M17/3/BUSMT/HP1/ENG/TZ0/XX

BUSINESS MANAGEMENT

STANDARD LEVEL

PAPER 1

Practice examination 2017 – Utopia

1 hour 15 minutes

INSTRUCTIONS TO CANDIDATES

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

A clean copy of the IB Business Management case study – Utopia is required for this

examination paper.

Read the case study carefully.

A clean copy of the IB Business Management formulae sheet is required for this examination

paper.

Section A: answer two questions.

Section B: answer question 4.

A calculator is required for this examination paper.

The maximum mark for this examination paper is [40 marks].

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IB Business Management Standard Level Paper 1 Examination

SECTION A

Answer two questions from this section.

QUESTION ONE

a. Outline the importance of market research (line 69) to Utopia in achieving its sales

targets. [4 marks]

b. Examine why Utopia sets ethical objectives (line 17) and implements corporate social

responsibility strategies. [6 marks]

QUESTION TWO

a. Explain the importance to Utopia of having a unique selling point (USP; line 4).

[4 marks]

b. With reference to Utopia, distinguish between strategic alliance (line 74) and joint

venture (line 50). [6 marks]

QUESTION THREE

a. With reference to Utopia, outline two key features of operating as a private limited

company (line 1). [4 marks]

b. Analyse how John Ariki’s paternalistic leadership style would impact on the business

objectives of Utopia. [6 marks]

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IB Business Management Standard Level Paper 1 Examination

SECTION B

Answer the compulsory question from this section.

QUESTION FOUR

The following financial information for the latest financial years is Utopia’s.

Table 1: Selected financial information for Utopia

Selected financial information for Utopia

Year ending 31st December

2016

Year ending 31st December

2015

Cash $200 000 $600 000

Creditors $85 000 $75 000

Debtors $31 000 $35 000

Short-term loans $90 000 $40 000

Stock $37 500 $30 500

Sales revenue $2 900 050 $4 330 405

Cost of goods sold $852 112 $600 054

Expenses $3 504 900 $2 904 510

a. Explain why the capital expenditure (line 64) required to rebuild the 17 damaged villas

would not feature in Utopia’s profit and loss account. [4 marks]

b. Using information in Table 1 above calculate

i. Gross profit margins for the years ending 2016 and 2015 [1 mark]

ii. Net profit margins for the years ending 2016 and 2015 [1 mark]

c. Apply the Ansoff matrix to Utopia’s objective of increasing growth. [4 marks]

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IB Business Management Standard Level Paper 1 Examination

d. Using the additional information in the case study, table 1 above, and items 1- 4 below

evaluate the strategies of developing a souvenir business for Utopia and selling JAC

coffee to other markets. [10 marks]

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Additional information

ITEM 1: GROWTH IN PACIFIC ISLAND TOURISM

Source: KPMG report into Tourism in the Asia Pacific (Jan 2017)

* Strong demand for Pacific Island tourism leads to significant growth in the future. However, this growth is

somewhat restrained by relatively low rates of infrastructure development in the Pacific Islands (e.g., ports,

airports, hotels and resorts).

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ITEM 2: COFFEE PRICES CONTINUE TO RISE ON FALLING SUPPLY AND INCREASING DEMAND

Global coffee prices are expected to increase as droughts in Brazil and Sub-Saharan Africa continue

to limit the supply of coffee, and at the same time global demand for coffee continues to increase.

This is expected to put pressure on both wholesalers and retailers who will not be able to increase their

prices in a highly competitive market.

’13 ’14 ’15 ’16 ’17 ‘18 ’12 ’13 ’14 ’15 ’16 ‘17 ’13 ’14 ’15 ’16 ’17 ’18 ‘19

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ITEM 3: UTOPIA – SUMMARY SWOT ANALYSIS

Strengths:

Established and profitable business operation.

Finance. Strong balance sheet with low levels

of debt.

Established brand.

Differentiated product.

Customers are mostly wealthy and relatively

insensitive to price.

Relatively high gross profit margins.

The location of Utopia.

Privately held company.

Low cost of local labour.

Effective supply chains sourcing fresh local

produce.

Weaknesses:

Finance. The business will only consider internal

sources of finance to pursue growth opportunities.

Relatively undiversified with just two revenue streams.

Marketing. Utopia’s reliance on word-of-mouth

advertising limits its promotional opportunities and

reduces sales revenues.

Management. The paternalistic style of John’s

leadership has resulted in businesses that are family-

run and this means that they are unlikely to have the

skills of qualified and professional managers.

Opportunities:

Increase prices as wealthy customers may be

relatively insensitive to higher prices.

Expand the number of villas to cater for higher

numbers of guests.

Pursue additional revenue streams – souvenirs.

Pursue additional revenue streams – selling

Aora coffee beans in New Zealand.

Pursue additional revenue streams – develop

additional tours and activities for guests (e.g.,

weddings).

Pursue additional revenue streams – develop

a new resort in a new location on Ratu or

other Pacific Island.

Improving internet infrastructure will enable

better and faster communication and allow

Utopia to establish an effective social media

presence.

Develop a promotional campaign to target

potential customers instead of relying on

word-of-mouth promotion.

Threats:

Natural disasters such as hurricanes and tsunamis can

quickly destroy Utopia’s own infrastructure as well as

the supporting infrastructure on Ratu (e.g., roads) and

neighbouring islands (e.g., airports and ports) that

tourists are reliant on to reach Utopia.

Other threats from nature such as mosquito borne

diseases (dengue fever and Zika virus) or an influx of

jellyfish.

Sea level rises and an increase in the number and size

of storm surges.

Increased competition from a new resort on Ratu or

nearby islands.

Poor word-of-mouth promotion from guests (e.g., a

shark attack or bout of food poisoning amongst

guests).

Supply chains. The café (and potential wholesale

operation) is reliant on a single supplier of coffee

beans.

Coffee is a commodity, and thus subject to high

levels of price volatility.

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ITEM 4: BREAKING NEWS

News item appearing in major newspapers and global media.

American antitrust regulators rule that the Ford and Hyundai merger can proceed NEW YORK

For the relatively few people who show signs of a Zika infection, the illness is

often very mild. But in pregnant woman, the effects can be devastating, and

can include pregnancy loss or a baby born with an abnormally small head and

brain – a condition known as microcephaly.

The Zica virus has now been confirmed in Southern Fiji and across all parts of

Samoa. Experts predict that the Aedes mosquito which carries the Zika virus

and transmits it to people will quickly spread across most, if not all, of the

South Pacific.

The first cases of babies born with microcephaly have been reported in Fiji and

Samoa and health professionals are warning women travelling to Pacific

Islands to take extra precautions.

Zika virus disease is caused by a virus transmitted primarily by Aedes mosquitoes. REUTERS/MILENA BAENSCH