Business Studies Level L Course Questions Solution_240608_160414.pdf

Business Studies Level L Autocratic: little to no communication between leaders and staff, less work as employees feel less involved, low satisfaction and motivation, and high supervision. Democratic...

Business Studies Level L Autocratic: little to no communication between leaders and staff, less work as employees feel less involved, low satisfaction and motivation, and high supervision. Democratic: slower decision-making, lower output in the period before the decision is made or implemented. Laissez-faire: delays and confusion in completing tasks when employees do not have decision-making experience, and possibility of other group members filling the leadership “vacuum”. (189) 27. G - Type of workforce - Type of tasks - Size of the group - Time period (190) 28. T a) Having an autocratic leader means Mr. Griffith makes all the decisions, insisting on complete obedience and compliance. He only tells employees what they need to know and keeps apart from the employees. b) This kind of leadership ensures quick and effective decision-making, but there is little or no communication between leadership and staff who feel no sense of participation, which makes them dissatisfied, unmotivated and hence, less productive. Therefore it is not very beneficial for the development of new products, since employees will not be able to participate in developing the new design and come up with new ideas. c) With democratic leadership, employees will be able to provide suggestions as to how the new design should be. Their ideas might be genuine allowing the new suits to sell fast. Also, the work environment will improve as workers feel more involved and this leads to greater job satisfaction, new ideas and improvements due to staff involvement and the need for less supervision. Chapter 7 Human Resource Management Section 1 The Human Resources/Personnel Department (191) 1. HR management is about managing people in an organization. The management process involves recruitment and selection, training programs, handling industrial relations as well as controlling and motivating employees. (192) 2. Workforce planning is about forecasting the workforce needed by the business for the foreseeable future in terms of numbers and skills of employees required. The career plan is a part of the workforce plan showing how employees can “grow” within the organization, which is helpful for the company. (193) 3. Appraisal is the systematic review of the job performance of an employee to help with job rating, training, and promotion. One or more of the following may carry out appraisals: Immediate superior, peer appraisal, subordinates, professional appraisers and customer appraisal. A 360-degree appraisal that combines all methods can be used as well. Level L | 24  Business Studies Level L (194) 4. Recruitment is about defining the requirements of the vacancy and informing and inviting applicants by advertising the post. Once a business decides that it needs to recruit an employee, it must carry out a job analysis to clearly identify the type of work and the responsibilities that the person will be expected to carry out. Job analysis comprises two integral parts: job description and job specification. (195) 5. A job description is a document that essentially outlines the main duties of the post forming basis of the job advertisement. A job specification is a document that explains the qualifications for the ideal candidate for the job by listing the skills, experience, personal qualities that the business is looking for. (196) 6. Job description: - Job: salesperson - Reports to Sales manager - Location: US - Candidate will be responsible for selling new clothes and attracting new customers - Time: from 9a.m till 7p.m Job specification: - Candidate should have good communication skills - Experience from 1 to 2 years in sales - Candidate must be a fresh graduate (197) 7. - The candidates’ strengths/weaknesses are already known. - The employees are already familiar with the work and objectives of the organization. - Internal promotions are good for staff morale and motivation. - The process is fast and cheap. (198) 8. External recruitment is needed when the business is hiring new people from outside due to an increased workload or replacement of staff who are leaving on a temporary or permanent basis (199) 9. - Job centers - Newspapers/journals/magazines - The Internet (200) 10. Before recruiting the business must consider the cost of hiring employees which is relatively high; this is why the HR department has to select the best candidates for a job vacancy. In addition, they must see if they are in need for additional workers. (201) 11. On-the-job training: on-the-job training involves workers being trained as they perform the job. Off-the-job training: off-the-job training involves the worker being trained away from the actual workplace, either on the company’s own training premises or outside the company, such as at a college. Induction training: the selected candidate will be provided an induction program, which may involve a tour of the company and an introduction to the company’s management, coworkers, and facilities. (202) 12. Promoting a current employee to a higher position and advertising within the business for a vacant position. Level L | 25  Business Studies Level L (203) 13. An application form prepared by the HR department can be used to ask specific questions about the applicant. Also, applicants can develop a CV. (204) 14. a) Interviews are used to select the best person for the job. b) Aptitude tests can be used. (205) 15. Appraisal allows the business to assess the effectiveness of its employees. Examples of appraisal include peer appraisal, immediate superior appraisal, and professional appraisers. (206) 16. G - Recruitment, selection - Staff records and needs - Industrial relations - Workforce planning, training, and development - Redundancy, discipline, and dismissal - Appraisal - Organization culture (207) 17. G - Achieve business objectives. - Meet an increased workload if there is increased demand for products. - Replace staff leaving on a temporary or permanent basis. - Replace a member who has been promoted within the organization. (208) 18. G 1st: The business identified