IB DP Business Management: Business objectives – 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 – the IB holds copyright in its own papers. Use these alongside the official past papers available through your school or the IB store.

These questions cover section 1.3, Business objectives, of the IB Business management guide (first assessment 2024), for SL and HL. Revise first with the study guide or the revision notes. The course hub is IB DP Business Management and the syllabus checklist lists every point.

Questions

1. Define the term mission statement. [2]

2. Marnwick Dairy, a family-owned business, publishes two statements. Statement X: “To be the most trusted source of fresh milk in the country.” Statement Y: “We collect milk from farms within 40 km and deliver to homes and shops every morning.” Identify which is the vision statement and which is the mission statement, and give one reason for each choice. [4]

3. Marnwick Dairy had sales revenue of USD 8.0 million last year and USD 8.6 million this year. Net profit was USD 640,000 last year and USD 602,000 this year. (a) Calculate the percentage growth in sales revenue. [2] (b) Calculate the net profit margin for each year. [2] (c) Comment on the result for the owners, who aim for both growth and profit. [3]

4. Explain two reasons why a business might set growth as an objective. [4]

5. Piperdale Print Works is a publicly held company with 3,000,000 shares. A share was worth USD 5.00 at the start of the year and USD 5.40 at the end. A dividend of USD 0.15 per share was paid. (a) Calculate the change in market capitalization over the year. [2] (b) Calculate the return to a shareholder who held one share for the whole year. [3] (c) Explain one reason why managers may set protecting shareholder value as an objective. [2]

6. A bicycle retailer has the aim of becoming the largest retailer in its region within eight years. It also plans to open two new stores this year and to cut delivery time to under 48 hours by June. (a) Identify which of the two plans is strategic and which is tactical. [2] (b) Explain how tactical objectives can help the business reach its strategic objective. [3]

7. Explain how an ethical objective could conflict with a profit objective. [3]

8. Bexwood Packaging has an annual energy bill of USD 60,000. After installing solar panels as part of a CSR programme, the bill falls to USD 42,000. (a) Calculate the percentage reduction in the energy bill. [2] (b) Analyse one way in which this CSR programme could benefit the business other than lower energy costs. [3]

9. Wexcombe Hotels has sales revenue of USD 4.4 million, a wage bill of USD 1.5 million and net profit of USD 220,000. The board decides to raise all pay by 4% as an ethical objective. Assume all other figures stay the same. (a) Calculate the extra cost, the new net profit and the new net profit margin. [4] (b) Evaluate the decision to raise pay. [6]

10. Lamberton Toys has sales revenue of USD 5.0 million and net profit of USD 400,000. Its strategic objective is to become the leading toy maker in its region within five years. The board is considering switching all products to recycled plastic at once, which would raise costs by USD 150,000 a year. The alternative is to switch half the products this year and the rest next year, which would raise costs by USD 75,000 a year at first. (a) Calculate the net profit margin now and after the full switch, assuming sales revenue is unchanged. [3] (b) Recommend which option the board should choose. [7]

11. Evaluate the usefulness of a vision statement and a mission statement to a growing business. [6]

Answers

1. A mission statement is a statement of what an organization does, [1] who it serves and how it goes about it at present, giving a sense of its purpose. [1] [2] Examiner insight: A short definition is enough. Answers usually do better when they say “present purpose” or “what the business does”, because that separates mission from vision.

2. X is the vision statement [1] because it describes a future position the business wants to reach. [1] Y is the mission statement [1] because it says what the business does, where it gets inputs and who it serves, now. [1] [4] Examiner insight: The reason matters as much as the label. A bare “X is vision, Y is mission” earns less than a label tied to the wording in the statements.

3. (a) (8.6 − 8.0) ÷ 8.0 × 100 [1] = 7.5% [1] (b) Last year: 0.64 ÷ 8.0 × 100 = 8.0% [1]. This year: 0.602 ÷ 8.6 × 100 = 7.0% [1] (c) Sales revenue grew by 7.5% [1], but net profit fell by USD 38,000 and the margin fell by one percentage point, from 8.0% to 7.0%. [1] The owners met the growth aim but at some cost to profit, so a judgment depends on which aim they value more or whether the profit fall is temporary. [1] [7] Examiner insight: In a “comment” part, a figure repeated with no meaning attached gains little. Say what the numbers imply for the stated aims.

4. First reason: economies of scale [1], because spreading fixed costs over larger output lowers the cost per unit and can raise profit. [1] Second reason: greater market power or share [1], which gives more influence over customers and suppliers and makes the business harder for rivals to challenge. [1] (Accept other valid reasons.) [4] Examiner insight: Two reasons must be different. Each tends to be worth full credit only when it is developed with a consequence, not just named.

5. (a) Opening value 3,000,000 × 5.00 = USD 15.0 million; closing value 3,000,000 × 5.40 = USD 16.2 million. [1] Increase = USD 1.2 million. [1] (b) (5.40 − 5.00 + 0.15) [1] ÷ 5.00 [1] × 100 = 11% [1] (c) Rising share prices and steady dividends keep investors confident, [1] which makes it easier and cheaper for the company to raise funds by selling more shares. [1] [7] Examiner insight: Show the formula and the substitution. A correct answer with no working leaves the marker unable to see which measure you used.

