N05/3/BUSMT/HP1/ENG/TZ0/XX


IB DIPLOMA PROGRAMME
PROGRAMME DU DIPLÔME DU BI
PROGRAMA DEL DIPLOMA DEL BI
88055011
BUSINESS AND MANAGEMENT
HIGHER LEVEL
PAPER 1

Tuesday 15 November 2005 (afternoon)

2 hours

INSTRUCTIONS TO CANDIDATES

Ÿ Do not open this examination paper until instructed to do so.

Ÿ Read the case study carefully.
Ÿ Section A: answer all the questions.
Ÿ Section B: answer one question.

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SECTION A

Answer all the questions in this section.

1. (a) Evaluate the main types of market research that Gadgets2u.com may use to
identify their target market and their product requirements. [10 marks]

(b) Identify possible pricing strategies available to Gadgets2u.com. Assess the

appropriateness of each in relation to the company’s product range. [8 marks]

2. (a) Assess the suitability of the present organization structure of Gadgets2u.com,

given the recent rapid growth of the company. [8 marks]

(b) Advise Tom Figueredo on the advantages and disadvantages of homeworking.

The answer should refer to productivity, motivation and job satisfaction. [8 marks]

3. (a) Analyse the problems for Gadgets2u.com of holding too much, or too little,
stock. [6 marks]

(b) Assess the problems that Gadgets2u.com may face if it chooses to implement
just in time (JIT) stock control (line 98). [8 marks]

4. “Sam (Figueredo) is proposing to the senior management team an expansion into retail
operations for the firm” (lines 157-158). Evaluate this proposal by examining the
internal and external forces driving or restraining change at Gadgets2u.com. [12 marks]

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SECTION B

Answer one question from this section.

5. Tom introduced a new Japanese product, a laser light key ring, into the product range in May 2005. He
asked Suzi Garcia to review stock movements as part of an investigation into single line profitability.
He was anxious to maintain tight control over stock levels and costs. Costs per unit for the key ring
changed as exchange rates fluctuated.

Initially Gadgets2u.com charged €12 per key ring, but as similar products entered the market, price
was lowered to €10 at the start of August to try to slow the decline in sales.

Stocks of key rings were ordered on the first of each month. Sales are shown for the whole month.
The table below shows stock movements for the first four months of operations:

Month (2005) Purchases (units) Stock sold (units) Balance (units)

May 6000 @ €3 3400 2600

June 5000 @ €3.20 5620 1980

July 7000 @ €3.40 7560 1420

August 3000 @ €3.20 2175 2245

(a) Explain why Suzi Garcia has recommended running the “warehouse as a separate
cost centre” (lines 122-123). [3 marks]

(b) Using both the FIFO and LIFO methods of stock valuation calculate the
following for the first four months of operation

(i) the value of closing stock at the end of each month. [8 marks]

(ii) the gross profit for the period May to August. [5 marks]

(c) Compare FIFO and LIFO as methods of stock valuation for Gadgets2u.com. [4 marks]

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6. The United States economy grew faster than expected in 2005, therefore, in early 2006 interest rates
were raised to reduce inflationary pressures. The US dollar also went up in value against the euro.
Some European economies were in recession and interest rates remained relatively stable. Although
Japan remained in recession, the outlook for the Japanese Economy improved and the yen did not fall
in value by as much as forecast (see Appendix 1).

Exchange rates: Actual (Forecast)

2004 2005 2006 2007
Exchange rate yen per euro 140 145 148 142
Exchange rate dollars per euro 1.16 1.22 1.18 1.10

Cash flow statement January – April 2006

January February March April
(Euros)
Receipts
Sales 281 000 265 000 275 000 342 000
Loan 105 000
Total receipts 281 000 370 000 275 000 342 000

Payments
Interest 7 880 7 880 8 650 8 650
Purchases (materials) 204 000 282 000 284 000 432 000
Purchases (fixed assets) 58 000 54 000
Salaries 38 000 38 000 46 000 46 000
Rent 3 650 3 650 3 650 3 650
Office expenses 2 800 2 750 2 900 3 100
Distribution costs 4 120 4 446 5 230 8 657
Other overheads 3 232 3 454 3 566 6 669
Total payments ? ? ? ?

Net cash flow ? ? ? ?

Opening balance 88 020 ? ? ?
Closing balance ? ? ? ?

(a) Explain the potential effects on Gadgets2u.com as interest rates go up. [4 marks]

(b) Identify the potential effect of changes in the euro to dollar and euro to yen
exchange rates on the performance of Gadgets2u.com. [4 marks]

(c) (i) Using the incomplete cash flow statement above, calculate total payments,
net cash flow, and opening and closing balances. [4 marks]

(ii) Evaluate methods by which Gadgets2u.com can improve its liquidity and
cash flow management. [8 marks]

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