Applied Business Question

Applied Business Question

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About the ABQ


1 The Higher Level Leaving Certificate Business Paper consists of three sections.
2 Section 2 which is the Applied Business Question (ABQ) is a compulsory question.
3 The ABQ consists of a single practical Case Study Business Question – 80 marks are available, representing 20% of the total marks.
4 The text and questions of the ABQ are based on three specified units of the syllabus, out of a total of seven units, which alternate (change) on an annual basis. The 2017  ABQ will be based on Units 4, 5 and 6 of the syllabus, similar to the 2007 and 2012 examination as the ABQ operates on a five-year cycle.

Methodology


  • This section requires you to Name, Explain and Link for each point. A high level of synthesis (i.e. combining different elements into the one answer) must be established. Evaluation may be also required.
  • In answering the questions on the ABQ candidates must explain and make use of relevant knowledge / theory (and understanding) gained in the subject while studying the course in addition to the relevant links from the ABQ.
  • Linking of points made in your answer with the text by relevant quotes / phrases / statements from the ABQ is essential. It is recommended that you present the link / quote in a different colour ink. A DIFFERENT / SEPARATE link is required for each point of theory made within each part of the ABQ. A link will not be awarded marks without having the relevant theory attached.
  • Read the ABQ provided in full before reading the questions, then go back and highlight the relevant points / links in the text.
  • Present your answers to each part of the question in point form and be sure to link or quote from the text of the ABQ in your answer, even if you are not specifically requested to do so.
  • The methodology that must be used can be seen by looking at the structure of the sample answers shown below.

Sample Q & A


Sample 1 – ABQ suitable for Leaving Cert 2017

Blarney Brewery Ltd.

craft-beer-label-stock-vector-logoIn 2015, Enterprise Ireland, the government agency responsible for developing Irish business, reported a record year for job creation. Client companies of Enterprise Ireland created 21,118 new jobs, representing 10,169 net new jobs when job losses were taken into account (considered). Total employment in these companies now stands at 192,223. Almost two thirds of the new jobs were created outside Dublin. Enterprise Ireland client companies had sales of €39.3 billion (bn) of which €20.6 bn were exports, an increase in export sales of 10% on the 2014 figure and almost double what it was ten years ago. These companies spent €23.7 bn in the national economy, creating and sustaining over 300,000 jobs through direct and indirect employment (15% of the total work force).

Blarney Brewery Ltd. is one of these Enterprise Ireland client companies. It is one of a growing number of micro-breweries producing craft beer. The founder of Blarney Brewery Ltd. is Edward Brown; he has completed a Master Degree in Biochemistry. He is a member of a well-known publican family in Cork and this is where the idea for the product originated. As part of his degree course he did a project on the stages in the new product development process and after considering a number of different ideas, he chose a craft beer, Blarney Ale.

Blarney Ale’s success has been based on the quality of raw materials and cutting edge brewing technology which sets this beer apart. “Pub and restaurant owners see the advantage having a product like ours available to their customers” said Edward. As part of his studies, he completed a business report including a detailed break even analysis to determine the potential of Blarney Ale. A number of prototypes were also produced as part of his course.

Edward became aware during his studies that the modern micro-brewery movement was growing in market share all over Europe. Blarney Brewery Ltd.’s current production capacity is 5,000 kegs a year but the company is constructing a major extension to cater for its planned entry into the export market which will see capacity increase to 50,000 kegs. Edward knows that to ensure the continued success of the business, changes will have to be made. Blarney Brewery Ltd. could see sales grow by ten times, resulting in major difficulties and stress for staff.

Change always causes difficulties but Edward feels the best approach is to communicate with staff to tackle these challenges. This major expansion has led Edward to consider reorganising the firm and having as many of the employees as possible organised into teams and involved in making the decisions. He feels he needs to recruit people with initiative, especially those who would stick with jobs, spot challenges early and find solutions quickly. Edward is aware that to attract people with these qualities a very good remuneration (pay) package is required.

1(A) Discuss the impact of Business in the development of the Irish Economy.

