Practice Paper 2 (Cambridge International IGCSE Business)

Define‘private sector’.

Define‘entrepreneur’.

Define ‘pressure group’.

Outline two methods of financial rewards RWB might use to motivate its employees.

[case-study] RWB manufactures buses. 1200 people work in its factory. All employees receive off-the-job training. RWB uses financial rewards to motivate its employees. Last year RWB made a $1.7 million loss. The Managing Director said: ‘There are many external influences affecting our business, including changes in the level of unemployment and new legal controls over business activities which affect the environment.’

Extract:

Lavelle Manoir Cleaning Products Ltd

Lavelle Manoir Cleaning Products Ltd is a private limited company that manufactures and sells household cleaning products in Country X. The company was founded 25 years ago and has grown steadily, now employing 150 workers across two production facilities and a head office.

Lavelle Manoir's main products include all-purpose cleaners, laundry detergents, and dishwashing liquids. The company uses flow production methods, with automated production lines for each product category. Lavelle Manoir sources its raw materials from chemical suppliers in Country X and neighbouring countries.

The company has traditionally sold its products through supermarkets and independent retailers in Country X. However, changing consumer preferences for eco-friendly products and increased competition from multinational brands have led to a 15% decline in sales over the past two years. Profits have fallen from $2.5 million to $1.8 million during this period.

To address these challenges, Lavelle Manoir's board of directors is considering a significant strategic change. They are debating whether to invest in developing a new line of environmentally friendly cleaning products, or to expand internationally by exporting to the neighbouring Country Y.

The Managing Director, Sarah Chen, believes that developing eco-friendly products could help Lavelle Manoir attract environmentally conscious consumers and improve its brand image. However, the Production Director, John Smith, argues that international expansion would better utilise the company's existing manufacturing capacity and create new market opportunities.

Lavelle Manoir's workforce includes both skilled technicians and production line workers, with many employees having worked for the company for over a decade. The company has a relatively flat organisational structure, with just three levels of hierarchy. However, communication between departments has been identified as an area for improvement.

Recent changes in Country X's economy are also affecting Lavelle Manoir's decision-making. Interest rates have risen by 2%, and there are concerns about a potential economic downturn. Additionally, the government has introduced new regulations on chemical usage and disposal that may increase production costs for cleaning product manufacturers.

Appendix 1: Lavelle Manoir Cleaning Products Ltd - Key Financial Data

Consider how the following three changes to Lavelle Manoir Ltd's organisational structure could improve communication between departments.

• Introducing a matrix structure
• Implementing more formal communication channels
• Delayering the organisation

Which change would be the most effective? Justify your choice.

Refer to the following insert when answering the question

Outline one advantage and one disadvantage to APB of using on-the-job training.

[case-study] Alex started APB as a sole trader business 4 years ago. APB provide printing services for local businesses such as leaflets and brochures. Alex thinks having a good location is important to any business. All APB’s 6 employees receive on-the-job training. Alex has a democratic leadership style and uses job rotation to help keep employees motivated. To meet an increase in demand, Alex plans to buy an additional printing machine. This will cost $1 800. Alex has to decide on an appropriate source of finance.

Identify two factors that may influence the choice of communication method chosen by a business.

Do you think offering good customer service is the best way for a small business to build customer relationships? Justify your answer.

Explain two methods of primary market research a business could use to find out the demand for a new product or service. Which would be the best method to use? Justify your answer.

Define ‘competitive pricing’.

State two areas of business behaviour in relation to marketing that are regulated.

Define ‘flow production’.

Outline two possible effects on FBW’s break-even chart if the prices of its products are increased.

[case-study] FBW manufactures watches using job production. It employs 5 full-time production employees. Each worker is offered regular training. Last year FBW sold 600 watches. The Managing Director plans to use break-even analysis to help decide whether to increase the price of its products. FBW’s current break-even chart is shown below.

Identify two risks to a business of failing to maintain quality.

Outline two benefits to Pamela of locating her gift shop on a high street.

[case-study] Pamela is a successful entrepreneur. She is the owner of a high street gift shop selling celebration cards, toys and candy (sweets). When Pamela started her business 30 years ago, she had no help to manage the shop. She now has 5 employees. Pamela knows maintaining customer loyalty is important. She uses competitive pricing. Most of her marketing budget is spent on sales promotion. Pamela does not use e-commerce.

Define ‘profit’

Explain two possible effects on NPX’s cash-flow forecast of introducing the new technology.

[case-study] NPX is an online retail business. All orders are sent directly to customers from its warehouse. NPX employs 60 full-time workers. The Operations Manager is analysing NPX’s cash-flow forecast. An extract is shown in Table 2.1. To improve productivity, the manager plans to introduce new technology that can select and pack all the items for each order. This will make 35 workers redundant. The technology will cost $40,000. The manager is considering using either internal sources or external sources to finance this technology.

Table 2.1: NPX’s cash-flow forecast for the period July – September 2021 ($000)

	July	August	September
Cash inflows	100	120	140
Cash outflows	90	90	110
Net cash flow	10	30	30
Opening balance	5	15	45
Closing balance	15	45	75

Define 'gross profit'

Do you think having a high level of non-current liabilities is always a problem for a growing business? Justify your answer.

Extract:

{align=center} Cell Covers (CC)

Aisha worked for several years for a company that repairs mobile (cell) phones in country Z. She had always wanted to be her own boss and decided to leave her job to set up CC to produce covers for mobile phones. She went into partnership with her brother, Aruna. He worked as an Operations Manager for a company producing children’s clothes.

The sources of finance for the business were $10 000 of savings from each partner and a bank loan of $10 000. CC was also given a government grant to help the new business get started. CC leased a factory, bought some equipment and had to pay some expenses before the business had regular cash inflows.

CC’s current product is a range of standardised phone covers which are sold in the mass market. These are sold using a competitive pricing method through mobile phone shops. CC employs 10 skilled production workers who are paid just above the legal minimum wage. These workers have been trained how to operate the equipment and work as a team on the production line. During the production process there is a lot of waste plastic produced and CC sends this to landfill sites. The business has just completed its second year of trading.

CC is about to launch a new range of individual personalised phone covers. It will need to recruit 2 additional production workers. Aruna knows that the marketing mix for this new product may have to be different to the marketing mix used for the standardised products. The new product will be aimed at a niche market of high income consumers between the ages of 18 to 25. There are few other competitors in this market at present.

{align=center} Appendix 1

{align=center} Newspaper article in Main News

Country Z has been in a recession but the economy is now growing rapidly and unemployment is falling. With higher incomes the majority of people now own a mobile phone. This makes communication easier. Mobile banking is becoming more popular and it is used by a large percentage of the population.

{align=center} Appendix 2

{align=center} Advertisement for CC’s standardised mobile phone covers

Do you want to protect your phone from damage? Then buy a phone cover from CC. Your phone will never be damaged if you use one of our high quality covers!!

We offer a range of standardised covers at competitive prices. The CC range has many different colours and designs so you will stand out from the crowd.

{align=center} Appendix 3

{align=center} Summary of CC’s financial information from the end of the second year of trading ($)

Using the data in Appendix 3, calculate the following ratios for CC:

• Gross profit margin
• Profit margin
• Current ratio
• Acid test ratio

Show your workings.

Refer to the following insert when answering the question