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INTERNATIONAL BACCALAUREATE M02/370/S(2)M+

BACCALAURÉAT INTERNATIONAL
BACHILLERATO INTERNACIONAL

MARKSCHEME

May 2002

BUSINESS AND MANAGEMENT

Standard Level

Paper 2

16 pages
 –3– M02/370/S(2)M+

1. (a) State two objectives of a charity. [2 marks]

Objectives:
! to promote a cause
! to provide a service
! to be accountable to the stakeholders – government, community, board
! to appear altruistic
! to raise funds.

Award [1 mark] for each suitable objective to a maximum of [2 marks].

(b) Analyse the organization chart in terms of line-management

responsibility and span of control. Use appropriate examples from the
chart to illustrate your answer. [4 marks]

There are five levels of hierarchy in the organization, the line management structure is
clear for most of the staff, except for the Community Administrative Assistants. The
Administrative Assistants answer to both the Education Officer and the Health Officer,
this may lead to confusion and problems with decision-making. The span of control is
the number of subordinates controlled by the manager, for example the operations
manager has a span of control of two. Generally the span of control in the organization
is narrow. This aids the decision making process, making it easier to consult.

[4 marks]
The answer analyses the organization chart, in terms of line management responsibility
and span of control. The analysis is detailed and uses appropriate examples from the
chart.

[2 to 3 marks]
The answer attempts to analyse the organization chart, in terms of line management
responsibility and span of control. The analysis may lack detail but uses examples from
the chart.

[1 mark]
The answer is limited in terms of line management and span of control. There is no
attempt to analyse the chart. Reference to the chart is limited.
 –4– M02/370/S(2)M+

(c) (i) Explain what is meant by an “ethical and socially responsible

firm”. [2 marks]

An “ethical and socially responsible firm” works to a code of behaviour which is

acceptable for an organization and its employees to follow in a given society.
Ethical businesses recognize the importance of social responsibility and that
employees have broader responsibilities than just making a profit. An ethical firm
that considers society as a whole and also considers the community within which
it is based can be classified as socially responsible.

Award up to [2 marks] for a suitable explanation, explaining both ethical and

socially responsible.

(ii) Write a memorandum (memo) from the Board of Directors to the

Chief Executive outlining its concerns, and stating both positive
and negative aspects of the decision to accept sponsorship from
Deval. [6 marks]

Positive aspects
The investment is massive in terms of enabling KNDC to equip the schools with
state of the art IT equipment. This will enable the candidates to gain advantages
that would not be offered to them otherwise. It will enable them to prepare for
work using the latest equipment. The equipment will be available to the local
community and local businesses as well.

Negative aspects
Deval is a tobacco company and is therefore not a good role model to adopt as a
sponsor. The schools should be promoting a moral code that should inform
students about the dangers of smoking. The sponsors may put pressure on the
school to publicize it and promote its actions as positive, e.g. screen savers, logos
on prospectuses. Negative publicity may result from the sponsorship deal that
may have an adverse effect on the schools.

Award [1 mark] for a memorandum (memo) format, To, From, Subject, Date.

[4 to 5 marks]
Concerns are outlined and both positive and negative effects of the decision are
stated.

[2 to 3 marks]
Concerns are outlined and both positive and negative effects are stated though the
answer may be one sided.

[1 mark]
The response is limited.
 –5– M02/370/S(2)M+

(d) Discuss three constraints that KNDC might experience when

implementing the project, distinguishing between those it can control
and those beyond its control. [6 marks]

Internal: those which the firm can control, but which restrict its ability to
achieve its objectives:
Finance: e.g. cash flow, ability to raise more funding (business sponsorship),
displaying good value for money;
Human resources: numbers of staff appointed, skills of the staff, motivation of those
who work there;
Public Relations: maintaining good relations with the local community and raising
the profile of KNDC;
Delivery: the community want results quickly to improve their way of life.
KNDC however wish to consult, create their strategy and follow all
the steps of the decision making process. This may lead to a conflict
of interests.

External: beyond the immediate control of KNDC, which restrict its ability to
achieve its objectives:
Political Factors: the government may change and new buildings may not be a
priority. Funding may therefore be cut which would mean that
KNDC would need to redistribute funds;
Economic: state of the economy;
Social factors: e.g. social trends, demographics, and attitudes;
Technology: e.g. rate of change.