(20 marks)

Sample Answer (1A)

1 Employment: Business creates employment in all sectors both local and national, which means less unemployment and reduced social welfare payments.
Link: Client companies of Enterprise Ireland created 21,118 new jobs, representing 10,169 net new jobs when job losses were taken into account. Total employment in these companies now stands at 192,223.”
2 Support Businesses and Services: There is more demand for support businesses and services e.g. suppliers of materials, financial, banking etc leading to further job creation and boosting the economy.
Link: “These companies spent €23.7 bn in the national economy, creating and sustaining over 300,000 jobs through direct and indirect employment (15% of the total work force).”
3 Balance of Payments: A great deal of the output of the country is exported. If exports increase it improves the Balance of Payments position. Increased Irish production leads to reduced imports, thereby improving the Balance of Payments.
Link: Enterprise Ireland client companies had sales of €39.3 billion (bn) of which €20.6 bn were exports, an increase in export sales of 10% on the 2014 figure and almost double what it was ten years ago.
4 Regional Development:  The development of rural areas by encouraging companies to locate there is a very important objective. It ensures a more even distribution of income, better standards of living and the development of local infrastructure for people living outside urban areas.
Link: “Almost two thirds of the new jobs were created outside Dublin.
1(B) (i) Explain Test Marketing
(ii) Outline the stages in the product development process of Blarney Ale. Refer to the above text in your answer.(30 marks)

Sample Answer (1B)

 (i) Test Marketing involves doing a small-scale trial to identify possible faults and to assess customer reaction.  The product is tested on a sample of potential consumers before going into full production to determine customer satisfaction with the product.
 (ii)
1

Idea Generation:
 Ideas for new products can come from Customers, Brainstorming, Research and Development Deportment, sources can be internal or external. A business should start with Customer needs and wants for their products ideas.
Link:He is a member of a well-known publican family in Cork. This is where the idea for the product originated.
 2 Product Screening: All ideas are vetted and the impractical and unworkable ideas are dropped, leaving the most viable ones for further examination and development. It means selecting the products with real potential and avoiding the expense of developing ideas that are unlikely to be marketable and profitable.
Link: after considering a number of different ideas, he chose a craft beer, Blarney Ale.
 3 Concept Development:  A detailed account of the new product idea stated in meaningful consumer terms. It means turning the idea into a tangible product that is capable of fulfilling customers’ needs and requirements. This can be checked through the use of market research. A unique selling point (USP) is identified which will differentiate it from other products on the market.
Link: “Blarney Ale’s success has been based on the quality of raw materials and cutting edge brewing technology which sets this beer apart.
 4 Feasibility Study: This will investigate the product’s potential or its contribution to sales. The product is checked for production feasibility (viability), financial viability and marketability. It seeks answers to questions such as, what demand there will be for the product; what will it cost to produce and can the business afford it.
Link: “As part of his studies, he completed a business report including a detailed break even analysis to determine the potential of Blarney Ale
 5 Prototype Development: This stage involves developing a sample or model of a product. It is produced to see what materials are required to make it and if it appeals to customers. To determine what adjustments / improvements can be made before deciding to go into full production.
Link: “A number of prototypes were produced as part of his course.
1(C) Identify and describe the strategies that will help Edward manage the changes that have to take place if the major expansion is to be successful.

(30 marks)

Sample Answer (1C)

 1 Senior Management’s commitment.  If this commitment to the change process is not present then the staff concerned will become aware of the half-hearted effort and the change will not progress.
Link: Edward knows that to ensure the continued success of the business, changes will have to be made.”
 2 Consultation/Communication with trade unions and employee representatives regarding the proposed changes. Effective Communication between all parties throughout the change process is essential. This requires honesty on both sides. A constant two way communication approach will help to reduce insecurity, ignorance and dispel fear.
Link: “Change always caused difficulties but Edward feels the best approach is to communicate with staff to tackle these challenges.
 3 Change in management style from ‘controller’ to ‘facilitator’. Group working so that the team depends on each other and are responsible for a series of jobs. This may give the opportunity for employee empowerment, training, job rotation and job enlargement.
Link: “This major expansion has led to Edward to consider reorganising the firm having as many of the employees as possible organised into teams and involved in making the decisions.
 4 Rewards: Remuneration packages for staff. Productivity agreements, possible part ownership of the business, pension schemes and general improvement in the working conditions may all be part of the change process.
Link: Edward is aware that to attract people with these qualities a very good remuneration (pay) package is required.”

