Edexcel International A Level Business: Business decisions and strategy (YBS11) – 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 Unit 3, Business decisions and strategy (sections 3.3.1 to 3.3.6), of the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Business specification (YBS11), Issue 1, September 2017. All businesses are invented and calculators may be used. Links: study guide, revision notes, Edexcel A Level Business hub, printable checklist, free diagnostics.

Questions

1. Define the term “conglomerate”. [2]

2. Distinguish between a merger and a takeover, explaining each. [4]

3. Oxbarrow Joinery received 64, 70, 67, 76, 73 and 82 orders in six consecutive months.

(a) Calculate the three-period moving averages. [3] (b) Explain one limitation of using them to forecast next month’s orders. [2]

4. Harbledown Print is considering a press costing 150,000. Net cash flows in years 1 to 4 are 40,000, 60,000, 70,000 and 50,000. Calculate the payback period, the average (accounting) rate of return, and the net present value using discount factors of 0.926, 0.857, 0.794 and 0.735. [7]

5. Pilmoor Dairy can launch a cheese line (cost 90,000; 0.5 chance of a 300,000 return, 0.5 chance of 40,000) or upgrade its existing plant (cost 30,000; 0.8 chance of 120,000, 0.2 chance of 60,000). Returns are before the cost shown.

(a) Calculate the net expected value of each option. [4] (b) Recommend an option and state one limitation of the technique. [3]

6. Faversby Packaging plans a line change. Activity A (2 days) and B (4 days) can start at once. C (3 days) follows A. D (5 days) follows B. E (6 days) follows both C and D. Use nodes 1 to 5, with A from 1 to 2, B from 1 to 3, C from 2 to 4, D from 3 to 4 and E from 4 to 5.

(a) Calculate the earliest start time at nodes 4 and 5 and the latest finish time at nodes 2 and 3. [4] (b) Identify the critical path and calculate the total float of A. [3] (c) State one limitation of critical path analysis. [1]

7. Kinsdale Fabrics sells a bolt of cloth at 40 with variable cost of 26. Fixed costs are 84,000 a year and it sells 7,000 bolts, with capacity for 9,000. A buyer offers 1,500 bolts at 31 each.

(a) Calculate the contribution per bolt and the current annual profit. [3] (b) Justify whether to accept the offer. [3]

8. Meldreth Toys has revenue of 800,000, cost of sales of 520,000, other operating expenses of 170,000 and interest of 20,000. Current assets are 210,000 (inventory 120,000), current liabilities 90,000, non-current liabilities 150,000 and total equity 350,000. Calculate the gross profit margin, profit for the year margin, current ratio, acid test ratio, gearing ratio and return on capital employed. [6]

9. Tumby Retail averaged 250 employees. During the year 40 left. Employees lost 1,500 days out of 60,000 possible working days.

(a) Calculate labour turnover and the absenteeism rate. [4] (b) Analyse how employee share ownership might reduce labour turnover. [4]

10. Radwell Logistics’ board proposes freezing driver pay for two years and delaying replacement of old diesel vans, which would raise the dividend by 15%. Drivers’ representatives object, and a major customer wants lower emissions from suppliers. Evaluate the proposal using the stakeholder and shareholder models. [8]

11. Drayfield Cafes has 12 cafes and a power culture. It can take over Eastlow Bakeries, its main supplier, which has four sites and a role culture. Drayfield has non-current liabilities of 1.8m and capital employed of 4.0m. It would borrow 1.2m, and capital employed would rise by 1.2m.

(a) Calculate gearing before and after the takeover. [3] (b) Recommend whether Drayfield should proceed. [7]

Answers

1. A business that operates in several unrelated industries [1], formed by merging with or taking over firms outside its original market [1]. [2] Examiner insight: the key idea is “unrelated”; simply saying “a large firm” does not distinguish a conglomerate from other growth.

2. In a merger two firms agree together to join [1] as one organisation, usually on similar terms [1]. A takeover is where one firm buys enough shares to control another [1], which may be opposed by the target’s board [1]. [4] Examiner insight: give both definitions and make the contrast explicit; naming one only caps the explanation.

3. (a) Method: add three consecutive values and divide by 3 [1]. (64+70+67)/3 = 67 and (70+67+76)/3 = 71 [1]. 72 and 77 [1]. [3] (b) The averages assume the past trend continues [1], but a rival’s launch or a change in demand could break the pattern, so next month’s orders could differ sharply [1]. [2] Examiner insight: show the working so a slip in one figure still reveals correct method; a limitation scores when it is explained for this business.

4. Payback: 100,000 back after 2 years, 50,000 left of 70,000 [1], so 2.71 years [1]. ARR: (220,000 - 150,000) / 4 = 17,500 [1]; 17,500 / 150,000 x 100 = 11.7% [1]. NPV: 37,040 + 51,420 + 55,580 + 36,750 = 180,790 [1]; less 150,000 [1] gives +30,790 [1]. [7] Examiner insight: the NPV must show the initial cost subtracted; stopping at the total present value is a common loss.

