The Revision Blog

Question 35

2008-10-26T00:18:00.000-07:00

Landers Paints Ltd have for many years produced paints and varnishes specifically for industrial use. These products have been sold both directly to the customer and through builders’ merchants. Larger firms tend to buy directly from Landers, whereas smaller customers, such as builders and decorators, use the latter.

The products are sold in large quantities in basic packaging at low prices. This enables Landers to keep costs to a minimum and prices at a competitive level. The most popular products are basic items, for instance, white and magnolia emulsion paint.

However, the recent increase in the popularity of DIY has resulted in a small fall in sales at Landers. Keen to reverse this decrease, the Managing Director, John Smith, is considering whether to launch a range of paints for home decorating. At a recent board meeting, he put forward this proposal.

‘I think that Landers should launch a range of paints and varnishes for the domestic market. Given our expertise and production facilities, the new products will hardly disrupt things around here and should lead to a significant increase in sales.’

The Marketing Manager, Shirley Thomas, reacted with caution.

‘I’m not so sure because there are substantial differences between marketing products made for industrial markets and those for consumer markets. I think it may be a lot harder than you think.’

‘Obviously, there are differences’, replied John, ‘but I really don’t think that some new packaging and a bit of advertising is enough of a reason to miss out on such a good opportunity.’

Questions

1. Explain why the recent increase in popularity of DIY has caused sales at Landers Paints Ltd to decrease. (4 marks)

2 a) Identify the key differences between an industrial market and a consumer market. (3 marks)

b) Analyse the difficulties that may be experienced by Landers Paints Ltd if they move into the consumer market. (8 marks)

3. Landers Paints Ltd decide to launch a range of products for the consumer market. Recommend a marketing mix for the new products. (10 marks)

Question 34

2008-10-26T00:17:00.001-07:00

Supreme Kitchens Ltd has been making quality wooden kitchen products for over thirty years. The company was formed in 1968, the founder making some money from a hobby after retiring from the Police force. Over the years, the firm has grown and now employs eighteen staff, including a sales and marketing co-ordinator, a bookkeeper and sixteen crafts people.

The firm specialises in the manufacture of high quality, traditional pieces of furniture for use in kitchens, with the goods being sold through small retail outlets. The crafts people are responsible for designing, carving and making up each piece of furniture by themselves. Although this is time-consuming, the Managing Director, Alan Supreme, believes that this ensures that the final products are not mass-produced and as such, gives them a unique selling point.

However, James Mellencamp, the sales and marketing co-ordinator, feels that this approach is failing to take account of the changing tastes in furniture and is resulting in falling sales. He firmly believes that the majority of consumers no longer want to buy traditional pieces of furniture and favour the flat pack items sold by outlets like IKEA and MFI.

These differing viewpoints have been causing a number of arguments at Supreme Kitchens Ltd. Alan and James are both adamant that their opinion is correct, with neither of them prepared to compromise.

Questions

1. a) State what is meant by the term ‘unique selling point’. (2 marks)

b) Alan believes that the products made by Supreme Kitchens Ltd have a unique selling

proposition. Explain why this is the case. (4 marks)

2. a) Identify the advantages and disadvantages to Supreme Kitchens Ltd of selling products solely through small retail outlets. (5 marks)

b) The firm is considering whether to set up a mail order service. Analyse the possible

consequences of this for Supreme Kitchens Ltd. (6 marks)

3. Discuss whether you think James is right to recommend that Supreme Kitchens Ltd manufacture flat pack furniture. (8 marks)

Question 33

2008-10-26T00:16:00.001-07:00

The Product Life Cycle is a very important tool for businesses to use. It must however be used in addition to other tools to study the market.

PLP has just introduced a new product onto the market. They are going to supply personalised fileofaxes to businesses for their customers. They see this as their way forward and have studied their competitors finding that no other competitors in the line of manufacturing and supply of promotional goods to companies are distributing this kind of merchandise. This could be the product that they need to gain market share.

PLP have decided to keep some of their old range as there are still customers who are remaining loyal to them. The management team have also decided that it may be dangerous for them to put all of their eggs in one basket.

The company also realises that it needs to fund the new product with existing sales even if they are in the decline stage, as there are still sales from loyal customers.

Questions

1. Assume that PLP Ltd has a certain amount of success with its new product (the personalised fileofaxes) and has successfully passed through the development stage

of the product life cycle. Discuss the implications that may develop for the company in the

next stages of introduction and growth. (14 marks)

2. From the information given in the case study it is obvious that many of the products on offer at the moment within the portfolio of PLP Ltd are in the decline stage. Explain how

this may have happened and what decisions should be taken at this stage, also detailing

why the company would be in a better position in the maturity stage to fund new product development. (18 marks)

Question 32

2008-10-25T16:38:00.003-07:00

Phoenix Natural Gas has come under fire for increasing its prices for the second time in four months.

The company said its tariff will rise by 17% and blamed the soaring price of wholesale gas for the increase.

It comes on top of a 30% rise announced in September, prompting a call for the gas regulator, Ofreg, to take action.

Ofreg said it was not surprised by the rise but the General Consumer Council said it was "appalling" and a "severe blow" to customers.

The price rise will come into affect on 23 January and apply to more than 90,000 Phoenix Natural Gas customers in Northern Ireland.

Peter Dixon, Chief Executive of Phoenix Natural Gas, said the company was experiencing record high wholesale gas costs.

But he said the company realised it would be unwelcome news for customers.

"Since our last tariff review in October, gas costs have continued to rise significantly. For example, wholesale gas costs in December were more than double those of twelve months earlier," he said.

The second rise means an average annual bill will soar by 52%, or £200, in four months.

Source: BBC News 19^th January 2006 (adapted)

Questions

Is demand for Phoenix Gas likely to be inelastic?
If prices have risen by 17% and demand is inelastic, what is likely to happen to consumption?
How much was the average annual bill last year and now, this year?

Question 31

2008-10-25T16:38:00.001-07:00

Comparison website uSwitch.com is considering selling itself privately or floating its shares on the stock exchange as part of a strategic review.

The company is being advised by corporate finance company LongAcre Partners, which steered Friends Reunited towards its £120m sale to ITV.

Privately-owned uSwitch.com is believed to be worth just over £100m.

The website enables consumers to compare the price of energy charges and phone prices with other suppliers.

uSwitch also helps users switch suppliers if they find a better deal. However, none of the companies it represents have a stake in the enterprise.

Source: BBC News 20^th Jan 2006 (adapted)

Questions

What are the advantages of ‘floating’ rather than ‘selling privately’?
If uSwitch.com is worth £100m and there are 200m shares issued, what is the likely asking price per share?
Why do people buy shares?

Question 30

2008-10-25T16:37:00.003-07:00

Steadying energy prices helped to improve consumer sentiment in the US during January, according to the University of Michigan's index.

It rose for the third month in a row to 93.4 from December's final reading of 91.5, ahead of analysts' predictions.

Better job conditions and an optimistic outlook for US stocks during 2006 also helped push the index higher.

Consumer spending makes up two-thirds of US economic activity and is a key indicator of the health of the economy.

The dollar rose against the yen and firmed against the euro shortly after the report was issued on Friday.

Retail heating oil prices fell to a five-week low at $2.43 a gallon, down 1.7 cents from a week ago but up 46 cents from a year ago, EIA said.

On Thursday, the number of new jobless workers fell to 271,000 last week, its lowest level since April 2000, the Labor Department said.

Source: BBC News 20^th Jan 2006 (adapted)

Questions

What was the percentage increase in the index?
as the dollar rose against the yen this would make exports…(cheaper/more expensive)
imports from Japan would now be…(cheaper/more expensive)
If demand for imports is elastic, will the dollar’s rise be of great help/little help to Japanese exporters?
How much was retail heating oil a year ago?
How much was retail heating oil a week ago?
If demand for retail heating oil has not changed since a week ago, why would the price have fallen?
If a year ago demand for oil was 500,000 units and it is now 600,000 does this mean that the relationship between price and demand is direct, not inverse?