Sample 2 – ABQ suitable for Leaving Cert 2017


Riverport Indoor Market (RIM) Ltd

rimRiverport is a scenic town in the West of Ireland. In 2009, a large multinational company, the town’s biggest employer, closed down.  This loss motivated a group of enthusiastic local residents and business people to do something to revive their local community. They saw the multinational’s empty factory warehouse as a potential resource and believed its location, easy access and ample parking would assist local development projects. They consulted widely gathering information from as many local interests as possible.

Arising from the consultation process, local farmers, producers and crafts people identified the provision of an indoor farmers’ market as being a unique opportunity to sell their produce directly to the consumer. A small group of local business people formed a private limited company, Riverport Indoor Market (RIM) Ltd. It set about identifying the financing options available to purchase the factory warehouse for the agreed price of €400,000. An additional €50,000 was required to refurbish the warehouse into 50 stall units, which could then be rented out to farmers and crafts people. The stallholders had to initially purchase a transport vehicle, equip their stall and pay the agreed stall rent of €50 a day to RIM Ltd. On an ongoing basis, the stallholders would have to manage cash flow effectively and control essential costs such as raw materials, stock, transport operating costs, wages, and insurance.

The farmers’ market proved a major success. At the end of its second year the number of stallholders had increased from its original 7 to 30. Due to the increasing numbers visiting the market, RIM Ltd was able to lease out units within the warehouse to an indoor children’s play and activity centre, and a car valeting centre. Many local services in Riverport such as B&Bs, restaurants and petrol stations reported increased year-end profits. The market provided opportunities for locals and visitors to meet informally and interact with each other. The local town council donated a nearby green area for the construction of a public park.

Given that many of the new stallholders travel from neighbouring counties, there are plans now to promote RIM Ltd as a regional market, serving the Connacht area. RIM Ltd has developed an interactive website which includes a video clip capturing a day in the life of the market. This website has impressed tour operators so much that they have included the market as part of their visitor tour route. Sales representatives from RIM Ltd use mobile display booths within the region to attract visitors to the area. In addition RIM Ltd run monthly competitions to win a prize of a weekend break in Riverport. RIM Ltd continues to build on its good relationship with the local community by providing financial support to the local GAA club, in return for having the RIM Ltd brand name and logo appear on the club’s jersey

(2A) Identify and describe the most appropriate sources of finance to meet the needs of
(i) RIM Ltd
(ii) Individual stallholders.

(20 Marks)

Sample Answer (2A)

(i) RIM Ltd.
Long Term Finance   

  1. Long Term Loan (Mortgage): It is taken out for more than five years. If the bank lends the €400,000 to RIM Ltd it will hold the deeds of the factory warehouse as security against the repayment of the loan. It is paid in agreed instalments including interest which is tax deductible. If RIM Ltd defaults on the repayment then the bank can recover their money through the repossession and sale of the warehouse.

or 

  1. Share Capital (Equity): RIM Ltd is a Private limited company and the €400,000 needed to purchase the warehouse could be raised by selling ordinary shares to new or existing shareholders.

or 

  1. Government Grants: Government agencies such as Enterprise Ireland could be approached for grant aid assistance to help purchase the factory warehouse for €400,000. Normally they are interest free and do not have to be repaid if used for their intended purpose.
Link: “It set about identifying the financing options available to purchase the factory warehouse for the agreed price of €400,000.
Medium Term Finance:  Medium Term Loan: RIM Ltd could get a medium term bank loan with a fixed rate of interest that would be repaid in equal monthly instalments up to a five year period, allowing the company to cash purchase and negotiate the best cash prices available for heating equipment, fixtures and fittings. The bank may require security or personal guarantees. Interest paid is tax deductible.
Link: “An additional €50,000 was required to refurbish the warehouse into 50 stall units which could then be rented out to farmers and crafts people.
(ii) Individual Stallholders
Medium Term Finance  

  1. Hire Purchase (HP): This is a method of finance that would allow the individual stallholders to purchase an asset such as a transport vehicle over a five year period or less. The stallholder will get immediate possession of the transport vehicle; however, ownership doesn’t transfer until the last instalment is made. HP is an expensive source of finance. No security is required but the HP Co. may repossess the asset if there is a default in repayments.

or 

  1. Leasing: This would involve the renting of an asset by the individual stallholder from a finance company. The stallholder would not have to come up with a lump sum and would have the full use and possession of an asset, provided s/he makes fixed and regular payments to the company. While leasing costs more than cash purchase it can help the cash flow of a business.
Link: The stallholders had to initially purchase a transport vehicle, equip their stall.”
Short Term Finance

