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Practice Questions and Answers ACCA Paper F1: Accountant in Business

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ACCA Paper F1:ACCOUNTANT IN BUSINESS

Practice Questions and Answers

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Main PageContents Copyright statement For the ladies only 10 Golden Rules f or a Computer-based Examination Computer based exams

SyllabusThe struc ture of the syllabus Level of assessment - Intellectual demand Guided learning ho urs Guide to exam struct ure Guide to examination assessment

Aim Main capabilities

Relational diagram of main capabiliti es Detailed syl labus Approach to examining the syllabus

Study guide A. The business organisation, its stakeholders

and the external environment

B. Business organisation, structure, functionsand governance

C. Accounting and reporting systems, controls andcompliance

D. Leading and managing individuals and teams

E. Personal effectiveness and communicationin business

F. Professional ethics in accounting and business

Your Study Material The syllabus outl ine and our Questions and Answers pathway throug h it (2 screens). Click here

In ADDITION there are FIVE tests. Click below.

Diagnos tic Test 1 Questions Answers Diagnos tic Test 2 Questions Answers Diagnos tic Test 3 Questions Answers Diagnos tic Test 4 Questions Answers Diagnos tic Test 5 Questions Answers Diagnos tic Test 6 Questions Answers

59 Quickies Test Questions Answers

ACCA Paper F1 Accountant in Business:

Practice Questions and Answers

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The syllabus out line and our pathway throug h it .

Sub-topic Pages

Questions Answers

Cover 24 126

The purpose and types of business organisation 25 127

The business organisation structure and design 26 128

The formal and informal business organisation 33 141

Organisational culture in business 35 149

Stakeholders in business organisations 37 155

Information technology and information systems in business 41 161

Committees in the business organisations 44 171

Fundamental principles of ethical behaviour and corporate codesof ethics

46 173

Governance and social responsibility in business 48 177

Political and legal factors affecting business 55 190

Macro-economic factors and micro economic factors 57 193

Social and demographic factors 63 204

Technological factors 64 204

Competitive factors 64 205

Function of accounting in business 67 210

Principles of law and regulation governing accounting and auditing 68 211

Financial systems, procedures and related IT applications 75 225

The relationship between accounting and other businessfunctions

75 226

Accounting and finance functions within business 78 230

Click to the next sc reen to continue our pathway

Either click to your selected topic or scroll , screen by screen,

through the questions and answers

CONTENTS

This free sample shows two topics(shaded pink)



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The syllabus out line and our pathway through it .

Sub-topic Pages

Questions Answers

Internal and external auditing and their functions 85 244

Internal controls and security within business organisations 88 249

Fraud and fraudulent behaviour and their prevention inbusiness, including money laundering

94 259

Leadership, management and supervision 99 266

Individual and group behaviour in business organisations 103 279

Team formation, development and management 104 282

Motivating individuals and groups 105 284

Recruitment and selection of employees, managing diversity,and equal opportunity

111 297

Personal effectiveness techniques 114 304

Communicating in business 117 310

Learning and training in work 119 319

Review and appraisal of individual performance 123 327

When you meet someone better than yourself, turn your thoughts to becoming hisequal. When you meet someone not as good as you are, look within and examineyour own self.

Confucius



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Questions covering the topics in the syllabus

QUESTIONS

ACCA Paper F1: Accountant in Business



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The purpose and types of business organisation

1 Which of the fol lowing types of organisatio n has/have a separate legal personality ?

Types

1 Sole trader2 Partnership3 Public limited company4 Private limited company

A Type 1 onlyB Types 2 and 3 onlyC Types 1 and 4 only

D Types 3 and 4 only

2 Private enterprise would not describe:

A a sole traderB a professional bodyC a partnershipD a public limited company

3 Which of the following is no t a feature of co-operative societies?

A Constitution as corporate bodies with limited liabilityB Distribution of surpluses in proportion to the value of members purchasesC Political or religious affiliationD Democratic control of the societys affairs

4 Which of following organisations is normally found in the public sector?

A Companies listed on a stock exchangeB CharitiesC Professional institutesD Schools

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The business organisation structure and design