Question 29

2008-10-25T16:37:00.001-07:00

Bates makes wage demand warning

Leeds chairman Ken Bates believes that players leaving the Premiership need to be realistic in their wage demands.

Fulham captain Lee Clark, 32, had been in line for a move to Elland Road but failed to agree personal terms.

"I know of three players who have been asking for £12,000 a week. The average Championship wage this season is going to be around £3,000 to £4,000."

Leeds encountered major financial problems after their relegation from the top flight and Bates is keen to avoid any such worries in the future.

"We have also had one player, who will not even be fit for the start of the season, asking for £12,000 a week for a two-year deal and his agent wanted another £75,000," he added.

Source: BBC News 14^th June 2005 (adapted)

Questions

What is the percentage difference between the £12,000 a week asked for and the average Championship wage?
Calculate the difference between the average Championship wage and that of a Head teacher.
What is the annual salary of someone on £12,000 a week?
Calculate the tax payable on a salary of £12,000 a week.
Calculate the hourly wage of someone on £3000 a week assuming a 24-hour day.
Research the amount of hours a day a footballer actually ‘works’ and then re-calculate the hourly wage. Compare that to the ‘going rate’ to see privately a Consultant Surgeon at a local hospital.

Question 28

2008-10-25T16:36:00.003-07:00

From the moment Southampton's relegation from the Premiership was confirmed at the end of last season, one fixture above all others has been on the lips of Saints fans.

It was a fixture whispered in almost embarrassed hushed tones, as though to speak its name aloud would summon up an evil poltergeist.

The fixture was the visit of Crewe Alexandra, and since that fateful day last May, Saints fans and people at the club have used the very name "Crewe" as the yardstick of how Southampton's fortunes have folded.

Without being unkind to Dario Gradi's team, not even the most ardent Crewe fan would not argue that the Railwaymen have the pulling power of Ivor the Engine, or a Hornby Double-O gauge.

For that reason, Southampton's first League game against Crewe sent a tremor of fear and cold reality that penetrated the heart of a club that has mixed it with the elite for 27 years.

Around 420 Crewe fans rattled around like a pebble in an oil drum in a section normally reserved for 4,000.

Under the circumstances, a crowd of 20,792 was perhaps not as bad as feared.

It was the third-highest of the day in the Championship and bigger than two Premiership gates, but it was the lowest-ever crowd for a league game at St Mary's beating the record set at the previous home Championship match against Norwich.

Saints reckon their income will drop by at least £25m this year, and they have budgeted for that by off-loading some of the top players, and slashing the wages of those left behind by a half. Even chairman Rupert Lowe is not exempt.

Source: BBC News 28^th August 2005 (adapted)

Task

Find out the average gate for Southampton’s home games last season and, using the information above, calculate the average seat price.

Is it likely that seat prices will have changed? (Explain your answer, using the concept of elasticity)

Question 27

2008-10-25T16:36:00.001-07:00

Mahendra is the credit manager in a Romith Ltd, a large company. His monthly report to the general management is divided into three sections

· debtor level

· cash

· overdues.

Question

1. What does each section mean and what information will Mahendra include in each section of his report? How will knowledge of these sections help the firm’s cash management? (30 marks)

Question 26

2008-10-25T16:35:00.001-07:00

Given below is the cash forecast for June to August 2000 of Highflyer Ltd, a company which manufactures parachutes.

	June	July	August
	£000	£000	£000
Income
Cash Sales	2,500	3,000	3,300
Sales on credit	10,400	10,000	12,000
	12,900	13,000	15,300

Expenditure
Purchases	6,560	6,300	7,570
Rent	6,000
Expenses	1,800	1,800	1,800
Van		7,700
Drawings	1,200	1,200	1,200
	15,560	17,000	10,570
Bank Balance
Opening balance	700	(1,960)	(5,960)
Add income	12,900	13,000	15,300
Less expenses	(15,560)	(17,000)	(10,570)
Closing balance	(1,960)	(5,960)	(1,230)

Questions

1. Why is efficient management of working capital important to a firm? (6 marks)

2. Explain two ways in which the preparation of a cash budget may be useful to Highflyer Ltd.

(6 marks)

3. What conclusions can you draw from the above cash forecast? (8 marks)

4. What steps can a firm take to solve a cash problem? (10 marks)

Efficiency (Economics)

2008-10-25T05:40:00.001-07:00

How many pairs of shoes do you own?

How do you decide which shoes to buy?

Is there any need for more than ten pairs of shoes?

Check out this article in the Daily The Telegraph

a) List the various types of efficiency
b) Allocative efficiency means resources....................Complete the sentence
c) How does what is happening in the shoe market illustrate this concept?

Efficiency (Economics)

2008-10-25T05:27:00.000-07:00

Revise your notes on efficiency.

Have a look at these two articles - is competition leading to greater efficiency?

Two articles from the BBC seem to indicate that competition in the insurance industry is causing firms to seek greater economic efficiency

a) What are the various types of efficiency? (Dynamic, static etc)
b) What type of efficiency will these job losses lead to?
c) Why are the 2 firms following this course of action?

Market failure (Economics)

2008-10-25T05:25:00.000-07:00

This will help you revise.

It explains HOW government intervene when markets fail and some points to consider when evaluating the success of such policies

Market Failure (Economics)

2008-10-25T05:21:00.001-07:00

Transfats - what do you know about them?

They kill you!

From the BBC we learn that transfats are being banned in California

Check back over your diagrams and then...

a) Using a diagram, explain what sort of market failure trans fats represent
b) Why has California taken this action?
c) To what extent do you think the action will reduce the market failure?

Market Failure (Economics)

2008-10-25T05:17:00.000-07:00

The BBC reports most women are unaware of the increased risk of breast cancer which follows excessive drinking

Revise your notes on market failure and then consider the following:

a) Why is this an example of information failure?
b) How does the market fail?
c) What actions could the government take to reduce the market failure?
d) How successful do you think such measures would be?

(Remember to read the Purpose of this Blog section...)

Question 25

2008-10-25T00:55:00.001-07:00

‘We need more focus, more direction’ stressed Maria Donatelli, the Marketing Manager of LA Games. ‘Yes, but which direction?’ snapped her husband Ben. ‘Its all very well going on about direction and focus but, surely, we need to decide where we want to go.’

It was a familiar discussion at LA Games, a medium sized family firm that had produced board games and puzzles for the last twenty-five years. For most of this time, the firm had been highly successful, making a range of products that sold well in the UK and in Europe.

However, the last few years had been difficult. The huge growth in the electronic games console market had resulted in falling sales, with some product ranges affected more than others. Details of current product ranges are given below:

Family Favourites: This range of products, including chess, drafts and snakes & ladders, has maintained its popularity. It still has a large market share and faces little competition in this static market.

Magnetic Games: Once a popular item, the magnetic games range has had falling sales for many years. This market has been affected very badly by the growth of hand held electronic games.

Electronic Games: Initially, LA Games refused to introduce a range of electronic games. However, the huge growth in this market has resulted in the development of a small number of products, which have recently been launched.

Adult Games: In the mid 1980s, LA Games launched their range of board games specifically targeted at adults. The games were a huge success and sales are still high. The market for adult games is continuing to grow but LA Games is facing strong competition from rival firms.

Children’s Games: Although LA Games built their reputation on their wide range of games for children, sales have fallen steadily now for a number of years. Due to advancing technology, this market is slowly falling in size.

Question 5 continued

Questions

1. a) Define the term ‘product portfolio’. (2 marks)

b) Draw a diagram of the Boston Matrix. (3 marks)

c) Explain how the Boston Matrix is used to analyse a firm’s product portfolio. (5 marks)

LA Games wish to use the Boston Matrix to examine their product portfolio to help develop a

strategy to increase future profits.

2. a) Classify each product range using the matrix, giving reasons for your decisions. (5 marks)

b) Recommend a future strategy for LA Games. (10 marks)

Question 24

2008-10-25T00:54:00.000-07:00

Cressida Grainger started her entrepreneurial career at the age of 22, running a small antiques business. Whilst on a visit to Glasgow market, she discovered lava lamps and bought some to sell on her Camden market stall. The 1960s lamps, which mix oil and water to create psychedelic patterns, were an instant success so she tracked down the inventor, Edward Craven, and eventually bought the then loss-making business from him.

