PAPER 3 - Advanced info

Question 1

What are stakeholders?

Answer 1

Stakeholders are groups or individuals who have an interest in a business.
Stakeholders can have a considerable impact on the actions of a business, depending on their level of power and interest.

Question 2

List 3 internal stakeholders and their interests.

Answer 2

Employees/Managers:

• good income
• safe working conditions
• opportunity for development + promotion
• meeting targets

Shareholders:

• return on investmet
• increased value of shares
• ethical business practices
• growth of the company

Question 3

List 4 external stakeholders and their interests.

Answer 3

Suppliers:

• regular trade
• fsir prices
• paid on time

Customers:

• reliable products
• good service
• value for money/ fair prices

Local community:

• employment
• investment
• environmentally responsible e.g. no pollution

Government:

• abide by legislations
• fair and open trade
• employment opportunities
• pay tax

Question 4

Describe the ‘Stakeholder Mapping’ model.

Answer 4

Question 5

What is a disadvantage of stakeholder mapping?

Answer 5

They do not provide businesses with clear solutions on how to manage stakeholders.

Question 6

What happens when stakeholder interests are not alligned?

Answer 6

Overlapping and conflicting interests

Question 7

How can stakeholder conflict be reduced?

Answer 7

Through effective communication and in some circumstances consultation. The extent can be determined by stakeholder mapping.

Question 8

What is the most important stakeholder group?

Answer 8

• Some people may consider shareholders to be the most important stakeholder group in a business because they finance the business activities and can influence decisions within the company.
• Other people may consider other stakeholders, such as the government or employees as being the most important to the long-term success of a business.

Question 9

List some internal factors influencing stakeholder relationships.

Answer 9

• Management and leadership ( via Blake Mouton grid)
• Tailored objectives e.g. profit objectives more closely alligned shareholder interests.
• Size/ ownership - i.e. sole traders won’t have pressure from shareholders compared to Ltd’s.

Question 10

List some external factors influencing stakeholder relationships.

Answer 10

• Market conditions: demand + competitiveness will change business priorities.
• Stakeholder power: major shareholders/customers will be given greater focus to influence the business.
• Government policy: e.g. employment legislation.

Question 11

What are the 7 P’s?

Answer 11

• Product: goods/services
• Price: matches product
• Place: channel distribution
• Process: transaction
• Promotion: awareness
• People: customer service
• Physical environment: layout

Question 12

What must be considered in new product development?

Answer 12

All products must have a balance of design, function and cost.

E.g. improving design = decreased quality

Question 13

Draw a product life cycle. What are the stages?

Answer 13

Question 14

Pros and cons of product portfolio analysis?

Answer 14

Pros:

• Useful for making decisions on where funds are allocated
• Predict future sales, plan production + distribution

Cons:

• Products/markets don’t usually follow a pattern
• No clear solutions provided
• Simplifies complex issues

Question 15

Draw a Boston Matrix model.

Answer 15

Question 16

What is price skimming?

Answer 16

Setting a high initial price then lowering the price when the product is no longer new.

Question 17

What is penetration pricing?

Answer 17

Initial low price in order to penetrate market and undercut competitors. Over time, price increases as demand grows.

Question 18

What is dynamic pricing?

Answer 18

Applied to products where price fluctuates with level of demand. E.g. hotel rooms.

Question 19

List some promotional methods.

Answer 19

• Advertising - (e.g. above the line = mass ads)
• Sales promotions - (special offers)
• Sponsorship - (paid association)
• Social media - (facebook, instagram)
• Public relations (PR: media attention e.g. a blog)
• Direct marketing - (communication with customer)

Question 20

What is the importance of branding?

Answer 20

• Adds value to product
• Builds trust
• Premium price charged
• Helps business position itself
• Makes product recognisable

Question 21

List the different possible channels of distribution.

Answer 21

Question 22

What is the importance of digital marketing/ e-commerce?

Answer 22

• Allows small business to reach global audience
• Business can gather customer info easily
• Easier to target specific segments

Question 23

What is a budget? What’s their value to businesses?

Answer 23

A budget is a financial plan for the future with 4 different types:

• Revenue budget
• Expenditure budget
• Profit budget

Setting budgets helps a business acheive it’s financial objectives.

Question 24

What are the disadvantages of budgets?

Answer 24

• A budget is only as accurate as the data on which it is based
• Past trends can be a poor indicator of what is likely to happen in the future. So, difficult to forecast sales
• Unexpected changes e.g. interest rate increases so interest paid on business loans increase.
• Budget can be unrealistic

Question 25

What is vairance analysis? What do favourable/adverse variances mean?

Answer 25

Variance analysis compares the forecast data to the actual figures, and can be used to analyse the accuracy of the budgets to help inform future adjustments. * Favourable: better than the budgeted * Adverse: worse than the budgeted

Question 26

Describe how you construct a Cash flow forecast.

Answer 26

Question 27

What is the value of cash flow forecasting?

Answer 27

* Used to support an application for lending money (\*note: window dressing of figures can happen e.g. by postponing payments to suppliers so closing balance is higher) * Supports the budgeting process * Identifies potential cash flow crisis (by analysing payables+receivables days)

Question 28

What are the steps for constructing a break-even chart?

Answer 28

1. Plot total revenue line (starting at 0) 2. Plot fixed costs line ( doesn't change with level of output = horizontal line) 3. Plot total costs line 4. Where total costs = total revenue, is the break-even point. 5. If output is below break even = loss. If output above = profit.

Question 29

How do you calculate break-even output?

Answer 29

Fixed costs ÷ contribution per unit

Question 30

How do you calculate margin of safety?

Answer 30

current level of output - break even output

Question 31

How do you calculate contrinution per unit? Total contribution?

Answer 31

selling price - variable cost per unit total contribution: total output x contribution per unit

Question 32

How will raising the price by £2 affect the break even chart?

Answer 32

* Increased revenue line * Lower break- even output

Question 33

How will using a cheaper supplier affect the break-even chart?

Answer 33

* Lower variable costs = lower total costs line * Lower break-even point

Question 34

How will an increase in rent of £200 per month affect a break-even chart?

Answer 34

* Increased fixed costs line * Increased total costs line * Increased break-even point

Question 35

Give some uses of break-even analysis

Answer 35

* Simple + easy to use * Helps decide whether a business idea is profitable * Identifies the level of output and sales needed to generate profit (the scale of the business) * Analyses the impact of varying prices, costs and customers on the profit

Question 36

Give some limitations of break-even analysis

Answer 36

* Over simplifies a complex process, since bsuinesses can have a large product portfolio * Costs are rarely constant and presumes that costs stay the same over many levels of output * Presumes that all businesses sell all their output at the same price

Question 37

How do you calculate the gross profit margin? Why is it useful?

Answer 37

(Gross profit ÷ sales revenue) x 100 Useful to analyse how a business has performed in terms of direct costs incurred e.g. raw materials. Also used to determine the success of products

Question 38

How do you calculate the operating profit margin? How is it useful?

Answer 38

(Operating profit ÷ sales revenue) x 100 OP takes into account the direct and indirect costs(salaries/overheads), therefore analyses business performance more fully.

Question 39

How do you calculate Profit of the year margin? How is it useful?

Answer 39

(Profit of the year ÷ sales revenue) x 100 This ratio takes into account all revenues and costs incurred by the business. It is a good measure for annual performance. Also may help identify potential to pay dividends to shareholders.

Question 40

How is financial data important in business decision making?

Answer 40

Because all business decisions must be financially viable. **However**, managers must also take into account the issues behind the numbers. e.g. human or ethical factors.