managing Director should conduct an urgent SWOT analysis of the business. He should
also introduce a more teamwork based organizational structure to boost staff morale.
Bibliography
• The Business Express, Mentor Books, 2011
Note: The same question could be asked but asking students to draft a report identifying two
management skills that Luke Dillon needs to improve if he is to ensure ABC Insurance’s long-term
survival and prosperity. A possible answer to such an alternative question would be the following:
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Business Resources & Revision Answers
Title:
Improving ABC Management
Terms of Reference:
• To identify two management activities that the Managing Director needs to improve to
ensure the long term survival and prosperity of the business.
Body of the Report
• Leadership is important because it involves the ability to set out a clear direction for staff,
providing a clear example, and delegating work to subordinates.
• Democratic leadership is preferable to autocratic approaches.
• Democratic leaders are willing to discuss issues with staff and to delegate power and
responsibility. They trust the ability of their subordinates and prefer to persuade people
through reasonable arguments.
• better quality decisions can arise when there is more input into decision making. Staff
whose opinions are listened to are likely to be more motivated and stay working in the
business. Delegating work and sharing decision-making can mean less stress for managers.
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Motivation is important because it influences staff productivity, industrial relations, staff
recruitment and retention.
Current Theory X approach to motivation is reducing staff motivation and making it harder
to recruit and retain talented and motivated staff.
A more trusting theory Y approach would be more effective. Such managers trust their staff,
provide encouragement and praise. They have more democratic leadership styles.
This approach will make it easier for ABC insurances to recruit and retain good staff and
profitability can be boosted.
Recommendations
• The Managing Director should adopt a democratic leadership style and a Theory Y approach
to staff motivation.
Bibliography
• The Business Express, Mentor Books, 2011
•
ABQ 2
Rascal’s Seafood Restaurant
(Units 1, 2 & 3)
(a) Discuss, using examples from the given information, whether you consider Lorraine or Dick to
possess the stronger entrepreneurial skills and characteristics. (20 marks)
Comment: Students should make at least 4 points @ 5 marks each. Students should be able to identify
that Lorraine possesses the stronger entrepreneurial skills and characteristics. Students should note that
there is no one right answer to an ABQ. The following are a selection of valid points that a student can
make to answer this question.
Proactive
• Entrepreneurs are often described as proactive because they demonstrate a high level of
initiative in getting things done. Proactive means being prepared to initiate actions instead of
waiting for others to do something. This allows entrepreneurs to take charge of their own lives
and destiny.
• Lorraine is proactive as she is “well known locally for her ‘go-ahead’ attitude”. Dick appears
to be more reactive than proactive as his attitude is “if it’s working don’t change it”.
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Energetic
• Once they set a realistic goal for themselves, entrepreneurs become very energetic and
motivated. They are willing to make sacrifices now for rewards later. Entrepreneurs are also
willing to work very hard and put in long hours to make the enterprise work.
• Lorraine is energetic as she is the “voluntary part-time manager of a local charity shop”. In
contrast, Dick’s comments lack enthusiasm or energy – for example “I suppose I’ll have to
be a bit more imaginative”.
Can make decisions
• In business, entrepreneurs are required to make many decisions such as what products to
sell or what staff to recruit, to small decisions such as where to hold a business meeting. To
be a successful entrepreneur, a person needs to be a good decision-maker. They assess a
situation, identify their options and weigh up the pros and cons of each before selecting the
best option.
• Anyone who wants to be an entrepreneur must learn how to make decisions. They assess a
situation, identify their options and weigh up the pros and cons of each before selecting the
best option. In the hurly burly of business, these decisions must often be made quickly and
under pressure.
• Lorraine demonstrates an ability to make decisions. For example, “Lorraine decided that
Dick needed a holiday”. In contrast, Dick needed his wife to decide for him that he needed
time out to reflect on his business.
Evidence of inner control and good time management
• Entrepreneurs maintain self-control through effective time management. Most hate wasting
time and take care to organise their affairs so that they get the most out of their time. They
refuse to take on too much work, use effective delegation and make a point of finishing one
job before starting another. Successful entrepreneurs work smarter, not harder.
• Lorraine demonstrated inner control and good time management as she is able to juggle
home and community activities and is seen as a person who gets things done. This is also
reflected in her “go-ahead attitude”.
(b) Analyse the difference between enterprise and management. (30 marks)
Comment: Students should make at least 6 points at 5 marks each. Students are being asked to compare
entrepreneurs and managers. Students should note that there is no one right answer to an ABQ. The
following are a selection of valid points that a student can make to answer this question.
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Entrepreneurs have the ideas, energy and enthusiasm to start new projects and businesses.
They generally have far greater levels of initiative than managers.
Lorraine’s go ahead attitude would be a typical characteristic of an entrepreneur.
Unless they are intrepreneurs, managers may have little entrepreneurial instinct for
developing new business ideas. Instead, managers are good at planning, organising and
controlling a business after it has already been set up. Their work is more routine and
requires dealing with staff on a daily basis.
Dick’s attitude of ‘if it’s working don’t change it’ is more typical of a manager than an
entrepreneur.
Entrepreneurs sacrifice their own time and take the personal financial risks of a business
failing. They often operate on their own or with just a few close business partners.
Lorraine sacrificed her personal time to work as a volunteer manager of a charity shop.
However, if managers are not the owners, then they do not take personal financial risks
when running a business. They are employees who are hired by the owners to manage the
business on their behalf. Managers do not have any personal share in the ownership of the
business. Dick is the owner of Rascal’s so this difference does not apply here.
Entrepreneurs thrive on excitement. Once a business is established, they often get bored
with the routine planning, organising and controlling of the day-to-day affairs of a business.
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But they may be unwilling or unable to delegate decision-making to others.
Lorraine’s strong involvement in the local community and voluntary work indicates that she
likes variety and new challenges.
The work of managers is far more routine and less exciting as it concentrates on the daily
running and steady development of the business. It requires delegating work to other staff
and providing proper planning, organisation and control.
In Rascal’s Restaurant, this is what Dick should be doing as a manager to compensate for his
lack of enterprise.
(c) Advise the Lawlors on their legal rights concerning their holiday. Recommend a suitable
course of action. (30 marks)
Comment: Students should make at least 6 points @ 5 marks each. Students should note that there is
no one right answer to an ABQ. The following are a selection of valid points that a student can make to
answer this question.
• The holiday brochure / information supplied was clearly misleading as the hotel was not
quiet and was not located beside the beach. This is a breach of the Consumer Information
Act 1978. The Consumer Information Act protects consumers by making it illegal for firms to
make false or misleading claims about their goods or services. It protects consumers by setting out the
rights of consumers and responsibilities of retailers / sellers.
• The Consumer Information Act prohibits false product descriptions. Goods or services
must not be sold with a false trade description, either written or verbal. For example the
sales assistant in the travel agents cannot describe a hotel as being quiet if it is actually
located beside a noisy night club or a building site. Similarly, pictures of the hotel looked
nothing like the building in reality.
• The Consumer Information Act also prohibits false advertising or misleading advertising,
such as advertising a hotel on a poster or in a holiday brochure as being located on a beach
or looking differently from its actual appearance.
• Recommended course of action: Consumers like the Lawlors who find themselves in
conflict with a firm over the way they have been treated have two non-legislative ways of
resolving the issue: talking to the seller or seeking help.
Option 1: Talk
• The Lawlors should have spoken to the Ibiza representatives of the travel agents who sold
the holiday as soon as the problem became apparent – or gone to the travel agents on their
return. The best way of doing this is to:
• Know the consumer’s legal rights as set out in law.
• Bring along a receipt or similar documentation as proof of purchase and in this case a copy
of the misleading brochure.
• Ask to speak to the manager / person in charge.
• Complain in a friendly but firm manner, insisting that the consumer’s legal rights be
respected. The Lawlors need to remember that an aggressive negotiation style can make
matters worse.
Option 2: Seek help
• The Lawlors could seek help to negotiate a resolution. If talking to the travel agent /
retailer does not produce a satisfactory result, then you can seek help from those
organisations that assist with negotiating a resolution to a conflict between consumers and
sellers. These include the National Consumer Agency (Director of Consumer Affairs) or the
Consumers’ Association of Ireland. In this case, an industry trade association, such as the
Irish Travel Agents Association, can provide assistance if the complaint refers to one of their
members.
• Conciliation may be necessary if negotiations prove difficult. Conciliation means getting an
independent third party, or conciliator, to talk to both sides separately before bringing them together
to help them appreciate the other’s position. The conciliator does not recommend a solution.
Instead, their role is help both sides to reach a better understanding of each other’s needs so
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that finding an agreement becomes easier.
If conciliation does not work, then both sides might agree to arbitration. Arbitration means
both sides agree to get an independent third party acceptable to both sides to investigate the dispute
and to make a decision as to how it should be resolved. Sometimes, both sides may agree in
advance to accept whatever decision the arbitrator arrives at.
If talking and negotiating does not produce a satisfactory result, then the Lawlors can resort
to taking a legislative approach. This can be done through the Small Claims Court or a
higher court, such as a District Court.
The Small Claims Court provides an inexpensive, fast and easy way for consumers to resolve
disputes without the need to employ a solicitor. Consumers with a complaint, such as the
Lawlors, must first fill in a simple form describing their complaint. This can be done by post
or on-line. The registrar of the court will then invite both sides to come in and present their
sides of the case before making a recommendation. Unlike other courts, the Small Claims
Court cannot force an agreement but is effective at persuading sellers to respect a
consumer’s rights.
If no agreement is reached in the Small Claims Court, then the Lawlors will need to contact
a solicitor to bring a formal case to the District Court, Circuit Court or High Court for a full
hearing before a judge and a legally binding settlement. The court that should be used is
decided by the Courts Service and will depend on the seriousness of the complaint.
ABQ 3
Renewable Energy Solutions (RES) Ltd.
(Units 1, 2 & 3)
See Leaving Certificate 2009 Marking Scheme and Examiner notes.
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ABQ 4
Peter Palmor
(Units 1, 2 & 3)
See Leaving Certificate 2004 Marking Scheme and Examiner notes.
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ABQ 5
B & M SOLUTIONS LTD.
(Units 1, 2 & 3)
See Leaving Certificate 1999 Marking Scheme and Examiner notes.
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ABQ 6
Chemise Ltd.
(Units 1, 2 & 3)
(a) Explain the enterprising characteristics that you recognise in Cynthia from the above
information. (20 marks)
Comment: Students should make at least 4 points @ 5 marks each. This is a particularly tough ABQ given
the lack of detail provided. This lack of detail requires students to be resourceful and clear when making
any assumptions they consider necessary to answer the question. Note enterprise characteristics include:
• Being innovative/ creative
• Being confident / having a positive attitude
• Being proactive
• Being realistic
• Being a moderate risk taker
• Being decisive
• Being flexible / resilient
• Being energetic
• Being a leader
• Students should note that there is no one right answer to an ABQ. The following are a selection of
valid points that a student can make to answer this question.
Confidence and positive attitude.
• A fundamental characteristic of all entrepreneurs is self-confidence and belief in their own
abilities. This gives them a ‘can-do’ attitude that allows them to start new enterprises.
Example: The very fact that Patricia “established her shirt-making business” indicates a
positive attitude and confidence in her own abilities.
Energetic
• When they have committed to a goal or a project, entrepreneurs become very motivated and
energetic in turning it into a reality. They are willing to work hard and to make sacrifices
now in order to earn rewards later. Example: Chemise is described as having developed well
mainly because of Patricia’s “desire and drive to succeed”. This desire and drive demand that
she be energetic.
Decisive
• Entrepreneurs must be able to make decisions – lots of them and many of them very
important ones. This requires entrepreneurs to be good decision-maker, both willing and
able to make decisions when needed.
• Example: Patricia’s decision to set up a business demonstrates decisiveness. Furthermore, in
response to increased competition from competitors that “has become intense”, Patricia
knows that new production equipment “must be installed” and employees “have to accept
work changes”.
Moderate risk taker
• Successful entrepreneurs are risk takers, but are not reckless. They are moderate risk takers
and only take a risk when the probability of success is reasonably high. This decisionmaking style is described as risk neutral. The alternatives to being a moderate risk taker is to
(a) adopt a more reckless and risky approach that can increase the risk of business failure or
(b) become a risk avoider and avoid taking any risks.
• Example: To help manage her risks in Chemise, Patricia is described as an entrepreneur who
listens to the views of others. She is described as a “good listener” and as someone who is
“always keen to get wide-ranging views” from customers and employees” and “only then
makes decisions”.
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(b) Describe two conflicts that are present above. Outline a legislative method that would be used
to solve each one. (20 marks)
Comment: Students should make 4 points @ 5 marks each – or 2 points @ 10 marks in total for each
conflict. Students should note that there is no one right answer to an ABQ. The following are a selection
of valid points that a student can make to answer this question.
Conflict 1: Possible points include:
• Intense competition from foreign competitors means new production equipment must be
installed in the Chemise factory. Staff must be trained quickly in its use. However,
employees will “have to accept work changes”. This leads to a potential staff conflict
between the desires of the owner to respond to this threat and the desire of workers to
protect or improve their jobs and interest. If work changes threaten the current position and
roles of staff then it is possible that this could lead to staff reluctance or possible outright
resistance to change.
• Patricia needs to explain the reasons and necessity for the change to staff in order to keep
their trust. It this is not successful, then negotiations using Chemise’s grievance procedure
can be used. If this is unsuccessful, then a legislative approach involves getting the Labour
Relations Commission to provide their conciliation service. The LRC will listen to the views
of both sides separately and then bring them together and help them to appreciate the
other’s position.
• If LRC conciliation service does not work then the Labour Court could be asked to provide
an arbitration service. This involves the Labour Court investigating both sides to the conflict
and then making recommendations for its resolution. If Patricia and the staff trade union
agree in advance to the recommendation of the Court, then it is called binding arbitration.
Conflict 2: Possible points include
• Customers unhappy with the poor quality of some of Chemise’s products bought from
retailers. Shirts are being returned to retailers. Under the Sale of Goods and Supply of
Services Act 1980, the retailer that sells the goods is legally responsible to the consumer for
the quality of the goods sold by the retailer.
• If trying to negotiate a solution with the retailer is unsuccessful, consumers can use
legislation and go to the Small Claims Court. The SCC provides a fast, easy and inexpensive
method for dissatisfied consumers to seek a resolution to disputes. This Court will make a
non-legally binding recommended solution. However unlike in other courts, it cannot force
either side to accept the decision.