In 1989, Mathmos was born. The firm started to market the lamps to a new set of fashion conscious consumers eager to buy ‘retro chic’ products. The marketing paid off and since then, Mathmos has enjoyed spectacular success, achieving £18 million of sales in 1999.

However, the business has recently run into some difficulties. Following the success of the lava lamps, competitors from the Far East have realised the potential of the products and the market is now being flooded with imitation lamps that are sold at prices that Mathmos would struggle to make the item for. This problem is increased by retailers who stock the cheaper, imported goods alongside the Mathmos originals. In effect, the Mathmos name is advertising other companies’ products.

Grainger is determined to fight back, though. With the name Mathmos linked to high quality products and first-rate after sales service, she believes that her business can be expanded in order to win back market share. Two strategies are being considered.

Option One: Diversification into other product areas, such as gifts and fashion accessories.

Option Two: Extend Mathmos’ unique position as leaders in innovative domestic lighting through the development of new lighting products.

Ultimately, Grainger knows that Mathmos must maintain its innovative edge in order to remain successful in the market place.

(Adapted from Sarah Gracie, The Sunday Times, April 9 2000)

Questions

1. Explain why Mathmos lava lamps were initially so successful. (4 marks)

2. Recently, Mathmos has begun to experience some difficulties. Analyse the key causes of these problems. (8 marks)

3. Explain how the use of market segmentation could help Mathmos to market its products

effectively. (5 marks)

4. Evaluate the advantages and disadvantages of the possible options for development. (8 marks)

Question 23

2008-10-25T00:53:00.001-07:00

Richard Branson’s Virgin Group is expanding once again. Following on from his success in markets such as airlines, cosmetics, financial products and music, to name only a few, he has recently launched a mobile phone company, Virgin Mobile.

Branson believes that consumers have lost out through the existing mobile phone market because of high costs and overly complicated tariff systems. His new venture, set up in conjunction with One2One, sets out to change that. In contrast to many packages, Virgin Mobile has no monthly line-rental fee and call charging is straightforward (see Appendix). In terms of cost, the average phone user’s bill should fall by a third.

In addition to these benefits, Virgin Mobile is offering customers a number of other services. Going by the name Virgin Xtra, phone users will be able to book holidays, flights and train tickets, receive warnings about traffic jams, listen to and order music and get details about entertainment listings. They will also be able to use e-mail.

New customers can buy Virgin phones in Megastores, Our Price, over the Internet and by phone. Some may even be able to change over their existing phone for a cost of £12.50, which includes £10 worth of calls.

(Adapted from Ben Hammersley, The Times Interface, November 15 1999)

Appendix

Example Phone Tariffs for Virgin Mobile and BT Cellnet. (From Dixons Communication Buyer June 2000)

	Virgin Mobile	BT Cellnet 30	BT Cellnet 120	BT Cellnet 250
Subscription per month	Free	£17.50	£25.00	£40.00
Free calls per month	-	30	120	250
Call charges	1^st 10 minutes 15p per minute 2^nd 10 minutes 10p per minute After that 5p per minute	Daytime 30p per minute Evening 5p per minute Weekend 2p per minute	Daytime 25p per minute Evening 5p per minute Weekend 2p per minute	Daytime 18p per minute Evening 5p per minute Weekend 2p per minute

Question 3 continued

Questions

1. a) Explain what you understand by the term ‘market segmentation’. (2 marks)

b) Outline how BT Cellnet has segmented the mobile phone market. (4 marks)

c) Suggest reasons why BT Cellnet has chosen to segment the market. (6 marks)

2. a) Describe the differences between the services offered by Virgin Mobile and BT Cellnet.

(3 marks)

b) Evaluate the advantages and disadvantages of the approach taken by Virgin Mobile.

(10 marks)

Question 22

2008-10-25T00:50:00.000-07:00

It was the frustration of being unable to find high quality take-away meals that led Tim Buxton, 32, to leave his job as a recruitment consultant. Due to his busy lifestyle, he often found himself eating average tasting convenience foods, which satisfied his hunger but little else.

These experiences led him to spot a niche for providing busy London workers with an outlet to buy good quality ready meals. With this in mind, Buxton, a former army captain, quit his City job and went to work in a South London delicatessen, where he learnt about catering and retail.

He opened his first outlet in Fulham, West London, in January 1999. The shop was an immediate success, proving popular with commuters making their way home for supper. A variety of dishes are on offer, from traditional favourites like lasagne and shepherds pie to more exotic choices such as Mediterranean beef casserole, costing between £3 and £5.

Buxton’s idea has proved to be a recipe for success and he has since opened another outlet in London’s West End.

(Adapted from Natalie Graham, Financial Mail on Sunday, May 21 2000)

Questions

1 a) Explain what you understand by the term ‘niche marketing’. (3 marks)

b) Give reasons why Buxtons Gourmet To Go is an example of niche marketing. (4 marks)

2. Outline the advantages and disadvantages for Tim Buxton of operating in a niche market.

(8 marks)

3. Evaluate the decision to expand the business to two outlets. (10 marks)

Managerial Economics

2008-10-25T00:47:00.000-07:00

Managerial Economics

Debunking Economics

2008-10-25T00:41:00.000-07:00

Heterodox Economics

Economists are not homogeneous. These are some of the many web sites and societies which provide focal points for those who adhere to different schools of thought in economics.

General critical economics sites
Austrian economics
- Austrian Economics (Chris Sciabarra'a Economics and Liberty Site)
- Peter Boetke's Austrian Economics Links
- Society for the development of Austrian Economics
Complexity theory, nonlinearity, chaos theory
- Prodec (Program for Dynamic Economics)
- Society for Chaos Theory (excellent links page)
  - Nonlinear Dynamics, Psychology & Life Sciences (journal of the Society)
- Society for Computational Economics
- Society for Economic Dynamics
- Society for Nonlinear Dynamics and Econometrics
Evolutionary economics
Marxian and other radical economics
- Marx and Engels Archive
- Marxism Discussion Lists
- The Spoons Collective (Marxist and other radical groups)
- Union for Radical Political Economics
Post Keynesian economics
- Centre for Sustainable Future (many Post Keynesian and other progressive sites)
- Levy Institute (focus for work on finance in the tradition of Hyman Minsky)
- Post Keynesian Site

Social Change Australia

Prisoner's Dilemma

2008-10-24T00:03:00.001-07:00

Three prisoners, A, B and C with apparently good records have applied for parole. The parole board has decided to release two of the three and the prisoners know this. They do not know which two can be released. A warder friend of Prisoner A does know who is to be released. Prisoner A realises that it would be unethical to ask the warder if he, A is to be released but thinks of asking for the name of one prisoner other than himself who is to be released. He thinks that before he asks, his chances of being released are 2/3. he thinks that if the warder says "B will be released" his own chances have now gone down to 1/2 because either A and B or B and C are to be released. And so A decides not to reduce his chances by asking. However A is mistaken in his calculations.

Explain

Question 21 (Economics)

2008-10-21T19:40:00.000-07:00

How many of these are correct?

Small questions about AD :
State whether each factor is likely to increase or decreases the level of aggregate demand for the UK economy (other factors remaining the same).

1 - The government decrease the rate of income tax from 22% to 20% . >> With less tax people will work less as their disposable income will rise and so they will substitute leisure for work.

2 - There is a 20% fall in average UK house prices over a two year period. >>This makes more houses in the reach of those on lower income. Savings will increase as people prepare to buy. Suppliers of kitchen goods will stockpile. Thus increasing investment and increasing AD.

