2019 BUSINESS STUDIES PAST PAPER – SHORT ANSWER
QUESTIONS 21 – 24
Question 21 (11 Marks)
A business sells luxury cars. The cars are stylish, high performance, and include advanced safety features integrating leading-edge technology.
a) Describe ONE factor influencing customer choice for this business. (3 marks)
Sociocultural factors are exerted by an individual’s external environment, affecting the consumer’s behaviour. A significant sociocultural factor is socio-economic status. Customers in upper class/high income areas will be surrounded by the abundance of luxurious and stylish cars, view the car brand as a status symbol, and are more likely to approach the business. In addition, they will be more likely to have the means to purchase a luxury vehicle.
- 1 mark -identify the factor (choose from psychological, sociocultural, economic, government)
- 2 marks – provide 2 characteristics that are relevant to the information given in the scenario (in this case, 1 mark for the luxury/style component and 1 mark for safety)
In general, students should aim to pick out extracts from the information and provide unique points for each. Highlighting these extracts will help students address each part of the scenario. Socio-cultural is covered above. Other areas could have included psychological (referring to the link between luxury and social status and also leading-edge technology and perceptions of safety).
(b) Explain the interdependence between marketing and finance for this business. (4 marks)
Interdependence between marketing and finance primarily involves the use of budgeting and efficient allocation of funds towards promoting the product. The marketing function will have positioned the business to serve a prestige segment. Finance will have worked with marketing to then determine optimal pricing, balancing price, and quality. Marketing will use funds budgeted and provided by finance to address various areas that reinforce the prestige positioning of the business including after-sales service and warranties, clean and stylish dealerships and demonstrator vehicles, and the hiring of staff that practice personal selling and relationship marketing. In return, the high revenue margins generated through luxury car sales will provide revenue for finance to meet future expenses including new and existing marketing campaigns.
- 1 mark – provide a brief overview of the interdependence
- 2 marks – address the actions of both marketing and finance, using a logical flow to cycle between the functions
- 1 mark – provide specific examples relevant to the business scenario throughout the response (eg. prestige branding, use of after-sales service and warranties, clean dealerships)
Students should come full circle in the question, aiming to address how the actions of marketing functions will impact finance, and how the actions of finance functions will impact marketing.
The question is relatively open-ended, and thus students are encouraged to draw upon other sections of the syllabus (including strategies and processes) to solidify their explanation.
Ensuring that you address the scenario will create a more robust response. This can be done by drawing from common knowledge to provide examples.
(c) Why is it important for this business to conduct market research? (4 marks)
Market research involves collecting and recording both primary and secondary data, and analysing this information to understand the characteristics and segmentation of a target market. Since luxury car sales are subject to socioeconomic segmentation, conducting market research ensures that the business identifies regions of affluent customers to locate their dealerships and pitch their high-priced products. The business would mainly use secondary data obtained from the Australian Bureau of Statistics to identify areas of high socioeconomic status – indicators would include average house prices and income levels. It is important that the business conduct market research because if it fails to identify locations where its products are attractive it will not generate sufficient sales to meet revenue targets and may be unprofitable.
- 1 mark – brief outline of the market research process
- 1 mark – address the shortcomings/challenges for the business (luxury cars demand a high price, and cannot be pitched towards the mass market)
- 2 marks – explain how various aspects of market research link to the business’ situation (eg. gathering data)
Students should recognise that the implied key word is ‘explain’ and thus should strive to link cause and effect.
Textbook information is relatively general in relation to the activities done in market research, and so it is essential for students to list out specific actions taken by this business.
If students are unsure about their response, please examine the 3 general steps (determining information needs, data collection, data analysis) and attempt to link each step with an action taken by the business. Data analysis was not covered in the sample response but should definitely be considered for higher mark questions.
Question 22 (8 Marks)
a) Outline ONE ethical issue related to the preparation of financial reports. (2 marks)
The lack of full disclosure, including normalisation of earnings, are likely to overstate revenues and create a positive impression of the business’ annual performance. Investors who are unaware of such issues are more likely to invest in the company and receive poor financial returns.
- 1 mark – identify the issue (eg. disclosure concerns). Other concerns could have been asset valuation and capitalisation of expenses.
- 1 mark – describe the impact on the business (and any other stakeholders)
Whilst ‘outline’ requires students to sketch in general terms, providing a description or explaining the impacts will ensure that the question is answered coherently.