  1. Bank Overdraft: This is a facility offered by a bank that allows current account holders to withdraw more money from their account than they actually have in it. Interest is charged on the outstanding balance on a daily basis. It can be recalled by the bank at any time. The individual stallholders could use their overdraft facility to purchase stock or pay the wages of part time staff. It can be used as a form of working capital to aid in day-to-day business operations.

or 

  1. Accrued Expenses: This source of finance frees up money by delaying the payment of regular bills such as utilities, rent or insurance.

or 

  1. Trade Credit: Stallholders may buy stock for resale on a “buy now and pay later” basis. The amount of credit available is influenced by the creditworthiness of the stallholder. There is no direct charge but cash discounts may be forgone.
Link: The stallholders would have to manage cash flow effectively and control essential costs such as raw materials, stock, transport operating costs, wages and insurance.”
(2B) Discuss the benefits for the local community, arising from the success of RIM Ltd.

(30 marks)

Sample Answer (2B)

Economic Benefits: 
Employment Direct and Indirect: Jobs are directly created in the community reducing unemployment and reducing social welfare payments. Living standards are improved.  With increased employment and increased visitor numbers more income is being spent in the community increasing spin-off jobs in the retail and services businesses.
Link: At the end of its second year the number of stallholders had increased from its original 7 to 30.”
Enterprise culture: A culture of enterprise and innovation is fostered in the area. New enterprise is encouraged and promoted. Other new businesses (“Start-ups”) have set up in the market as confidence grows from the success of RIM Ltd.
Link: “Due to the increasing numbers visiting the market, RIM Ltd was able to lease out units within the warehouse to an indoor children’s play and activity centre, and a car valeting centre.”
Improved infrastructure: Commercial rates are an important source of income for local authorities and as new businesses are established revenue from commercial rates also increases, allowing the local council to improve amenities.
Link: The local town council donated a nearby green area for the construction of a public park.”
Social Benefits: 
Community spirit/ Sense of pride/ Improved quality of life: The success of RIM Ltd has facilitated an improvement in community spirit and social interaction between the different community stakeholders. With prosperity comes a sense of pride in the community as the town’s appearance and amenities improve.
Link: ‘The market provided opportunities for locals and visitors to meet informally and interact with each other.”
Population: Depopulation is prevented and the social fabric maintained. When an area is being developed people tend to stay there and not leave. The population does not decrease and life stays in the community (schools, health centres etc.).
Link: ‘‘In 2009, a large multinational company, the town’s biggest employer, closed down.  This loss motivated a group of enthusiastic local residents and business people to do something to revive their local community.”
(2C) Evaluate the promotional techniques undertaken by RIM Ltd.

(30 marks)

Sample Answer (2C)

There are four promotional techniques undertaken by RIM Ltd. They are direct advertising, sales promotion, public relations and personal selling
1 Direct/ Advertising:

Advertising is the communication of information to a target market using the advertising media such as press, publications, posters, radio, TV, Cinema or Internet. Advertising includes the publication of facts or opinions concerning products or services to awaken the public’s interest and persuade them to purchase. It is a very public form of communication and suitable for a wide audience.  Advertising encourages repeat purchasing, consumer loyalty and increased sales.

RIM Ltd uses the internet to advertise the indoor market.

Link: RIM Ltd has developed an interactive web site which includes a video clip capturing a day in the life of the market.”
2 Personal Selling:

This occurs when a salesperson is in direct contact with the customer and tries to verbally persuade customers to buy a product or service.  Sales representatives must have good personal and communications skills. They must have detailed knowledge of the product or service being sold.  They provide feedback to the company on customers’ reactions to the product or service.

RIM Ltd uses personal selling by employing sales representatives to visit various locations and promote the market.

Link: “Sales representatives from RIM Ltd use mobile display booths within the region to attract visitors to the area.”
3 Sales Promotion:

Sales promotion involves the use of short term incentives and gimmicks/short term temporary activities to encourage purchases. It is designed to create a sense of immediacy by offering reasons to purchase in the short term, thereby increasing sales. Forms of sales promotion include coupons, vouchers, loyalty cards, free samples, banded offers and competitions. Sales promotion is used when launching a new product or service or re-launching an existing product or service. Sales promotion can be used to complement direct advertising and encourage repeat business.