3 - There is a consumption boom in the countries of the Euro Zone. >>This will cause inflation leading to a fall in their exchange rate. Thus the £ will rise making imports cheaper and more attractive. This reduces the AD

4 - The exchange rate between sterling and the Euro appreciates by 15% (i.e. goes up in value) over the course of a year . The lower level of exchange rate will make the price of export cheaper >> Reduce the AD

5 - A new survey finds that business confidence has hit a 5-year low. The lower of expectation of the producer will narrow the amount of small firms, reduce level of capital investment. Unemployment will rise making labour cheaper. This brings down wages and will attract inward investment. >> Higher level of AD

6 - The government announces a £400m plan to build a series of wind farms across the UK . The more increase in Capital Investment, the more increase level in AD

7 - Consumers decide to increase their savings ratio>> More funds available for investment. Interest rates fall. Exchange rate falls. Inward injection, multiplier effect. AD rises.

8 - Bank of England signals rise in interest rates of ½% . The rise in IR will decrease the borrowers to invest >> decrease in Capital Investment >> Decrease in AD level

9 - The government increases government spending by £1 billion but raises the amount it takes in income tax by £1 billion . It's uncertain to consider the change in AD.

10 - Chancellor announces tax exemption scheme on new investments for small to medium sized businesses. Less tax collected so a budget deficit. This will cause demand pull inflation leading to a rise in interest rates. >> Fall in AD

Question 20

2008-10-21T18:08:00.000-07:00

eCourier

Most customers merely get irritated when faced by poor service or inefficient businesses. It takes entrepreneurs like Tom Allason to turn such frustrations into an opportunity to revolutionise the marketplace.

Allason, alongside university friend Jay Bregman, founded eCourier in 2003 after suffering at the hands of unreliable couriers for several years.

The firm’s innovative courier tracking system, unique in the UK, saw the duo triumph in the Best Use of Technology category at the recent Startups Awards. eCourier now has its sights set on being the largest courier company in the UK

But it may have very different had Allason not been enraged by a particularly bad courier experience three years ago.

“I used to use a lot of couriers and things would go wrong, but nothing made me think I should start up a courier company until I had a very bad experience,” he explains.

Wanting to treat 10 friends to a day at the Queen’s tennis tournament, Allason called a courier company at 8am to ask them to deliver tickets to them.

“They said it would be 20 minutes, at 8.30 I called and they said it was only going to be five minutes,” Allason says. “I went into a meeting, came out, and they still hadn’t arrived.

“I called again and asked to hold, but the problem was that they had to call the courier to find out where he was and then call me back.

“They didn’t call me back, this went back and forth, making me furious – the whole point of using a courier was to make my life easier, not harder.

“While on the phone, the courier shows up and he doesn’t look like the sort of guy you’d entrust with a day out for your best mates. But I suspend disbelief and ask him to get there in half an hour, which he says is fine.

“I get a call from my friends an hour later saying the courier isn’t here, I call the courier company and have the whole same conversation again.

“It’s not into the afternoon, the day’s been ruined, I’m furious and get into an argument of the MD of the company, who will remain nameless. I told him I thought I could do a better job, he made the mistake of encouraging me and that’s how it started.”

Allason felt there was a significant gap in the market due to the lack of information between the couriers and their controllers. Control room staff would assign jobs to couriers not knowing where they were, only aware of their workload.

The budding entrepreneur felt that if he could automate the process, it would save an estimated 30 per cent of revenue and alter the dynamics of the whole industry. He proceeded with some meticulous research.

“We learnt a lot about the courier market,” he says. “The market is worth £1 billion, but the largest player had under five per cent of market share.

“There was a diseconomy of scale – the smaller the courier, the more profitable, the larger, the less profitable – that’s why the market was so fragmented.”

Allason could see multiple benefits for an automated courier management system – not only would it allow him to keep tabs on couriers, it would cut operating staff costs as the system would assign jobs directly to the couriers without the need for human intervention.

The technology is certainly impressive – staff and customers are able to zoom in on detailed real-time computerised maps that show the movements of the couriers. Simply clicking on a particular courier give the viewer details such as time travelled, cargo and even the amount of fuel in the tank.

Thanks to this system, eCourier takes 85 per cent of bookings online, compared with five per cent of its nearest competitor. As a result, Allason employs 17 times less telephonists than the competition.

“Anyone with four mates can start a courier company – there are 600 in London and they offer the exact same service with the same cost structures, with narrow margins,” he explains.

“Because they can’t produce efficiencies on the operating line, the courier is the one getting squeezed – a courier today is paid less than 10 years ago, not even considering inflation and fuel costs. That has impacted on service, because if you pay peanuts, you get monkeys.

“We’ve got a system that gives us an advantage as we have larger margins, so we can charge customers less and pay our couriers more.”

After convincing several friends of the feasibility of the business, the next step was to find and develop the technology needed. Allason admits he would’ve loved to have plucked the software needed straight from a shelf at PC World, but no such product existed.

What followed was an extensive, global search for a developer, after being told that such a system could not be built for less than £4million. After identifying an American academic as the person who could build the business-defining technology, Allason and Bregman bombarded her with gift baskets while she was on holiday in Hawaii until she agreed to help them.

She enlisted the help of two Italian universities to design and build the system, with Allason's team having to travel to Italy to sign contracts.

The initial cost of the technology was £500,000, a figure that Allason impressively managed to raise. Having approached individual investors, friends, family and co-workers, he also secured £100,000 from the bank under the Small Firm Loan Guarantee Scheme.

eCourier also benefited from a further£100,000 in funding from Go East Ventures, a subsidiary of the East London Small Business Centre. The money obliged them to be based in the East End, where they found a large warehouse space.

This outside investment has left Allason and Bregman with a minority stake of the business, although they retain day-today control. But with the technology development being so groundbreaking, funds were needed from various sources - "It was important to get your head around the idea that it was much better to have a small slice of something big than a big slice of something small," Allason explains.

An initial staff of seven couriers has swelled to 70, with a support team of 10. Unsurprisingly, given the good pay and the efficiency of the system, Allason is swamped by courier job applications every day.

“We had some press in the beginning and the couriers love our system, so we’ve had a lot of applications,” he says. “Normally, their work is given to them by a controller, and there’s a lot of favouritism. The courier is the customer-facing part of the business, so you need to invest in them.”

The couriers drive their own vehicles, saving further overheads, although they are eCourier-branded.

One-off deliveries cost from £5 upwards, although a softly-softly approach to marketing that saw eCourier slowly build up a solid reputation has attract big-name contract clients, including several of London's largest investment banks.

“We started off thinking that we couldn’t rake on big clients yet and the technology was untested, we needed to build up critical mass,” Allason explains. “Our ideal client would spend in excess of £100,000 a year.

“Our largest client is an investment bank who pay £250,000 a year on couriers. For them, price is quite important so we make sure we’re competitive. But although we can be cheaper, we can do it much better at large margins.”

“The weakest link in the ecommerce supply chain is fulfilment,” he says. “It takes just a minute to buy something on the internet, but you’ve got to wait from a couple of days to a couple of weeks, all for an impulse purchase.

“How fantastic would it be to have it delivered in a couple of hours? Would people pay a premium for that? Not everyone would, but you would only need one or two per cent of the market to create a new market.”

Turnover will exceed an impressive £2.5 million in eCourier’s first full year, a figure Allason admits to being surprised at. In fact, he concedes that some of his early business plans turned out to be slightly unrealistic.

“We misguidedly thought we could reach profitability within three months, and it took 14,” he says. “It was naivety. We had no idea of the market and didn’t have sale experience.

“We thought we’d take on five couriers a month, who do 20 deliveries a day, which was not very smart because they are lucky if they do four or five.”

Despite the early miscalculations, eCourier is looking at consolidating the London market, which is worth £450 million a year – almost half of the entire UK’s total. Allason claims that rivals will be continually lagging behind because even if they tried to develop similar technology, it would take them at least three years to catch up.

Since giving up his job as a ship broker to set up the business, Allason has certainly can’t be accused of not dedicating himself fully to eCourier. His flat is 30 feet away from the office – not that he spends much time at home that is, often working into the early hours.

He’s promising himself a holiday in the near future as he hasn’t been away for two years. But Allason is adamant it is all worth it.

