OCR GCSE 9-1 Business Textbook Answer Guide

OCR
GCSE
(9–1)
BUSINESS
MIKE SCHOFIELD
ALAN WILLIAMS
ANSWER GUIDE
OCR GCSE (9–1)
BUSINESS
ANSWER GUIDE
MIKE SCHOFIELD
ALAN WILLIAMS
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ISBN: 9781510409637
© Mike Schofield and Alan Williams 2017
First published in 2017 by

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Contents
Business 1: Business activity, marketing and people
1 Business activity 1
1.1 The role of business enterprise and entrepreneurship 1
1.2 Business planning 4
1.3 Business ownership 8
1.4 Business aims and objectives 14
1.5 Stakeholders in business 18
1.6 Business growth 21
2 Marketing 24
2.1 The role of marketing 24
2.2 Market research 28
2.3 Market segmentation 35
2.4 The marketing mix 38
3 People 61
3.1 The role of human resources 61
3.2 Organisational structures and different ways of working 66
3.3 Communication in business 75
3.4 Recruitment and selection 82
3.5 Motivation and retention 90
3.6 Training and development 96
3.7 Employment law 104
Business 2: Operations, finance and influences on business

4 Operations 111
4.1 Production processes 111
4.2 Quality of goods and services 117
4.3 The sales process and customer service 121
4.4 Consumer law 126
4.5 Business location 129
4.6 Working with suppliers 134
5 Finance 138
5.1 The role of the finance function 138
5.2 Sources of finance 141
5.3 Revenue, costs, profit and loss 149
5.4 Break-even 156
5.5 Cash and cash flow 165
6 Influences on business 169

6.1 Ethical and environmental considerations 169
6.2 The economic climate 178
6.3 Globalisation 183
7 The interdependent nature of business 191

1.1 Business activity
1 Business activity
1.1 The role of business enterprise and
entrepreneurship
Activity 1: Research activity – Researching entrepreneurs,
page 4
Use the internet to research the backgrounds of four famous entrepreneurs. You could use
entrepreneurs from Dragons Den, or possibly Richard Branson or Walt Disney, or any other
local entrepreneur your teacher may know of.
What made them successful? Do they have anything in common which made them succeed
where others have failed? Write a short report on your findings and present the results to
your group, possibly using PowerPoint.
 Students could look at any entrepreneur. It would be beneficial if they could investigate a
nationally known figure and a more local example to illustrate the similarities in
character – e.g. energy, drive, determination, persuasive etc.
Activity 2: Research activity – Characteristics of an

entrepreneur, page 4
How enterprising are the students in your business studies group. Use the information in
‘Characteristics of an entrepreneur’ (page 3 of the textbook) to complete the table started
below. Put a tick if you think they have that enterprising feature. A cross means they do not
have it!
Compare your results with the rest of the class. Do you have any potential entrepreneurs?
Name Risk taker Have Have Are creative
determination confidence
 The idea here is to reinforce the characteristics of an entrepreneur with a study of the
class group. Discussion could be taken further by the class considering which is the most
important characteristic and debating who would make the best entrepreneur.
1
Activity 3: Explanation – The benefits and drawbacks of

risk taking, page 5
Use the information on benefits and drawbacks of risk taking to examine your own attitude
to risk taking. If you are a risk taker, what attracts you to taking risks? If you are not a risk
taker, what is it that puts you off taking a risk in an enterprise? Write up your thoughts in a
suitable chart. Compare your results with others.
This activity will help develop an understanding of risk taking in an individual. Points to
consider might include:
 The cash incentive – making or losing money.
 Being own boss – or is this too much pressure?
 The time put into running a business – or is this all worthwhile if it’s your business?
 Comparisons will bring out how different people see the same situation. Further
development could come from looking at which feature of risk taking is the most
important.
Practice questions
Multiple choice
1. Businesses exist to
a) provide quality goods only to rich young people
b) sell goods to older people
c) meet the needs of customers
d) research what customers need.
2. An entrepreneur needs which of the following characteristics?

a) very well dressed at all times
b) know a person in business
c) be very good at accounts
d) confident.
3. Which of the following is not a reward for risk taking when starting a business
a) being able to invest money
b) being able to make a profit for yourself
c) being independent
d) being able to see your own ideas work.
2
Data response 1
Cathy and Julie are entrepreneurs who set up their own separate hairdressing businesses.
They were both successful and have many regular customers.
More recently they have joined forces at Sophisticutz and work together in the business,
recognising that being together does have a number of advantages.
1. State two characteristics of an entrepreneur. (2)

Features might include:
 being persuasive
 risk taker
 determined.
One mark for each feature.
2. Explain two possible benefits for Cathy and Julie when joining their two businesses. (4)
Benefits might include:
 shared premises, reducing costs
 shared expertise in products offered to customers
 cover for holidays, absences etc.
Students would be awarded one mark for the benefit and one mark for explaining why it is a
benefit in these particular circumstances.
3. Evaluate the potential risks of becoming an entrepreneur. (9)

Possible answers might include:
 loss of capital invested
 pressure on time/relationships/health
 effects on others if venture fails.
Up to 2 marks would be awarded for the knowledge of potential risks (AO1), 2 marks for
AO2 and 5 marks for analysis and evaluation (AO3). For example, being an entrepreneur
setting up a new business is often very time consuming and this may mean that much less
time can be spent on other activities with family and friends.
For the higher marks, students should look to justify why a particular risk is more important
than another when becoming an entrepreneur.
3
1.2 Business planning

Activity 1: Research – Producing and using a business
plan, page 9
Ask someone you know who owns a business whether they have ever produced a business
plan. The business may be very small, perhaps only one person, or much larger, in which
case you will need to talk to the person who would produce such a plan.
Try and find out:
a) when they produced the plan
b) what they put into the plan
c) why the plan was important for the business.
Write your results up in the form of a short report. Present ideas using PowerPoint.
 This activity can be undertaken by individuals interviewing local businesses, or having a
local business person come into school/college to be interviewed by the students.
 Further development of the activity could include comparisons of different plans if
undertaken individually, with a look at where plans are the same and where they differ.
 Students may well find that a local business can’t remember doing a plan. This can be
developed with a presentation on why a business plan might be unnecessary.
Activity 2: True or false – The contents of a business plan,

page 10
Is it true or false that the following should be in a business plan? Put a tick in the correct
column.
True False
Information about the owners of the business X
What marketing is planned X
Information on the hobbies of the owners X
What finance is needed for the business X
A list of favourite school subjects of the business owners X
Analysis of the competitors X
A description of the target market for the product X
Titles of business studies books that the owners have read X
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Activity 3: Explanation – The importance of a business

plan, page 10
1. Explain why a business plan should be completed by all businesses.
This is a more general question. Answers might include reference to:
 helps set targets for the future
 could help motivate staff
 helps avoid future problems
 gives clearer idea of competitors
 identifies finance, product, staffing and marketing needs.
2. Explain why a business plan is especially important to a new business.

This question is much more specific and answers need to be related to the issues facing a new
business. These might include:
 The need for initial finance – where is it to come from?
 Competitors – are there any facing the new business?
 How will the product be made, or service provided – will those involved in the start of the
business have the correct skills?
 A new business is not guaranteed success – how will the above help it at least survive and
make profit?
Practice questions
Multiple choice
1. A business plan would normally be written:
a) every month
b) a month after a business starts
c) after a business has become established and competitors are known
d) before a business starts.
2. A business plan will:

a) make sure the competitors know you are in business
b) identify the competitors of the business
c) put the competitors out of business
d) allow the competitors to see whether you need finance to start the business.
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3. The purpose of identifying resources in a business plan is to:

a) make sure the required resources have been identified and where those resources
will come from, so that possible investors will feel safer putting their money into
the business
b) make sure that there is a list of some of the resources required for the business
c) make sure that each person involved in the business knows what ‘resources’ means
d) make sure that the resources required cost less than the business first thought.
Data response 2
1. State two items which Ira should include in her business plan. (2)
Items might include:
 competitors
 source(s) of finance
 product to be made/service to be provided
 staffing and expertise
 market research
 target market.
One mark for each item identified.
2. From your answer to question 1, explain why these items should be included in the plan.
(4)
This question requires candidates to understand that this is a new business. Answers should
centre on the benefits of their chosen item to a new business. For example:
 Market research – identifying whether there is demand for the product or service at what
quantity and at what price. Avoids starting a business where there is no demand, so
saving costs.
Two marks for each developed explanation.
3. Analyse two possible problems for Ira and her business if she did not complete a business
plan. (6)
Students should show some knowledge of a business plan – 2 marks (AO1). This knowledge
should be applied to Ira’s situation being a new business, with no previous business
experience – 2 marks (AO2). Analysis should look at the potential negative impact on the
business if no plan was written – 2 marks (AO3).
Answers might include reference to:
 Possible losses on setting up the business if no plan developed.
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 Possibly unable to meet demand without accurate market research, necessary for new
businesses as market unproven.
 Skill shortages might mean poor service/product which will lose customers and money.
 No recognition of the strength of competitors might mean a new business is unable to
compete.
7
1.3 Business ownership

Activity 1: Research – Drawing up a deed of partnership,
page 15
Draw up a deed of partnership between you and another member of your class. Try to make
the agreement a very good one for you to sign and a poor agreement for your ‘partner’. For
example the capital you both put into the business. See if your partner can see whether it is
a good agreement for them to sign. If someone asks you to sign an agreement, check it
carefully!
 Students should try to get the best possible agreement for themselves at the expense of
their ‘partner’. This is a very good exercise in read carefully before you sign!
Activity 2: True or false, page 15

Tick a box in the table below to indicate if each statement is true or false.
Statement True False
A partnership has at least four partners. X
A sole trader has one owner. X
A deed of partnership will state how much capital partners should X
contribute to a business.
A sleeping partner is always asleep. X
Ordinary partners in a partnership and sole traders have unlimited liability. X
Sole traders often have difficulty raising money for their business. X
Partners will often use their own savings to start their business. X
A partnership has shareholders. X
Anyone can see the financial details of a sole trader. X
A sole trader can employ as many people as they wish. X
Activity 3: Presentation activity, page 15

Prepare a PowerPoint presentation comparing the key features of sole traders and
partnerships. In your presentation, try to show how each has advantages over the other.
 The idea in this activity is to recognise the comparative advantages that sole traders and
partnerships have over each other. This is useful preparation for examination questions
which ask students to explain for example why a sole trader might want to change the
business ownership by taking on a partner.
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Activity 4: Missing words activity, page 15

Use the words below to help you fill in the gaps in the following paragraph.
duties capita traders unlimited decisions
debts deed one personal
Sole traders have one owner, are very easy to set up and can make decisions quickly
because there is one owner. Like partnerships, sole traders have unlimited liability, which
means that they are responsible for all the debts of the business. This means that they may
have to sell personal possessions. A partnership would normally have a deed of partnership,
which sets out the duties of the partners and the amount of capital they put into the business.
Activity 5: Research – Tracking the share price of a

company, page 18
Using a newspaper which publishes share prices (or the internet) choose a plc that you
would like to invest £500 in. It may be a business you know, or one you have never heard of.
Look at the share price. You could pick a company with a share price of £1, in which case
you will have 500 shares. A company with a £10 share price will give you 50 shares.
Whatever the price, work out how many shares you will be able to buy with your £500.
Track the share price over the next month. At the end of the month calculate how much the
shares you bought for £500 are now worth. See who in your group has made the most, and
lost the most money. Can you identify any reasons for changes in your company’s share
price?
 This activity adds a touch of competition within the group as to who can ‘make’ most
money from investments. It also helps expand the number of plcs that students are aware
of. Written work at the end can help understand the complex nature of share pricing.
9
Activity 6: Zone Activity, page 18

The following list shows some features of private limited companies and plcs. Some features
are common to both forms of business organisation. Place a tick in the column(s) to which
the feature applies.
Feature Private Public Both

limited limited private
company company limited
company
and plc
Financial information is available to the public. X
Shareholders have limited liability. X
Shares sold on the stock market. X
Dividends paid to shareholders. X
Shares are usually sold to family and friends. X
Can be taken over without the consent of original X
shareholders.
Can have any number of shareholders. X
Share capital must be at least £50,000. X
Has Ltd after its name. X
Can only be taken over with consent of existing X
shareholders.
Often a family owned company. X
Activity 7: Explanation activity, page 20

For each of the following situations, recommend a suitable form of business ownership.
Give reasons for your recommendation.
a) Three newly qualified vets wanting to set up a veterinary surgery.
b) John Jones wants to start a painting and decorating business.
c) Friends Stuart and Tracy, both very wealthy, want to open a new high-class jewellery
shop.
d) An established family bakery business, already a private limited company, wants to
move to a new, larger bakery.
e) An established large petroleum exploration business wanting to expand its area of
exploration.
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f) Melissa is concerned that she is under stress as a sole trader trying to do everything in
her dress making business.
 In this activity, students should look carefully at the brief scenarios given, as there are
clues as to suitable ownership. For example, in situation a), the vets are newly qualified,
so possibly without much money. £50,000 to start a plc is but one reason why that type
of ownership is a non-starter. There are also three of them, so a sole trader is also
unsuitable. In situation c), Stuart and Tracy are both very wealthy. This may mean that
they have wealth to lose if a business fails. What business ownership, suitable for two
people, will help protect personal possessions?
Activity 8: Research – Local business survey, page 20

In your local area, interview a business owner. It could be a corner shop, a hairdresser or a
larger business where you have some contact with the owner.
Find out:
a) their type of ownership – is it a sole trader, partnership etc.
b) why they have that type of business ownership
c) are there any plans to change the type of ownership? Whatever the answer, find out
why they might, or might not change.
 Write your findings up as a report. Compare your results with other members of your
class. Do all businesses give the same reasons for choosing their type of business
ownership?
 This activity helps students understand business ownership in their own area. What it
often shows is that many businesses have no plans to change/expand/develop their
businesses, being content to earn a decent living from what they know. Quite often,
GCSE business studies students think that all businesses want to become known world-
wide, and make their owners millionaires!
Practice questions
Multiple choice
1. A sole trader can:
a) only employ one person
b) employ as many people as the owner wishes
c) only employ workers where other workers agree
d) not employ any workers, because it is a sole trader, working on their own.
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2. A partnership has:
a) a maximum of 20 partners
b) a maximum of 2 partners
c) a minimum of 2 partners
d) a minimum of 20 partners.
3. A private limited company:

a) is easier to set up than a plc
b) is just as difficult to set up as a plc
c) always has one main shareholder
d) can sell shares to anyone with the agreement of the main shareholder.
4. A public limited company:

a) must have a minimum of £500,000 share capital
b) must have a minimum of £50,000 share capital
c) must have a maximum of £50,000 share capital
d) has no minimum share capital.
Data response 3
1. State two advantages of Clarks being a private limited company. (2)
Answers might include:
 Control over share ownership
 Limited liability for shareholders
 Ability to raise capital
2. State two disadvantages of Clarks being a private limited company. (2)

 Restriction on raising very large amounts of capital due to restriction on share ownership
 More administration than say a sole trader or partnership
 Financial information not entirely private
3. Evaluate whether or not Clarks should become a plc or stay as a private limited company.
Give reasons for your answer. (9)
Here a judgement needs to be made. Answers may consider:
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 How important is it to Clarks to retain control over share ownership and so control of the
business.
 The business has been in family hands since 1825 – is it time to change?
 Is it necessary for the business to become a plc so that more capital might be raised? Is
there any evidence that the business is short of capital?
 Will being a plc help Clarks compete more easily with other shoe brands or does it seem
to be doing well enough as a private limited company?
2 marks would be awarded for knowledge and understanding (AO1), 2 marks for application
(AO2) and 5 marks for analysis and evaluation (AO3).
Remember there is no right or wrong answer, though candidates should look at both options
suggested in the question.
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1.4 Business aims and objectives

Activity 1: Explanation, page 27
Look back to the start of this unit and the future vision of EE.
Explain why EE might have chosen its aims and objectives in its vision statement.
 Best Network. EE is in competition with other network providers. Coverage is a vital
element in selling mobile phone services, together with speed at which data can be
downloaded.
 Best service. Competition in the nature of customer service is another element in sales.
EE points out that this promised best service is in all areas of the business – stores, online
and call centres. This is aimed at covering different types of customers, some liking to
deal with stores some preferring online etc.
 Customer trust and relevance. EE is making the point that selling a product online or
over the phone may seem to be impersonal. They are suggesting that their staff will
personalise this experience and deal with customers in the best way possible.
 Overall the emphasis is on competition. With other mobile operators also wanting to
expand, EE must make it clear that their objective is to be seen as the best, in order to
keep their existing customers and hopefully take customers from other operators.
Activity 2: Zone activity, page 27

Complete the table below by selecting one of the following business objectives for each of
the following business situations: profit, growth, survival, providing a service.
Give a reason for your choice of objective.
Business situation Possible objective Reason for choice of
objective
A public limited company Growth A need to pay increasing
making car parts dividends from profit to
satisfy shareholders.
A family run high-class Providing a service Such a business is marketed
fashion business on the excellent customer
service.
A school leaver wanting to Survival Possible completion and the
start a motor cycle repair fact that new small
business businesses need to establish
themselves.
A computer manufacturer Survival If fall in sales is dramatic
who is seeing a fall in sales then survival would be
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appropriate especially in a
competitive market.
A well-established Profit The business needs to
international airline facing remain profitable to pay
competition from low-cost dividends if it is a limited
airlines company, which is likely in
this example.

Imagine you were to go into business. Complete the table below by making a list of your
business objectives in order of importance to you, adding a symbol or cartoon-type image to
illustrate each objective. Explain why your objectives are in that particular order.
Type of business:
Objective Explanation for choice of
objective
In pairs or small groups, compare and discuss your individual lists of business objectives
from Activity 3. Are the objectives in the same order for everyone? Why might different
businesses within your class have different objectives?
 This activity is designed to illustrate that different individuals see objectives very
differently and there is often no clear right or wrong answer to examination questions.
Practice questions
Multiple choice
1. Survival in a business situation means:
a) making products cheaper than competitors
b) making sure the business continues to operate
c) making less profit than last year
d) providing good service rather than making profit.
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2. A business might want to grow because:

a) it sees the opportunity of making more profit
b) growth will mean more people working in the business
c) it is the best objective to have
d) it will guarantee more profit.
3. A business might change its aims and objectives because:

a) all businesses change their objectives after a year
b) a new competitor has become very successful
c) it feels that a change will always bring more profits
d) it is essential to change objectives as a business grows.
Data response 4
1. State one aim of Pen and Sword books. (1)
 Expansion
 Expansion into different areas of interest, for example science
 Developing digital publishing
2. Explain how providing a good service might help Pen and Sword to achieve its aims. (4)
 Reference to the general importance of customer service in a competitive business
environment.
 As a smaller publisher, Pen and Sword needs to use good customer service as a way of
gaining custom from better known businesses.
Answers must make reference to Pen and Sword for full marks.
3. Analyse why the aims and objectives of Pen and Sword might evolve as the business
grows. (7)
Students may make reference to the fact that many businesses change their aims and
objectives to meet changing circumstances. In this question there is a specific reference to a
particular business, Pen and Sword, which must be considered in any answer to achieve full
marks. These might include:
 Publishing styles may change in the future (for example digital) and so aims and
objectives may have to change to meet the changes in technology.
16
 If reading preferences change (for example from war to social history) then the aims of
the business might change.
Up to 3 marks for A01 and AO2 and 4 marks for AO3.
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1.5 Stakeholders in business
Activity 1: Research and explanation activity, page 31

Research who the stakeholders are in your school or college. Explain their interest in your
school. Do some stakeholders have more effect on the running of the school than others?
Give reasons for your answer.
Typical stakeholders might include:
 Teaching staff
 Support staff
 Students
 Parents
 Governing body
 Local government/Academy chain
 National government
 Local community
The influence each group has on the school/college will vary depending on structure and
governance. The exercise brings out, at a local level, the differing influences and interests
that stakeholder groups have.
Activity 2: True or false activity, page 32

Tick one box to indicate if the statement is true or false.
All stakeholders are owners of a business. X
All businesses have stakeholders. X
All stakeholders have the same interests. X
Stakeholders can influence the activity of a business. X
Stakeholders are only interested in the profits of the business. X
Stakeholders generally want a business to succeed. X
All of the employees of a business are stakeholders. X
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Activity 3: Research activity, page 34

a) Research any proposed business activity where there are arguments for and against the
proposals. This may be in your local area or something which is happening elsewhere in
the country.
b) Identify the stakeholders involved.
c) Explain why the stakeholders have an interest in the proposal.
d) Analyse the effect each stakeholder is having on the proposal. Is anything being
changed from the original idea?
e) Present your findings in a PowerPoint report.
 A local context is preferable for this activity as the students themselves may be
stakeholders, as members of the local community. Good examples are planning
applications which have divided opinion. If no local example is available, national,
ongoing debates such as the building (or not) of HS2 and the airport expansion (or not)
in the South East can provide good discussion.
Practice questions
Multiple choice
1. A stakeholder is:
a) someone who objects to a business development they don’t like
b) a person or group of people who have an interest in business activity
c) a person or group who always support business activity
d) someone who will organise others in developing business activity.
2. Employees as stakeholders are interested in business activity because:

a) they rely on the business for their income
b) they want the business to be taxed more
c) they feel that the business should do just as they say
d) they want the government to help them get a higher living wage.
3. Which of the following is not a method by which government as a stakeholder can affect
business activity?
a) increasing the taxation on business profits
b) giving grants to businesses to help new developments
c) increasing the number of MPs in parliament
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d) spending money on new road projects.
Data response 5
1. Other than government, identify two stakeholders in Lineside repairs. (2)
Answers could include:
 Steve as owner
 Josh as worker
 Government
 Local community
2. Analyse one effect that the government might have as a stakeholder in Lineside repairs.
(4)
Governments have a number of interests in business including:
 A source of taxation. Governments tax workers in order to provide money to pay for
government expenditure, such as education and health.
 Provides employment for people. If people are employed, then there is less government
expenditure on supporting those out of work.
3. Evaluate the effect that different stakeholders have on the successful running of Lineside
repairs. (9)
All stakeholders want a business to be successful in order that their interests in the business
might be satisfied. The main contributors to success may be:
 Steve as owner and Josh the worker. Without these key people there would be no
business. If they work well, providing a good service then they will (hopefully) be
supported by the local community.
 Government can also have a huge impact through general taxation and the legal
framework under which a business operates. If, for example, more health and safety rules
were introduced, the cost to adapt a small business such as Lineside could be too much
and the business may be forced to close.
Marks would be up to 2 for AO1 and 2 for AO2 (knowledge, understanding and application)
and 5 for A03 analysis and evaluation. It is important to make clear reference to Lineside
repairs, rather than a general answer relating to businesses.
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1.6 Business growth

Using the information on Pets at Home, explain how the business has grown organically.
 Organic growth has been achieved through increase in services provided such as
grooming and veterinary services.

Put a tick in the correct column to indicate whether the statements are true or false.
Organic growth in a business is about growing vegetables organically. X
More effective marketing will help a business grow. X
Market share is the share a worker has in the business. X
It is important for technology-based businesses to constantly bring out X
new products if they are to grow.
Reducing prices will help attract new customers to a business. X
With a 30% increase in the total market, a business which increases its X
sales by 20% will have increased its market share.
Activity 3: Matching terms activity, page 39

Match each of the following with the statement in the table below.
a) A maker of pottery takes over a pottery shop.
b) A business buys control of another business.
c) A business making radios merges with a business making televisions.
d) A business assembling computers merges with a microchip supplier.
e) Two businesses agree to join together.
An example of a horizontal merger or A business making radios merges with a

takeover. business making televisions.
An example of a backwards vertical merger. A business assembling computers merges
with a microchip supplier.
A definition of a merger. Two businesses which agree to join
together.
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An example of a forwards vertical merger. A maker of pottery takes over a pottery

shop.
A definition of a takeover. Where a business buys control of another
business.

Using newspapers or the internet, research a merger or takeover which is being planned
between two businesses. Look into:
a) why they want to join together
b) what type of merger or takeover it is
c) whether there any possible problems with the merger/takeover.
Write a short report on your findings.
 This will largely depend on what business activity there is at the time. This activity is
good examination practice in identifying the type of merger/takeover and understanding
the potential benefits and issues involved.
Practice questions
Multiple choice
1. A forwards vertical merger is when:
a) a business merges with another similar business
b) a business merges with a supplier
c) a business merges with a business it supplies goods to
d) a business merges with a totally different business.
2. A takeover is when:
a) a business agrees to join with another business
b) a business buys more than 50% of another business
c) a business buys any share of another business
d) a business takes over paying the workers at another business.
3. Which of the following is not an example of organic growth?

a) increasing output
b) merging with a supplier
22
c) developing new products

d) gaining new customers.
Data response 6
1. State two examples of how a business might grow. (2)
 takeover
 merger
 new products introduced/services provided
 increasing output
 increasing market share.
2. Explain two reasons why Time Warner, Disney and Viacom might be interested in taking
over Vice Media. (4)
 Disney may want to diversify into the digital market as it may not have enough business
itself in that area. Taking over Vice Media will prevent other competitors from doing the
same thing. Vice Media is targeting the youth market where Disney has historical
interest. (A01 and A02)
3. Evaluate the possible benefits to Vice Media in diversifying into pay-TV. (9)
Answers may make reference to:
 Vice Media, as most businesses, wishes to grow and this diversification helps it grow in
a new area of business.
 Having a different area also helps the business as it is different to digital and so gives
Vice Media a separate method of making money if the digital media is less successful in
the future.
 Vice media may see pay-TV as being of increasing importance in the future and they
want to be part of that growth.
 It is important that this is a connected business to that which Vice Media is already
operating in. There are certain areas of overlap, where the expertise of Vice Media can
be used, which makes it an ideal way to grow through diversification.
2 marks for A01 (knowledge and understanding) and 2 marks for AO2 (application). 5 marks
for AO3 (analysis and evaluation).
23
2.1 The role of marketing
2 Marketing
Put a tick in the correct column to show whether the statements are true or false.
Statement – the role of marketing is to: True False
increase the production of products X
give workers a better place to work X
inform customers of new products X
make higher quality products X
increase the sales of products and services X
undertake market research in order to understand the needs of X
customers.
Activity 2: Research and explanation activity, page 43

Identify a product you own. It may be an item of clothing, technology or any other item.
Then research and answer the following questions.
a) How well is the product aimed at your needs? How do you think the business that made
the product identified just what you wanted? If it does not quite meet your needs,
could the business do anymore to meet them?
b) How were you informed about the product – was it an advertisement or another way?
Do you think the business used the best way to keep you informed? Are there other
methods the business could use?
c) Overall do you think that the product you have chosen is a good product for the
business, in that sales are high and profit will be made? How would you explain the
success of the product?
d) Make a PowerPoint report of your findings.
 Students should be honest when they complete this activity, recognising perhaps that
they bought something which they didn’t really want and that they ‘fell’ for the
advertising. Discussion of different experiences can help understand the power of
marketing, especially that which is aimed at younger people.
24
Practice questions
Multiple choice
1. The principal role of marketing is to:
a) increase sales
b) increase profit
c) increase the number of products made
d) increase the skills of the workers.
2. The way a business informs customers about a new product or service:

a) is the same operation for all businesses
b) can vary depending on the size of the business
c) is only done at a local level
d) is only done at a national level.
3. A business can understand the needs of its customers by:

a) conducting market research
b) making the best possible product
c) setting a lower price than competitors
d) having special offers such as buy one get one free.
Data response 7
1. Identify two methods by which Everything Voice could inform its present and potential
customers of new developments in technology. (2)
 email
 website
 trade fairs/meetings with present and potential customers
 social media
 phone.
2. Explain three ways in which a business such as Everything Voice might increase sales. (6)
25
 Increase advertising. Employ more staff in marketing to develop further contacts within
the target market.
 Expand the target market for their services, looking at other businesses which rely on
fast, reliable communication wherever they are.
 Reduce the price for their services. This may be a last resort, but may be necessary if
there is a lot of competition in this sector of business.
Overall, answers should refer to this particular type of business activity in order to be
awarded the application marks. (6 marks AO1 and AO2)
3. Analyse and evaluate the importance for a business to clearly identify and understand its
customers (9)
Answers should look to explain just how important identifying and understanding customers
is to a business. Points might include:
 Without knowing customer needs, the wrong product may be offered.
 Costs of developing incorrect products could hit profits. Possible closure of business in
severe cases.
 In order to be competitive, businesses must know their customers’ needs.
 Good targeting of advertising can only be done if a business is clear on who its
customers are.
2 marks AO1, 2 marks AO2, 5 marks AO3.
26
2.2 Market research
2.2 Market Research

Catherine Fraguela wants to start her own business making cakes. She has no business
experience, but has been working part time in a small bakery business for 12 months. She
realises that she must look carefully at the way she sets up the business, in particular what
she should make and who she should aim her products at. She has come to you for advice
and has the following questions. What advice would you give to Catherine? Give reasons for
any recommendations you make.
a) Should Catherine research whether or not people will buy her product before she starts
making cakes? Research will take time and cost money.
 She should research the market, as making a mistake and starting a business with no
clear idea of what consumers want could cost a lot more than the market research.
b) Should she make any type of cake, or just certain styles?

 This may depend on the results from her market research. Being a new business she
should keep the costs to a minimum which will mean restricting the range of cakes she
makes. Once established, a wider range could be offered as Catherine will then have a
clearer idea of her customers’ needs.
c) If Catherine wanted to find out who might buy her products, what should she do?
 Costs again are important in this scenario. Catherine may not have the money to ask
someone else to do her research. Social media could be used with Catherine contacting
all her circle of friends for their views and asking her friends to ask people they know. At
all times, however, the people being asked should be who Catherine believes are her
target market.
d) Should she make cakes aimed at everyone, or just concentrate on something specific like
wedding cakes?
 Making wedding cakes is restricted to a narrow range of consumer. This means that
Catherine may not always have the work she needs. She could offer wedding cakes as
part of her range of products but also offer birthday cakes to make sure she has a greater
number of potential customers.
27
2.2 Market research

a) Design a questionnaire on a new type of energy bar Zonetime, an exciting combination of
exotic fruits and nuts with a new energy formula. You should aim to have between eight and
ten questions.
b) Briefly explain why you included each of your questions.
 Questions should be closed, that is offering a number of alternatives to make analysis
easier. There may some demographic questions on age and gender in order to further
help later analysis. Questions on whether or not a person already eats energy bars or
not would be useful. Frequency of eating such bars would help develop the profile of
the person being interviewed.