If students are unsure about the quality of their answer, they can outline any solutions used to prevent their chosen ethical issue (eg. audits).
(b) Explain ONE advantage of debt financing. (3 marks)
Debt financing, either through short- or long-term borrowing, provides the business with funds for immediate investment. As a result, debt financing can be used to quickly purchase equipment or expand business infrastructure and allow the business to rapidly upscale operations. In periods of economic boom, the growth of business operations will generate revenue that far exceeds the required interest payments and allow the business to maximise its cash inflows.
- 1 mark – identify the advantage (eg. instant access to a large pool of funds
- 2 marks – demonstrate cause and effect, ultimately linking the advantage to single or multiple financial objectives.
A consideration of the disadvantages of equity financing can assist in finding the advantage of debt financing. Students should link it to a financial objective, to demonstrate the impact of debt financing on both short-term and long-term goals.
Other advantages include: Interest payments are tax-deductible, risk minimisation for the owners (i.e. they don’t invest their own money) and increasing gearing will improve return on equity making the business a more attractive business to buy shares in.
(c) Explain ONE disadvantage of equity financing. (3 marks)
Equity financing, particularly through share capital, can result in a reduction in the level of ownership where shares are not issued to existing owners. The dilution of ownership has a variety of implications, with one being the loss of control by existing owners as new shares change the balance of control over business activities. The change in control could result in the tactical and strategic decisions made for the business changing from the vision of the original owner.
- 1 mark – identify the disadvantage
- 2 marks – demonstrate the impact on the business in the short and long term
A consideration of the advantages of equity financing can assist in finding a disadvantage of debt financing. Students should avoid using a similar argument to the one provided in b).
Other disadvantages include: shareholder expectations for constant growth, lack of accessibility for smaller firms, reduced gearing in turn affecting the performance measure of return on equity.
Question 23 (11 Marks)
(a) Outline ONE employer obligation in an employment contract. (2 marks)
One employer’s obligation in an employment contract is to pay the agreed remuneration (salary/wage). Regardless of what the parties agree in the contract, the remuneration cannot be less than the relevant minimum wage in any relevant award, and if no award applies, then the National Minimum Wage set by the Fair Work Commission.
- 1 mark – identify the obligation·
- 1 mark – brief description of what the obligation entails
(b) Distinguish between awards and enterprise agreements. (4 marks)
Awards are legally enforceable terms and conditions applicable to an industry, whilst enterprise agreements (EA) are specific terms and conditions agreed upon between an employer and employee (single-enterprise agreement) or between a group of employers and their employees (multi-enterprise agreement). Awards are set by the Fair Work Commission after consultation with the community, whilst enterprise agreements are negotiated between employers and employees and approved by the Fair Work Commission provided they pass the BOOT. Awards set detailed minimum standards that apply throughout a covered industry. Enterprise Agreements can be briefer than Awards and, subject to the BOOT, they can also vary the application of an award to a specific business.
- 1 mark – state the definition of both (acts as the first point of difference)
- 3 marks – provide unique distinguishing features (at least 2 additional points of difference)
(c) Assess the impact of ONE social influence on human resource management. (5 marks)
A social influence which has had a significant impact on human resource management (HRM) is changing work patterns, particularly demand for flexible work.
Flexible work practices include initiatives such as work from home, rostered days off and compressed work weeks. Under s65 of the Fair Work Act 2009 (CTH) employees are entitled to request flexibility in work conditions. An employer must not unreasonably withhold consent.
Despite concerns of businesses, flexible work arrangements have generally been beneficial. Employees tend to have higher morale and employee attrition is lower where flexible work conditions are available. In addition, a 2019 Microsoft Corporation study showed that productivity can be up to 30% greater in workforces with greater flexibility such as work from home. These factors reduce loss of corporate knowledge, increase productivity and revenue and reduce expenses associated with hiring new staff. Notwithstanding the benefits, there are risks. As has been demonstrated by the experience of businesses during the COVID-19 pandemic, too great a flexibility can impact employee wellbeing (mental health) and can result in gradual loss of morale and interaction between team members. In addition, there are risks to intellectual property disclosure. All of these risks have potential to harm the business and must be managed by HRM.
Overall, changing work practices have been beneficial for both workers and businesses producing increases in productivity and employee well-being when the associated risks are managed by good HRM.
