AQA A-Level Business: Strategic methods: how to pursue strategies (7132) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover section 3.9 of the AQA AS and A-level Business specification (7132), “Strategic methods: how to pursue strategies” (A-level only): change in scale, innovation, internationalisation and digital technology. All businesses and figures are invented. Revise first with the study guide and the revision notes. The A-level Business hub, the printable checklist and the free diagnostics are also useful.

Questions

1. State two reasons why a business might choose retrenchment. [2]

2. Explain the difference between a merger and a takeover. [3]

3. Oxterby Print spends £180,000 to produce 30,000 books a year. At 60,000 books the total cost is £330,000.

(a) Calculate the percentage fall in average cost per book. [3] (b) Explain one diseconomy of scale that Oxterby could face if it keeps growing. [2]

4. Wetherlow Drones has an 85% experience curve. The first 1,000 drones cost £60 each.

(a) Calculate the unit cost after cumulative output has doubled twice. [2] (b) Explain how the experience curve differs from economies of scale. [2]

5. Roskilly Pastries raised sales from £600,000 to £900,000 in a year by opening new outlets. Its current assets are £189,000 and current liabilities £210,000.

(a) Calculate the current ratio. [2] (b) Analyse why Roskilly may be overtrading. [4]

6. Penwarden Tutors franchises its tuition centres. A franchisee pays a £25,000 initial fee and a royalty of 7% of sales. Sales in year one are £300,000.

(a) Calculate Penwarden’s income from this franchisee in year one. [3] (b) Analyse one benefit and one drawback to Penwarden of growing by franchising. [4]

7. Aldbrook Joinery makes wooden windows. Identify the type of integration in each case. [3]

(a) It buys a timber yard. (b) It buys a chain of window showrooms. (c) It buys a car-hire company.

8. Wetherlow Drones develops a new battery and also installs a new automated assembly line.

(a) Distinguish between product innovation and process innovation, using Wetherlow’s two developments. [2] (b) Explain how a patent could help Wetherlow. [2]

9. Aldbrook Joinery is considering two ways into a new overseas market. Exporting needs £0.4m of set-up cost and is expected to add £2.1m of annual sales at a 12% profit margin. Direct investment in a factory there needs £6.5m and is expected to add £3.4m of annual sales at a 20% profit margin. Evaluate which entry method Aldbrook should choose. [9]

10. A UK manufacturer’s cost of producing a unit at home is £14.50. Abroad, production costs £6.20, transport £2.30 and other costs £1.10 per unit. Annual output is 80,000 units.

(a) Calculate the annual saving from off-shoring. [3] (b) Explain one reason why the firm might later decide on re-shoring. [2]

11. A food company adapts its recipes in each country and lets local managers decide on products. Prices are not a major concern for its customers.

(a) Identify the Bartlett and Ghoshal strategy that fits. [1] (b) Explain the two pressures in the Bartlett and Ghoshal model. [2] (c) State which strategy faces high pressure on both. [1]

12. Roskilly Pastries’ website had 120,000 visits and 4,200 orders last year. Management plans to buy an ERP system and data mining software.

(a) Calculate the conversion rate (orders as a percentage of visits). [2] (b) Justify whether Roskilly should invest in the ERP system and data mining software. [6]

Answers

1. Any two of: falling demand [1]; loss-making units [1]; high debt or a wish to refocus on core activities (a third reason earns nothing extra). [2] Examiner insight: Two distinct reasons are needed for two marks; a reason repeated in different words is normally credited once.

2. In a merger the two firms agree to combine into one [1]. In a takeover one firm buys control of the other [1], which may be opposed (hostile) or agreed (friendly) [1]. [3] Examiner insight: A comparison needs both sides; describing only a takeover does not show the difference.

3. (a) Average cost at 30,000 = £180,000 / 30,000 = £6.00 [1]. Average cost at 60,000 = £330,000 / 60,000 = £5.50 [1]. Fall = 0.50 / 6.00 = 8.3% [1] [3] (b) Communication slows as more layers are added [1], so decisions are late and unit costs rise (coordination or motivation problems also qualify) [1]. [2] Examiner insight: Show the two average costs before the percentage; a final figure with no working leaves nothing to credit if it is wrong.

4. (a) After the first doubling: £60 x 0.85 = £51.00 [1]. After the second: £51 x 0.85 = £43.35 [1] [2] (b) Economies of scale come from higher output in a period [1]; the experience curve comes from learning as cumulative output over time rises [1]. [2] Examiner insight: Doubling twice means two multiplications, not one; writing the intermediate value protects the method.

5. (a) Current ratio = current assets / current liabilities = 189,000 / 210,000 [1] = 0.9 [1] [2] (b) Sales rose 50% in a year (300,000 / 600,000) [1]. New outlets need stock, fit-out and wages paid before customers pay [1]. A ratio below 1 means current liabilities exceed current assets [1], so Roskilly could struggle to pay suppliers despite rising sales [1]. [4] Examiner insight: Analysis chains the case figures to the cash-flow consequence; stating only that overtrading means growing too fast is a definition, not analysis.

