OxfordAQA A-Level Business: Types of strategies (9725) – 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 3.4.4 Types of strategies of the OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, for International AS exams May/June 2027 onwards and International A-level exams May/June 2028 onwards. Every question here tests International A-level only content, assessed in Unit 4: Business strategy. If you are finishing the older 9625 specification, use your own specification instead. All businesses are invented.

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Questions

1. State two economies of scale named in the specification. [2]

2. Larkmoor Furniture makes dining chairs. In March its fixed costs were £84,000, its variable cost was £35 per chair and it made 2,800 chairs. Its maximum possible output is 3,500 chairs a month. Calculate Larkmoor’s unit cost and its capacity utilisation for March. [4]

3. Explain the difference between product innovation and process innovation, using an example of each. [3]

4. Cindervale Batteries sells into a market worth £250m this year and £230m last year. The four largest firms sell £70m, £55m, £40m and £35m.

(a) Calculate the four firm concentration ratio. [2] (b) Calculate the market growth rate, to one decimal place. [2]

5. Thornleigh Coffee, a UK roaster, buys beans priced at USD 4,500 per tonne. The exchange rate moves from £1 = USD 1.25 to £1 = USD 1.35. Calculate the change in the sterling cost per tonne and the percentage change, to one decimal place. [4]

6. Wrenhollow Toys sells in two markets. In market X its PED is −0.8; in market Y its YED is +2.5.

(a) Wrenhollow cuts its price in market X by 5%. Calculate the percentage change in quantity demanded and in sales revenue. [3] (b) Incomes in market Y are forecast to fall by 2%. Calculate the expected change in quantity demanded. [1]

7. Elmsridge Hotels reports revenue of £12m and net profit of £0.84m. During the year 66 staff left; average employment was 440.

(a) Calculate the net profit margin. [2] (b) Calculate labour turnover. [2]

8. Tidewell Laundries runs six dry-cleaning shops and wants to reach sixty within five years. Analyse two advantages to Tidewell of growing by franchising rather than opening its own shops. [6]

9. Larkmoor Furniture’s demand has fallen, and its second factory now runs well below capacity. Explain two reasons for, and one problem of, closing the second factory. [5]

10. Marlowcote Locks makes door locks. Rivals have launched app-controlled smart locks, and Marlowcote’s sales are falling. Its managers disagree: one wants a Kaizen programme on the existing range, another a large R&D budget for a smart lock. Assess which approach Marlowcote should take. [10]

11. Halvering Kettles is based in an EU country. It makes kettles in a factory in Asia at €6.40 a unit, plus €0.90 shipping. The EU now applies a 15% tariff to these kettles, charged on the factory cost. Halvering could re-shore production to a new plant at home costing €1.5m, where the unit cost including delivery would be €7.80. It sells 500,000 kettles a year.

(a) Calculate the new landed cost per unit from Asia, and the annual saving from re-shoring. [4] (b) Evaluate whether Halvering should re-shore production. [8]

Answers

1. Any two of: purchasing economies (bulk-buying discounts) [1]; technical economies (larger, more efficient equipment) [1]; financial economies (cheaper borrowing). [2] Examiner insight: A “state” question rewards the named economies; a vague answer such as “it gets cheaper to make things” names no specific economy and is unlikely to gain credit.

2. Total cost = 84,000 + (35 × 2,800) = £182,000 [1]. Unit cost = 182,000 ÷ 2,800 [1] = £65 [1]. Capacity utilisation = 2,800 ÷ 3,500 × 100 = 80% [1]. [4] Examiner insight: Show the total cost line; a unit cost found by dividing by 3,500 (capacity) is wrong, and visible working is what lets an examiner credit the correct parts.

3. Product innovation is a new or improved good or service, such as a phone with a longer battery life [1]. Process innovation is a new or improved way of making or delivering it, such as robotic packing in a warehouse [1]. Product innovation aims at sales and a USP; process innovation mainly at lower costs and better quality [1]. [3] Examiner insight: Two stand-alone definitions do not show a difference; answers gain more credit when they say what each type of innovation achieves for the business.

4. (a) (70 + 55 + 40 + 35) ÷ 250 × 100 [1] = 80% [1]. (b) (250 − 230) ÷ 230 × 100 [1] = 8.7% [1]. [4] Examiner insight: Divide by last year’s figure for growth; dividing by 250 gives 8.0%, a common slip.

5. Old cost = 4,500 ÷ 1.25 = £3,600 [1]. New cost = 4,500 ÷ 1.35 = £3,333.33 [1]. Change = a fall of £266.67 per tonne [1]. Percentage change = 266.67 ÷ 3,600 × 100 = a fall of 7.4% [1]. [4] Examiner insight: The pound has strengthened, so imports get cheaper; if your answer shows a rise, you have multiplied by the rate.