[5 to 6 marks]
The answer discusses in detail three constraints experienced by KNDC. It distinguishes
between those, which KNDC can control, and those beyond their immediate control.

[3 to 4 marks]
The answer discusses at least two constraints, though it may lack detail. There is some
attempt to distinguish between those KNDC can control and those beyond its control.

[1 to 2 marks]
The answer is limited in terms of discussion, constraints and control. Some of the
elements might be missing.
 –6– M02/370/S(2)M+

2. (a) (i) Explain what is meant by a mission statement. [2 marks]

A mission statement sets out the vision, values and beliefs of an organization to
make the philosophy of the organization plain to all involved in the organization.

Award up to [2 marks] for a suitable explanation.

(ii) Analyse how Missan Motorcare’s commitment to achieving their

mission statement has enabled them to be successful in Africa.
[4 marks]

“to be the leader in sales and distribution of automotive products and services in
countries where we have distribution rights.”

The mission statement displays the vision for the company. It shows its ambition
to be the leader in Africa in sales and distribution. This focuses the stakeholders
on these aspects of the company. Their success can be attributed to their position
as market leader in the development of franchises and distribution rights in
Uganda and Mozambique.

[4 marks]
The answer is detailed and provides an analysis of the mission statement.
Examples from the letter should be used to demonstrate the success of the
company and should be clearly linked to the mission statement.

[2 to 3 marks]
The answer attempts to provide an analysis of the mission statement. The answer
discusses the success of the company and links it to the mission statement.

[1 mark]
The answer is limited in terms of analysis and reference to the mission statement.
 –7– M02/370/S(2)M+

(b) Missan Motorcare in Mozambique is sold as a franchise operation.

(i) Explain what is meant by a franchise. [2 marks]

A franchisor sells the rights to use/sell a product to a franchisee in return for a

fixed fee and/or a percentage of the turnover.

Award up to [2 marks] for a suitable explanation.

(ii) Discuss three advantages and three disadvantages for the

distributor of this arrangement. [6 marks]

Advantages Disadvantages
Day to day management is the
Loss of control
franchisees responsibility
Quicker growth of distribution Poor management may affect other
outlets outlets
Can share costs e.g. marketing more
Quality control more difficult
widely
Increases funds available for
expansion
Managers more motivated as they
benefit from increased sales

[5 to 6 marks]
Three advantages and disadvantages are discussed in detail with reference to Missan
Motorcare. Any illustrations given are fully relevant to the question.

[3 to 4 marks]
Three advantages and disadvantages are discussed but the answer may lack detail
and/or reference to Missan Motorcare. Any illustrations given may not be fully
relevant to the question or two advantages and disadvantages are discussed in
detail. There may be confusion that the franchiser is the distributor.

[1 to 2 marks]
Discussion of advantages and disadvantages is limited. Illustrations are not
relevant to the question.
 –8– M02/370/S(2)M+

(c) Evaluate three ways in which Missan Motorcare can ensure that they
maintain their position as market leader and their good reputation for
customer care. [6 marks]

Missan Motorcare need to ensure that they maintain customer satisfaction. This can be
done by ensuring regular feedback from customers by questionnaires, phone calls and
even focus groups. They must make sure that techniques used to promote the company
are suitable to the intended audience. The price of motor vehicles and motor bikes must
remain competitive. The distributors must ensure that they are located in places that are
convenient to the customers. Quality of the product is important and must be maintained,
as well as good customer service. Care must be taken to look at what is happening in the
market and that the company keeps up with competitors. Missan need to ensure the
careful selection of franchisees and need to set a standard for the monitoring of
franchise operations.

[5 to 6 marks]
The answer evaluates in detail three ways in which Missan Motorcare can ensure that
they maintain their position as market leader and a good reputation for customer care.
Reference to market share and customer care is entirely appropriate.

[3 to 4 marks]
The answer attempts to evaluate at least two ways in which Missan Motorcare can
ensure that they maintain their position as market leader and a good reputation for
customer care, though detail may be brief in parts. Reference to market share and
customer care is generally appropriate.

