Business studies – tutorial

3. one of the benefit of Kenya Re’s corporate objective is allowing the management
to be more effective when interacting with employees. For instance, the business set
an objective to increase the return on capital, hence, upon setting this goal
management are able to communicate matters relating to the objective rather than
communicating unnecessary things. This will lead to well-function business.
Moreover, clear business objective can be useful for motivating everyone in the
company. For instance, Kenya re’s se out the goal to increase revenue in new and
existing market will motivate their worker to work more effectively towards their
objective, rather than working blindly without any objectives.
4. CSR objective is very much appropriate for Kenya Re. Mainly bc it is reinsurance
business that provide security and insurance for the society. The business must be
able to get the evolvement of the people to gain more customer. That is through
CSR like campaign and donating certain sum of money to the charity. This will gain
the people’s respect and trust as the business is providing many benefits to the
society and not merely focusing profit.
However, by providing CSR the company may face some loss in the profit in the
short term. Nevertheless, this CSR can have a long term benefit by developing a
great relationship with the society and gain respect from the people.
Sole trader
Adv: all the profit goes to one owner
Dis: if declared bankrupt the owner’s personal assets are at high risk
Partnership
Adv: More capital can be brought in during the starting of the business
Dis: Profits must be shared among partner
Private limited co
Adv: less interference of the business by public member
Dis: cannot raise capital by selling the shares to the public
Public limited co
Adv: more customer may be interested bc it is publicly available
Dis: there are risk of takeover bc it is publicly available in the stock exchange market

4.
- according to maslow’s hierarchy of needs once one level of need has been
satisfied, humans will strive to achieve the next level.
- this means that even if we paid our workers well, they may have different needs,
and those needs will motivate them even more then the monetary reward
- for instance, self-actualization. To achieve self-actualization sometimes paying
them alone is not sufficient.
-management need to provide job enrichment and team working in order for the
employees to achieve self-actualization.
-self-actualization include taking on more responsibility, promotion and development.
it helps to develop our full potential. This will also motivate our employees to work
harder.
-in addition, Herzberg two factor theory mention that achievement, recognition and
working environment will result in job satisfaction
-in conclusion, it is inaccurate to say that paying our employees alone will motivate
our workers and management still need to provide non-financial reward system.

3. Financial reward system

-incur cost to reward system
-eg hourly, piece rate, commission, bonus ,prp
-it is a method to encourage ppl to work harder
-however, there will be cost to the company
-this is supported be taylor's theory where his studies shows that ppl are motivated
when being paid sufficiently

Non-Financial reward system

-this is a form of motivation that does not incur cost to the company
-it may include job rotation, job enrichment, job enlargement
-according to Herzberg two factor theory, job satisfaction are resulted from
achievement and recognition for the work they do
-and the hygiene factors, which influence the motivation of the employees rather
then providing remuneration
3. 3] Financial reward system is where workers and employees are motivated via
monetary ways such as hourly wage, commission and salary while non-financial
ways of motivation is motivation of workers through intrinsic and extrinsic ways ,
such as the environment of the workforce , the cleanliness of the working
environment and the job nature itself can also motivate workers. [ use theory]
[ Herzberg , Taylor, mayo and Maslow ]
4. 4] [ need to argue points ] [ read question properly Bryan ]
In a car manufacturing business, workers have to be motivated and work efficiently
so that the productivity of the business is increased . According to Taylor’s theory ,
workers are motivated by monetary compensation. This is in-line with the view of the
business where if they pay the workers well, the productivity can increase without
any other non-financial reward system. Taylor theory mention workers are motivated
by money , how can the business pay the workers to increase their motivation ? The
car manufacturing system can pay the workers by salary . The business can also
pay the workers PRP and commission . The more parts of car the workers produce
the more pay that they will be getting . This will make workers to even harder to push
out car part quickly to get more pay , therefore increasing productivity of the
business ..
[ Maslow hierarchy of needs] < money important but not everything . Social need and
esteem needs
want to safety in workforce. [ car manufacturing many machine and dangerous ]
[ mayo