Complete the following table by matching the correct starting phrase with one of the
phrases below.
Phrases to add:
• made up of people who represent the target market
• because it can be expensive
• field research
• establish whether there is demand without committing fully to the idea
Primary research is also known as field research

Trials are used to establish whether there is demand without committing fully to the idea
Smaller businesses often don’t use primary research because it can be expensive
Focus groups are usually made up of people who represent the target market
Activity 4: Evaluation activity, page 48

When choosing an appropriate method of research to use, there are many factors to be
considered. One important decision is whether a business wants precise, up-to-date
information about particular consumers. If this is the case, then it is more likely that
specially designed primary research will be used as there may not be any suitable secondary
research available. If more general data is required, cheaper secondary research may well
be suitable.
Recommend which primary method of research is most suited for the following:
a) A new chocolate bar
28
2.2 Market research
 Businesses involved in chocolate manufacture are generally large and so can afford to
spend a lot of money on primary and secondary research. Primary research should look
at the known target market, possibly using focus groups. Tasting sessions could be
organised and accurate feedback given. With a number of different focus groups
throughout the country, a range of opinions could then be analysed, with data being
organised by the researcher in charge of the focus groups. A trial could be undertaken
in a particular part of the country, selling the products in an area which reflects the
target market. Chocolate bars are sold in many different shops so this could be
organised within the existing distribution network.
b) A new computer game

 A new computer game. Trials would be suitable as consumers in the target market
would want to try the game rather than just buy it (unless of course they were buyers of
a particular series of games and ‘trusted’ the developer enough to buy the game
without a trial). This is a hands on product which consumers need to see in operation.
There should be structured feedback collected from the target market in order that
data can be usefully analysed. The target market for who to invite to trials should be
identified from existing data on who was buying a company’s products.
c) Collecting information on consumer views on double glazing

In your answer you should include details on the following:
• the method of primary research you would use
• why it is suitable for the product
• who should be asked
 Double glazing. This could be collected door to door, if those involved in the collection
were engaging enough to persuade homeowners to talk to them. Target consumers to
ask would be those in houses which were likely to require double glazing and owned by
the occupants. It is important in this situation to collect data from those who are
possible customers for the product – homeowners with old windows and doors in their
properties.

What type of secondary research could be useful in the following situations? Give reasons
for your answer and try to be as precise as possible with your choices.
A business wanting to know:
a) how many banks are in the local area
 Looking online or using trade directories. Trade directories would have a list of such
businesses.
29
2.2 Market research
b) how many competitor businesses sell a particular range of products

 Visiting the competition or checking websites of those competitors involved. Visiting
would be accurate though possibly time consuming if competition is widespread.
Websites would be easier if businesses being investigated listed all their product range. A
small corner shop would not do this.
c) the number of people over 65 years of age living in a particular area

 Census data. Readily available source of such information.
d) the prices charged by competitor businesses.

 Online/website check or visiting. As in b), the website check would be easier providing
the required data was available. A visit may be necessary.

Complete the following table, which shows a comparison of primary and secondary
research. Use the statements below to help you.
Statements:
• It is designed exactly how the business wants.
• A risk that it could be out of date – the census for example is only every 10 years.
• Research collected may not be exactly in the form the business requires.
• Generally the cheaper option.
• Could be expensive to complete.
• Interview questions can be explained to avoid confusion and incorrect data.
• A wide range of data readily available.
• May be difficult getting consumers to cooperate and provide answers to questions.
Primary research Secondary research

Advantage 1 It is designed exactly how A wide range of data readily
the business wants. available.
Advantage 2 Interview questions can be Generally the cheaper option.
explained to avoid confusion
and incorrect data.
Disadvantage 1 Could be expensive to A risk that it could be out of date
complete. – the census for example is only
every 10 years.
30
2.2 Market research
Disadvantage 2 May be difficult getting Research collected may not be

consumers to cooperate and exactly in the form the business
provide answers to requires.
questions.
Activity 7: Explanation, page 50

Using the details you have completed in Table 2.3 on primary and secondary research,
which advantage and disadvantage is most important to:
a) a new business
 Secondary data – cheaper option rather than the more expensive to conduct primary
research. Money is important to any business but especially to a new business which
needs to monitor its cost closely.
b) a well-established business
 Well established businesses can afford the cost of primary research, so the problem of it
being more expensive is not as important as in a new business. The fact that primary data
can be exactly as the business requires is an important factor, as the business, being
established, will be clear on the data it wants.
c) a small business
 The research a small business is likely to undertake is often governed by cost. This would mean
that little research may be undertaken and is most likely to be secondary research, or primary
research limited to perhaps friends and family.
d) a large business operating in many countries

 A business operating in many countries needs a wide range of data readily available as it
may be selling goods to many different consumer groups. The difficulty is that this data
may be out of date and so be misleading, which could be costly if an incorrect decision is
made which is based on old data.
Give reasons for your choice. In this type of question there are many different combinations
of answers which are correct. The above illustrates one point of view.
31
2.2 Market research

Design two short questionnaires of five questions each to collect data on a new cinema that
is to open in the local area. One questionnaire should be designed to collect quantitative
data; the other one should be for qualitative data.
a) Explain why you asked the questions.
 Quantitative questions should concentrate on numbers – how often people visit the
cinema etc. Qualitative questions should concentrate on opinions, such as is a cinema
good value for money?
b) Explain any problems you might have in analysing the data you have collected.
 Problems in analysis are more likely to occur if the questions are not ‘closed’ and a
whole raft of different answers are collected.
c) From your analysis, what changes might be made to improve your original
questionnaires.
 Students should look critically at their questionnaire to see how it can be improved, in
particular making a judgement on whether or not it will help a business make a decision
on opening a cinema in the local area.
Practice questions
Multiple choice
1. Which of the following is an example of primary research?
a) collecting data from the internet
b) collecting data by asking consumers questions in the local shopping centre
c) collecting data published in the local newspapers
d) collecting data from the last census for a particular age group.
2. Market research is important to a business because:

a) it helps develop a good working atmosphere in a business
b) it provides information to help develop products
c) it shows managers how to motivate their staff
d) it keeps staff busy.
32
2.2 Market research
3. Quantitative research is:

a) research undertaken asking a wide variety of people
b) research which concentrates on one part of the population
c) research which deals only with facts and numbers
d) research which has been completed by a competitor business.
Data response 8
1. Identify which of the above questions will produce qualitative data? (1)
 b and c
2. Explain two reasons why Jon and Jo should complete market research before they
consider opening a childcare business. (4)
 Completing market research will make sure that there is demand for the service that Jon
and Jo aim to offer. If they went ahead without any research there is a risk that they may
have overestimated demand and spend money on a service which is not needed. This
would put pressure on the money they invested in the business, and if the problem is
severe enough the business may face closure.
3. Jon and Jo need to collect suitable data for their business. The following options are
available:
a) a focus group made up of local parents with young children
b) a study of the last census from the local area
c) interviewing grandparents who look after young children.
Evaluate which one of the options Jon and Jo should use. (9)
 All three could provide useful information.

 The focus group is made up of the main target market for Jon and Jo. This will provide
valuable data which they require. They can collect information on the needs of the local
community which will help them develop their plans. This option provides the most
useful data.
 The census data could provide information on the future demands for a day care centre,
with information on how many very young children are living in the area. This could be
a problem, however, if the census is not a recent one, so the age of the data is critical on
whether it should be used.
 Grandparents in this example are taking the customers from Jon and Jo. They will not
usually be paying for childcare, so asking them may be a waste of time. However, if they
are under pressure looking after small children, their opinions may be useful to Jon and
33
2.2 Market research
Jo when looking at how they might persuade parents to pay for childcare rather than send
them to hard pressed grandparents.
34
2.3 Market segmentation

Activity 1: Explanation and research activity, page 55
a) Divide the following products into as many different segments as you can. Use the
information just given on market segments to help you, though not all the methods of
segmenting a market may apply.
• cars
• books
• clothing
b) Demonstrate your research in a PowerPoint report.
Examples could include:
 Cars: sport, utility, family, luxury, budget
 Books: fiction, non-fiction, romance, horror, history, travel, teen, biography
 Clothing: male, female, sports, casual, smart

Explain, using examples, why businesses should use segmentation. In your answer use a
variety of different products to illustrate the fact that in most products there is some
segmentation. Some products and services (can you think of any?) are aimed at everyone,
no matter what age, gender they are, or the lifestyle or income they have, or where they
live.
 Segmentation helps a business to target its marketing. In washing products there are ones
that will get clothes whiter, ones that are best for colours, ones which wash biologically,
ones which are best for delicate clothing etc. Each type of washing product can have its
own marketing aimed at consumers who feel that a particular product is best for their
home situation.
 In the case of mobile phones, the most up-to-date with all the features possible is aimed
at a certain consumer who has the necessary money to buy such a product and a desire to
be up-to-date with technology. Mobile phone makers will also produce a more budget
version of the same phone aimed at those with less money who are not so bothered about
having the latest technology.
Practice questions
Multiple choice
1. Segmentation is:
35
a) splitting the number of products you sell each year

b) splitting the market for a product into different parts
c) splitting the staff in a business so they produce goods quicker
d) splitting the holidays that staff take so not all staff are away at the same time.
2. Which of the following is not a method of segmentation?

a) age
b) gender
c) income
d) target.
3. Segmentation of a market is done to help with:

a) targeting advertising more accurately
b) increasing the amount of products being made
c) improving the quality of goods being sold
d) making sure that workers are happy at work.
Data response 9
1. Explain what is meant by ‘market segment’. (2)
 A market segment is a part of a market for a product. For example a sports watch is a
segment of the watch market.
2. Explain how Amala could segment the outdoor furniture market. (4)
Segments could include:
 luxury
 budget
 wooden
 plastic
 rustic
 modern.
3. Analyse the benefits to Amala and her family business in understanding market
segmentation. (6)
Answers could make reference to:
 the money saved by accurate targeting of marketing
36
 the need to reach the target market

 recognition that the different products they make are in different segments, which require
a different approach to marketing.
3 marks for AO1 and AO2 and 3 marks for AO3.
37
2.4 The marketing mix

Heather Williams has a market stall at a busy town market, where there are a number of
other stallholders selling the same or very similar products. She has not had her stall as long
as some of the other market traders and so she cannot rely on old customers coming back
each week to buy from her. Heather knows that she must get the price of her products right
if she is to have a successful business. She would appreciate your views on the following,
and your reasons for any advice given:
a) How important is it to consider the prices charged by other stallholders?

 Heather must see what other stalls are charging as she will be selling the same or similar
product. If she charges too much, customers will simply shop at another stall.
b) What can Heather do with price to try and attract customers who have always gone to
other stalls? Setting her prices too low will result in her making a loss.
 She could try a marginal reduction in price and see if that helps sales. Whatever the
reduction, she must sell more to make up for the price drop.
c) Are customers really bothered whether the price is £1.99 a kilo rather than £2 a kilo?
 This is difficult to answer without detailed research. Past evidence suggests that it does
have some positive impact on sales, even though the saving is small.
d) Explain how Heather’s approach to setting prices may be different from, and similar to,
a much larger business such as Tesco.
 Tesco will also have to consider the prices charges by its competitors otherwise people
will not shop there as they can buy the same items at Asda or Morrisons and save money.
Tesco could be different to Heather in that Tesco can afford to have offers on various
products which it has agreed with the manufacturer. Tesco is large enough to negotiate a
lower price for items as it buys so much. As a much smaller business, Heather could not
do that.
38

Complete the following summary table of pricing strategies used by businesses by using the
phrases below.
• A method of pricing used when there are a lot of other businesses selling the same or
similar products.
• Prices are reduced for a short period of time, often to sell off old stock.
• A method of pricing where the business looks at the price it paid for a product and then
adds on profit to arrive at the price to be charged.
• Where a business lowers the price of products or services to gain customers from other
businesses.
• A method of pricing where the business has a higher price than competitors because it
has a better product, for which consumers are willing to pay a higher price.
Pricing Method Definition

Skimming A method of pricing where the business has a higher price than
competitors because it has a better product, for which consumers are
willing to pay a higher price.
Cost Plus A method of pricing where the business looks at the price it paid for
a product and then adds on profit to arrive at the price to be charged.
Competitor A method of pricing used when there are a lot of other businesses
selling the same or similar products.
Penetration Where a business lowers the price of products or services to gain
customers from other businesses.
Promotional A method of pricing used when there are a lot of other businesses
selling the same or similar products.

What pricing method would you recommend for the following situations?
Give reasons for your recommendations, which may include a range of different methods.
a) An existing breakfast cereal from a well-known maker

 Cost plus. The maker is well known and can set the price it requires with the profit it
needs.
39
b) Apple introducing its latest iPhone

 Skimming. Consumers want to be up-to-date with technology and will pay a higher
price.
c) A new brand of hair shampoo; the maker is unknown in the UK

 Penetration. The business is unknown and needs to get a foot in the market.
d) A luxury hotel just opening

 Skimming if there is no competition in the luxury hotel market. Competitor if there is
LOCAL competition.
e) A computer repair business that is well established but with new competitors opening
nearby
 Cost plus if the owner is confident of keeping his customers and reputation to gain new
customers. If concerned about competition, then competitor pricing.
f) A coach operator introducing a new long-distance service from Birmingham to London

 Promotional to help the business to become established. The company is known, but the
service is new.
Note that this is one perspective. Many businesses alternate between different pricing
strategies.

Insert the correct word into the spaces in the paragraph below.
• profit
• penetration
• high
• skimming
• promotional
• better
• lower
• competitors
40
When a business first introduces a new product it may use penetration pricing if it wants to
gain market share from competitors. If the product or service is thought to be much better
than the competition, a business might use skimming in order to make as much profit as they
can.
After time when the product becomes older, a business might have to lower the price in order
to keep sales high as consumers see the product as being dated. To finally get rid of old stock
when the product or model is no longer made then promotional pricing may be used.
Practice questions
Multiple choice
1. Skimming is:
a) charging a lower price when a product becomes old
b) keeping the price of a product the same as competitors
c) making sure your price is always more than competitors
d) setting a higher price when a product has an advantage over its competitors.
2. Penetration pricing would normally be used when:

a) a business has been in operation some time and has few competitors
b) a product is being introduced which is thought to be at the cutting edge of
technology
c) a business is new and needs to establish its place in the market
d) there is high demand for a product.
3. If a business wishes to dispose of old stock to make way for new products it would
normally consider:
a) competitor pricing
b) promotional pricing
c) cost plus pricing
d) skimming.
Data response 10
1. Explain why a business such as Dixons Carphone should be so concerned about the price
of the products it sells. (4)
41
 Selling technology is a very competitive business, both in high street shops and online.
Dixons Carphone realises that its customers are usually very knowledgeable regarding
technology and can compare prices easily.
2. Recommend a pricing strategy for Dixon’s Carphone to use to make sure it maintains its
sales. Give reasons for your recommendations. (9)
 Competitor pricing should be considered as Dixons Carphone must at least match
competitor pricing (perhaps relying on good service to make a difference with other
technology sellers). Promotional pricing could be used to attract new customers although
it would not want a price war to break out which would reduce profit for all sellers.
AO1 2 marks, AO2 2 marks, AO3 5 marks.
3. What other steps could Dixons Carphone take to make sure that sales are kept at a high
level without reducing profitability? (9)
Answers could make reference to:
 service levels and the importance of advice and help with technology sales
 special offers after negotiated deals with phone makers
 special offers on minutes and data (again after arrangements with network providers)
 make sure that consumers are aware of offers by targeted advertising (linking to market
segmentation)
 examine the balance of selling on Internet and high street – should the business
concentrate more on Internet where there are less costs?

Matt Williams owns a small business that sells fashion clothing aimed at 14-18 years olds.
He is becoming concerned that the products he sells do not have a long life before they
either go out of fashion or the weather changes and he has the wrong stock. Matt is keen to
avoid having old stock which he cannot sell, but also wants to sell other products and
services that will help increase the profit he makes. Another consideration for Matt is
whether he should sell products with a well-known brand name. At present he sells
products from makers who are not so well known, as these are cheaper.
Write a report to Matt on how he should develop the products in his business, giving
reasons for any recommendations you make. You should consider the following in your
work:
a) How the life of the products he has may be extended.
 Matt could extend the life of a product by concentrating on fashion items such as jeans
which have an all year round appeal. If he sells clothes which are clearly winter or
42
summer then there is much less scope to extend their life, apart from reduction in price
which would help sell remaining stock.
b) Other products and services that Matt may offer.

 Jewellery and accessories may be products he could consider – they match his fashion
shop and are not as seasonal as clothing.
c) Whether or not Matt should only sell products from well-known makers.
 This is a small business; it is unlikely that Matt would be able to sell well-known fashion
brands when in competition with larger stores which have an atmosphere which matches
the higher price of such items. If, however, he can buy in well-known label items which
are end of line offerings, he may be able to sell these at a reduced price.
Activity 6: Artwork activity, page 64

a) Using books, magazines, newspapers and the internet make a collection of brand names
and trade mark logos that different businesses use. In your collection try to include a
number of different types of business such as clothing, electrical, toiletries, food and so on.
b) Make a collage of your collection. What proportion of your collection does not include
the name of the business?
c) Make up a quiz to try on other members of your business studies group to see if they can
identify a business just from its trade mark logo.
 This is a good activity for lower ability students which makes them aware of how
powerful a mere symbol can be in attracting their attention.

When marketing the products A-D listed below, which of the following considerations is
most important to you and to other people in your group?
a) price
b) design
c) image
d) brand
Products:
A. toiletries
B. a mobile phone
C. a waste-paper bin
D. a laptop computer
43
Give reasons for the choices you make. For some products you may want to recommend
more than one consideration.
 This activity is a very personal choice. For some students the brand is vital, to others it is
price etc. The activity will help students realise that a business has to be careful in its
marketing – which element does it concentrate on?

Explain how much the following products are marketed as being invented, just good design,
or an innovation on what has gone before:
a) the latest Samsung television
 Most new model televisions, including Samsung, are sold on technology – the quality of
the image which is being provided. There is an element of design – the curved screen for
example – what next?
b) the latest battery car

 Battery cars are potentially one of THE products of the future. There may be a totally
new breakthrough – a true invention – in battery power. At present it remains an
innovation on what has gone before. The car exterior is a design feature.
c) the latest L’Oreal foundation make up

 Make up is a product sold on image with the additional claims of being the best at a
particular aspect of, for example, skin care. Generally these are innovations, though
inventions could be made in the future. The design of the packaging may be important
for this type of product.

Research any product which you feel is:
a) a new invention
b) a really good innovation on what has been developed before
c) simply a great new design.
Explain how the features of the product will help in its marketing.
 This is a personal choice for students. Invention may be more difficult – if required go
back to a product being invented in the past.
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At what stage of the product life cycle are the following? Give reasons for your answers.
a) Desktop computers
 Desktop computers, at the time of writing, are at maturity. Increasing use of phones and
tablets has reduced demand for such products and may eventually cause their decline.
b) Denim jeans
 Denim jeans are at maturity. They seem to go on forever; only the cut of the jeans has
changed (and will change further in the years ahead).
c) Kellogg’s Corn Flakes

 Kellogg’s Corn Flakes are in the maturity phase. They have been around for many years
and continue to be very popular. The increase in snack ‘on the go’ breakfasts (cereal bar
etc.) has pushed corn flakes towards decline.
d) i phone 7
 iPhone 7 is at the time of writing in the growth stage. Its life cycle will be short, as with
all mobile phones.

Draw a product life-cycle to show the life of the following products. Note that some may
have a very short life-cycle, some a very long one. This should be shown clearly by how you
label the axis on your graphs. You must think how long they last before they are replaced
and no longer sold. Give reasons for drawing your graphs in this way, and label the graphs
fully.
Products:
a) a Dairy Milk chocolate bar
b) a chart single
c) a particular model of television
d) a home shirt for a Premier league football club.
 This activity will result in some graphs being incomplete as the product (such as Dairy
Milk) is still at the maturity stage after many years. A chart single goes through all stages
in a few weeks (it could appear again in a few years, however!). The object is to show
just how short and long a product life cycle might be.
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Use the words given below to complete the paragraph about the product life cycle.
• decline
• four
• time
• introduction
• replacement
• high
• maturity
• growth
• life
• slowing
The product life cycle is divided into four parts and shows the life of a product measured
against time. The first stage is called introduction and is where the product is new.
Advertising is often high at this stage to make sure that consumers are aware of the product.
The next stage is growth where the product is becoming well-known. When the product
reaches maturity, sales are at their highest, though sales growth is slowing. The final stage is
decline where the sales are falling and a business might be thinking of introducing a
replacement product.

a) Research the history of Rice Krispies. Include in your work:
• when it was first introduced
• the stage of the product life-cycle you think Rice Krispies is now in
• changes that have been made over the years to the product (if any) and the way it is
packaged
• how the product has developed – what related products are now available and what
‘new’ uses can be made of the original product?
 Since it started in 1928, Kellogg’s Rice Krispies has been a breakfast favourite. This
exercise will help show how the product was developed to include flavourings
(strawberry/banana included) and the use of Rice Krispies in cereal bar format etc.
b) Explain how important Kellogg’s, as a brand name, has been to the development and
success of Rice Krispies.
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 Branding is an important issue here. Kellogg’s has been able to sell different products
based on a known favourite formula. A similar pathway has been taken by many firms,
for example Cadbury and the variants based on Dairy Milk.

Choose one of the following products, or a product of your own choice and consider how
the product life cycle for the product can be extended. Remember that the time a product’s
life can be extended does vary, before it is replaced by the next model or different product.
Give a short presentation to the rest of the group.
a) a mobile phone
 A mobile phone has a very short life cycle. Typically the price will be reduced to extend
the cycle, and then variants on the model will appear to tempt buyers. Simple changes to
colours available may be used to at least make the phone look ‘different’. Other methods
might include offering more minutes/data with an older phone to increase demand.
Targeted advertising will play a key part.
b) a bike
 A bike may see a price drop to help demand. ‘Free’ add-ons such as a helmet etc. may be
offered to keep customers buying. Specification may be increased, such as greater
number of gears etc.
c) a spray on deodorant
 The life cycle of spray on deodorant may be more difficult to extent. One way would be
to ‘re-package’ the public idea of the product, with new wrapping and updated
advertising. Along with celebrity endorsement, the product could be given a new image
even if the actual content is exactly the same.
Practice questions
Multiple choice
1. The second stage in the product life cycle is:
a) maturity
b) introduction
c) decline
d) growth.
2. Product innovation is concerned with:
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a) changing the colour of a product

b) developing new features in a product that have not been seen before
c) selling the product at a lower price than competitors
d) making sure a competitor does not copy your product.
3. Which of the following would not be used to extend the product life cycle of a product?
a) bring out a new product
b) increase the advertising
c) decrease the price
d) offer additional features free of charge.
Data response 11
1. Explain why BT might have chosen to widen its product mix by launching BT sport. (3)
 BT sees sport (especially football) as a means of extending the number of customers it
has. This can be used to sell related products (mobile phone and TV services) which are
sold (bundled) together.
2. Analyse why BT might have wanted to buy EE to develop its products. (4)
 EE is a very large, established mobile phone network and broadband provider which fits
well with BT being an established landline provider. To start their own mobile network
would have been very difficult for BT. There is an advantage to a business in selling
related goods together (mobile/landline/TV/broadband). It cuts costs for the business
which helps revenue and profitability.
3. Evaluate whether or not the idea of football on a mobile phone could be a good product
development for BT. (9)
Answers could include reference to:
 The increased reliance on mobile phones for communication and information.
 Premier League in particular has a vast following at home and abroad.
 Those using mobile phones for this purpose are high users of phones and so greater
income for BT.
 On a negative point, there are huge costs involved.
 Competition from Sky could affect plans.
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Complete a survey in your business group to find out who has products delivered digitally
and who has products delivered physically. Products to investigate could include music,
books and computing and console games.
Make a chart of your findings.
 This activity is aimed at establishing the range of goods that are bought digitally and
those bought physically, for example, on the high street. Discussion on the differences
within the group would be helpful. Remember digitally in this case means bought and
delivered electronically.

Use the words given below to complete the paragraph about physical distribution.
regional product small consumer retailer wholesaler bulk direct.
Physical distribution is all about getting the product to the customer. Some businesses sell
direct to the consumer. These businesses are usually small. Other businesses may sell to a
retailer such as Currys who then sell to the consumer. Larger businesses may sell to a
wholesaler whose job it is to break bulk and sell smaller amounts to a retailer. Businesses
such as Tesco and Marks and Spencer have their own regional distribution centres where
much of their stock is stored.

Which method of distribution, physical or digital, would you use for the following
businesses? Give reasons for your choice.
a) a business making watches
b) a small bakery
c) a farmer selling strawberries
d) a business selling travel insurance.
 1, 2 and 3 are physical. There is no way that these goods could be delivered
electronically! Travel and other types of insurance are good examples of the growth in
digital distribution, aided by comparison sites and direct selling through the internet.

For any 20 different products you have at home (for example, books, electrical/phones,
food, clothing, etc.) find out how they were bought. Was it:
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• from a shop
• direct from the maker
• from a catalogue
• downloaded from the internet?
Display your results in a graph form with suitable illustrations. Explain why products are
bought from different places.
 This activity is personal to the student. It is aimed at showing how distribution takes
different forms. Discussion on what the same exercise might have produced 20 years
ago, and 20 years into the future, could be useful.

Put the following advantages and disadvantages of a business using digital distribution into
the correct column in the table below.
• A business can sell throughout the world and so has more potential customers.
• A business may be able to improve its image with skilful use of websites.
• All businesses can sell throughout the world so there is more competition.
• A business can promote products much easier to more potential customers using digital
distribution. This will help increase sales.
• There may be a need to recruit or retrain workers with the introduction of digital
distribution, which can add to business costs.
• Less staff may be required which will cut costs.
• A business is able to sell to new markets. This will help increase profits.
• Digital content can easily be copied and illegally shared for free online.
• There are costs with the building and maintenance of the website.
• A business can be open at all hours throughout the year.
Advantages of digital distribution Disadvantages of digital distribution

A business can sell throughout the world Credit or debit card details are required for
and so has more potential customers. payment in digital businesses. The possible
security problems may put off potential
customers.
A business may be able to improve its All businesses can sell throughout the
image with skilful use of websites. world so there is more competition
A business can promote products much There may be a need to recruit or retrain
easier to more potential customers using workers with the introduction of digital
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digital distribution. This will help increase distribution, which can add to business
sales. costs.
Less staff may be required which will cut There are costs with the building and
costs. maintenance of the website.
A business is able to sell to new markets.
This will help increase profits.
A business can be open at all hours
throughout the year.
Practice questions
Multiple choice
1. Digital distribution is suited to:
a) selling goods and services from a shop
b) selling goods and services through a large warehouse
c) selling and delivering goods in a digital format
d) selling goods and services at airports.
2. A distribution channel is:

a) a method of improving the quality of goods and services
b) a method of selling goods and services to customers
c) a method of seeing how products can be advertised on television
d) a method of testing whether customers will buy a product.
3. Which of the following products would be suited to both physical and digital distribution?
• potatoes
• newspapers
• watches
• clothes.
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Data response 12
1. Using the information above, identify how Netflix can be described as a user of digital
distribution. (2)
 Netflix delivers its products/services to its customers digitally through an internet
connection.
2. Explain two benefits to a business such as Netflix of using digital distribution for its
products and services. (4)
 costs – lower costs with no physical buildings needed to sell goods from. Cheap ongoing
costs after set-up
 can reach worldwide audience without physical presence in countries
 films etc. are perfect for digital distribution
 make use of the growth of digital downloading, especially on mobile devices.
2 marks AO1, 2 marks AO2.
3. Analyse and evaluate how the growth of digital distribution has affected business
activity. (9)
 greater use of and investment by business in websites to promote and sell products.
Lower investment in physical distribution
 many new businesses have developed which are entirely digital
 some businesses are unaffected e.g. food
 marketing has to be targeted at particular segments who use the internet to access
services
 pressure for change on all businesses who may need to recruit/retrain staff in order to
compete with other digital businesses
 some businesses cease to exist in a physical form and are only available digitally
 growth in markets – booksellers, for example, being able to sell digitally throughout the
world.

a) Research and read information about mobile phone companies.
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 There is so much competition in the mobile phone market that each company has to
match the promotion of another. Added to this is the variety of ‘offers’ available to
consumers.
b) Why do mobile phone companies put so much into promotion?

 Without promotion, customers would be unaware of these deals.
c) Which of the mobile phone companies has the most effective promotions at present (you
may have to complete further research on this).
 This is related to a point in time when the students complete the activity, and gives the
opportunity of a personal perspective.

For each of the following situations, explain what sales promotion method(s) you would use.
Give reasons for your choice(s).
a) A well-known watch maker is introducing a new fashion model. It also has a lot of old
model watches still unsold.
 The old watches would be sold off using price reductions. New watches should be
advertised in places where the target market is likely to see what is on offer.
b) Sniff cosmetics wants to promote its deodorant range, which has not sold as many as
expected.
 Sell in different markets, e/.g. different stores where a different type of customer might
be tempted to buy.
c) A soft drinks maker wants to increase the amount of cola it sells.

 Free samples may persuade consumers to try the product if they had not used it before.
Giving 30% extra free in a can/bottle may also help sales.
d) McWilliams Cars feels that its new model is not selling as well as expected and it needs
ideas on sales promotion.
 Offer added value to the car, such as free satnav etc. to persuade consumers to buy.
e) A famous cereal manufacturer has seen sales fall slightly. It feels that a new promotion is
needed to push sales back up.
 A competition on the back of the packaging with a suitable prize may help sales.
Note: in this type of activity there are a variety of approaches which are valid.
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Are the following statements on promotion true or false? Put a tick in the correct column.

A loss leader is meant to make a loss to keep the business in the lead. X
Competitions are only used by supermarkets to promote the food they X
sell.
Price reductions are often seen in shops in January. X
Free samples are often seen in products such as cosmetics. X
Supermarkets use loss leaders to encourage shoppers to visit their X
stores.
Promotion is mainly concerned with making sure that old stock is sold X
at the best possible price.
Not all businesses use promotion to help them sell products and X
services.