[1 to 2 marks]
The answer is limited in terms of evaluation, market leader and customer care.
 –9– M02/370/S(2)M+

3. (a) Explain the difference between fixed and variable costs. [2 marks]

Fixed costs do not change with output e.g. rent. Variable costs vary directly with output
e.g. materials.

Award up to [2 marks] for a suitable answer that distinguishes between fixed and variable
costs.

(b) Draw a break-even chart for Party in a Box and clearly mark the [8 marks]
break-even point.

Variable
Quantity Revenue Fixed Costs Total Costs Profit/Loss
Costs
$ $ $ $ $ $
0 0 21 000 0 21 000 (21 000)
1 000 22 000 21 000 19 000 40 000 (18 000)
2 000 44 000 21 000 38 000 59 000 (15 000)
3 000 66 000 21 000 57 000 78 000 (12 000)
4 000 88 000 21 000 76 000 97 000 (9 000)
5 000 110 000 21 000 95 000 116 000 (6 000)
6 000 132 000 21 000 114 000 135 000 (3 000)
7 000 154 000 21 000 133 000 154 000 0
8 000 176 000 21 000 152 000 173 000 3 000
9 000 198 000 21 000 171 000 192 000 6 000
10 000 220 000 21 000 190 000 211 000 9 000

Revenue = $ 22 per copy

Total fixed costs = $ 4000 + $ 3000 + $ 14000 = $ 21000

Variable cost per pack = $ 2 + $ 2 + $ 8 + $ 7 = $ 19
 – 10 – M02/370/S(2)M+

$
280
TR
260 Profit
240 TC

220
200
180
160
140
120
100
80
60
40 Margin of safety
20 FC
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
BEP Output 000s

[6 to 8 marks]
A break-even chart has been drawn correctly and the break-even point is correct. The
axes are correctly labelled. The chart is clearly drawn and fully labelled. At the lower
end, presentation may need improvement, there may be one error.

[3 to 5 marks]
There is an attempt to draw the break-even chart but there may be some errors.
Presentation may be lacking. Labels may be missing.

[1 to 2 marks]
The answer is limited in terms of drawing the chart, finding the break-even point and
presentation.

If a candidate does not draw a break-even chart but calculates the BEP award a
maximum of [3 marks].
 – 11 – M02/370/S(2)M+

(c) Calculate the margin of safety and profit at 12 000 packs. Clearly show
your method of calculation. [4 marks]

Margin of safety = 12000 – 7000 packs = 5000

Award [1 mark] for correct margin of safety and [1 mark] for clear working out.

Total revenue at 12 000 packs = 22 % 12 000 = $ 264 000

Total fixed costs = $ 21000 Total variable costs = 19 % 12 000 = $ 228 000
Profit = Revenue – Total costs = 264 000 – (228 000 + 21 000) = $15 000

Award [1 mark] for correct calculation of profit and [1 mark] for showing clear working.

(d) Analyse three advantages and three disadvantages for Emma of expanding
Party in a Box, and diversifying into a new product. [6 marks]

Potential advantages and disadvantages include:

Expansion
Advantages Disadvantages
The business may suffer as it grows, it may
May lead to increased profits
take all Emma’s time
Emma will have to look after another
Uses existing skills
member of staff
A loan may be needed from the bank
New challenge
which will increase liability

Diversifying
Advantages Disadvantages
If product is not popular may affect core
May lead to new markets
business
Emma may lack expertise e.g. marketing
Would appeal to new customers
packs
New product will complement existing
Extra costs may affect cash flow and profit
service
Spreads risk
Opportunity to increase profits

[5 to 6 marks]
The answer provides a detailed analysis of three advantages and disadvantages of
expanding the business, and diversifying into personalized stationery. The answer is fully
related to Party in a Box.

[3 to 4 marks]
The answer attempts to provide an analysis of advantages and disadvantages of developing
the business and diversifying. The answer attempts to relate to Party in a Box.