5 Which of the fol lowing concepts place the customer at the centre of organisatio nal decisio n-making?

A Product conceptB Production concept C Sales conceptD Marketing concept

6 In relation to organisational structures which of the following is the correct definition of theterm span of control?

A The number of employees that a manager is directly responsible forB The number of managers an employee reports toC The number of management levels in an organisational structure

7 Which one of the foll owing is a potential advantage of decentralisation?

A More accountability at lower levels B Improved control by senior managementC Improved risk management at the operational levelD Better cooperation of decision making across the organisation

8 Which of the following is the main role of marketing?

A To persuade potential customers to convert latent need to expenditureB To maximise sales volumeC To identify and anticipate the needs of potential customersD To inform potential customers of goods and services offered

9 Computer print ing devices are relative cheap to buy, however the cartridges required tooperate them are expensive. What kind of p ricing st rategy is this?

A Price skimmingB Price penetrationC Captive product pricingD J ewel in the Crown (or Goldylocks) pricing

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10 A key decision under place when reviewing the marketing mix decisions is whether to sell director to sell indirect (through intermediaries).

Is this st atement true or false?

11 The strategic marketing process for a new product has three strategic elements:

A targeting/analysis/positioningB competitive analysis/choice/actionC research/market mapping/actionD analysis/targeting/implementation

12 Market research carried out as part of the strategic planning process will typically fall under

which of the following headings?

A Conditioned research/ Ad hoc Research/Test trialsB Primary research/ Secondary research/ Prototype testingC Desk research/ Field research/In house researchD In house research/Field research/Ad hoc trials

13 When considering the sequence in which marketing activities take place, targeting is done firstfollowed by market segmentation.


14 A company with a marketing orientation believes that:

A products should be made according to the entitys competence and then sold actively andaggressively

B meeting customer needs better than competitors is the key to corporate successC the level of sales, advertising and sales promotion is critical to corporate successD differentiating goods and services is the key to competitive advantage

15 The marketing mix is best described as:

A a mix of people from the marketing, design, purchasing and finance departments who are in chargeof reviewing the companys product selection

B the mix of experts in the marketing department who formulate marketing tacticsC the mix of market planning and field selling that integrate to obtain corporate objectivesD a set of marketing decisions blended to produce desired results

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16 In the context of the evaluation of the marketing mix, which of the fol lowing are the two mainproduct issues to consider?

A Quality and PriceB Price and Promotion

C Place and PromotionD Definition and Positioning

17 Which of the foll owing prici ng strategies is aimed at gaining market share?

A Penetration pricingB Price skimming

18 Deciding which products or services to produce is usually part of:

A strategic planningB operational planningC production planningD budget planning

19 The predominant form of business entity is:

A sole traders and partnershipsB limited liability partnershipsC limited liability companiesD quoted companies

20 Which of the foll owing is an advantage of decentralisation?

A Improved local decisionsB Increased goal congruenceC More coordination horizontally between managers at the same levelD Reduced need for vertical reporting

21 The entrepreneurial struc ture is typical of which of the fol lowing?

A large and successful entities dominated by a powerful individualB Small companies in their early daysC Risk taking entities of all sizesD Fast growing companies

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22 Which of the foll owing organisations could be said to be fully owned and democraticallycontrolled by its members?

A Local government councilB Privately owned hospice funded from donationsC A fast-food franchise chainD A wholesale cooperative

23 Which of the foll owing is strategic by nature?

A Planning to enhance a customer-relationship management system on the entitys e-commercewebsite

B Negotiating with an outsourcing organisation concerning the production of a sub-assembly for oneof the entitys major products

C Planning to design a paper-free workflow system which would ultimately restrict paper only to themail-room

D Planning to develop a market in China

24 Which of the foll owing is one of the three planning levels?

A Budget planningB Divisional planningC Project planningD Operational planning

25 Which of the following organisations are only found in a public sector?

A Military unitsB SchoolsC HospitalsD None of the above

26 The publi c sector is normally concerned with:

A making profit from the sale of goods and services

B the provision of basic government servicesC raising funds by subscriptions from the population in general to provide common servicesD providing services to targeted groups funded from charitable donations

27 Sole traders, partnerships, private limited companies and public limited companies would all beconsidered as private sector organisations.


