Buiness Management Unit 1 Exam 2010

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BUSINESS MANAGEMENT UNIT 1

Business Management Unit 1 practice exam 2010 and suggested answers Megan Jeffery Northcote High School

The following practice exam covers Areas of Study 1 and 2 in VCE Business Management Unit 1. As Area of Study 3 (‘Day-to-day operations’) contains optional topic areas, teachers may modify the exam to cater for the optional areas they have covered. The practice exam consists of three sections and is presented in the form of a question-and-answer book. All questions are compulsory. The total marks available are 100. Several questions are introduced with stimulus material. The number of lines provided after each question and the number of marks allocated to each question indicate the appropriate length of a response. Additional space is provided at the end of the question-and-answer book. The practice exam and suggested answers are based on the author's interpretation of the VCE Business Management Study Design. Teachers are advised to preview all practice exam material before distributing it to students.

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BUSINESS MANAGEMENT UNIT 1 Practice written examination 2010 Reading time: 15 minutes Writing time: 2 hours

QUESTION AND ANSWER BOOK Structure of book Number of questions

Number of questions to

Number of marks

be answered Section A: True/false questions

10

10

Section B: Multiple-choice questions

10

10

6

80

Section C: Short-answer questions

  Students are permitted to bring into the examination room: pens, pencils, highlighters, erasers, sharpeners and rulers.



  Students are NOT permitted to bring into the examination room: blank sheets of paper and/or



white-out liquid/tape.   No calculator is allowed in this examination.



Materials supplied   Question and answer book.



  Additional space is available at the end of the book if you need extra paper to complete an answer. Clearly label all answers with the appropriate section and question number.



Instructions   All written responses must be in English.



Students are NOT permitted to bring mobile phones and/or any other unauthorised electronic devices into the examination room.

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Instructions  Answer all all questions  questions in the spaces provided.

Section A: True/false questions Complete the table below by stating whether each of the following statements is true true or  or false false.. Statement

True or false



Angelina’s Baby Supplies Ltd is a retailer of imported children’s clothing and accessories. This is an example of a business in the secondary industry sector.



A for-profit organisation need not be concerned about ethical and social responsibility issues.



Small business represents 95% of the total number of businesses in Australia.



A micro micro business will always employ three or fewer people.



A public sector organisation is always government owned.



Unlimited liability is an advantage offered by the incorporation of a business by its owners.



Shareholders are a category of business stakeholder.



A small business owner has total control over the macro environment of the business.



Writing a good business plan will will ensure business success.

10 

All businesses must obtain an Australian Business Number from the Australian Taxation Office. Total: 10 marks

Section B: Multiple-choice questions Circle the Circle  the response that is correct or that best answers the question.

Question 1 The term that is used to describe the voluntarily closing down of a business due to an inability to meet its financial commitments is: A.  A.  bankruptcy. B.  B.  insolvency. C.

social responsibility.

D.

efficiency.

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Question 2  A large department store such as David Jones or Myer is part of which industry i ndustry sector? A.

primary sector

B.

secondary sector

C. D.

service/tertiary sector financial sector

Question 3 Screamers Child Minding Services Pty Ltd employs 10 people as part-time child care workers. This is an example of: A.

an incorporated private sector organisation operating in the secondary/manufacturing sector.

B.

an incorporated tertiary/service, public sector organisation.

C.

an unincorporated primary, public sector organisation.

D.

an incorporated tertiary/service, private sector organisation.

Question 4  A restaurant that employs 25 staff would be classified by the Australian Bureau Bu reau of Statistics as: A.

micro.

B.

small.

C.

medium.

D.

large.

Question 5  An example of a stakeholder group from the operating environment e nvironment of a business is: A.

the employees of the business.

B.

the federal government.

C.

the business’ competitors.

D.

the owners/shareholders of the business.

Question 6  A franchise operation will: A.

incur extra monthly fees and charges for the business owners.

B.

always succeed.

C.

allow the small business owner greater control over the business operations.

D.

satisfy all of the above options.

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Question 7 The letters Pty Ltd after the name of a business signify: A.

that the business has been incorporated.

B.

that the business owners have limited liability for the debts of the business.

C. D.

that it is registered as a private company. all of the above.

Question 8 The most appropriate complementary business to be located next to an Internet cafe would be: A.

a bookshop.

B.

a budget hotel.

C.

an ice-cream shop.

D.

a dance school.

Question 9 Strategic planning is: A.

done on a day-to-day basis.