[1 to 2 marks]
The answer is limited in terms of analysis and advantages and disadvantages of expansion and
diversification.
 – 12 – M02/370/S(2)M+

4. (a) (i) Analyse the product portfolio of Wheels on Fire, using Figures 1
and Figure 2 to support your answer. [9 marks]

Boston Matrix Share of Market

Product Launched Price Quality
Position Market Growth
Star Mountain Magic 2000 Low High High High
Cash Cow Rugged Rider 1995 Low High Low Low
Question Mark Gryphon 2002 High Low High High
Dog Town Tourer 1981 High Low Low Low

The Boston Matrix shows what percentage of the market each product has and the
rate at which the market as a whole is growing. The “Star – Mountain Magic”
(relatively new in the market) has a high share of a fast growing market. It may
require a large investment to keep it competitive. Mountain Magic is a low price
bike but as it is high quality it should prove popular in the market. The “Cash
Cow – Rugged Rider” has a large share of a slow growing market. It has already
been developed and promoted, and generates relatively high levels of cash. It can
be used to develop and protect the “Star” and the “Question Mark/Problem
Child”. Rugged Rider is a low price, low quality bike, launched quite a few years
ago. You get what you pay for. The “Question Mark/Problem Child – Gryphon”
has a small share of a fast growing market; it has the potential to be successful but
needs protection and investment. It has only recently been launched on the
market, has a high price but is high quality, it may therefore appeal to specialist
cyclists, or more well-off customers. Its high price may not prove popular, it
could become a “Star” or could become pushed out. The “Dog – Town Tourer”
has a small share of a slow growing market. It is a very old model, low quality
and high price and may take up more time and investment than it is worth. It
could be revived but may be it is more likely to be dropped.

[7 to 9 marks]
The answer analyses each of the four products, using the Boston Consulting
Group Matrix and position map. The products are analysed in terms of age, price,
quality, market share and growth rate. The answer provides good illustrations
using Figures 1 and 2.

[4 to 6 marks]
The answer attempts to analyse each of the four products, using the Boston
Consulting Group Matrix and position map. The products are analysed but not in
all areas of age, price, quality, market share and growth rate. The answer provides
illustrations using Figures 1 and 2.

[2 to 3 marks]
The answer explains the four products, using the Boston Consulting Group Matrix
and position map, though the answer may be limited in some areas. Analysis is
superficial and lacks depth. Illustrations from Figures 1 and 2, may not be used
entirely appropriately.

[1 mark]
The answer is limited in terms of analysis, explanation and illustrations from
Figures 1 and 2.
 – 13 – M02/370/S(2)M+

(ii) Make recommendations to the company as to how they should

develop each product. [4 marks]

Star Mountain “Build” – Invest to develop

Magic
“Hold” – attempt to maintain existing
Cash Cow Rugged Rider
market position
“Divest” – get rid of this product unless it
Dog Town Tourer
is making a profit
“Harvest” – aim for short term profits, high
Question Mark/
Gryphon price may go against long term investment of
Problem Child
effort

Award [1 mark] for each correct development suggested up to a maximum of

[4 marks].

(b) Prepare a marketing strategy for Gryphon. [7 marks]

Suitable market research needs to be carried out among potential customers. Their
views should be taken into account and the product developed to suit their needs.

Product Gryphon is a newly launched, high price, high quality product. It has
a low market share in a rapid growth market. It may be a specialist
bicycle hence the price. The product should be designed to appeal to
that market.
Price It is a high price product and so should be targeted at the upper end of
the market, including specialist cyclists and well-off customers. The
quality should be emphasized to warrant the price charged.
Place The Gryphon should be sold in specialist outlets and catalogues. It
could also be sold on specialist internet sites.
Promotion Promotion should be by means of advertising in specialist magazines
and web sites. It is unlikely that TV and radio advertising would be
suitable.

[6 to 7 marks]
The marketing strategy prepared provides a detailed application of the marketing mix
using at least 4Ps. The application is fully suitable for Gryphon. The answer may go
beyond the 4Ps and include market research and product development.

[4 to 5 marks]
The market strategy applies the marketing mix to Gryphon but does not go beyond this.
One of the elements may not be suitable to Gryphon.

[2 to 3 marks]
The strategy applies to the marketing mix but more than one element may be missing.
The suitability for Gryphon may not be appropriate.