• If retailers are facing unhappy consumers and are being threatened with being brought to
the Small Claims Court, they will be reluctant to continue stocking and selling Chemise
shirts. This will create conflict between retailers and Chemise. Retailers could take legislative
action and sue Chemise for breach of contract for failing to supply shirts of an acceptable
quality, as presumably set out in the business contract.
(c) Analyse the contribution to the business that would result from an improvement in
Cynthia’s management activities. (40 marks)
Comment: Students should make 8 points @ 5 marks each. Students should make at least two points
for each of the key management activities of planning, organising and controlling. Students should note
that there is no one right answer to an ABQ. The following are a selection of valid points that a student
can make to answer this question.
• Planning means clearly setting out the goals for Chemise and the strategy by which these are
to be achieved. It means deciding what to do, who will do it, when and how. Planning
allows Chemise to know where it wants to go and how it intends to get there.
• A Strategic plan (or corporate plan) refers to the long-term plan for the whole business. It
normally covers five or more years. Chemise will need an effective strategic plan in place to
meet the challenge posed by the intense competition from foreign firms. To help Chemise’s
planning, Patricia could conduct an analysis of the firm’s strengths, weaknesses,
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opportunities and threats (a SWOT analysis).
Tactical plans break the general strategic plan down into shorter, more specific and
manageable steps, usually of one-year periods. Chemise should have specific short-term
tactical plans for particular areas that will fit in with the strategic plan. For example, a plan
to help persuade staff to accept the work changes that will be needed.
Organising means bringing people and resources together to achieve a common objective.
Chemise is a group of people working together for Patricia Clarke to achieve clearly stated
common goals. However, the greater the number of people being brought together, the
greater the need for a proper organisational structure to ensure Chemise’s plans are properly
implemented.
To organise a business effectively, managers must identify the work to be done (e.g.
production, quality control, sales). Organising in Chemise also means creating a suitable
organisational structure with a clear chain of command, division of work and delegation of
authority among staff.
Control refers to the monitoring and checking of results to see that plans are being achieved
and that Chemise is operating in an efficient and effective manner. If there is a divergence,
then Patricia must find out why and make the appropriate changes. Effective control requires
that information must be received quickly when plans begin to go wrong.
Effective management control by Patricia is important as it would help Chemise avoid
business failure by detecting problems such as quality control failures before they get out of
control. Quality is increased as problems, defects and bad flaws are avoided. By avoiding
problems, management control would increase the speed of business operations, reduce
waste and allow Chemise to respond more quickly to competition.
A critical area of control for Chemise is the area of quality control. This means ensuring that
the quality standards expected by customers are properly met. Properly done, quality control
can reduce Chemise’s waste and costs by minimising defective products that cannot be sold
to consumers, minimising the legal costs of being sued by unhappy customers, and
protecting the name and reputation of the business.
Quality control can also increase customer and retailer satisfaction and thereby protect
demand for a firm’s products and allow higher prices to be charged by low cost competitors.
An improvement in Patricia’s control of quality in Chemise can be achieved by recruiting
and training conscientious, quality-focused employees. Any careless, sloppy workers should
be demoted or let go.
Patricia could adopt a more facilitator management style that motivates employees to
contribute their best to the business. Chemise employees could be empowered to constantly
look for ways to improve customer satisfaction with the business, e.g. pay bonuses and
prizes for work of a consistentlyhigh quality to motivate staff.
Patricia should facilitate teamwork among employees. Teams should have quality and
customer satisfaction as the main goal. Quality circles are discussion groups made up of
employees who meet regularly to discuss and resolve quality issues. A wide range of relevant
Chemise staff could attend these meetings, including designers, production staff and
customer representatives.
Patricia should ensure that Chemise adopts stringent quality control for all aspects of
purchasing, production and delivery. She should also put in place a quality assurance system
to guarantee customers that a firm’s products are of the very highest quality possible. Quality
assurance is the aim of quality control. Firms who reach sufficiently high quality standards
can qualify for awards such as the ISO 9000 or the Q Mark.
Exam Revision – Applied Business Questions
ABQs Covering Units 2, 3 & 4
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ABQ 1
Acorn I.T. Limited
(Units 2, 3 & 4)
1. Outline the enterprise skills demonstrated by Adrian White. (20 marks)
Comment: 4 points @ 5 marks each or, say, 7 shorter points @ 3 marks each (7th short point earns
just 2 marks). The following are a selection of valid points that a student can make to answer this
question.
• Adrian demonstrates a wide range of enterprise skills.
• Confident enough to emigrate and then to return to set up his own business
• Determined / motivated – “ambitious and hardworking”, frequently got promoted in
previous job
• Innovative / creative – gained reputation in previous job as an intrepreneur
• Realistic risk-taker – not reckless, but used careful planning to grow the business, listens to
views of others (e.g. staff) before making important decisions
• Decisive but flexible decision-making – e.g. made a big decision to emigrate to Holland
• Learned to identify opportunities – saw opportunity for Acorn IT business
• Learned to set goals and plan – he used “careful planning and organising” to get the
business established
• Learned to get along with people – “good relations with his staff”
• Learned good communication and listening skills – Adrian always listened to the views of
his staff before making any important decisions
2. Evaluate the use of management skills in the business. (30 marks)
Comment: 6 points at 5 marks each. Students should remember to include an evaluation as part of their
answer.
• Leadership refers to the ability to influence people to achieve particular goals. In business,
it is important because it involves the ability to set out a clear direction for staff, set a good
example, and delegate work to subordinates.
• Adrian has a democratic leadership style as he involves them in making big decisions.
However, Nina seems to have a more autocratic style (e.g. hastily sacking an employee when
a warning would have been more appropriate).
• Motivation is the willingness of people to work hard and to contribute their best effort. It is
important in business because it influences staff productivity, intrapreneurship, industrial
relations, staff recruitment and retention.
• Adrian has effective motivation skills as he developed a business with “hardworking and
motivated employees”. However, Nina’s ‘no nonsense’ focus on cost cutting, reducing wages
is damaging staff morale.
• Communications refers to the transfer of information between people. It is an essential
management skills as managers must constantly communicate effectively with stakeholders
in the business.
• Adrian appears to be good at listening to his staff as well as providing direction. Nina
appears just to give direction but not to listen.
• Evaluation: In my opinion, Adrian is demonstrating better leadership, motivation and
communication skills than Nina.
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3. Draft a report for the board of directors identifying two conflicts that exist in the business.
Briefly outline one legislative and one non-legislative approach to solving them. (30 marks)
Comment:15 marks (5 elements @ 3 marks each) go for getting the structure of the report correct.
Remaining 15 marks go for making 3 points @ 5 marks each. Possible answer:
Title:
• Conflict in Acorn IT
Terms of reference:
• To identify two conflicts that exist in the business and briefly outline one legislative and one
non-legislative approach to solving them.
Body of report
• Acorn has a conflict with an unhappy customer with a faulty computer who wants her
money back.
• Solution 1: As the manager, Adrian could meet with the customer and listen to her
complaint. If the company is at fault, it should offer the customer a refund and an apology.
• Solution 2: Let the customer take the business to the Small Claims Court for a decision.
• Acorn has a conflict with employee who is claiming unfair dismissal. Under the Unfair
Dismissals Act, it is illegal to dismiss and employee without following proper procedures.
There is no evidence that such procedure were followed by Nina.
• Solution 1: Contact the employee and offer him his job back.
• Solution 2: Let the complaint go to the Employment Appeals Tribunal for a decision.
Recommendations
• Try and use non-legislative approaches to settle disputes. Offer the customer a refund to
protect the reputation of the business. Offer the employee his job back
References / Bibliography
• The Business Express, Mentor Books, 2011
•
ABQ 2
SMC Ltd.
(Units 2, 3 & 4)
1. Analyse, from the given information, Helga Brandt’s strengths and weaknesses as a manager.
(20 marks)
Comment: Students should make at least 4 points regarding Helga’s strengths @ 5 marks each and 2
points regarding her weaknesses @ 5 marks each. Helga’s main strength is planning. Her main
weaknesses are communication and providing leadership. Students should note that there is no one right
answer to an ABQ. The following are a selection of valid points that a student can make to answer this
question.
Strengths – Planning
• Helga is an ‘excellent planner’ which has generated ‘increased sales and profits’. Planning
means clearly setting out the goals for SMC Ltd. and the strategy by which these are to be achieved.
It means deciding what to do, who will do it, when and how. Planning allows Helga to know
where she wants SMC to go and how it intends to get there.
• Planning is very important to management in SMC because it sets out clear targets and
milestones against which the success of the organisation can be measured.
• Planning also assists in providing leadership and motivation as plans can be
communicated to staff so that they know exactly what’s to be done, by whom, when, how
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and why. Effective leaders need plans to give direction and purpose to the work done. This
helps to raise morale and confidence among all the staff within SMC.
Effective planning also allows finance to be raised through bank loans or grants from
the government. For example, if SMC wants a bank loan to build a new car factory, Helga
will have to provide a business plan to show that the firm will be able to repay the money.
Weaknesses – Communications
• As a manager, Helga is a poor communicator. She keeps a ‘low profile’ and has discontinued
the monthly staff meetings. Instead she prefers to just ‘issue memos’. Employees and
managers must be able to communicate to ensure the correct work is done on time and to
the correct quality standard.
• Good communication helps to build up a climate of trust, which assists in creating good
industrial relations. Helga’s poor communications may cause confusion among staff,
reduced morale, possible distrust and industrial relations problems. This is suggested by the
comment that Helga wouldn’t know ‘a gear stick from a handbrake’.
• Managers must be able to communicate relevant information with each other to ensure that
they have all the information they need to make decisions. This also will help them to work
effectively as a team. Poor communication between managers can result in bad decisionmaking. However, Helga appears to be more effective at communicating with the managers
in SMC as she holds regular meetings with the sales and production managers.
Weaknesses – Leadership
• Helga has also demonstrated poor leadership skills. Unlike her predecessor, she has not
demonstrated to her staff any real ‘passion for cars’. Since producing cars is what SMC is all
about, this undermines her ability to act as an effective leader. Leadership refers to the
ability to influence other people to go in a particular direction and achieve a particular goal.
In management, this involves directing staff, setting an example and delegating work.
• Helga could provide direction for staff by communicating clear instructions about the
work to be done. This ensures that everyone understands their role and how they need to
work together to achieve the goals of the business.
• Personality and charisma can be important elements for some managers when trying to
direct and influence others. Charisma refers to an individual’s charm and ability to inspire
enthusiasm among an audience. Helga lacks charisma. However, while charisma can be very
helpful, it is not essential for managers. Other qualities such as the ability to earn the
respect and trust of staff through providing good direction, delegation and a positive
example are more important.
• Setting an example and clear direction for staff by demonstrating the attitude and
behaviour expected in the workplace. By leading by example, managers like Helga are far
more likely to be respected and trusted by staff. Helga’s limited communications and lack of
apparent passion for the company’s products makes it more difficult for her to be seen to
lead by example.
• The quality of leadership shown by Helga is also very important in creating the corporate
culture. Corporate (or organisational) culture refers to the general atmosphere within a
workplace. It is mainly created by the attitudes and behaviour of managers towards their
work, their staff and their customers. Organisational culture can have a big impact on SMC
Sports Cars in areas such as staff productivity, creativity and levels of customer service. If
Helga sets a bad example, then employees are more likely to be less motivated and less
interested in the success of the business.
2. Discuss the importance of internal communications to a business such as SMC Ltd (20
marks)
Comment: Students should make at least 4 points at 5 marks each or 10 short points at 2 marks each
regarding the importance of internal communications. Students need to remember to make the answer
relevant to SMC Ltd Possible points that could be made are as follows:
• Communication refers to the transfer of information between people and organisations.
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Helga’s communications can be verbal (e.g. a face to face meeting, telephone or radio),
written (e.g. a letter, report, e-mail), visual (e.g. diagrams, advertising) or physical (e.g.
personal body language).
Internal communications are messages sent between people in the same organisation, such
as SMC Ltd. The main types of internal communications are verbal, written and visual.
Internal verbal communications between SMC staff include informal chats on a corridor,
telephone conversations among staff working in SMC, company intranet (internal internet)
and formal business meetings.
Internal written communications among SMC staff include letters, e-mails, text messages and
memos sent among staff in SMC. It also includes notices/noticeboards, written signs,
company reports and company newsletters.
Internal visual communications among SMC staff include using methods such as company
posters (e.g. promoting health and safety, advertising a company Bar-B-Q), using graphs /
charts in company documentation, signs, Internet websites, staff body language and physical
appearance.
Effective internal communications are very important to SMC as breakdowns and
misunderstandings can lead to misunderstandings and possible conflict with stakeholder
groups.
Employees and managers in SMC must be able to communicate to ensure the correct work
is done, on time and to the correct quality standard. Good communication helps to build up
a climate of trust, which assists in creating good industrial relations. Poor communications,
such as Helga’s unwillingness to meet staff face to face, can cause confusion among staff,
reduced morale, possible distrust and industrial relations problems.
Managers must be able to communicate relevant information with each other to ensure that
they have all the information they need to make decisions. This also will help them to work
effectively as a team. Poor communication between managers can result in bad decisionmaking.
Investors must be kept informed with accurate information about the financial performance
of the business. Otherwise, they will not have confidence in management and will be
unwilling to invest finance in the business.
3. Evaluate the possible benefits a TQM approach could bring to the business. (40 marks)
Comment: Students should make 8 points at 5 marks each (to earn a total of 40 marks) regarding the
possible benefits of TQM to SMC Ltd. Since students are asked to evaluate the possible benefits, they
need to remember to consider both possible advantages and disadvantages. Possible points that could be
made are as follows:
• TQM is an approach to management that aims to maximise quality by getting all staff to
continuously look for ways to improve the quality of a firm’s products and services.
• In SMC, it means that all members of staff - from Helga right down to workers in the factory,
secretaries and sales reps - are encouraged to strive to provide a top-class car products and
after-sales service to the people they deal with. Staff are also strongly encouraged to regard
their work colleagues in SMC as customers, equally deserving of a top-quality service.For
example, at SMC the R&D department should seek to provide a topclass service to the
marketing and operations departments.
• In essence, TQM aims to turn every member of staff into a quality inspector for their own
area of responsibility. TQM is seen by some as the reason why Japanese car firms like Nissan
and Toyota have become so successful in international business.
• The possible benefits for SMC of a TQM approach are improved quality standards. Customers
looking for specialist hand-built cars will expect a quality product.
• By raising quality standards, the reputation of the SMC bran is enhanced, which attracts new
car customers, encourages repeat business and inspires customer loyalty.
• Top quality products can be sold at higher, more profitable prices. Combined with enhanced
customer loyalty, this can help increases SMC’s profitability.