“We get paid a pittance, we’ve seen it grow so you don’t get much more satisfying than that,” he says.

www.ecourier.co.uk

Source: www.mybusiness.co.uk (9^th December 2005)

Questions

“…nothing made me think I should start up a courier company until I had a very bad experience…” Carefully explain how a company is formed.
What are the advantages of starting up as a company rather than a sole trader or partnership?
Outline the main difficulties any new business faces when first starting up.
Explain the term ‘economy of scale’.
Suggest reasons why there is a ‘diseconomy of scale’ in the courier market.
“Anyone with four mates can start a courier company…” Is it really that easy?
“Unsurprisingly, given the good pay and the efficiency of the system, Allason is swamped by courier job applications every day….” Discuss whether pay is the main motivator – whatever the kind of business. (Education?)

Question 19

2008-10-21T18:06:00.000-07:00

Holroyd Howe

Being a successful entrepreneur is often viewed as an essentially solo experience, with the hard decisions, particularly in the formative days of a business, agonised over by the man or woman at the top.

The idea of forming a partnership is often dismissed by budding business owners, sometimes for little more than ego-based reasons. Even those that take the plunge with a co-founder can find that ideas and personalities clash to the point of breakdown.

Holroyd Howe is a business that could be used as a living and breathing example of how partnerships can, and do, work. Founders Rick Holroyd and Nick Howe’s eponymous firm is well on its way to becoming the premier independent contract caterer in the UK.

Successfully capturing a clutch of blue-chip clients, such as Interbrew, Volvo and Honda, Holroyd Howe has seen turnover nearly treble in the past three years to nearly £30 million. Gross profit stood at £2.13 million in 2004, with 91 contracts currently secured.

Since its creation in 1997, the business’ workforce has swelled to 820 people in production sites across the UK, with 40 staff in the company’s head office.

However, there is much more to this business’ success that just its impressive balance sheet. Holroyd freely admits that he probably could not do it without Howe, underlining the joint effort that has gone into building the venture.

“I don’t think that either of us would’ve wanted to embark upon this (setting up the business) alone, that’s probably been one of the strengths of the business,” Holroyd explains.

“It was always my intention to start with someone else because I probably wasn’t the full ticket in terms of running all aspects of the business. It was important to have someone who complemented me in terms of skills.”

Holroyd rejects the idea that compromise has played a vital role in their relationship, insisting that the duo arrive at the best approach after discussion, rather than fudging the issue.

“It’s amazing how the vision has been almost identical,” he says. “But the way we see things are at the opposite ends of the spectrum – we’re very different characters.

“It’s very important to put your individual views to one side. Every decision we’ve made has been for the good of the business, and not for ourselves individually.

“We’ve seen start-ups that have lasted six months or a year and I think it’s because egos get in the way – you can’t afford to let that happen.”

Holroyd and Howe met in 1986 while working for another catering firm called Sutcliffe. Holroyd recalls that he was desperate to start up his own business, and found a kindred spirit in his colleague.

“I recall sitting in a pub at the end of a day talking about careers and I said to Nick that I’d probably start up myself one day,” he says. “When I said that, Nick turned, fixed his eyes on me and said ‘Blimey, if you do that, don’t forget me will you?’

“I thought I could do better than what was out there. I think any caterer worth their salt always wants to run their own restaurant, because they have a vision of how things should be.”

Holroyd then took two strategic career moves clearly designed to help him achieve his entrepreneurial ambitions. He firstly moved to Baxter and Platts, another catering company, to gain experience in sales, before switching to Nelson Hind to understand how a small firm is operated and structured.

Finally, in 1997, he saw the opportunity to go it alone. He asked Howe to come on board at, he claims, an ideal time to start a catering firm.

“There was a good opportunity in the market,” he explains. “There had been some acquisitions that had taken some good independent people out of the market, so there were hardly any quality independent players left that that time.

“We were fortunate with our timing.”

Although the pair knew enough about the market in which they were operating to bypass much of the research usually required when starting up, they still put together a meticulously prepared business plan.

“I remember in our first month of trading we’d budgeted to lose £7,000 and we actually lost £5,000, so we were delighted, giving each other high fives and everything!” Holroyd recalls. “It was crazy time, looking back, but such is the beauty of the business plan.”

Holroyd Howe had a three-year business plan, with a further two years bolted on, although considering the success of the firm, it’s unsurprising that Holroyd reveals they have “pretty much blown apart” their original projections.

The duo were put off from borrowing from the banks to fund the business, feeling that all of the risk was placed upon them.

So they approached a third party investor, who stumped up the £80,000 needed to get the business up and running. Unusually, the founders decided that they would pay themselves a salary from day one, an outlay that proved the business’ largest initial expense.

“At the time we had young families and mortgages,” Holroyd explains. “It was agreed we would pay ourselves – not as much as we’d been earning, but an amount that would get us through the first year.”

The entrepreneurs rented an attic office above an estate agents, which they embellished with computers and phones. Holroyd recalls that they painted the interior of the premises, put a carpet down and “begged, borrowed and stole” desks and filing cabinets.

“It was quite romantic in a way, as you’d imagine with any start-up,” he says. “One dilemma we had was that we had to buy a binding machine for proposals – one cost £150 and one cost £350. We had a big debate as to which one to buy, as you worry about spending money on anything in those early days.

“We got the more expensive one because we thought it would last and do a better quality job. Those are the kinds of things you have to go through as a new business.”

To aid an air of professionalism to their work, the duo insisted on wearing suits to the office, right from the start. This approach, allied to their experience and skills, reaped almost immediate results. The business had a healthy supply of contracted clients just six months after formation, allowing the founders to put in place all the processes needed to grow the company.

Holroyd Howe was five months old before it employed its first member of staff, to help with accounts. A further month passed before the next employee came on board, to assist operations. The business was helped by the goodwill of those already established.

“One thing that amazed me when we started was the whole community of people out there in business who were 100% behind us and supportive,” Holroyd comments. “The relationship now is ‘You’re a business, we’re a business, we like what you do, let’s get on’, but in those days it was warmer, people went out of their way to help us, which was special.”

However, although Holroyd feels that starting up a business is seen as a “very positive thing to do”, he admits that red tape and regulation, especially involved with employment, can be a “nightmare”.

“It’s crazy – think the rights of people to manage for the benefit of their staff and their business are diminishing,” he says. “I can understand that the rules are there to protect against the unscrupulous employer, but what it actually does is lower the bar and stops good employers being really good.”

The duo began pulling in contracts through their contacts in the industry, alongside some telemarketing. Holroyd feels that the initial small size of the business held advantages when attracting clients.

“There was a market that specifically wanted to speak to us because we were a start-up,” he explains. “People were very keen because we were new, the reason being that they wanted to be a big fish in a small pond. One of their main buying motives was that they would be our main focus of attention.”

The business’ position has drastically changed since those early days. Holroyd Howe, which mainly covers London and the Home Counties, has two direct competitors alongside a handful of national caterers.

“We are on more of a level playing field now – previously, we had an angle because we were smaller and more desirable to prospective buyers,” Holroyd says. “Now we’re judged on wider, more tangible things.”

The growth of the company has outstripped even the high expectations of the founders, who admit to be impatient for success in the fledgling days of the business. Holroyd puts the rapid progress of the firm down to “culture and people.”

“We are a £30 million a year turnover company, but out vales are the same as they were eight years ago when we had no turnover,” he states. “That is crucially important – we may have changed the way we communicate those values, but the ethos itself hasn’t changed a jot.”

Holroyd Howe has steadily built a solid reputation with the minimum of fanfare. The decision was taken early on to not “shout from the rooftops” about the business – mainly because they would have little to shout about.

“More latterly, we’ve the PR up a bit as we’ve had to compete with others on a more equal basis,” Holroyd explains. “Our reputation is one of substance, integrity and delivering promises – that’s come on the basis of evolving a reputation rather than just putting spin out there.”

So what would Holroyd’s advice be to someone wanting to following in his footsteps?

“Plan it well and go for it – you have to believe in it,” he advises. “If you thrive on freedom and doing things your own way, you really should go for it.

