Area 1: Understanding business

Apply each point to the business in front of you: name it, use its details, and say what the factor or decision means for it.

A lesson for this area

Quick checks

Question 1

Datastream Ltd in Livingston employs analysts who collect and study data, then sell research reports and advice to other businesses. Which sector of industry does this activity belong to?

Question 2

Renfrew Homes is a housing association in Paisley. It is run by a voluntary board, it has no shareholders, and every surplus it makes is spent on repairing and building homes for rent. Which sector of the economy is it in?

Question 3

Which feature is true of a public limited company but not of a private limited company?

Question 4

Ailsa opens a sandwich shop in Ayr as a franchisee of a national sandwich chain. Which is a cost to Ailsa of taking a franchise rather than opening her own independent shop?

Question 5

Clydeworks plc, an engineering company in Glasgow, opens factories in two countries outside the UK where it already sells its pumps. Which is a benefit to Clydeworks of becoming a multinational?

Question 6

How is a public-sector organisation such as a local council mainly financed?

Question 7

Which objective is most typical of a third-sector organisation such as a charity?

Question 8

The owners of a family hotel in Pitlochry are content to earn enough profit for a comfortable living. They have turned down the chance to open a second hotel because it would mean working longer hours. Which objective does this describe?

Question 9

The directors of Forth Retail plc open shops in new regions mainly because a larger company will raise their own salaries and status. The shareholders would earn higher dividends if the company stayed the same size. Which objective are the directors pursuing?

Question 10

The leisure department of Falkirk Council has been told that its main aim this year is to keep its spending at or below the £2.4 million it has been given. Which objective is the department working towards?

Question 11

Tayside Bakeries plc, a chain of bakers' shops in Dundee, takes over a firm that makes chilled sandwiches for petrol stations. Both firms make food, but the sandwich firm makes a different product for different customers and does not compete with Tayside's shops. Which type of integration is this?

Question 12

Speyside Spirits plc makes whisky. It takes over a chain of off-licences that sells drinks to the public. Which type of integration is this?

Question 13

Lothian Living, a chain of furniture shops in Edinburgh, takes over the factory that makes the sofas it sells. Which is the most likely reason for this type of integration?

Question 14

Which statement describes a merger rather than a takeover?

Question 15

Western Isles Ferries plc, based in Oban, takes over a chain of garden centres in central Scotland. What is the most likely reason for growing in this way?

Question 16

Granite City University in Aberdeen pays a specialist company to run all of its cafés and canteens. Which is a disadvantage of this decision to the university?

Question 17

Tayplay Studios, a video games developer in Dundee, uses its own designers and programmers to create and launch a fitness app, a market it has never worked in before. Which method of growth is this?

Question 18

Fresh Bowl Ltd runs six noodle bars in Glasgow. It wants to open 40 more across the UK quickly without raising large sums of money itself. Which method of growth suits this aim best?

Question 19

Northbrae Foods plc, a supermarket chain, is told by the government's competition authority that it may not take over a rival chain, because the combined firm would control too much of the Scottish grocery market. Which external factor is this?

Question 20

Interest rates rise across the UK. Perth Motors sells most of its new cars to customers who pay in monthly instalments on finance. What is the most likely effect on Perth Motors?

Question 21

Highland Hope, a charity in Inverness, wants to replace its paper records with an online donation system. Its trustees decide it cannot go ahead this year because the system would cost more than the charity has in its reserves. Which internal factor is holding the charity back?

Question 22

Caledonian Bank plc gives every new member of staff a week-long induction on its values, uses the same uniform and branch design everywhere, and holds an annual awards night for staff. What is the most likely benefit of the strong corporate culture this creates?

Question 23

Question 24

Which of these is an internal factor that could stop a software firm in Livingston from meeting its objectives?

Question 25

The shareholders of Strathclyde Buses plc want higher dividends, while its drivers want a pay rise. Why do these interests conflict?

Question 26

Which example shows interdependence between stakeholders rather than a conflict of interest?

Question 27

Which is a feature of a tall organisational structure?

Question 28

Forth Insurance plc removes two layers of middle management from its structure but keeps all of its call centres and branches open with the same number of front-line staff. What has it done?

Question 29

At Tayplay Studios, designers, programmers and marketers are placed in a team for each new game, led by a project manager. Each person still reports to the head of their own department. Which structure is this?

Question 30

Northbrae Foods plc lets each store manager choose which local products to stock and which offers to run in their store. Which is the main benefit of this approach?

Question 31

Clyde Logistics plc: structure before and after the change
Measure	Before	After
Levels of management	7	4
Average span of control	3	8

Clyde Logistics plc changed its organisational structure last year. The table shows the structure before and after the change. Which conclusion does the table support?