the need for a new worker and carries out a job analysis 2nd: A job description is produced 3rd: A person specification is produced 4th: The job is advertised 5th: Send out application forms and job details 6th: Receive completed applications 7th: Select a shortlist from all of the applicants 8th: Interview shortlisted candidates 9th: Select the right candidate (209) 19 G A job description explains the nature of the job and forms the basis of job advertisement while a job specification explains what the ideal candidate for the job should be like. (210) 20. G - Job centers - Newspapers/journals/magazines - Private recruitment agencies - Factory gate/shop window - The Internet (211) 21. G Interviews: applicants are asked questions to assess their personal qualities, character, and ability to fit in the business and do the job. Aptitude tests: tests that show whether the applicant has the potential to gain additional skills. Skill tests: tests that assess the applicant’s ability to carry out specific tasks. Level L | 26  Business Studies Level L Personality tests: tests that assess the applicant’s ability to handle responsibility and stress by measuring emotional status and personality traits. Psychometric tests: tests that assess the preferences and psychological characteristics of candidates. Group situation tests: tests that assess the applicant’s ability to be a team player. (212) 22. G - Increase productivity and quality of output. - Improve customer service. - Increase the motivation of staff. (213) 23. G Induction training occurs when an employee is hired to familiarize him with the business and job and help him develop a sense of belonging. On the job training allows the employee to learn while working. This helps the business maintain its output. Off the job training occurs outside the business by professionals and could be expensive Section 2 Effect of Government Legislation on the Recruitment Process (214) 24. Recession may be one of the reasons for a business to reduce its employees because when demand decreases, the need for workers decreases as well. Some staff members could be dismissed which means the employer terminates the employee’s contract due to dissatisfaction with the employee’s work or conduct. In addition, an employee may resign. (215) 25. A business cannot afford to have a high labor turnover which results in higher costs in terms of recruiting, selecting, and training new staff. In addition, high labor turnover negatively affects the image of the business as an employer. (216) 26. Part-time employment reduces the costs for the firm, as it does not offer part-time employees the same packages as full timers. The firm generally pays them based on a specific number of hours worked. The business can hire several part-timers and benefit from a wider range of skills. The main disadvantage of hiring part-time employees is that they may lack commitment relative to full time employees and need more training. (217) 27. Governments pass laws about treatment of employees which should be fair and equal, without gender or race discrimination. Government laws also force businesses to provide equal pay to employees doing the same job. Businesses need to be careful when advertising a vacancy and how they treat employees, as any breach of the government’s labor laws could be liable, leading to prosecution and fines. (218) 28. Retirement occurs when an employee leaves his or her job after reaching a legally stipulated age that might differ between countries, i.e., 60 for women and 65 for men in Britain. (219) 29. Redeployment is the transfer and retraining of an employee from one area of activity to another within the business. It motivates staff and widens their range of experience in order to prepare them for promotion. (220) 30. G a) Full-time employees: low induction and training costs than part time workers, higher commitment to firm b) Part-time employees: more skills, more flexibility, lower costs in terms of fringe benefits, can help meet unexpected demand Level L | 27  Business Studies Level L (221) 31. G A part-timer can work overtime and often is more flexible and more motivated than a full-time employee. The business can hire several part-timers and benefit from a wider range of skills. Part-time employment reduces the costs for the firm, as it does not offer part-time employees the same packages as full timers. (222) 32. G Dismissal: employee’s inability to perform the work, and misconduct. Resignation: employee’s disagreement with company policies, boredom or lack of motivation, personal reasons, and the opportunity of a new job with better pay or prospects. Redundancy: the job ceases to exist due to downsizing or complete shutdown. Downsizing: decrease in the demand for the company’s products, business mergers or takeovers that result in job duplication, replacement of labor by machinery, relocation of the business to a place where less workers are needed, and outsourcing of certain tasks to other businesses. (223) 33. G A high labor turnover increases costs in terms of recruiting, selecting, and training new staff. Moreover, it negatively affects the image of the business as an employer. Chapter 8 Employers’ and Employees’ Organizations Section 1 Trade Unions (224) 1. A trade union is considered a business stakeholder and a pressure group that represents employees in the workplace and protects their interests. (225) 2. G - Improve the overall working conditions. - Improve job satisfaction and promotion prospects - Promote job security - Improve communication between employees and employers. (226) 3. G - Negotiating wages and other non-wage benefits with employers - Defending employees’ right and jobs - Improving working conditions, such as hours of work or health and safety - Improving pay and other benefits, including holiday entitlement, sick pay, and pensions (227) 4. G - Become in a much stronger position to negotiate with their employers. - Benefit from improved pay, better work conditions, and job security. - Gain employment where a “closed shop” is in operation. Section 2 Types of Trade Unions Level L | 28  Business Studies Level L (228) 5. Industrial unions, craft unions, general unions and white-collar unions. (229) 6. A closed shop is where all employees must be members of one union as a