Which advertising media would you recommend in the following situations? Give reasons
for any choices you make, bearing in mind that more than one media may be appropriate.
a) A new flavour yoghurt from a well-known maker
 As the maker is well-known and a widely popular product, television and national
newspaper advertising is appropriate.
b) A famous perfume brand launching a new fragrance

 This would be advertised in magazines aimed at the target market. Glossy photographs
are suited to keep the image of the brand.
c) A special offer from a well-known washing-machine maker

 Newspaper advertising, and in store/online advertising. As maker is well-known, a
national campaign may be appropriate.
d) A new high specification satellite-navigation system

 Specialist, targeted advertising is required as this is a product aimed at a smaller group of
consumers. It is high specification, so possibly expensive – car and general motoring
magazines would reach the target market.
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e) A local cafe just opening

 This is a local business and so local advertising is needed. Local newspaper or leaflets
through doors in the area would be appropriate.
Activity 24: Poster activity, page 80

Using magazines, newspapers, the internet or any other source of information, collect at
least ten advertisements, which are advertising different types of products. Make a poster
of your results, labelling underneath each advertisement where it came from.
 This activity is especially suited to lower ability students. It will help them appreciate the
different styles of advertising and how businesses try to target their potential customers.
Practice questions
Multiple choice
1. Loss leaders are:
a) leaders who always lose their way
b) losses that a business makes when it sells leading products
c) the losses a business makes every time it has a sale
d) items that are sold at a low price to attract customers into a store.
2. Social media includes:

a) all advertising media
b) Twitter and Facebook
c) point of sale promotions
d) all special offers a business might make.
3. A local chip shop wanting to advertise its new menu would most likely use:
a) a leaflet drop through letter boxes
b) nationwide television advertising
c) radio advertising at peak times
d) magazine advertising
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Data Response 13
1. Explain two reasons why television advertising is a suitable medium for businesses such
as Go Compare and Compare the Market to promote their services. (4)
 Both businesses sell mass market products, that is products aimed at many people. If all
the target market is reached – and the target market is throughout the country - then
television advertising is appropriate. The businesses have the money to cover the high
expense of television advertising.
2. Analyse the advantages to internet-based comparison sites of offering to compare a wide

range of services. (6)
 Data comparison is an ideal use of digital (internet) based businesses. The data is
numerical (quantitative) not opinion (qualitative) based and a business located anywhere
can be used to process the data. This makes such a business cheap to operate as it needs
few staff and is largely automated. It can be accessed anywhere a customer has internet
connection, which suits the increased use of mobile platforms.
3. Explain why businesses might offer goods such as toys to promote their business. (2)
 This method can catch the attention of the buyer and helps to make the service offered
different to a competitor. Parents may be under pressure from children to buy insurance
through a particular comparison site to add to their toy collection.
4. Discuss how a new price comparison website might promote itself to compete with Go
Compare and Compare the Market. (7)
 The need to reach a nationwide audience so TV, newspaper, magazine coverage.
 Possible use of celebrity endorsement as this is a new business.
 Competition entry for those buying products through the website – the business must be
seen to go one better than competitors, especially in the early stages.
 Possible money back service for those buying (cheaper product not usually possible as it
is the same product that the comparison sites are linking the buyer to).
Reference must be made to the fact this is a new business for the application marks.
AO2 2 marks, AO3 5 marks.

Beth plans to open a playball centre targeting children from 2 to 12 years old. She would like
advice on how she might use the marketing mix to make sure her business is a success.
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She is interested in your advice in the following areas:

a) Where should she advertise the business? Or should they simply not advertise at all and
rely on local word of mouth?
 Advertising should be in local paper/leaflet drop in area. Costs should be kept to a
minimum as the business is new, with possibly one owner. Social media would be ideal
as younger target market (young parents as they are paying!) is likely to be users of
Facebook, Twitter etc. This will help keep costs low.
b) What range of activities and facilities does she need to provide for children and the
waiting parents?
 There should be a waiting area (cafe?) for parents. This can be another source of income
for the business. Along with the ballplay areas for children.
c) What offers could she make to tempt parents to bring their children?
 Opening offers of price reductions, free cup of tea for parents, 5th visit free.
d) How should decide on the price to charge for each session?

 Pricing should be based on what the same competitor businesses might charge and other
businesses which offer a day/afternoon out for young families. Some penetration pricing
could be considered to attract customers until established.
e) Would they be able to sell their services in any other way, such as parties?
 Hire the entire playball centre for a party would be a good idea as it makes sure that a
certain income is generated, though this must be seen against how many may come if
there was no party. Themed events at different times of year could prove popular with
children.
Write a short report to Beth on how you think the business should be marketed, making
sure you cover all the points above. Always give reasons for any recommendations you
make. Complete the work on a computer if possible to help with presentation.
 This activity aims to cover all of the marketing mix. Answers must consider the fact that
this is a new, locally based business. There are many types of approaches a business
might use.

a) Ask your parents if they can remember any products that were a failure, or perhaps did
not last very long at all.
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What was the reason for the failure? Was the price wrong? Was it because no one wanted
the product? Use the marketing mix to help your answer.
Can you think of any such failures yourself?
Write up your report on a computer if possible. Title it ‘Business Failures and the marketing
mix’.
b) Now title a new piece of work ‘Business Successes’. Think of a range of different products
that always seem to have been with us (some food products will make a good start). What
has made these products last so long? Explain how the marketing mix helps show us why
these products have been with us for such a long time.
 This activity is student based. The aim is to examine why some products succeed and
some fail. Some products, especially food, have been around a long time, but often these
have been developed and marketed in slightly different ways to maintain their appeal.
Activity 27: Calculation activity, page 85

Look at the table below for the sale of LXFridges and the total fridge market.
Sales of fridges by Total fridge Market

LXFridges
2014 120 000 500 000
2015 132 000 600 000
2016 145 200 0
a) Explain whether or not the owners of LXFridges will be happy with the sales figures in the
table above. Give reasons for your answer.
 The sales of fridges has increased by 25,200 or 21% from 2014 to 2016. This may be
seen as good news to the business. However, the fridge market (total number of fridges
sold by all businesses) has increased by 220,000 or 44%, so LXFridges’ share of the
market has been halved. This is bad news for the business.
b) Explain the possible causes of any change in LXFridges’ market share.

 Other businesses might have reduced their prices, brought out newer, better models,
offered special deals on finance to help buy the fridges.
c) What action should LXFridges take for the years after 2016?
 LXFridges must be careful not to reduce prices too much to try to improve their market
share – this could result in losses for the business. It may look at its range of models and
58
look for improvements to match competitors. It could do nothing if it is happy with the
profit it is making – after all it is increasing production and it may be unable to make any
more in its existing factory.

Study the following data collected by a maker of chocolate where 5,000 people were asked
what type of chocolate bar they preferred over a three-year period.
Fruit and nut Hazelnut Plain milk
chocolate
2014 1500 1500 2000
2015 1600 1300 2100
2016 1650 1300 2050
Explain how the above data might influence the future production of chocolate bars.
 The figures show that fruit and nut has a steady increase in popularity, hazelnut is
decreasing but has levelled out from 2015 to 2016. Milk chocolate is less popular than in
2015 after it had increased in popularity in that year. There are always going to be slight
changes in popularity of a product. This three year period needs to be seen against a
longer term view before the business takes any drastic action on increasing or decreasing
production. Each of the changes shown could have been the result of effective (or non-
effective) promotion, rather than a general dislike or liking of a product.
Practice questions
Multiple choice
1. Market data includes:
a) changes in school curriculum
b) changes in demand
c) changes in number of workers
d) changes in workers’ pay.
2. Which of the following will not normally be helped by the use of market data?
a) decisions on whether to increase production
b) decisions on what questions to ask a candidate at interview
c) decisions on whether to build a new factory
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d) decisions on whether to start television advertising.
3. Market share is:

a) the product share of the marketing mix
b) the amount of goods a business sells in a 12 month period
c) the amount of goods a business sells as a percentage of the total market for a
product
d) the goods that a business sells as a percentage of the previous year’s sales.
Data response 14
1. Explain how the use of celebrities might help increase the sale of cycles at Halfords. (4)
 Many consumers like to follow the lead of celebrities – if a celebrity in the cycling
world, especially a well-known Olympic gold medallist, is seen with a particular bike
then some consumers see that as a sign of approval that this is a good product and will
buy.
2. Explain why products sold by a business such as Halfords are continually changing. (4)
 Halfords deal in many technology products – bikes, sat-navs etc. These are constantly
being updated and Halfords must make sure it stocks the most up-to-date available, in
order to satisfy consumer demand.
3. Recommend a suitable marketing mix for Halfords that is designed to increase sales. Give
reasons for your recommendations. (9)
Answers must be based on Halfords and could include reference to:
 Pricing – this is a competitive market, especially online, so prices must at least match
competitors. Special offers with ‘free’ gifts on bikes, such as free helmets, will help
sales.
 Product – full range must be maintained so that whatever the needs of the biker or
motorist, Halfords is seen as the place to go. Increasing the number of service centres
will help develop the motor service sales.
 Distribution – the online business must be continually developed – this is the growth
area. Customer service in shops can help sales over internet rivals who cannot give the
same personal service.
 Promotion – continual offers are needed to tempt buyers. Advertising must keep
consumers informed as to what Halfords can offer.
All elements of the proposed mix should work together.
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3.1 The role of human resources
3 People
Activity 1: Missing word activity – The importance of needs
analysis, page 91
Complete the paragraph below using the words provided.
many regularly altering skilled start growing full
Businesses must identify their human resource needs when they start up. The purpose of
identifying human resource needs is to decide what kind of staff and how many workers to
employ. Other decisions will be whether to employ skilled workers or unskilled, whether the
workers will be full time or part-time. Well-run businesses plan ahead. They will look at
their staffing needs regularly to see if they are changing, for example, because the business
is growing or altering the way it produces its goods or services.
Activity 2: Matching activity – Changes in a business and

its effects on human resource needs, page 91
Match the changes in the table with its effect on the business
Change Effect on the business
1. A kitchen fitting business increases a) Some workers may lose their jobs
its sales as a result of the growth of but the business may want some
incomes and employment in the workers to work in the new factory.
economy.
2. A car manufacturer introduces high b) It will have to ask the workers to
tech robotic equipment work different hours.
3. Next plc has to pay its shop c) More of the same kind workers will
assistants more as the government be needed.
raises the national living wage
4. A bicycle manufacturer decides to d) The business may look to reduce the
switch production to a factory abroad number of workers it employs
5. A family activity centre decides to e) Skilled workers will be needed to
close on a Wednesday and open at the program the equipment.
weekends instead.
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Activity 3: Identifying the human resource needs of a

business, page 92
Read the information below and then come up with a plan of the workers that you will
employ.
• You have decided to start up a take-away pizza shop. You are thinking about the
following:
• Customers can collect pizzas from the shop or have them delivered to their homes or
places of work.
• Your shop will open from 11am until 3pm and then again from 5pm to 11pm, from
Monday to Saturday and close all day Sunday.
• You think you will sell 250 pizzas per day on average in the first three months.
• From research you have discovered that pizza chefs who work only on cooking pizzas
will cook 25 pizzas per hour working from ingredients that have already been prepared.
• The ingredients used in a day can be prepared in four hours.
• Completed pizzas will need to be put in boxes to take away and to be ready to be
delivered.
• The same person may be able to take calls and serve customers taking payment from
them. It is expected that this person will be able to box 25 pizza meals per hour in
addition to their other responsibilities.
• Someone will also be needed to take orders over the telephone, order stock, manage
the other workers and keep the accounts of the business.
• You have estimated that delivery drivers will be able to make five deliveries per hour in
the evenings when your customers will mainly want the pizzas brought to their homes.
• You are hoping to sell to 10 customers every hour in the evening.
• At lunch time, you expect to make 10 deliveries per hour also, because the deliveries
will be mainly to offices and shops nearby.
• You will not make lunch-time deliveries on Saturdays. You expect that you will do 50
per cent more deliveries on a Saturday night than on other nights in the week.
a) Come up with some ideas about:

• What different types of workers will the business need?
• How many of each type of worker will it need to employ?
• What hours will each worker have to work?
There are no correct answers to these questions. The activity is designed to introduce learners
to the complexities of identifying human resource needs. Possible considerations are given
below (there will be many others).
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 One chef prepared to work 10 hours a day in two shifts of four and six hours OR two
chefs, one working four hours at lunch and one working six hours in the evenings. It
depends very much on how many hours the chef(s) would want to work. There is a
working time directive which can restrict working to 48 hours per week. This would
need to be considered.
 One person to prepare the ingredients, working four hours per day, possibly at lunch
time. This will depend on whether the ingredients can be stored fresh for the evening and
whether the chef needs someone to keep putting them out for him or her to work with. It
might need a one or a two-hour shift at lunch time and a three hour or two hour shift in
the evenings.
 The manager may be the person starting up the business. You might be willing to do this
work by doing a 10-hour working day when starting up the business to save costs and to
make sure things are done as you like. Otherwise you may need two people, one for four
hours and one for six hours.
 At lunch time, one driver will be needed.
 On Monday to Friday evenings, two drivers will be needed, each one making five
deliveries per hour so that the ten planned deliveries are made.
 On Saturday, a third driver will be needed as 15 deliveries are being made every hour.
 It is likely that different drivers will be needed in the evenings than at lunch time as it
would be a long day of driving otherwise. You would need to check up on the number of
hours a worker can legally drive for each day.
 How many of each of the different types of workers you employ will depend on how
much they are willing to work. You might find that some drivers, for example, may only
want to work during weekday evenings whilst another may want only Saturdays.
b) Once you have completed the activity, write down how useful you think that doing this
type of needs analysis would be for a business that is starting up.
Practice questions
Multiple choice
1. Which of these statements is false?
1) Identifying its human resource needs will help a business to decide how many
workers it requires.
2) Identifying its human resource needs will help a business to decide if it needs to
recruit workers with different skills.
3) Identifying its human resource needs will help a business to decide if it is producing
the right product for its customers.
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4) Identifying its human resource needs should be done when the business starts up
and regularly after that.
2. A business has an order to make 7,200 T-shirts. It has three weeks to get the order
ready. The business operates five days each week and for eight hours each day. A worker
can sew 20 T-shirts in an hour on average. The number of workers it needs to employ to
make the T-shirts to meet this order is:
1) 3
2) 4
3) 300
4) 8
3. Which of the following statements are false?

1) Human resources are the people who do work for a business.
2) Human resources are the people the business sells its goods to.
3) Human resources can help to make a business succeed.
4) Human resource needs may change as technology changes.
Data response 15
1. Businesses like E.Leclerc must think about identifying their human resource needs.
Explain what this means. (2)
 Identifying human resource needs is what the business does when it is planning the
staffing it needs.
2. Analyse how the human resource needs of the E.Leclerc supermarket chain might change
as a result of the introduction of electronic price tags in its shops. (4)
 E.Leclerc may need less staff because the job of labelling can now be done electronically
by staff centrally.
 E.Leclerc may need to employ more ICT staff in its central office who will do this job
rather than unskilled workers in its shops.
3. Evaluate the benefits and costs to businesses like the E.Leclerc supermarket chain of
doing a human resource needs analyses on a regular basis. (7)
 The business will be able to plan the staff it will need. The staff/human resource needs
will change from time to time as the business changes. In this case, it needs different
staff to deal with the new technology. Planning will help L’Eclerc to recruit any new
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staff it may need and to lay off any staff not needed. This will increase the efficiency of
the business.
 Planning can help it to reduce costs if it can do so. The business will be able to lay off
any workers it no longer needs and so save paying them a wage.
 There is a cost to planning the human resources needed. Someone or some people will
have to be paid to do this work.
 Planning should help the business to be more efficient and more profitable. If it is more
efficient, it will reduce costs and so it may be able to reduce prices which may help it to
beat
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3.2 Organisational structures and different ways of working
3.2 Organisational structures and different

ways of working
Activity 1: Explanation – Griffin Engineering Ltd
organisation chart, page 85
Answer the following questions based on the organisation chart of Griffin Engineering Ltd.
a) Who is at the top of the hierarchy?
 Board of Directors
b) Who is the line manager for the sales representative?
 Sales manager
c) Who are the subordinates of the finance director?
 Three accounts clerks
d) What is the span of control of the production manager?
 4
e) How many layers are there in the organisation?
 5
f) To whom would the production manager delegate responsibility for the stocks of raw
materials?
 Stock control manager
g) Who would be involved in the line of communication between the managing director and
the stock control manager?
 Production manager
h) Who would be accountable if the sales of the business did not reach the target set by the
managing director?
 Sales manager
i) The personnel manager delegates responsibility for advertising jobs and dealing with
application forms to a subordinate. Which of the following statements are benefits which
would result from delegating in this way?
• The subordinate may become more motivated because he or she feels that she has
been given a specific area of responsibility.
• The subordinate may feel that the personnel manager is taking advantage of him or her.
• The personnel manager may feel that he or she is losing responsibility and may not be
paid as much by the firm.
• The personnel manager may have more time to oversee the work of all the members of
the department rather than getting tied down by detailed work.
• The subordinate may improve his or her management skills and this could lead to future
promotion.
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• The work will be done by a specialist and so the quality of the work should improve.
 Benefits from delegating will include:
The subordinate may become more motivated because he or she feels that she has been
given a specific area of responsibility.
 The personnel manager may have more time to oversee the work of all the members of
the department rather than getting tied down by detailed work.
 The subordinate may improve his or her management skills and this could lead to future
promotion.
 The work will be done by a specialist and so the quality of the work should improve.
Activity 2: Zone activity – Advantages of tall and flat

organisations, page 96
Put each of the statements under the correct heading in the table below to give the
advantages of tall and flat organisations.
a) Workers will feel trusted because the managers will need to delegate responsibility as
their span of control will be very wide.
b) It is easier to share ideas because people are more likely to know the bosses and the
idea does not pass through so many people.
c) There are only a few layers so communications will be faster.
d) Managers may find it easier to supervise their subordinates because they will have
fewer workers working directly for them.
e) The message is less likely to get changed – it only passes through a small number of
layers.
f) Workers will be clear who they are responsible to.
g) Workers may be motivated to get promotion and move up the hierarchy.
The correct answers are:

Advantages of tall organisations Advantages of flat organisations
d) Managers may find it easier to a) Workers will feel trusted because the
supervise their subordinates because they managers will need to delegate
will have fewer workers working directly responsibility as their span of control will
for them. be very wide.
f) Workers will be clear who they are b) It is easier to share ideas because
responsible to. people are more likely to know the bosses
and the idea does not pass through so
many people.
g) Workers may be motivated to get c) There are only a few layers so
promotion and move up the hierarchy. communications will be faster.
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e) The message is less likely to get

changed – it only passes through a small
number of layers.
Activity 3: Explanation – Working part-time, page 99

a) Explain one advantage and one disadvantage to someone working part-time.
 Advantages to workers include: looking after family, the number of jobs created as it is
easy to employ part-time workers, opportunities for semi-retired workers and students.
 Disadvantages include: lower income than full-time, uncertainty of income if on variable
hours, inconvenience of hours.
b) Explain one advantage and one disadvantage to a business of employing a part-time

worker.
 Advantages to the business include: being able to employ experienced workers who do
not want to work full-time, choice of people when recruiting, varying employment to
meet demand, reducing overtime costs.
 Disadvantages include: training costs, time and money spent on supervising large
numbers of staff.
Activity 4: Zone activity – The advantages and

disadvantages of flexible working, page 100
The statements below are advantages or disadvantages of flexible working. Decide if they
apply to the worker or the business. Put them in them in the correct place in the table
below. You may find it useful to re-read the case study on Wokingham Council.
• Flexible working suits some people with family commitments.
• Communications between workers may not be as good as workers may not meet each
other regularly.
• Job sharing may mean that the business is able to retain experienced workers.
• Workers enjoy having some freedom to work where and when they want (within limits).
• The business may save costs by needing less office space and less storage space.
• Some workers may miss the social side of working with other people.
• Workers may need more supervision to make sure they are working well.
• Workers may save time and money by not having to travel to work.
• The business may benefit from the increased productivity of workers who find it better
to work from home.
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For the worker For the business

Advantages Flexible working suits some Job sharing may mean that the
people with family business is able to retain
commitments. experienced workers.
Workers enjoy having some The business may save costs by
freedom to work where and needing less office space and less
when they want (within storage space.
limits).
The business may benefit from the
Workers may save time and increased productivity of workers
money by not having to travel who find it better to work from
to work. home.
Disadvantages Some workers may miss the Communications between workers
social side of working with may not be as good as workers
other people. may not meet each other regularly.
Workers may need more
supervision to make sure they are
working well.
Activity 5: Zone activity – Working from home, page 102

The following statements are either advantages or disadvantages to business of allowing
workers to work at home. Put them under the correct heading in the table below.
• Workers feel trusted that they will do their work.
• It is not as easy for workers to talk to each other to discuss ideas about a job.
• The worker can concentrate better without the distractions of others at work.
• Workers will need to be trained to use the technology, which costs time and money.
• The technology the worker needs may be expensive to buy.
• The worker is less stressed because there is no need to travel to work.
• Some workers like the social side of work and may not be as happy working on their
own.
• Some workers may find that there are distractions at home from family and friends.
• Time may be wasted if unsupervised workers do not focus or do not understand
properly what they need to do.
• The worker feels good because he or she saves the cost of travelling to work.
• The worker can work whatever hours they wish as long as they get the job done, and
this can take some stress away.
• Some workers need the discipline of having to start work at certain times and having to
be supervised.
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Working at home
Advantages Disadvantages
Workers feel trusted that they will do the It is not as easy for workers to talk to each
work they have to. other to discuss ideas about a job.
The worker can concentrate better without Workers will need to be trained to use the
the distractions of others at work. technology, which costs time and money.
The worker is less stressed because there The technology the worker needs may be
is no need to travel to work. expensive to buy.
The worker feels good because he or she Some workers may find that there are
saves the cost of travelling to work. distractions at home from family and
friends.
The worker can work whatever hours they Some workers like the social side of work
wish as long as they get the job done, and and may not be as happy working on their
this can take some stress away. own.
Time may be wasted if unsupervised
workers do not focus or do not understand
properly what they need to do.
Some workers need the discipline of
having to start work at certain times and
having to be supervised.
Activity 6: Research – Mobile working, page 102

Write a short account of a worker who works in a mobile way. Use the internet or speak to
someone you know who is a mobile worker. Mention, in your account, any advantages or
disadvantages to them or to their business of the way they work.
Possible points to include:
 Improved productivity for the business because of ability to work whilst travelling or
away.
 Workers like the flexibility – they can get work done when they are not in the workplace
and it may give them time for other leisure activities.
Activity 7: Poster – The advantages and disadvantages of

self-employment, page 103
Draw a poster which shows the main advantages and disadvantages of being self-employed
to the person who is self-employed and the business that pays him or her for work done.
Points that could be included are:
 Workers may like to be their own boss. For example, they can claim expenses, work at a
speed they decide (may be able to fit in extra jobs and earn more in a given time) etc.
 Workers may have periods when there is no work and no income, they do not get
pension benefits from the employer nor sick or holiday pay etc.
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 Businesses may reduce costs by not having to pay employees when there is no work for
them to do and by not having to make pension and national insurance contributions or
spend money training workers.
 They need to make sure that the people they contract can do the work to the required
standard and at the time they need it.
Practice questions - Organisation charts

Multiple choice
The diagram below shows the organisation chart for the Leigh Hire Ltd. Leigh Hire Ltd hires
out equipment such as cherry pickers and fork lift trucks.
Managing Director
Luke Holden
Finance Manager Marketing Manager Service Manager

Gordon Wright Julie Jervis Shona Patel
Stock
Transport
Accounts Clerks x 2 Maintenance
Supervisor
Supervisor
Sales Representatives Marketing

x3 Publications x 1
Maintenance Staff Transport staff x

x3 5
Using the information in the organisation chart for Leigh Hire Ltd, answer the following
questions.
1. How many layers are there in the organisation?
a) 2
b) 3
c) 4
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d) 5
2. Which of the following is a subordinate of the Marketing Manager, Julie Jervis?

a) An accounts clerk
b) A sales representative
c) A maintenance supervisor
d) The managing director
3. What is the span of control of the Managing Director, Luke Holden?

a) 2
b) 3
c) 4
d) 5
Data response 16
Using the organisation chart for Leigh Hire Ltd, answer the following questions.
1. Analyse one benefit to Leigh Hire Ltd of its organisational structure. (3)
Answers include:
 There are clear lines of communication which makes the sending and receiving of
messages quicker and more efficient.
 It is clear who the manager can delegate responsibility to, which facilitates the
monitoring of performance.
 Workers can see clear opportunities for promotion which may motivate them to work
hard.
2. Analyse one benefit that Leigh Hire Ltd would gain if it changed its structure to a flat
organisation. (3)
Advantages of flat organisation include:
 Workers will be motivated because they have a degree of freedom over their work.
 Communications may be faster, as less layers to pass through.
 There will be an improved sharing of ideas (easier communications) and motivation
resulting from trust/freedom of workers, who are lightly supervised.
3. Recommend whether Leigh Hire Ltd should change its structure to a flat organisation. (7)
 A tall organisation suits Leigh Hire Ltd. It does not need creative workers who need
freedom, as the tasks of the workers are likely to be routine and repetitive. Its employees
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have clearly defined roles and need direct supervision to ensure they complete their tasks
accurately. The organisation structure facilitates the monitoring of the delegated work.
Practice questions – Ways of working

Multiple choice
1. Which of the following statements is true?
a) Part-time working in the UK has fallen.
b) Part-time workers are not given contracts.
c) Part-time working is said to be when a person works less than 35 hours a week.
d) Part-time working suits businesses, like travel companies, that have a steady, all-year
round demand for their services.
2. Which of the following is NOT typical of a flexible labour market?

a) Workers can work at home if they wish.
b) Workers are often self-employed.
c) Workers employment rights are increasing.
d) Workers are employed on a casual basis or temporary contract.
3. Which of the following statements about self-employed people is not true?

a) People like to be self-employed because they can be their own boss.
b) There are more self-employed people in the UK now than 25 years ago.
c) Businesses like to use self-employed people because it saves on costs.
d) People like to be self-employed because it makes life easier as they do not need to
work hard.
Data response 17
1. Explain the meaning of the term ‘flexible work.’ (2)
 The person is employed but is not guaranteed a specific number of hours. They will be
used as and when needed by the firm.
2. Analyse two advantages to Wetherspoon of having workers on flexible work. (6)

 Some workers will only be employed at the times needed, for example, at lunch times or
in the evenings and it will not have to pay overtime costs, saving money for
Wetherspoon.
 Wetherspoon will find it easier to recruit staff as many people do not want full-time
work, for example, students, house persons, people retired from full-time employment.
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3. Analyse two advantages to employees of Wetherspoon of having flexible work. (6)

 Workers at Wetherspoon have some flexibility about when they work which may suit,
for example, people who look after children or adult relatives, students and people retired
from full-time employment.
 Wetherspoon may have increased the number of jobs that are available as the business
might not have been willing to commit to employing full-time workers and so has
created opportunities for many people.
4. Analyse two disadvantages to employees of Wetherspoon of having flexible work. (6)

 Workers at Wetherspoon will not have guaranteed hours and therefore a steady income
each week. Some weeks they may have no work.
 If a manager at Wetherspoon takes a dislike to the worker, he or she may not be given
much work to do.
 Workers at Wetherspoon may need to be ready to work at short notice, which may make
it difficult to organise their time how they want. The hours they are asked to do may not
be convenient.
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3.3 Communication in business

Activity 1: Types of communication, page 109
Table 3.8 shows some of the communications connected with Bolton Wanderers Football
Club. Tick the boxes next to each item to say whether:
a) It is an example of internal or external communication
b) The communication is an example of formal or informal communication
c) The communication is likely to be one-way or two-way.
Example of communication Internal External Formal Informal One- Two-

way way
The team manager must talk ✓ ✓ ✓
with the directors about
buying a new player.
The ticket office must let the ✓ ✓ ✓
fans know that tickets for the
cup final will be on sale from
next Monday.
Club officials talk to the police ✓ ✓ ✓
to agree security arrangements
at games.
The manager needs to discuss ✓ ✓ ✓
tactics with his coaching staff.
The players complain about ✓ ✓ ✓
the manager’s tactics as they
get changed after the game.
The personnel officer needs to ✓ ✓ ✓
write for references about
applicants for a job.
The stadium announcer must ✓ ✓ ✓
tell away supporters that their
coaches will meet them in Car
Park A after the match.
The chief groundsman must ✓ ✓ ✓
tell one of his staff to mark the
lines more clearly on the pitch.
The marketing manager ✓ ✓ ✓
discusses an idea with the
personnel manager over lunch.
The marketing department ✓ ✓ ✓
must negotiate prices of
replica shirts with a supplier.
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The marketing department ✓ ✓ ✓

must tell customers about the
special Christmas gifts on sale
in the club shop.
The ticket office manager must ✓ ✓ ✓
agree a rota with the office
workers to make sure there is
someone there during all
opening hours.
Activity 2: Matching terms – The importance of

communication in business, page 110
Match the kind of business activity given in the first column with the example of
communication in the second column.
Kind of business activity Example of communication

Marketing A sales representative visits a possible
customer.
Finance A business sends out a bill to a customer for
money that is owed.
People in business An employee is given a telling off for
repeatedly being late for work.
Government and trade Information about new health and safety
regulations is posted on a website.
Operations A computer-controlled robot is programmed
to paint cars on the assembly line.
Activity 3: Explanation – Using different methods of

communication, page 112
2. For each of the cases (i)-(vii) below:
a) You should say whether you would use verbal or written communications. You may
recommend more than one kind of communication.
b) You should also should state what form the communication should take. If you
recommend written communication, state whether a letter, email, text or message on
website should be used. If you recommend verbal, state whether a telephone, meeting
or presentation should be used.
Give reasons for your recommendations.
i) A school with 1,500 pupils wishes to let pupils know that the school will not be open
today because of problems with the central heating boiler. The school finds out about the
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problem at 7.30 in the morning. School starts at 8.45 am. Pupils and parents need to be
informed.
 Written, either text and or email and/or message on website, as it is a one-way, urgent
message for a large number of people. No response is needed.
ii) A salesperson wishes to demonstrate the advantages of a new computer to a potential

customer.
 Verbal, two-way meeting so that the computer’s advantages can be demonstrated and
questions answered.
iii) A holiday firm wishes to advertise its new brochure for next summer’s holidays.
 Written, one way in a printed brochure and/or on a website. It is to draw attention to the
holidays. It is also possible that the website could offer a ‘chat’ option so that interested
customers can engage in a two-way, online conversation with a representative of the
company to get specific questions answered promptly.
iv) A project manager for a construction firm wishes to remind colleagues who work in
several different departments located on different sites that there will be a meeting for all
concerned later in the week.
 Written, one-way, email or text as information only is being passed out.
v) The social committee wants to plan its summer barbecue for all workers.
 Verbal, two-way communications in a meeting to exchange ideas.
vi) A manager wishes to find out from workers in her department about an accusation
made by a worker that he was racially abused by a colleague.
 Verbal, two-way meetings with workers, very sensitive discussions, will need to probe
workers about information given, to assess its accuracy and fairness.
vii) A firm wishes to advertise special offers for all its shareholders.
 Written, one-way, email to all shareholders or put a message on the website to give out
the information. No response is needed.
Activity 4: Making a presentation or writing a report – Using

social media in business, page 114
Saskia Dimiancuk is a retired art teacher. Her hobby has been designing and making
jewellery and she now wants to set up a business selling her products but she is not familiar
with social media. Saskia wants to know what benefits there will be in using social media,
any problems she might have and which, if any, of the social media she should use.
Create a presentation or report to give her advice about what to do. You might want to
research examples of other similar businesses and include information about these or links
to them.
Benefits of using social media include:

She can reach a large number of potential customers.
 Her information can be updated regularly.
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 Visual images can be used to display her jewellery.

 It can be cheaper to advertise than using traditional media such as TV, radio, newspapers
and magazines.
 She can get feedback from customers.
 Customers can help to promote your message by passing on information to other users.
Problems of using social media include:

 She will need to manage the social media she uses – updating and feeding back regularly
– which will cost time and money.
 It can be difficult to measure the effectiveness of the businesses use of social media or of
using one channel or another.
Activity 5: Draw a poster – Websites and business

communications, page 114
Imagine you are a website designer. You are going to attend an exhibition for small
businesses in your region where ICT specialists can display the services they offer. You want
to tell the representatives of the small businesses about the benefits and the problems of
having a website. Design a poster which you could display at the exhibition which would
show the benefits and the problems to small businesses of having a website.
The poster might include a mention of benefits such as:

 use of the internet by a large number of potential customers
 people will find the website using search engines
 ability to give information about products and prices
 ability to change information easily to update it
 low cost of setting up and maintenance.
The poster might include problems such as:

 the communication is not direct and the number of people seeing the message may not be
great
 it may cost to have the website created and then maintained
 the user may need training on how to update information.
Activity 6: Missing words – The impact of digital

communications on business activity, page 117
Complete the following paragraph using the words below.
jobs, leaner, costs, home, electronically, global, social media, productivity, retraining.
competition, accounting, mobile
Digital communication is about sending and receiving information electronically. It has

transformed business activity. There is now greater competition and trade has become more
global. The productivity of workers has been increased and production costs have fallen as a
result. All the functional departments of businesses have been affected. Finance departments
can store and process accounting information more quickly. Marketing departments use
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websites and social media to reach potentially huge markets. Production is now leaner as
what is being produced can be changed much more quickly. Human resources departments
have seen more staff working whilst mobile or working from home. Many workers have
benefited from the changes to business activity but some have lost their jobs or had to
undergo retraining.
Activity 7: Research – How digital communication

influences business activity, page 118
Choose one business function that you are interested in – marketing, human resources,
production or finance. Use a search engine such as Google to find out information about a
business. Write a report summarising the main ways in which the business function within
the business has benefited from the use of digital communications. For example, you might
want to find out more about the ‘Choose Happiness’ Twitter campaign run by Coca-Cola.
Come up with some facts and figures, such as sales, market share, costs and profits, if you
can that measure the impact on the business.
The content of the report will be determined by the information that the learners can access
on the websites that they research. They may be able to find information about:
 sales figures
 growth/decline in sales
 market share and changes in this
 production costs
 profits and changes in these over time.
Practice questions
Multiple choice
1. Which of these statements is false?
a) Digital communication involves the electronic transfer of information.
b) Mobile phones, computers and tablets are ways in which information can be
transferred electronically.
c) Digital communication is always better than non-digital communication such as
people coming together in meetings.
d) Digital communications has been a major force behind the globalisation of business
activity.
2. Which of the following is not advantage of meetings?

a) There will usually be a record of formal meetings in the form of minutes.
b) The sender of the message can always be seen as well as heard by the receiver.
c) The sender can check immediately with the receiver that he or she has understood
the message.
d) It is a way of avoiding confrontation when the message is given.
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3. Which of the following is not true about developments in digital communications?

a) It has helped to increase the globalisation of business activity.
b) The development of digital communications has benefited all workers.
c) The development of digital communication has increased competition between
businesses often leading to lower prices for customers.
d) The development of digital communications has made it possible for some workers
to work at home and whilst travelling.
Data response 18
1. Explain two ways in which Ryan and White Ltd may use digital communications. (6)
 A website or Twitter or Facebook (or similar) to advertise the dresses (including the use
of pictures) and the kind of services offered. These are reasonably cheap methods of
communicating.
 Email to communicate with potential or actual buyers to exchange details about what is
required and what can be offered. Again a cheap method of communicating. It provides a
personal service and is useful with busy people who may be difficult to get on the phone.
It could lead to follow-up phone calls.
2. Evaluate the importance to Ryan and White Ltd of having a shop where sales staff can
meet with customers. (3)
 Personal contact will be critical as the buyer will need to discuss the requirements in
detail and probably at different stages, as the dress is being made and once it has been
completed, to see if it is correct. The buyer will judge the business by how well the sales
staff communicate and can reassure the customer that it can deliver what is needed. It is
expensive but customers are willing to pay a lot for a wedding dress.
Data response 19
1. Explain how product innovation has helped Amazon to grow. (2)
 Product innovation is about developing new products. Use an example of a new product
such as a Kindle or tablet or iPad and how people can download electronic books and
films etc. to them. Explain the advantages of this in terms of speed and cost – services
that customers like.
2. Explain why Amazon was able to offer books ‘at cut prices’. (3)
 Explain how having a warehouse, perhaps on cheap land, would save money compared
to having shops on the high street where rents may be high. Explain possible savings in
wages as sales assistants are not needed, only workers in the warehouse to store and pack
the books, and people controlling the website (as well as the normal marketing and
finance workers). Show that the costs of these workers could be spread across huge
numbers of sales so making the cost per item sold low.
3. Analyse how the digital technology helped Amazon to increase the size of its potential
market compared to traditional, high street bookshops. (3)
 Amazon was able to reach a larger market by advertising online. It created a website.
This could be accessed by people from all over the USA. By offering delivery, Amazon
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could sell all over the US and eventually all over the world. There was no point in high
street book sellers advertising much more widely than the local town because customers
would not travel very far for book usually. This limited their market size.
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3.4 Recruitment and selection

Activity 1: Missing words – The importance of recruitment
and selection, page 122
Use the words given below to complete the paragraph about the importance of recruitment
and selection.
expensive workers costs success
wasted interviews methods selection
Recruitment and selection are very important to businesses. The workers in a business make
it successful or not. Recruiting new staff is expensive. If good staff are not recruited by
firms, money spent on the recruitment process is wasted. Also the productivity of workers
may fall which may raise the costs of the firm. For this reason, using correct the recruitment
and selection methods is important. Interviews are one way of finding out about people but
they can give the wrong impression. Many firms now plan their recruitment and selection
very carefully – employing good workers can be the difference between success and failure
for a business.
Activity 2: Explanation – Why businesses recruit, page 123

With reference to the case studies about Mario Ballotelli and the costs of replacing staff and
any other business you are familiar with, evaluate the importance to businesses of
recruiting staff effectively.
Recruitment is important in the following circumstances:

 The business is starting up or growing.
 To replace staff who have left for some reason.
 It has changed its production methods and needs a different kind of worker – usually
skilled workers.
 In the case of Balotelli, recruitment was crucial to the success of the team. It was a very
expensive recruitment – other recruitments are less expensive but it still costs a lot of
money on average, as indicated in the second case study. Also, the Balotelli case shows
that making an incorrect decision can have a negative effect on the performance of the
business, in his case because he may have caused friction in the team leading to disunity
and because he did not perform as expected on the field. The same problems can be
experienced in other businesses where there are divisions amongst the staff or someone
is not pulling their weight. For example, a cleaner at McDonalds who does not do his or
her job properly could affect the sales of the restaurant. (Any other relevant example
here).
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Activity 3: Drawing up – Job descriptions and person

specifications, page 124
Draw up a job description and a person specification for the following:
a) a teacher of business studies
b) a job that you have done – the work experience or part-time employment that you have
had
c) a job that a relative or friend does.
Compare your job description and person specification with those drawn up by a fellow
pupil. Evaluate each other’s work – what is good about it, how could it be improved and
explain your suggestions.
 The job description should identify the tasks that the worker will have to complete,
whilst the person specification should outline the personal qualities and aptitudes the
person will need to complete the tasks.
For a teacher the tasks may be:

 develop Schemes of Work
 plan, prepare and teach lessons
 mark pupils’ and give feedback
 assess and report on pupil progress
 promote discipline
 communicate with parents
 take part in staff meetings
 take part in INSET
 complete duties of a form teacher
 direct the work of Teaching Assistants.
Qualities may include:

 degree
 PGCE
 have knowledge of the national curriculum; examination board specifications
assessing/recording/report; statutory requirements such as Child Protection, Health and
Safety etc.
 personal skills and aptitudes such as good communication skills, approachable,
committed, empathetic, enthusiastic, organised, patient and resourceful.
Activity 4: Explanation – Internal and external recruitment,

page 125
For each case below, state whether you would recommend the use of internal or external
recruitment and the method you would use. Give reasons for your choice. What problems, if
any, may the firm have to deal with as a result of your recommendation?
a) The local council needs to appoint someone to cover for the office manager while she is
on maternity leave. She is expected to be on leave for six months.
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 External recruitment as internal recruitment would leave another post to be filled

temporarily and an internal recruit would need less training and would not have to give
notice so could start sooner. Could use a local newspaper, word of mouth, social media
(or other relevant example) – the method used needs to be cheap and to reach a local
audience.
b) Computec Ltd assembles computers. Its production of computers has increased by 20

per cent in the past year and is expected to rise by a further 15 per cent in the coming year.
It needs to employ one more technician to add to the eight technicians that it already
employs to assemble computers.
 External as the firm is looking for additional workers. Could use a local newspaper, word
of mouth, social media (or other relevant example) – the method used needs to be cheap
and to reach a local audience.
Activity 5: Explanation – Criticising a job vacancy

advertisement, page 126
Look at the following advertisement. Explain why it is not very good.
Ingham’s Catering Ltd

Clerical Assistant required
Start as soon as possible
Contact: John Meeks
Possible points include:

 information is incomplete – it needs more information about the nature of the work, pay
and conditions
 contact details are incomplete – no address, email, telephone number
 it would possibly have benefited from information about how to apply or find out more
about the job.
Activity 6: Explanation – Advertising a vacant post, page

127
Embassy Caravans makes folding trailer tents. The business was set up in 1953. It now needs
to recruit a production worker to work in the factory making the tents. All production
workers need to be able to do some woodwork, welding and sewing of materials. The basic
pay will be between £20,000 and £25,000 per year, depending on experience. Overtime is
available when the factory is busy. The address is Unit 10, Industrial Estate, Ormkskirk L31
5XY. The telephone number is 01695 558899. Applicants will be expected to telephone for a
discussion about the job and to ask for an application form.
a) Draw up an advertisement for this post. You should use some of the information
provided but you do not have to use it all. The advertisement will go in the local newspaper,
which charges according to the number of words – so keep the number of words to a
minimum.
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 Name and address of the business.

 A brief description of what the business produces.
 Job title and brief description including skills required.
 Pay.
 Telephone number to enable contact.
b) Explain why the firm would ask people to telephone for a discussion about the job before
sending out an application form.
 It will give the firm an idea of whether or not the person is in anyway suitable. The firm
can then send out an application to only suitable people. It will stop some people wasting
time completing the application form and save the firm from having to read applications
from clearly inappropriate people.
c) Write a short explanation as to why you have included each piece of information in the
advertisement.
 Name and address of the business – so that the applicants know where the business is
located and can decide if they could travel to it or not.
 A brief description of what the business produces – so that the possible applicants can
decide if they have experience in the relevant line of work.
 Job title and brief description including skills required – so applicants know what will be
required of them and help them to decide whether or not to apply for the post.
 Pay – so the applicants know if the pay is at the level they want.
 Telephone number to enable contact – so the applicants can call for further information.
All the information provided will help to encourage appropriate people to apply and
discourage inappropriate applications, so saving time for the personnel department at the
firm.
d) If possible, use a computer to create the advertisement.
Activity 7: Explanation – Recommending media to use in

recruitment, page 129
Recommend suitable media to use to advertise the jobs given below. In each case give
reasons for your recommendations. Note that there may be no single correct answer; you
may want to recommend more than one medium.
a) Bowton Hospital wishes to appoint a doctor who is a cancer specialist.

 A specialist magazine (such as the Lancet) which will be read by specialist doctors
wanting to keep their knowledge up-to-date and, perhaps, looking for new jobs. It would
also be possible to advertise on websites – the hospitals, for example, or medical
recruitment specialist sites.
b) A large, multinational sports clothing firm needs to employ an experienced sales

manager to head its European section.
 A website specialising in the recruitment of senior sales staff, the website of the business,
national press – in the UK and abroad, through a recruitment agency. These would be
directed at the kind of worker likely to apply, cost is not likely to be a key issue. The
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recruitment agency would be able to identify potential candidates and target them and
then shortlist them.
c) The supermarket in Marston needs to appoint three part-time check-out staff.

 Again, a recruitment website perhaps aimed at lower paid workers, the local press, on a
card in the shop or the company website. The firm will be looking for local workers only
and will want to keep recruitment costs low (as there may be a high turnover of such
staff).
Activity 8: Role play – Interviews, page 131

a) Plan an interview for a job. Choose either the administrator for the Functional Skills
Project, using the information on page 124, or the job that you wrote about in Activity 3.
Using the information in the job description and the person specification, write down some
questions that you would ask.
b) Carry out the interview. One of the people in the class will need to volunteer to be the
applicant. The applicant may need time to prepare their answers.
c) Discuss what was good about the interview and what could have been better. For
example, what information did you get that you needed? What further information do you
need to make a decision about whether the person would be suitable or not? How would
you change the interview? What other sources of information would you use?
The learners are likely to be able to come up with their own ideas, but the following
suggestions may be useful:
 Questions will include: why the person wants the job, previous experience, what skills
and qualities they have to offer, when they can start. It might also be useful having some
questions about how to deal with particular situations such as how to deal with difficult
people (customers or colleagues) etc.
 In discussing the interview, learners should consider how well the question was
answered, the pithiness of answers and the clarity of the response and confidence of the
respondent. Learners should also consider the overall impression made by the
interviewee – would they be a good person to work with in a team, for example, or
would the person be more suited to working on their own. (This, of course, needs to
sensitively handled.)
Activity 9: Explanation – Sources of information about job

applicants, page 131
For each of the situations described below, recommend how the organisation should get
information about applicants for the job. You may recommend more than one source. Give
reasons for your recommendations. Each of the organisations expects to receive a large
number of applicants for the jobs.
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a) Homesafe Insurance plc requires experienced clerks able to use spreadsheets to keep
financial data, word-processing for writing letters and electronic presentation software for
creating presentations.
 A letter of application and CV would summarise the candidate’s relevant experience and
qualifications as well as showing how well they could write (including spelling,
punctuation and grammar) and present information which would be part of their job.
 It would also be useful to give shortlisted candidates a test or activity to complete at
interview, such as completing a spreadsheet or designing a presentation, to test their
skills.
 A reference from a previous employer would be useful to confirm, or otherwise, any
impressions gained from the other sources of information.
b) Bowton Borough Council requires five road sweepers for the summer period when the
town is busy.
 Perhaps just ask them to telephone and give them an informal interview. The jobs are
unskilled and the type of people who would do this work are not likely to be comfortable
writing application forms. Some information to be sent by email pro forma might be
useful.
c) Abbey Homes Ltd builds and sells houses in most regions in the UK. Sales have been poor
for the past two years compared with other house builders. The firm needs a marketing
director with responsibility for sales throughout the country.
 Abbey Homes Ltd could ask a recruitment agency to gather information, for example, a
letter of application and CV. An interview would be essential to discuss ideas. The
shortlisted candidates might be asked to give a presentation to share their ideas about
how they could increase sales.
Activity 10: Flow chart – The process of recruitment and

selection, page 132
Complete the flow chart below by putting the terms about recruitment and selection next to
the appropriate stage in the process. The first one, interviews, has been done for you.
• interviews
• letter of application
• job centre
• national newspaper
• number of employees
• CV
• specialist magazine
• application form
• type of employees
• references
• job description
• tests
• website
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• when the workers will work

• word of mouth
• local newspaper
• person specification
Stage Terms
Needs analysis number of employees

type of employees
when the workers will work
Advertising the post job centre
national newspaper
specialist magazine
website
word of mouth
local newspaper
job description
person specification
Shortlisting letter of application
CV
application form
Final stage of selection interviews
references
tests
Practice questions
Multiple choice
Danielle Smith runs the BWHF business. The business sells bottled water to organisations in
the Bowton area. She needs to recruit a worker to help with the delivery of the water and to
act as a sales person.
1. Which of the following items should Danielle include in a job description?

a) The person must deliver water to the customers.
b) The person must have a clean driving licence.
c) The person has to have good communication skills.
d) The person must have good inter-personal skills.
2. Which of the following items should Danielle write in the person specification for the
job?
a) The person should collect empty bottles from customers.
b) The person is responsible for finding new customers.
c) The person will be punctual and reliable.
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d) The person will keep records of customers visited.

3. Danielle has decided to advertise a job on the website indeed.co.uk. ‘indeed’ will charge
60p per click and £1 for each time BWHF Ltd contacts an applicant. 350 people clicked on
the advertisement and BWHF Ltd contacted 16 people who had posted CVs. How much did
it cost BWHF Ltd to advertise the job?
a) £226
b) £262
c) £622
d) £662
Data response 20
1. Explain two advantages of using external recruitment for this job. (4)
 It brings in fresh ideas to help the business to develop.
 It saves recruiting further staff, which would have to be done if internal workers had
been recruited.
 It prevents possible upset amongst staff jealous of colleagues being appointed to a post or
feeling the appointment was inappropriate.
2. a) Explain one possible advantage of advertising this job on a recruitment website. (3)
 It is likely to be seen by a lot of potential applicants as people now commonly look at
these for jobs.
 It is likely to be seen by appropriate applicants as they can do job searches and suitable
workers may get ‘alerts.’
 It is cheap to use so saving money for the firm when recruiting.
b) Explain one possible advantage of advertising this job in a national newspaper. (3)
 There is a geographically wide readership. Particular papers are read by specific types of
people and so national newspapers provides a wide range of appropriate applicants.
c) Recommend whether the Met Office should use a recruitment website or a national
newspaper to advertise the job. Give reasons for your recommendation. (3)
 A website because it will target interested people if it is an appropriate site. The people
with relevant skills are likely to be comfortable computer users and the firm would
expect the workers to be comfortable using computers. It would be cheaper than a
national newspaper and the job is most likely to suit a local person.
3. Recommend two methods of selection that the Met Office should use to select from
short-listed candidates for the job. Give reasons for your recommendation. (7)
 Interview. To test personal skills such as communication, dealing with pressure,
answering/communicating clearly and seeing if the person is someone they would feel
they could work with/rely on.
 Test, for example, word processing, to test if accurate enough, if quick enough, if
presentation is good enough, if the work can be done in a pressure situation.
 An organisation problem, for example, prioritising a number of tasks in order to test
organisational skills and the ability to work quickly under pressure.
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3.5 Motivation and retention

Activity 1: True or False – The benefits and costs of
motivation, page 137
Place a tick next to each of the statements to indicate whether they are true or false.

If a worker improves productivity they will produce more than they ✓
used to in the same amount of time.
If workers in a car factory improve their productivity, the cost of ✓
producing each car will fall.
Motivated workers will always want to leave the business to work ✓
elsewhere.
Training costs will usually fall if staff turnover is high. ✓
Increased motivation reduces costs because workers are less likely to ✓
be absent.
Motivated workers need a lot of supervision to make sure they work ✓
hard.
Increased motivation saves on training costs because workers are likely ✓
to remain working for the firm for longer and fewer new recruits are
needed.
Motivated workers may help to reduce business costs because they will ✓
take pride in working accurately so reducing waste.
Motivation systems can be expensive as managers need to be paid to ✓
run them.
Financial methods of motivation increase total business costs. ✓
Motivating workers always reduces the average costs of producing ✓
goods and services.
Activity 2: Calculations – Methods of pay, page 141

For each of the following:
a) state the method or methods of pay being used to reward each of the following workers
b) state the amount of pay that each worker would receive in the given time period.
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• Angus Deade receives £9 per hour and works a 35-hour week. In May, he worked four
weeks. He also worked 12 hours overtime at time and a half.
 Time rate, overtime. £9 x 35 = £315 x 4 = £1,260, 12 x £4.50 = £54, £1,260 + £54 =
£1314.
• Fabrice N’gono is paid a basic salary of £800 per month to pack spices. The team he
works with are entitled to share a bonus of £960 pounds each month if they achieve the
target number of packets. There are 8 workers in the team including Fabrice. The team
met its target in the month.
 Salary, bonus. £920 in the month
• Alastair Munro is the managing director of a firm. He receives £80,000 per year. He is
also paid 2% of any profit that the company makes. In the last year the company made
£2m in profit. He has a company car and is given free health insurance.
 Salary, profit-sharing, perks or fringe benefits. £120,000 plus fringe benefits.
• Wasim Ikram earns a basic salary of £30,000 per year. In October he received a bonus of
15% of his salary when the output of production department that he manages was 25%
greater than the target level. Calculate his earnings in the year.
 Salary, bonus, £34,500.
Activity 3: Financial methods of motivation, page 141

For each of the following financial methods of motivation:
a) explain briefly how it works to motivate workers
b) explain one problem or disadvantage to a business of using that method.
Methods:
• pay
• profit-sharing
• bonus
• fringe benefits.

 Pay can include hourly rates or a salary. These are rewards for working and people will
be motivated to work as long as they feel their pay is fair, is at least as good as in other
jobs and better than any welfare benefits they could receive. Learners may argue that the
more a person works the more they will earn if paid an hourly rate.
 Profit sharing encourages those workers who benefit from it to work effectively and
efficiently so that the business is profitable and they will get a share of it.
 Bonus. The worker is encouraged to achieve a target in order to receive the bonus
payment.
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 Fringe benefits. Workers often value these because it saves them spending their money,
for example, on cars or health insurance.
Possible problems are:
 Pay. The higher the pay, the higher the cost to the firm.
 Profit sharing. This may reduce the profits enjoyed by shareholders.
 Bonus. Workers may not be motivated if targets they must reach are unrealistic.
 Fringe benefits. Cost the business and may reduce profits. They may not be performance
related.
Activity 4: Non-financial methods of motivation, page 143

For each of the following non-financial methods of motivation:
a) explain briefly, with the aid of an example, how it works to motivate workers
b) explain one problem or disadvantage to a business of using that method.
Methods of motivation:
• praise
• awards
• the working environment.

 Praise makes workers feel good about the job that they have done. A Headteacher may
praise a teacher whose class gains good GCSE results. Praise is important in this context
because, usually, schools do not give financial rewards for the good work of their staff.
 Awards give public recognition to people who have done well, such as the lapel badges
given out by McDonalds.
 The working environment includes the physical conditions in which people work as well
as the way in which people are treated. Workers who are consulted about changes or who
are offered the opportunity to take part in activities (such as the firm’s football teams or
choir) will enjoy these and feel respected.
Possible problems are:
 Praise. Some people may not feel that the praise is genuine or they may expect that they
will get a promotion of some kind in the future.
 Awards. Workers can become cynical about these unless some financial reward is also
forthcoming at some point.
 Working in dangerous conditions, such as mines or oil rigs or in war zones, is not
motivating for workers unless there is financial compensation.
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Activity 5: Zone activity – Non-pay methods of motivation,

page 143
Match the non-financial method of motivation listed below to the example given in the
table. You need to use them more than once.
a) Praise for good workers
b) Awards for good workers
c) A positive working environment
Examples of non-financial methods of Non-financial method of
motivation motivation
Some firms have an annual event when b) Awards for good workers
these are given out to workers to
recognise their good work.
This might involve consulting with c) A positive working
workers to make them feel valued. environment
This might just be a word of thanks over a) Praise for good workers
a coffee break but it acknowledges good
work by the worker.
These might include certificates or gifts. b) Awards for good workers
This might be created by team bonding c) A positive working
sessions such as a firm’s day out at the environment
races.
This might result from painting an office c) A positive working
and putting new furniture in it to make environment
the workers feel they are being treated
well.
Practice questions
Multiple choice
1. A worker is paid £8 per hour for working a 35-hour week. On top of this, the worker was
paid a bonus of 10% of his wage for the week. Calculate how much the worker earned in
the week.
a) £280
b) £282.80
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c) £308
d) £420.
2. Which of these is a financial method of motivating workers?

a) award
b) praise
c) a good working environment
d) profit-sharing.
3. Which of these is a disadvantage of a method of motivating workers?

a) an increase in some of the costs of the business
b) increased retention of workers
c) increased productivity of staff
d) a reduction in absenteeism
Data response 21
1. State one financial method of motivation that United Utilities uses. (1)
 Competitive salaries, pension scheme, bonuses.
2. State one non-financial method of motivation that United Utilities uses. (1)
 Free transport
3. a) Analyse one possible advantage to United Utilities of paying a bonus to its workers. (3)
 To receive the bonus, workers need to achieve a target. This will incentivise the workers
to work harder. It raises their productivity. United Utilities will get the job done faster,
for example, pipe laying, which will minimise the disruption from digging up roads.
Improved productivity will reduce unit costs, increasing profits.
3. b) Analyse one possible disadvantage to United Utilities of paying a bonus to its workers.
(3)
 The disadvantage is the cost of the bonus, which may increase the overall cost of the firm
and reduce its profits. There will also be the cost of administering the scheme i.e.
measuring the output of the workers and arranging for the payment. It is possibly
divisive if the bonus is given to teams of workers and some in the team do not work as
hard as others but still receive the bonus.
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3. c) Recommend whether or not United Utilities should use bonuses when paying all staff.
Give reasons for your answer. (3)
 The decision depends on whether the extra productivity and savings in charges exceeds
the cost of the bonus. It can be argued that workers should not need a bonus to encourage
them to do the job they are paid for but, in reality, it will encourage them to work faster
and the firm may be able to do additional work as a result. It might also be that the basic
salary can be reduced to provide the money for bonuses (though the case study says that
competitive salaries are given). If United Utilities are charged if they take longer than
they should when completing a job, for example, digging up the road for longer than
agreed with the local council, then paying the bonus may save them money.
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3.6 Training and development

Activity 1: Explanation – The benefits of training, page 147
a) Read the two case studies about Starbucks and Beaverbrooks.
Using the information from the case studies:
i) explain the difference between training and development
 Training is specific to a job. It tends to focus on making improvements in the
performance of the worker in the short term. It focusses on practical learning/skills.
 Development is more long term and focusses on the overall improvement of the worker
and growing their potential to enhance future performance. It is more likely to include
theoretical learning as well as practical.
ii) write down any benefits that the workers may gain from training or development
 Can earn more pay – work faster/better.
 Improved career prospects – qualifications, experience.
 Improved self-esteem – because invested in by the company.
 Greater job satisfaction – can do the job better.
 Change from the daily routine – e.g. time out of work at training programme.
iii) write down any benefits that the businesses may have gained from the training and
developing workers.
 The business develops – workers can make new products.
 Productivity improves – output per worker rises, costs fall.
 It may reduce skill shortages – so the business can continue/expand production.
 Improved customer service – increases sales, consumer satisfaction.
 Improved motivation and retention – workers work harder, are less likely to want to
move and so reduces recruitment costs.
b) Training and development costs money. Explain why it might have helped these firms to
increase their profits.
 If it increases productivity, the cost of the training will be offset by the increased output
of workers and therefore the reduction in the cost of production per unit. This will
increase profits. Also, the business could reduce prices to increase sales but still maintain
the same profit margin.
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Activity 2: Matching terms – Training needs, page 148

The left-hand column of the table below gives business situations where people need
training. Match the situation to the different training needs given in the right-hand column.
You will need to explain your answers.
Situation Training need

Business growth – Annabel is opening a Annabel’s, a hairdressing salon, has taken on a
new part to the business. young trainee, Colin Wynne. Colin starts work next
week. He needs to be told about the business, how
he is paid, what he can do at lunch-time and other
basic, practical matters.
New products – the staff will need to be The owner of Annabel’s hairdressing salon wants to
familiar with the new games and extend the range of services it offers. She has taken
computers the shop sells. a lease on the shop next door and will offer a range
of beauty and therapy treatments. One of her
assistant hairdressers, Jamelia, has shown a lot of
initiative and she has booked her on to a series of
courses so that she knows how to provide the
services when the shop opens.
Induction training – Colin is new to the Hattersley Engineering Ltd is finding it difficult to
business and induction training will recruit engineers for its plant in Shrewsbury. It has
introduce him to it. offered training opportunities to two technicians it
employs to make them fully-qualified engineers.
Motivation and/or retention – the Ian Daly has been a machine operator at Lathom’s
business does not want to lose Ian even Paints for 15 years. New machinery has been
though his job no longer exists so it is developed to do the work he did. The firm does not
training him to do a different job. want to make him redundant. It has sent him on a
training course to learn how to work in the
warehouse.
Improving productivity – productivity TechWorld Ltd provides training each week on the
will be improved because, using the new new computers and games consoles that it sells.
software, the workers will be able to do
more work in the same amount of time.
Solving skill shortages – the business is Hudson Solicitors has bought new accounting
struggling to recruit new engineers so has software and has sent its two accounts staff on a
decide to train up two of its technicians to one-day training course to find out how to use this.
become engineers. The software should mean that the accounts staff can
do their work more quickly and, as the business
takes on more work, it will not need to employ an
additional accounts staff.
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Activity 3: Zone activity – Advantages and disadvantages of

on-the-job training, page 149
Read the statements below and decide which concern the worker and which the employer.
Write each one in the correct place in the table below. Some statements may apply to both
the worker and the employer.
• The quality of the training depends on the skills of the trainer both as a worker and as a
trainer. If the trainer has poor communication skills, the quality of the training may be
poor.
• The trainee is given individual training to meet their needs to improve his or her
performance.
• The worker produces goods and services while training and so the firm earns money.
• The trainer may need to leave his or her work to help the trainee and so production
may fall.
• The quality of the work may not be very good if a trainee does it. This could lead to
wasted resources and/or a poor reputation for quality.
• It is cheaper than off-the-job training as there are no travel or accommodation costs.
• The skills may be specific to that firm and this may make it difficult for the worker to
find work in another firm. This can improve the retention of workers and ensure the
firm gets a return on the time and effort it spends on training.
• The worker does not usually gain any specific qualification from on-the-job training. The
worker is trained to do the job in the way that the firm wants it done.
Advantages to the worker Disadvantages to the worker

The trainee is given individual training so The worker does not usually gain any
meets the needs of that worker to improve specific qualification from on-the-job
his or her performance. training. The worker is trained to do the job
in the way that the firm wants it done.
It is cheaper than off-the-job training as The quality of the training depends on the
there are no travel or accommodation costs. skills of the trainer both as a worker and as
a trainer. If the trainer has poor
communication skills, the quality of the
training may be poor.
The skills may be specific to that firm and
this may make it difficult for the worker to
find work in another firm. This can
improve the retention of workers and ensure
the firm gets a return on the time and effort
it spends on training.
98
Advantages to the employer Disadvantages to the employer

Trainee is given individual training so meets The quality of the training depends on the
the needs of that worker to improve his or skills of the trainer both as a worker and as a
her performance. trainer. If the trainer has poor
communication skills, the quality of the
training may be poor.
The worker produces goods and services The trainer may need to leave his or her
while training and so the firm earns money. work to help the trainee and so production
may fall. The quality of the work may not
be very good if a trainee does it. This could
lead to wasted resources and/or a poor
reputation for quality.
It is cheaper than off-the-job training as
there are no travel or accommodation costs.
The skills may be specific to that firm and
this may make it difficult for the worker to
find work in another firm. This can improve
the retention of workers and ensure the firm
gets a return on the time and effort it spends
on training.
Activity 4: Explanation – The benefits of off-the-job training,

page 150
a) Explain the benefits of off-the-job training for workers.
 It makes workers feel valued.
 Workers may enjoy the change of environment.
b) Explain the benefits of off-the-job training for a firm.