[1 mark]
The answer is limited in terms of the marketing mix and its suitability for Gryphon.
 – 14 – M02/370/S(2)M+

5. (a) Define

(i) profitability

(ii) liquidity and

(iii) efficiency. [3 marks]

Profitability – how profitable the firm is in relation to sales and assets.

Liquidity – ability of a company to pay its creditors and meet its debts.

Efficiency – how well the firm is using its resources.

Award [1 mark] for each definition up to a maximum of [3 marks].

(b) (i) Calculate two profitability, two liquidity and two efficiency ratios
for 2000 and 2001. [6 marks]

Year 2000 Year 2001

$ 000s $ 000s
Return on NP % 100 40 % 100 % = 10% 38 % 100 = 9.22 %
Profitability capital Capital Employed 400 412
employed
Gross profit GP % 100 200 % 100= 25 % 250 % 100 = 25 %
Profitability
margin TR 800 1000
Net profit NP % 100 40 % 100 = 5 % 38 % 100 = 3.8 %
Profitability
margin TR 800 1000
Asset TR 800 = 2 1000 = 2.43
Liquidity
turnover Net Assets 400 412
Current ratio CA 40 = 2 62 =2.06
Liquidity
CL 20 30
Acid test CA – Stock 40 – 20 = 1 62 – 40 = 0.73
Liquidity
CL 20 30
Debtor days Debtors % 365 12 % 365 = 5.5 days 18 % 365 = 6.6 days
Efficiency
TR 800 1000
Stock Cost of sales 600 = 30 750 = 18.75
Efficiency
Turnover Stock 20 40

Award [1 mark] for each pair of ratios (2000 and 2001) calculated correctly, up to
a maximum of [6 marks]. Do not award more than [2 marks] for each area –
profitability, liquidity and efficiency.
 – 15 – M02/370/S(2)M+

(ii) Use the ratios to evaluate the performance of the company in

2001, compared to 2000. [5 marks]

Profitability – Return on capital employed has decreased. This means that the rate
of return is slower. Gross profit margin has not changed, but net
profit margin has decreased, showing that overheads have increased.
The company needs to take steps to stop this. The value of sales
compared to net assets has increased.

Liquidity – Current ratio has increased. It is quite high for both years and
attention needs to be paid to reducing it. The Acid Test ratio has
decreased. However, both years are within a suitable range. This
means that money is not tied up in stock unnecessarily. The
company can however meet its short– term debts.

Efficiency – Debt collection period has increased. This means that the company
is taking longer to collect its debts. Stock turnover has decreased.
Stock is turning over more slowly, meaning that the company is not
as efficient as it was. The company is not as efficient in 2001, as it
was in 2000.

If suitable comments are made, but are based on candidates incorrect figures, then
they must be credited.

[5 marks]
The answer evaluates in detail the performance of the company in 2001, compared
to 2000. Two profitability, two liquidity and two efficiency ratios are all used to
support the answer.

[3 to 4 marks]
The answer attempts to evaluate the performance of the company in 2001, compared
to 2000, though in parts the answer may lack detail. Some of the profitability,
liquidity and efficiency ratios may not be used to support the answer.

[1 to 2 marks]
The answer is limited in terms of evaluation and use of ratios to compare the
performance of the company.
 – 16 – M02/370/S(2)M+

(c) Analyse how the appointment of a new Managing Director will affect
the performance of the company, in terms of productivity and making
cost savings. [6 marks]

The managing director needs to make changes. Productivity needs to increase which
may decrease motivation. Changes in working practice may also cause employees to
fear change and lead to lower motivation. It is important that employees are informed of
changes and that they are consulted if possible at all stages. Cost savings also threaten
the work force and may lead to insecurity that they may lose jobs. Cost savings in other
areas may make it more difficult for staff to work.

[5 to 6 marks]
The answer is detailed in its analysis of the way in which changes will affect
productivity. Making cost savings are discussed in terms of Apex Systems.

[3 to 4 marks]
The answer attempts to analyse the way in which changes will improve productivity.
Making cost savings should be discussed in terms of Apex Systems. The answer may
be limited in one area.

[1 to 2 marks]
The answer is limited in terms of analysis and omits at least one of the areas.