Link: “RIM Ltd runs monthly competitions to win a prize of a weekend break in Riverport.”
 4 Public Relations:

The aim of PR is to generate goodwill and positive customer relations for the business. This can be achieved by generating favourable publicity and creating a positive image of the product or service.  Specific methods for communicating the message include sponsorship, press statements, speeches by management, conferences, photo opportunities, newsletters, annual reports, company brochures and social/charitable activities.

Link: “RIM Ltd continues to build on its good relationship with the local community by providing financial support to the local GAA club, in return for having the RIM Ltd brand name and logo appear on the club’s jersey.”
Evaluation:
In my opinion, RIM Ltd. uses the correct techniques to promote the farmers’ market. Their success can be seen by the increase in the number of stallholders from 7 to 30 in two years and the increase in year-end profits reported by the local B&Bs, restaurants and petrol stations.

Student Activity – Sample ABQ


Sportswear Limited.

sportswareThroughout her previous career in administration Mary Murphy maintained her passion for sports by coaching and training. Up until the recession she had little notion that her hobby would become the very springboard to a new career. After being made redundant in 2012 she thought it could be the right time to think about doing something different.

Still interested in sports and trying to help clubs in her local area, a potentially good commercial idea began to appear. Several coaches that Mary knew were complaining that it was difficult to get good team kits and equipment at a reasonable price, a situation that Mary Murphy was familiar with from her own time coaching. Mary Murphy made contact with a number of sport’s wear distributors in Ireland and this enabled her to turn the idea into a reality. Mary states “Dealing directly with a number of suppliers, my range consists mainly of team kits plus casual ranges of hoodies, polos and t-shirts.”

Mary worked from home for the first two years, but found that some people don’t really consider you to be “legitimate” if you are effectively selling from the back of a car. Therefore, she took the plunge in 2014 and purchased a showroom/storeroom with her redundancy money. Sportswear Ltd. is now well established with eight full time employees and has two delivery vehicles on the road. When dealing with her employees she places great emphasis on loyalty, commitment and honesty which she rewards with regular bonuses.

Clubs like to be able to come and sit down to discuss their requirements and see the samples of all stock in the one place. Clubs don’t have much money, so Sportswear Ltd. sells team kits from €490. Mindful to maintain strong links to the community that supports her, Murphy sponsors the Kildare Youth Soccer League and a local basketball team. Sportswear Ltd recognises that it has responsibilities not only to the owner and employees but also to its customers and to society in general.

(A) Describe the types of insurance appropriate to the context described.

(20 marks)

(B) Evaluate the elements of the marketing mix for Sportswear Ltd.

(35 marks)

(C) (i) Define the team “Business Ethics”
(ii) Explain how Sportswear Ltd is a social responsible business.(25 marks)

Template for Solution

(A) – Types of Insurance.

Appropriate types of insurance include:

  1. Motor insurance: There is a legal obligation on the owners of all motor vehicles to have insurance. Types include: Third Party, Comprehensive and Third Party, Fire and Theft.

Link: Sportswear Ltd. “has two delivery vehicles on the road.”

  1. Property insurance: This would cover buildings and contents. Fire Policy would be for both premises and stock, smoke and water damage, consequential loss.

Link

  1. Public liability:

Link:

  1. Employer’s liability:

Link:

(B) – Evaluate the elements of the marketing mix

  1. Product The physical good or service provided. The product is made up of the detailed characteristics of the good/service on offer, e.g. its distinctive features, its form, shape and colour. It includes any relevant information on the item for the customer such as its quality, after-sales service, guarantees, brand name and image etc. Green image may be a unique selling point (USP).

Link: “Dealing directly with a number of suppliers, my range consists mainly of team kits plus    casual ranges of hoodies, polos and t-shirts.”

  1. Price

Link:

  1. Promotion

Link:

  1. Place

Link:

Evaluation/judgement of the overall marketing mix

In my opinion, Sportswear Ltd has a very good marketing mix. The business is …

(C) (i)

Business Ethics …

 (C) (ii) 

Sportswear recognises that it has important social responsibilities and duties which are a cost and a benefit to the business.

  1. Employees: Sportswear Ltd provides a safe working environment, fair wages and conditions and professional development for employees. Sportswear Ltd has a responsibility not only to create employment but to maintain and secure jobs wherever possible.

Link: 

  1. Customers:

Link:

  1. Society/Community:

Link:

  1. Shareholders/Owners:

Link: