Quiz Case Study

Question 0

Explain two ways in which AS plc might benefit from being in an area in need of regeneration.

Answer 0

It might mean that:
 the rent paid on any premises AS plc leases in the area is
low, which would help to keep down fixed costs.
 AS plc might find it easy to recruit unskilled or semi-skilled
workers – if unemployment is high in the area.
 wage costs may also be low - if unemployment in the area is
high, which would help to keep down variable costs.
 AS plc might find it easier to secure a grant from the UK government to construct the new factory it wants to build to produce the more fuel-efficient engines - as the government is likely to be in favour of a project that
creates employment.

Question 1

State three ways in which AS plc might add increased value to its customers.

Answer 1

 By making their cars more efficient in carrying out their function eg more economical to run, less noisy, more comfortable.
 By making their cars more visually appealing, eg look better through improved design or colour, or offering superior customer service eg better after sales support, lengthier warranties, longer / greater credit.
 By making their cars more environmentally-friendly through more fuel-efficient engines.
 By increasing the perceived worth of their cars through promotion.

Question 2

Explain what is meant by a developing economy.

Answer 2

These are countries with less industrialisation and lower living standards than that evident in countries such as the UK, USA or Australia.

Question 3

Explain why the demand for cars might rise when employment rises.

Answer 3

When employment rises it means that more people are employed and are, thus, earning an income from working. This means that more people will have money available to spend on goods and services, including new cars.

Question 4

Explain why AS plc might not be able to benefit from substantial economies of scale.

Answer 4

Because it only produces a limited number of cars and the smaller the number of products a business produces at any given time, the less scope there is to benefit from economies of scale.

Question 5

Explain why people may be willing to pay a higher price for AS plc cars.

Answer 5

Because only a limited number of cars are produced by AS plc this makes the cars seem more ‘special’ and ‘exclusive’, for which some people may be willing to pay a higher price.

Question 6

1. Out of the 5 countries shown in Fig.1, identify which country made the most profit in 2010.

Answer 6

India

Question 7

2. Out of the 5 countries shown in Fig.1, identify which country made the least profit in 2010.

Answer 7

Russia

Question 8

3. With reference to Fig.1, calculate the total profit made by the 5 countries shown.

Answer 8

£37m (4+3+10+12+8)

Question 9

4. With reference to Fig.1 calculate the annual profit made in 2011 for Brazil.

Answer 9

£8m (£4m + £4m)

Question 10

5. With reference to Fig.1 calculate the annual profit made in 2011 for Russia.

Answer 10

£4m (£3m x 1.33)

Question 11

6. With reference to Fig.1 calculate the annual profit made in 2011 for India.

Answer 11

£14m (£10m x 1.4)

Question 12

7. With reference to Fig.1 calculate the annual profit made in 2011 for China.

Answer 12

£18m (£12m x 1.5)

Question 13

8. With reference to Fig.1 calculate the annual profit made in 2011 for the UK.

Answer 13

£8.4m (£8m x 1.05)

Question 14

9. Identify and explain which BRIC country is increasing in importance for AS plc.

Answer 14

Brazil. Although it is still second to lowest in terms of profit in 2011, its percentage share of profit has increased (from 10.8% in 2010 to 15.3% in 2011).

Question 15

1. State two reasons why a government might impose tariffs on imports.

Answer 15

 To protect domestic industries, in which they want to encourage growth, or those seen as strategically important.
 To protect jobs / employment.
 To protect consumers from any imported goods it
feels might endanger its population.
 To retaliate to any behaviour viewed as inappropriate /
unfair eg behaviour in breach of world trade rules, or deemed as unethical / inhumane.

Question 16

2. Explain why tariffs / taxes on car imports are likely to be imposed according to engine size – with the tax increasing as engine size increases.

Answer 16

To encourage the use of smaller vehicles which use less fuel and are, thus, less harmful to the environment (in terms of air pollution).

Question 17

3. State three ways in which the UK’s membership in the EU might benefit AS plc.

Answer 17

 It makes it easier and cheaper for AS plc to obtain supplies from other EU countries such as the tyres from Italy, leather seats from Spain, radiators from Germany and disc brakes from Poland.
 It makes it easier and cheaper for AS plc to export (sell) its cars to customers in other EU countries.
 It makes it easier for AS plc to recruit skilled workers from other EU countries and, thus, solve the current UK labour skills shortage problem regarding skilled engineers who can work with the new technology AS plc plans to use in the new factory to produce its more fuel-efficient engines.
 Easier growth and expansion – due to the larger potential customer base and fewer restrictions.
 Greater economies of scale – due to easier growth.
 Increased competitiveness on world markets, and
greater profits (due to the above).