condition for employment. However, employees have the choice to join the designated trade union in a single union agreement then the firm only deals with one particular designated union. (230) 7. A closed shop means that all employees must be members of one union as a condition for employment. It reduces unfairness between employees and puts them in a stronger position to negotiate which makes collective action more successful. (231) 8. The general secretary is responsible for the day-to-day running of a trade union (232) 9. G a) Carpenter: craft b) Taxi drivers: general c) Accountants: white collar d) Pianists: craft Section 3 Employers’ Associations (233) 10. Employers’ associations aim to put pressure on the government, and request its support in economic matters, such as maintaining economic stability, assisting the workforce by ensuring law and order, improving health and education, reducing the tax burden on organizations, etc. (234) 11. When employers and employees have conflicting views and objectives, their representatives try to negotiate on their behalf. Trade unions on behalf of employees and trade associations on behalf of employers, until a mutual agreement is reached. (235) 12. G To get rewarded for their hard work To cope with high costs of living To be willing to increase their productivity more Because labor supply is low Because the business is expanding Because they have to take on new tasks Section 4 Industrial Action (236) 13. When negotiations fail, and collective bargaining does not get to the desirable results, strikes occur to exert pressure on employers. (237) 14. In order for company X to avoid losing production and money, and for workers to avoid losing their wages, trade unions and employers can refer to the Advisory, Conciliation, and Arbitration Services (ACAS) to help resolve the deadlock. (238) 15. - Work to rule: under work to rule, workers can slow down work by insisting on following every rule or regulation down to the smallest detail, even though in normal working practice these details may be ignored. Level L | 29  Business Studies Level L - Go-slow: workers perform their jobs extra carefully and slowly, taking longer to complete each task and slowing down the production process. - Overtime ban: workers will stick to their normal working hours and refuse all overtime/ additional work. - Picketing: groups of workers can stand at the entrance to the workplace and prevent other workers and supplies from entering. (239) 16. Pros of worker participation - Better relations between employer and employee - Higher motivation - Lower labor turnover - Better work environment. Cons of worker participation - May be time consuming - Non-union members may lose out (240) 17. (ACAS) helps resolve the deadlock by providing advice on a wide range of business activities concerning the management of the workforce, including recruitment, selection, training, and payment. It also provides conciliation by finding a solution that satisfies the conflicting objectives of both parties involved. If conciliation fails, the parties may refer the dispute to arbitration. An independent person called an arbitrator will evaluate the arguments and act as a judge by presenting what is a fair settlement for both parties. (241) 18. In order to reduce the number of disputes and improve the relationship with employees, business should use an approach based on worker participation which includes: - Electing a workers’ director where a worker becomes a director but with limited authority (i.e., that person would not take part in annual board meetings). - Allowing for a works council; a council of employees that meets with the manager to discuss work-related matters. - Setting quality circles. - Being a democratic leader in order to minimize or eliminate industrial disputes. (242) 19. Signing a no-strike agreement ensures that no strikes will occur, and reduces industrial action. (243) 20. An arbitrator tries to solve disputes about pay between trade unions and employers involved in a no-strike agreement. The arbitrator listens to both sides and decides what is fair. (244) 21. A lockout occurs when employees are locked outside the business to prevent them from going back to work. It is used by employers to retaliate against the actions of trade unions. (245) 22. Industrial actions could force customers to look for substitutes that are usually more expensive when production is stopped. They would suffer from a shortage of products, a delay in the delivery of goods, and a decrease in their output when raw materials for their work are not supplied. (246) 23. G Employers: loss of output, customers, profit, and good reputation. Employees: loss of wages and jobs. Customers: expensive substitutes, shortage of products, delays in delivery of products, loss of raw materials if they are producers too. Level L | 30  Business Studies Level L The economy: lower standards of living, lower government revenue from income tax, higher redundancy levels, and lower exports. (247) 24. G - The company may find it easier to negotiate with one group representing a number of workers than with individual workers. - Once a deal is agreed upon, a union will ensure that it applies to all its workers. - A union may take a more realistic and longer-term view than individual workers. - Unions have built up many years of expertise regarding an industry or company. Therefore, they provide good suggestions regarding the firm’s activities and practices. (248) 25. G Workers’ participation is an approach that aims at reducing disputes between employers and employees. It involves electing a workers’ director, allowing for a works council, setting quality circles, or using democratic leadership. Advantages: better relations between employer and employees, higher motivation, lower labor turnover, and better work environment. Disadvantages: time-consuming, non-union members may lose out, and the demand for change might create conflict between employer and employees. (249) 26. T The manager’s decision is influenced by factors outside his control. He wants to minimize losses due to the economic downturn, and his decision to cut wages allows him to cut costs and save the business. However, he could have gradually introduced the cut in payments or informed employees about the