a. -public limited company is often a large company with the legal right to issue
shares to the general public
- One of the advantages being, limited liability. Which means, the potential loss
effects on the amount invested on the company and not the shareholder’s
total wealth.
- Moreover, by being a Public limited company, it eases the process of buying
and selling shares, this encourage ppl to invest in the company and increase
the capital of the company.
- Public limited company attract more customers and the price of share is lower
per unit. (Relate to DTY, can attract more investor to expend business)
- Relate to DTY: Sources of finance is broader, issues share, get more
capital
- Need to recruit more driver: PLC attract more people
 - More financial strength: Easy to market and develop branding
b. – disadvantage can be the legal formalities in the formation of the business.
- There will be cost of business consultants and financial advisers for creating
such business
- (relate to DTY: they may need to incur cost for legal formalities and other
procedures bc PLC are monitored by the government)
- There are risk that DTY may be taken over due to its availability in the stock
market
- More communication problems may occur
- BOD may not be permanent
- Under more stress to meet deadline
- Tend to be more competitive
- Under pressure to be profitable (return to shareholder)
c. - Job description (things about the job, give example)
- define
- Person specification (what the person need to have)
- Age
- Experience
- License
- recruit the right people for the right job
- Not waste time recruit the wrong ppl
- Field vacancy asap
- Good impression on workforce planning
- Easy for candidate and management
- Company more efficient
Section B
CSR/Ethics related question
Legal Firm
- Relates to the principle of sustainable development, company not only need
to make decision based on financial factors but also based on short term and
long term social and environmental consequences of its operation. This allow
the legal firm to sustain longer and attracts more client.
- When the legal firm are willing to contribute to a healthier society, the
business are incline towards building a strong trust and relationship with the
client. Hence, improve the bond between the firm and clients.
- E.g explain clearly about the legal terms and not taking advantage over the
client
- Provide pro bono cases for the public

Online seller
- By participating in CSR the online seller are able to improve the impression in
the online market, ppl will trust your brand and make repeated purchase from
your online store.
 - Moreover, this can help to improve customer engagement in your online
business. Which is important if you want to expand your business and get
people to talk about your online store aka going viral.
- Avoid Misleading information,
- Give what you promise to ppl based on what you display
- Online sellar
- uses less plastic packaging so that it won’t end up in landfill
- reuse package filler so that lesser waste is produce .
Ethics
- avoid cheating customer [ when a customer buys a 300 ml slime , give the
customer 300ml or more and not less] [ give what you promise in your
website]
- do not leak the customer personal information for own use [ do not use the
private information of customer on delivery package for own use such as
spam calling them or selling their information to 3rd party ]
- environment friendly
- Gain trust from customers (customers will support the business when the
products are environmentally friendly, no animal testing for medication)
- Brand becomes more popular when they do charity (donate RM 1 for every
sold item)

2. according to Elton Mayo one of the reasons why there is a problem occur
among the employees is because there is no control over their own working lives
given to the employees at telemarketing ltd. For instance, the rest time is strictly
being controlled and excess rest periods lead to pay being reduced. According to
mayo’s theory some flexibility given can help to make staff more efficient and feel
good about the job.
According to Herzberg two factor theory. The hygiene factors says that the company
policy and administration, supervision, salary, relationship are the factors that may
affect the motivation of the worker. In telemarketing employees are paid a low basic
time-based wage and small commission payment. Furthermore the company
operated 18 hours per day and this makes the worker tired and leads to inefficient
working environment.
3. Job enrichment can be defined as giving employees a higher-level task or a more
challenging task to do. It encouraged and allow employees to use their full abilities.
According to Maslow’s hierarchy of needs self-actualisation is a human need that is
essential to make us feel good about the job we are doing. It involves developing our
full potential and a sense of achievement. It can help the business staff to achieve
self-actualisation because by providing job enrichment the employees are taking on
more responsibility and this will lead to promotion and development. Hence, job
enrichment is a key to help staff achieve self-actualisation by giving more
responsibility and the staff will feel trusted by the management.
4. A recommended pay system for staff in Telemarketing is by giving minimum
monthly salary. This will gives a sense of security of income towards the staff
3b. one of the possible methods to effectively motivate a part-time worker through
financial reward system is through performance related pay. PRP means to provide
a bonus to reward staff for above-average work performance. This will be important
to part time worker if they are seeking increases in financial rewards without having
to work full time. This will encourage staff to work more efficiently.
Through non-financial reward system, management can motivate part time worker
with job rotation. It will increase the flexibility of the workplace and the variety of work
they do by switching from one job to another. For example, switching task for the
worker so they will not feel bored doing the same task.
Activity 1: MG case study
Question 1:
 Working capital often described as the lifeblood of a business
 Finance is needed by every business to pay everyday expenses
 Sufficient working capital is needed to prevent a business from becoming
illiquid and unable to pay its debts.
2:
 Change in business environment.
o Relate to case: 3 months back Mr MG had no idea things could happen
as quickly, including the global recession and the speed which hit
many businesses.
o Mr MG was not anticipating the economic changes and did not prepare
for the huge cost that may affect his business.
o When global recession hit, they could not gain profit though they have
spent the money for the production
o *if recession prolonged business may struggle more in the future
o *when company is in recovery phase then only the business can slowly
revive