Question 18

4. State three ways in which competition might benefit consumers.

Answer 18

It generally leads to:
 more choice.
 improved product quality.
 lower prices.

Question 19

5. State two potential disadvantages to AS plc of the UK’s membership in the EU.

Answer 19

 Increased competition.
 Common technical standards and new legislation - may
have required changes to car specifications and, thus,
increased costs.
 Common external tariff - increases the costs of
importing components from outside the union eg the body panels from China, wheels from Taiwan.

Question 20

1. With reference to Fig.2, calculate how much it costs Chinese customers in Yuan to buy the

Answer 20

AS1 car if £1 = 10 Yuan.

2.4m Yuan (£240,000 x 10)

Question 21

2. With reference to Fig.2, calculate how much it would cost Chinese customers to buy the AS3 car if £1 = 5 Yuan.

Answer 21

2.1m Yuan (£420,000 x 5)

Question 22

3. State three ways in which Agnelli Tyres might seek to change its competitive environment.

Answer 22

 Offer lower prices.
 Offer superior tyres eg longer lasting, improved design
/ appearance.
 Offer superior delivery ie faster delivery.

Question 23

4. State the three factors that AS plc consider important when choosing between suppliers.

Answer 23

 Price.
 Quality.
 Guarantee of delivery.

Question 24

5. Explain three potential benefits of a just-in-time method of stock control.

Answer 24

 Minimises stockholding costs eg storage, finance, opportunity cost eg interest earned on money tied up.  Helps maximise quality and minimise waste and associated costs – as it puts pressure on employees to get ‘perfect quality first time’ as there is no surplus stock to fall back on if mistakes are made.  Highlights inefficiencies and allows improvements to be made – with no buffer stock it makes any problems in delivery, quality, machinery, workmanship more obvious, which is likely to result in a business making the effort to eliminate such problems.  Improves cash flow – as less money is tied up in stock.  Frees up storage space for more productive use – helping to maximise sales and profits.  May increase motivation of workers – as they tend to be given more responsibility to ensure products are right first time.

Question 25

6. State two essential requirements for just-in-time stock control to be implemented and work successfully.

Answer 25

 Careful planning including accurate sales forecasting.  Flexible and reliable suppliers.  Reliable machinery.  Staff with the right ability, motivation and commitment to ensure quality is right first time.

Question 26

7. State two potential drawbacks of a just-in-time method of stock control.

Answer 26

 More vulnerable to changes in supply as well as problems with equipment and machinery.  May lose bulk buying discounts offered by suppliers.  Greater administration/ordering & handling costs from dealing with a greater number of smaller deliveries.

Question 27

1. Using examples, explain two ways in which a producer might demonstrate ethical behaviour.

Answer 27

 Fairness – being reasonable, even-handed and non- discriminatory eg giving employees a ‘second chance’, not docking their pay if they are late due to a family crisis, not using a position of power to beat suppliers down on price.  Honesty and integrity – being truthful and transparent ie not lying, cheating, falsifying information, stealing.  Courteousness – showing consideration and respect towards the interests / needs of others likely to be affected by the business’s activities eg maximising the content of output that is recyclable, investing in systems to minimise emissions and energy use, redeploying staff instead of making them redundant, providing flexible working practices to enable staff to fit work around family and other commitments, allowing staff time off for religious holy days, visits to doctors or dentists.

Question 28

2. Explain two ways in which buying from ethical producers might actually benefit AS plc.

Answer 28

It might help to:  ensure the laws upheld within society are not broken and, thus, minimise costs associated with breaking laws.  attract and retain customers and, perhaps, enable the business to charge higher prices, thus helping to maximise sales and profits, and profitability.  attract, motivate and retain staff, thus enabling the business to benefit from easier and cheaper recruitment, helping to maximise productivity and minimise labour turnover and associated costs.  secure finance from ethical investors to finance plans eg the new factory development.