6. (a) Becoming the largest retailer within eight years is strategic. [1] Opening two stores this year and cutting delivery time by June are tactical. [1] (b) Tactical objectives break the long-term aim into smaller steps with deadlines. [1] Opening stores adds sales outlets that raise market share, which moves the business toward being largest. [1] Meeting the delivery target improves customer satisfaction and loyalty, which supports long-term growth, and progress can be checked and corrected. [1] [5] Examiner insight: A strong answer links a named tactic to the strategic aim, using the retailer’s own plans.

7. An ethical objective, such as paying suppliers a fair price, [1] often raises costs, [1] which could lower short-term profit if prices cannot be raised to match, so the two aims pull in different directions. [1] (Accept other valid examples.) [3] Examiner insight: A tight chain of three linked steps is more convincing than a list. State the ethical aim, its cost, and the effect on profit.

8. (a) (60,000 − 42,000) ÷ 60,000 [1] × 100 = 30% [1] (b) The programme may improve the firm’s reputation with customers who prefer greener suppliers [1], which could win contracts from larger companies with their own environmental goals [1] and raise sales revenue over time. [1] (Accept staff motivation or reduced regulatory risk, if developed.) [5] Examiner insight: “Analyse” asks for cause and effect. Name the benefit, then say how it reaches sales, costs or risk.

9. (a) Extra cost = 4% × 1,500,000 = USD 60,000 [1]. New net profit = 220,000 − 60,000 = USD 160,000 [1]. Old margin is 5.0%. [1] New margin = 160,000 ÷ 4,400,000 × 100 = 3.6% (3.64% unrounded). [1] (b) For: staff may be more motivated and stay longer, lowering recruitment and training costs, [1] and better service can protect the hotel’s reputation. [1] It also meets the ethical objective and may attract staff to a hotel with a fair-pay image. [1] Against: profit falls by about 27% [1] and the margin from 5.0% to 3.6%, which may upset owners seeking returns or limit funds for expansion. [1] Judgment: the decision is justified if the hotel expects service gains over several years and has enough cash, but riskier if owners need profits soon or if the figures do not improve. [1] [10] Examiner insight: Evaluation answers usually earn more when they use the calculated figures in the argument and finish with a judgment that depends on a stated condition.

10. (a) Now: 400,000 ÷ 5,000,000 × 100 = 8.0% [1]. After the full switch: net profit 250,000 [1], margin 250,000 ÷ 5,000,000 × 100 = 5.0% [1]. (b) Full switch: profit falls by 37.5% [1] and the margin by three percentage points, which strains cash needed to fund growth toward the strategic aim. [1] But it could win customers who care about the environment and give an early lead. [1] Phased switch: net profit is 325,000 and the margin 6.5% in the first year, [1] leaving more cash for other tactical steps and time to learn about suppliers and quality. [1] The risk is that rivals move first and the business loses ground. [1] Recommendation: the phased option fits the strategic aim better in this case, because it protects profit during the early years, provided the second stage is firmly dated and the board has evidence that customers will respond. [1] [10] Examiner insight: A “recommend” answer needs a clear choice with supporting evidence and a note of what could change it.

11. Usefulness: a vision statement gives staff and investors a shared long-term picture of what the business wants to become, [1] and a mission statement guides decisions about products and customers while the business is changing quickly. [1] Both can help a growing firm keep a clear identity as new staff join. [1] Limits: statements can be vague or copied, [1] may be ignored by managers under sales pressure, and their effect is hard to measure. [1] Judgment: they are useful if linked to actual objectives and behavior, but of little worth as slogans. [1] [6] Examiner insight: Tie the argument to growth, such as new staff and new markets, not to businesses in general. The judgment should say when statements work and when they do not.

Where marks are usually lost

• Mixing up vision and mission, or calling either statement an objective.
• Giving a percentage with no formula or no working.
• Calculating the change in profit when the question asks for the profit margin, or the reverse.
• Naming a strategic or tactical objective without linking it to the case.
• Describing CSR in general terms and not saying who benefits and how.
• Treating profit as the only objective of every business.
• Listing advantages and disadvantages with no weighing of them.
• Forgetting the time frame: a cost that harms profit this year may help long-term sustainability.

Next steps

• Revise the key points with the revision notes.
• Re-read the study guide for any weak area.
• Browse the IB DP Business Management hub and tick off points on the checklist.
• Try the all free 10-minute diagnostics.
• Book a free trial class.

Frequently asked questions

What do these business objectives practice questions cover? They cover section 1.3 of the IB DP Business Management guide (first assessment 2024), for SL and HL: vision and mission statements, common objectives such as growth, profit, shareholder value and ethics, strategic and tactical objectives, and CSR.

Is a mission statement an objective? No. Vision and mission statements give direction, while objectives are specific, often measurable targets. Calling either statement an objective is a common error.

What is a common mistake in profit margin questions? Calculating the change in profit when the question asks for the profit margin, or the reverse. Show the formula and working for any percentage.

How should you answer an evaluate question on CSR? Say who benefits and how, weigh the costs against the benefits for the business in the case, remember the time frame, and decide which matters more.

Official syllabus

IB Diploma Programme Business management guide, first assessment 2024, published by the International Baccalaureate Organization. This page covers section 1.3, Business objectives.