6. (a) Change in quantity = −0.8 × −5 = +4% [1]. New revenue = 0.95 × 1.04 = 0.988 of the old revenue [1], so revenue falls by 1.2% [1]. (b) 2.5 × −2 = a 5% fall in quantity demanded [1]. [4] Examiner insight: With inelastic demand a price cut lowers revenue; say so in words after the number to show you understand the result.

7. (a) 0.84 ÷ 12 × 100 [1] = 7% [1]. (b) 66 ÷ 440 × 100 [1] = 15% [1]. [4] Examiner insight: Use the average number employed; a percentage sign is expected on both answers.

8. Advantage 1: franchisees pay to open shops with their own capital [1], so Tidewell can reach sixty shops without borrowing heavily or diluting its ownership [1], which keeps gearing and interest costs down while it expands fast [1]. Advantage 2: franchisees are owner-managers who keep part of the profit [1], so they have a strong incentive to run each shop well [1], which matters in a service where staff quality and customer care drive repeat custom [1]. [6] Examiner insight: Each advantage needs a chain of reasoning tied to Tidewell’s target of sixty shops; generic franchising points earn little credit for application.

9. Reason 1: low capacity utilisation spreads fixed costs over few units, raising unit cost [1]; closing one factory and moving output to the other lifts utilisation and cuts unit cost [1]. Reason 2: selling the site releases cash [1] that could reduce debt or fund new products [1]. Problem: redundancy pay and lower morale among remaining staff, and too little capacity if demand recovers [1]. [5] Examiner insight: Link the first reason to unit cost and utilisation; “to save money” without saying how is too vague for the second mark.

10. Kaizen means continuous small improvements from staff [1]; R&D is technical work to create a new product [1]. Kaizen could lower Marlowcote’s costs and raise quality cheaply, with little risk [1], but it improves the existing mechanical range and does not answer rivals’ smart locks [1]. As customers switch, a cheaper traditional lock may still lose sales [1]. R&D could give Marlowcote its own smart lock, and a patent could protect its design [1]. However, it is costly, slow and uncertain, and Marlowcote may lack software engineers [1], and finance must fund the spending before any revenue [1]. Judgement: the threat is a product change, so Kaizen alone is unlikely to stop the sales decline [1]. Marlowcote should fund targeted R&D, perhaps through a cross-functional team or a joint venture with a software firm, while using Kaizen to protect margins on its current range; this depends on how fast the market is switching and on its finances [1]. [10] Examiner insight: Strong answers weigh both options against Marlowcote’s actual problem (falling sales to smart locks) and reach a conditional judgement; one-sided answers limit the evaluation credit.

11. (a) Tariff = 15% × 6.40 = €0.96 [1]. Landed cost = 6.40 + 0.90 + 0.96 = €8.26 [1]. Saving per unit = 8.26 − 7.80 = €0.46 [1]. Annual saving = 0.46 × 500,000 = €230,000 [1]. (b) For re-shoring: the tariff has made Asian supply €0.46 a unit dearer than home production [1]; re-shoring also shortens lead times and reduces supply-chain risk [1], and a “made in the EU” claim may support sustainability marketing [1]. Against: the €1.5m plant takes about 6.5 years to repay from the €230,000 saving [1]. Before the tariff, the landed cost was €7.30, below €7.80, so if the tariff is cut the case disappears [1]. Halvering would also need to recruit and train a new workforce, and home wages may rise faster than expected [1]. Judgement: re-shoring is justified only if Halvering expects the tariff to last and values supply security; otherwise it could negotiate with its supplier or move to a lower-tariff country [1]. A sensible option is to re-shore part of output first, to test costs [1]. [12] Examiner insight: Use your own part (a) figures in part (b); a judgement that rests on the tariff’s likely duration is far stronger than one that ignores it.

Where marks are usually lost

• Dividing total cost by capacity rather than actual output.
• Dividing by the new figure instead of the old one in growth and percentage change.
• Multiplying by the exchange rate when converting a foreign-currency cost into pounds or euros.
• Losing the minus sign in PED, then predicting the wrong direction of change.
• Using year-end staff numbers in labour turnover.
• Writing generic advantages of franchising or acquisition with no link to the business in the question.
• Treating Kaizen and R&D as the same thing because both “improve products”.
• Giving an evaluation with no judgement, or a judgement with no condition.

Next steps

• Recall the formulas with the revision notes.
• Reread the study guide for any question you missed.
• Return to the OxfordAQA A-level Business hub and tick off the 9725 checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, for International AS exams May/June 2027 onwards and International A-level exams May/June 2028 onwards. Published by OxfordAQA. Section 3.4.4 Types of strategies.