 Poor management skills.

o Mr MG has already paid cash for all his raw material, he cannot get the
money back for materials bought.
o *go for trade credit terms
o This shows that Mr MG is lacking cash handling and cash management
skills, and decision-making skills
o This will lead to not profitable business

 Lacking of finance to pay liabilities

o Having to pay all the raw material means that he is putting all his liquid
to the production cost.
o He must always keep his finance to 2:1 ration in order to have positive
liquidity in their business.

Tata rights issue

question 2:
 Issue shares means that they no need to repay the money invested.
  It is usually cheaper than a loan, and loan may have certain interest which
may add cost and liability (offering new ordinary share for 34o rupees)
 This helps to raise large sums of money through ‘rights of issues’ (it was
looking at selling assests in some subsidiaries to raise capital, and
independent analysts say that this is preferable to diluting ownership quity)

Current Ratio:
Ahmed:
Current ratio = current assets / current liabilities
=100/45
= 2.22: 1
Flash:
Current ratio = (150)/120
= 1.25:1
Acid test
Ahmed:
Acid test ratio = (current assets – inventories)/current liabilities
 = (100-20)/45
= 80/45
= 1.77: 1

Flash:
Acid test ratio = (150-60)/120
= 90/120
= 0.75: 1

2. two ways which Flash may improve the liquidity for his business (14marks)
 Keep in the ratio of 2:1
 Reduce current liabilities
 Keep smaller inventory levels, efficient inventory control, reduce wastage
 *intro: what is liquidity availability of immediate cash, need to pay debt… can
be identified through liquidity ratio
 Referring to flash’s liquidity ratio…
 2 ways: inventories, as compared to ahmed flash has more inventories kept.
We don’t need so much inventories ….
 Current assets is higher to ahmed, it could be trade receivable that have yet
to be collected, current liability should be paid off. work on current assets and
current liabilities
3. importance of working capital to quality fittings (14marks)
 What is working capital?
 Indicate the position of cash of the company, have enough cash, to meet
payment obligation to continue the business in the long run
 Indicate the efficiency of the management in handling inventories, and trade
receivable, through QF ahmed must be able to handle
 Make sure the business is efficiently manage towards profitability, enough
cash flow to capture business opportunity , kept in 2:1 ration, indicate that
they have enough immediate cash if encounter emergency, the business also
have more opportunity to spend the business if they have a positive liquid flow
in his business
Acid test ratio of bb Health = (current assets – inventories) / current liabilities
= 5000/13000
=0.38:1
4. (a)
 Para 1- Cost data can be regarded as a key factor in the ‘profit equation’.
Profit or losses cannot be calculated without accurate cost data.
 The financial cost incurred in making a product or providing service can be
classified in several ways. (Fixed cost, Direct cost, and Variable cost)
 Para 2- For instance, a car wash company. It is important for management to
understand the required cost and analyse the breakeven quantity so that they
can make profit each day.
 For a car wash company they need to identify their fixed cost such as rental of
the place and salary of their workers.
 Moreover, variable costs are cost that vary with output. Let’s say more
production is made then variable cost may be higher.
 For a car wash company these include electricity bill, water bill, machine
maintenance.
 Direct cost for a car company may include car wash soap, sponge for each
worker, and cloth needed for each worker.
 Para 3- These cost data important because it can help to set budgets for the
future, for instance whether a car shop need to buy more soap in the future or
to increase stocks for future business.
 It helps manager to make decisions about resource use, for instance it helps
to identify suitable brand being use and at the same time ensure good quality