 The training is by outside experts who may introduce new ideas and it saves the need for
a business to use their own workers to act as trainers.
 The worker can use specially-designed equipment to help them to learn.
 External training may be necessary to improve safety – on the job could be risky.
c) Explain the problems of off-the-job training for a firm.

 Often costly – they must pay for the course, expertise, travel.
 Lost production as the worker is away from their job.
 The trainers may not do things in the way the business wants them done.
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Activity 5: Explanation – Explaining induction training, page

152
a) What is induction training?
 Training for newly appointed staff to make them familiar with the business.
b) Explain one advantage to the worker of induction training.

The new worker:
 gets to know colleagues
 is made to feel welcome
 gets to know the place of work e.g. rest facilities etc.
 learns what is expected of him/her
 learns about the culture of the business
 it may help them to work more safely.
c) Explain two advantages to the business of providing induction training for its employees.
 The worker should know the health and safety procedures which improves their safety
and reduces the possibility of the business having to pay compensation.
 The worker will be more efficient/effective if they feel comfortable in the place of work,
know their colleagues etc.

professional development, page 155
The statements below are either advantages or disadvantages of professional development
(vocational or academic) for businesses or for firms. Put them under the correct heading in
the table below.
• It can improve the motivation, performance and the productivity of the worker.
• The worker can gain qualifications and experience which can lead to career
opportunities in the future.
• It can help to retain workers if they see opportunities for career progression in the
business.
• It can help to meet the future staffing needs of the business – as a worker leaves, there
may be another ready for promotion.
• It can cost a lot of money.
• It can be very hard work.
• There is no guarantee that it will lead to career progression.
100
• It can be satisfying to be supported at work and is good for self-esteem.

• Once the worker is better qualified and skilled he or she may find it easier to get jobs in
other businesses leading to problems of retention.
• It can increase the earnings of the worker.
• It can help to recruit high quality ambitious workers.
Advantages of offering professional Disadvantages professional development

development for businesses for businesses
It can improve the motivation, performance It can cost a lot of money.
and the productivity of the worker.
It can help to meet the future staffing
needs of the business – as a worker leaves,
there may be another ready for promotion.
It can help to recruit high quality ambitious
workers.
It can help to retain workers if they see
opportunities for progressing their careers
with the business.
Advantages professional development for Disadvantages professional development
workers for workers
The worker can gain qualifications and It can be very hard work.
experience which can lead to career There is no guarantee that it will lead to
opportunities in the future. career progression.
It can be satisfying to be supported at work
and is good for self-esteem.
Once the worker is better qualified and
skilled he or she may find it easier to get
jobs in other businesses leading to
problems of retention.
It can increase earnings of the worker.
Activity 7: Research activity – Career planning, page 156

Investigate an occupation that you are interested in. Find out the qualifications that you will
need to do the job. Your careers library and the internet will be good sources of
information. Develop a plan to describe how you will gain those qualifications. Write up
your findings and your plan as a personal action plan. Note that you may need to gain both
academic and vocational qualifications as part of the plan.
101
 The work produced by the learners will depend on what occupation they choose to
investigate.
Practice questions
Multiple choice
1. Which of the following is a feature of off-the-job training?
a) The worker continues to produce goods or services whilst training.
b) It is a cheaper way of training workers than paying for them to go on courses.
c) This is when workers are trained in a college or training centre away from where
they do the work.
d) It never leads to a qualification for the worker.
2. Which of the following is a feature of professional development?

a) It is a kind of short term training.
b) It is designed to realise the potential of a worker in the long term interests of the
business and the worker.
c) It is designed to improve the skills of the worker to do a specific task.
d) It usually involves on-the-job training only.
3. Which of the following statement is true?

a) A vocational qualification is specific to a particular type of job.
b) An academic qualification prepares a worker for work in a specific business.
c) An apprenticeship is offered to senior managers who want to develop their skills
further.
d) An apprenticeship involves only studying at university.
Data response 22
1. Dream Days Ltd must train new cabin crew staff about what to do in an emergency.
Recommend whether Dream Days Ltd should use on-the-job or off-the-job training for this.
Give reasons for your answer. (4 marks)
 Off-the-job makes sense. Workers are being trained to ensure the safety of passengers. It
would make sense to simulate situations so that staff know what to do in the event of an
emergency. Training on-the-job would be a risk, workers who are not properly trained
are more likely to make mistakes if things went wrong it would endanger passengers and
102
Dream Days Ltd would be liable for this. This is about the safety of passengers and you
could not train them during an actual emergency
2. Dream Days Ltd is concerned that some of its cabin crew do not deal with complaining
passengers very well. Recommend a method of training that would improve the personal
skills of the cabin crew. Give reasons for your answer. (7 marks)
 Role play. Trainers could teach workers how to treat passengers and then the worker can
practice this as actors play out roles. It would give them as near real experience of
dealing with complaining passengers as possible. The trainers could give them feedback
on their performance to improve performance further. They would then be able to apply
this experience in dealing with passengers in the work situation.
3. Dream Days Ltd provides induction for all new workers. Analyse how i) the workers and
ii) Dream Days Ltd will benefit as a result of the induction course. (6 marks)
 The induction course should allow workers to get to know colleagues, help them to be
comfortable in the workplace, they will feel safer and know where things are, who to see
about specific issues, for advice etc.
 Workers will settle to their jobs more quickly, will work more efficiently more quickly,
feel more motivated because they have been helped to settle in. It should help to avoid
health and safety problems.
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3.7 Employment law
3.7 Employment law

Activity 1: Research – Case studies, page 161
Choose one of the ways in which workers may be unfairly treated from the seven readings.
Research an example of a real world case where a worker has been treated unfairly for the
area you have chosen. Write a brief summary of what happened.
 Using the terms in Google, the BBC website, newspaper websites (local and national)
and the like should lead to stories that are current or recent.
 In the summary, learners should describe what happened and why it was a problem. If
the article gives them the information, the summary should include details of the
outcome of the case.
Activity 2: Matching terms – Equality Act 2010, page 162

The left-hand column of the table below gives cases that have been before an employment
tribunal. Match each one against the provision of the 2010 Equality Act which covers that
case.
• Equality pay
• Race relations
• Sex discrimination
• Disability discrimination
• Religion and beliefs discrimination
Case Provision in the 2010

Equality Act
Erik Pietzka was a manager at the Cardiff offices of Equality pay
PricewaterhouseCoopers (PwC). His marriage broke down and
his wife moved to Bury St Edmunds with his daughter, then
two years old. Mr Pietzka asked bosses at the firm if he was
able to work flexibly, to take two days off work a week to
spend with his daughter, as seeing her involved a four–hour
drive. This was initially refused but he was later was allowed to
take one day off. Bosses later blocked his chances of
promotion. Mr Pietzka resigned and then took the business to
a tribunal on the grounds that this was unfair as women at the
company were much more likely to be approved for flexible
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3.7 Employment law
working.
Adapted from telegraph.co.uk, 4 November 2014
Meseret Kumulchew worked at a Starbucks café in Clapham Disability discrimination
Junction in London. Ms Kumulchew was responsible for taking
the temperature of fridges and water at specific times and
recording the results. She made mistakes entering this
information on forms. This was due to her dyslexia which she
had told Starbucks about and which caused her difficulties with
reading, writing and telling the time. She was given lesser
duties and told to retrain, which left her feeling suicidal.
Adapted from bbc.co.uk, 9 Feb 2016
Two Muslim workers at Tesco, Abdirisak Aden and Mahamed Religion and beliefs
Hasan took Tesco to a tribunal after supermarket bosses kept discrimination
their prayer room locked. They were among a number of
devout Muslim employees who had lobbied for a prayer room
since 2006. In 2008, managers agreed to set aside a security
office at the distribution depot in Crick, Northamptonshire, as
a prayer room for Muslims. But in 2012 bosses set new
restrictions on the use of the room which included keeping it
locked when it was not in use. Muslim workers were forced to
tell managers when they were going to pray and had to ask for
the key and fill in their names in a book every time they
entered the room. They also claimed they were forbidden to
worship in groups and were only allowed to pray one at a time.
Adapted from dailymail.co.uk 12 June 2016.
Female shop workers at Asda say that they have been unfairly Sex discrimination
treated because they consider their jobs to be of equal value
to those of men in distribution centres who are receiving
higher pay. One Asda store worker said that the work was the
same whether you were in the shop or in the warehouse -
packing and unpacking pallets of clothes and food and putting
stock on shelves, often through the night. The outcome of case
had not been decided at the time of writing this book.
Adapted from bbc.co.uk, 24 October, 2014
Carol Howard was a black, female, firearms police officer in the Race discrimination
in the Diplomatic Protection Group (DPG) in London. She Sex discrimination
claimed she had been discriminated against in two ways. She
said that her boss had undermined, discredited and belittled
her. Her ‘every absence’ was assumed not to be genuine, she
was booked on to shooting sessions, her commitment was
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3.7 Employment law
challenged in front of colleagues and her application for an

armoured response vehicle role was not supported.
Adapted from independent.co.uk, 1 July 2014
Activity 3: Research – What happened in the discrimination

cases? page 163
Research each of the cases described in the table below. Find out whether the claims were
accepted and what reasons were given for the judgement by the tribunals each case. You
will find it useful to use a search engine such as Google and the website addresses given at
the end of each case.
Case Provision in the 2010

Equality Act
Erik Pietzka won his case. From the beginning of 2014 all Equality pay
workers, male and female, have been entitled to ask for
flexible working and PricewaterhouseCoopers (PwC) should
not have blocked his promotion.
Adapted from telegraph.co.uk, 4 November 2014
Meseret Kumulchew was found to have been discriminated Disability discrimination
against on the grounds of her disability.
Adapted from bbc.co.uk, 9 Feb 2016
Two Muslim Tesco, Abdirisak Aden and Mahamed Hasan Religion and beliefs
took Tesco to a tribunal after supermarket bosses kept their discrimination
prayer room locked. Tesco were found guilty of indirect
discrimination against these workers as it had not allowed
them to pray when they needed.
Adapted from dailymail.co.uk 12 June 2016.
Female shop workers at Asda are still waiting for their case to Sex Discrimination
be heard fully by a tribunal. Preliminary hearings have taken
place.
Adapted from bbc.co.uk, 24 October, 2014
Carol Howard was found to have been discriminated against Race discrimination
both as a black person and as a woman. Sex discrimination
Adapted from independent.co.uk, 1 July 2014
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3.7 Employment law
Activity 4: Explanation – Were entitlements to holiday

breached? page 164
The following case went to an employment tribunal. It was settled in 2014.
16 workers, a mix of electricians, scaffolders and semi-skilled operatives, worked on a
project at the West Burton power station site in Nottinghamshire until it came to an end in
2012. During that time, they were consistently required to work overtime and received
payments for travel time. Payments for that work were not included in holiday pay, meaning
that the workers received considerably less pay when on holiday, compared to when they
were working.
Should the workers have been paid more in holiday pay? Give reasons for your answer.
 Yes they should. It is now accepted in law that the holiday pay of workers should include
regular payments that they would receive whilst working. This includes payments like
commission and overtime pay. These 16 workers had been receiving regular overtime
pay and pay for time spent travelling and so should have been paid an amount that took
this into account, not simply their basic monthly salary.
Activity 5: Calculation – Maximum hours work per week,

page 165
A worker has worked 914 hours in a 17-week period.
a) Calculate the average number of hours that he worked during that period.
 54 hours per week
b) The worker was a plumber who was a full-time employee. Has the firm asked him to
work longer than allowed by the working time directive? Explain your answer.
 Yes. A firm can only ask a worker to worker to work 48 hours on average in a 17-week
period. However, the worker may have voluntarily opted out, that is, he worked the extra
hours willingly.
c) Another plumber also worked 914 hours for the firm in the same 17-hour period. He was
self-employed. Was the firm guilty of breaking the working time regulation in this case?
Explain your answer.
 The firm has not breached the working time directive because it does not apply to self-
employed people.
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3.7 Employment law
Activity 6: Zone Activity – Completing a statement of

employment particulars, Clinical Manager and Lead
Physiotherapist, Aigburth Physiotherapy Clinic, page 167
The following statements have been taken from a real statement of particulars for a
Physiotherapy Clinic and an employee (the names of the employer and the employee and
some details have been changed to protect their privacy). The table below shows the
headings typically found in a statement of particulars. Write each statement in the place
where it should go in the table to create a case study of a statement of particulars. The first
statement has been written into the table for you.
• £36,000 per year.
• Clinical Manager and Lead Physiotherapist
• 1 June 2016
• The employer will be entitled to 2 months’ notice from you and you will be entitled to 2
months’ notice from the employer.
• Payment in arrears on the last day of each month.
• The employer will comply with pension duties in accordance with Part 1 of the Pensions
Act 2008.
• Narendra Kumar, 15 Woodlands Road, Aigburth, Liverpool L17 5HR
• 25 days per year.
• No payment will be made for absences due to illness.
• Managing the physiotherapy team and treating patients.
• 37.5 hours per week normally between 8.30 am and 5.00 pm.
• Three months during which time your employment may be terminated at any time.
Statement of Particulars
Name and Address of Aigburth Physiotherapy Clinic, 22 Aigburth Road, Liverpool
Employer L17 2UG
Name and Address of Narendra Kumar, 15 Woodlands Road, Aigburth, Liverpool
Employee L17 5HR
Start date of employment 1 June 2016
Title of job Clinical Manager and Lead Physiotherapist
Description of job Managing the physiotherapy team and treating patients.
Hours of work 37.5 hours per week normally between 8.30 am and 5.00 pm.
Pay £36,000 per year.
When paid Payment in arrears on the last day of each month.
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3.7 Employment law
Probationary period Three months during which time your employment may be
terminated at any time.
Pension Rights The employer will comply with pension duties in accordance
with Part 1 of the Pensions Act 2008.
Holiday Entitlement 25 days per year.
Sick pay No payment will be made for absences due to illness.
Termination of The employer will be entitled to 2 months’ notice from you.
employment You will be entitled to 2 months’ notice from the employer.
Activity 7: Writing a statement of particulars, page 168

Suppose that you own a local newsagent’s shop. Draw up a statement of particulars for a
shop assistant who you have appointed to a full-time post. Use the example of a statement
of particulars in Activity 6 to help you.
Suggested approach:
 The answer should contain information next to or under each of the headings in the left-
hand column of the table in Activity 6. It will be useful if the learners complete all the
statements. This will make them think about, for example, how many holidays to allow,
what length the probationary period should be and so on. Their answers should provide
an opportunity for useful discussion about good employment practices.
Practice questions
Multiple choice
1. Which of the following is true?
a) An employer must give a worker a written contract of employment.
b) An employer must give a worker a written statement of particulars.
c) An employer does not have a contract with an employee until the worker has been
given a written statement of particulars.
d) An employer can cancel a contract of employment without notice at any time.
2. Which of the following would break discrimination laws?

a) An employer pays a woman sales manager more than a male sales person who has
made fewer sales than the woman.
b) An employer promotes a white person who has more experience than a similarly
qualified black person.
109
3.7 Employment law
c) An employer does not send a gay man on a training course attended by all
heterosexual workers doing the same job as him.
d) An employer spends money providing wheelchair access for workers.
3. The working time directive states that employers cannot normally ask workers to work
more than an average of 48 hours per week in a 17-week period. Calculate in which of the
following cases the employer has broken the working time directive.
a) An employer asks a worker to work 54 hours for 10 weeks and then 36 hours for the
next 7 weeks.
b) An employer asks a worker to work 714 hours in a 17-week period.
c) An employer asks a worker to work 850 hours in a 17-week period.
d) An employer asks a worker to work 60 hours for 9 weeks and 34 hours for 8 weeks in
a 17-week period.
Data response 23
1. Analyse two ways in which Sberbank may be affected as a result of failing to comply with
discrimination legislation in relation to Ms Lokhova. (6)
Possible answers include:
 The business may be fined because its employees have broken the law. This is a financial
cost to the business.
 It may receive bad publicity. This may affect sales and future recruitment.
 The business may need to consider its training of its staff so that this kind of
discriminatory behaviour does not take place. This will have a financial cost.
110
4.1 Production processes
4 Operations
Activity 1: True or False – Types of production, page 175

The table below gives statements about the different production processes. Tick one box
next to each statement to indicate if the statement is true or false.
Modern business do not use job production. ✓

Goods produced by flow production are usually made to suit the ✓
needs of individual consumers.
Flow production is suited to the manufacture of up-market sports ✓
cars.
It is cheap to set up a flow manufacturing process. ✓
Flow production is suited to large scale production. ✓
Job production does not require skilled labour. ✓
Working in a batch production process can be repetitive and ✓
boring.
Flow production does not require a workforce. ✓
Flow production workers are usually highly skilled. ✓
Job production workers are often highly skilled. ✓
Goods produced by job production are usually high quality. ✓
Many dangerous processes are best carried out by automated ✓
machinery.
Supermarket in-store bakeries use the batch production method. ✓
All businesses will try to introduce flow production. ✓
Job production enables products to be made to suit the needs of ✓
individual customers.
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Activity 2: Missing terms – Types of production, page 175

advantages and disadvantages volume of production disadvantages
process of production another type batch
product technology
There are several different types of production process – job, batch and flow. Each product
will usually be appropriate for a particular process of production. There are advantages and
disadvantages for each type of production but it does not necessarily follow that the
disadvantages of one type of production can be overcome by changing to another type of
production. Much will depend on the product being produced, the volume of production
and the ease with which technology can be introduced in to the production process.
Activity 3: Explanation -Types of production, page 176

a) For each of the production activities in the table below recommend one appropriate
method of production from the following list:
• job
• batch
• flow
b) Give reasons for your recommendations.
c) Explain the problems that the business may face as a result of using the method or
methods of production you have recommend.
Method of Reason for

Production activity Possible problems
production recommendation
A specialist tailor Job The suits are bespoke, The suits will cost a lot
makes made-to- being made to the to produce and
measure suits. exact requirement of consumers will have to
the individual pay high prices. The
customer. business may need to
pay to store different
materials so it is ready to
make suits when
ordered.
A specialist sports car Job Each car is The costs of production
manufacturer individually designed will be high.
produces cars to to meet the order
order. from the customer.
112
A multinational car Flow The car company The cars are of a

company producing needs to make large standardised design and
large numbers of cars numbers of cars. some customers may not
in the UK for export be happy with this.
to the rest of Europe.
A local bakery Batch The bakery will make Production time is lost as
producing a range of a quantity of one kind it is switched from one
bread and cakes for of bread or cake and type of bread to another.
distribution to shops switch to produce Workers may find the
within a 20-mile another kind. Output work repetitive and
radius of the bakery. is bigger than under boring.
job production.
The business needs to
stock enough ingredients
to make the different
kinds of bread, which
costs money.
An office furniture Job This is a bespoke The furniture will be
manufacturer product which needs costly to produce.
produces solid wood to be made to meet
office furniture to the exact needs of the
order. customer.
A sugar refinery Flow It will be possible to It will be expensive to
produces hundreds of produce the sugar set up the production.
tons of sugar each using a highly- The firm will need to
day. automated production arrange for raw materials
line which will keep to be delivered regularly
costs down. as needed. The work can
be boring.
A business produces Flow It will be possible to It will be expensive to
thousands of bottles produce the beer and set up the production.
of beer each day. The bottle it using a The firm will need to
bottles need to be highly-automated arrange for raw materials
washed, filled, capped production line, to be delivered regularly
and labelled. which will keep costs as needed. The work can
down. be boring.
A small company Job for the Each caravan will Job is slow and
produces three assembling need to be assembled expensive.
different models of the caravans singly on the
Batch may require stocks
caravan. Each model but batch for appropriate steel
of materials used in the
requires a different making the frame to meet an
components which will
steel frame. Some of different order. Since
cost money to store.
the components the components. quantities of the
Working in a batch
company makes are different types of
production process can
used in each of the components are used,
be repetitive and boring
three types of it can make batches
for workers.
caravan. of each type. This
will speed up
production and
reduce costs.
113

technology, page 180
The statements below are either advantages or disadvantages of technology for businesses.
Put each statement under the correct heading in the table.
a) Machines never have days off sick.
b) Output can be lost because of machine break-downs.
c) Making workers redundant costs money.
d) Workers have to be trained and this raises costs.
e) Machines don’t mind doing dangerous or boring jobs.
f) New products lead to new demand.
g) Lower production costs mean fewer mistakes, less waste.
h) Technology can be expensive to buy and install.
i) Lower production costs means fewer workers needed.
j) Customers do not always like technology.
k) Recruitment of new, skilled workers can be expensive.
l) Machines work 24/7.
m) Data needs protecting.
n) It allows for flexible production.
Advantages of using technology Disadvantages of using technology

a) Machines never have days off sick. b) Output can be lost because of machine
break-downs.
e) Machines don’t mind doing dangerous or c) Making workers redundant costs money.
boring jobs
f) New products lead to new demand. d) Workers have to be trained and this raises
costs.
g) Lower production costs means fewer h) Technology can be expensive to buy and
mistakes, less waste. install.
i) Lower production costs means fewer j) Customers do not always like technology.
workers needed.
l) Machines work 24/7. k) Recruitment of new, skilled workers can

be expensive.
n) It allows for flexible production. m) Data needs protecting.
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Practice questions
Multiple choice
1. Jenny Carson makes and ices wedding cakes. Which method of production is she likely to
use?
a) job production
b) batch production
c) flow production
d) robotic production.
2. Warburton’s bakery uses batch production to make its bread. Which of the following is a
disadvantage to Warburton’s of using batch production to make its bread?
a) The costs of production are lower than using other methods.
b) It can meet the demand for different types of bread from different customers.
c) It may have to reduce the different types of bread that it makes.
d) It can make bread to order so the bread does not need to be stored.
3. Which of the following is not an example of automation?

a) Beer bottles are labelled by a machine when they pass it on the production line.
b) The hand-making of a wedding dress.
c) A business has sensors on its doors to make them open when someone approaches.
d) Customers of Vauxhall Motors can configure and order their own car online which is
added to production without any further input.
Data response 24
1. Evaluate the impact of new technology on the production processes at Amazon.
Positive effects on the Amazon production process may include:
 Faster production and increased output – which may lead to increased sales, in turn
leading to increased production in the current warehouses and possibly require the
introduction of new warehouses.
 The production process uses fewer workers as workers are replaced by robots.
 There may be an improved quality of service as there will be less human error in selecting
goods to pack and deliver.
 The production process may be safer as fewer staff are moving about the warehouse.
 The total costs of production may fall if there are fewer workers and so less wages to
pay.
115
 There may be lower average costs of the production process resulting from speedier
and/or increased production.
Negative effects on the production may include:
 There may be increased total costs – including the cost of investing in the new
technology and the need to employ skilled and higher paid workers to manage, maintain
and program the robots. There may also be redundancy costs.
 The production process may be subject to disruption if the robots break down and are
not able to do the work.
 The location of production may change – there may be an increase of production in the
Doncaster warehouse where the robots are used and a reduction in production at other
warehouses, some of which may be closed.
Overall evaluation:
 The effect on costs depends on the extent to which staff numbers and wages are reduced
compared with the additional costs of the investment and any higher paid workers who
need to be employed.
 The effect on the scale of the production process depends on the extent to which the
better quality and faster service leads to higher sales which will also be influenced by
changes made by competitors.
 The effect on location will depend on the extent to which total sales are affected. If total
sales do not increase very much the effect of the new technology may be that more
production takes place in the Doncaster warehouse but there is less production in other
Amazon warehouses.
 The case study indicates that the number of workers employed as a result of using the
new technology/robots so total costs are not likely to fall. However, if output is
increased there may be a reduction in the average costs of the delivery service. This is
likely as Amazon has not reduced the number of workers it employs.
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4.2 Quality of goods and services

Activity 1 – Research – Mystery shopper, page 186
Choose a service that you are familiar with. It could be the school canteen or a local shop or
local service such as the bus that you travel to school on. Use the internet to research forms
that can be used for mystery buyers to use – use Google or a similar search engine. Get
some ideas together as to what you would look for in the service that you have chosen –
think about who provides the service, how it should be provided, any goods that might be
involved (e.g. as in canteen meals), the facilities of the place you buy the service from and so
on. Once you have done this, design a form that could be completed by a mystery shopper
using the service you have chosen.
Carry out a test and write short notes on the form. Write a short report about your findings.
Make recommendations about how the service could be provided.
Points to include are:
 Learners should be encouraged to look for positives as well as problems in the service
they choose to investigate. They should be aware that investigating the school’s own
services such as catering will be a sensitive issue, particularly as far as the catering staff
are concerned.
 Judgements might be made about how pleasant the service is, how knowledgeable the
servers are, did the buyer get what they wanted, how quickly was service provided.
Recommendations might include how the service could be improved and how the
business might achieve those improvements, for example, by training, improved quality
control etc.
Activity 2: Research - Reputation for quality, page 186

Complete the table below with:
a) the names of three businesses which have a good reputation for good quality products or
services (one product is given as a suggestion)
b) an explanation of why these businesses appear to have earned this reputation and how
they use it to help sell their products.
There are many products and services which could be used. Three examples are provided.
Name of business with Explanation of how reputation is used by the

good reputation business
Chanel perfume This has been marketed as a high quality perfume for
many years – advertised and priced as such.
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Jaguar Land Rover These cars have gained a reputation for good quality.
This is stressed in promotional materials and the prices
charged for them. Promotion takes place in the UK and
in many other countries in the world.
Apple computers Apple has stressed how their products can enable
people to achieve, particularly to be creative. Prices of
their computers are significantly higher than non-
Apple computers, but many customers are willing to
pay these prices convinced that they are buying quality
products. Apple reinforces advertising promotions
with support services at the time of buying and after
sale.
Activity 3: Presentation – The idea, benefits and problems

of quality control, page 186
Suppose that the company that does the cleaning in your school has to compete with other
companies for the work. Prepare a presentation (use PowerPoint or similar) to explain to
the company:
a) what quality control involves and how the cleaning business may ensure that quality is
good
 Quality control is about checking to make sure that the product or service is up to the
required standard. In the case of school cleaning, inspection would be needed to make
sure the cleaners were cleaning rooms sufficiently well.
b) the advantages to the cleaning business of ensuring good quality control
 Cleaning companies may compete for work in schools. If the work is not up to standard,
any contract may not be renewed and the business will lose income and profit. It is also
possible that there are penalties in the contract which could mean payment to the
cleaning firm is reduced if work is not done to a high enough standard. By having a
quality control procedure in place, the cleaning company can make sure the job is done
correctly and so avoid losing the contract or paying any penalty.
c) problems the business may face in using quality control methods.
 Inspection will involve time spent by an inspector and incur a financial cost. Where the
work has not been done well enough, further expense may result in paying a cleaner to
put it right. Poor cleaning may lead to the firm imposing disciplinary matters on its
workers, ultimately laying them off which leads to further recruitment and the costs
involved.
Activity 4: Draw a poster – TQM, page 188

Draw a poster which shows
a) the quality assurance idea
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b) the advantages and disadvantages of quality assurance.

You should use pictures and symbols or numbers in your poster. You can only use ten words
in the poster.
 The learner should convey the idea that each worker is involved in the process of
ensuring the quality of work, perhaps also seeing other workers as customers or clients
who require good quality products.
 Advantages to portray include reduced wastage because of the focus on quality, perhaps
identifying mistakes earlier in the production process, workers feeling valued as they are
given an additional responsibility and an improved reputation for quality leading to
increased sales.
 Disadvantages to portray include potentially slower production and higher costs as
workers spend time inspecting their own work, the cost of training workers about quality
assurance and resistance to TQM methods because of the additional responsibility.
Practice questions
Multiple choice
1. Which of these statements describes quality assurance?
a) Inspectors are used to check the quality of the goods being produced.
b) All workers are involved in and responsible for the quality of their work.
c) Only finished goods are checked so that no faulty products are sold to customers.
d) Quality assurance does not disrupt production because quality is only checked once
production is finished.
2. Which of the following is a disadvantage of the quality control method of checking

quality?
a) Inspectors do not need to be paid as the workers check their own quality.
b) Inspectors are better at checking the quality of goods than workers.
c) Inspectors have to be paid for the work that they do adding to the cost of
production.
d) Workers do not have to disrupt production to check the quality of what they have
made.
3. Which of these statements is true about the importance of quality?

a) It is easy to gain a reputation for quality.
b) It is easy to lose a reputation for quality.
c) Producing high quality goods always increases sales.
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d) Producing high quality is always cheaper than producing low quality.
Data response 25
1. Evaluate the importance of selling good-quality products for Sainsbury’s supermarket.
(9)
Advantages will include:
 if Sainsbury’s sell good quality goods, its reputation will be maintained (or improve) and
sales may increase as people will associate Sainsbury’s with good quality
 it may be able to reduce wastage, as if it can maintain produce at a high standard, fewer
goods will go off and need to be thrown away
 there may be fewer complaints from customers about poor quality which will reduce the
need for dealing with this and giving replacement products
 Sainsbury’s will sell less faulty products which would need to be recalled.
 there would be more return customers because customers have confidence in the firm.
Disadvantages will include:

 the cost of higher quality goods
 the need to charge prices which cover costs
 wastage from withdrawing goods from sale that customer may see as no longer being
high quality, for example, products nearing the sell-buy date.
 One approach might be to discuss how Sainsbury’s operates in a competitive market and
that it has traditionally been in the middle to upper segment in terms of quality. Other
supermarkets like Tesco and Morrison operate in the same segment of the market and
quality will be one key factor in competition (along with, for example, price, place and
promotion).
2. Explain one method that Sainsbury’s could use to make sure that its shop assistants
provide a good quality of service to the customers. (3)
 There is no one correct method. A mystery shopper would be one. Quality assurance is
another, perhaps with a profit-sharing scheme so that workers have the incentive to offer
a high-quality service.
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4.3 The sales process and customer service

a) Explain why some businesses using e-commerce can be adaptable and locate almost
anywhere
 E-commerce businesses only need a telephone line for an internet connection to run at a
basic level. Whilst larger e-commerce businesses might require substantial warehouses to
stock goods, these only need to be near suitable transport links.
b) Many businesses using e-commerce may want to be located near the motorway network.
Why is this?
 Being near a motorway network means the speedy delivery of goods. This is a key factor
in the competition between different e-commerce companies. A reputation for quick
delivery means more custom.
c) Explain how the following have changed due to e-commerce:

• booking a summer holiday
• operating a bank account
• buying clothes.
 The first two examples digital distribution, in that there is no physical movement of
goods to the consumer after they have been sold. However, they are still sometimes
referred to as e-commerce businesses when they operate in this form. Both these
examples also have a physical presence on the high street, which can be very costly with
the rent of premises etc. Both are moving more to a digital/e-commerce operation.
 Buying clothes has moved more to an e-commerce operation from high street buying
with the ease of returning unwanted goods. There are many consumers however who still
prefer the ‘high street’ experience and have a day shopping for and trying on clothes.

a) Complete a survey of your business group on how they use e-commerce by buying goods
on the internet. You need to make up your own questionnaire to find out:
• what they bought through the internet
• what technology did they use (phone, tablet, laptop, desktop)
• why they used the internet rather than traditional shops
• if they do not use the internet to buy goods, what are the reasons?
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b) Make a graph of your results.

c) Explain why certain goods may be bought on the internet, with other products still being
bought in traditional shops.
e) Explain how your own views on digital distribution are similar to the group and how they
differ from the group.
 This is a student centred activity, which aims at illustrating just how goods are bought.
Students can see whether they fit into the class ‘pattern’ of shopping and appreciate the
different opinions on the use of e-commerce.
 Discussion on the future of e-commerce and digital distribution versus the high street
would be useful in trying to understand the possible planning that businesses have to
make for their future success.