“The freedom is wonderful, it’s unbeatable – you can’t imagine going back.”

www.holroydhowe.co.uk

Source: www.startups.co.uk 12^th Jan 2006

Questions

1. What ‘hard decisions’ are likely to be made by an entrepreneur in the formative days of a business?

2. Examine the advantages and disadvantages of forming a partnership.

3. What is ‘gross profit’ – is it the same as ‘net profit’?

4. “Holroyd recalls that he was desperate to start up his own business”. What are the advantages in being self-employed compared to being ‘employed’?

5. “Although the pair knew enough about the market in which they were operating to bypass much of the research usually required when starting up…” Examine what this ‘research’ is likely to have been?

6. What is a business plan and why is it so important?

7. “…red tape and regulation, especially involved with employment,…” Explain what these regulations are likely to be.

8. Explain how the ‘culture and people’ can directly affect a business’s success.

9. There is also a downside to starting your own business- you may go bankrupt. What steps can be taken to minimise the effect on you of the business closing?

Question 18

2008-10-21T18:04:00.001-07:00

Does Google know what it's doing ?

The "Googleplex" in Silicon Valley California was developed four years after the company started. It is unreconstructed 1960s California:

· bikes in the corridors

· lava lamps everywhere

· the famous ex-Grateful Dead chef cooking delights in the Google canteen

· a grand piano in reception for the Google PhDs to play during breaks

· most impressive of all: a live selection of searches being requested at that moment all over the world

The founders of Google are Sergey Brin and Larry Page. Last year's extraordinary share sale made them multi-billionaires. The founding duo was not at all clear about what the business plan actually was. The company is

· mapping your desktop

· managing your pictures with Picasa

· mapping the earth with Google Earth

· offering search over mobile phones

· going local by rolling country-specific search engines

· edging into telecoms by trying to build a fibre optic network

· starting up an agency to place print ads like those on its web pages

· launching Google Talk for instant messaging

· launching Gmail for electronic mail

Google wants to

· make the contents of books searchable to everyone

· make TV programmes searchable

One year after the company's first share flotation, Google is the fastest growing company ever seen. At present, it professes "to organise the world's information and make it accessible". The plan is to bring in the even more grandiose aim "to become the marketplace for all global commerce".

Source: BBC Online November 15^th 2005 (adapted)

Questions

The share sale made Brin and Page billionaires. What is so attractive about shares in Google?
The duo are ‘not clear about what the business plan was’. What is likely to be in a business plan?
Is a business plan essential?
What is a ‘share flotation’?
Outline the main differences between a private and a public company

Question 17

2008-10-21T18:03:00.001-07:00

Give your business a spring clean

Entrepreneurs should make the best possible start to financial year by giving their businesses a ‘spring clean’, according to Bibby Financial Services.

Bibby’s top tips are:

Get back to basics – get your paperwork in order. You need a system for storing all your purchase and sales invoices, a petty cash system and a cashbook to summarise all the information. Keep all bank statements safe.

Invoice on time – Late payment is sadly a way of life for businesses. So, make sure you send out invoices and statements early. Keep a record of all ongoing projects so its easy to raise an accurate invoice. Always ask your customer for a purchase order number and quote that on your invoice.

Take control of your credit control – Its vital that you ‘get tough’ on credit control. Perform credit checks on new customers, set sensible credit limits and if payments are late, chase them up.

Look at new funding options – If you are stuck with a bank overdraft that is repayable on demand and not flexible enough to cope with the demands of your business then consider more innovative methods of funding, such as invoice finance.

Review your suppliers – Review the prices your suppliers are charging you – just a five or ten per cent reduction could make a huge difference to your business.

Dust off your business plan – When you launched your company, chances are that you worked hard to produce a winning business plan. Have you ever looked at it since? Don’t forget that this was once the core distillation of your ideas. Review it now.

Call an accountant – Accountants not only get your systems in order; many also offer business advice. If you are worried about fee levels, make sure you get quotes before appointing your chosen firm or individual.

Source: www.startups.co.uk 16/4/04 (adapted)

Questions

Explain the italicised terms.
Outline three items that would go in a business plan
Describe the key criteria when choosing a supplier.
Explain how the above steps will improve the cash flow for a business.

Question 16

2008-10-21T18:01:00.001-07:00

Club's deadline over new stadium

Cardiff City FC has three months to produce a business plan for its proposed 30,000-seat stadium.

A meeting of Cardiff council's executive on Thursday imposed a 90-day deadline from 31 December for the club to prove the project is viable.

The club, which last season faced a financial crisis and is also losing income due to low crowds, had asked for six months to satisfy the council.

Cardiff City has said it remains confident the stadium will go ahead.

The council's executive agreed with its economic scrutiny committee who last week said the stadium project was not viable as it stands. The club asked for another six months to produce new plans, but the council's executive said the Bluebirds should receive 90 days from New Year's Eve to prove the viability of the project.

The club plans a 30,000-seat stadium, which could rise to a 60,000 capacity, on land at Leckwith, near the club's current Ninian Park ground.

Integral to the scheme is securing retail development. American discount store group CostCo earlier this year signed a contract to become a tenant but other stores are needed to join the project.

He added: "There's instances where people go on a match day to the Bob Bank (stand) - a father and son is £36 for the two of them, that's disgraceful.

"It should be under £20 for a father and son to sit at a football match at this level."

In a statement on the club's website, Cardiff City said that due to average attendances running 2,000 lower than their break-even point of 13,000, they expected to suffer "a reduction of income of £600,000 over a whole season".

Source: BBC News 1^st December 2005 (adapted)

Questions

1. What is likely to be in Cardiff’s business plan?

2. If a club is losing income owing to low crowds, should they reduce ticket prices?

3. if the crowds are low, does it make sense to increase the stadium’s capacity/

4. Given the information in the final paragraph, what is the average ticket price?

5. Outline ways in which the break-even point can be reduced.

Question 15

2008-10-21T18:00:00.002-07:00

Biofuel raises global dilemmas

The massive depots at Wessex Grain's sprawling processing plant in Henstridge are filled to the brim, not only with locally grown wheat, but also with hope for a more environment-friendly future.

Here, the Wessex Grain subsidiary Green Spirit Fuels has just been given planning permission to create Britain's first bioethanol plant, which will eventually convert 340,000 tonnes of locally grown wheat per year into 131 million litres of ethanol.

And since the government's Renewable Transport Fuel Obligation demands that 5% of all motorcar fuel must come from renewable sources by 2010, bioethanol will be used to fuel a growing number of cars on British roads, insists Green Spirit Fuel's finance director, Arthur Llewellyn.

"The UK will need 10 production plants like the one in Henstridge to meet the government's requirements," he says.

Ordinary cars can run on blends of 5% biofuel and 95% petrol, and this is quickly and silently emerging as a standard fuel at Britain's service stations.

But some of the ethanol will be mixed with just 15% petrol to produce a fuel dubbed E85 (since it contains 85% bioethanol), which can be used by specially biofuel-enabled cars, like the Ford Focus flex-fuel or the Saab Biopower.

Source: BBC News 17^th January 2006 (adapted)

Questions

How many litres of ethanol per tonne of wheat?
If 131 million litres of ethanol = 5% of all motorcar fuel, how much is the total of fuel?
How much petrol is there in E85?
If all fuel used is E85 and 131 million litres of ethanol are sold, how much petrol is also sold?

Question 14

2008-10-21T18:00:00.001-07:00

Hammers announce return to profit

West Ham have described pre-tax profits of £11.8m for the year ending May 2004 as "little short of extraordinary". The London club had a deficit of £5.3m in their last year in the Premiership but, since relegation in May 2003, have turned that loss into a profit. A total of £24.8m was brought in through the sale of 10 players, while the wage bill has been cut by £10m.

Chairman Terence Brown described the results as "a remarkable achievement under the circumstances".

Source: BBC News 28^th October 2004 (adapted)

Questions

What was the increase in profits for West Ham?
How much was received on average for the sale of a player?
Suggest three ways in which the wage bill could have been cut.

Question 13

2008-10-21T17:59:00.003-07:00

Spurs eye success as profits soar

Chairman Daniel Levy wants Tottenham to deliver on the pitch - after announcing a record annual profit of £4.1m for the year ending 30 June 2005.