• Reduced waste: TQM can reduce costly defects and wastage of materials and staff time, thus
further increasing profitability.
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According to the Sale of Goods and Supply of Services Acts, manufacturers such as SMC
and retailers are legally responsible for ensuring that goods sold are “of merchantable
quality”. If a firm is sued for manufacturing or distributing defective goods, then the costs
could prove enormous.
However, it can take years for a new culture, such as TQM, to become established among all
the staff in SMC Ltd. It needs managers who provide strong leadership with a focus on
quality to set an example, communicate clearly and earn the respect of staff. Helga will need
to improve her leadership and communication skills if she wants to introduce a TQM
culture.
Creating very high standards can put staff under high levels of stress. To be successful, TQM
also requires good HR management practices in SMC Ltd to keep staff happy and
motivated.
ABQ 3
Sports Direct Limited
(Units 2, 3 & 4)
1. Identify, from the given information, the enterprise characteristics displayed by Michelle.
(30 marks)
Comment: Students should make at least 6 points @ 5 marks each, identifying the
entrepreneurial characteristics displayed by Michelle. Students should note that there is no one
right answer to an ABQ. The following are a selection of valid points that a student can make
to answer this question.
Confident, ProactiveAttitude
• Entrepreneurs like Michelle are often described as proactive because they demonstrate a
high level of initiative in getting things done. Proactive means being prepared to initiate
actions instead of waiting for others to do something. This allows entrepreneurs to take
charge of their own lives and destiny. Reactive people, on the other hand, do not take
calculated risks or new initiatives. They just wait for somebody else to make the move.
• Michelle is proactive because she “immediately looked for work” after losing her original
job.
Decision-making
• Entrepreneurs like Michelle must be able to make many decisions as part of their work, such
as what products to sell, where to raise finance, what staff to recruit, or where to hold a
business meeting. To be a successful entrepreneur, a person needs to be a good decisionmaker. They assess a situation, identify their options and weigh up the pros and cons of
each before selecting the best option.
• Michelle is able to take decisions as she “decided she had no alternative but to make her
own job” by setting up a business. She also was able to take other big decisions such as
setting up another business.
Risk taking
• Entrepreneurs like Michelle are aware of their own strengths and weaknesses. They are aware
of their limitations and do not get carried away with overoptimistic plans that are likely to
fail. They are only willing to take risks if they think the odds are in their favour. They are
also willing to seek the opinions of others and to ask for advice when they need it.
Entrepreneurs are moderate risk-takers.
• Michelle demonstrated risk-taking ability by setting up a car valeting business. But she is a
realistic risk taker because she first undertook “careful market research”.
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Flexible / resilient
• Entrepreneurs like Michelle are able to be flexible and are willing to respond to changes and
adapt their plans if necessary. Their positive and flexible attitude means that entrepreneurs
can be very resilient when things go wrong. They quickly overcome their disappointments,
learn from their mistakes and move on. They know that mistakes can be an excellent teacher,
which helps them to persevere where others would give up.
• Michelle demonstrated flexibility and resilience because even though her “first business was
not very profitable”, this did not deter her and she set up a second.
Innovative / Creative
• Entrepreneurs like Michelle have a constant urge to find a ‘better way’ to do things and tend
to be particularly sensitive to people’s needs for products and services. This means that they
can be highly innovative, creative and good at identifying new business opportunities or new
ways of doing things better and more efficiently. Being innovative means being able to see
problems and opportunities and solve them with creative solutions.
• Michelle displayed her ability to innovate by being able to see “a more lucrative niche in the
market”.
Confident / positive
• Entrepreneurs like Michelle believe in themselves and have confidence in their own abilities.
This gives them a strong ‘can-do’ attitude when dealing with obstacles and the initiative to
get on with things. This confident and positive attitude allows entrepreneurs like her to stick
with their ideas long enough to turn them into reality. It also allows them to learn from
experience.
• Michelle has a very positive attitude towards life. She demonstrated confidence and a
positive attitude by looking for work immediately after she lost her job, and by having the
confidence to set up the car valeting business and then Sports Direct.
2. Evaluate how Michelle’s entrepreneurial talents have both assisted and hindered the success
of Sports Direct Limited. (30 marks)
Comment: Students should make 3 points @ 5 marks each (or 5 marks short points at 3 marks each).
Students need to remember to make the answer relevant to Michelle and Sports Direct. Students should
note that there is no one right answer to an ABQ. The following are a selection of valid points that a
student can make to answer this question.
Assisted by . . .
• Michelle was assisted by her ability to identify new business opportunities. Entrepreneurs
like Michelle have learned to apply new ideas and identify new opportunities. They do this
by learning to be future-focused, that is, they look more to the future than the past. They try
to anticipate changes to see what opportunities may arise for them. This allows them to be
innovative.
• Michelle was assisted by her ability to assess and manage the risk of starting two new
businesses. Entrepreneurs like Michelle have learned to accurately estimate the likely level of
risk involved in a project. These risks are compared to the likely benefits before the
entrepreneur decides to go ahead with the project.
• Michelle was assisted by her ability to set goals and plan. When entrepreneurs like Michelle
see a need or an opportunity, they create a vision of how they will satisfy this need in reality.
Vision identifies the goal an entrepreneur wants to move towards. It serves to focus their
energy and create self-motivation.
• Turning a vision into reality requires a plan. This means Michelle had to break down the
overall vision into steps and short term goals that must be achieved along the way. Each
part of the plan had to be prioritized by Michelle and tackled in order of importance so that
the most important things were done first.
• Michelle was assisted by her ability to be innovative / creative. Entrepreneurs like Michelle
have a constant urge to find a ‘better way’ to do things and tend to be particularly sensitive
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•
to people’s needs for products and services. This means that they can be highly innovative
and creative and good at identifying new business opportunities or new ways of doing
things better and more efficiently. Being innovative means being able to see problems and
opportunities and solve them with creative solutions.
Michelle was assisted by her ability to be confident / positive. Entrepreneurs like Michelle
believe in themselves and have confidence in their own abilities. This gives them a strong
‘can-do’ attitude when dealing with obstacles and the initiative to get on with things. This
confident and positive attitude allows entrepreneurs to stick with their ideas long enough to
turn it into a reality. It also allows them to learn from experience.
Michelle was assisted by her confidence and ability to be proactive. Entrepreneurs like
Michelle are often described as proactive because they demonstrate a high level of initiative
in getting things done. Proactive means being prepared to initiate actions instead of waiting
for others to do something. This allows entrepreneurs to take charge of their own lives and
destiny. Reactive people, on the other hand, do not take calculated risks or new initiatives.
They just wait for somebody else to make the move.
Michelle was assisted by her ability to be realistic. Entrepreneurs like Michelle are aware
of their own strengths and weaknesses. They are aware of their limitations and do not get
carried away with overoptimistic plans that are likely to fail. They are only willing to take
risks if they think the odds are in their favour, such as when Michelle conducted “careful
market research”. They are also willing to seek the opinions of others and to ask for advice
when they need it.
Michelle was assisted by her ability to be a moderate risk-taker. Entrepreneurs like
Michelle are moderate risk-takers. When it comes to taking risks, people can be described
as being one of three types: risk avoiders, risk neutral (only take risks if probability of
success is reasonably high) and risk acceptors (most likely to take high risk gambles).
Hindered by…
(3 points @ 5 marks each – or 5 short points at 3 marks each). Possible points that could be
made are as follows:)
• Michelle does not appear to have successfully acquired some of the important learned skills
of entrepreneurs. This indicates that despite being a very effective entrepreneur, she has not
been as successful at being a manager of her enterprise.
• Ability to manage stress: Michelle has become “more irritable and cranky” and is
“frequently losing her temper”. This inability to manage stress is hindering the business.
• Entrepreneurs need to have strong self-control. They should be able to stay calm and not
get stressed when put under pressure by difficult problems, deadlines or concerns that can
fall on their shoulders. The ability to stay calm and manage stress is greatly assisted by their
other abilities such as being able to plan, to take decisions quickly, manage their time
effectively and communicate easily with others.
• Ability to maintain control: Unfortunately Michelle is reluctant to delegate work. This
suggests that she is doing too much work and has poor time management. This is hindering
the business.
• Entrepreneurs need to maintain self-control through effective time management. Most
entrepreneurs dislike wasting time and take care to organise their affairs so that they get the
most out of their time. They refuse to take on too much work, use effective delegation and
make a point of finishing one job before starting another. Successful entrepreneurs work
smarter, not harder. Michelle needs to learn this.
• Ability to manage people: Unfortunately, Michelle is losing skilled staff from her business.
One of her assistant managers became bored and left. This poor ability to manage people
has hindered the enterprise.
• Getting things done means an entrepreneur like Michelle must develop an ability to
establish trust and build good working relationships with all the stakeholders in their
project. They must be able to bring people together and organise them into productive
teams that get things done. This requires good social skills and an ability to get on easily
with people, especially in persuading others to work with you and not against you.
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Entrepreneurs like Michelle should also be open to feedback from others even if it is
negative. This is how entrepreneurs learn where they may be going wrong and how they may
need to change.
Good communication skills, especially speaking and writing are essential if entrepreneurs
like Michelle are to persuade investors, staff and customers to support what they are trying
to achieve. They are also good listeners and able to understand what people are really saying
and thinking.
3. Recommend, with reasons, a leadership style that Michelle should adopt for the
management of the business. (20 marks)
Comment: Students should make at least 4 points @ 5 marks each or up to 10 short points at 2 marks
each. Students need to remember to make the answer relevant to Michelle and Sports Direct. Students
should note that there is no one right answer to an ABQ. The following are a selection of valid points
that a student can make to answer this question.
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Leadership refers to the ability to influence other people to go in a particular direction and
achieve a particular goal. In management, this involves directing staff, setting an example
and delegating work. Michelle should not adopt an autocratic leadership style as it will only
make matters more stressful for her and discourage staff. A laissez-faire approach is likely to
be too big a change for Sports Direct staff and for Michelle.
A democratic leadership style is therefore recommended for the business. Democratic leaders
are willing to discuss issues with staff and to delegate power and responsibility where
necessary. Democratic managers have trust in the ability of subordinates to do their work
and readily delegate authority. They take decisions only after discussion with others and
prefer to persuade others through the use of reasonable arguments. This style of
management is common in many businesses.
The benefits for Michelle and Sports Direct of a democratic leadership style include the fact
that shared input into decisions leads to better quality decisions. Her subordinates will get
more experience in decision-making. Sports Direct staff are likely to become more motivated
and loyal to the business when they have a say in decisions.
A willingness to delegate responsibility means Michelle does not waste time with
unnecessary details. By sharing responsibility, a manager is less likely to suffer from stress.
Delegating responsibility also encourages staff initiative and intrapreneurship. A more
democratic leadership approach by Michelle would help to raise morale and contribute to a
more positive organisational culture. This will increase levels of trust and help to maintain
good industrial relations.
However, adopting a democratic approach may mean slower decision making as Michelle
consults with staff and listens to their views. There is also the possibility that the quality of
decisions made may decline as a result of trying to take too many different opinions on
board. Michelle still needs to be able to take the final decisions for the good of the business.
ABQ 4
Castlewest Hotel and Conference Centre
(Units 2, 3 & 4)
See Leaving Certificate 2010 Marking Scheme and Examiner notes.
•
ABQ 5
Circuit Ltd.
(Units 2, 3 & 4)
See Leaving Certificate 2005 Marking Scheme and Examiner notes.
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ABQ 6
Stone Products Ltd.
(Units 2, 3 & 4)
See Leaving Certificate 2000 Marking Scheme and Examiner notes.
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ABQs Covering Units 3, 4 & 5
•
ABQ 1
Barney’s Bouncy Castles
(Units 3, 4 & 5)
1. Review the cashflow statement for Barney’s Bouncy Castles. Comment on the trend and advise
Barney, giving reasons, on what he should do. (15 marks)
Comment: 3 points @ 5 marks each. Possible points that could be made include:
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Barney started in business with €50,000 in cash. After just 3 months, this has been reduced
to just €200. The business is nearly insolvent (i.e. will be unable to pay its bills).
Every month payments have far exceeded receipts from sales. This is unsustainable.
Receipts in month 3 of €500 are just half of the €1000 earned in the first month. Sales are
drying up fast.
2. Evaluate Barney’s use of management activities in running his business. Refer to examples
in the text to support your answer. (20 marks)
Comment: 4 points @ 5 marks each. Students need to remember to include their opinion in order to
provide an evaluation. Possible points that could be made include:
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Planning is essential for every business. It involves setting goals and drafting a plan to
achieve them. Barney did not produce a business plan for his new enterprise. He did not
conduct any market research. Barney is a poor planner.
Organising means bringing people and resources together to achieve the goals of the
business. Barney hired staff but could not organise enough work for them to do even though
the business needed someone to work on sales and financial control. Barney is very poor at
organising his business.
Controlling means checking results to see if plans are being achieved. He did not bother to
have the business telephone number added to the van when he aw his mistake. He did not
monitor his finances until his wife prepared a cashflow statement for him. Barney is very
poor at controlling his business.
Evaluation: Barney’s use of management activities in running his business is appallingly bad.
He is not competent to run a business.
3. Explain what is meant by a marketing strategy. Evaluate the effectiveness of Barney’s use of a
marketing strategy in the business. (25 marks)
Comment: 4 points @ 5 marks each. Possible points that could be made include:
•
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A marketing strategy involves segmenting the market (e.g. demographic, psychological
segments) to identify a target segment. A suitable marketing mix of Product, Price, Place,
Promotion is then put together to position the product to appeal to the target segment.
Barney did not give “much thought to market research”. This means that he did not segment
the market to see who are the potential customers who would want to hire for bouncy
castles.
Since he did not segment the market, he did not have a clear target segment (or niche) for
his business.
Barney’s marketing mix involved offering a very narrow product range consisting only of
extremely large castles. His promotion was very poor, using only his van (but no telephone
number!) and black and white ads on sports pages of the local newspaper. He used no
flyers, no posters, no wesite.
Exam Revision – Applied Business Questions
4. Prepare a brief marketing mix for a bouncy castle hire business. Make whatever
assumptions you want to support your answer. (20 marks)
Comment: 4 points @ 5 marks each. At least one point should be provided for each of the 4 Ps. Possible
points that could be made include:
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Product: The business will offer a range of bouncy castles in different sizes (small, medium,
large)
Price: Prices will be charged for daily hire. Discounts will be available for customers who
hire out castles for more than one day at a time.
Initially, low prices will be charged just to cover costs. These will be competitive prices that
will allow the business to build up market share and a good reputation for value for money.