Working individually or in small groups, think of a new product or service you think would
sell well, or provide a profitable service, by being sold through e-commerce. Make a short
presentation to the rest of the business studies group to cover:
• a description of the product or service
• who your target market is
• why you believe the product or service will sell on the internet
• the location and general organisation of the business.
 This builds on Activity 2 by looking at a potential new product. If individuals find this
challenging, working in groups would provide a similar outcome. It can be done as a
Dragons Den style presentation. The main point remains the use of e-commerce – can it
be expanded to other products/services or have we reached the limit of what could be
sold in this way?

Complete the table below to indicate the suitability of selling different goods. For some
products it may mean a tick in all three boxes
Product or service Suitable for e- Suitable for face to Suitable for
commerce face telesales
An expensive sports car X
A CD X X X
Fresh vegetables X X
Shoes X X X
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A house X
Designer clothing X X
Newspapers X X
A laptop computer X X X
 Note that this is a personal choice for many consumers. In designer clothing, for
example, as it is very expensive, most customers would normally go to the shop for the
high level service which one would expect from such a business. Other people, familiar
with the make and fitting might well be happy with e-commerce and order online. The
activity could lead to good group discussion on whether or not a product might be bought
through e-commerce etc.
Pick three of the products in the table and explain why you think they are suitable for that
method of selling.
 A house needs to be seen to buy. Very few people would do otherwise.
 A newspaper can be ordered online by subscription, delivered in hard copy by the local
newsagent, or bought just by calling in at the shop.
 A CD is easily bought face to face. As it is small and easily transported it is suitable for
e-commerce. It could also be ordered by phone from a shop.

Look back at the information on John Lewis at the start of this unit.
a) Explain how John Lewis provides good customer service.
 Well trained staff, impartial advice, delivery/installation service, price matching, styling
service, wide range of products.
b) Explain why good customer service is important to a business such as John Lewis.
 The retail sector as a whole is very competitive. John Lewis believes that having
excellent customer service will make more consumers buy from them rather than a
competitor. If prices are much the same, then customer service may well make the
difference
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Complete the following paragraph using the words provided.
• sales
• interaction
• maintain
• training
• after
• telesales
• product
Customer service is important if a business wants to maintain or increase the level of sales.
Customer service can be helped by staff having better training as this will increase their
product knowledge and help with customer interaction. Businesses which use e-commerce
and telesales also have to provide good customer service, otherwise they will lose customers
to competitors. After sales service is also important to any business as it is important to
provide service after a product has been sold.
Practice questions
Multiple choice
1. E-commerce is:
a) selling goods and services from a shop
b) selling goods and services through a large warehouse
c) selling goods and services through the internet
d) selling goods and services at airports.
2. E-commerce can help business activity by:

a) enabling customers to buy goods 24/7
b) giving advice in a shop
c) making sure the goods are up to standard
d) taking time to send goods securely.
3. Face to face selling will help a business:

a) when goods being sold are cheap
b) when service is important
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c) when goods being bought are small

d) when the customer has a computer.
Data response 26
1. Explain two reasons why Amazon might offer a range of delivery options. (4)
 Different needs of customers – some wanting next day, others not bothered.
 Different budgets – some customers cannot afford paid delivery options.
 Matches competitors in the options they offer.
2. Explain two difficulties for a business wanting to set up a next day delivery service (4)
 Distribution network available is the key consideration. This can be very costly to set up.
 Promising delivery and failing will put customers off making further orders.
 Many variables – weather, transport delays (motorway holdups etc.) can affect delivery
plans. These are out of control of the business.
3. Analyse two impacts of Amazon’s same-day delivery on its competitors. (6)

 The larger competitors will have to try and match the service. This may put too much
cost on some businesses who may fail as a result.
 Others which can’t match the service must look to other ways of keeping customers –
possibly good customer service.
 Possible increase in picking up deliveries at local shop – same day delivery is only at its
best if there is someone in.
AO 1 1 mark, AO2 2 marks, AO3 3 marks.
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4.4 Consumer law
4.4 Consumer law

Activity 1: Research and presentation activity, page 202
Using the Consumer Rights Act, make a PowerPoint presentation titled ‘How consumer law
affects business activity’.
 This activity is aimed at making students appreciate their rights as consumers.
Discussion on what the most important elements are to different group members can be
useful.

Complete the following table by putting a tick in the correct column.
The consumer rights act says that goods must always be of the best X
possible quality.
Consumers can return faulty goods for a full refund within 30 days X
of purchase.
All goods must be described correctly only when they are over £100. X
Safety in goods bought by consumers is covered by the Consumer X
Protection Act.
Digital goods are covered in the same way as all other goods by the X
Consumer Rights Act.
Good training will help in the production of quality goods. X
After 30 days, a consumer cannot claim for faulty goods against a X
business.
Practice questions
Multiple choice
1. When buying any goods or services, consumers are entitled to expect:
a) the goods to be of the best standard possible
b) the goods to be of satisfactory quality
c) the goods to be guaranteed for three years
d) the goods to be the same price as competitors.
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4.4 Consumer law
2. A business must sell goods that:

a) do what they are meant to do
b) perform as well as competitor goods
c) are made to last for years
d) are as cheap as possible.
3. A way in which a business can be affected by consumer law is:

a) having compensation claims because goods are of high quality
b) losing reputation due to defective goods
c) having to sack staff who are always late for work
d) profits being reduced by paying higher wages.
Data response 27
1. Explain two ways how consumers who have bought washing machines from QAU Ltd
would be protected by law. (4)
 Faulty goods can be returned for full refund within 30 days. Up to six months, the owner
does not have to provide any evidence that they have been responsible for a fault
developing. The responsibility to fix the machine is on the maker, the consumer is
entitled to compensation. After 6 months it is up to the consumer to prove that the fault
was there at the time of buying, in order to get compensation.
2. Analyse two impacts that the faulty washing machines might have on QAU Ltd. (6)
 loss of reputation
 falling sales/profit
 gives competitors an advantage
 problems in dealing with repairs, so may need to employ more staff.
AO1 1 mark, AO2 2 marks AO3 3 marks.
3. Recommend what actions QAU Ltd might take to solve the problem of the faulty washing
machines. Give reasons for your answer. (9)
 Training in production staff if fault lies with washing machine assembly.
 Look at the design of the machine – is a new design needed? This can then be advertised
as ‘new and improved’.
 Employ staff who are more technically capable, if there is a skill problem.
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4.4 Consumer law
 Improve the quality control within the business if the problem is in parts being
incorrectly fitted.
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4.5 Business location

Activity 1: Research – Research the costs in your area,
page 206
Research information about production costs in your area – rents, wages etc. You will find it
useful to use a search engine such as Google. Try your local council website – often these
promote the area to attract businesses.
 One good source will be promotional websites created by local councils to attract
businesses to the area. If the information is not available for the local area, learners might
try nearby councils.
Activity 2: Research - Proximity to the market, page 207

Research your local area to find businesses that have located in the area so that they are
near to their market. There are three main reasons for locating near to the market. Find one
example which fits each reason. In practice, one business may fit more than one reason.
Write up your findings.
a) There are potential customers – think about the numbers and type of customers.
 Learners may be able to find population figures and information about average earnings
in a town to give an idea of the potential customers for a local business. If the focus is on
business which sells to other businesses, for example, a car parts supplier to garages, it
would be worth exploring directories for the number of garage businesses in the area.
b) There is easy communication with customers – think about suppliers or service

providers.
 Communication might be by road, rail, canal or sea or air. A map would be useful to
illustrate these. ICT communications would be more difficult to illustrate but are just as
important – is internet access available, is it high-speed?
c) Costs of delivery are low – think about suppliers or service providers again.
 Low costs may link to good communications, as dealt with above. They may also link
with low local wage rates, rents etc. in which case there will be a link with the first
research activity.
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Activity 3: Research – Local government help for business,

page 208
Research how the local government near you tries to attract businesses to locate in the
area. List the different incentives of the benefits offered and key details about each one.
You might include benefits that will reduce business costs but also other features such as
the available labour supply, the culture of area and so on. Local government websites and
local newspapers will have the type of information you are looking for.
 The support provided by local councils will differ depending on, for example, the current
level of economic activity and the politics of the council. It would be interesting if
learners can garner information from a number of local councils and then compare the
support provided.
Activity 4: Research – Proximity to raw materials, page 208

Research businesses in your local area to find one which has located there to take
advantage of a local supply of raw materials. Write up an account of the activity of the
business.
 It is likely that the business will be a manufacturing business and one that reduces bulky
raw materials to a smaller finished product. It could also be a firm that produces a
product famous for its location, for example, Lancashire cheese or Cornish pasties.
Activity 5: Research - The labour available in your area,

page 209
Research the amount and type of labour available in the area in which you live. You may
find this on publicity information produced by your local council or simply use a search
engine such as Google. Write a brief summary your findings.
 Learners should research information about the number of workers in the area, age
ranges, skills and trends, for example, if young, skilled people are moving away.
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Activity 6: Designing and drawing a leaflet - The factors

affecting location, page 209
Using the information that you discovered in Activities 1 to 5 in this Unit, design and then
draw a leaflet to attract businesses to locate in your area.
 This will depend on the information from the other five research activities.
Activity 7: Explanation and presentation – Factors affecting

location, page 210
1. State and explain two advantages of locating the garage at Site A.
 The advantages of site A include, it is in the town, it is near three major roads into/out of
the town and these should lead to a large potential market and it is also located away
from competitors.
2. State and explain two disadvantages of locating the garage at Site B.

 Site B is away from the main centre of population, off the main road and customers
would need to navigate through the industrial estate – it may limit the number of
potential customers.
3. Explain what other information John might need before making a final decision on the
location of his garage.
 Information about costs, for example, rents, any help from government, exact population
figures in the areas of the town and the number of workers working on the industrial
estate.
4. Explain how John’s business might benefit if the town of Marston grows in size.
 Population growth ought to lead to greater demand/sales.
5. Recommend to John location A or B for the garage business. Give reasons for your
recommendation.
 There is no correct answer here. The answer may take in to consideration the additional
information identified in question 3 and what type of service he should focus on
providing. For example, the servicing and maintenance part of the business might do
well if he locates on the industrial estate (B) where workers may find it convenient to
leave their car for the time they are at work OR if focussing on fuel retailing, locating at
A might bring the largest number of customers.
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6. Produce a leaflet for distribution to houses in Marston advertising the new garage. Do
not forget to include a location map and information on some of the services which John’s
garage might provide.
 The design of the leaflet will depend on the location selected in answer to question 5.
Practice questions
Multiple choice
1. Which of these is not a reason for a business locating near to its market?
a) It produces a large finished product.
b) It uses bulky raw materials to produce a smaller, finished product.
c) Its customers are not likely to travel far, nor shop over the internet, to buy what it
sells.
d) It sells fresh products such as cream cakes.
2. Which one of these statements is not true?

a) Firms which produce small, finished products are best locating near to their market.
b) Governments often influence the location of businesses so that they can reduce
unemployment and raise incomes in certain parts of the country.
c) Low cost locations are important for every single producer.
d) Where a business locates is often influenced by more than one location factor.
3. A firm has identified three possible locations to set up. Based on the figures available,
which offers the lowest cost per unit produced?
a) Site W. Output per year – 10,000 units. Annual rental cost of premises - £30,000.
Annual total wage cost - £80,000.
b) Site X. Output per year – 12,000 units. Annual rental costs of premises - £42,000.
Annual total wage costs - £102,000.
c) Site Y. Output per year – 11,000 units. Annual rental costs of premises - £34,000.
Annual total wage costs £81,500.
d) Site Z. Output per year – 9,000 units. Annual rental costs of premises - £32,000.
Annual total wage costs £71,500.
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Data response 28
1. Identify and explain one advantage to car rental companies of locating at Heathrow
Airport. (3)
 The key advantage is the large number of potential customers. As there are 75 million
passengers, a large number/proportion will want to hire a car for their stay in the UK,
which should lead to a demand for Lo-Cost cars.
2. Identify and explain one disadvantage to car rental companies of locating at Heathrow
Airport. (3)
 Large cost of renting a desk/parking spaces and this will lead to high rental charges,
which will affect the demand for Lo-Cost cars/may mean it cannot offer low prices.
3. Recommend whether or not Lo-Cost should start to offer car rentals at Heathrow Airport.
Give reasons for your recommendation. (7)
 The answer should weigh up the suitability of the Heathrow location for a low cost car
rental firm. This would depend on how many of the customers would prefer low cost,
how many competitors there are, how many of these promote themselves as low cost and
if Lo-Cost could provide its cars at competitive prices given the high costs of locating at
Heathrow.
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4.6 Working with suppliers

For a service business (which may be a shop, bank, insurance etc.) and a manufacturing
business, investigate the number of different goods and services they require in order to
operate fully. For example, a business selling clothing such as New Look, will obviously need
clothes, but the business will also have offices – what might be required there for the
business to operate fully? Present your ideas in any art form you feel comfortable with,
which may be computer-based.
 This student based activity is aimed at identifying the huge number of support services
and products that a business needs. These might include paper, ink cartridges, computer
servicing, cleaners (inside and windows), goods to re-sell, display materials, tools to
work with etc.

Complete the table below, explaining how different factors can affect the buying of different
goods and services by businesses. Try and think of a number of different examples of goods
and services.
Factors that can affect the Examples of goods and Why goods are affected by
buying of goods and services this factor
services by businesses
Time of year Fresh food vegetables Ground might be frozen and
so cannot dig up carrots etc.
Some vegetables only
available in certain seasons,
e.g. English strawberries.
Changes in technology Mobile phones Always being
improved/developed. Makes
it difficult deciding when to
buy/take out contract.
Changes in fashion and Clothing – colours are Changes in fashion difficult
lifestyle sometimes ‘in’ and other to predict – often driven by
times not. Fashion changes celebrity. Many people want
in length of female clothing. to try something different.
 Note: This activity is very personal to a student. The point to emphasise is that supplying
goods and services is often about predicting what might happen in the future – if a
business can get this right and supply goods and services which people want at the right
time and at the right price then it will be successful. However this is NOT easy!
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Activity 3: Design and explanation activity, page 215

Design your own chart to explain how certain goods and services, such as the need for food,
are not affected by the factors that you have covered in Activity 2.
 In this activity, students should recognise that certain products remain much the same
and change little over time. Newspapers might be a good (if a little boring) example.
Furniture changes slowly (the demise of pine and the rise of oak was gradual, allowing
businesses time to react). General items around the house will provide examples of how
many goods are slow to change, the essential product being the same with slight changes
which happen over a period of years.
Activity 4: Explanation and analysis activity, page 217

The following factors impact on the decision-making of businesses in the supply of goods
and services they need in order to operate:
• time
• reliability of supply
• length of the supply chain
• costs
• customer service.
In the following business situations, which of the factors would be the most important? Give
reasons for your recommendations, remembering that a number of factors may be of equal
importance.
a) A discount shop selling all its goods at £1.

 This type of shop is driven by costs – with selling everything at £1 it cannot afford to
absorb price increases so cost is main factor, though it will need reliability of supply to
keep its shelves full.
b) A high class perfume manufacturer, keen to keep its upmarket reputation.

 This business will see customer service at its priority when it sells its products, but in the
supply chain it will need reliability of supply as it will need a full stock of goods in order
to give customers the best possible service.
c) A business wanting to create a good customer service image after bad publicity in
newspapers.
 Creating a good customer service image is important to any business. Here the business
will need to offer goods at the right price, so costs are important, along with reliable
supplies of goods arriving in good time so as not to let down customers. Having a long
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and potentially unreliable supply chain will not help it develop its new image if people
are let down with goods somewhere else in the world.
d) An online supplier of clothing has had difficulty in meeting promised delivery dates.
 In this example, the supply chain must be reliable. The longer the supply chain the more
chance there is of unreliability. Customers who do not have their goods delivered when
promised will not return.
Practice questions
Multiple choice
1. Procurement is:
a) the process of making sure the best-quality product is ordered
b) how a business makes sure that deliveries are made on time
c) the process of managing the ordering of goods and services required by a business
d) the part of a business which manages the level of production to increase efficiency.
2. A longer supply chain will mean:

a) a business will have to make do with lower quality goods
b) it may be more difficult for a business to manage supplies
c) it will take longer to find the right kind of supplier
d) the supplier could demand higher prices.
3. Logistical decisions in a business are concerned with:

a) the transportation and management of supplies
b) the management of the quality control system within a business
c) the methods a business will use to examine goods upon delivery
d) the management of costs in the production process within a business.
Data response 29
1. Identify two factors that can affect how a business might choose a supplier. (2)
 reliability of supplier
 length of supply chain
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 time for supplier to deliver

 customer service at supplier.
2. Analyse two possible impacts on Samsung of the faulty batteries that have been
supplied. (6)
 loss of reputation as quality manufacturer
 falling sales in mobile phone market, possible fall in other products
 competitors taking advantage in advertising
 loss of market share.
AO1 1 mark, AO2 2 marks, AO3 3 marks.
3. Evaluate the problems of a complex supply chain to a business such as Samsung. (7)
 Very large businesses such as Samsung need a vast supply chain to supply the millions
of technical items required each year to help make its products.
 Samsung has a reputation for quality – this is put at risk if the supply chain fails to
deliver the quality that Samsung requires.
 If there is an issue with suppliers, the impact on Samsung can cost a huge amount of
money in recalling faulty items and rebuilding the reputation it had.
 It is difficult/impossible for Samsung to constantly test the products it receives from
suppliers – it will often rely on the testing procedures at the suppliers. There is an
element of trust in this arrangement.
AO2 2 marks. AO3 5 marks.
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5.1 The role of the finance function
Finance
A business has decided that it needs to change the way it behaves in order to be an ethical
business. It has decided to raise the wages of its workers and increase the measures it takes
to ensure its workplace is healthy and safe.
Explain how the following data from the finance function might influence the decision
making at the business.
a) The costs of production.
b) The profit of the business.
c) The cash flow of the business.
 This activity is aimed at showing how the finance function helps decision making. Data
from the finance function should be used by any business to help in its development
wherever it is appropriate.
 Here there are three pieces of data, all of which can have a bearing on the policy being
pursued. If the workers are to be paid more (to help the development of an ethical image)
then production costs will rise. This will put up the selling price of the product/service
the business provides. This may possibly decrease demand – or will consumers still buy
the product/service because the business is seen as ethical?
 If the business does not make sufficient profit (due to a possible fall in demand) there
will be less funds to help develop the business.
 Fewer sales will mean reduced cash flow – will there be enough cash coming into the
business to pay those higher wages?
 Overall the business must be careful about putting up wages and increasing production
costs unless it is clear that it can still sell products/services at a higher price.
Practice questions
Multiple choice
1. Which of the following is a role of the finance function?
a) Advertise for temporary Christmas staff.
b) Decide on the style of a new television advert.
c) Monitor the costs and revenues of a business.
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d) Make sure that the quality of goods made is of the highest standard.
2. Which of the following statements is false?

a) Business growth may be limited by problems of raising finance.
b) Finance is needed to pay for the start-up costs of a business.
c) Marketing costs are always paid out of revenue the business raises so finance is
not needed.
d) A business may need to change its legal form to raise finance.
3. A business that makes clothes decides to increase production. Which of the following is
not likely to happen?
a) Expenditures measured on the cash flow statement will increase.
b) The firm may need to raise finance to expand the production facilities at the
business.
c) The total cost of production will increase.
d) The firm will spend less money on raw materials.
Data response 30
1. Explain three reasons why financial information will help the business develop and trial
its new drugs. (6)
 The high cost of development – it is important to plan effectively.
 Types of finance available – the business must examine the most appropriate options.
 Whether the project is viable – there will be other aspects to the business and by
developing new products, this can impact on other business areas.
AO1 1 mark, AO2 2 marks, AO3 3 marks.
2. Evaluate the importance of the finance function in supporting the planning at a business
such as LP Ltd. (7)
 Helps supply relevant information such as present profits, cash flow, sales revenue,
forecasts of performance.
 If such plans are not thought through carefully with financial implications considered, a
serious mistake might be made which could be very costly.
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 In this example, the business is taking a risk in developing the new drug, which could be
very profitable if successful. It could mean heavy losses if not. Then there is the cost of
the factory and marketing.
 Critical input of financial data in helping make the right decision with all these variables
involved, all of which involve large sums of money.
Note: there should be clear reference to LP Ltd for AO2 in any answer.
LO2 2 marks, AO3 5 marks.
140
5.2 Sources of finance

Activity 1: Matching terms – Reasons why businesses need
finance, page 224
Match the reason for needing finance in the left-hand column with the example of that
reason in the right-hand column.
Reason Example
b) A person setting up a new business installing and
1 Starting up a new business
maintaining burglar alarms.
2 Replacing old machinery and d) Buying new computer equipment to replace computers
equipment and premises which have been in use for several years.
e) Buying new manufacturing equipment as a result of
3 Internal growth
increased demand for products.
4 External growth – the
f) Walmart, the US retailer, has taken over Jet.com an
takeover or acquisition of
online retailer which is the main challenger to Amazon.
another company
c) A Theme Park which is only open from Easter to
5 Day-to-day expenses – dealing
October needs money during the closed season for
with cash flow problems
maintenance and promotional activities.
6 Development purposes – a) A pharmaceutical company seeking to develop a new
research and development drug to treat cancer.
Activity 2: Definitions – Type of finance, page 230

Match the sources of finance in the list below with the definitions.
a) crowdfunding
b) share issue
c) trade credit
d) overdraft
e) loan
f) retained profit
g) sale of assets
h) owners’ capital
i) taking on a partner
141
Type of finance definition Name of finance

1 A business borrows a sum of money from a bank e) loan
or other lender.
2 A bank allows a business to spend more money d) overdraft
than there is in its current account.
3 Money raised by a business by inviting sponsors to a) crowdfunding
contribute money, provide a loan or buy equity in
the business.
4 Money raised by selling a share of the business. b) share issue
5 Money raised by inviting someone to become a i) taking on a partner
new partner in a business.
6 Goods are obtained from another business c) trade credit
without immediate payment being made.
7 Money earned by the business but not paid to the f) retained profit
owners.
8 Money received following the sale of capital items g) sale of assets
owned by the business
9 The owner or owners use their own savings to h) owners’ capital
provide capital for the business.
Activity 3: Zone Activity – Advantages and disadvantages

of types of finance, page 231
The statements below are the possible advantages and disadvantages connected with
different sources of finance. Match each one to the relevant source of finance. Note that
some statements should be used more than once.
a) The money does not need to be paid back.
b) No interest has to be paid.
c) There is no cost for raising the finance.
d) Owner may not have enough savings.
e) Goods can be sold before they are paid for.
f) Can raise money from the public
g) Interest is paid on loans.
h) Profits are distributed to owners of equity.
i) Useful when there is a cash flow problem.
j) The new owner may bring new skills as well as more finance.
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k) Interest is charged daily on the amount borrowed at the time.

l) Interest is paid.
m) Can raise money from non-shareholder investors.
n) Interest will be paid if the money is not paid back by the due date.
o) Interest is only paid on the amount borrowed.
p) Existing owners may be bought out in a takeover.
q) Security may be required by the lender.
r) The business must have made and saved some profits.
s) The existing owner(s) may have to share control with the new ones.
t) Unwanted equipment can be sold to raise finance.
u) No one may want to buy the assets.
v) The existing owner(s) may have to share control with the new ones.
w) Payment is made in instalments over time.
x) It can take time to find a buyer.
Type of finance Advantages Disadvantages

1 Crowdfunding f) Can raise money from g) Interest is paid on
the public loans.
h) Profits are distributed

to owners of equity.
2 Owners’ capital a) The money does not d) Owner may not have
need to be paid back. enough savings.
b) No interest has to be
paid.
c) It does not cost to raise

the finance.
3 Trade credit e) Goods can be sold n) Interest will be paid if
before they are paid for. the money is not paid
back by the due date.
b) No interest has to be
paid.
i) Useful when there is a

cash flow problem.
143
4 Taking on a new partner j) The new owner may s) The existing owner(s)
bring new skills as well as may have to share control
more finance. with the new ones.
5 Overdraft i) Useful when there is a k) Interest is charged daily
cash flow problem. on the amount borrowed.
6 Sale of assets t) Unwanted equipment u) No one may want to
can be sold to raise buy the assets.
finance.
x) It can take time to find
a buyer.
7 Retained profit b) No interest has to be r) The business must have
paid made and saved some
profits.
a) The money does not
need to be paid back.
8 Loan w) Payment is made in l) Interest is paid.
instalments over time.
q) Security may be
required by the lender.
9 Share issue m) Can raise money from s) The existing owner(s)
non-shareholder may have to share control
investors. with the new ones.
b) No interest has to be p) Existing owners may be

paid. bought out in a take-over.
a) The money does not

need to be paid back.
Activity 4: Explanation - Identifying suitable types of

finance, page 232
Using the table below:
Identify the most suitable source of finance from the list below for each of the business
situations.
share issue loan owners’ capital taking a new partner
trade credit overdraft retained profit crowdfunding
Give a reason for your choice of finance.
144
Business Situation Most suitable Reason for choice

source of finance
1 A small sole trader building Owner’s capital or If sufficient available, no interest.

business wishing to buy a second- retained profit
hand lorry.
2 A family textile business, trading Retained profit or If sufficient available, no interest.
as a private limited company, owner’s capital
wishing to invest in some new Loan If bank will lend, can be paid back
manufacturing equipment.
over time, equipment available
once loan organised.
3 A veterinary partnership needing Retained profit or If sufficient available, no interest.
to raise finance to help it buy some owner’s capital
new premises.
If bank will lend, can be paid back
Loan over time, equipment available
Taking on a new Provides additional capital. No

partner interest (but shared ownership,
some loss of control).
4 A new business wishing to sell Trade credit No interest, will give time to sell
tapes and CDs via the internet. CDs to get revenue to pay for
them.
Short term finance, sale of CDs
Overdraft
should mean overdraft can be
paid off quickly.
5 An established hairdresser Retained profit or If sufficient available, no interest.
wishing to open a tanning and nail owner’s capital
studio.
If bank will lend, can be paid back
Loan over time, equipment available
6 An established family-owned fish Owner’s capital If sufficient available, no interest.

and chip shop business wishing to Loan If bank will lend, can be paid back
takeover a rival business. over time, equipment available
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7 A nationwide ‘coffee shop’ Retained profit or If sufficient available, no interest.

business seeking to expand in the owner’s capital
north of England.
If bank will lend to a national
Loan chain, can be paid back over time,
equipment available once loan
organised.
To raise additional capital as the

Share issue
business grows.
8 A large public limited company Share issue To raise large amounts of capital.
wishing to takeover another public
limited company,
Activity 5: True or false – Sources of finance, page 232

Tick one box next to each of the statements in the table below to indicate if it is true or
false.