- 2 marks – pros of the influence in relation to HRM
- 2 marks – cons of the influence in relation to HRM
- 1 mark – clear judgement of the impact
Students are advised to explicitly identify the social influence as the first sentence, to ensure that the marker understands the type of influence addressed in the discussion and judgement. The syllabus identifies two: changing work patterns and standards of living.
Since the key word is to ‘assess’, students should aim to provide some discussion on the points for and against their chosen social influence. It is critical that students provide a judgement at the end of their response.
Whilst describing the influence and providing a judgement can result in full marks (as per the marking criteria), engaging in a discussion shows the marker than an analysis has been made into the chosen influence and will assist in justifying the final judgement, making it clear that an assessment was correctly made.
Question 24 (10 Marks)
A juice bar is operating in a shopping centre. The juice is served to customers in plastic cups with plastic straws. The high sales volume and quick turnover demand an efficient operations process.
(a) Identify TWO transforming resources used in this business. (2 marks)
Two transforming resources are:
- Human resources (staff) to coordinate and combine transformed resources to produce juice.
- Facilities (i.e. the store location and its equipment) which provides the infrastructure and machinery to convert transformed resources into the finished product.
- 2 x 1 mark each – identify the 2 transforming resources
There are only 2 transforming resources as stated in the syllabus. Both must be provided for full marks.
(b) How does variety impact the transformation process of this business? (4 marks)
Variety refers to both mix flexibility and product flexibility. Mix flexibility i.e. the number of products in the range, will have a significant impact on the transformation process of this business. Specifically:
- The greater the product range, the greater the number of ingredients required in the business. This will impact the need to source a wider variety of transformed resources (materials).
- With a larger amount of materials required, the business would need more storage and potentially additional machinery to process. This impacts the transforming resource (facilities) required i.e. larger premises and more machines.
A wide mix flexibility will ensure the business can make a large number of products. This could be beneficial: with more customers there is potential for increased revenue compared to a narrow mix. However, there are significant risks. For instance, a wide mix increases cost to source materials (reduced economies of scale on any one ingredient). It also increases the cost of facilities (both rent and equipment). Further, it can create complexity which decreases efficiency i.e. reduces speed of service and therefore increases lead time in the transformation process. This will result in unhappy customers potentially also increasing customer service costs of the business.
- 1 mark – provide a brief definition about variety + introduce the primary issue (reduced efficiency)
- 3 marks – explain the impact of variety, including both positive and negative impacts of high variety + link it to a long-term business objective
Students should aim to specifically refer to the scenario, and focus their argument on operational efficiency, the salient issue. Students should then use the 2 criteria (sales volume and turnover) to shape their argument, always providing specific examples relevant to the juice business.
(c) Why might this business be reluctant to become more socially responsible? (4 marks)
Being socially responsible means recognising that a business has a duty to society and the environment. To become socially responsible, the business would have to consider the packaging that it uses i.e. plastic straws and cups. It would need to consider other packaging types such as recycled materials and biodegradables. The business may be reluctant to consider these measures for a variety of reasons:
- Juice bars are quick-service businesses. Packaging must be robust in order to enable products to be made and served fast. More sustainable packaging is not as hardy as plastics. Introducing more vulnerable packaging may cause breakage, slow service, and may also cause customer complaints due to packaging failure. This in turn increases customer service costs.
- Juice bars, like other fast food businesses, operate on volume rather than high margin. They must control costs. Sustainable packaging tends to be more expensive. The business only has two options: absorb the increased expense and risk its profitability or pass the cost to consumers and risk a reduction in sales due to increased price. The business may seek to avoid both consequences until it is clearer that customers will either pay for more responsible packaging or the cost cannot be avoided.
- 1 mark – Identify the actions needed to be socially responsible
- 3 marks – Explain why the business would be reluctant to implement the solution + link to a long-term objective
It is important to first recognise the issue that is causing reluctance, before delving into the reasons why the business is reluctant to act. The scenario has made it clear that plastic is the issue, and so students should focus their argument on this.
If students are unsure about the mark distribution of the question, students can break the solution into multiple sub-points and explain the points of friction for each sub-point. In doing so, the response carries a logical structure, and is more likely to receive full marks. In this sense, there are three key points: (1) what does it mean to be socially responsible? (2) What would the business need to do to be socially responsible? (3) Why might it not want to do this?