decision and given them a chance to express their views and suggest alternatives. He should have explained to them that cutting payments would be temporary and that it would be better than sacking them. (250) 27. T a) The shop steward is a person elected by workers in the shoe factory, to represent and defend the interests of her or his fellow employees. b) The union may undergo collective bargaining where employers and employees try to negotiate their conflicting views and objectives. They do so through their representatives (trade unions on behalf of employees and trade associations on behalf of employers). Collective bargaining ends when the two groups reach a mutual agreement. c) When negotiations fail, the trade unions may take various types of industrial action such as work to rule, go-slow, overtime ban and picketing. Chapter 9 Motivation at Work Section 1 Motivation at Work (251)1. a) When workers are motivated there is less labor turnover as they are more likely to stay in the business as long as they are enjoying their job. A low turnover cuts down on recruitment and training costs and thus increases profits. b) When workers are motivated they are more productive and produce less waste, improving Level L | 31  Business Studies Level L the quality of goods and services. c) When workers are motivated, it is good for the business public image as it will come across as a caring and considerate employer. (252) 2. Employees are willing to work hard when they are motivated. (253) 3. G - Improved productivity - Low rate of absenteeism - Low labor turnover - Better quality of goods and services - Higher competitiveness Section 2 Motivation Theories (254) 4. There are five levels of needs, each of which works as a motivator as follows: basic or primary needs, security needs, social needs, esteem needs and self-actualization or fulfillment. (255) 5. Taylor’s Theory disregarded the non-financial motivators and considered workers as machines. Moreover, Taylor assumed that extra pay would lead to higher productivity; however, there is no guarantee of an increase in productivity. In Taylor’s theory, employee output is also difficult to manage and measure. (256) 6. Not all the levels of needs are present in jobs. In addition, the rewards identified may belong to more than one level. Finally, it is difficult for managers to identify the level of satisfaction that will successfully motivate employees. (257) 7. Motivation theories aim to discover what really motivates workers. These theories include Taylor’s theory of scientific management, Maslow’s hierarchy of needs, Herzberg’s two-factor theory of motivation, and McGregor’s theory X and theory Y. (258) 8. G - In Taylor’s theory, money is the main motivator. - Maslow identified five levels of needs (physical, safety, social, self-esteem, self-fulfillment) that should be satisfied. - Herzberg’s theory is based on hygiene factors (necessary for people to work) and motivators (encourage people to work harder). - McGregor divided workers according to Theory X (managers are work-centered) and Theory Y (managers are people-centered). Section 3 Motivating Factors – Financial Motivators (259) 9. People work in order to make money, feel secure and be socially active. (260) 10. A wage is a sum of money paid either on an hourly, weekly, or per unit basis. Workers are paid extra for any overtime which goes beyond the basic working week. The annual sum of money agreed on in the contract of employment represents a person’s salary. The salary is paid monthly, usually into the employee’s bank account. They are not entitled to earn overtime pay for additional hours worked beyond the basic working week. Level L | 32  Business Studies Level L (261) 11. Taxes and national insurance are compulsory deductions. A union membership subscription and company pensions are voluntary deductions. (262) 12. Piece rate is a method where employees are paid based on the number of units produced. While time rate is a wage payment made on a per-hour basis according to the number of hours worked. (263) 13. Piece rate links between effort and reward, and workers may feel motivated to work and less supervision may be needed. However, the quality of goods may suffer and a system of quality control needs to be set, which can be expensive. Time rate allows employers to calculate wages and workers to know how much they are going to receive. However, there is no link between effort and reward so there is little incentive for hard work and supervisors are needed to monitor quantity. (264) 14. d) Piece rate is mainly used in businesses that find it easy to measure labor productivity. e) It is used when output is difficult to measure or when work is irregular, done by a team, or needs to meet high-quality standards f) This pay system is used by businesses that find measuring productivity or output a difficult task. g) Bonus is related to a group’s output rather than an individual’s output, as in the case of the piece-rate system. (265) 15. a) basic pay: 40 hours @ $4 = $160 overtime: 10 hours @ $6 = $60 Add them to get her total gross pay: $220 b) Net pay = Gross pay-deductions = 220 ˗ (220 × 10%) = $198 (266) 16. A productivity deal means that workers receive a bonus when a certain target is exceeded. It aims to motivate employees by giving them an incentive to work harder. (267) 17. Performance-related pay links performance to reward. (268) 18. Pay differential refers to the difference in rates earned by workers in different occupations. It is important for employees because it reflects their status within the firm and/or society, and affects their level of motivation. (269) 19. Responsibility, as an employee with higher responsibilities is usually paid more. Also, the wellbeing and market success of the company: A profitable business is able to pay its employees more. The size of the business and the existence of trade unions can affect the wages set by large firms through negotiations. (270) 20. G Piece rate is a system of pay where workers are paid by the amount of output they produce. In contrast, time rate is a system of pay where workers are paid a set amount for each hour worked. (271) 21. G The minimum wage is a legal price set by the government to reflect the lowest amount of money allowed by businesses to pay their