A loan has to be repaid with interest ✓
Shareholders are part-owners of a business ✓
Banks will always lend a business money. ✓
New partners are usually easy to find. ✓
An overdraft is a cheap way of borrowing money for long-term ✓
projects
Selling assets is a quick way of raising finance. ✓
All businesses will have some retained profit. ✓
Activity 6: Calculation – Shares, page 233

Bowton Manufacturing plc is attempting to raise additional finance by offering shares for
sale at £1.50 per share. It has 50,000 shares available for sale. Calculate how much money it
would raise if it sold:
Number of shares sold Answer

only 10,000 shares £150,000
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all of the shares £750,000
50% of the shares it has £375,000

available for sale
Activity 7: Tick the box – Short, medium and long term

finance, page 234
The first column of the table below lists all the different types of finance that you need to
know about. Tick in the boxes next to each type of finance to state whether the type of
finance is short, medium or long term. Note that some may be short and medium or even
all three terms.
Type of finance Short term Medium term Long term

Crowdfunding ✓ ✓
Owners’ capital ✓ ✓ ✓
Trade credit ✓
Taking on a new ✓
partner
Overdraft ✓
Sale of fixed assets ✓ ✓ ✓
Retained profit ✓ ✓
Loan ✓ ✓
Share issue ✓
Practice questions
Multiple choice
1. Which of the following is not a feature of trade credit?
a) The supplier does not need to be paid for 90 days.
b) Interest has to be paid if the money is not paid within the time limit.
c) It is useful for dealing with a short-term cash-flow problem.
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d) It can be used to purchase the finance of new machinery.
2. Which of the following involves money reinvested by the business?

a) overdraft
b) bank loan
c) retained profit
d) crowdfunding
Data response 31
1. Discuss one source of finance that Pleasurewear plc should use to finance its new factory.
(9)
Points to include:
 For retained profit – No interest has to be paid so it reduces costs. No security needs to
be provided.
 Against – Shareholder will not receive a dividend, the business may not have retained the
profit but distributed to the shareholders so is not available.
 A justification might be that the business has been profitable for a number of years so
may have enough profit. If the interest rate is low, the business may be better reinvesting
it rather than saving it. However it may be needed as a reserve.
 For a bank loan – Money can be available reasonably quickly and repayment can be
made in instalments over time. It would mean that profit could be paid to shareholders to
keep them happy or to encourage further investment in the company.
 Against – Interest has to be paid, money is owed to the bank and must be repaid.
Justification could be that it allows shareholders to receive dividends or it can be used if
there is not enough profit. The decision may be influenced by the interest rate – if low,
this may be a good way of financing.
148
5.3 Revenue, costs, profit and loss

Tick the correct column to show whether the cost is fixed or variable.
Cost Fixed Variable

Insurance X
Wages X
Rent X
Heating X
Business rates X

Calculate the gross profit in each of the following examples:
a) Weekly sales revenue from DVD sales is £15,000. The cost of buying the DVDs is £8,000.
 £7000
b) Daily sales of one type of chocolate bar in a local shop are worth £75. The cost of the
chocolate is £44.50.
 £30.50
c) The school canteen sells 200 cartons of fruit juice for 50p each. The cost of buying each
carton is 30p.
 £40
d) Last term, a school sold 20 electronic calculators for £4.50 each. The cost of buying each
calculator is £3.85
 £13
149

Calculate the net profit in the following examples by adding up the expenses and
subtracting them from the gross profit:
a)
Gross profit £20,000
Electricity £2,000
Wages £10,000
Telephone £500
Rent £3,000
Net profit £4,500
b)
Advertising £1,000
Salaries £20,000
Heating and lighting £3,500
Insurance £1,000
Net profit £4,500
c)
Gross profit £3,500,000
Wages and salaries £2,200,000
Transport £50,000
Heating and lighting £150,000
Rent £250,000
Net profit £850,000
d)
Labour £275,000
Energy £120,000
Maintenance £50,000
Heating £25,000
150
Net profit £110,000

Use the figures from Activity 2 to calculate the gross profit margin in each example.
7,000
× 100 = 46.6%
15,000
30.50
× 100 = 40.6%
75
40
× 100 = 40%
100
13
× 100 = 14.4%
90

Calculate the net profit margin in the following examples:
a) Net profit £25,000, revenue £260,000

 9.6%
b) Net profit £10,000, revenue £45,000

 22.2%
c) Net profit £22,500, revenue £65,500

 34.3%
151

Using the following data, use the gross and net profit ratios to interpret the performance of
the business over the three years.
Year 1 (£) Year 2 (£) Year 3 (£)

Revenue 30,000 50,000 60,000
Cost of sales 15,000 22,000 30,000
Gross profit 15,000 28,000 30,000
Business expenses 10,000 14,000 15,000
Net profit 5,000 14,000 15,000
Note: this is a long activity in the calculation and interpretation of data and is therefore
unlikely to appear in this form in an examination. Its aim is to familiarise students with all
aspects of profitability ratios – their calculation and interpretation.
Year 1:
 Gross profit margin: 50%, net profit margin 16.6%
Year 2:
 Gross profit margin: 56%, net profit margin 28%
Year 3
 Gross profit margin: 50%, net profit margin 25%
Other points to note:
 Sales have doubled over the time period shown, this is matched by the cost of sales.
Business expenses have increased by 50%.
 Year 2 was clearly the better year for the business; the improvement was not maintained
in Year 3, where the gross profit margin went back to 50%. The cost of sales should be
lower as a percentage of sales as a business expands and they are able to buy in bulk at a
cheaper rate. The business should look into this.
 Expenses have been kept in check, increasing by half of the rate of sales growth. Overall
good performance, with cost of sales the real issue to investigate in order to get these
reduced as more goods are bought.
152

Look at the following figures and explain which price the business should charge for a
product to maximise sales revenue
Price Number expected to be

sold
£22 300
£25 280
£28 270
£30 250
 £22 x 300 = £6,600

 25 x 280 = £7,000
 £28 x 270 = £7,560
 £30 x 250 = £7,500
 Based on these figures alone, the business should charge £28, as this brings in the
highest sales revenue.

Suggest what would happen to sales revenue in each of the following situations. Give
reasons for your answers.
a) A shopkeeper decided to raise the price of a box of matches from 15p to 20p.
 In percentage terms this is a large increase, but it is only 5p. Depending on price of
disposable gas lighters it is unlikely to affect sales.
b) The world price of oil rose. The Local Service Station, like all other petrol stations,
decided to raise the price of its petrol price to cover the costs.
 We cannot do without petrol, so an increase in oil price (or a decrease) is unlikely to
have a great impact on sales revenue at the garage, though sales may fall a little.
c) A supermarket decided to reduce the price of its bread by 50%. Competitors left the price
of their bread unchanged.
 This may lead to a large increase in sales revenue for the store if customers who came in
for the bread also spent money on other goods. There would have to be a great increase
in the sale of bread to make up for the price reduction.
153
d) The pizza delivery service in a village five miles away from Ryan’s Pizza Place reduces its
prices by 20%. Ryan decides to leave his prices unchanged.
 Ryan may lose sales revenue if people shop at the rival business. Largely depends on
how popular Ryan’s Pizza place is. If he has loyal customers who love his pizzas there
may be little change to his sales revenue.

Make a PowerPoint presentation on how important profits are in decision-making for a
business. Be creative in your designs to show how different decisions may have to be made
when a business goes from profit to loss.
Items in the presentation might include:
 Potential opportunity to expand, take over other businesses.
 May be necessary for survival or closing the business if there are no profits.
 More income for owners (dividends in limited companies).
 Introduce different products and services.

Calculate the average rate of return over 3 years from the following figures.
Cost of investment £20,000
Income year 1 £6,500
Total income = £21,500

Profit from investment = £21,500 - £20,000 = £1,500
1,500
Average profit = = 500
3
Average rate of return is average profit divided by cost of investment:
500
× 100 = 2.5%
20,000
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Practice questions
Multiple choice
1. Variable costs in a business:
a) do not change as the business increases production
b) increase as a business increases production
c) stay the same until a certain level of production is reached
d) reduce when a certain level of production is reached.
2. Calculating the net profit margin allows a business to:

a) understand how sales influence revenue
b) understand the relationship between net profit and sales
c) understand how net profit is calculated
d) understand the connection between net profit and loss.
3. The average rate of return can help a business to:

a) compare the profitability over time of different investments
b) compare the rates of return on offer from different banks
c) judge whether or not to raise prices
d) compare performance against that of a competitor
Data response 32
1. Identify one cost that ACG would classify as a fixed cost. (1 mark)
 rent
 business rates
 insurance.
2. Identify one variable cost that ACG is likely to have. (1 mark)

 materials
 wages.
155
3. The net profit margin for 2015 is 12.72 per cent. Calculate the net profit margin for 2016.
Show your working. (3 marks)
 Net profit margin is net profit divided by sales x 100
 Net profit for 2016 = Gross profit (£300,000) – costs (£270,000) = £30,000
30,000
 × 100 = 4.28%
700,000
 The net profit margin for 2016 is 4.28%

A01 1 mark, AO3 2 marks.
4. Using the figures from question 3 and your calculations, explain what the results show
about the profitability of ACG. (4 marks)
 The net profit margin and profitability of the business has fallen significantly. Fixed
costs are not to blame as they have remained the same. The problem is in the cost of
sales. Sales increased 27% so the same increase in cost of sales (or a little less as more
are bought) should be the same. Cost of sales increased by nearly 74%. Alan Cropley
was paying too much for the materials and did not, or could not, pass on the price rise to
his customers.
AO2 2 marks, AO3 2 marks.
5. ACG is considering buying a new delivery van and is looking at three different models.
Explain how using average rate of return can help ACG decide on which model van to buy.
(4 marks)
 ARR helps to compare different investments over the life of the investment. Here
different types/models of vans can be compared.
 It gives a numerical return percentage which can be easily compared.
 Helps see whether an investment decision is worthwhile.
 ARR can then compare to alternative use of money – e.g. putting it in a bank account.
AO1 1 mark, A02 1 mark, AO3 2 marks.
156
5.4 Break-even
5.4 Break-even
Activity 1: Break-even calculation and presentation, page
249
Paul Brown runs a driving school. The fixed costs of running the school include the
repayment of loans on the cars he owns and administration costs. He calculates these to be
£500 per week. The variable costs are the costs of labour and petrol. He calculates these to
be £20 per lesson. He charges £30 for each lesson.
1. Use the information above to complete the table.
Lessons per Sales Fixed Variable

week revenue costs costs Total costs Profit/Loss
0 0 500 0 500 -500
10 300 500 200 700 -400
20 600 500 400 900 -300
30 900 500 600 1,100 -200
40 1,200 500 800 1,300 -100
50 1,500 500 1,000 1,500 0
60 1,800 500 1,200 1,700 100
70 2,100 500 1,400 1,900 200
80 2,400 500 1,600 2,100 300
90 2,700 500 1,800 2,300 400
100 3,000 500 2,000 2,500 500
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5.4 Break-even
2. Use the information in the table to draw a break-even graph for the driving school.
Remember that you will need to measure sales revenue and costs in pounds on the vertical
axis and lessons sold on the horizontal axis. You will need to plot four lines – fixed costs,
variable cost, total costs and sales revenue. It is important to label the axes and the lines
clearly.
158
5.4 Break-even
3. Draw a line on the graph to show the break-even level of output.
Using the information in the break-even graph calculate:

a) how much profit or loss Paul Brown would make if he sold:
(i) 70 lessons in a week
 £200 profit
 (ii) 20 lessons in a week.
A loss - £300
 Paul Brown’s margin of safety if he sold 90 lessons in a week.
Margin = 90 – 50 = 40.
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5.4 Break-even
4. Suppose he raised the price of his lessons to £35. Draw a new sales revenue line on the
graph to show the effect of this change. What would be the break-even level of output?
 The break-even output would now be 39.
160
5.4 Break-even
5. Suppose that, at the original price of £30 per lesson, Paul Brown’s was faced with
variable costs rising to £25 per lesson. Draw a new graph to show the effect of this change.
What would be the break-even level of output?
 The break-even output will now be 30 lessons per week.
6. Word-process a report, including the spreadsheet and graphs, about the break-even
analysis for the driving school.
 This will be a summary document highlighting how the break-even output can change
and what causes the changes. It highlights problems with using break-even charts.
Activity 2 – Constructing a break-even graph, page 250

Suppose you plan to raise money for a charity by selling home-made biscuits at morning
break. The Food Technology teacher has said you can cook in his room at lunchtime if you
pay £1.05. This will be your fixed cost of production. You estimate that the cost of the
ingredients will be £2 in total. You plan to produce 20 biscuits and sell them at 30p each.
Divide the total cost of ingredients by the number of biscuits you will produce. This will be
your variable cost per biscuit.
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5.4 Break-even
Using your knowledge of break-even analysis, complete an appropriate table and graph.
Number of Sales revenue Fixed Variable Total

biscuits (£s) costs costs costs Profit/Loss
1 £0.30 £2.00 £0.10 £2.10 -£1.80
2 £0.60 £2.00 £0.20 £2.20 -£1.60
3 £0.90 £2.00 £0.30 £2.30 -£1.40
4 £1.20 £2.00 £0.40 £2.40 -£1.20
5 £1.50 £2.00 £0.50 £2.50 -£1.00
6 £1.80 £2.00 £0.60 £2.60 -£0.80
7 £2.10 £2.00 £0.70 £2.70 -£0.60
8 £2.40 £2.00 £0.80 £2.80 -£0.40
9 £2.70 £2.00 £0.90 £2.90 -£0.20
10 £3.00 £2.00 £1.00 £3.00 £0.00
11 £3.30 £2.00 £1.10 £3.10 £0.20
12 £3.60 £2.00 £1.20 £3.20 £0.40
13 £3.90 £2.00 £1.30 £3.30 £0.60
14 £4.20 £2.00 £1.40 £3.40 £0.80
15 £4.50 £2.00 £1.50 £3.50 £1.00
16 £4.80 £2.00 £1.60 £3.60 £1.20
17 £5.10 £2.00 £1.70 £3.70 £1.40
18 £5.40 £2.00 £1.80 £3.80 £1.60
19 £5.70 £2.00 £1.90 £3.90 £1.80
20 £6.00 £2.00 £2.00 £4.00 £2.00
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5.4 Break-even
b) Using the information in your graph, calculate:

i) how many biscuits you will need to make in order to break-even
 10
ii) how much profit you will make if you sell all the biscuits.
 £2
c) Explain why you may not make as much profit as you predict. You may find it useful to
read ‘The limitations of break-even analysis in business decision-making’ below to help you
to answer this.
 It may be necessary to reduce the price to sell them all or even possibly to increase the
price if there is a strong demand for them.
 The cost of ingredients is only an estimate. This variable cost could rise or fall.
 It is possible that the teacher could alter the fixed cost charge.
 The above would affect the profit.
Activity 3 – Calculating break-even using a formula, page

250
The figures below show costs and revenues for a toy manufacturer:
• total fixed costs of producing the toys are £50,000 per year
• variable costs per product sold are £2
• the selling price of the toys is £6 each.
Using the calculation method, work out how many toys the manufacturer must sell to
break-even.
 Break-even output = £50,000 / (6-2) = £50,000 /4 =
 Answer = 12,500
Activity 4: Zone activity – The uses and limitations of

break-even in business decision-making, page 251
The following statements are either uses or limitations of break-even in business decision-
making. Put them under the correct heading in the table below.
• The business can plan how many products it must sell to break-even.
• The price used to calculate the expected sales revenue may change, for example, if a
new competitor enters the market.
• The forecast is only an estimate.
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5.4 Break-even
• The forecast may be needed as part of a business plan given to a bank when asking for a
loan.
• The forecast can be used to estimate the margin of safety.
• Variable costs may rise, for example, if raw material prices rise.
• The business may not sell as many as it expects at the price it uses in the forecast
because a competitor reduces its prices.
• The forecast can be used to assess the effect on revenue and the break-even output of
a rise in price.
• Knowing the margin of safety will help the business to know if it would be worth
producing if costs rise.
Uses of break-even forecasts Limitations of break-even forecasts

The business can plan how many it The forecast is only an estimate.
must sell to break-even.
The forecast can be used to estimate The price used to calculate the
the margin of safety. expected sales revenue may change, for
example, if a new competitor enters the
market.
The forecast may be needed as part of Variable costs may rise, for example, if
a business plan given to a bank when raw material prices rise.
asking for a loan.
The forecast can be used to assess the The business may not sell as many as it
effect on revenue and the break-even expects at the price it uses in the
output of a rise in price. forecast, because a competitor reduces
its prices.
Knowing the margin of safety will help
the business to know if it would be
worth producing if costs rise.
Practice questions
Multiple choice
1. The total variable cost of producing 10,000 booklets is:
a) £30,000
b) £20,000
c) £15,000
d) £10,000.
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5.4 Break-even
2. The break-even output is:

a) 5,000
b) 10,000
c) 15,000
d) 20,000.
Data response 33
1. Calculate how many cakes Samantha must sell to break-even. (3)
 3600 / (300 – 180) = 30 cakes
OR
Number of Fixed cost Variable costs Total costs Total revenue Profit/loss
cakes £s £s £s £s £s
10 3,600 1,800 5,400 3,000 -2,400
20 3,600 3,600 7,200 6,000 -1,200
30 3,600 5,400 9,000 9,000 0
40 3,600 7,200 10,800 12,000 1,200
50 3,600 9,000 12,600 15,000 2,400
OR
 Graph drawn from table.
2. Analyse one advantage to Samantha of calculating the break-even level of output. (3)
A break-even analysis:
 aids planning – Samantha will know how many she needs to sell to break-even, which
will help her to decide whether the business is feasible or not
 is useful when applying for a loan – Samantha can present this to the bank manager to
convince them that she has thought carefully about her business and that she has made
reasonable estimates of the feasibility of her business
 can help decisions about price and if costs need to be cut, for example, if she needs to
charge more for the cakes and/or reduce costs of them in order to make the business
profitable
 can estimate the profit that may be made that will be made at different levels of output
above the break-even output, which may help to target a particular level of sales or to
adjust prices or costs
 can calculate the margin of safety – Samantha can estimate how many she will sell and
how secure her plans are.
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5.4 Break-even
3. Analyse two limitations to the break-even forecast that Samantha has calculated. (6)
Possible points to include are:
 The key limitation is that the break-even analysis is based on estimates. Samantha may
find that she must charge less for her cakes to make them sell which will reduce revenues
and profits.
 The market can change, for example, new competitors may enter the market which could
reduce her sales and the price she can charge.
 Costs may change, for example if the price of the ingredients rises, and this will increase
her break-even output and reduce profits.
 Samantha may decide to give promotional offers which means that her average price is
not as forecast and this will increase the break-even output and reduce profits.
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5.5 Cash and cash flow

Design and complete your own cash flow forecast for the next 6 weeks.
Under cash inflows you might have pocket money, paper round, babysitting etc. List all the
ways you will have a cash inflow – you may even have a birthday in the next six weeks!
Under cash outflow list all the ways in which your cash is flowing out. It could include mobile
phones, DVDs, entertainment, clothes, bus fares etc.
Once you have completed your cash flow forecast:
a) Explain any difficulties you had in forecasting up to 6 weeks ahead.
b) How accurate do you think your forecast is? Why is it difficult to make it accurate?
 This is an individual, student centred activity. Each will be different. Some students will
be very well organised and be able to plan clearly ahead, some will struggle to anticipate
income and expenditure. This is reflected in business activity – though here a lack of
planning could prove more costly.

Look back at Table 5.23 on page 256, the cash flow forecast for HMJA fashion.
a) Explain why wages are forecast to go up in November and increase further in December.
 This could be due to staff being taken on for the Christmas period which should be much
busier.
b) Why is the sales figure forecast for December so much higher than in October and
November?
 This is the Christmas effect once again.
c) Explain why a forecasted negative net cash flow in October was no real problem for
HMJA fashion.
 A single negative month for cash flow should not normally be a problem for a business.
Here the business will be buying in stock which it knows it will sell in the months up to
Christmas.
d) Explain how the next three months might look for the cash flow of HMJA fashion. Give
reasons for your answer.
 After Christmas, sales in shops such as this will normally fall away after the sales in
January, as consumers have ‘spent up’ and have all the fashion they need for then. This is
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to be expected. Into March, when the weather is picking up, new spring fashion will start
appearing in the shop which should bring an increase in sales.

Complete the following cash flow forecast for Lamick Ltd, a business that produces yoghurt.
January February March

£ £ £
Cash Inflow
Sales 80,500 92,000 88,000
Rent received 500 500 500
Total Inflow 81,000 92,500 88,500
Cash Outflow
Materials 55,000 60,000 59,000
Wages and salaries 20,000 20,000 20,000
Transport 8,000 9,000 8,500
Overheads 3,000 3,000 3,000
Total outflow 86,000 92,000 90,500
Net cash flow - 5,000 -500 -2000
Opening balance 4,000 1,000 500

Closing balance 1,000 500 -1500

run out of money estimate increase
accurate plans too much
out of business profit expenditure
Cash-flow forecast is only an estimate of the amount of income and expenditure which a
business expects. The main purpose of the calculation is to estimate when the business may
have too much or too little cash. It does not calculate profit. When a shortage of cash, to pay
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bills, is expected, the business may need to change its plans so that costs are reduced and
attempts are made to increase its income. Without sufficient cash, the business may go out of
business, not because it is unprofitable, but because it has run out of money. Short-term
forecasts are likely to be more accurate than long-term forecasts.

Make a PowerPoint presentation on businesses which are likely to have a steady flow of
cash into and out of their businesses throughout the year. Contrast those businesses with
ones which are likely to have cash flow problems – possibly where their sales are
concentrated in particular times of the year.
 Businesses which might have cash flow problems to deal with include fireworks,
Christmas cards (though a card maker in general would have fewer problems) and other
Christmas related goods – trees, ornaments etc. Students in general should look at
products and services which are seasonal.
 The food industry in general has few cash flow problems in the normal course of
business activity as demand is constant, with isolated examples (BBQ products summer
only, along with BBQ makers) of seasonal changes.
Practice questions
Multiple choice
1. A cash flow forecast is useful for:
a) informing the business about the profit the business should make each year
b) helping the business see where cash shortages might occur in the future
c) seeing the flow of cash from the business to the bank
d) choosing the best method of finance to use for expanding the business.
2. A cash flow shortage in a business is often solved by arranging:

a) an overdraft
b) a loan
c) crowdfunding
d) shares to be sold.
3. Net cash flow is calculated by:

a) adding the closing balance to the opening balance
b) adding total inflow to total outflow
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c) taking total outflow from total inflow

d) taking the closing balance from the opening balance.
Data response 34
1. Calculate the closing balance at the end of November. (2)
 -£2700
2. Explain one possible problem shown in the net cash flows (3)
 Buying too much stock to sell.
 Poor sales – price too high? Can the business afford to cut prices?
 Customers not paying on time or at all.
 Price charged by suppliers too high – is there a chance of buying cheaper?
 Not enough demand for the products they offer – should the business re-think what it
sells?
3. Analyse two measures that Tom and Olivia could take to deal with a possible cash-flow
problem. (6)
 Ask the bank for an overdraft to help them through this period. Tom and Olivia would
have to show that the net cash flow problems are ‘temporary’.
 Ask suppliers for a discount on the flowers Tom and Olivia buy.
 Increase advertising (be careful on spending too much, which will add to the problem) so
that consumers are aware of the products they sell. Social media, at no real cost, would
be an option.
 Test a price reduction ‘special promotion’ to see if sales improve.
 Reduce stock of flowers.
AO1 mark, AO2 2 marks, AO3 3 marks.
Answers should be in the context of a flower shop/the cash flow information to gain the AO2
marks available.
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6.1 Ethical and environmental considerations
6 Influences on business
Activity 1: True or false – Ethical and unethical activities,
page 265
Tick the true or false box next to each of the statements below to say whether or not they
are generally thought to be ethical practices.

It is ethical for a football manager to take a bribe because other ✓
managers do the same.
It is not ethical to sell arms to rulers who might use them to crush ✓
opposition in the country.
It is ethical to employ very young children as long as they are paid a ✓
fair wage.
It is not ethical for businesses to delay paying their bills to suppliers. ✓
It is ethical to copy films because the producers make a lot of money ✓
from them.
It is acceptable for a business to make false claims for its products ✓
because it helps to create jobs for people.
It is ethical to buy goods from poor countries, in order to help their ✓
businesses to develop.
It is ethical to save money by reducing health and safety measures, ✓
as long as it helps the business to survive.
Activity 2: Debate – Ethical business behaviour, page 266

In groups, prepare ideas for and then carry out a debate for each of the following ethical
issues. You will need one group for and one group against each proposal.
a) It is ethical to employ young children in India in textile factories so that they can earn
money to help their families.
Possible issues to discuss include:
 Should young people work at all, should they work long hours and in unsafe conditions
or for very low pay?
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People need to earn a living (in the absence of a welfare state) and it may be difficult for
parents to get jobs, especially if they have not been educated. Perhaps we should not
impose our values on Indian culture.
The position of us in the west should be considered – our demand for cheap clothing
(how much responsibility for child labour lies with us), businesses flouting rules to
protect children in other countries, businesses in other countries misleading ethical UK
suppliers, the problems of knowing what is happening in other countries with less-
developed monitoring systems/bureaucracies.
b) It is ethical to exaggerate claims for a product if the business is struggling to survive

because it will help to increase sales and stop workers becoming unemployed.
 The rights of the consumer to have full information to be able to make informed
judgements so they get value for their money and know what they are buying.
Is it any worse than successful businesses exaggerating claims?
The importance of the lives of the workers in the business – their jobs, their incomes, the
people who depend on them.
The importance of business survival for a thriving economy – buying from supplier
businesses and their continued success, jobs in those and other businesses such as
distribution business. The importance of spending for the general economic
development, for growth, jobs and incomes – the multiplier effect.
The need to compete against other firms in the UK or abroad who may also be
unscrupulous.
c) Businesses should always maximise the profit they make for their shareholders. This is
being fair to the shareholders who have invested their money in the business.
 Shareholders deserve a reward as they risk their money and could lose everything if the
business fails.
Dividends and trade in shares are important for peoples savings – pension funds,
insurance policies etc.
The interests of other stakeholders – workers and their rights to a fair wage, their
conditions of work, safety etc., customers and their rights to a fair price and decent
quality for what they pay, suppliers and their rights for a fair price and for prompt
payment, government and their right to tax revenue.
d) It is ethical for a football manager to pay a bribe to a football agent to make sure he can
sign a player for the team.
 The interest of supporters who want success for their team, who pay (often significant
sums) for tickets, the argument that other managers/clubs do this and the club would lose
out on good players if it did not.
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The argument that it breeds corruption, that more of the fans hard-earned (and TV)
money goes to undeserving people like football agents, that it favours those willing to be
corrupt at the expense of those who do things by the book, that it increases business costs
and reduces profits and may raise prices for customers.
Activity 3: Missing words – Ethical business, page 267

Complete the paragraph using the words given below:
child less human rights
competitive more Fairtrade
right survive safe
money
Ethics is about right and wrong. An example of an unethical business activity is when a firm
buys products made using child labour. Another unethical practice would be a firm that does
not provide its workers with a safe working environment. A business that sells arms to the
rulers of a country who do not give proper human rights to their citizens may not be ethical.
Sometimes it saves a business money by not being ethical. This may be important if the
business is in a very competitive market. Some of the competitors may not be ethical and so
they can charge less for their products. The result might be that the ethical business cannot
survive. However, many customers are now prepared to pay more for products that are sold
by ethical producers. Fairtrade is one way of making sure that suppliers are treated fairly,
that they receive a good price.
Activity 4: Zone activity – The impact of ethical

considerations, page 268
The following statements are either possible advantages or disadvantages to businesses of
behaving ethically. Put each one under its correct heading in the table below.
Possible advantages of behaving ethically Possible disadvantages of behaving

in business ethically in business
There is a greater chance that the business The costs of production may rise because
will survive in the long run. workers need to be paid a fair wage.
Workers may be more motivated which will A business that is honest in its marketing
improve productivity. may find that its sales fall.
Sales may increases as customers think the
business is trustworthy.
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Business may find it easier to recruit

employees.
Activity 5: Missing words – Environmental considerations,

page 272
Read the section above. Complete the paragraph below using the words that are given.
compost fossil sustainable
waste transported fertilisers
global recycled environmentally
landfill wood chemicals
burning
Shanks uses waste as an input. From it, Shanks produces all kinds of outputs including
compost and wood products. This is good because it saves using landfill sites or burning
waste in incinerators. For the fashion industry there are many difficulties in being
environmentally friendly. Chemical fertilisers are often used to help to grow cotton.
Chemicals are used to dye clothing. Clothing often needs to be transported long distances
from where it is made to where it is sold. Transport causes fossil fuels such as oil to be used
up and CO2 emissions contributing to global warming. Sustainable production involves
making goods and services using recycled resources.
Activity 6: Poster drawing – Using the environment, page

272
Think about the local area around your school. Individually or in groups, draw a poster that
shows the costs to the environment in this area that result from consumers and producers
using it. Also, show the benefits that consumers and producers gain from their local
environment. The rules for drawing this poster are that you can use lots of pictures and
symbols and numbers, but you cannot use more than ten words. Once you have drawn it,
you need to explain it either to the whole class, or to some of the other students in your
class.
 Costs might include: noisy, dirty/pollution causing traffic, including lorries and planes;
loss of green space; factories/shops as a blight on the landscape; factories causing
pollution (air, waste in rivers, dumps of waste); roads; loss of habitat for rare species;
traffic congestion (travelling to shopping areas); litter (waste packaging for example).
 Benefits include: play areas; park/green space developed as a result of spending by
business or the local council; good communications – roads, railways, airports etc.; jobs
and income generated from work; places to shop; products being delivered to homes.
174
Activity 7: Research – Green and not so green products,

page 272
Imagine that you are buying Christmas or birthday presents for your friends and family –
toys, toiletries, bags, clothes etc. Research gift catalogues to find presents that are eco-
friendly. You will be able to find these on the internet – use Google or a similar search
engine. Write down your list of presents and explain how each one is environmentally
friendly.
The following are examples of websites which advertise gifts that are claimed to be
environmentally friendly and ethically produced. There are others.
 www.solar-jar.co.uk
 www.foeshop.co.uk
 www.oneworldshop.co.uk/gifts
 www.protecttheplanet.co.uk/eco-friendly-gifts.html
OR
Find out about environmentally friendly cars – use the internet. Fuel-efficiency (miles per
gallon) is one measure that can be used, another is the CO2 emissions of the car. Compare
hybrid cars such as the Toyota Prius with petrol and diesel cars. Write down a list of about
ten cars, from the best to the worst in terms of being ‘green’. Explain why you have put the
cars in the order that you have.
The following are examples of websites on which cars are listed according to how
environmentally friendly they are judged to be. The actual cars in the list will vary from year
to year as producers develop them.
 www.nextgreencar.com/eco-cars/
 www.autoexpress.co.uk/best-cars/86338/best-low-emissions-green-cars
Activity 8: Explanation – Making your school green, page

