Island School

BUSINESS AND MANAGEMENT HIGHER LEVEL PAPER 1

March 2013

1 hour and 15 minutes

INSTRUCTIONS TO CANDIDATES Do not open this examination paper until instructed to do so. Read the case study carefully. Section A: answer two questions. Section B: answer the compulsory question. Section C: answer the compulsory question.

2 SECTION A Answer two questions from this section. 1. (a) Describe the differences between the terms gross profit margin and net profit margin (lines 38 & 39).

Gross profit margin is gross profit divided by total revenue, whereas net profit margin is the total profit remaining after revenue is taxed. [4 marks] (b) Distinguish between a privately owned (line 44) and a public limited company (line 123).

A privately owned company is one that is not publicly traded in the stock exchange but is privately owned by a small group of shareholders. A privately owned company usually has unlimited liability and is not required to show their financial statements, whereas a public limited company has limited liability and is required to show their financial statements publicly. [4 marks] (c) Analyse the advantages and disadvantages to RDB in setting ethical objectives.

+ maintain motivation in workers of RDB + improve company image and add to goodwill + potentially attract more customers due to better brand image and improve customer loyalty - potentially very costly - ethical objectives might conflict with and hinder the aim to make a profit [7 marks] 2. (a) Define the following terms: (i) batch production (line 64).

Production process whereby a product is produced in batches stage by stage. An example would be the production of bread, where the dough is created at one station before being moved onto the next to be baked. (ii) job security (line 53). The likelihood of an employee being able to retain their job. A higher job security would mean a lower chance of the employee being unemployed. [4 marks]

3 (b) Using the additional information below, construct RDBs Balance Sheets for 2012 & 2013 for their Danish factory.

Balance sheet 2012 (in 000s) EeeweCurrent assets Cash Debtor Stock Factory Machinery Vehicles Current liabilities Creditor Overdraft Tax Long term liabilities Equity Retained profit Share capital 35 56 28 354 123 86 57 23 39 549 14 2013 (in 000s) 15 84 55 342 128 76 69 15 32 570 14

Additional information: 2012 All figures in DKK (Danish Krone) and in 000s Stocks 28, Retained Profit 549, Factory 354, Cash 35, NPBIT 4450, Machinery 123, short-term borrowing 23, Long-term liabilities 39, Vehicles 86, Debtors 56, Creditors 57, Share capital 14, Total sales revenue 14,363. 2013 - All figures in DKK (Danish Krone) and in 000s Stocks 55, Retained Profit 570, Factory 342, Cash 15, NPBIT 200, Machinery 128, short-term borrowing 15, Long-term liabilities 32, Vehicles 76, Debtors 84, Creditors 69, Share capital 14, Total sales revenue 9,910. [4 marks] (c) Using at least two appropriate ratios analyse RDBs Balance Sheets for 2012 and 2013 from Valdemars perspective. [7 marks]

(This section continues on the following page.)

4 (Section A continued.) 3. (a) Danish Identify appropriate inputs, outputs and processes of Royal Bearings. [4 marks] (b) Explain one cause and one consequence of RDB relocating some of its production to India. [4 marks] Analyse which promotional tools would be the most effective to increase sales for RDB. [7 marks]

(c)

5 SECTION B Answer the compulsory question in this section. 4. (a) Define market research (line 115) and identify two appropriate secondary research sources of information for use by RDBs marketing department. [4 marks] Using the additional information below, as well as the case

study,

(b)

prepare just the opportunities and threats of a SWOT analysis, for RDB. Additional information: Extract from 1 minute Worldwide News The problems continue for South and Eastern Asia as engineers work repeatedly to fix the underwater internet cable broken in the recent Tsunami. This is the third case in the last 10 years when the internet has been affected by natural disasters. Whilst Asia is suffering from the internet interruption, no such interruption is being experienced by Libya oil workers, as the country gets back to the oil production figures last since in 2009. Shell and other oil companies are even suggesting more drilling could take place in the future. In Business news, the growth of 3D printers seems to be gathering pace as they become more affordable and companies that felt this was not an option for them realize that now might be the time to purchase this leading edge technology. Tax, or rather MNC payment of tax in host countries is now becoming a very controversial issue in a number of countries across Northern Europe as it appears a large number of MNCs have paid very little tax, if any over the last few years. In other news the Olympic committee is considering the inclusion of ATVs in 2020. [8 marks] (c) Discuss the potential conflict between RDB Directors and environmental campaigners outlined in lines 41-43. [8 marks]