employees. It prevents firms from exploiting employees, raises employee motivation, satisfies the demands of trade unions, and raises the overall standard of living. (272) 22. G The wellbeing and market success of the company The business location The size of a firm and the existence of trade unions Level L | 33  Business Studies Level L The job The length of service Responsibility Training Different abilities and qualifications The market (273) 23. G a) Job rotation: non-financial b) Perks: financial c) Piece rate: financial d) Incentive bonus pay: financial e) Job enlargement: non-financial (274) 24. T a) As a teacher, he could be offered free education that will ensure that his children's tuition fees will be covered. In addition, he could use time rate as a financial reward since it is a wage payment made on a per-hour basis according to the number of hours worked. b) Since it is hard for an assistant to know her total output produced, it is better to be paid on a per-hour basis, therefore time rate is most suitable in this case. As for the fringe benefits, this job could be offered discounts on company products; employee can buy sport products at a discounted price. c) Managing Director should be paid a salary, an annual sum of money agreed on in the contract of employment so he will be aware of how much he will receive before he starts work. As perk, the company may provide him with company transportation or car, since he may need to travel for meetings overseas. d) A nurse usually has a performance-related pay, linked to the nurse’s effectiveness in the organization. This pay system is used by businesses that find measuring productivity or output a difficult task. For a nurse it will be easier to provide her with health benefits as fringe benefits. e) This job should be paid through piece rate where employees are paid based on the number of TVs produced. In addition, an incentive bonus system can be offered since it is easy to find out the total output and a bonus is paid when a certain target has been exceeded in an attempt to provide workers with an incentive to work harder. Perks include free insurance and transportation. f) A taxi driver can be paid per passenger or per road distance. As perks, he can receive free life insurance. (275) 25. a) Each worker is receiving per week: 4,000/20 = £ 200. Each worker is receiving per hour: 200/40 = £ 5 The overtime: (1.5 × 5) × 5 = £ 37.5 The wage per worker = 37.5 + 200 = £ 237.5 b) The 20 workers are being paid £ 4,750 to produce 100 sheds. The cost of labor to produce one shed is: 4,750/100 = £ 47.5 c) Piece rate, or payment by result, is a method where employees are paid based on the number of units produced. d) Each worker will be receiving: 35 × 5 = £ 175 Level L | 34  Business Studies Level L e) The total wage based on piece rate: 175 × 20 = £ 3,500 The total wage based on time rate: 4,750. The difference is 1,250 f) Under piece rate, employees are more motivated to work, so they try to increase efficiency. However they were being paid more under time rate where they received extra money for their overtime hours since the output is the same. Section 4 Motivating Factors – Non-Financial Motivators (276) 26. Under job enlargement, workers are able to undertake a wider range of tasks within the same level of difficulty and responsibility. Job enrichment allows a worker to perform different tasks at a higher level of difficulty and responsibility. (277) 27. The leaders can motivate staff members by inspiring them to work better and directing them with a common goal. Democratic and laissez-faire leaders are more successful at motivating staff than autocratic leaders because they use delegation and two-way communication. (278) 28. Job satisfaction occurs when employees enjoy their work and feel that they are using their skills to do something they want to do. It is achieved by using financial and non-financial motivators. (279) 29. Teamwork helps employees create new ties and increases their sense of belonging to the business. (280) 30. G Job enrichment includes giving employees new responsibilities that could be more challenging than the existing ones Job enlargement includes expanding the scope of work at the same level of difficulty (281) 31. Ta) They were against the changes because the skilled workers are now performing tasks for which they are overqualified and are being paid less. This change affected their status and demotivated them. b) Job rotation is about moving workers from one job to another at regular intervals. The business will benefit from a workforce capable of doing more than one job. c) For the worker, it means additional skills and better career prospects. (282) 32. T a) Fringe benefits are non-monetary because they are not given in cash; however, they have a monetary value and may include subsidized canteen, children’s education, and health benefits. b) Job enlargement and enrichment are nonfinancial motivators. Salaries and incentive bonus systems are financial motivators. c) Non-financial motivators cannot be as effective as financial motivators, because they don’t always result in a more motivated staff. In fact, job enrichment, rotation, and enlargement are expensive to apply because they require excessive training, and some staff members may even be reluctant to try new, more challenging jobs or tasks. This might eventually create conflicts between managers and employees, lowering the level of motivation in the workplace. In addition, non-financial motivators may mean nothing to unskilled staff because they may only care about financial rewards and not care about appraisal, recognition, or higher posts. Level L | 35  Business Studies Level L d) Since it is difficult to measure productivity in the tertiary sector such as nursing, employee productivity might be measured against set targets. An employee who exceeds his or her target would be considered more productive than one who fails to reach the set target. e) Productivity can be increased by using nonfinancial motivators such as job rotation, enrichment, and enlargement. This type of participation can generate new ideas and motivate the staff to work harder. f) Job enrichment means that a job may be enriched by allowing a worker to do different tasks at a higher level of difficulty and