5. (a) Cheese line: 0.5 x 300,000 + 0.5 x 40,000 = 170,000 [1]; less 90,000 = 80,000 [1]. Upgrade: 0.8 x 120,000 + 0.2 x 60,000 = 108,000 [1]; less 30,000 = 78,000 [1]. [4] (b) The cheese line has the higher net value [1], but only by 2,000, so the upgrade’s lower outlay and narrower range of outcomes may suit a cautious firm [1]. Limitation: the probabilities are subjective estimates [1]. [3] Examiner insight: a recommendation needs a reason tied to the figures; when values are close, saying so shows judgement.

6. (a) Node 4: A then C is 5, B then D is 9, so EST is the larger, 9 [1]. Node 5: 9 + 6 = 15 [1]. LFT at node 4 = 15 - 6 = 9 [1]; node 3 = 9 - 5 = 4 [1]. Node 2 = 9 - 3 = 6. [4] (b) Critical path B, D, E [1], 15 days [1]. Float of A = LFT 6 - EST 0 - duration 2 = 4 days [1]. [3] (c) Durations are only estimates, so the critical path may change [1]. [1] Examiner insight: write the sums for float; the answer is the gap between available and needed time, not either figure alone.

7. (a) Contribution = 40 - 26 = 14 [1]. Total contribution 7,000 x 14 = 98,000 [1]; profit 98,000 - 84,000 = 14,000 [1]. [3] (b) The offer gives 31 - 26 = 5 contribution a bolt, 7,500 extra profit [1]. Capacity allows 2,000 more bolts, so no existing sales are displaced [1]. Risk: regular customers may demand the lower price, so accept only if the order is kept separate [1]. [3] Examiner insight: justify by comparing price with variable cost, not with average cost; then qualify with a non-numerical risk.

8. Gross profit 280,000: 35% [1]. Operating profit 110,000, profit for the year 90,000: 11.25% [1]. Current ratio 210/90 = 2.33 [1]. Acid test (210 - 120)/90 = 1.0 [1]. Capital employed 500,000; gearing 150/500 = 30% [1]. ROCE 110/500 = 22% [1]. [6] Examiner insight: gearing and ROCE both use capital employed, not total assets; state it so a wrong base is clear.

9. (a) Turnover = 40 / 250 x 100 = 16% [1][1]. Absenteeism = 1,500 / 60,000 x 100 = 2.5% [1][1]. [4] (b) Employees become part-owners [1], so they gain from the firm’s success through dividends or share value [1]. This can raise commitment and make leaving costly, since shares may be forfeited [1]. Turnover may then fall, though the effect is weak if pay is otherwise low [1]. [4] Examiner insight: analysis is a chain (share ownership, then incentive, then staying); a list of benefits without links earns less.

10. Shareholder model: the freeze and delay cut costs and lift dividends by 15%, which meets the aim of returns [2]. Stakeholder model: drivers face falling real pay, so turnover and absence may rise and service fall [2]; the customer’s emissions demand and the environment are also affected, and the contract could be lost [2]. Judgement: a short-term gain may cost long-term revenue and reputation, so the proposal is weak unless the pay freeze is limited and van replacement is only phased [2]. [8] Examiner insight: for evaluate, weigh both sides and reach a conclusion that depends on stated factors such as the contract’s value.

11. (a) Before: 1.8 / 4.0 x 100 = 45% [1]. After: non-current liabilities 3.0m and capital employed 5.2m [1]; 3.0 / 5.2 x 100 = 57.7% [1]. [3] (b) For: backward vertical integration secures supply and may cut costs, and Drayfield gains control over quality [2]. Against: gearing rises from 45% to 57.7%, raising interest and risk if sales fall [2]; a power culture and a role culture may clash, causing resistance and a slower start [2]. Judgement: proceed only if the supply savings clearly exceed the extra interest and if managers plan the culture change, otherwise grow organically or use a long-term supply deal [1]. [7] Examiner insight: use the figures in the case, then reach a recommendation with a condition; “it depends” without reasons gains little.

Where marks are usually lost

• Stopping at the present value total instead of subtracting the initial cost to find NPV.
• Using total rather than average annual profit in ARR.
• Taking the smaller figure forward where paths merge in a critical path network.
• Using the wrong base for gearing or ROCE.
• Forgetting to subtract the option’s cost on a decision tree.
• Giving a limitation of a technique with no link to the business in the case.
• Describing stakeholder and shareholder views without weighing them.
• Ending an evaluate answer with no judgement, or with a judgement that states no condition.

Next steps

• Review the revision notes and the study guide.
• Check coverage on the printable checklist and the course hub.
• Take the free 10-minute diagnostics.
• Book a free trial class: trial.

Frequently asked questions

What do these Unit 3 practice questions cover? They cover all of Unit 3, Business decisions and strategy (sections 3.3.1 to 3.3.6), of Pearson Edexcel International A Level Business (YBS11): strategy, growth, decision-making techniques, influences on decisions, competitiveness and managing change.

What are common mistakes in investment appraisal questions? Stopping at the total of present values instead of subtracting the initial cost to find NPV, and using total rather than average annual profit in ARR.

How do you avoid errors on decision trees? Multiply each outcome by its probability, add them to find the expected value, then subtract the cost of that option. Forgetting to subtract the cost is a frequent slip.

What should the conclusion of an Evaluate answer contain? A clear judgement that states the condition it depends on, linked to the business in the case. Ending with no judgement, or one with no condition, limits the marks.

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Business (YBS11), Specification, Issue 1, September 2017, Unit 3, published by Pearson Education Limited.