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28 Ten people are the only shareholders in a private limit ed liabili ty company. This is a companythat is not list ed on a recognised stock exchange. This means that:

A they are responsible for the debts of the companyB they cannot be asked to pay the debts of the companyC the company cannot become legally bankruptD the total debts carried by the company cannot exceed a specified figure (in the UK this would be

1,000,000)

29 When considering the roles of different departments, which one of the fol lowing is likely to beconcerned with identifying and satisfying c ustomer needs?

A Customer Support ServiceB Research and DevelopmentC MarketingD Credit Control (in the Treasury Department)

30 Downsizing is the process of removing layers of management .


A TrueB False

31 Which of the foll owing can be delegated?

A ObligationB AuthorityC LiabilityD Responsibility

32 Conflict ing demands over allocation of resources is most likely to be disadvantage from

which type of organisational structure?

A DivisionalB MatrixC GeographicalD Entrepreneur

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33 The line authority relates to .

Which phrase completes the sentence?

A Scalar chainB Ownership versus control

C Span of controlD Number of managerial levels

34 A narrow span of control is likely to lead to a tall management structure.


A TrueB False

35 Which one of the foll owing listed below does not have an organisation struc ture as defined byPeter Druck er:

A political partiesB charitiesC shareholders in a quoted companyD retail companies

36 A college departmental head is considering the use of temporary staff (supply teachers) to fillshort ages due to maternity and sickness leave. Which level of planning is involved here?

A TacticalB StrategicC Operational

37 Selling at a low price with the intention of damaging weaker competitors is referred to as

A price skimming.B opportunistic pricing.C penetration pricing.D predatory pricing.

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The function of wisdom is to discriminate betweengood and evil.

Cicero



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38 An approach of producing goods or purchasing inventory only when required is referred to as

A just-in-time.B ad hoc.C level capacity strategy.

D plan-do-check-act (PDCA) quality.

39 Public relations activit y can be used within marketing as part of

A marketing decision support activities.B a promotional mix.C customer feedback processes.D segmentation practices.

40 Effective product promotion is centred on

A production processes.B customers and communication.C bonuses for sales staff and product quality.D effective systems of monitoring and control.

41 Conventional marketing wisdom suggest s that for successf ul segmentation of markets,segments must be

A relatively unsophisticated in their needs.B economic, efficient and effectiveC measurable, accessible and substantial.D currently lacking in providers.

42 Analysing a market into sub-groups of potential customers with common needs andbehaviours in order to target them through marketing techniques is called

A market research.B market development.C segmentation.D product adaptation.

43 Which ONE of the fol lowing perspectives of strategy is where an organisation avoids radicalstrategies but instead takes small steps based on what has been done before and worked inthe past?

A EcologicalB PositioningC Bounded rationalityD Logical incrementalism

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44 In a multi -divisio nal organisatio n producing a range of products for different markets, thebusiness level strategy of each unit or divis ion is mainly conc erned with

A setting the direction for the organisation.B the competitiveness of a particular division.C the efficiency of production, marketing and other functions.D alignment of strategy with other organisations.

45 In the typic al hierarchical organisation, the requirement of a lower-level manager to answer toa higher-level manager in the chain of command is referred to as

A authority.B empowerment.C accountability.D super ordination.

46 When designing an organisational struc ture, or reviewing the effectiveness of an existingstructure, the first thing t hat must be clarified is

A informal organisational relationships.B objectives of the organisation.C size of organisation.D division of labour.

47 Decisions about acquisitions, mergers and sell-offs occur at which ONE of the following levels?

A Functional levelB Corporate levelC Business levelD Competitive level

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Questions covering the topics in the syllabus

ANSWERS

ACCA Paper F1: Accountant in Business



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The purpose and types of business organisation

1 Answer D

When a limited company is formed public 3 or private 4 the Registrar of Companies issues a

Certificate of Incorporation, which gives the company a separate legal personality. This meansthat it can do the legal things that are available to an ordinary person, e.g. it can own property,employ people, and be involved in legal action. Sole traders 1, and partnerships 2, do not havethis: the business will be a separate accounting entity i.e. accounts are prepared for the business asdistinct from the individuals but not a separate legal personality. Anyone making a legal contract witha sole trader or partners does so with them as individuals, and does not make a contract with thetraders business.