responsibility. This motivator gives workers a sense of importance and achievement because they are pushed to reach their potential. Job rotation is about moving workers from one job to another at regular intervals. For the worker, it means additional skills and better career prospects. Both methods work on the feelings and psychology of the employee. Chapter 10 Production Section 1 Production Activity (283) 1. Worker productivity can be increased in terms of both effort and time by encouraging workers’ participation since employees know the job and its requirements better. This type of participation can generate new ideas and motivate the staff to work harder. Also, training the workforce helps them develop more skills and knowledge. (284) 2. Producing efficiently means maximum output without wasting precious resources. Efficient production results in lower costs and higher productivity. (285) 3. Capital intensive refers to the production that requires higher capital investment such as financial resources or more machines. Labor intensive refers to the production that requires a higher labor input to carry out production activities in comparison with the amount of capital required. (286) 4. G Production is the output produced by a firm while productivity is the rate at which production takes place, i.e. output per factor input. (287) 5. G - Adequate production and productivity levels - Controlled production costs - On-time production - Maintain standard and quality (288) 6. G A business increases productivity in order to reduce costs and become more competitive. It can achieve this through training employees, investing in technology, lowering waste and unit costs. (289) 7. G Productivity can be increased by: Level L | 36  Business Studies Level L Introducing new machinery Automating businesses processes Seeking specialists’ advice on improving worker’s time and effort productivity Encouraging workers’ participation Training the workforce Eliminating waste Monitoring quality Section 2 Methods of Production (290) 8. Flow production. This method results in little job satisfaction because of lack of variety and high costs of equipment and machinery. Moreover, the whole production process stops if a machine breaks down, and there is little chance to customize the product to fit the needs of a client, leading to customer dissatisfaction. It is also costly to store finished goods. (291) 9. Under job production there is no storage of stock cost, while with batch production storage space is needed, adding to costs. (292) 10. When using flow production there is little job satisfaction because of a lack of variety, and the costs of equipment and machinery are high. Also, the whole production process stops if a machine breaks down. In addition, there is little chance to customize the product to fit the needs of a client, leading to customer dissatisfaction. These drawbacks do not exist when job production is applied. (293) 11. Batch production allows the use of the same machines for different settings, resulting in varied and flexible production system which increases employee motivation. Also, production is continuous, even if a machine breaks down. However, batch production incurs higher costs from the time needed to move finished or partly finished products and higher storage space costs. (294) 12. G a) Canned tuna: flow b) Wedding ring based on groom’s design: job c) Picnic tables: batch d) Multi- flavored candies: batch (295) 13. G - Job production: the production of a single item or items made to order, usually involving labor- intensive techniques. - Flow production: mass production of a large number of identical items in a continuous, usually automated, process. - Batch production: production of a limited number of identical products to meet a specific requirement or customer order. Each new batch may be slightly different from the last one produced. (296) 14. T a) Batch production: different versions of the same product are manufactured in batches. The chocolate will be divided in batches according to flavors. b) Job production: to tailor clothes according to the demand of customers. c) Flow production: involves production of large quantities of a standard product in a continuous process. d) Job production: involves producing a single product and filling specific requirements Level L | 37  Business Studies Level L Section 3 Production, Quality, and Technology (297) 15. The lean manufacturing system includes several management techniques, such as kaizen, just in time, Kanban, and cell production. (298) 16. A good quality product must satisfy the consumers’ preferences and expectations. (299) 17. Quality assurance involves inspections throughout the production process, during and at the end of production. This prevents mistakes from happening leads to high quality products. Therefore this reduces the number of detective products and the waste of resources. (300) 18. Under total quality management, all staff members have to concentrate on quality and make it their main aim. Employees need to ensure that products satisfy all customer needs. TQM requires strong teamwork and very effective communication. (301) 19. In the tertiary sector, ATM machines have allowed banks to attract more clients and to have a competitive advantage. In the secondary sector, CAD and CAM software have allowed manufacturers to design new products quickly and with low costs. (302) 20. G Lean production is the production of goods and services with the minimum waste of resources. It involves improving efficiency and eliminating waste in a production process so that products can be made better, cheaper and faster. (303) 21. G Lean production aims to lower the costs of production by reducing waste to a minimum while maintaining, or even improving, the quality of the finished product. (304) 22. G Cell production is based on dividing tasks between specific and trained teams where even the most sophisticated products can be produced. This increases productivity and efficiency. JIT focuses on reducing or eliminating the need to hold extra stocks of raw materials or unsold finished goods. Production is completed just in time to meet orders which increases efficiency. Kanban is an ordering system based on a set of cards each of which lists manufacturing requirements used to