They recorded an increased turnover, plus a profit on player sales of £5.6m.

"We now need to deliver success on the pitch if we are to continue to invest at this level," said Levy.

The results come a year after Tottenham revealed annual losses of £2.7m, with a ninth-placed Premiership finish cited as a prime reason for the turnaround.

Tottenham's spending on players over the past two years has risen to £61.8m and Levy now wants success on the pitch to follow that large investment.

Their improved league finish, from 14th in 2003-04, helped Tottenham's turnover to exceed £70m for the first time.

That £70.6m income was a step up from £66.3m in 2004.

Source: BBC News 5^th October 2005 (adapted)

Questions

What was the percentage increase in turnover?
By how much did the profits on sale of players increase?
Calculate the profit/sales ratio for both years and comment?
If the profit on the sale of players was £5.6m and turnover had increased, why was the annual profit only £4.1m?

Question 12

2008-10-21T17:59:00.001-07:00

Man Utd reveal £12.3m profit drop

Manchester United made a profit of £46m for the year ending June 2005 - a drop of £12.3m from the previous 12 months.

United chief executive David Gill, who now reports to new owner Malcolm Glazer, attributed the fall in profits to a drop in television money.

United paid £2.2m to agents, including £1.5m to buy Wayne Rooney from Everton.

Despite United going out of the Champions League in the group stages this season, Gill is confident the club will report good figures for next year's results.

"The forecast for 2006 is very good but I am not going to predict profits will be over £50m," he said.

"But going forward, the new stadium expansion means there will be nearly 8,000 extra seats from the start of next season and the end of 2007 is looking very positive."

Source: BBC News 22^nd January 2006 (adapted)

Questions

What is the percentage fall in profits for Manchester Utd?
What percentage of the total agents’ fees does the Rooney transfer represent?
If profits are £50m what is that as a percentage increase?
If average gates are 50,000 at an average seat price of £15, what is the a) weekly b) yearly, revenue for first-team games?

Question 11

2008-10-21T17:58:00.001-07:00

Eriksson exposes manager he claims is most corrupt

'THIS MAN IS A CROOK'

ENGLAND coach Sven Goran Eriksson has sensationally claimed top Premiership clubs are riddled with corruption.

The Swede accused managers of pocketing cash from transfer deals during taped meetings with a News of the World undercover reporter, we can reveal today.

· CLUB ONE is a struggling Premiership outfit whose manager Eriksson labelled "the worst" at taking backhanders.

· CLUB TWO is one of the country's most famous names whose boss Still accused of being involved in a big transfer "scam" .

· CLUB THREE is another leading side which allegedly paid over the odds for players in "illegal deals".

The explosive claims of Eriksson and his agent came at meetings in Dubai with our reporter who was posing as a rich Arab. We were there to speak to him about a coaching role at a football academy but Sven suggested our man buy Aston Villa and agreed to run it.

Eriksson wanted a £15 million three-year contract "after tax". He eagerly offered to go scouting and watch Villa — AND he said it would be no trouble moving home. He told our man the keys to him doing the job were "the price to buy the club. And then how much are you willing to invest the next year. I think that's the most important."

Source: News of the world 22^nd January 2006 (adapted)

Questions

If a player costs £10m and the Agent is paid 10% of the player’s fee what is the total cost to the purchasing club?
If a player is on a free transfer but his salary is £5 m a year what is the weekly cost to the club?
If a player costs £4m and is then sold back to the selling club a year later for £3m and in both cases the player (who did not ask for the transfer) receives 10% of the fee, how much does the player make?
If tax is 40% and Sven wants £15 million 3- year contract after tax how much is the gross?

Question 10

2008-10-21T17:56:00.001-07:00

Question 10 - EasyClean

EasyClean has been involved in the production of a range of cleaning products since the early 1970s, with the aim of producing affordable, high quality goods. Over the years, EasyClean has developed a wide product range in response to changing consumer demands.

CreamClean is the oldest product in the range and is a multi-purpose, no frills cleaner. In attempt to boost flagging sales in the early eighties, the product was repackaged and two new fragrances were added. Sales levels improved a little, but over the last ten years, demand for CreamClean has steadily dropped.

HandyClean range was initially launched just over ten years ago and comprises of a kitchen and bathroom cleaner, both packaged in an easy to use spray bottle. HandyClean was an instant success and sales still remain high.

FoamClean is a relatively new foam-based product that has not been as successful as EasyClean had hoped. Although initial demand for the timesaving product was high, to EasyClean’s surprise, sales have recently started to fall.

AntiBacClean is a hugely successful product, which entered the market just over two years ago. Since then, sales have steadily increased and show little sign of slowing down.

QuickClean simply requires the user to spray the product and leave it to clean. It is the latest product to be launched onto the market and demand is still low.

ProtectClean, a product that contains an active protective ingredient to prevent staining, is currently undergoing development. The development process is becoming very costly but the managers at EasyClean are determined to continue with it. In the competitive market of cleaning products, innovation and product development is a key way to protect market share.

Questions

1. a) Describe the stages of the product life-cycle. (2 marks)

b) At what stage of the product life-cycle are EasyClean’s products? (4 marks)

c) Comment on the balance of EasyClean’s product portfolio. (4 marks)

2 a) Explain what you understand by the term ‘extension strategy’. (3 marks)

b) Explain the reasons for the failure of the extension strategy used for CreamClean.

(4 marks)

3. Evaluate the likely success of ProtectClean. (8 marks)

Question 9

2008-10-21T17:55:00.001-07:00

Question 9 – Staniland Ltd

Staniland Ltd manufacture electronic weighing equipment for use on transport and weighbridges.

All the parts are made in-house from raw materials. The company is considering buying in a certain type of unit “XL3” so that production facilities can be released so that the business can work on a new product, “XL20”.

The cost of making per unit “XL3” with a current level of output of 4000 per year is:

		£

	Direct Materials	42
	Direct Labour	23
	Variable Overheads	18
	Fixed Overhead	17
		100

An outside supplier has quoted a price of £96 per unit.

If the “XL3” is outsourced, the company will be able to produce and sell 800 “XL20” the new product. An “XL20” has a selling price of £300 and variable costs per unit of £200.

Question

Advise the management of Staniland Ltd whether or not, in financial terms, the “XL3” units should be outsourced.

Question 8

2008-10-21T17:54:00.001-07:00

Question 8 – Musgrave and Aldridge Ltd

Musgrave and Aldridge Ltd manufacture shirts and blouses. They have been established a number of years and are well known for the quality of their product.

A company overseas has offered to manufacture one particular style of men’s shirt - the ‘Royal’ - at a cost of £21 each.

The management accountant at the company has prepared the following cost estimate per unit of output – based on current production levels for the ‘Royal’ design:

		£

	Direct Materials	11
	Direct Labour	4
	Variable Overhead	3
	Fixed Overhead	5
		23

Currently there are no further uses of the production facilities at the company’s plant.

Questions

1 Advise the management of Musgrave and Aldridge Ltd whether or not, from a purely financial view, the “Royal” design shirts should be bought in from overseas. (15 marks)

2. Other than the financial implications, what other factors should the management of the company consider before making a final decision? (15 marks)

Question 7

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Question 7 – Idsley House Rest Home

Mike and Margaret Metcalf are in partnership as ‘Idsley House Rest Home’ in the North East of England.

You are a self employed accounting assistant and the Metcalf’s are one of your clients who you visit on a monthly basis.

On a recent visit to the home you have discussed the preparation of the budget for year ended 31 July 2001; and an extract of this is shown below.

There are 11 residents in the home and the average charge per resident week is £189.59.

Budget Operating Statement Year Ended 31 July 2001

	£

Income from Residents	108446

Less Expenses:

Staffing	32159
Food Costs	19219
Laundry	1922
Insurance	2048
MV Running Costs	1844
Office and Admin	1312
Repairs and Maintenance	525
Heat, Light and Power	5617
Loan Interest	7908
Depreciation: Vehicles	2000
Furniture and Fittings	2500
	77054

Net Profit / (Loss) for Year	£31392

Your discussion centred on the analysis of costs – fixed and variable and break-even concept.