2 Answer B

Private enterprises are business organisations which are owned and operated by certain clearlyidentified individuals who are also entitled to the rewards of the undertaking. They include soletraders - Distractor A , partnerships - Distractor C , private limited companies, public limited companiesDistractor D and holding companies (private or public limited companies which control other companiesby virtue of holding 51% or more of their voting shares). A professional body B is not in this category,but would fall into the category of not-for-profit (NFP) organisations, which exist to confer benefits orpromote objectives which may, or may not, involve commercial activities.

3 Answer C

The first successful co-op was founded in 1844 by Rochdale textile workers to buy foodstuffs atwholesale prices and sell them to members at market prices: the profits or surpluses were thendivided among members in proportion to the value of their purchases. Co-operative trading istoday applied to retail, wholesaling, farming and agriculture. In the UK, co-operatives are limitedliability companies, under the Industrial and Provident Societies Acts, A . The principles of co-operative trading include distribution of surplus by dividend B, democratic control (one man onevote) D, open membership and political and religious neutrality so C is the odd one out, andthe answer here.

4 Answer D

All the organisations, except for schools, are normally part of the private sector. (The word used isnormally there are of course some schools found in the private sector.)

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The business organisation structure and design

5 Answer: D The market concept (or marketing concept ) holds that the key to achieving organisational goalsconsists in determining the needs and wants of target markets (customers) and delivering the desiredsatisfactions more effectively and efficiently than competitors

6 Answer A The span of management or control , or span of supervision, relates to the number of subordinatesthat a superior can supervise effectively.

7 Answer A Decentralisation increases the accountability of managers at the lower level. B , C and D are notcorrect statements.

8 Answer: C Marketing is a management process through which goods and services move from initial concept tothe customer. The main roles of marketing managers are:

(i) targeting a customer group (segmentation)(ii) analysing the buying behaviour of the customer group (market research)(ii) positioning a marketing mix for the customer group(iv) repositioning the market mix as the market environment changes.

9 Answer: C

Captive product pricing is used where customers must buy more than one type of product which areused together, such as a computer printer and toner powder. The first product (the computer printer) isset at a low price but the second (the toner power) is expensive, once the customer is captive. Thispricing strategy is sometimes referred to as iceberg pricing (only the tip of the iceberg can be seenabove the surface, but a large and dangerous part it hides beneath the surface and is not so easilyseen).

Market skimming s trategy Some companies favour setting high prices for new products to 'skim' the market - they estimate thehighest price that can be charged given the comparative benefits of their new products versus theavailable substitutes.

Market penetration pricing s trategy Some companies favour setting low prices for new products to penetrate the market. It sometimesrelates to a 'more for less' pricing philosophy. If a company prices at a low price (less than itsperceived value) it will gain a higher-than-average market share because buyers will be getting extravalue for their money. Penetration pricing often comes down to companies simply setting lower priceson their new products compared to competitors.

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"Goldilocks" pricing (sometimes called " jewel in th e crown" pricing) The term Goldilockspricing is commonly used to describe the practice of providing a "gold-plated" version of a productat a premium price in order to make the next-lower priced option in the line look more reasonablepriced; for example, encouraging customers to see business-class airline seats as good value formoney by offering an even higher priced first-class option. The name derives from the Goldilocksstory, in which Goldilocks chose neither the hottest nor the coldest porridge, but instead the one thatwas "just right". More technically, this form of pricing exploits the general cognitive bias of aversion toextremes.

10 Answer: TRUE Products can be sold directly (e.g. through the companys own retail outlets, or by website selling) or through intermediaries such as wholesalers and independent retailers.

11 Answer: A First a potential customer must be identified (and targeted). The buying behaviour of the customermust then be analysed so that an appropriate marketing mix (of decisions) can be positioned for thecustomer.

12 Answer: C Market research involves acquiring information about the customer in order to decide the appropriatemarketing mix. Test Therefore tests or trials are not part of market research because they aretesting the marketing mix which comes later in the cycle.

13 Answer: False A market needs to be segmented in order to identify targets. Segmentation is the initial part of targeting. Market segmentation is the process of dividing a market into groups who have uniqueneeds, wants and buying behaviour or who might want different products and services so that a distinctmarketing mix can be offered to them.

14 Answer: B A , C and D are correct statements. However B is the statement that most closely relates to amarketing orientation (referred to in the question).