Question 32

To meet the sales target set by the board for this year, the marketing manager of Glen Outdoor plc moves the next six months' advertising budget from newspapers to social media. Which type of decision is this?

Question 33

The board of directors of Western Isles Ferries plc decides that the company will move into the holiday tours market over the next five years. Which type of decision is this?

Question 34

Lochaber Distillery is preparing a SWOT analysis. Which of these belongs under opportunities?

Question 35

The manager of a call centre in Motherwell gives a team leader the authority to approve the weekly staff rota. Which role of a manager is this?

Question 36

Which of these is most likely to lower the quality of a manager's decision?

Question 37

Highland Leisure Trust: online booking system, first year
Measure	Target	Result
Share of bookings made online	at least 60%	72%
Complaints about bookings each month	fewer than 20	31
Spending on the system	£80 000 or less	£76 500

Highland Leisure Trust set three targets for the first year of its new online booking system. The table shows the targets and the results. Which conclusion does the table support?

Question 38

Which is the most suitable way for a charity in Stirling to measure the success of its decision to run a new fundraising campaign?

Question 39

Brodie Engineering plc has two objectives this year: to grow its market share by cutting its prices, and to raise the profit it pays out to shareholders. Why might these objectives conflict?

Question 40

The Bryce family owns Bryce Engineering Ltd. They need £5 million to build a new factory but want to keep control of the company within the family. Why might they decide against becoming a public limited company?

Question 41

Lochside Hotels plc: ways to add 10 hotels
Option	Time to add 10 hotels	Cost to Lochside	Control over each hotel
Build new hotels itself	6 years	£40 million	Full control
Franchise its brand to other owners	2 years	£1 million	Shared with franchisees
Take over Bay Hotels plc (10 hotels)	1 year	£30 million	Full control

Lochside Hotels plc wants to add 10 hotels within two years. It has £35 million to spend, and its directors insist on keeping full control over how every hotel is run. The table shows three options. Which option best meets all of these aims?

Question 42

Lochaber Distillery grows its own barley, makes whisky, runs a visitor centre with tours, and has a laboratory where scientists research new yeast strains. Which of its activities is in the secondary sector of industry?

Question 43

Moray Haulage plc: expected effects of moving to Aberdeen
Stakeholder	Expected effect
Shareholders	Profit for the year rises by £0.8 million
Employees in Elgin	40 staff must travel 65 miles to Aberdeen or leave
Moray Council	Business rates of £120 000 a year from the Elgin depot are lost
Customers	Delivery time falls from 3 days to 2 days

Moray Haulage plc plans to close its depot in Elgin and move the work to a larger depot in Aberdeen. The table shows the expected effects on four stakeholder groups. Which statement does the table support?

Question 44

Kelvin Print plc has 4 managers, 12 supervisors and 96 print operatives. Each supervisor leads an equal team of operatives, and the supervisors report equally to the managers. The firm removes the supervisor level, and the operatives now report equally to the four managers. What happens to each manager's span of control?

Question 45

Kintyre Animal Rescue: targets and results for last year
Measure	Target	Result
Funds raised	at least £400 000	£452 000
Share of spending on animal care	at least 80%	76%
Administration costs	below £60 000	£58 500

Kintyre Animal Rescue, a charity, set three targets for last year. The table shows the targets and the results. Which conclusion does the table support?

Question 46

Dalriada Dairies plc: four takeovers
Business	What it does
A: Kintyre Farms	Produces the milk that it sells to Dalriada
B: Bute Dairies	A rival dairy making milk and cheese
C: Corner Deli	A chain of shops selling Dalriada's cheese to the public
D: Loch Hotels	A chain of hotels

Dalriada Dairies plc makes milk and cheese. The table describes four businesses it has taken over. Which statement classifies two of the takeovers correctly?

Question 47

Ness Furniture plc: four changes
Change	Source
Business rates for manufacturers are cut	Government
Timber prices fall on world markets	World timber markets
Stricter rules on where timber may come from	Government
A rival furniture maker cuts its prices	Rival firm

The table lists four changes facing Ness Furniture plc, a furniture maker in Inverness. Which change is a political factor that lowers the firm's costs?

Question 48

Glenmore Leisure plc: findings
Finding	Glenmore	Industry average
Customer satisfaction	82%	85%
Staff turnover	9%	12%
Forecast growth in demand for outdoor holidays	8% a year	not given
Rival centre opening 5 miles away next year	yes	not given

Glenmore Leisure plc compares itself with the average for its industry before writing a SWOT analysis. Which finding belongs under weaknesses?