Place: The castles will be available to hire directly from the company over the telephone or
over the internet.
Promotion: The company van will be used as a colourful mobile billboard to advertise the
business wherever it goes.
The company website will have pictures and video of the different types of castle and the
prices.
Leaflet will be distributed across the county door to door advertising the castles for hire.
Posters will be put up in local shops and community centres advertising the castles for hire.
Website details and contact telephone numbers will be included in all promotional
material.
ABQ 2
The Magic Boutique
(Units 3, 4 & 5)
1. Referring to the text, explain what is meant by employee empowerment. Discuss the
benefits of employee empowerment to The Magic Boutique. (20 marks)
Comment: 4 points @ 5 marks each. Possible points that could be made include:
•
•
Employee empowerment encourages staff to take on the extra decision-making
responsibility in their work. To be effective, staff may require additional training. Managers
also need to be willing to trust their staff and adopt more of a facilitator style of
management.
Employee empowerment occurs in the Magic Boutique. Grace has a policy of empowering
her staff by “giving them as much responsibility as she feels they can handle”. She “trusts
her staff” and is “always willing to delegate work to them”. She involves them closely in
running the shop with daily and weekly meetings to discuss plans and review the business.
She also “conducts regular performance appraisals with her staff” which would encourage
her employees to set personal goals and give their best.
Benefits of employee empowerment include:
• Allow businesses to harness a wide range of staff skills and release staff creativity and
intrapreneurship.
• Increase staff motivation and productivity, by meeting self-esteem and self-actualisation
needs. Increases job satisfaction, resulting in greater staff loyalty, lower absenteeism and
lower staff turnover.
• Frees up managers’ time for other work.
• However, to be effective, staff must be properly trained and confident enough to take on the
extra responsilbilities that come with empowerment.
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2. Distinguish between a Theory X and a Theory Y approach to staff motivation and indicate
the approach used by Grace Shanahan. Refer to the text in your answer. (20 marks)
Comment: 4 points @ 5 marks each. Possible points that could be made include:
•
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Theory X managers have a negative ‘controller’ approach. They believe that people are lazy,
unambitious and are only motivated by money. Such managers don’t trust their staff, are
very controlling and have autocratic leadership tendencies. A Theory X approach reduces
staff motivation, reduces creativity and makes it harder to recruit and retain talented and
motivated staff.
In contrast, Grace demonstrates a Theory Y style of management. Theory Y managers have a
positive ‘facilitator’ approach. They believe most people can enjoy work, are ambitious and
are motivated by more than money. “Grace has a policy of empowering staff” and is “always
willing to delegate work” to them.
Managers such as Grace trust their staff, try to provide interesting work and provide
encouragement and praise. Grace gives her staff as much responsibility as they can handle.
She communicates regularly with them, including brainstorming ideas. To encourage their
development, she conducts regular performance appraisals with her staff.
Theory Y managers have more democratic and laissez faire leadership styles. Grace has a very
democratic approach. She consults with staff on a daily and weekly basis.
Theory Y approach can stimulate staff motivation, creativity and intrpreneurship. It is easier
to recruit and retain good staff and profitability can be boosted. Grace’s staff are “very
dedicated to the business” which is very profitable and ready for further expansion.
3. Draft a short Business Plan for The Magic Boutique which Grace could present to the bank
manager. Make whatever assumptions you consider appropriate in your answer. (40 marks)
Comment: 8 points @ 5 marks each. Answer should include them main headings appropriate to a
business plan. Possible points that could be made include:
Business Plan for the Magic Boutique
Profile of entrepreneur
• Grace Shanahan is the founder of the highly successful Magic Boutique retail outlet. She has
many years of experience in the retail industry.
Description of product
• Retailer of quality fashionable clothing. All the best quality brands will be stocked. The
shopping experience will be a bright and friendly experience for customers.
Description of market
• Only quality clothes shop in the town. Local supermarkets like Tesco and Lidl also sell
clothes but are not direct competitors.
Marketing strategy
• Sell latest fashion clothing. Stock only high quality goods. Charge reasonable prices.
• Convenient and highly visible location on the main street to attract lots of impulse
customers. Run regular sales promotions to attract customer interest. Run occasional ads on
the local radio. Layout and appearance of the shop will have a distinctive Eastern theme and
friendly style.
HR strategy
• Recruit motivated staff. Train them well and empower them to be very involved in the
running of the business.
Finance
• Rent of premises for one year, stock, staff wages and other expenses will cost approximate
€120,000.
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Sources of finance will be provided by €100,000 equity. €5,000 bank loan.
Surplus €30,000 will be used to provide working capital if needed.
Profit projections
• Year 1 €50,000. Year 2 €75,000. Year 3 €100,000.
•
ABQ 3
Greenfield Foods Ltd.
(Units 3, 4 & 5)
1. Explain the stages that Greenfield must follow in order to develop and launch a successful
new product. (30 marks)
(a) Comment: Students should make at least 6 points @ 5 marks each – with 5 marks available for
each stage of the product life cycle. Student should outline the main stages of new product development.
Students should note that there is no one right answer to an ABQ. The following are a selection of valid
points that a student can make to answer this question. When answering the question, students should
take care to ensure that the stages in the process are identified and made relevant to Greenfield Foods.
Stage 1: Idea Generation
• Idea generation can come from internal or external sources of new ideas.
• Customer feedback through market research, complaints or information picked up by
Greenfield Foods’ sales staff are all very useful sources of new product ideas.
• Market trends: Feedback from customers and sales staff can assist Greenfield Foods’
marketing manager in identifying market trends and competitor innovations. These trends
can then be used to identify product improvements or new product ideas likely to appeal to
customers.
• Staff suggestions can be very useful and many firms offer incentives and rewards to staff to
come up with new ideas, even if these ideas are not ultimately used by Greenfield Foods.
Such incentives encourage a spirit of intrapreneurship.
• Research and development (R & D) by Greenfield Foods means investing in the development
of new and improved products. When trying to develop one product, product development
specialists frequently accidentally discover a different and more profitable innovation.
• International trends and foreign visits can be a rich source of ideas for Greenfield Foods.
Companies frequently send representatives to trade shows abroad to search for new
products or ideas currently unavailable in Ireland.
• State agencies such as Enterprise Ireland can provide assistance to Greenfield Foods as they
look for new opportunities. They can provide market research information and technical
assistance in developing a new product.
• University and third level linkages with Greenfield Foods can generate many new products
and ideas. As a result, many firms sponsor college research in areas in which they are
interested such as agribusiness, food technology or nutrition.
• Import substitution could occur if Greenfield Foods decides to produce a product in
Ireland that up until now has been imported. The company needs to conduct market
research to identify changes in consumer tastes and what popular foods are currently being
imported.
• Market research companies that specialise in researching markets for new and existing
products can provide reports that identify new trends and gaps in the market that could be
filled by a new product.
Stage 2: Product screening
• After identifying a number of potential business ideas, the next step for Greenfield Foods is
to select the most promising one for detailed investigation and market research. Product
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screening means sorting the promising product/service ideas from the weak ones.
Product screening can be done to identify which ideas are: (a) unrealistic (b) marginal but
with some potential (c) definitely worth further investigation. By carefully selecting the most
promising ideas, Greenfield Foods can reduce the risk of wasting both time and money
researching unrealistic ideas.
Stage 3: Concept Development
• The next step for Greenfield Foods involves turning the idea into a precise product concept
or description that will appeal to customers. Success in business comes from offering
customers something appealing but also different from rivals – i.e. by having a unique
selling point (USP). A Unique Selling Point (USP) is a feature of a product/service that
makes it attractive and distinctively different from its rivals. Greenfield Foods needs to
ensure that any new product it develops has a clear and attractive USP.
Stage 4: Conduct Feasibility Study
• A feasibility study is a preliminary report into the profit potential of a business idea.
Depending on the business idea, Greenfield Foods may qualify for a feasibility study grant
from state agencies such as Enterprise Ireland which they can put towards their research
costs.
• Market demand: Feasibility studies are carried out to determine the likely demand for the
new product/service. What type of product design, packaging, price and promotion will best
suit the new product/service?
• Production feasibility: What equipment and premises will be needed to manufacture the
product?
• Financial feasibility: What will be the costs of producing the new product/service? Can
Greenfield Foods expect to offer a competitive price? Are the necessary premises, equipment
and raw materials available? How much finance will be needed? Will the business need to
borrow to pay for its running costs?
• Profitability: How sure is Greenfield Foods about the profit to be earned from this business
idea? This is where a breakeven analysis should be done.
• Skills Feasibility: Does Greenfield Foods have the skills needed to make this new idea a
success? These include the business skills.
Stage 5: Develop a Prototype
• Sample products / prototypes should be produced. A prototype is a sample product
manufactured on an experimental basis to see if the design idea works in practice and
appeals to customers. A prototype will help Greenfield Foods to identify which raw materials
to use, to assess how the product will be manufactured and also to calculate production
costs and profits. It may be necessary to develop several prototypes before being satisfied
that the product design works, meets all health and safety requirements and is likely to be
profitable.
Stage 6: Test Marketing
• Many firms will not take the risk of assuming that a successful feasibility study will translate
into successful sales. Test marketing involves testing the reaction of the target market in a
small-scale trial. If consumer feedback is negative, the product may have to be redesigned or
the whole idea scrapped. If the results are positive, then Greenfield Foods can begin
preparations to launch the product properly onto the market, possibly with some minor
product alterations.
• Test marketing is very important, as launching a new product can be very expensive and risky
due to the large production, advertising and opportunity costs involved. Opportunity cost
refers to the next best alternative use of effort or resources. For Greenfield Foods, the money
spent launching a new product may be better spent, for example, on improving existing
products or buying new premises.
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Stage 7: Production and launch
• If a product idea successfully passes the test marketing stage, then Greenfield Foods should
begin preparations to set up the production facilities for full-scale production. Pricing,
distribution and promotional plans will be prepared to make the product appeal to the
target market. Greenfield Foods’ choice of target market will determine what price should be
charged, where it should be sold and the best promotional strategy to use to persuade
potential customers to buy the new product.
2. Discuss the steps that Greenfield should take to make the staff in the firm responsive to
changes that may be introduced. (20 marks)
Comment: Students should make at least 4 points @ 5 marks each or 5 shorter points at 4 marks each.
Possible points that could be made are as follows:
•
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Change management is the process of anticipating change and adapting the business to a
constantly changing business environment. To be successful at change management, Greenfield
Foods’ managers must know how to make their organisations more flexible and adaptable
to changes.
Staff resistance to change at Greenfield Foods could arise because staff fear change will
mean taking on an extra burden of work. Staff fear that they are not sufficiently skilled or
able to cope with the new changes.
Other reasons for resistance to change can include staff fear loss of income or even losing
their jobs. Greenfield Foods’ staff may also fear that the changes will not work. This can
happen if there are too many changes introduced too quickly, which makes people nervous
and can undermine their confidence in the quality of the decisions being made.
To prepare staff for change, Greenfield Foods’ managers should provide open, honest
communications about the changes required and the reasons why. This must include
benefits of the changes and the consequences of failing to adapt to changes.
Greenfield Foods’ managers should allow staff to provide feedback on proposals for
changes. They often have good ideas and are also more likely to co-operate with changes on
which they have been consulted.
Greenfield Foods’ managers should consider negotiating deals that provide fair rewards to
the employees for any sacrifices that they may have to make to accommodate change - for
example, offering longer summer holidays in exchange for taking shorter lunch breaks.
Greenfield Foods’ managers should invest in staff training - this is essential if employees
are to have the skills to do jobs that have been changed.
Greenfield Foods’ managers should provide leadership by example. Where possible,
managers need to be seen by staff as willing to adopt the changes themselves.
After staff have been prepared for change, the successful introduction of change into
Greenfield Foods will usually require some combination of a ‘facilitator’ management style,
employee empowerment, teamwork and a commitment to quality.
3. Analyse the sources of finance that could be available to fund Greenfield’s business
expansion. (30 marks)
Comment: Students should make at least 6 points at 5 marks each. Analysis should include
consideration of advantages and disadvantages of the different sources of finance. Possible points that
could be made are as follows:
• Greenfield Foods could use either equity finance or loans to fund business expansion. The
firm may also qualify for grants from a state agency.
Equity
• Potentially large amounts of equity finance are available to Greenfield Foods, depending
on how attractive the business is to investors. Current owners may be willing to invest more
or new owners may be sought to buy shares in the business.
• Equity financing is cheap as dividend payments to ordinary shareholders are optional.
However, if no / little dividend is paid by Greenfield Foods, then the share price will fall
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and the directors may be voted off the board by dissatisfied shareholders.
However, equity finance means Greenfield Foods’ existing owners’ control will be diluted as
new partners or shareholders are brought into the business. Dilution of ownership can also
mean smaller future profits for existing owners.
Equity finance is low risk. If Greenfield Foods makes little or no profit, only the providers of
the equity will lose out. However, the assets of the business remain untouched. A firm
mainly financed by equity is said to be low geared.
Debt financing
• Debt finance can be raised by taking out a debenture loan. Debentures are long-term, fixed
interest loans secured on a valuable asset such as land or premises. Potentially large
amounts of finance are available from debt finance to Greenfield Foods if the risk is low
enough and sufficient security is available to a lender.
• Debt financing can be expensive. Interest and principal must be repaid on schedule and in
full. Interest rates may be high. This can place a heavy financial burden on Greenfield Foods.
• There is no loss of ownership or control. However there will be restrictions on the use of
any of Greenfield Foods’ assets being used as collateral (security).
• Debt financing is high risk. The loan and the interest must be repaid regardless of the level
of profits. If the firm cannot afford to make the repayments, then it may be liquidated and
the assets sold off to fund the repayments. A firm with a high level of long-term debt finance
is highly geared.
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ABQ 4
Stylish Decor Ltd.
(Units 3, 4 & 5)
See Leaving Certificate 2006 Marking Scheme and Examiner notes.
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ABQ 5
AORA
(Units 3, 4 & 5)
See Leaving Certificate 2001 Marking Scheme and Examiner notes.
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ABQ 6
Y2K Clothing Limited
(Units 3, 4 & 5)
(a) Evaluate the importance of market research to a firm such as Y2K. (20 marks)
Comment: Students should aim to make 4 points @ 5 marks each. Students need to evaluate the
importance of market research to Y2K. Students should note that there is no one right answer to an
ABQ. The following are a selection of valid points that a student can make to answer this question.
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Market research helps provide a market profile for Y2K. It indicates the size of the
clothing market and whether it is growing, shrinking or static. The size of the market can
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help to indicate profitability and trends indicate future prospects.