The modern marketing orientation (or marketing concept) is about identifying and meeting profitablythe needs of the customers. Customer needs can be current or created by extending, modifying and

adapting the provision of the products currently available.

The development of an integrated marketing strategy for the Integrator involves four main tasks.

(i) Segmentation (or targeting) This involves profiling, or segmenting, the market and targeting (identifying) potential customers. This phase of the marketing effort involves dividing the market into distinct sub-sets of needs. Thiswould enable the entity to develop and design its marketing mix for different groups of potentialcustomers.

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(ii) Market researchCarrying out market research to establish the need and behaviour of the targeted customerswould help establish attitudes of the targeted customers in regard to such matters as prestige,style, pricing, special needs, colour, packaging appeal and so on. The findings and conclusionsarising from the research enable management to decide on the company's marketing strategy.

(iii) Positio ning the marketing mix The development of the integrated strategy for the entity would cover four elements. Themarketing mix involves decisions concerning the product, price, place and promotion. Theelements are linked in that a marketing strategy followed in one aspect must be aliened to andmake sense in the context of strategies followed in the other three aspect

(iv) Reposi tioni ng the marketing mixAs time goes by and the market environment changes then management must also be prepared tochange, or reposition the marketing mix. For example, in times of economic recession, it maybe appropriate to reduce the selling price of a product, change its mode of selling and redesign itspromotion platform.

Overall, the role of marketing involves a difficult balancing act of both satisfying customer wants, orlatent needs, obtaining competitive advantage, whilst at the same time meeting corporate objectives.

15 Answer: D The marketing mix is a blend of different marketing decisions. Traditionally the decisions related toproduct, price, promotion and place. However more recently, particularly with the advent of selling fromwebsites, three more Ps have been added to the mix: People, Physical presence and Process. Referto the diagram on the next sc reen .

16 Answer: D The question refers to the evaluation of the marketing mix, which presumes the entire mix. A , B andC each refer to parts of the mix. The entire mix would be evaluated against its definition (theclearness of its intention) and its positioning (the particular customer group).

17 Answer A Market penetration pricing s trategy Some companies favour setting low prices for new products to penetrate the market. It sometimes

relates to a 'more for less' pricing philosophy. If a company prices at a low price (less than itsperceived value) it will gain a higher-than-average market share because buyers will be getting extravalue for their money. Penetration pricing often comes down to companies simply setting lower priceson their new products compared to competitors.

Market skimming s trategy Some companies favour setting high prices for new products to 'skim' the market - they estimate thehighest price that can be charged given the comparative benefits of their new products versus theavailable substitutes. They set the high price to compensate for the low volume that will usually result.

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23 Answer: D

Strategy is the overarching, long-term plan of operations that will achieve the economic and otherobjectives of the organisation. It is part of the four levels of business planning: goals, strategy,tactics and operations. Business strategy normally relates to product-market direction andcompetitive advantage. Planning to develop a market in China would be strategic.

Distractors A, B and C are all tactical , in other words they are plans which are used to executeagreed strategy.

24 Answer: D

In the context of the Anthony hierarchy (referred to in Section 1.d. of the syllabus) there are threelevels of management decisions:

StrategicTactical (or executive)Operational

These are shown in the diagram on the next sc reen .

25 Answer: A

Most governments want to control military organisations and make private armies illegal.

26 Answer: B

Public sector organisations often make profit from the sale of goods and services (distractor A ) -such as the London Underground Transit System (the Tube) - but this is done only to assist inpursuit of their main objective which is the provision of basic government services.

Distractors C and D are not the concern of public sector organisations but relate more to privatecharities. (Note: government raise most of their money by taxation or trade, which is different fromsubscription.)

27 Answer: True

28 Answer: B

Limited liability is a concept whereby a person's financial liability is limited to a fixed sum, mostcommonly the value of a person's investment in a company or partnership with limited liability. Inother words, if a company with limited liability is sued, then the plaintiffs are suing the company ,not its owners or investors. A shareholder in a limited company is not personally liable for any of thedebts of the company, other than for the value of his investment in that company. This usually takesthe form of shares held in the company and any unpaid dividends. The same is true for themembers of a limited liability partnership and the limited partners in a limited partnership.