In your discussion it was noted that one third of the motor vehicle running costs were fixed; and two thirds of the heat, light and power cost was variable. Staffing is considered to be a fixed cost.

Questions

1. Prepare a schedule to show the fixed and variable costs in total for the budget period. (10 marks)

2. Calculate the contribution per resident per week. (10 marks)

3. Calculate the break-even point per resident week. (10 marks)

Question 6

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Question 6 – Agricultural Services

John Smithson is the sole proprietor of Agricultural Services, a small firm which provides contracting services to farms and other clients in East Yorkshire.

You are a self-employed accounting assistant and Smithson is one of your clients.

At a recent visit to Agricultural Services you are discussing the budgeted profit statement for year ended 30 June 2000.

The discussion concerns the analysis of fixed and variable costs in the budget, break-even point and the outline forecast for the year ended 30 June 2001.

The budgeted statement for the year ended 30 June 2000 is as follows:

	£

Turnover (work – done)	110550
Less Variable Costs	49725
Contribution	60775
Fixed Costs	40000
Profit / (Loss)	£20775

Outline Forecast for Year Ended June 2001

	£

Turnover (work – done)	145000
Less Variable Costs	65000
Contribution	80000
Fixed Costs	45000
Profit / (Loss)	£35000

This outline forecast assumes a level of 100%.

Questions

1. List those costs which would be in the budget as fixed and those considered to be variable.

(10 marks)

2. Calculate the break-even level in value of turnover for both the existing budget and the outline forecast for 2001.(10 marks)

3. Prepare a statement to show (for the outline forecast year ended June 2001) profit / (loss) at the following levels of activity: 80% 100% 120% (10 marks)

Question 5

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Question 5 – Fylinghill Cricket Club

You are the treasurer of Fylinghill Cricket Club. At a recent meeting your secretary has received a letter from the secretary of the Esk Forest Cricket League asking Fylinghill to organise and host the running of the league’s annual cricket dinner. This is to take place in April.

Following custom, the league secretary, treasurer and chairman and their respective partners would be invited to the dinner as non-paying guests, with the club providing wine for the top table. The cost of a ticket last year was £15 excluding wine and there had been 80 paying diners. Any profit or loss on the dinner would be taken or borne by Fylinghill.

The invitation was placed on the agenda for discussion at the club’s December 1999 meeting when you (the treasurer) were asked to report on the financial risks and likely consequences of agreeing to host the dinner.

You prepare the following outline figures:

The best quote for a venue is the Cadeby Inn where there will be no charge for the room and the food would be provided @ £10.50 per head with four bottles of wine provided for the top table at £7.50 per bottle.

The Holly Beat disco has quoted £120.

Philip Gower, County Cricketer will be the after dinner speaker – fee £80, he will be also a non-paying diner.

Questions

1. Prepare a schedule showing the detail of the fixed costs and a total for the dinner. (10 marks)

2. Prepare the statement to show the contribution per ticket. (10 marks)

3. Find the break-even point for the dinner. (10 marks)

4. Prepare a statement to show the surplus or deficit at the following volumes of ticket sales:

60, 70, 80. (10 marks)

Question 4

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Question 4 – Day & French Farmers

Charles Day and Jack French are in partnership as farmers in the East Riding of Yorkshire.

One of their enterprises is a pig unit of 100 sows. The output from the unit – piglets are sold on to Stonehill Farms at 23 kgs live-weight for £35 per unit of output.

You are a mobile book-keeper administrator with a number of farmers as clients. You visit Day and French on a monthly basis.

The following is the budgeted profit statement for the pig unit for year ended 30 June 2000:

Budgeted Profit Statement

	£

Sales (2400 units @ £35)	84000

Operating Expenses:

Wages	12000
Feedstuffs: Boars and Sows	19550
Weaners (output)	20975
Heat, Light and Power	1250
Vet and Medicine	800
Miscellaneous Expenses	1200
Office Expenses (inc Mobile Admin Service)	1000
Insurances	2100
Repairs and Maintenance	1500
Depreciation	9450
	69825

Profit or (Loss)	£14175

On a recent visit to the farm Charles Day asks you what knowledge you have of cost classification, behaviour and break-even point.

It is your opinion that the only true variable cost is the feedstuff for the output.

Questions

1. Prepare an analysis of costs to the following two categories: fixed costs and variable costs.

(10 marks)

2. Prepare a schedule to show the total of fixed and variable costs. (10 marks)

3. Calculate the break-even point in both units of output and value of turnover. (10 marks)

4. Prepare a profit volume graph to show break-even point in units. (10 marks)

Question 3

2008-10-21T17:49:00.000-07:00

Question 3 – Hockeydrive Ltd

Hockeydrive Ltd manufactures hockey sticks. The products are used from school to international level. The business has been established for 30 years and is well known for the quality of its product.

The company’s production costs are classified into the following categories:

· direct labour

· indirect labour

· direct material

· indirect material

· direct expenses

· indirect expenses

Indirect labour, material and expenses are also referred to as overheads.

The following is a list of costs taken from an analysis of a month’s activities:

Cane material for handles, production supervisors’ salary, production operatives’ wages, canteen assistants’ wages, factory rates, power for machinery, factory heating and lighting, rubber grips for stick handles, hire of special tool for one particular order, cost of oil for lubricating machines, depreciation of machinery.

Question

Classify these costs to the headings shown above; set out your answer as:

Cost Classification

(30 marks)

Question 2

2008-10-21T17:47:00.000-07:00

Question 2 - A Team Publications

A Team publication produces books for publication to the adult market. Books are old for £20 each The cost per book is £1 for paper and binding and £0.50 for printing and £0.50 for authors royalties. Salaries amount to £50 000 per year whilst scheduled maintenance is £10000. Advertising is budgeted and fixed at £20 000 per year with other fixed costs amounting to £20 000 per year. The cost accountant is interested in the breakdown of costs and revenues at 5000 unit intervals.

Level of Output	Total Revenues	Fixed Costs	Variable Costs	Total Costs	Profit /Loss
5000
10000
15000
20000
25000
30000
35000
40000

Questions

1. Complete the above table (10 marks)

2. A Team Publications wants to make a target profit of £25000. If costs remained unchanged, examine the impact. (7 marks)

3. Assess the accuracy and usefulness of the above cost information. (8 marks)

Question 1

2008-10-21T17:42:00.000-07:00

Question 1 - The Nostalgic Lamp Company

The Nostalgic Lamp Company manufactures three types of lamp: Mr T., Gloria Gaynor and Donny Osmond models. Production of the lamps are organised into three costs centres. The profit and loss account for the year just ended shows that the Donny Osmond makes a loss and it has been suggested that they may be discontinued.

£000s	Mr T	Gloria Gaynor	Donny Osmond
Sales	500	350	650
Direct Materials	150	80	250
Direct Labour	100	100	250
Variable overheads	50	40	60
Fixed overheads	100	80	110
Totals costs	400	300	670
Profit/loss	100	50	(20)

Questions

1. Define the term ‘cost centre.’ (2 marks)

2. What are the pros and cons of using costs centres in dealing with costs? (4 marks)

3. From the above schedule of costs and profits:-

a) Calculate the variable cost of producing the each of the three lamps (3 marks)

b) Calculate the contribution of each of the three lamps (3 marks)

c) Calculate the total fixed costs (1 mark)

d) Calculate the overall level of profits. (2 marks)

4. The Donny Osmond lamp is discontinued. Evaluate the impact on the company’s overall profits.

(10 marks)

The Purpose of this blog

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To provide a series of 'exam-style' questions suitable for AS Business Studies (AQA) candidates.

Questions will be posted.

People respond.

How to respond.

1. Post answers in the Comments section
2. Copy the question into your own blog. Post your answer. Post a comment here saying you have done this.

'Model' Answers MAY (or may not) be posted here.

Material is thus created for discussion - and the occasional marking guidelines will create an ongoing revision bank.