can be deliver at the same time.
 It helps to identify the breakeven quantity to ensure they met everyday target
to generate profit. For instance, it helps to identify how many cars to wash per
day to meet the BEP
4. (b)
 Para 1Intro - Cost data can be regarded as a key factor in the ‘profit equation’.
Profit or losses cannot be calculated without accurate cost data.
 The financial cost incurred in making a product or providing service can be
classified in several ways. (Fixed cost, Direct cost, and Variable cost)
 Para 2 exp & Importance – For a restaurant the fixed cost can be the salary of
the staff, and rental of the restaurant building. For example, It is important for
the restaurant manager to calculate the costs of different options of location of
the restaurant and whether it is reasonable to pay at that amount. It helps to
assist managers in their decision making and help improve business
performance by com paring the costs of different location can increase the
chance of the most profitable option.
 Para 3 Exp & Importance – For a restaurant the variable cost are such as oil,
electricity bill, water bill and gas. And all of this are vary according to the
output of the restaurant I.e. when they have more customer, they have to
cook more and variable cost may increase. It is important for the restaurant
manager because it helps to set budget for the future, and these will act as
targets to work towards for the cost that the business concerned.
 Para 4 Exp & importance – For restaurant company direct cost can include,
the ingredients, meat, flour and the daily essentials. It is important to help
manager decision about resource use for instance, which supplier to get from
and to keep the inventory healthy without wasting items. Moreover, with cost
data, it helps the restaurant to identify BEP for the restaurant to make profit
each day.

a. Current assets/current liabilities=Current ratio

24,000/18,000= 1.33 : 1
b. (current assets-inventories)/Current liabilities= acid test ratio
(24,000-10,000)/18,000= 0.77 : 1

c.
- The current ratio provides a measurement for a business’s ability to pay
current expenses and liabilities with the cash and liquid they have on hand.
- If the current ratio for 31 Dec 2019 was 1.8 : 1, it is considered that the
business is in the safe zone.
- However, as compared to the 31 Dec 2020, the current ratio has dropped. it is
advisable for the business to keep the current ratio at 2:1 to ensure that they
have enough liquid for any emergency for the business.
- With the data they can make decision as to whether they should increase the
price of their product
- Hence, the company can work on more sales or reduce liability in order to met
2:1 current ratio.
- Acid test ratio 1.2 : 1, acid test ratio determine the exact cash they have on
hand in order to pay the necessary liability they have.
- It does not include the inventories because some inventories cannot
immediately convert into cash.
- Hence at that ratio it is still in the safe zone for the business.
- However, it is better to increase the ratio to 2:1, so that they can handle any
emergency and have enough to support the financial cost needed.
- For that, it is advisable for the company to reduce liabilities and start to
improve their sale so it can cover any emergency occur.

- (compare 2020 & 2019) *Last year the current ratio for AAA is 1.8 : 1, but
in 2020 it has dropped to 1.33 : 1. This shows that the company’s
liquidity is decreasing and it is dangerous for the business in the future
if there is any emergency the decreasing ratio may not have enough to
cover the financial cost.

- Same goes to the acid test which has decrease from 1.2:1 , to 0.77:1.
This shows that the company has less liquid in the 2020 and the
business may be in serious trouble in the future. The business may face
changes and it may include cost to recover from the challenges. It is
advisable for the company to keep the ratio at 2:1 for any emergency.

d.