control the supply of components used in production. (305) 23. G - The increasing pace of technological change has changed, and continues to change, many production methods. - New technologies can save labor, reduce costs, increase quality and make production more efficient. However, costs of buying or hiring new technologically advanced machines, such as robots and other advanced equipment, can be high. Workers may also need retraining. - New technologies have replaced many tasks originally undertaken by labor but have also created a demand for new skills, for example in computer software engineering, computer-aided design (CAD) and computer-aided manufacturing (CAM) and in “green” technologies. (306) 24. G It helps develop a positive image, increase sales, improve channels of distribution, lower costs and be able to charge higher prices (307) 25. G It allows the business to remove all the defective products before they reach consumers, and hence maintain its positive image and guarantee sales and profits. (308) 26. G Because it helps it prevent any potential mistakes from happening by involving employees throughout the entire production process. Level L | 38  Business Studies Level L (309) 27. G Quality control, quality assurance, total quality management, training employees, and using advanced technologies such as CAM, CAD, and CIM. (310) 28. T a) i) Job production involves producing a single product and fulfilling a requirement or customer order, such as building a bridge. ii) Under batch production, different versions of the same product are manufactured in batches. Each product is made in a set or a batch, and once a batch is completed, the next one may start, as in soap manufacturing. b) Lean production helps the business become more productive and cut its overall costs. c) A business would benefit from lower costs, higher efficiency, and on-time production when having a good stock control system. d) Stock control helps the business minimize the cost of holding any type of stock, while ensuring that there are adequate levels of resources to pursue production. Therefore it achieves efficiencies in businesses. Quality control achieves efficiency in a business because it involves checking and removing defective products at the end of the production process, and emphasizes testing and detecting quality issues, to uncover defects and report to management, which makes the decision to allow, or deny product release. e) We could measure the size of a company by measuring the number of people employed or the annual turnover. f) IT is responsible for technical support systems for processing data such as, computers, data banks, data transmission, for changing, and transmitting information. This allows the firm to store more information and retrieve it easily. (311) 29. T a) Under batch production, different versions of the same product are manufactured in batches. Each product is made in a set or a batch, and once a batch is completed, the next one may start. b) Yes, it will be a better method because fruit drink production involves producing large quantities of the product in a continuous process; it is mass production of standard products. c) The lean method makes the production process faster, cheaper, more flexible, and efficient. This implies that the business will be productive and less prone to producing defective products. (312) 30. T a) Quality control involves checking and removing defective products at the end of the production process. It emphasizes testing and detecting problems related to quality to uncover defects, and to report to management which will ensure to keep a high quality of products. The quality of products is important for maintaining both market share and the reputation of a firm. b) i) ii) iii) iv) Internal form are: a firm test-driving its new car, a school administrator observing teaching methods during lessons. External forms are: a health inspector checking hygiene conditions in a restaurant, an independent agency testing bottled water. (313) 31. T a) Horizontal integration b) Horizontal integration helps achieve economies of scale and increase market share. In addition, the market power of the new firm will increase. Level L | 39  Business Studies Level L c) The most common objectives for a business are to make a profit, survive, grow, and create an image. Having a good quality product will ensure that the company will not produce any defective products. High quality will enhance the business image and increase customer loyalty and market share. Chapter 11 Costs, Scale of Production, and Break-Even Analysis Section 1 Measuring Costs (314) 1. Profit is the difference between total revenue and total costs. It is the most important thing for a business. For this reason, management needs to carefully evaluate the costs of production. (315) 2. Fixed costs are those that have to be paid regardless of the level of business activity even when no items are produced or sold, such as rent and rates. (316) 3. For a cost to be variable, it should vary directly with output. This means that it increases respectively as output increases. When no units are produced, variable costs are zero. In this case the cotton is an input resource needed to supply cotton buds; more cotton is needed to produce additional cotton buds. (317) 4. 5. Break even output = total fixed cost / contribution per unit; fixed cost / price per unit ˗ (318) variable cost per unit. Level L | 40  Business Studies Level L (319) 6. The chart enables businesses to assess the effect that a change in cost, revenue, and price will have on their profit. It also helps the business determine the impact of its decisions on output and margin of safety. However, the chart assumes that all goods produced are sold and that costs and selling price remain constant. This is unrealistic because fixed costs will change if the production scale is changed, and prices will change when demand changes. In addition, the break-even chart focuses only on the break-even point and disregards other factors that might affect production such as taxes and other external factors. (320) 7. Profit is the positive difference between total revenue and total costs. (321) 8. The total revenue of a business is its total receipts from sales. It is calculated as follows: TR = output sold × price. (322) 9. G Fixed costs (factory rent + machinery maintenance + advertising campaign cost): $15,200 Variable costs (leather used in making shoes + electricity used to power machinery): $10,500 (323) 10. G - Break-even quantity = total fixed cost ÷ (selling price – average variable cost) - Contribution per unit = selling price – average variable cost - Margin of safety = current output – break-even output - Total revenue = selling prince × quantity sold - Marginal cost = change in total cost ÷ change in quantity produced (324) 11. G To “break even” means to produce a quantity where total costs and total revenues are equal (i.e. profit = 0). (325) 12. G - Positive profit (gain) is made when: total costs < total revenues. - Negative profit (loss) is made when: total costs > total revenues. (326) 13. G The break-even chart shows total revenues and total costs (and therefore total profit or loss) at different levels of output to identify the break-even level, or even to identify where the business makes a gain or incurs a loss (327) 14. G a) The greatest positive difference between total revenue and total cost is at 40 units where profit is at maximum ($80) b) The break-even is at 20 units since profit is equal to zero. (328) 15. G Assumes that all units produced are sold, ignores quality, assumes prices are fixed and does not take into account changes in costs. (329) 16. T a) Level L | 41  Business Studies Level L b) To break even Jean will have to produce the quantity that will make total revenues equal total costs. B/E Quantity = Fixed cost/Contribution = 10,000/(8 - 3) = 2,0000 units c) Profits = TR-TC = 8Q - (3Q+10,000) = 14,000 Q = 24,000/5 = 4,800 meals d) Margin of safety = current output level – breakeven output = 4,800 - 2,000 = 2,800 meals (330) 17. T a) A = 50,000; B = 90,000; C = 105,000. b) c) It enables them to assess the effect that a change in cost, revenue, and price will have on their profit. The chart also helps the business determine the impact of its decisions on the output and margin of safety. d) Break-even assumes that all goods produced are sold. It also assumes that costs and the selling price remain constant. This is unrealistic because fixed costs will change if the production scale is changed, so will prices when demand changes. In addition, the break- Level L | 42  Business Studies Level L even chart focuses only on the break-even point and disregards other factors that might affect production such as taxes and other external factors. (331) 18. T a) The average cost = total costs/quantity produced = £1.9 per unit when 250 items are produced and £1.99 per unit when 251 items are produced. b) Marginal cost = 500 - 475 = £25 (332) 19. T a) i) and ii) b) Changes in costs and price will have an effect on the break-even point which will affect a business’s profits. Section 2 Scale of Production (333) 20. Economies of scale are factors that reduce the average cost of production as a business expands its production levels. Purchasing, marketing and financial economies of scale are examples of economies of scale. (334) 21. Human relations problems and coordination and communication problems result in higher average costs. (335) 22. G Ability to purchase resources at lower prices. (336) 23. G Economies of scale are the reduction in average costs as a result of increasing the scale of operations. Section 3 Budgets and Stock Control Level L | 43  Business Studies Level L (337) 24. Budgets are short-term plans of action that contain numerical and financial data about future costs, revenue, and profit. A budget shows what the business wants to achieve, how it is going to achieve its aims, and how much it will cost. Budgets are important because they act as a control tool for the business since they allow managers to set aims and assess the efficiency of their implementation. (338) 25. The two methods include: calculating a trend and drawing a scatter diagram that shows the line of best fit. The data can be plotted on a scatter diagram to draw a line of best fit. This line can then be extended to make a forecast. (339) 26. The variance, which is the difference between the budgeted and the actual results, will be a guideline as to whether the business is performing well. (340) 27. G It helps the business avoid any possible future problems and identify future potential customers. (341) 28. G To increase motivation by involving employees and to improve business performance (342) 29. G Types include: finished goods, semi-finished goods, and resources Reasons include: to guarantee enough stock is available for production, to complete production of work in progress, to cope with last minute orders, and because sales might be delayed. (343) 30. G Overstock occurs when a firm holds too much stock which makes it incur additional expenses. Understock occurs when the firm holds too little or no stock at all which makes unable to meet sudden increases in demand. (344) 31. G Re-order level: The stock level at which the business sets a new order of stock to avoid falling below the minimum level. Buffer stock: The minimum level of stock that the business wants to hold. Lead time: The time lag between ordering the stock and obtaining it. (345) 32. G Subcontracting is the assignment of a part of tasks to another party who will become responsible for completing the project. Advantages: lowers costs since costs are not permanent, better quality, and higher productivity. Disadvantages: loss of control, higher costs if subcontractor wants higher profits margins, and risk of losing customers and projects if the subcontractors go out of business. 33. T a) APO may be unable to meet orders when the demand for the product increases (346) unexpectedly. This causes customer dissatisfaction and may results in the business losing sales to competitors so APO needs to act immediately to solve the problem by finding an alternative source of coffee beans. b) Since it is producing high quality chocolates, it might not have overstock and production might be stopped if no stock of input is held. c) For an efficient stock level, the company must determine the following: - minimum level of stock - maximum level of stock - re-order level of stock - quantity of stock to re-order - buffer stock. Level L | 44 Business Studies Level L Level L | 45