Question 29

3. State three other factors AS plc might consider when choosing between suppliers.

Answer 29

```  Capacity.  Lead time for delivery.  Location.  Flexibility.  Credit terms.  Financial stability. ```

Question 30

4. State two ways in which AS plc might respond to the rising costs of components.

Answer 30

 Secure longer-term contracts with suppliers at fixed prices.  Seek to negotiate a deal with another producer that is able to offer similar prices in a country less likely to be affected by rising costs in the near future.  Raise prices – to maintain margins.  Seek efficiencies ie cost savings in other areas (without affecting the quality of the cars it produces, or level of service provided and, thus, sales).

Question 31

1. State one advantage to AS plc of purchasing one of its suppliers.

Answer 31

Lower cost of components / AS plc should be able to secure these supplies of car panels at cost price.

Question 32

2. Explain two potential problems AS plc might face in trying to coordinate and control businesses located in two different countries.

Answer 32

 Movements in the exchange rate between the Yuan and pound sterling will affect any profits sent back to the UK.  Differences in the laws in China and the laws in the UK / EU eg in terms of employment and environmental legislation.  Social, cultural, religious and language differences, the latter of which can be a significant barrier to communication.

Question 33

3. State one advantage of selling shares over loans in order to raise finance.

Answer 33

There are no commitments to meeting fixed interest payments - dividend payments (to ordinary shareholders at least) are not fixed and do not have to be paid in an unprofitable year.

Question 34

4. State two disadvantages associated with selling shares to new shareholders.

Answer 34

 It can be a slow and expensive method of raising finance. |  It dilutes ownership and control and profits.

Question 35

3. Explain, using examples, three types of social cost which result from the use of the motor car.

Answer 35

 The private cost borne by the car manufacturer eg the cost of the car manufacturing and assembly plant, machinery, labour, materials and components, and other inputs, etc.  The private costs borne by consumers who drive cars eg the cost of acquiring the vehicle, fuel, oil, insurance, taxes, servicing and repairs, depreciation, parking fees.  The external costs borne by society at large eg road maintenance, land use, air pollution from CO2 emissions - the effect on human health and wildlife, noise, traffic congestion, medical treatment for health issues arising from pollution or car accidents, other costs arising from cleaning up pollution.

Question 36

4. Explain two ways in which AS plc might benefit from the development of its more fuel-efficient engines.

Answer 36

 Compliance with government emission targets, thus, avoidance of the financial penalties of non-compliance.  May enable AS plc to target more environmentally-conscious consumers, which could help gain sales.  Greater market share - the engines are more fuel-efficient than competitors - if promoted this can help win customers over competitors, thus maximising sales and market share.  AS plc may be able to charge a higher price and, thus, benefit from higher profit margins, if customers are willing to pay more for the most environmentally-friendly car.  Investors and employees may also be more willing to trade with a more ‘environmentally friendly’ business. Hence, AS plc may find it easier to attract and retain good staff, thus minimising recruitment and labour turnover and associated costs, as well as find it easier to raise the finance required to build and operate the new factory to produce the new engines.

Question 37

1. Identify two external benefits that might arise from AS plc’s planned factory development in Bowton.

Answer 37

 Job creation / employment opportunities for local workers and workers overseas.  Increased trade for local businesses – due to the above.  Revenue to the government in the form of taxes.  Less pollution / improved air quality in areas where the new AS plc cars are driven - as they have more fuel-efficient engines.

Question 38

2. Identify and explain three external costs that might arise from AS plc’s planned factory development in Bowton.

Answer 38

 Loss of open land - if built on greenbelt land which could negatively affect wildlife through the destruction of habitats and pant life (unless these can be relocated), as well as local views of the landscape, which some local people may be concerned about  Air pollution from exhaust fumes – arising from the transport of building materials and construction workers to and from the site and, subsequently, employees travelling to and from the factory once built.  Increased noise - arising from the building of the factory and, possibly, production of the engines, once built.  Increased traffic congestion, both during and after the build - from employees travelling to and from the factory.  Water pollution - if waste is not disposed of appropriately (and the business is not made to pay for the clean-up), which negatively affects fisherman or water companies – making it more difficult for them to clean up the water supply.

Question 39

3. Identify two private benefits that might arise from AS plc’s planned factory development in Bowton.

Answer 39

 Greater revenue and profits to AS plc, thus dividends to shareholders, once the factory has been built – if car sales increase as a result of having more fuel-efficient engines.  Minimisation of costs for AS plc – as the new factory is to use ‘new state of the art’ technology, which should minimise operating costs (as it should enable the engines to be manufactured more efficiently – more quickly and cheaply).  Reduction in car running costs for owners / drivers of AS plc cars – more fuel-efficient engines will mean they benefit from lower fuel costs and road tax.

Question 40

4. Identify two private costs that might arise from AS plc’s planned factory development in Bowton.

Answer 40

 The costs for AS plc to obtain planning permission, build the factory, and install it with ‘state of the art’ technology.  The initial recruitment and retraining costs to secure workers who can use the new ‘state of the art’ machinery.  The running costs eg the labour (wages and salaries), materials and components, and energy used to produce the new more fuel-efficient engines.

Question 41

1. Explain two ways in which new ‘state of the art’ technology might help AS plc to be more competitive. It should:

Answer 41

 enable AS plc to continue to produce more technically sophisticated engines and, thus, help maximise competitiveness in terms of quality.  enable these new more fuel-efficient engines to be manufactured as cheaply as possible and, thus, help to maximise AS plc’s competitiveness in terms of price.  enable these new more fuel-efficient engines to be manufactured as quickly as possible and, thus, help to maximise AS plc’s competitiveness in terms of lead times for delivery.

Question 42

2. State three one-off, start- up costs associated with AS plc’s planned factory development.

Answer 42

 The building of the factory.  The purchase and installation of new ‘state of the art’ technology (machinery and equipment).  Initial recruitment, selection, training and induction of factory staff.  Initial advertising to make potential customers aware of the more fuel-efficient engines.

Question 43

3. State one reason why recruiting more engineers from abroad could be expensive.

Answer 43

 Skilled engineers will expect a higher wage / salary and other fringe benefits (eg bonuses and pension schemes), than unskilled / less skilled workers. (In general, the higher the level of skill and experience required to perform a particular job, the higher the rate of pay).  It may cost more in advertising to raise awareness of job vacancies amongst potential candidates from overseas.  It may cost more to contact and assess potential candidates from overseas.  Overseas workers may also expect relocation expenses to be paid.

Question 44

4. Explain two ways in which AS plc’s current assembly line workers might be affected by retraining.

Answer 44

Retraining could provide these workers with:  a job with a higher status - helping to satisfy esteem needs in terms of Maslow’s hierarchy.  the prospect of higher pay (once fully trained and experienced in carrying out the new tasks required of them) - helping to satisfy basic and security needs.  an opportunity to undertake more interesting / challenging work that enables them to utilise more of their abilities - thereby helping to satisfy self-actualisation needs.  greater job satisfaction – as a result of the above.  a greater feeling of self-worth / the feeling that management value them – as they are willing to invest time and money in them, which may help to satisfy esteem needs.  a greater sense of loyalty and commitment – as a result of the

Question 45

1. State six on-going, running costs AS plc will incur from its planned factory development.

Answer 45

