Questions I Got Wrong

Question 1

How do you calculate break even sales if only given totals

Answer 1

Fixed costs * (100% / GPM)

Question 2

How do you calculate the GPM required to break even

Answer 2

Fixed costs / sales

Question 3

What is standard deviation defined as

Answer 3

The average amount of variability in results from the mean value

Question 4

How would franchising differ from relinquishing ownership to a larger corporation

In relation to control

Risks

Answer 4

Sale of shares would mean loss of control of ownership, but franchising would mean that there would be less control over the day-to-day running of the business

Franchising may also create the need for additional training of franchisees who might expect central support from the franchiser

Sale of shares may lose the voting rights for the current management but transfers the risks of ownership to the new owners

Franchising reduces the financial risk to the franchisor because the franchisee uses their own capital for expansion

Franchising also offers an increased incentive for the franchisee to be successful of their own franchise

But there is a risk that successful franchisees may break away to set up in competition

Question 5

What are the advantages of vertical integration up the supply chain (4)

What are the disadvantages (6)

Answer 5

Advantages
Remove the margin of the supplier and therefore save costs
Will have a greater control over quality of goods supplied
May be able to control the supply chain more to ensure more reliable delivery times and shorter lead times
If supplies are a source of competitive advantage then you could prevent competitors from using the same supplies

Disadvantages
Core competences may not be transferable
Operating gearing will be increased significantly
Exchange rate risks if supplier is overseas
Exit costs could be significant if the venture fails
Flexibility of operations reduces because of inability to shop around for better deals
May also involve some costs of integration