- Intro: liquidity =
- Current ratio:
- Acid test ratio:
- Usefulness:
- Control expenses, ensure enough cash by giving priority
- Decide on what type of sources of finance required to assist the business to
solve the short-term conflicts

e.
- Intro liquidity (how is the current liquidity for the company)
- 1st way to improve (Inventories is very high)
- 2nd way to improve (improve sales)
- 3rd way to improve (trade receivables), (encourage more cash sales)
- Must keep the ratio of the liquidity to 2:1 as it is the lifeblood of the business
- Refer to any table they provide
(a) BEP =Fixed cost/contribution per unit
=35,000/(5-2.50)
=14,000

(b) margin of safety = 16,000-14,000

=2000 unit

(c) profit at max capacity:

Sales 20,000 x 5 =100,000
Less direct cost 20,000 x 2.50 = (50,000)
Contribution =50,000
Less fixed costs =35,000
Profit =15,000

(d)
- intro paragraph (what is BEP), how to do it?
- Usefulness 1, decision making in pricing
- Usefulness 2, Cost
- Usefulness 3, To make or to buy
- More usefulness: Deciding maximum profit, capacity, location
(a)
- New business, lack of cash, not keeping too much inventory
- Efficiency

(b)
- for bread manufacturer it is important for them to manage their inventory so that
there is no waste or extra raw materials, especially when the raw material is
something that can expired quickly like, egg, milk and etc.
- by maintaining good working capital, it helps the manager to keel smaller
inventory levels and by using computer system to record sales and inventory
levels to order when required
-another importance is that by managing working capital, they can use ca
-raw material inventories (working capital cycle is long
-labour for day to day basis
Acid test ration = (current assets – inventories) / current liabilities
= (14-0)/11
=1.27: 1

Para 1: Definition – Acid test ratio is a method to help measure the likelihood
of a company of their ability to pay its very short-term expenses by using its
most liquid assets. This calculation does not include inventories as an asset.

Para 2: Usefulness 1 – As for CC, one of the benefits it has from the acid test
ratio is to know

Advice suitable financing method:

1st method: midterm (Leasing, Hire Purchase)

2nd method:

Discuss the usefulness of the acid test ratio to the stakeholders.

Intro: Acid test ratio

Usefulness 1 (to stakeholder – management):

Usefulness 2 (to stakeholder – employees/suppliers):

Conclusion
Discuss the usefulness of breakeven analysis to a movie theatre. (14marks)

Intro what is breakeven analysis – it is a form of analysis that is used in

business to provide useful information for decision making.

Usefulness 1: For a movie theatre it helps to identify how many people are
required to go to the cinema per day to reach break even point and to make
profit

Usefulness 2: It helps the theatre management to decide on the suitable price

for the ticket. It also helps the theatre management in deciding to purchase
new equipment with lower variable cost. As such, fixed cost will increase and
variable cost will be lowered. As a result this can cause BEP to be achieved at
a significantly lower output level. With that business can maximize sales.

Conclusion: BEP helps the business to make smarter decision and make the
business more efficient.

Importance of Working capital

i. Para 1 – working capital is often described as the lifeblood of a
business. Finance is needed in every business to pay for everyday
expenses. Business are required to have sufficient working capital to
avoid illiquid (unable to pay its immediate or short term debts)
ii. Para 2 – Working capital can help to avoid liquidation. When the
business having trouble with working capital (unable to pay everyday
expenses) it forced the business into liquidation to pay the debts.
iii. Para 3 –

Ways to improve liquidity

i. Manage working capital (credit)
ii. Reduce inventories
iii. Use cash flow forecasts
iv. Reduce current liability (use the money to pay back the liability)
v. Internal finance management (sell unused assets – turn into liquid)

Importance of working capital

i. High demand of order (need to keep the stocks of important materials)
– with good working capital management QF are able to keep up with
the weekly/monthly purchase of high quality materials for their
customers
ii. Keeping the liquidity ratio at 2:1, there will always be uncertainty in
business and so does QF, the business may changed subject to
PESTEL environment. Someday they may get more order > need more
 stocks > need more cash to buy stocks. The business may also face
difficulties during times such as economic fluctuation, as such they
need to have sufficient cash/ liquid to pay cost (fixed, variable , direct)
of the business despite not making any profit.
iii. QF may need to upgrade their machine or buy more tools in the future,
with excellent working capital management they are able to set a target
as to how much sale needed to afford new equipment. As a result they
are able to expend the business more efficiently.