Market research identifies Y2K’s competitors and how well they are doing - their strengths
(e.g. branding, product quality) and weaknesses (e.g. high prices) and how they are likely to
react to new competitors or strategies.
Market research helps firms like Y2K to understand their target market. It can provide a
profile of consumers in terms of age, gender, income, tastes, lifestyles and spending patterns.
This is very useful for segmenting the market and identifying profitable market niches. It can
identify important influences on customers such as product features, name, image,
packaging, price and distribution outlets. This is very useful for Y2K when putting together a
marketing mix as it can indicate the target market customers like and don’t like.
Market research helps to gauge consumer reaction to new ideas.
Reactions to Y2K product samples, new designs, new prices or advertising can be tested to
make sure that the business has got its strategy right.
Market research can help predict future sales. It can enable Y2K to estimate the likely level
of sales for a product before investing in setting up new production or signing up
subcontractors. This can help prevent money being wasted in over-production or missing
out on profits by not making enough clothing products to meet demand.
Market research reduces business risk. Accurate market research can help Y2K avoid
wasting staff time, effort and resources in producing products that will flop. Launching a
new product range such as children’s clothing after conducting proper market research
significantly increases the chance of success.
(b) Suggest how the marketing mix could be adjusted to rescue the brand. (30 marks)
Comment: Students should make at least 6 points at 5 marks each or 10 smaller points at 3 marks
each. Students will need to define marketing mix before going through each element of the marketing
mix in turn, describing what changes could be made to rescue the brand. Possible points that could be
made are as follows:
• A marketing mix consists of four elements (the “4 Ps”) used to turn the marketing strategy and
product positioning into reality - product, price, place and promotion.
• The product is the good or service produced to meet a consumer need such as stylish clothing.
Designing a suitable product is the most important part of the marketing mix. If Y2K’s
products do not satisfy customer needs then the other ‘P’s of the marketing mix will not
work.
• An important element of Y2K’s product is aesthetics. This refers to how the product
appeals to the customer’s senses, i.e. how it looks and feels. Design and packaging have
been described as the ‘silent salesperson’ because an eye-catching design conveying the right
image and product information can strongly influence sales. Effective labels and packaging
reinforces the desired image for the product and can help to build a strong brand name. For
Y2K, design of clothing will have to be adjusted to make it more attractive again to the
teenage market.
• Branding is an important element of the product design. Branding means creating an
identity for a product that clearly distinguishes it from competitors. It consists of a brand
name and logo. A brand name is the distinctive name given to a product, such as Y2K. A
brand logo is a distinctive visual image that will help the product stand out from
competitors. It can be the way a brand name is written, a separate image, or both.
• Y2K could create separate and distinctive brands to appeal to the different target markets
at which it is aiming its clothing. One brand could aim to appeal to children and a new and
very different brand could be created for the teenage market. Each brand will require a
different marketing mix.
• Y2K’s prices must be set at a level that will allow the business to earn a profit. The price set
will also influence the level of sales and may affect the image and positioning of their
clothing brand in the eyes of the target market.
• Pricing strategies are concerned with setting a price that will help the firm to achieve its
long-term marketing objectives. Y2K could investigate using psychological pricing.
Psychological pricing means setting a price based on the expectations of the customers in
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the target market. Many companies, such as perfume and clothing firms, know that by
charging a high price for their product they can help create a luxurious, exclusive image for it
that will attract higher sales and profits than a much lower price. Y2K could set prices that
appeal to the target market.
Price leadership / premium pricing occurs when a firm deliberately charges a higher price
than competitors to create an impression of superior quality. This is reinforced by the other
elements of the marketing mix such as expensive packaging and stylish promotion. For both
the children’s and teenage market, premium pricing is not recommended as both are likely
to be very price sensitive.
Penetration pricing: This is when an initial low price is charged in order to capture as much
market share as quickly as possible. This allows the business to rapidly generate economies
of scale. Y2K could use penetration pricing to recapture market share in the teenage market.
Discriminatory pricing means charging different prices to different customers for the same
product or service. This is usually done to accommodate the different incomes of different
segments of the market. For example, Y2K could launch a different children’s brand and
charge lower prices to build market share.
‘Place’ refers to the channels of distribution and describes the various paths which goods
may follow from producer to consumer. The channel of distribution that Y2K selects must
be suitable for selling to the target market.
Retailers are outlets at the end of the chain of distribution that sell goods and services to
consumers. They are very useful to Y2K and consumers as they can advise and inform
customers on the quality and suitability of different products. They can also provide
feedback to producers such as Y2K on consumer attitudes and responses. Different types of
retail outlet specialize in different products, e.g. clothing and fashion shops. To cut costs,
Y2K could investigate distributing directly to retailers over the internet rather than just
selling through shops.
Y2K will want to make as much profit as possible by reaching as many target consumers as
possible. They need to consider the Target market: Will the chosen channel of distribution
allow the goods to reach the target market? Also, how will the channel affect the desired
brand image? For example, Chanel refuses to allow its perfume products to be sold in
supermarkets. Will Y2K want to restrict where their clothing will be sold?
Promotion refers to all the efforts (excluding price) made by the seller to communicate and
influence the target market. Important promotional activities that can be used by Y2K to
rescue the business include sales promotions, personal selling (incl. direct marketing and
telemarketing), public relations and sponsorship, advertising.
Y2K could use a new brand name and image to relaunch Y2K’s products at the teenage
market. Use advertising that appeals to the target market and avoid any association with
children’s clothing. Use advertising media that the company can afford and that will
effectively reach the target market – such as specific magazines, TV and radio programmes
and internet websites.
(c) Draw up a job description for the position of marketing manager to assist the firm in
selecting a suitable replacement. (30 marks)
Comment: This is a 30 mark question that requires drafting a job description in a suitable layout.
Students need to explain what is meant by job description and include the following in the layout:
• Job Title
• Salary
• Hours of Employment
• Reporting / Responsible to
• Outline of Duties of the Marketing Manager
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A Job Description describes the vacancy that needs to be filled, including the title,
conditions, duties and responsibilities involved, the place of work and the supervision and
assessment arrangements.
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Y2K Job description:
JOB TITLE:
Marketing Manager
SALARY:
€90,000 per annum
Company Share Ownership Scheme
HOURS OF EMPLOYMENT:
36 hours per week, 5 days per week
RESPONSIBLE TO:
Managing Director
DUTIES
Conducting Market Research
Identifying suitable target markets for Y2K Clothing
Devising a successful marketing strategy
Putting together a successful marketing mix
Brand management
Customer service
SUPERVISION
• Induction training under Managing Director
ASSESSMENT
• Job appraisal after 6 months
• Salary review after 12 months on successful achievement of sales and profit targets.
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ABQs for Units 4, 5 & 6
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ABQ 1
Bodyline Gym
(Units 4, 5 & 6)
1. Identify the reasons why Ryan and Alex might want to expand their business. (20 marks)
Comment: 4 points @ 5 marks each. Possible points that could be made include:
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Reduce business risk by diversifying into new markets.
To simply increase profits
Engage in ‘empire building’ to satisfy the esteem needs of the owners, Ryan and Alex
To reduce costs by generating greater economies of scale (e.g. larger discounts when
buying gym equipment)
To be better able to survive economic shocks as larger firms maybe better able to survive
economic downturns.
2. Explain the possible benefits to Ryan and Alex of changing the legal structure of the
business to a limited company. Refer to the text in your answer. (20 marks)
Comment: 4 points @ 5 marks each. Possible points that could be made include:
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Currently Ryan and Alex are running their business as a partnership. This means that the
partners share the profits but also take all the risks. They are also personally liable for any
debts of the business. This means that if the business accumulates large debts that it cannot
repay, then their personal property may have to be sold to pay off the debts of the business.
If Bodyline were to become a limited company, Alex and Ryan would become shareholders.
The shareholders share the profits in proportion to the number of shares owned.
The big advantage of changing to a limited company is that as shareholders they will have
the protection of limited liability. This means that they are only risking whatever finance
they invest in the business. They are not personally liable for any debts of the business.
Limited companies are also seen as a more professional structure for businesses to use as
they grow. Banks are more likely to lend to a company than to a partnership.
2. Analyse the impact that two economic variables could have on the future of the business.
(20 marks)
Comment: 4 points @ 5 marks each. Possible points that could be made include:
Impact of interest rates on Bodyline
• High interest rates mean fewer consumers can afford to take out personal loans or spend on
credit. As a result, many firms, like gyms will experience a fall in sales. Low interest rates
encourages business and consumer borrowing and spending, which increases overall
demand for goods and services.
• High interest rates will make borrowing money for expansion more expensive for Bodyline.
Increased interest rates will mean higher loan repayments and will undermine profitability.
However, low rates of interest benefit business by making it cheaper for firms to borrow
finance for expansion and for consumers to borrow for purchases.
• Business confidence is eroded when the cost of borrowing becomes, or looks like becoming,
more expensive. High interest rates will encourage investors to put their money into deposit
accounts in financial institutions rather than investing in business projects like financing
Bodyline’s proposed expansion into the UK market. As a result, business expansion may
have to be postponed or scaled back until interest rates return to a more affordable level.
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On the other hand, low interest rates make it more attractive to invest in new business
ventures.
Impact of unemployment on business
• When unemployment is high, sales are lower than they could be as unemployed people have
relatively small incomes to spend on goods and services, including gym membership. This
reduces overall demand in the economy. However, if unemployment is low, more people
will have incomes and the level of demand in the economy will be high, benefitting
Bodyline.
• Demand for wage increases tend to fall during periods of high unemployment. It would also
becomes easier for Bodyline to recruit staff, which helps to keep wage costs down. However,
high unemployment can also lead to higher government taxes to pay for the additional
social welfare payments. When unemployment is low, the demand for labour can push up
wages as firms are forced to compete to attract and retain skilled staff. Low unemployment
can also lead to greater immigration into the country.
• High unemployment erodes community and national confidence, undermining enterprise in
the economy. Additional government spending may also be required to deal with the social
problems associated with unemployment. All this will put pressure on the government to
increase taxes, including taxes on businesses that reduce their profitability. However, low
unemployment reduces pressure on government finances and increases confidence.
3. Explain what is meant by an indigenous firm. Discuss the benefits of indigenous firms to
the Irish economy. (20 marks)
Comment: 4 points @ 5 marks each. Possible points that could be made include:
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Indigenous firms are Irish-owned and are based in Ireland.
Loyalty – they are more likely to stay in Ireland in the long term, i.e. they are less likely to
relocate to a lower cost country.
Linkages – indigenous firms are more likely to get their raw materials and services from
other Irish firms, thereby keeping money circulating in the economy.
They are a major source of direct and indirect employment.
The growth potential of some indigenous firms means that they could become major
international businesses, thereby generating wealth for the Irish economy.
ABQ 2
Lucy & John Kelly
(Units 4, 5 & 6)
1. Identify the different types of
(i) taxes that Lucy and John Kelly would have to pay
Comment: 5 points @ 2 marks each
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Income tax on earnings
Universal Social Charge on earnings
VAT on purchases
Stamp duty on the purchase of their house
Motor tax on Lucy’s car
Motor tax on John’s motorcycle
2. insurance cover that Lucy and John should have. (20 marks)
Comment: 5 points @ 2 marks each
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Motor insurance on car and motorbike
House and contents insurance on their home
Public liability insurance (if John opens his motorcycle shop business)
Employee liability insurance (if John opens his motorcycle shop business)
Insurance on his premises and contents (if John opens his motorcycle shop business)
3. Explain, with examples, the different pricing strategies that can be used by a garage when
selling cars. (30 marks)
Comment: 6 points @ 5 marks each
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Mark-up (cost-plus pricing) means adding a standard profit percentage to the direct costs of
production (cost of sales) of the item to arrive at the final selling price. Example: adding
20% to the cost price of a Harley Davidson motorbike before selling it to customers.
Psychological pricing means setting a price based on the psychological biases of the
customers in the target market. Example, selling a Yamaha motorbike for €1999 instead of
€2000.
Price leadership/Premium pricing occurs if the motorbike shop deliberately charges a higher
price than competitors to create an impression of superior quality. This is reinforced by the
other elements of the marketing mix such as expensive premises and stylish promotions.
Price skimming: This is where firms charge a very high price at the launch of a new product
with the intention of recovering the high development costs as quickly as possible. Example:
When Suzuki launch a new model ‘superbike.
Profit-maximising pricing means setting a price that will generate the largest amount of
profit as quickly as possible.
Penetration pricing: This is when an initial low price is charged in order to capture as much
market share as quickly as possible. This allows the business to generate economies of scale
rapidly. Example: Kawasaki selling their motorbikes at a very low price in order to build up
market share. .
Discriminatory pricing means charging different prices to different customers for the same
product or service. This is usually done to accommodate the different incomes of different
segments of the market. Example: offering discounts to old age pensioners who buy
mopeds.
Predatory pricing means setting prices below cost in order to drive a competitor out of the
market. Example: Established motorbike shop slashes it prices in order to drive John out of
the market. If his business fails, then the established shop puts its prices back up again.
3. Identify the different legal structures that John Kelly could use if he starts his own business.
Recommend a suitable legal structure, giving reasons for your answer. (30 marks)
Comment: 6 points @ 5 marks each
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Sole trader – he own and control own businesses. He would keep all the profits (after tax)
but also take all the risks and are personally liable for any debts of the business.
Partnership – the business would be owned and controlled by a number of partners.
Partners share the profits but also take all the risks and are personally liable for any debts of
the business.
Limited company – He would become a shareholder in the business. The shareholders share
the profits in proportion to the number of shares owned. Shareholders have the protection
of limited liability, which means that they are not personally liable for any debts of the
business.
If John goes into partnership with his friend, Ross, then the partners share the profits but
also take all the risks. They will also be personally liable for any debts of the business. This
means that their personal property may have to be sold to pay off the debts of the business.
If John were to set up his business as a limited company, he would become a shareholder.
Shareholders share the profits in proportion to the number of shares owned.
The big advantage of setting up as a limited company is that as a shareholder he will have
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the protection of limited liability. This means that he is only risking whatever finance he
invests in the business. He will not be personally liable for any debts of the business.
Limited companies are also seen as a more professional structure for businesses to use as
they grow. Banks are more likely to lend to a company than to a partnership.
ABQ 3
Drip Gloss Paints Limited
(Units 4, 5 & 6)
1. Explain the actions you would recommend Kevin to take to transform Drip Gloss into an
environmentally responsible firm. (30 marks)
Comment: Students should make at least 6 points at 5 marks each. Students should note that there is no
one right answer to an ABQ. The following are a selection of valid points that a student can make to
answer this question.
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Business has a particularly important responsibility in ensuring environmental sustainability
because one business, such as Drip Gloss Paints, can have a much greater impact and
influence on the world than a single individual.
Steps that Drip Gloss Paints can take to become more environmentally responsible include
conducting regular environmental audits. Drip Gloss Paints should conduct regular
environmental audits to guide management decision-making. An environmental audit is an
independent study of the impact of the business on the environment. It focuses on four
basic areas: what is produced, how it is produced, how it is marketed and how it will be
disposed of.
The results of the audit should tell Drip Gloss Paints what action it can take to ensure
environmental sustainability. Conducting regular environmental audits of Drip Gloss Paints
can help to create an ecologically aware culture throughout the business. For many
businesses, conducting regular environmental audits is now a legal requirement.
Drip Gloss Paints should take care in deciding what is produced. Drip Gloss Paints
products should be designed to be durable and capable of lasting for the maximum possible
lifespan. ‘Built-in-obsolescence’ or deliberately designing goods to wear out after a short
period of time is irresponsible and unsustainable.
Drip Gloss Paints should take care in deciding how goods are produced. Drip Gloss Paints
production processes should be located in suitable locations, away from ecologically
sensitive areas - for instance, it would be highly undesirable to build an oil refinery beside a
nature reserve. Drip Gloss Paints should be energy efficient and aim to use renewable
resources such as wind and solar power instead of non-renewable sources such as fossil
fuels. They should also aim to eliminate pollution from all parts of their production
process.
Drip Gloss Paints should eliminate waste, especially toxic waste from their operations. Any
waste produced (e.g. paper, glass, metals, food) should be re-used, re-cycled or composted
where do not possible. Drip Gloss Paints should seek the advice of the Environmental
Protection Agency to ensure compliance with environmental laws and/or to seek advice on
new developments.
The law requires many new business developments to produce an environmental impact
assessment (EIA) describing how a proposed business will affect the ecology of an area. An
EIA is a report that looks at the effect that the business can be expected to have on the
pollution of land, air and water, wildlife and their habitats, tree and other plant life, noise
levels and the health of local people. Drip Gloss Paints products should be sold without
unnecessary and wasteful packaging. The firm’s advertising and promotion should
encourage the consumption of goods or services which do not damage the environment - for
instance, encouraging customers to buy non-toxic paints. Drip Gloss Paints should reduce
Exam Revision – Applied Business Questions
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the social and environmental costs of production and include any such costs incurred in
their prices.
Drip Gloss Paints take care in planning for disposal after use. Their goods should be easy
to recycle after use. If Drip Gloss Paints products cannot be recycled, then they should be
designed for safe disposal back into the natural environment. This means that, wherever
possible, only natural raw materials or ingredients should be used.
2. Analyse the pros and cons of equity and debt finance for Drip Gloss as a means of
financing the proposed take-over. (20 marks)
Comment: Students should make 4 points @ 5 marks each about the pros and cons of equity and debt
finance for business expansion. Possible points that could be made are as follows:
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Debt finance refers to bank loans and debentures. Banks are traditional providers of debt
finance to businesses. Before Drip Gloss Paints could take out a long-term loan to finance
expansion, it must be confident that it can generate sufficient income to pay back the loan
plus annual interest. Banks do not like taking risks and will usually require a valuable asset
as security for providing any long-term loans. Special types of long-term loans include
debentures and mortgages. Debentures are long-term fixed interest loans secured on a
valuable asset, such as premises.
Equity refers to finance provided by the owners of a business. Equity can be raised by Drip
Gloss Paints from retained earnings where profits are retained in the business to finance
future developments. By using Drip Gloss Paints’ own money to fund expansion, there are
no interest or loan repayments to be made, nor is there any loss of ownership or control
over the business.
As a company, Drip Gloss Paints can issue (sell) shares. These shares can be sold to
existing or new shareholders. However, any sale of shares to new shareholders will dilute
the percentage held by, and power of, existing shareholders.
Equity pros - Potentially large amounts are available to Drip Gloss Paints, depending on
how attractive the business is to investors. Equity financing is cheap as dividend payments
to ordinary shareholders are optional. Equity finance is low risk. If Drip Gloss Paints makes
little or no profit from the takeover, only the providers of the equity will lose out.
Equity cons - However, expansion means that if no / little dividend is paid, the share price
will fall and the directors of Drip Gloss Paints may be voted off the board by dissatisfied
shareholders. The existing owners’ control is diluted as new shareholders are brought into
the business. However, the assets of Drip Gloss Paints remain untouched. A firm mainly
financed by equity is said to be low geared.
Debt pros - Potentially large amounts are available to Drip Gloss Paints if the risk is low
enough and sufficient security is available. There is no loss of ownership or control
although there will be restrictions on the use of any assets being used as collateral
(security).
Debt cons - Debt financing can be expensive. Interest and principal must be repaid on
schedule and in full by Drip Gloss Paints. Interest rates may be high. Debt financing is high
risk. The loan and the interest must be repaid regardless of the level of profits. If Drip Gloss
Paints cannot afford to make the repayments, then it may be liquidated and the assets sold
off to fund the repayments. A firm with a high level of long-term debt finance is highly
geared.
3. Evaluate the effect on a firm’s costs of meeting its ethical, social and environmental
responsibilities. (30 marks)
Comment: Students should make at least 6 points @ 5 marks each of the impact on a firm’s costs of
meeting its social and environmental responsibilities. Possible points that could be made are as follows:
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Two important costs in business are private costs and social costs. Private costs are the costs
such as raw materials, wages, advertising etc. incurred by a firm such as Drip Gloss Paints
when producing a good. These are the financial operating costs of a business.
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Social costs are the costs borne by society as a result of a firm’s activities, such as pollution,
illness, medical bills, traffic congestion etc. Drip Gloss Paints has high social costs that are
not being reflected in its financial costs or price to customers.
Suppose the private cost to Drip Gloss Paints of running its factory is €1 million. The social
cost of Drip Gloss Paints’ activities comes to over €1.5 million. The total (private + social)
cost of running Drip Gloss Paints’ factory is actually €2.5 million. However Drip Gloss
Paints is only required to pay its €1 million private costs. This allows the firm to charge low
prices and win market share at the expense of more environmentally-responsible rivals. This
example illustrates how it is often cheaper for a firm to act irresponsibly.
Free market prices do not usually include the social costs of production incurred by firms
such as Drip Gloss Paints, only the private costs. To solve this problem, many governments
are introducing various types of green taxes to turn public costs into private costs.
Green taxes are taxes imposed on firms and/or their products to reflect the true social and
environmental costs of production. Many countries are introducing ‘carbon taxes’ on the
use of fuels that produce large amounts of carbon dioxide when burned as a means of
ensuring that this social cost is reflected in the costs of manufacturing and sale price of
goods.
In the EU, many countries have introduced special taxes on firms that produce excessive,
wasteful and polluting packaging. This gives firms such as Drip Gloss Paints a clear profit
incentive to reduce all their costs (including social costs). The benefit of green taxes on
business is that firms such as Drip Gloss Paints are more evenly matched and each has a
profit incentive to reduce their negative impact on the environment. As a result, businesses
can compete to be the most socially and ecologically responsible.
Taxes on firms like Drip Gloss Paints with high social costs can stimulate job creation in
firms producing environmentally responsible goods and technologies. Increases in such
taxes can be matched by reductions in taxes on income or profits so that the overall burden
of taxation need not increase. The EU is pressing member countries to introduce such taxes.
ABQ 4
SoftTech Limited
(Units 4, 5 & 6)
1. Analyse the implications for SoftTech of each of the options suggested by the finance
manager. (30 marks)
Comment: Students should make 6 points @ 5 marks each – 2 of the points should refer to each of the
options proposed by the finance manager. Students should note that there is no one right answer to an
ABQ. The following are a selection of valid points that a student can make to answer this question.
Option 1 - Cutting wages
• Decrease in staff morale at Soft-Tech will lead to loss of motivation and staff productivity.
This is likely to lead to the loss of skilled and motivated staff to rival firms.
• Possible industrial relations conflict in Soft-Tech as the staff (and their union if unionised)
will not be happy. Consequences include possible industrial relations problems that will
further erode staff morale and productivity and may result in a strike.
• Loss of skilled staff from the Soft-Tech business that can get better paid jobs elsewhere.
Consequences will include damaging the ability of the firm to produce high quality products
needed to compete in the marketplace.
Option 2 - Making 50 staff redundant
• Redundancy occurs when workers are let go from a job because there is no longer enough
work for them to do. In such cases, employees are let go through no fault of their own. SoftTech’s redundancies can be voluntary or compulsory. By law, workers with more than two
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years service are entitled to a minimum lump-sum payment based upon their length of
service and pay at the time of redundancy.
Compulsory redundancies arise when employees are not given a choice. If compulsory,
redundancies could save money on wages but severely damage staff morale at Soft-Tech.
This could lead to loss of motivation and staff productivity. There may also be possible
industrial relations conflict in Soft-Tech as the staff (and their union if unionised) will not
be happy.
An alternative option is for Soft-Tech to offer voluntary redundancies to those who wish
to apply for it. Various financial incentives including cash payments and early pension
payments may be offered to encourage employees to volunteer. The terms of redundancy
packages are normally negotiated between management and unions. This is potentially far
more expensive than compulsory redundancies but will help to protect staff morale and
goodwill towards the business.
Option 3 - Raising prices by 20%
• Raising prices by 20% at a time of falling sales and damaged brand image due to quality
control problems is very risky. It might help to communicate a premium pricing image to
potential consumers – especially to new customers unfamiliar with the previous quality
control problems.
• Price leadership / premium pricing occurs when a firm deliberately charges a higher price
than competitors to create an impression of superior quality. However to be effective at SoftTech, this needs to be reinforced by the other elements of the marketing mix such as a high
quality product, expensive packaging and stylish promotion. Given the damage already
done to the image due to poor quality control, such a premium pricing strategy is unlikely
to work.
• The finance manager should look at the possibility of cutting costs elsewhere – not just on
staff wages. Could the firm use sale and leaseback on the company premises? Sale and
leaseback is an arrangement to raise cash by selling a piece of a company’s property and
then immediately leasing it back from the buyers on a long-term lease. This would allow
Soft-Tech to raise finance and still use its existing premises. The finance manager should
investigate the possibility of getting a loan to resolve the cashflow issue while the quality
control and reputation issues are sorted out.
2.
Describe what is meant by TQM and how it could assist the company to restore customer
confidence in its products. (20 marks)
Students need to give at least 4 points @ 5 marks each. Students are being asked to give a description
of TQM and its possible benefits for Soft-Tech. The following is a selection of valid points that a student
can make to answer this question.
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TQM is an approach to management that aims to maximise quality by getting all staff
involved in continuously looking for ways to improve the quality of a firm’s products and
services. The aim is to satisfy customers by producing the highest quality products and
services.
TQM aims to achieve zero product defects and minimal delivery delays to customers. It
also strives to create a culture of continuous improvement to quality among all staff
regarding all aspects of the firm’s products, services and business practices.
For Soft-Tech, it involves ensuring all members of staff are encouraged to strive to provide a
top-class product and after-sales service to the people they deal with. Along with customers,
they are also strongly encouraged to regard their work colleagues as customers, equally
deserving of a topquality service.
In Soft-Tech, a TQM approach might mean the software engineering department seeks to
provide a top-class service to the marketing and finance departments. In essence, TQM aims
to turn every member of staff into a quality inspector for their own area of responsibility.
TQM is seen by some as the reason why Japanese firms like Toyota have become so
successful in international business.
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With its focus on putting quality at the centre of the business, TQM could assist Soft-Tech
since by raising the quality standards, the reputation of the firm is enhanced, which attracts
new customer and encourages repeat business and customer loyalty. Furthermore, top
quality Soft-Tech products could be sold at higher, more profitable, prices. This increases the
firm’s profitability.
TQM can reduce costly defects and wastage of materials and staff time, thus increasing SoftTech’s profitability.
According to the Sale of Goods and Supply of Services Acts, manufacturers and retailers are
legally responsible for ensuring that goods sold are “of merchantable quality”. If Soft-Tech
was sued for manufacturing or distributing defective software goods, then the costs could
prove very expensive for the firm. A TQM approach can help raise quality awareness and
reduce product faults and defects.
However, it can take years for a new culture, such as TQM, to become established among all
the staff in a business. Also, creating very high standards can put staff under high levels of
stress. To be successful, TQM also requires good HR management to keep staff happy and
motivated.
3. Explain, with reasons, two steps SoftTech could take to solve the quality control problem
and win back customers. (30 marks)
Comment: Students should make at least 6 points @ 5 marks each. 15 marks will be provided for each
of the two steps. Possible points that could be made are as follows:
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Quality control means ensuring that the quality standards expected by customers are
properly met. Properly done, quality control can reduce waste and costs at Soft-Tech by
minimising defective products that cannot be sold to consumers, minimising the legal costs
of being sued by unhappy customers and protecting the name and reputation of the
business.
Effective quality control can increase customer satisfaction, thereby protecting demand for
a firm’s products and allowing higher prices to be charged and a quality brand image to be
developed.
To improve product quality and win back customers, Soft-Tech should implement a TQM
approach to quality management. As a first step, it means holding onto all skilled and
conscientious, quality-focused employees. Careless, sloppy workers should be demoted or let
go through redundancies.
Managers at Soft-Tech should adopt a more facilitator management style that motivates
employees to contribute their best to the business. Soft-Tech should empower employees to
constantly look for ways to improve customer satisfaction with the business. Offering pay
bonuses and prizes for work of a consistently high quality could help to motivate staff.
Soft-Tech should facilitate teamwork among employees. Teams should have quality and
customer satisfaction as their main goal. For TQM, this includes setting up quality circles.
Quality circles are discussion groups made up of employees who meet regularly to discuss and
resolve quality issues. A wide range of relevant staff attend these meetings, including Soft-Tech
software designers, production staff and customer representatives.
Soft-Tech should adopt stringent quality control for all aspects ofpurchasing, production
and deliver. Quality control means checking to ensure that the goods and services produced
by a business are to the desired standard.
Soft-Tech should have a quality assurance system guaranteeing customers that a firm’s
products are of the very highest possible quality standard. Quality assurance is the aim of
quality control. Firms who reach sufficiently high quality standards can qualify for awards
such as the ISO 9000 or the Q Mark.
The ISO 9000 is an internationally recognised quality control standard. To qualify, Soft-Tech
would have to put in place very stringent quality controls and undergo surprise quality
inspections by the National Standards Authority of Ireland. Qualifying for ISO 9000 means
that Soft-Tech can assure its customers that it meets the highest international quality
standards.
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The ISO 9000 award can be used by Soft-Tech in their advertising and promotional activities
to reassure customers that the firm operates to very high quality standards. This can provide
a competitive advantage to the firm over its rivals.
ABQ 5
McG Computers
(Units 4, 5 & 6)
See Leaving Certificate 2007 Marking Scheme and Examiner notes.
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ABQ 6
Inell Ltd.
(Units 4, 5 & 6)
See Leaving Certificate 2002 Marking Scheme and Examiner notes.
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ABQs for Units 5, 6 & 7
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ABQ 1
Permastick Limited
(Units 5, 6 & 7)
1. How can government decision and activities impact on Permastick? (20 marks)
Comment: 4 points @ 5 marks each. Possible points that could be made include:
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High PAYE income taxes reduce the amount of disposable income available to consumers,
thus potentially reducing demand forPermastick.
By increasing the price of goods, VAT can also discourage consumer from purchasing
Permastick goods.
High PAYE taxes can encourage Permastick workers to look for higher wages, thereby
increasing business labour costs.
High employers’ PRSI increases Permastick’s costs of employing staff and is effectively a tax
on employment. For firms like Permastick with a large number of employees, this extra
business cost can significantly reduce profitability and discourage firms from recruiting extra
staff.
High corporation taxes reduces the amount of profit for Permastick’s owners, and also
reduces the amount of money that can be reinvested in the business.
High corporation taxes in Ireland could force Permastick to relocate to a lower tax country.
Costs are also incurred as Permastick has to carry the financial and administrative burden of
collecting VAT, PAYE and other taxes for the Revenue Commissioners.
High taxes can erode the business confidence of Permstick management and discourage
investment in expansion in Ireland.
High levels of employers’ PRSI can discourage Permastick from employing more staff as this
is effectively a tax on employment.
High corporation tax reduces the amount of profits that the owners of Permastick can earn,
thereby discouraging further business activity, enterprise and risk taking.
Generally, the more money the government spends, then the more money there will be
circulating in the economy. This means more money is available to consumers, which will
boost the overall level of economic activity and Permastick sales may rise.
Government expenditure on infrastructure and services for businesses can reduce Permastick
costs and assist their international competitiveness. However government spending that is
considered wasteful or not necessary, must ultimately be financed by taxation, including
taxes on businesses.
If government spending is perceived to be well managed and without the need for increased
taxes, Permastick’s confidence in the future is enhanced.
However, if government spending is seen as excessive or wasteful, then this will undermine
the firm’s confidence.
If the government is borrowing large sums to finance its spending, then this government
debt will ultimately have to be repaid. Reducing large government debts can usually only be
done by reducing government spending and / or increased taxes in the future. This can
undermine Permastick’s business confidence and future investment in Ireland.
Advice and grants are available to Permastick to conduct market research and to market their
products internationally. This can help to boost sales.
As advice and grants reduce the risks involved, Permastick will be more confident about
taking commercial risks.
2. Outline the implications of three EU policies for Permastick. (30 marks)
Comment: 6 points @ 5 marks each. Possible points that could be made include:
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The purpose of the Single European Market (SEM) Policy is to remove barriers to the free
movement of goods, services, people and capital between member states. Implications of
the SEM for Permastick include:
Creation of a huge market: Nearly 480 million consumers across the EU can be easily
accesse, allowing Permastick to export and benefit from economies of scale and reduced
dependence on the small Irish market.
Free movement of goods: Trade barriers such as frontier controls, tariffs, physical checks on
goods at border crossings and regulations regarding product testing have been removed.
Standards are being harmonised on thousands of products. These measures are intended to
make it easier for Permastick to do business in any other member state.
Free movement of capital: Permastick can invest its money wherever it can earn the greatest
return within the EU. It is possible for Permastick to buy foreign businesses, open a French
bank account or negotiate a loan from a Dutch bank.
Protectionism for EU firms: For goods imported from outside the EU, a common external
tariff is applied. It helps to protect firms like Permastick from cheap competition from
outside the European Union.
Greater competition: The SEM means increased competition for Permastick from European
firms.
The Single European Market allows for the free movement of goods, money and people
within the EU. However, to work effectively, the single market requires a common currency
within the EU. European Monetary Union (EMU) refers to the introduction of the euro as
a common currency for EU members.
Implications of EMU policy for Permastick include international payments within the
Eurozone become simpler, cheaper and free from exchange rate risk.
Permastick exports to countries outside the Euroszone are subject to exchange rate risks.
If the euro increases in value against the pound sterling, this makes Permastick exports to
the UK and USA more expensive and uncompetitive.
EU Environment Policy aims to ensure that economic development within the Union is
ecologically sustainable and not be at the expense of the quality of Europe’s environment. It
does this by making governments and businesses like Permastick responsible for their
impact on the environment through the ‘polluter pays’ principle.
3. List the characteristics of an environmentally friendly business. Refer to the case in your
answer. (30 marks)
Comment: 6 points @ 5 marks each. Possible points that could be made include:
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Permastick products should be designed to be durable and capable of lasting for the
maximum possible lifespan. ‘Built-in-obsolescence’, or deliberately designing goods to wear
out after a short period of time is irresponsible and unsustainable.
Permastick should produce its goods in an ecologically sustainable manner.
Permastick should locate production away from ecologically sensitive areas – for instance, it
would be highly undesirable to build an oil refinery beside a nature reserve.
Permastick should become energy efficient and aim to use renewable resources such as wind
and solar power instead of non-renewable sources such as fossil fuels.
Permastick should aim to eliminate pollution and waste from all parts of their production
process. Any waste produced (e.g. paper, glass, metals, food) should be re-used, re-cycled or
composted where possible.
Permastick should seek advice from the Environmental Protection Agency (EPA) to ensure
compliance with environmental laws or to seek advice on new developments.
Permastick goods should be sold without unnecessary and wasteful packaging.
Permastick should plan for disposal the disposal of products after use, such as its new ecofriendly products with biodegradable packaging.
Permastick goods produced should be easy to reuse, repair or recycle after use. Parts should
be interchangeable with those in similar products.
If Permastick‘s products goods cannot be recycled then they should be designed for safe
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disposal back into the natural environment. This means that, wherever possible, only natural
raw materials or ingredients should be used.
Permastick should conduct regular environmental audits. An environmental audit is a
study of the impact of the business on the environment. It focuses on four basic areas:
what is produced, how it is produced, how it is marketed and how it will be disposed of.
Permastick should conduct regular environmental audits of its business.
ABQ 2
Smells Natural Perfumes Limited
(Units 5, 6 & 7)
1. Analyse the opportunities and threats an Irish firm like Smells Natural faces when it enters
the international market place. (30 marks)
Students should make 6 points @ 5 marks each. Students should note that there is no one right answer
to an ABQ. The following are a selection of valid points that a student can make to answer this
question.
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Opportunities presented to Smells Natural by venturing into overseas markets include…
Increased sales and potentially greater profit potential. By helping Smells Natural to grow,
exports can help the firm attain economies of scale, such as lower per-unit costs and prices.
This improves its ability to compete and survive against multinational rivals.
Smells Natural can capitalise on greater economies of scale and more efficient mass
purchasing and production processes.
The absence of government barriers to trade can allow firms like Smells Natural to expand
sales beyond the domestic market. If firms want to expand seriously, they must look to
foreign markets to increase sales and profits.
Entering new markets makes Smells Natural less dependent on the Irish market and spreads
business risk.
Exporting presents an opportunity for Smells Natural to learn from international markets
and competitors.
Ireland is a member of the EU trading bloc, which allows Smells Natural free access to a
market of 480 million, high-income consumers. This provides the firm with the opportunity
to develop the economies of scale from selling into other countries that would not be
possible selling to a domestic market of just four million people.
As a predominantly English-speaking country, Ireland speaks the international business
language. This means that Smells Natural could look at potential international markets in
other English-speaking countries such as the UK, USA, Australia, New Zealand and Canada
among others.
Ireland’s ancient Gaelic and Celtic heritage, in terms of art, music and literature, also
provides Smells Natural with unique and attractive selling points that could be used to
distinguish their Irish products in a global market. This could appeal especially in the
French, German and Swedish markets recommended to Smells Natural by Enterprise Ireland.
Education levels in Ireland are amongst the highest in the world – for example we have one
of the highest third-level education participation rates. A relatively well-educated population
provides Smells Natural with intelligent and adaptable employees. This is one of the main
reasons why so many foreign hi-tech firms have located their factories in Ireland.
Being based in Ireland gives Smells Natural a low tax base from which to export. Low
corporation taxes on company profits attract many foreign firms to locate in Ireland even
though they export most of their output to other countries.
Euro currency makes trade within the Euro zone easy. As the Euro is a very stable currency,
the risk of exchange rate fluctuations with countries outside the Euro zone is lessened. This
can make exporting easy for Smells Natural.
Exam Revision – Applied Business Questions
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Government assistance to business such as grants, training and advice helps to reduce the
cost and risk to firms like Smells Natural. Among the threats presented to Smells Natural by
venturing into overseas markets are…
Entering new markets is expensive in terms of investing in marketing and increasing
production capacity. Considerable management time and attention will be involved. The
firm’s home market may be neglected.
International expansion financed by loans could lead to difficulties with financial gearing.
Competition: The globalisation of business means Smells Natural needs to be able to
operate competitively to the highest international standards. Firms should aim for the
relevant quality standards or higher, adopt management practices such as TQM and
encourage worker empowerment.
Ireland’s geographical location on the periphery of Europe means Smells Natural will suffer
internationally from higher transport costs than most other EU firms. We also have very
high labour costs. This means Irish-based firms like Smells Natural must operate as
efficiently as possible to ensure that other costs are kept to a minimum level. It also often
means using marketing strategies based on innovative product design, high quality attractive
branding rather than price.
Language differences create many difficulties when conducting market research, designing
packaging and promotions, choosing brand names and negotiating contracts.
Different countries have different cultural tastes and fashions compared to those in Ireland.
Smells Natural will have to be aware of this and make adjustments.
Product designs and standards may need to be adapted to suit the laws and regulations of
foreign markets – such as rules regarding labelling of ingredients. Within the EU, many
products are now standardised. However, outside of the EU, there are many different
variations that may need to be considered.
Because the Irish market is small, Irish firms tend to be small by international standards.
This makes it very difficult for firms like Smells Natural to develop the economies of scale
needed to compete against larger firms producing mass-market perfume and fragrances. It
therefore makes sense for Irish firms to concentrate their attention on filling niches in the
global marketplace.
Collecting debts from customers in other countries is more difficult than at home, especially
if they are far away or have a very different culture or legal system. If Hoffmans in Germany
does not pay Smells Natural the money owed, it can be more difficult to travel to Germany
to collect the money than to collect it from a local Irish debtor.
Further difficulties can be caused by fluctuations in exchange rates for different currencies.
Exchange rates are the price of one currency expressed in terms of another currency. The EU
introduced the Euro as an international currency to eliminate such exchange rate difficulties
between members of the EU.
2. Discuss the benefits of licensing as a method of business expansion. (20 marks)
Comment: Students should make 4 points @ 5 marks each. Possible points that could be made are as
follows:
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Licensing means allowing other firms to use or sell an invention or design in return for
payment of a licence fee or royalty. Smells Natural could allow other firms to produce its
fragrances and perfumes in return for such a royalty.
For Smells Natural, licensing would mean that the financial costs of expansion are minimal
and the immediate commercial risks involved are passed onto the licensee (person buying
the licence).
For the firm selling the licence, it can be a very fast method of expansion as there is no need
to carry out market research, set up production facilities etc. For the licensee, time does not
have to be spent on research and development.
For the licensee, the risk of expanding using a proven product is usually less than that
involved in developing a completely new product.
However, there are risks for Smells Natural. Firstly, as the firm issuing the licence, it will lose
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out on the full profit potential of the product. Nor does the licensee get to keep all the
profits, as a royalty must be paid to the firm selling the licence.
A very important consideration for Smells Natural is that control is lost by the licensee
over the use of patents and trademarks, although conditions and time limits are usually
attached as part of the contract. The licensee also does not have complete control over how
to produce and market the good.
3. Outline the implications of two EU policies for Smells Natural as a business. (30 marks)
Students should make 6 points at 5 marks each (There should be at least 3 points for each EU policy
chosen). Possible points that could be made are as follows:
Policy 1 – the Single European Market
• The purpose of the Single European Market Policy is to remove barriers to the free
movement of goods, services, people and capital between member states. It is intended to
boost free trade within the Union by allowing businesses to treat the entire EU as their
home market. The Single European Market has the following implications for Smells
Natural:
• Smells Natural has open access to 400 million consumers throughout the EU without
government barriers such as tariffs or quotas. Easier trade within the EU makes business
expansion easier.
• Smells Natural can increase its sales and develop economies of scale. Increased sales and
efficiency will also help to increase the firm’s profitability and make it less dependent on the
relatively small Irish market.
• Due to the SEA, trade barriers (such as frontier controls, tariffs, physical checks on goods at
border crossings) and regulations regarding product testing have been removed. Standards
are being harmonised on thousands of products, ranging from chocolate and lawnmowers
to cars and bananas. These measures are intended to make it easier for firms such as Smells
Natural to do business in any other member state. However, governments are still allowed to
restrict the movement of some goods on health or security grounds.
• For goods imported from outside the EU and the EEA, a common external tariff is applied. It
helps to protect EU firms like Smells Natural from cheap competition from outside the
Union. Tariffs on imports from outside the EU make such imports less competitive, thereby
helping to protect Irish (and other EU) businesses.
• Firms and citizens can invest their money wherever it can earn the greatest return within the
EU. As a result, Irish interest rates will move in line with those in other EU countries,
especially Germany. For example, it is possible for Smells Natural to buy foreign businesses,
open a French bank account or negotiate a loan from a Dutch bank.
• EU citizens are free to travel, live and work in any member country without immigration or
passport controls. Smells Natural can hire employees from any other EU member state to
work for them in Ireland.
• On the downside, the opportunities available to Smells Natural are also available to EU
rivals who wish to enter the Irish market. The SEM is making business generally more
competitive and firms like Smells Natural must now treat the entire EU as their home
market if they are to survive and prosper. This requires being competitive on a European
level, not just within Ireland.
Policy 2 – European Monetary Union
• European Monetary Union (EMU) refers to the introduction of the Euro as a common
currency for EU members. Most EU countries have become part of the EMU. The Euro-zone
is the name given to those EU countries that have replaced their national currencies with the
Euro currency.