6. (a) Royalty = 7% x £300,000 = £21,000 [1]. Add the fee: £25,000 + £21,000 [1] = £46,000 [1] [3] (b) Benefit: Penwarden expands quickly using the franchisee’s capital [1], so it gains income without funding each centre [1]. Drawback: weaker control over teaching quality [1], so a poor centre can damage the brand [1]. [4] Examiner insight: One benefit and one drawback are asked for; extra points beyond these gain nothing, and each needs a developed reason.

7. (a) Vertical backward integration [1]. (b) Vertical forward integration [1]. (c) Conglomerate integration [1]. [3] Examiner insight: “Vertical” alone is not enough; name the direction.

8. (a) The battery is a product innovation, a new or improved product [1]; the assembly line is a process innovation, a new way of making it [1]. [2] (b) A patent gives Wetherlow a legal right, for a limited period, to stop others making or selling the battery without permission [1], protecting the return on its development spending [1]. [2] Examiner insight: Apply each term to the stated development; generic definitions do not show application.

9. Export: set-up £0.4m; profit = 12% x £2.1m = £252,000 a year [1]; simple payback = 400,000 / 252,000 = about 1.6 years [1]. Direct investment: profit = 20% x £3.4m = £680,000 a year [1]; payback = 6,500,000 / 680,000 = about 9.6 years [1]. For exporting: low capital and risk, quick return, easy to withdraw [1]. Against: less control and local knowledge; the profit is smaller [1]. For direct investment: higher profit, control, closeness to customers [1]. Against: capital is more than 16 times larger and the payback is long, so the risk is high [1]. Judgement, for example: export first, since it earns back its cost fast and tests the market, with direct investment later if sales are proven, but this depends on Aldbrook’s cash and on how stable the market is [1]. [9] Examiner insight: The strongest answers use the figures to compare, weigh both options, and end with a reasoned choice that names a condition; a list of advantages is not an evaluation.

10. (a) Cost abroad = 6.20 + 2.30 + 1.10 = £9.60 [1]. Saving per unit = 14.50 - 9.60 = £4.90 [1]. Annual saving = 4.90 x 80,000 = £392,000 [1] [3] (b) Overseas wages or costs may rise, removing the saving [1]; or delivery times and quality problems may harm customers (supply chain risk also qualifies) [1]. [2] Examiner insight: Include the transport and other costs in the overseas cost; using production cost only overstates the saving.

11. (a) Multi-domestic [1] [1] (b) Pressure for local responsiveness: customers want products adapted to local tastes [1]. Pressure for cost reduction: customers or competitors force low prices [1]. [2] (c) Transnational [1] [1] Examiner insight: A strategy name needs justifying with the case clues (local adaptation, local decisions, low cost pressure) when the question asks for it.

12. (a) Conversion rate = 4,200 / 120,000 x 100 [1] = 3.5% [1] [2] (b) For: ERP links stock, orders and finance, reducing errors and overstock [1]. Data mining of orders can reveal buying patterns that raise conversion [1]; a rise to 5% would mean 6,000 orders, 1,800 more [1]. Against: high setup cost, staff training and data security risks [1]. The size of the cost against the extra margin on 1,800 orders is unknown [1]. Judgement: invest if the cost is covered by the extra orders and the staff can use it; otherwise phase it in, starting with data mining of existing orders [1]. [6] Examiner insight: “Justify” needs a clear decision supported by reasons; stating the case against and what the decision depends on makes the justification more convincing.

Where marks are usually lost

• Giving a definition without applying it to the business in the question.
• Calculating with the wrong base: percentage change uses the original figure.
• Forgetting that doubling twice means two multiplications on the experience curve.
• Confusing a merger with a takeover, or naming “vertical” without a direction.
• Treating overtrading as too much profit rather than a cash-flow squeeze.
• Giving only advantages for an entry method, with no weighing.
• Ignoring costs such as transport when comparing home and overseas production.
• Ending an evaluation without a decision and a condition.

Next steps

• Recap with the revision notes and the study guide.
• Visit the A-level Business hub and tick off topics on the printable checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Frequently asked questions

How do you use an experience curve in a calculation? Each time cumulative output doubles, multiply the unit cost by the curve percentage. If output doubles twice, that means two multiplications; forgetting this is a common error.

Is overtrading a sign of too much profit? No. Overtrading is a cash-flow squeeze: a business grows faster than its cash and finance can support, so it struggles to pay suppliers and wages on time. Treating it as excess profit loses marks.

What should you include when comparing home and overseas production costs? Include all the extra costs of producing abroad, such as transport, not just the lower production cost. Ignoring these costs is a frequent mistake.

How should you end an evaluation of a strategic method? Finish with a decision and the condition it depends on, such as the firm’s cash, its time horizon or how fast rivals move. An evaluation without a decision limits the marks.

Official syllabus

AQA AS and A-level Business (7131 and 7132), section 3.9, “Strategic methods: how to pursue strategies” (A-level only), AQA.