Question 49

Question 50

Cairn Coffee plc: one owned café against one franchised café
Feature	Owned café	Franchised café
Cost to Cairn of opening	£600 000	nothing (the franchisee pays)
Yearly profit to Cairn	£120 000	not applicable
Yearly sales revenue of the café	£900 000	£900 000
Royalty paid to Cairn	not applicable	8% of sales revenue

Cairn Coffee plc is deciding how to open new cafés. The table compares a café it owns itself with a franchised café. Which statement is correct?

Question 51

Two businesses in Stirling
Feature	Lomond Motors Ltd	Tay Bakery Ltd
Business loans	£5 million at a variable rate	none
How customers pay	80% buy on finance (a loan)	cash or card for each loaf
Product	new cars	bread and rolls

Interest rates rise across the UK. The table describes two businesses. Which statement is best supported?

Question 52

Brodie Group plc: shareholdings
Shareholder	Share of the votes
Brodie family	38%
Pension funds	45%
Other investors	17%

The table shows who owns the shares of Brodie Group plc. The directors propose a takeover that the Brodie family opposes. Shareholders vote, with one vote for each share. Which statement does the table support?

Question 53

Forth Water plc removes 8 middle managers, each paid £45 000 a year. To take on their work, its 4 remaining senior managers each receive a pay rise of £6 000 a year. What is the net yearly saving in salaries?

Question 54

Ochil Foods plc: four decisions
Decision	Made by	Time covered	Classified as
1: Start selling in Ireland	Board of directors	5 years	Strategic
2: Move the summer advertising budget to social media	Marketing manager	6 months	Tactical
3: Approve next week's staff rota	Shift supervisor	1 week	Operational
4: Change packaging supplier to cut costs	Purchasing manager	1 year	Strategic

A trainee at Ochil Foods plc has classified four recent decisions. Which decision has been classified wrongly?

Question 55

A new supermarket opens next to Kerr's Grocers in Kirkcaldy and sells the same brands at lower prices. Which external factor is affecting Kerr's?

Written questions: Section 2, then Section 1 case studies

Public limited companies and franchisingSection 2 question · 8 marks

(a) Describe the features of a public limited company. [4]

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(b) Explain the advantages of franchising to the franchiser. [4]

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Integration and outsourcingSection 2 question · 8 marks

(a) Describe the different types of integration. [4]

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(b) Explain the advantages and disadvantages to an organisation of outsourcing. [4]

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Objectives in different sectorsSection 2 question · 8 marks

(a) Describe the objectives that a public-sector organisation may have. [4]

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(b) Explain why the objectives of a public limited company may differ from those of a third-sector organisation. [4]

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External and internal factorsSection 2 question · 8 marks

(a) Explain how economic factors could affect a large organisation. [4]

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(b) Describe internal factors that could affect an organisation. [4]

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Organisational structuresSection 2 question · 8 marks

(a) Compare a tall organisational structure with a flat organisational structure. [4]

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(b) Explain the effects of delayering on an organisation. [4]

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Types of decision and SWOT analysisSection 2 question · 8 marks

(a) Distinguish between strategic, tactical and operational decisions. [3]

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(b) Explain how a SWOT analysis can help managers make decisions. [5]

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Caledonia Crisps plcSection 1 case study · 30 marks

Caledonia Crisps plc makes crisps and other snacks at a large factory in Perth and sells them to supermarkets across the UK. Last year it took over the farm in Angus that grows most of its potatoes. The board now plans to take over Crunch Co Ltd, a rival crisp maker in Manchester, which would make Caledonia the largest crisp maker in the UK. The government's competition authority has said that it will investigate the deal. Factory staff in Perth fear that jobs will be cut after the takeover, while shareholders want the company to raise its dividends. Supermarkets have reported more complaints from shoppers about broken and stale crisps. The table shows selected figures for the last two years.

Caledonia Crisps plc: selected figures
Measure	Last year	This year
Sales revenue	£48.0 million	£51.5 million
Profit for the year	£6.2 million	£4.6 million
Market share	18%	16%
Staff turnover	9%	17%
Customer complaints	140	310

(a) Explain the benefits to Caledonia Crisps of taking over the potato farm in Angus. [4]

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(b) Explain the advantages and disadvantages for Caledonia Crisps of taking over Crunch Co. [6]

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(d) Suggest ways in which Caledonia Crisps could use the marketing mix to win back market share. [4]

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(e) Explain the conflicts of interest that could arise between Caledonia's stakeholders over the takeover of Crunch Co. [4]

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(f) Explain how the competition authority's investigation could affect the takeover of Crunch Co. [3]

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(g) Explain ways in which Caledonia Crisps could improve the quality of its crisps. [4]

0 words · about 60 to 100 words