By contrast, sole proprietors and partners in general partnerships are each liable for all the debts of the business (unlimited liability).

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The types of information at thislevel of managementinclude:

historical, current andprediction datadata which is relevantto the departmentsome datasummarised, andsome detailed (suchas sales trends,budget results, and soon)

The types of information at this level of management relate to:

current activitiesspecific activities (within departmentsor activities)measurable events, such as overtimehours works, kilograms of material used, etc.data which is detailed

Strategic management

WHAT TO DO!

Executive (tactical) management

HOW TO DO!

Operational management

DO!

Strategic managers will make decisions which:

decide the entitys direction and set the long- andmedium-term objectivesrequire high cost investment and associated riskhave uncertain resultsinfluence the operations of the different departmentsare non-routine and proactive

The types of information and support they need include:

predictive as well as historicaldata which concerns the WHOLE entitydata which is compact and summarised (and yet withthe ability to drill down into more detail as required)data which relates to external (environmental) factorsas well as internal factors

Executives make decisions which:

involve the medium-termimplementation of the strategy(policy)involve departmental performancemonitoring, measurement and controlare partly routine and partly non-routineare both reactive and proactive

Operational managers makedecision which:

involve a short time scale(sometimes very short-term)are routine (rules andregulations based)have predictable outcomes

Fact Sheet:Characteristics of the strategic, tactical and

operational levels in the organisation



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29 Answer: C

The British Institute of Marketing defines marketing as:

The creative management function which promotes trade and employment by assessing consumer

needs and initiating research and development to meet them. It co-ordinates the resources of production and distribution of goods and services, determines and directs the nature and scale of the total effort required to sell profitably the maximum production to the ultimate user.

Although distractors A, B and D are in some part involved with customers their main remit is notconcerned with identifying and satisfying customer needs.

30 Answer BDownsizing refers to a process where a company or a firm simply reduces its work force in order tocut the operating costs and improve efficiency. It has become a legitimate option for business growth

strategies. It is in fact, the most preferred option of companies to sustain operating costs and complywith the existing scope of the business. Downsizing does not necessarily result in delayering.

Delayering is a term in corporate restructuring that refers to a planned reduction in the numberof layers of a management hierarchy. Delayering does not necessarily result in downsizing.

31 Answer: BDelegation describes a condition when the authority to make specific decisions is passed downto units and people at lower levels in the organisation's hierarchy. Responsibility, obligation and liabilitycannot be delegated to subordinates.

32 Answer: BA matrix organisation superimposes one group of specialists on another group of specialists, such as agroup or interdisciplinary team of project specialists on a functional (line) structure. A maindisadvantage attributed to this type of organisational structure is that it can be a cause of conflict andtension between function and product managers which can lead to conflicting demands over the wayresources are allocated between them.

33 Answer: AIn line authority one finds a superior with a line of authority running to a subordinate. This graduationof authority is found in most organisations as an uninterrupted scale or series of steps. Hence thishierarchical arrangement has been referred to as the scalar p rinciple in organisation: The clearer theline of authority from the ultimate authority for management in an enterprise to every subordinateposition, the more effective will be responsible decision making and organised communication. Inmany large organisations, the steps are long and complicated, but even in the smallest, the very act of organisation introduces the scalar principle.

Line authority , therefore, becomes apparent from the scalar p rinciple as being the relationship inwhich a superior exercises direct supervision over a subordinate an authority relationship in direct lineor steps.

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34 Answer: A There is an implicit dynamic between the span of control of managers and the length of the hier-archical structure the wider the span the flatter the organisation, with narrow spans tending to resultin tall organisational structures. A simple example, as shown in the diagram below, may help illustratethe fact. Of course, spans of control are not constant for all managers and at all levels of managers, but

the example still helps to show the dynamic between spans and structure.

35 Answer: C

The other three fall within Druckers definition of an organisation structure.

Whilst many writers refer to the process of organisation and to the organisation of a company, theexpression 'organisation' is very much over used, and should be avoided in this context. Structure is afar better term, and has been defined by Drucker as: ".... a means for attaining the objectives andgoals of an institution.' Drucker, P.F., 'The practice of management', (London: Heinemann, 1979))

If we accept Drucker's definition then an organisation ( structure) consists of:

1. Basic structures - the formal allocation of people and resources to tasks which have to be carriedout and the provision of coordinative mechanisms (job descriptions, organisation charts and theconstitution of boards, committees and working parties).