273
Individually or in groups think about your school. Decide to what extent it is green – use
ideas under the heading ‘Sustainable production’ on page 269 to help you to make a start
and add any other ideas that you have. Write down two lists. In the first, write all the things
you can think of that happen in school which could be called environmentally friendly. In
the second, write down all the ways in which your school could become greener. Briefly
explain the things that you have listed.
Points to consider include:
 Does the school have solar panels, a wind turbine? How old is the school boiler, could it
be updated (but at what cost)?
 Is the school well-insulated or does it have old, draughty buildings, single-glazed
windows etc.?
175
 Are systems in place to save water, for example, taps which switch off automatically, are
taps which drip dealt with promptly by maintenance staff, do pupils waste water, perhaps
by causing vandalism in the toilets?
 Does the school use sensored lighting switches which turn lights off automatically when
there is no movement in a room, are the bulbs long life and energy saving?
 Is as much waste as possible recycled – paper, ink cartridges, old computers and
printers?
 Is the school paper-less as far as is possible – are messages between teachers sent using
email or on paper, are the resources used in lessons printed off or shown on a
whiteboard, do pupils write in exercise books or on computers or tablets?
 Is cycling to school encouraged, perhaps by safe cycling storage on the school premises
and cycling safety lessons for pupils? Is walking to school encouraged or car sharing by
pupils being brought by their parents, is there a good school bus services to reduce the
need for parents to drive their children to school?
 Does the school buy supplies from local suppliers?
Activity 9: Matching activity – Costs and benefits of being

green, page 274
Match the statement in the left hand column of the table with the explanation in the right
hand column.
Statement Explanation
a) Costs of production may be 6. Raw materials bought from green
higher. suppliers are often more expensive.
b) The business may not have to pay 1. The firm causes less pollution.
as much tax.
c) The business may have to spend 5. Items such as solar panels need to be
money on equipment. bought.
d) Production methods may cost 2. Producing food organically is more
more. expensive than using fertilisers and
pesticides.
e) The firm may receive a subsidy 3. The government has its own targets to
from the government. meet to improve the environment in its
country.
f) Costs of production may fall. 4. It can be more economic to use green
production methods sometimes.
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Practice questions
Multiple choice
1. Which of the following statements is false.
a) An ethical business will only employ young children when it needs to save money
to survive.
b) An ethical business will always pay suppliers on time.
c) An ethical business will not exaggerate the benefits to customers of what it sells.
d) An ethical business will not buy from a supplier which cuts costs by cutting back on
health and safety procedures in its factory.
2. A possible disadvantage of ethical production to a producer is:

a) workers may need to be paid a higher wage than offered by competitors leading to
higher production costs
b) the sales and profits will be increased by charging customers more than a fair price
for the product
c) being ethical can motivate workers and improve productivity reducing the cost per
unit produced
d) supplies cannot be bought at lower costs from firms that employ children.
3. Sustainability is:
a) production that does not use up scarce resources
b) production that only uses scarce resources
c) production that does not produce any waste products
d) production that covers the cost of the scarce resources used.
4. A possible disadvantage of sustainable production is:

a) it can reduce production costs by using cheaper methods
b) it can lead to a higher demand for the business’s products
c) production costs may be higher than using non-sustainable methods
d) it can mean that the business can claim subsidies from the government.
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Data response 35
1. Explain why buying ethically produced goods, such as Fairtrade goods, can help farmers
in poor countries in the way the extract describes. (2)
 The buyer promises to pay a fair price.
 The buyer pays a price which guarantees a reasonable income for the farmer – reference
to the extract, for example, being able to buy warm clothes for his family.
 There may be a multiplier effect in the farmer’s community leading to further economic
development – reference to the extract, for example, the provision of medical services.
2 a) Analyse one benefit to Pukka Teas of buying from Fairtrade suppliers. (3)
Pukka Teas may be able to:
 claim it supports Freetrade suppliers and this can be stressed in publicity materials
 improve the image of the company.
 increase sales from socially responsible customers.
 increase profits as a result of the increase in sales.
b) Analyse one disadvantage to Pukka Teas of buying from Fairtrade suppliers. (3)
Pukka Teas may:
 pay a higher price than from non-free trade producers
 see production costs rise
 need to raise prices
 be dearer than competitors
 lose sales
 reduce profits.
c) Recommend whether Pukka Teas should continue to buy from Fairtrade suppliers. (3)
 Pukka Teas has used the fact that it buys from Fairtrade suppliers in its publicity
materials which may have created a good image for the company.
 The business has survived – the evidence is that it was formed in 2002 and is still
trading.
 The business has experienced growth – the evidence is that sales are now equal to £9m
per year.
 It is unclear how much of the success is due to the Fairtrade teas – only ten out of its 37
teas are bought from Fairtrade suppliers.
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Data response 36
1. Evaluate the benefits to Olleco of producing bio-diesel in the way that it does. (9)
Possible advantages to Olleco are (up to 3 marks):
 Olleco can claim to be an eco-friendly, socially responsible business.
 Olleco is using waste produce as a raw material which may reduce costs.
 It can help other businesses to claim that they are eco-friendly by supplying the materials
for Olleco to use and buying products from Olleco. This may help to increase their sales
and profits.
Possible disadvantages (up to 3 marks):
 Olleco has had to spend money on research and development.
 Olleco has had to invest in new technology/plant which can be expensive.
 Olleco may have to charge more for its products than competitors for their products.
Evaluative comments include (up to 3 marks):
 It has been successful – the evidence is that employment has risen to 550, there are more
plants in towns other than Liverpool.
 Growth has been rapid – the evidence is the firm was founded only nine years ago.
 Olleco is clearly meeting a demand, otherwise it could not continue to trade.
 More information is needed about the costs and prices to see how these compare to
competitors.
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6.2 The economic climate

Activity 1: Zone Activity - Economic conditions and
business, page 281
Leisure plc is considering expanding its chain of leisure centres. The statements below
describe the different economic conditions. Put the statement under the correct heading
‘advantage’ or ‘disadvantage’ in the table below to state whether or not they would help
Leisure plc to expand.
• Employment is rising.
• Consumers are not confident as they fear a recession is coming.
• Spending in the economy is high.
• Many businesses are saying that their sales are falling.
• Earnings are rising steadily as businesses increase production.
• Most new jobs are part-time.
• The international economy is growing quickly.
Advantage – it will help Leisure plc to Disadvantage – it will not help Leisure plc
expand to expand
Employment is rising. Consumers are not confident as they fear a
recession is coming.
Spending in the economy is high. Many businesses are saying that their sales
are falling.
Earnings are rising steadily as businesses Most new jobs are part-time.
increase production.
The international economy is growing
quickly.
Activity 2: Group (or individual) activity, page 283

Beetham Perfumes makes a range of perfumes selling to consumers in the UK. These are
lower-cost perfumes aimed at people on low incomes. Sales and profits have been falling
due to a fall in the incomes of its customers. The owners of Beetham Perfumes have drawn
up a list of strategies to deal with the fall in sales and profits:
a) Reduce production costs by using cheaper raw materials.
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 Advantages: It may mean the business can reduce its prices and demand may not fall
despite consumer’s fall in income. It depends on how low prices are at present and how
much incomes have fallen and are expected to fall. It also assumes competitors do not do
the same.
 Disadvantages/problems: Cheaper raw materials may mean the quality of the perfume
falls which might reduce demand. Cheaper raw materials may not be available or in the
quantities needed. It also depends on how soon the switch can be made to the cheaper
materials – are the materials currently available in sufficient quantities, how long will it
take to transport them? Are the transport costs of the cheaper materials no more than the
transport costs of the previously used materials?
b) Improve the motivation of workers.

 Advantages: This will raise productivity which should increase the output of each worker
and improve the quality of the product. This should mean less waste. Improved
productivity and reduced waste should lead to lower production costs and so the firm can
reduce its prices, leading to increased sales (possibly).
 Disadvantages: There may be costs involved, for example, bonuses etc. which may raise
production costs – it depends on the impact of the motivation effect. The strategies to
improve motivation may take time to have an effect. There is no guarantee that the
strategies will have the desired effect.
c) Improve the cash flow of the business so that a lower overdraft is needed.
 Advantage: A lower overdraft would mean that the business would save on interest
payments which would reduce costs and possibly prices with a possible positive effect on
sales.
 Disadvantages: It will be difficult. It would need to increase revenue, given what is
happening to consumer’s incomes. Reducing costs will help but it may take time and, as
noted above, there are problems associated with reducing costs.
d) Produce a higher quality product.

 Advantages: Higher quality may attract richer customers whose incomes have not fallen.
This may lead to an increase in sales and profits or at least preventing a fall in sales.
 Disadvantages: It may be difficult to persuade richer customers to buy. Beetham
Perfumes has become associated with lower cost/quality perfumes and a significant
marketing campaign will be needed to change the image of the company. This may be
expensive and take time.
e) Sell perfumes abroad.

 Advantages: This could mean a lot of new potential customers. Potential customers in
other countries may not be experiencing falls in their income. Sales and profits may
increase.
181
 Disadvantages: There will need to be a substantial marketing campaign which will cost.
There are increased transport costs. Exchange rate fluctuations may affect prices and
sales.
Each group should come up with a list of the advantages and disadvantages or problems for
each strategy. You might also need to consider what other information is needed before a
decision can be made. The class should discuss these and then come to an agreement as to
what Beetham Perfumes should do.
Activity 3: Explanation activity – Economic conditions and

business costs, page 284
Suppose there was a recession in the UK in the next 12 months. Explain what would happen
to each of the following:
a) The level of unemployment in the country.

 Unemployment usually rises in a recession. This would reduce the income of customers.
b) The amount of competition between businesses for the workers they want to employ.
 Competition between businesses may reduce, as there is an increased number of workers
looking for work.
c) The level of wages that businesses would need to pay to workers.

 Workers may be willing to work for lower wages, as they know that firms do not have to
pay high wages to attract workers to them.
d) The likely effect of the above on the costs of the businesses.

 Business costs should fall. This should mean that businesses can reduce their prices or
increase their profits.
Practice questions
Multiple choice
1. Consumer spending is likely to fall when:
a) average incomes rise
b) unemployment falls
c) the country produces less than it did as measured by GDP
182
d) immigration rises.
2. In a period of rising income and employment, most businesses can expect:

a) sales to rise
b) prices to fall
c) profits to fall
d) immigration to fall.
3. When a business loses sales and profits due to a fall in the income of consumers it
should:
a) increase the amount it produces
b) reduce production costs
c) stop selling the product abroad
d) recruit more workers.
Data response 37
1. Analyse one advantage of the way Fitspace operates. (3)
 It keeps costs low as it is a no-frills service and so less is spent on facilities and staffing.
It may attract lots of customers as there are lower monthly membership fees and
members are not signing long term contracts.
2. Analyse one disadvantage of the way Fitspace operates. (3)

 The no frills service may not be attractive to some customers, so Fitspace may lose sales.
The business may lose revenue from people who might have signed an annual contract
and who stop using the gym after a short period. Also, from charging less than other
gyms charge.
3. Recommend whether or not Fitspace should change the way it operates. (3)
 The firm has grown successfully.
 It is meeting a demand from customers with lower incomes (who want lower fees and do
not want to be tied in to annual contracts).
 It should consider operating a better-quality service with higher fees and annual contracts
in areas where there is little competition.
 Current strategy seems to be working. It would be useful to know sales and profit figures
and the growth in these. Making some gyms more expensive and a better-quality service
would be difficult to market.
183
Data response 38
1. Analyse how Heron Holidays could reduce the costs of providing its holidays. (3)
 Make customers provide their own transport to its centres.
 Lower the standard of accommodation.
 Reduce what is included in the price and start charging for some provision, for example,
evening meals and afternoon teas.
 Introduce an online booking system reducing staffing costs.
 It could reduce the number of walking leaders and have larger groups.
2. Analyse how Heron Holidays might change its marketing in response to the fall in
consumer incomes. (3)
 It could reduce marketing to reduce costs.
 It could increase its prices.
 It could start to provide better accommodation and services to attract higher income
customers (or reduce the provision).
3. Recommend which of these strategies Heron Holidays should use to respond to the fall in
consumer incomes. (3)
 The strategy will depend on how much incomes are falling and are expected to fall.
Heron Holidays may find that it can cut some costs and its prices and still attract
sufficient customers. It also depends on what competitors are doing. If competitors are
going down-market, it may be that Heron Holidays should continue with its existing
provision in the hope of winning from their competitor’s customers whose incomes have
not fallen.
184
6.3 Globalisation
6.3 Globalisation
Activity 1: True or false – The causes of globalisation, page
288
Tick one box to indicate whether each of the statements in the table below is true or false.
Globalisation has increased because countries have ✓
set up free trade arrangements with each other.
The movement of people has increased because of ✓
better transport.
The EU made it more difficult for people to move ✓
from one European country to another.
The movement of goods has increased because of ✓
better transport.
Improved telecommunications have made it easier ✓
for business to deal with businesses in other
countries.
Tariffs are taxes on imported goods designed to ✓
reduce the amount of imports in to a country.
Activity 2: Debate – The problems of multinational

companies, page 290
Motion of the debate: ‘Amazon, Google, Apple, Coca Cola, Vodafone and McDonalds are
examples of the many multinational companies that do business in the UK. The problems
caused by multinationals such as these are far greater than the benefits.’
The class should divide in to teams. Decide whether your team will support this motion or
argue against it. Agree who will be the spokesperson for your team. Each team should
research the two sides of the debate – you may find it useful to use search engines such as
Google to find articles for and against multinationals, particularly about tax avoidance.
Bring your ideas into a presentation – you may support your presentation with PowerPoint
slides but this is not essential.
Once you have prepared the debate, present your arguments to the class. Once the main
speakers have presented their arguments, other pupils in the class should be allowed to
express their ideas. Once this has been done, the main speakers should then summarise
their arguments and a vote be taken.
185
6.3 Globalisation
In favour of multinationals
 They produce goods and services that many of us buy so they are satisfying our
demands.
 They are large business and can gain economies of scale so may lower prices consumers
and business buyers pay.
 They create jobs and help economic growth. They buy goods and services from other
businesses in the host and other countries, which helps those businesses to make a profit,
to create jobs, pay incomes and contribute to economic growth. There will be a multiplier
effect on business activities.
 They pay taxes to the host country helping it either to reduce taxes on workers,
businesses and consumers or to increase government spending on services such as
education, health and the infrastructure of the economy, which in turn helps other
businesses.
Against multinationals
 Multinationals may force businesses in the host country to close because they cannot
compete effectively, a criticism which has been made of Amazon.
 They may not pay fair taxes, a criticism which has been made of a number of
multinationals operating in the UK, for example, Google, Starbucks, Amazon and others.
 They may pay local workers higher wages than local businesses can afford to pay with
the result that local businesses struggle to attract labour.
Activity 3: Explanation – Advantages and disadvantages to

UK firms producing abroad or in the UK, page 293
Answer the following:
a) State and explain two reasons why a UK producer may be able to lower its costs of
production by moving production to another country.
 Cheaper labour because of lower wages and better technology if foreign firms have
invested more than UK producers.
b) Explain why UK businesses may be affected by shortages of skilled labour and how
moving abroad may help them to overcome this problem.
 There may be a shortage of skilled workers in the UK, either because of the high demand
for them or because not enough are being trained, and this can lead to high wages having
to be paid. A UK firm that moves abroad may be able to use cheaper but still skilled
labour.
c) With the aid of examples, explain why a firm can increase sales by moving production
abroad.
186
6.3 Globalisation
 They are better able to sell in the market in the new country because they are nearer to
the market.
d) Explain why quality control may become a problem if a UK business moves production to
a Far East country such as China.
 It is a long way away for people from the UK HQ to travel to check that the
goods/services are being produced to the correct standard.
e) Explain the communication problems that a UK firm may face if it moves production
abroad.
 Distance and language may be a problem. Distance means it is a long way to travel to see
the workers in the foreign factory and to talk to them face to face. Communicating during
working hours using the telephone or emailing or FaceTime may be difficult because of
differences in the time zone. Language is a problem if the people do not speak English
where production takes place.
f) Explain one transport problem which may affect a UK firm that moves its production
abroad. How might the firm be affected by the problem?
 The longer the distance travelled, the greater the chance of transport problems and
delays. The UK business may run short of raw materials or finished goods.
g) Explain why producing goods in the UK may help sales in the UK.
 The business can claim that the product is made in the UK and customers sometimes
prefer goods that are made in the UK.
Activity 4: Tick box activity – Advantages and

disadvantages of moving production back to the UK, page
293
Put a tick in one of the boxes next to each statement in the table below to indicate whether
it is an advantage or a disadvantage of moving production back to the UK.
Statement Advantage Disadvantage

Wage costs in the UK are higher than in many other ✓
countries in the world.
Producing and selling in the UK can reduce transport ✓
costs and improve the image of the business as
‘green’.
187
6.3 Globalisation
The UK has a good supply of skilled labour. ✓

Customers like to buy ‘British-made’ goods. ✓
There are shortages of some kinds of skilled labour ✓
such as engineers.
It is likely that all the workers speak English. ✓
Managers can visit the factories more easily to check ✓
on quality.
Activity 5: Matching – International branding

considerations, page 295
The table below is about international branding considerations. Match a consideration in
the left-hand column with the example of that consideration in the right-hand column.
Consideration Example
Culture and religion The US company Pepsodent advertised in Indonesia that its
toothpaste would make teeth ‘whiter’. Black teeth are thought
to be attractive in Indonesia.
Language The American fast food company translated its ‘cheesy chips’
as ‘yassuppoi’ chips for an advertisement in Japan. It means
‘low quality’ in Japanese.
Names Schweppes ‘Tonic Water’ translates as ‘Toilet Water’ in
Italian.
Level and distribution of The USA electronics company, Best Buy, failed to compete
income with cheaper retailers in China.
Legal factors It is illegal to advertise alcohol in Sri Lanka.
Bribery Some members of FIFA, the world governing body for

football, have been accused of accepting money from TV
companies in exchange for granting them the rights to show
football games.
188
6.3 Globalisation
Activity 6: Zone activity – How businesses compete

internationally, page 300
The table below lists the main areas business. Put each of the following statements next to
the area of business activity listed in Table 3 for which it is an example.
• A business issues new shares to raise the money to build a new factory in Indonesia.
• A retailer decides to buy a chain of shops in another country.
• A UK-based business offers generous relocation packages – free housing, free schooling
for children, free flights home twice a year etc. – to its workers to encourage them to
move to its new factory in Hungary.
• A business decides to start selling a product in a country because income and
employment in that country have been increasing rapidly.
• A business redesigns its range of clothing so that it will sell in another country.
• A business introduces mass production so that it can meet the demand for its goods in
other countries.
Area of the OCR GCSE Example

Specification
Growth A retailer decides to buy a chain of shops in another
country.
Marketing A business redesigns its range of clothing so that it will
sell in another country.
Human resources A UK-based business offers generous relocation
packages – free housing, free schooling for children, free
flights home twice a year etc. – to its workers to
encourage them to move to its new factory in Hungary.
Business operations A business introduces mass production so that it can
meet the demand for its goods in other countries.
Finance A business issues new shares to raise the money to build
a new factory in Indonesia.
Influences on business A business decides to start selling a product in a country
because income and employment in that country have
been increasing rapidly.
189
6.3 Globalisation
Activity 7: Explanation – Changes in the exchange rate,

page 300
The exchange rate of the pound against the euro rises from £1 = €1.2 to £1 = €1.3 euros.
For each question below, explain how the British firm may be affected by the change in the
value of the pound against the euro.
a) A British firm exports its goods to other countries in the Eurozone (the countries in the
European Union which use the euro).
 A useful mnemonic is SPICED – Strong Pound Imports Cheap Exports Dear.
 A rise in the value of the pound will make exports dearer to the buyers in the Eurozone
as they will need to pay more in Euros to buy each pound they use to buy British goods.
This will usually reduce the amount that British firms sell in the Eurozone.
b) A British retailer sells goods in the UK that have been produced in a Eurozone country.
 A rise in the value of the pound will make imports cheaper. The British retailer can sell
the goods in the UK at the same price and so increase its profits (as costs have fallen) or
it could reduce the price, still make a similar profit margin and increase its sales.
Practice questions
Multiple choice
1. Which statement about globalisation is not correct?
a) Globalisation involves the movement of people from abroad coming to live and work
in the UK and people from the UK going to live and work abroad.
b) Globalisation includes the activities of multi-national businesses that operate in
different countries.
c) Globalisation involves trade between two UK businesses based in the UK.
d) Globalisation can involve a bank in one country lending money to a business in
another country.
2. A UK manufacturer has decided to export a fruit juice that it produces to a country in

Africa. Which of the following is not an important consideration when branding the fruit
juice?
a) The amount of the fruit juice drunk in the UK.
b) The name it chooses for the product.
c) The income of the people in the country it decides to export to.
190
6.3 Globalisation
d) The language the people speak in the country.
3. Which of the following is not an advantage to a business of being a multinational

company.
a) It can sell in different markets and so spread risk.
b) It can produce in different countries in the world to minimize costs of production.
c) It may be able to minimize the taxes it pays on its profits depending on where it
locates its headquarters.
d) It is easier to manage businesses that operate in different countries.
Data response 39
1 a) Analyse two possible advantages Symington’s Ltd may have gained by moving
production of its Golden Wonder pot noodles to China. (4)
 Reduced costs of production – cheaper labour than in the UK.
 Reduced costs of production – cheaper land than in the UK
 It may find it easier to recruit the workers it needs, especially if there are shortages in the
UK.
1 b) Analyse two possible benefits to Symington’s of moving production of its Golden

Wonder pot noodles back to the UK. (4)
 Can claim the goods are made in the UK – a marketing advantage which may increase
sales.
 The UK has a skilled labour supply and Symington’s may find it easier to recruit the
skilled workers it needs in the UK than abroad.
 It is easier to communicate as workers will be more likely to speak English in the UK
and it will be easier for managers to visit its factories and customers.
 It is easier to monitor production, for example, for quality, as the factory is in the UK so
long distance travel and communication is not needed and inspections are easier.
1 c) Discuss the factors which will influence whether or not a business will produce in the UK
or abroad. (4)
 Costs in China and the UK. Are Chinese wages rising as its economy grows reducing the
cost advantage of producing in China? A similar thing may happen with land costs and
the cost of renting/leasing factory space. Wage and leasing costs may not be rising as
much as in China, making cost savings less significant.
 Are there appropriate workers – skilled and/or unskilled – available in China and in the
UK?
191
6.3 Globalisation
 The importance customers place on ‘made in UK’ and thus the marketing advantages to
be gained by moving back to the UK.
 How good quality control has been in China – are there issues, will it be easier to assure
quality if production takes place in the UK?
 Comparing the costs and benefits in the context of Symingtons will be key. One
approach will be to introduce ‘it depends’ statements, for example, it depends on wage
costs in China compared with those in the UK.
Data response 40
1. Analyse three advantages to Tesco of going into a joint venture with a Chinese company
in order to compete in the retail market in China. (9)
 Tesco can save on the high rents for retail space by selling its goods through the outlets
shared/jointly owned with CRE.
 Tesco can benefit from CRE’s marketing expertise in China – which will guide the joint
venture to sell appropriate goods at appropriate prices.
 Marketing costs can be shared with CRE. Vanguard is already an established name so
this will reduce the amount and cost of marketing required.
 There may be economies of scale in joining with a large producer, for example, bulk-
buying, managerial, risk-bearing, financial as well as marketing as mentioned in the
above point.
192
7 The interdependent nature of business
7 The interdependent nature

of business
Activity 1: Case study and questions about the
interdependent nature of business, page 302
Methods of production (business operations) and marketing
Question 1
a) Explain how using job production can help AF Ltd to market its furniture. (2)
 Goods produced using job production are often hand-crafted and high quality. AF Ltd
can stress this quality angle in its marketing and so be able to charge a high price and
appeal to a select market.
 Job-produced goods can also be bespoke, so can meet the specific needs of customers.
 It may be possible to increase the amount produced so AF Ltd can increase the amount it
offers for sale.
b) Analyse how using job production may make it difficult for AF Ltd to market its furniture.
(3)
 Job production is often expensive. High costs will mean high prices which may put off
buyers in a competitive market. This will also be influenced by levels of income of
consumers – if incomes are falling, consumers may not want to pay the high prices.
Human resources and methods of production

Question 2
a) Analyse how the type and number of workers that AF Ltd needs to employ would change
if it was to use batch production rather than producing bespoke furniture using job
production. (3)
 The number of workers needed is likely to fall. Production could be switched to a
production line approach, perhaps employing technology to produce standardised parts,
and this would reduce the labour needed.
 Fewer craft/skilled workers would be needed because production is of standardised units.
There might be an increase in skilled workers who can control/program the technology.
b) Analyse how this might affect the costs of production of furniture. (3)
 Costs are likely to fall once the batch production process has been introduced – less will
be spent on staffing costs if machines are used instead of labour.
193
 There may be some increase in costs for purchasing the technology needed and for
making redundancy payments to workers laid off. These are one-off costs.
Business operations, marketing and finance

Question 3
Evaluate the possible effects on marketing and profitability if AF Ltd switches from job to
batch production. (9)
Benefits may be:
 AF Ltd may be able to reduce prices because of reduced costs, leading to increased
competitiveness.
 It may have to market to a wider market because the amount produced will increase.
 It may have to market to a lower income bracket of customer who like to buy cheaper,
non-bespoke goods, rather than customers prepared to pay higher prices for bespoke
products.
 Profits increase because of increased sales and lower costs, depending on the price AF
Ltd can charge for its batch-produced furniture.
 The overall effect will depend on the extent to which costs and prices are reduced. Its
competitiveness with batch produced products will be influenced by the marketing and
pricing of competitor goods. It may be that even though it reduces prices, it does not
have to reduce them as much as costs fall and this would increase profits overall.
 However, it may have to bring its prices really low in line with those of competitors and
this might mean that profits do not increase and could possibly even fall.
Activity 2: Case study – Risks, rewards and financial

information, page 309
Question 1
Identify two possible rewards which JMW Ltd may benefit from if it moved to a new larger
purpose built factory. (2)
 The factory will be larger. JMW Ltd can increase production to meet the increased
demand.
 Costs may fall as larger production may lead to economies of scale, for example,
technical economies in the process of production. Other economies that may result from
the increase in scale are financial, managerial, purchasing and marketing.
 The layout of the factory can be designed to meet the production process and this should
increase efficiency.
 The move to a new factory is likely to lead to the purchase of more and newer
machinery. JMW Ltd will gain the benefits of new technology such as increased speed of
production, lower costs.
194
Question 2
Using figures from the table above and any other relevant information, analyse the possible
risks to JMW Ltd of moving to larger premises. (6)
 The figures show that most growth in revenue and profits occurred at the start of the
period (2012–2014) and that sales have only grown a little since. Profits fell in the final
year, 2016, due to rising costs.
 The risk is that the factory is larger so requires JMW Ltd to increase sales, but limited
growth in the previous years begs the question whether this growth in sales is possible.
JMW Ltd will need to finance the purchase of the factory – how will depend on whether
it is buying the factory or leasing it. The move will raise costs initially and, if sales do
not increase, JMW Ltd may not be able earn the revenue to pay for these costs.
Question 3
Analyse the impact of a move to a new larger factory on business operations at JMW Ltd. (3)
 The move to a larger factory will mean that JMW Ltd can alter the scale of production.
It may be able to introduce more technology in to the production process and possibly
reduce the number of workers it employs.
Question 4
JMW are planning to introduce a new range of quality binoculars, which will need to be
marketed through advertising and point of sale promotions. Analyse the effect of this
marketing on the finance function at JMW Ltd. (6)
 The marketing activity will need to be financed. JMW Ltd must raise the finance needed
somehow. Possible sources may be profits (the business has been profitable so, if some
profit has been retained, the money should be available), taking out a loan (which will
involve interest payments) or selling of assets (such as its old factory if it owned it).
 The marketing expenditure will need to be considered in the cash flow forecasts of the
business. This links with the previous point in that the cash flow forecast may indicate a
need to fund a deficit for a period, perhaps by using an overdraft.
 The additional expenditure will need to be included in any break-even analysis as it is
one of the costs of production. The finance department will be responsible for
recalculating any break-even analysis done previously. It will need to advise on any
changes that are required, for example, possibly to increase prices to lower the break-
even point.
195
Practice questions
Multiple choice
1. A shop selling expensive televisions decides to market itself as offering the best customer
service on the market. This will mean:
a) finance function must be involved in providing funds for a new shop
b) business operations must provide better quality televisions
c) human resources should provide additional advanced training for all staff
d) marketing needs to advertise the new televisions in national newspapers.
2. A business making ice cream wants to double its production. Which of the following will
not normally be required?
a) Human resources to look at the need for extra staff.
b) Finance to look at the amount of money required for the extra production.
c) Marketing to carry out market research before the decision is made.
d) Business operations function to check on where the products are sold.
3. A business wants to increase market share by reducing prices of its products. This would
possibly involve:
a) business operations function decreasing the level of production
b) advertising the price reductions
c) human resources looking at whether to move from a tall to a flat organisation
structure
d) finance providing money for a pay rise for all staff.
Data response 41
1. Evaluate whether the proposed changes at Sports Direct will help to increase the
company’s profits in the future. (9)
Possible reasons for an increase in profits:
 The changes may improve the ethical image of the company which could lead to an
increase in sales and in revenue, leading to more profits.
 The better pay and conditions for workers may increase the motivation of workers,
increasing their productivity and reducing costs so profits increase. The lower costs
could also mean the business can reduce its prices and possibly increase sales and
revenue and profits.
196
Possible reasons for a fall in profits:

 Wage costs may rise – both because of the rise in pay brought about by paying the
national minimum wage and because it is guaranteeing work for workers up to 12 hours
per week and may end up paying some workers when there is no work to be done.
 Productivity may fall if workers now start to abuse the less strict regime and start taking
longer breaks or turning in late. This would raise costs.
Overall evaluation:
 It depends on what happens to costs, whether they rise or fall, compared to what happens
to revenues, whether these rise or fall and by how much.
 There may be some loss of profits in the short run but a possible gain in the long run if
the good points from the changes start to have an effect by increasing revenues and
reducing costs.
197

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Business 2: Operations, finance and influences on business

6 Influences on business 169

7 The interdependent nature of business 191

Activity 2: Research activity – Characteristics of an

Activity 3: Explanation – The benefits and drawbacks of

2. An entrepreneur needs which of the following characteristics?

1. State two characteristics of an entrepreneur. (2)

3. Evaluate the potential risks of becoming an entrepreneur. (9)

1.2 Business planning

Activity 2: True or false – The contents of a business plan,

Activity 3: Explanation – The importance of a business

2. Explain why a business plan is especially important to a new business.

2. A business plan will:

3. The purpose of identifying resources in a business plan is to:

1.3 Business ownership

Activity 2: True or false, page 15

Activity 3: Presentation activity, page 15

Activity 4: Missing words activity, page 15

Activity 5: Research – Tracking the share price of a

Activity 6: Zone Activity, page 18

Feature Private Public Both

Activity 7: Explanation activity, page 20

Activity 8: Research – Local business survey, page 20

3. A private limited company:

4. A public limited company:

2. State two disadvantages of Clarks being a private limited company. (2)

1.4 Business aims and objectives

Activity 2: Zone activity, page 27

Activity 3: Explanation activity, page 28

2. A business might want to grow because:

3. A business might change its aims and objectives because:

1.5 Stakeholders in business

Activity 1: Research and explanation activity, page 31

Activity 2: True or false activity, page 32

Activity 3: Research activity, page 34

2. Employees as stakeholders are interested in business activity because:

d) spending money on new road projects.

1.6 Business growth

Activity 1: Explanation activity, page 37

Activity 2: True or false activity, page 37

Activity 3: Matching terms activity, page 39

An example of a horizontal merger or A business making radios merges with a

An example of a forwards vertical merger. A maker of pottery takes over a pottery

Activity 4: Research activity, page 39

3. Which of the following is not an example of organic growth?

c) developing new products

Activity 2: Research and explanation activity, page 43

2. The way a business informs customers about a new product or service:

3. A business can understand the needs of its customers by:

2.2 Market Research

b) Should she make any type of cake, or just certain styles?

Activity 2: Explanation activity, page 47

Activity 3: Zone activity, page 48

Primary research is also known as field research

Activity 4: Evaluation activity, page 48

b) A new computer game

c) Collecting information on consumer views on double glazing

Activity 5: Explanation activity, page 49

b) how many competitor businesses sell a particular range of products

c) the number of people over 65 years of age living in a particular area

d) the prices charged by competitor businesses.