```  Wages / salaries of staff incl. skilled engineers and supervisors / managers.  Materials and components.  Electricity to power machines.  Waste disposal.  Business rates.  Water rates.  Telephone, Stationery, Postage.  Maintenance and repairs.  Insurance.  Depreciation on machinery/equipment.  Interest on any loans taken out. ```

Question 46

2. Identify a fixed cost AS plc will incur from the production of these new, more fuel-efficient engines.

Answer 46

 Salary of factory manager.  Insurance.  Interest on any loans taken out to build the factory.

Question 47

3. Identify a variable cost AS plc will incur from the production of these new, more fuel-efficient engines.

Answer 47

 The cost of the materials used to make the engines.  Wages paid to workers according to output (eg piece rate pay) as opposed to the number of hours worked.  Energy used to power the machines.  Disposal of waste.

Question 48

4. State five factors that might influence AS plc’s choice of finance over the building of the new factory.

Answer 48

```  The purpose of the finance.  The fact that it is a public limited company – it has the right to sells shares to members of the public.  Its financial position.  The age of the company.  The size of the company.  The company’s reputation.  Interest rates.  Government policy. ```

Question 49

5. State two factors a bank would take into account when deciding whether or not to loan AS plc any money.

Answer 49

AS plc’s:  liquidity position.  gearing position.  collateral to offer as security for the loan.