A-level Business (7132) · Paper 1: Business 1

Question 16 [2 marks]

Contribution per unit = £50 - £30 = £20. Break-even = £180,000 / £20 = 9,000 units.

• 1 mark: contribution per unit £20.
• 1 mark: 9,000 units.

Own figure rule applies to follow-through errors.

Question 17 [3 marks]

New price £45.00; new contribution £15.00; new break-even £180,000 / £15.00 = 12,000 units; margin of safety = 13,500 - 12,000 = 1,500 units.

• 1 mark: new contribution £15.00.
• 1 mark: new break-even 12,000 units.
• 1 mark: margin of safety 1,500 units (must be in units).

Own figure rule applies to follow-through errors.

Question 18 [3 marks]

Capital employed = £38m + £12m = £50m. ROCE = 6.3 / 50 x 100 = 12.6%.

• 1 mark: capital employed £50m.
• 1 mark: operating profit / capital employed x 100.
• 1 mark: 12.6%.

Own figure rule applies to follow-through errors.

Question 19 [9 marks]

• Retained profit has no interest or repayment, so cash flow and profit for the year are not reduced by finance costs.
• No dilution of ownership - existing shareholders keep control, unlike equity crowd funding where many new small shareholders join.
• No need to publish plans publicly - crowd funding campaigns reveal strategy to competitors.
• Quick and certain - crowd funding may fail to reach its target, and platform fees (typically 5-8%) add cost.
• BUT retained profit may be insufficient for large projects; using it means lower dividends, which may upset shareholders.
• Crowd funding can also act as marketing and market research (proof of demand) - a reason the business might prefer it in some cases.

A 9-mark "Analyse" question needs no conclusion; a judgement earns no extra marks.

Question 20 [9 marks]

• Kaizen = continuous small improvements suggested by employees at every level.
• Reduces waste (time, materials, defects) so unit costs fall - allows lower prices or higher margins than rivals.
• Improves quality and reliability - fewer defects improve reputation and reduce returns costs.
• Involving employees increases engagement and motivation (Herzberg: responsibility, achievement), lowering labour turnover and recruitment costs.
• Incremental innovation accumulates into a lasting advantage that is hard for rivals to copy because it is built into culture.
• BUT gains are gradual; needs training, time for team meetings and a culture where staff are trusted - may not respond to disruptive change.

A 9-mark "Analyse" question needs no conclusion; a judgement earns no extra marks.

Question 21 [9 marks]

• Many supermarket staff are paid at or near the living wage - employee costs rise, and pay differentials mean supervisors' pay may rise too.
• Lower operating profit margin unless costs are passed on through higher prices - but rivals (discounters) may compete hard on price.
• Response: more self-service checkouts and automation (capital for labour) - investment cost but lower long-run costs.
• Higher pay may improve recruitment, motivation and retention, reducing turnover costs and improving service.
• Low-paid consumers have more disposable income - demand for groceries may rise slightly, particularly at value ranges.
• Impact depends on the share of employee costs in total costs and on whether competitors face the same increase (they do in the UK).

A 9-mark "Analyse" question needs no conclusion; a judgement earns no extra marks.

Question 22 [25 marks]

'The product life cycle is of little value to a business with a large portfolio of products.' Do you agree? Justify your view.

• With many products the Boston Matrix (market share and growth) is more useful for managing the whole portfolio and cash.
• Life cycles are only clear in hindsight - predicting when a product will decline is hard, so decisions based on it may be wrong.
• Large businesses use sales and profit data per product rather than a theoretical model.

• Helps plan extension strategies and the timing of new product launches so that products are at different stages - balancing cash flow.
• Guides marketing mix decisions at each stage (e.g. promotion heavy at launch, price cuts in decline).
• Combines with the Boston Matrix - market growth reflects life cycle stage, so they are complementary.
• Particularly valuable where life cycles are short (fashion, tech) and the portfolio must be renewed quickly.

The model is valuable as a planning and portfolio-balancing tool when used with data and the Boston Matrix; its value is limited when used to predict precise timings.

Question 23 [25 marks]

To what extent is employee engagement more important than investment in technology in improving labour productivity?

• Engaged staff work harder, suggest improvements (kaizen) and take fewer days off - productivity rises without large capital spending.
• Technology only raises productivity if staff are trained and willing to use it; disengaged workers resist change.
• In services (care, hospitality) output depends heavily on people.

• Automation and robotics can multiply output per worker many times (e.g. warehouses, car plants) - engagement alone cannot match this.
• Capital intensive processes give consistent quality and speed.
• Technology may itself raise engagement by removing boring repetitive tasks.

They are complementary: technology sets the potential productivity, engagement determines how much of it is achieved; which matters more depends on the industry and the current level of automation.

Question 24 [25 marks]

Is a takeover of a local business always a better way to enter an overseas market than forming a joint venture? Justify your view.

• Full control of strategy, branding and profits; quick access to the local business's customers, distribution and knowledge.
• No need to share profits or negotiate with a partner; avoids partner conflict.
• Can achieve synergies and economies of scale faster.

• Expensive - high premium paid; risk of overpaying and paying with debt (higher gearing).
• Culture clash and integration problems are a major reason takeovers fail.
• Joint ventures share risk and investment, give local knowledge, and may be required by law in some countries.
• JVs are easier to exit if the market fails.

Depends on the attractiveness and risk of the market, the finance available, legal restrictions and how much control matters - 'always' is unlikely to be true.

Question 25 [25 marks]

To what extent can resistance to strategic change always be overcome by education and communication?

• Much resistance comes from misunderstanding and lack of information (Kotter & Schlesinger) - explaining reasons builds trust.
• Low cost, preserves relationships and supports lasting acceptance.
• Good communication is the foundation for other methods (participation, negotiation).

• Self-interest: if employees will lose out (pay, jobs), understanding the reasons will not remove resistance - negotiation may be needed.
• Low tolerance for change and different assessments of the situation need participation/support.
• Time - in a crisis, coercion may be the only practical method.
• Depends on culture, trust in leaders, trade union involvement and scale of change.

Education and communication are usually necessary but rarely sufficient; the best method depends on the cause of resistance and the urgency of the change.