• Export sales for firms like Smells Natural benefit as payments within the Euro-zone become
simpler, cheaper and free from exchange rate risk. It also eliminates the need to pay bank
charges for changing currencies. This makes business planning easier.
• By reducing business costs and encouraging investment, the Euro is intended to stimulate
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economic growth.
Irish firms, like Smells Natural, are now subject to greater competition from EU imports.
Smells Natural’s exports may be undermined if the UK stays out of the Euro-zone. This can
occur if the Euro increases in value against Sterling, thereby making Irish exports to the UK
more expensive and uncompetitive.
ABQ 3
Fruit First Ltd
(Units 5, 6 & 7)
See Leaving Certificate 2008 Marking Scheme and Examiner notes
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ABQ 4
Cli-He Ltd.
(Units 5, 6 & 7)
See Leaving Certificate 2003 Marking Scheme and Examiner notes
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ABQ 5
Phoenix
(Units 5, 6 & 7)
1. Illustrate how the marketing mix can be used to successfully market a rock band like
Phoenix. (30 marks)
Students should provide 6 points @ 5 marks each. Students should note that there is no one right
answer to an ABQ. The following are a selection of valid points that a student can make to answer this
question.
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A marketing mix consists of four elements (the “4 Ps”) used to turn the marketing strategy
and product positioning into reality - product, price, place and promotion.
Phoenix’s product is the music and band image produced to meet the taste of the target
audience. Designing a suitable musical product is the most important part of the marketing
mix. If the music does not satisfy customer needs then the other ‘P’s of the marketing mix
will not work.
For a rock band, the musical ability and style of the group must appeal to the customer’s
senses, i.e. how they look and sound. Effective packaging in the form of band logo, dress
sense, hairstyle, photography, album covers all serve to reinforce the desired image for the
group and can help to build a strong musical brand name. The product design of the group
must also continually adapt to changing customer tastes and expectations.
Branding means creating an identity for a product that clearly distinguishes it from
competitors. It consists of a brand name and logo. Phoenix has a brand name that is
distinctive and memorable. To go with the name, the group needs a brand logo, that is, a
distinctive visual image that will help the product stand out from other competing groups.
It can be the way a brand name is written, a separate image, or both.
Packaging a rock group means taking care to ensure the correct ‘look’ of the group. The
band’s dress style, hair, album covers, video, T-Shirts, posters, band website and other visual
elements all help to create the right ‘look’ for the group. Each element should be designed
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to reinforce Phoenix as a musical brand.
A rock band sells music mainly through CDs, digital downloads and tickets for live concerts.
Prices must be set at a level that will allow the business to earn a profit. The prices set for
CDs, downloads and DVDs for instance, must be economic and cover the production costs
of the band and the recording label.
The ‘place’ or channels of distribution used by the band describe the various paths which
the group’s music may take in order to reach its target audience. For a rock band, ‘place’
includes music shops, on-line retailers, band’s own website and concert sales. The more
channels of distribution available, the more likely the band are to generate sales and achieve
commercial success.
Promotion must be a very important part of Phoenix’s marketing mix. Promotion refers to
all the efforts (excluding price) made by the band to communicate and influence the target
market. Important promotional activities used by the group should include:
N Sales promotions e.g. selling merchandise such as T-shirts, posters,
N DVDs, screensavers, free downloadable tracks, and band interviews.
N Public relations by appearing on TV and radio shows as guests to ‘plug’ their music and
concerts.
N Advertising using radio airplay, videos and TV advertisements.
2. Explain the effects a rise in (i) interest rates (ii) unemployment could have on the
commercial success of the band. (20 marks)
Comment: Students should make 4 points @ 5 marks each. Possible points that could be made are as
follows:
Rise in interest rates:
• A rise in interest rates could lead to fewer sales as less people can afford to borrow on
credit leading to less disposable income. For the music industry this could lead to less
people buying CDs and switching to cheaper downloads or illegal copying.
• A rise in interest rates may lead to less disposable income among the general population –
which may also mean that general attendance at concert events may decline. Similarly, the
number of people willing to pay for tickets to such events and to spend money on
merchandising paraphernalia such as posters and T-shirts may decline. However, this effect
will vary according to the strength and appeal of a band and their music.
• A rise in interest rates means that the general costs of being in a business such as running
a band will be higher because suppliers (e.g. printers, CD manufacturers) are likely to have
higher costs. This could reduce profitability and could undermine the commitment of some
of the members and also the confidence of the record label in investing money to promote
the band.
Rise in unemployment:
• A rise in unemployment will also reduce the general level of spending in the economy on
consumer goods such as music and concerts. This could also lead to less people buying CDs
and switching to cheaper downloads or even illegal copying.
• Any significant increase in unemployment usually increases the supply and reduces the
cost of labour, especially low skilled labour. This could help to reduce the costs of hiring
‘roadies’ to assist with touring and staging events.
• A rise in unemployment generally makes consumer and business people more nervous
and less confident about future economic developments. As they become more risk averse,
investment in new projects slows down and fewer risks are taken. A record company might
re-evaluate Phoenix to see if they are a high or low risk investment for the record label’s time
and money.
3. Discuss the reasons for the growth of transnational firms such as Global Records. (30
marks)
Comment: Students should make at least 6 points @ 5 marks each. Possible points that could be made
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The growth of TNCs such as Global Records has occurred for the following reasons:
Many firms are forced to expand internationally when their home markets become
saturated and unable to provide any further increases in sales or profits. By selling globally,
firms such as Global Records reduce the risk associated with being too dependent on any
one country.
Many firms are attracted to the economies of scale that can be achieved by selling to large
markets. Economies of scale occur when the cost of producing an item falls because it is
being manufactured in larger quantities. For a firm like Global Records, these lower costs
mean more competitive prices and larger profits.
International agreements and organisations designed to promote free trade (e.g. World
Trade Organisation) have opened up global markets. Previously, TNCs were viewed as
potential threats by many countries, especially in the Third World, as they extracted profits
from local economies but countries are increasingly allowing them access to their markets.
This has happened because countries need the potential jobs they can create.
TNCs have also grown because countries cannot qualify for loans from the World Bank or
other international financial institutions unless they drop protectionist policies and allow
international competition into their markets. ICT has created a global market for
downloadable music.
Faster and cheaper sea and air travel, along with advances in global information and
telecommunications have made it far easier for businesses to communicate with
subsidiaries, customers and suppliers around the world.
The use of the Internet and video conferencing makes global communications easy. For a
firm like Global Records, the internet has made it very easy to promote and digitally
distribute its music products (artists) to a global audience.
For manufacturing firms, Computer Integrated Manufacturing (CIM) also allows global
firms to locate and control production plants producing standardised goods worldwide.
Global Records could decide to produce CDs and promotional merchandise in countries
where costs are cheapest and then transport them to the countries where there is consumer
demand.
ABQ 6
Brain Busters Magazine
(Units 5, 6 & 7)
1. Analyse the possible benefits for Brain Busters Magazine of a strategic alliance with ‘Weekly
Puzzles’ to enter the UK market. [20 marks]
Comment: Students should aim for 4 points @ 5 marks each. Analysing the benefits means looking at
all the aspects involved, including the downsides that may undermine the advantages involved. Students
should note that there is no one right answer to an ABQ. The following are a selection of valid points
that a student can make to answer this question.
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Strategic alliances / joint ventures occur when two or more firms agree to cooperate in the
establishment of a project or business together. The firms involved remain separate but
agree to come together to share their skills and resources to maximise the possibility of
success. A strategic alliance with Weekly Puzzles could present the following benefits to
Brain Busters magazine.
Shared ownership and control between Weekly Puzzles and Brain Busters can mean pooling
and sharing of expertise. Costs are shared; meanwhile, the sharing of staff, technology and
other resources can mean less risk than for one individual company.
Brain Busters’ speed of expansion can be increased when two or more firms are co105
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operating together in a joint venture. Furthermore, both firms can invest funds and share the
costs and financial risks of the strategic venture.
However, strategic alliances must be negotiated between two or more separate businesses,
which can be a slow and time-consuming process. Negotiations will also involve a legal
contract that may be difficult for one side to withdraw from later without the consent of the
other party to the contract.
Ownership & control is shared by the strategic partners and any conflicts or differences
between Brain Busters and Weekly Puzzles can lead to the alliance splitting up before it has
had time to become successful. Control is shared by the partners and any conflicts or
differences between the firms can lead to the alliance splitting up.
Even if relations are good, the speed of expansion can be delayed due to the need for greater
communications and shared decision-making between Brain Busters and Weekly Puzzles.
Disagreements can arise over the sharing of costs. Any profits must also be shared by the
partners.
2. Evaluate the opportunities and threats presented to the business from venturing into an
overseas market. [30 marks]
Comment: Students should make 6 points @ 5 marks each. Three points should relate to opportunities
and three points to threats. Possible points that could be made are as follows:
Opportunities presented to Brain Busters magazine by venturing into overseas markets include
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• The absence of government barriers to trade can allow firms like Brain Busters to expand
sales beyond the domestic market. If firms want to expand seriously, they must look to
foreign markets to increase sales and profits.
• By helping Brain Busters to grow sales, exports can help the firm attain economies of scale,
such as lower per-unit costs and prices for consumers. This improves their ability to compete
and survive against multinational rivals.
• Selling to foreign markets serves to spread Brain Busters’ business risk by reducing its
reliance on the small Irish market.
• EU membership: Ireland is a member of the EU trading bloc, which allows Brain Busters
free access to a market of 480 million, high-income consumers. This provides the firm
with the opportunity to develop the economies of scale from selling into other countries
that would not be possible selling to a domestic market of just four million.
• Language / culture: As a predominantly English-speaking country, Ireland speaks the
international business language. This means that Brain Busters could look at potential
international markets in other English speaking countries such as the UK, USA, Australia,
New Zealand and Canada among others.
• Ireland’s ancient Gaelic and Celtic heritage, in terms of art, music and literature, also
provides Brain Busters with unique and attractive selling points that could be used to
distinguish their Irish products in a global market.
• Education levels in Ireland are amongst the highest in the world – for example we have one
of the highest third-level education participation rates. A relatively well-educated population
provides us with a huge resource in terms of intelligent and adaptable intrepreneurs and
workers for Brain Busters. This is one of the main reasons why so many foreign hi-tech firms
have located their factories in Ireland.
• Low corporation taxes on company profits attract many foreign firms to locate in Ireland
even though they export most of their output to other countries. Being based in Ireland,
gives Brain Busters a low tax base from which to export its magazines.
• Euro currency makes trade within the Euro zone easy. As the Euro is a very stable currency,
the risk of exchange rate fluctuations with countries outside the Euro zone is lessened. This
can make exporting easy for Brain Busters.
• Government assistance to business such as grants, training and advice helps to reduce the
cost and risk to firms like Brain Busters Magazine. Among the threats presented to Brain
Busters by venturing into overseas markets are . . .
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Competition: The globalisation of business means Irish firms like Brain Busters magazine
need to be able to operate competitively to the highest international standards. Firms
should aim for the relevant quality standards or higher, adopt management practices such
as TQM and encourage worker empowerment.
High cost base: Given Ireland’s geographical location on the periphery of Europe, Brain
Busters will suffer internationally from higher transport costs than most other EU firms
doing business in Europe. We also have very high labour costs. This means Irish-based firms
like Brain Busters must operate as efficiently as possible to ensure that other costs are kept
to a minimum level. It also often means using marketing strategies based on innovative
product design, high quality content and attractive branding rather than price.
Language differences create many difficulties when conducting market research, designing
packaging and promotions, choosing brand names and negotiating contracts. To sell
successfully to foreign customers in non- English speaking countries Brain Busters will have
to hire staff to translate their magazine
Different countries have different cultural tastes and fashions compared to those in
Ireland. Brain Busters will have to be aware of this and make adjustments, even if selling to
other English-speaking countries.
Product designs and standards may need to be adapted to suit the laws and regulations of
foreign markets. For example Brain Busters should be aware of rules about displaying prices
on magazine covers, running competitions etc. Within the EU, many products are now
standardised. However, outside of the EU, there are many different variations that may need
to be considered.
Because the Irish market is small, Irish firms tend to be small by international standards.
This makes it very difficult for firms like Brain Busters to develop the economies of scale
needed to compete against larger firms producing mass-market products such as popular
magazines. It therefore makes sense for Irish firms to concentrate their attention on filling
niches in the global marketplace.
Collecting debts from customers in other countries is more difficult than at home, especially
if they are far away or have a very different culture or legal system. If a foreign customer,
such as a chain of newsagents, does not pay Brain Busters the money owed, it may be more
difficult to go abroad to collect the money than to collect it from a local Irish debtor.
Potential difficulties can be caused for Brain Busters by fluctuations in exchange rates for
different currencies. Exchange rates are the price of one currency expressed in terms of
another currency. The European Union introduced the Euro as an international currency to
eliminate such exchange rate difficulties between participating members of the EU.
3. Discuss why a global publishing firm could pose a threat to Brain Busters Magazine. [30
marks]
Students should make 6 points @ 5 marks each. Students are being asked to discuss the threats posed
by the global publishing firm. This means looking at the threats and their significance. Possible points
that could be made are as follows:
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A global business like Global Publications can generate huge economies of scale by
producing on a global scale for a global market. These savings canarise from locating
design and printing in low cost countries, or by subcontracting to firms in those
countries. This helps keep production costs as low as possible and would probably be
cheaper than Brain Busters’ magazines cover price.
A global publisher could purchase raw materials such as paper in massive quantities at very
large discounts from suppliers. This helps to keep their costs low. Brain Busters magazine
would not be able to compete with this.
A global business can produce massive quantities of a single magazine for sale in many
different countries (e.g. The Economist, Hello, Heat, and Vogue). This reduces the per unit
production costs. Brain Busters magazine would not be produced in such large quantities, at
least not initially.
Global marketing becomes cheaper as the same advertising, public relations, sponsorship
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and other promotional campaigns and materials can be used, with minor changes, in
different countries. This eliminates wasteful duplication of marketing efforts. Brain Busters
magazine would not have the marketing budget to compete with such competition.
A global publishing firm could have a number of weaknesses that could assist Brain Busters
magazine. The costs involved in running the production, human resources, ICT and
marketing operations needed for a global company are huge.
Furthermore, the management of global companies is complex because of both their size
and the need to deal with many different countries, cultures and legal systems. This can
erode a lot of the economies of scale and make it easier for smaller competitors like Brain
Busters to survive and thrive.
Standardised products and marketing mixes may not properly meet the needs of customers
in individual countries. Many magazine customers may prefer a more customised, quirky
and locally-focused magazine instead.