Organisation with Narrow Spans

Organisation with Wide Spans

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2. Operating mechanisms - indications to organisational members of what is expected of them(standing orders or operating procedures, standards of performance, reward and appraisalsystems, planning schedules and systems for communication).

3. Decision mechanisms - provisions for assisting decision-making and its associated processingrequirements.

36 Answer: C

The example here is of short-term control and is thus operational.

37 Answer: D

In business and economics, predatory pricing is the practice of selling a product or service at a verylow price, intending to drive competitors out of the market, or create barriers to entry for potential newcompetitors. If competitors or potential competitors cannot sustain equal or lower prices without losingmoney, they go out of business or choose not to enter the business.

Price skimming (distractor A) involves setting high prices for new products to 'skim' the market. Acompany estimates the highest price that can be charged given the comparative benefits of their newproducts versus the available substitutes.

Opportunistic pricing (distractor B): involves charging customers unreasonably high prices whengoods or services are in short supply.

Penetration pricing (distractor C) is the pricing technique of setting a relatively low initial market entryprice, often lower than the eventual market price, to attract new customers. The strategy works on theexpectation that customers will switch to the new brand because of the lower price. Penetration pricingis most commonly associated with a marketing objective of increasing market share or sales volume,rather than to make profit in the short term. Penetration pricing can be used as a competitive ploy toswitch customers from a stronger competitor without specifically targeting the customers of weakercompetitors.

38 Answer: A

Just-in-time (JIT ) is an inventory strategy that strives to improve a business's return on investment byreducing in-process inventory and associated carrying costs. To meet J IT objectives, the process relieson signals or Kanban between different points in the process, which tell production when to make thenext part. Kanban are usually 'tickets' but can be simple visual signals, such as the presence orabsence of a part on a shelf. Implemented correctly, J IT can dramatically improve a manufacturing

organisation's return on investment, quality, and efficiency.

Ad hoc (distractor B) means impromptu or unplanned.

Capacity p lanning is the process of determining the production capacity needed by an organisation tomeet changing demands for its products. In the context of capacity planning, "capacity" is themaximum amount of work that an organisation is capable of completing in a given period of time. Levelcapacity strategy (distractor C) has the aim of maintaining a level capacity of production by producingfor inventory in market downtimes and selling from inventory when the market need exceeds itsproduction capacity.

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PDCA (plan-do-check-act) (distractor D) is an iterative four-step problem-solving process typicallyused in business process improvement. It is also known as the Deming cyc le ,

PLAN Establish the objectives and processes necessary to deliver results in accordancewith the expected output. By focusing on the expected output the approach differs fromother techniques in that the completeness and accuracy of the output specification isalso part of the improvement.

DO Implement the new processes. Often on a small scale at first.

CHECK Measure the new processes and compare the results against the expected results toascertain any deviations.

ACT Analyse the deviations to determine their cause.

PDCA is not an approach specific to producing goods or purchasing inventory only when required.

39 Answer: B

Promotion represents all of the communications that a marketer may use in the marketplace.Promotion has four distinct elements - advertising, public relations, word of mouth and point of sale . A certain amount of crossover occurs when promotion uses the four principal elements together.Public relations can be used to build rapport with customers (and for that matter with employees,investors and other stakeholders) and common activities include speaking in the public arena, workingwith the media and press releases, sponsorship deals, exhibitions, conferences, seminars or tradefairs and events.

Distractors A , C and D are not classified as public relations.

40 Answer: B

Promotion is one of the four aspects of the promotional mix (sometimes called the communicationmix). The other three parts of the promotional mix are advertising, personal selling, and publicrelations. Media and non-media marketing communication are employed for a pre-determined, limitedtime to increase consumer demand, stimulate market demand or improve product availability. Examplesinclude: contests , point of purchase displays and rebate (marketing). Product promotions can bedirected at either the customer, sales staff, or distribution channel members (such as retailers).

Distractors A , C and D are activities not related to product promotion.

41 Answer: C

Market segmentation is the subdividing of a market into distinct subsets of customers,where any subset may conceivably be selected as a market target to be reached with a distinctmarketing mix.