Further Extension Material - Section C

Answer the compulsory question from this section 5. Having suffered a stroke in January 2013, Valdemar Holstein resigned as CEO, however he still retained his seat on the board. Anna Holstein, took over as expected, although, certain board members did have concerns about her management style and her ambivalence towards RDBs European workers. On a visit to the Swedish factory she was concerned about the state of the staff canteen and the declining food quality. Anna instructed the factory manager to ensure that it was improved within the month. However, she had refused to meet with the companys Scandinavian Trade Union (STU) about the forthcoming redundancies and their idea to spread them over the coming months. Anna herself was pleased with her first few months in the job, considering she had not expected to be CEO for another 6 months. Although the financial figures had worsened Anna felt this would be temporary while the company made the necessary changes. One area she was particularly pleased about was the further implementation of green technologies across the Danish factory. To further the companys plans she had asked management consultants, Industrial Advance to carry out a study on both her strategic plan RDB 2020 and Valdemars Alternative Proposal. Industrial Advance reported although both had merits her company recommended a third plan. Two small factories should be opened in one or more of the countries Brazil, China or India. To pay for this the Swedish factory should be closed immediately as it was the least productive. As well as this the German factory was to be reduced to half its size within 5 years with workers offered new positions in the factories abroad or made redundant. To assist with these changes a Green expert and a change management expert should be brought onto the RDB board and for the foreseeable future RDB would remain privately owned. (a) Define the terms cell production (line 163) and logistics (line 82) marks) (b) Using an interest rate of 8% and Item 3 below: (i) Calculate the NPV and one other method of investment appraisal for the two Green technologies appraisal. (4 marks) (ii) Comment on your results. marks) (c) (d) (4 (4

Analyse the dynamic nature of the relationship between Anna Holstein and RDBs workers and the STU. (6 marks) Applying suitable business tools, such as Force Field analysis and PEST analysis and using the case study and additional information in Section

7 C, recommend to RDBs Board which plan should be adopted for RDBs future direction. Refer to human resource management, financial and production implications. (12 marks) Item 1: Figures of Pollution less No Pollute To increase RDBs use of Green technologies the company is considering the following investments. Pollution Less ($) No Pollute ($) Investment Cost 250,000 285,000 Expected Cash flows Year 1 75,000 22,000 Year 2 65,000 55,000 Year 3 60,000 98,000 Year 4 45,000 125,000 Year 5 15,000 150,000 Item 2: Estimated selected Economic Data for 2013 Brazil China India Urban Population (% of total) 85 52 32 FDI ($bn) 71 220 32 Interest rates (%) 8 6 8.5 Unemployment rate 4.9 4.1 3.8 Availability of government Set up Tax of assistance for new factories, Grant None 2% for 2 i.e. Grants, low tax rates, etc. 10% years Average labour cost per hour 1.1 0.8 0.4 ($) Economic growth (GDP) 3.9 7.9 5.4 Literacy rate (%) the number 86 87 67 of adults that can read and write Source: Adapted from World Interest Rates, Stanley Gibbons Trading Economics, Philips Atlas Item 3: Summary of Danish Daily interview with STU about RDB redundancies Ryan Christensen, the head of the STU is very frustrated by RDB and Anna Holsteins position over RDB redundancies. He feels she has not and would not listen to their views on how redundancies could be avoided or could be spaced out over a longer period. He said he understood that there had been a shift away from Europe in terms of where manufacturing now took place, particularly to China, and that changes needed to occur. However, he felt disappointed that Valdemar Holsteins daughter did not care about the workers as much as Valdemar had. Ryan stated Annas refusal to meet and discuss things had led to widespread rumours of further changes to come and he would not rule out industrial action if the workers objections were not met.