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Market segmentation allows companies to treat similar customers in similar ways, whilstdistinguishing between dissimilar customer groups. Each customer group has slightly differentneeds, and these can be satisfied by offering each group, or segment, a slightly differentmarketing mix setting . In addition to superior satisfaction of customer needs, segmentationencourages better analysis of marketing opportunities.

Before investing in a potential market segment a company should use research to ensure that it ismeasurable, accessible and substantial. There are other criteria as shown in the mnemonic SASFRAME on the next screen .

Distractor A is not a valid reason for entering a market. After all, the companys product may besophisticated.

The measure of efficiency (included in distractor B) relates to the ratio of resources used (input) toresults (output), and is not an appropriate basis for measuring a market segment.

Distractor D may be part of the assessment but more measures are called for. For example, does

the fact that the market lacks providers mean that it is not substantial?

42 Answer: C

43 Answer: D

A strategy of logical incrementalism is when an organisation avoids radical strategies but insteadtakes small steps based on what has been done before and worked in the past. It often results inlarge change over a lengthy period of time. (The hour-hand on a clock moves so slowly

[incrementally] that movement cannot be detected, yet each 12 hours it moves through 360 .)

Ecological , distractor A has no relevance here.

Positioning (distractor B ), in business terms, has come to mean the process by which marketerstry to create an image or identity in the minds of their target market for a companys product, brand,or organisation.

Bounded rationality (distractor C ) is a concept based on the fact that the rationality of management decisions is limited by the information the managers have, the cognitive limitations of their minds, and the finite amount of time they have to make decisions. This contrasts with the

concept of rationality as optimisation (i.e. doing the best thing).

Another way to look at boundedrationality is that, because decision-makers lack the ability and resources to arrive at the optimalsolution, they instead apply their rationality only after having greatly simplified the choicesavailable. Thus the decision-maker is a satisficer , one seeking a satisfactory solution rather thanthe optimal one.

44 Answer: B

Distractors A and D are the responsibility of head-office (parent) strategy. Distractor C describestactical and operational planning, not strategy.

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Criteria used to assess the attractiveness of a potentialmarket segment

Part of market research activity involves assessing the attractiveness of the potential identified segment.

Criteria may include:

S Stance (Is the stance in line with companys preferred market stance?) A Acceptability (Does the segment help achieve the companys objectives?)S Substance/suitability (Is the size, potential growth, opportunity for expansion, suitable?)

F Feasibility (Does the company have, or can obtain, the necessary resources required by thissegment?)

R Reach (Does the company have the ability to communicate with the potential buyers?) A Accessibi li ty (Are there formidable entry barriers and/or competitive threats?)M Measurability (Can the size and growth potential be assessed?)E Expansion potential . (Are there expansion opportunities?)

Memory jog: remember the criteria as: SAS FRAME .



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45 Answer: C

Accountabi li ty is often used synonymously with such concepts as responsibility, answerability,blameworthiness, liability, and other terms associated with the expectation of account-giving.

Authorit y (Distractor A) is what Fayol defined as "the right to give orders and the power to exactobedience". Although he does not go much beyond defining the term, he does make several relevantpoints.

(i) He recognises that authority does not merely derive from the official position occupied bythe manager ("official authority") but also from his "intelligence, experience, moral worth,ability to lead .... ("personal authority").

(ii) He repeatedly emphasises the intimate association between authority and responsibility.

Empowerment (distractor B) is the management practice of sharing power, information and resourceswith employees so they can take initiative and make decisions to solve problems and improve the

quality of service and their productivity. It is based on the overarching concept of giving employees theauthority, resources, skills, motivation and opportunity to make decisions as well as holding themaccountable for the outcome of those decisions.

Super ordination (distractor D) is of being superordinate or belonging to a higher rank or class. It is notrelevant here.

46 Answer: B

Distractors A , C and D are planned on the basis of B.

47 Answer: B

Business level managers (distractor C) are responsible for business strategy. Corporate-levelmanagers are responsible for deciding what business the company should operate in. Decisions aboutacquisitions, mergers and sell-offs are made at corporate level. The functional level of management(distractor A ) is mainly responsible for departmental decisions, not corporate-wide decisions. Acompetitive level of management (distractor D) does not exist

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