B.

optional.

C.

done as part of the tactical plan.

D.

done for the whole organisation for a period of up to five years.

Question 10  An appropriate key performance indicator to measure the occupational health and safety performance of a business would be: A.

net profit.

B.

market share.

C.

accident rates of employees at work

D.

number of customer complaints Total: 10 marks

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Section C: Short-answer questions Question 1 Using the stimulus material provided, as well as your own knowledge, answer the following questions in the spaces provided.

Potter’s Pty Ltd operates a chain of three magic shops in the northern suburbs of Melbourne. The business employs 15 people in customer service. The business sells supplies of equipment to both performing and amateur magicians. It also conducts children’s birthday parties on each of the premises for a fixed fee. Owner/managers Jim and Gemma have recently made the decision to expand the business and become franchisors. They have advertised for potential franchisees for a new outlet. The business has a stated mission of ‘meeting the expectations of its stakeholders’.

a. a.   Define the term ‘organisational stakeholder’.

1 mark  mark  b. b.   Name and outline the interests and expectations held for Potter’s Pty Ltd of one one stakeholder  stakeholder group from each of the following environments of Potter’s Pty Ltd.  Ltd.   i. i.   internal environment  environment 

ii. ii.   operating environment

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iii. iii. macro  macro environment

3 x 2 = 6 marks c. Identify and explain at least one one factor  factor that demonstrates that Potter’s Pty Ltd would be classified as a small business by the Australian Bureau of Statistics.

2 marks d. d.   Explain what the letters Pty Ltd denote about the ownership structure of this business. Discuss the advantages that this form of ownership structure has for the owners of the business.

3 marks

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e. e.   Jim and Gemma are intending to franchise this business. Explain what this means and the implications for them and the franchisee that purchases the new branch of Potter’s Pty Ltd. In your answer, explain at least two two advantages  advantages and two two disadvantages  disadvantages of purchasing a franchise rather than starting a new business from scratch for the new franchisee.

8 marks

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f. f.   Suggest and justify an appropriate location for the new outlet of Potter’s Pty Ltd. In your response, consider each of the following factors. i. i.   the llocation ocation requirements for a retail outlet ii. ii.   the requirements for conducting children’s children’s birthday parties in terms of location

4 marks Total: 24 marks

Question 2 Using the stimulus material provided, as well as your own knowledge, answer the following questions in the spaces provided.

Marco and Matthew are two friends thinking of starting a small business in partnership. Marco has extensive experience in customer service and Matthew has worked in hospitality for five years. After investigating several options for entering small business, the two friends decide on a small cafe/coffee shop as the best option for them. Further investigation indicates three options: i. i.   opening up a new cafe in an empty shop at the local strip shopping centre ii. ii.   purchasing an existing and moderately successful cafe/coffee shop at a large shopping mall in the next suburb iii. iii. becoming  becoming a franchisee for a successful group of coffee shops (Brazilian Blue).

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a. a.   List and describe three three skills  skills and/or qualities that would be advantageous for the owners of the type of business described above to possess. In your answer, explain how each skill or quality mentioned would benefit the business owners.

6 marks b. b.   Which option for embarking on small business ownership would you recommend be adopted by Marco and Matthew as having the most chance of financial success? Give reasons for your answer.

2 marks

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c. c.   Which option would you advise if Matthew and Marco were considering an innovative idea, such as a new type of cuisine for their cafe? Give reasons for your answer.

2 marks d. d.   Which option is likely to be the most expensive in terms of establishment and operating costs? Give reasons for your answer.

2 marks e. e.   Explain what a feasibility study is. Would you recommend that Marco and Matthew conduct a feasibility study before embarking on this business venture? Give reasons for your answer.

3 marks

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 After conducting a feasibility study the two partners decide to write a business plan.

f. f.   Explain what a business plan is. Discuss two two advantages  advantages of writing a business plan for a small business owner.

3 marks g.  Identify two two potential  potential sources of support, advice and assistance in establishing and operating a small business that the two owners of this business could utilise for little or no cost.

2 marks Total: 20 marks

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Question 3 Identify a complementary business that the owners of each of the following businesses would want to be located near. In each case, explain the complementary effect that the businesses would have on each other. a. a.   a pharmacy

b. b.   a milk bar

c. c.   a fast-food outlet

Total: 3 x 2 = 6 marks

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Question 4 Using the stimulus material provided, as well as your own knowledge, answer the following questions in the spaces provided.

Norkids Pty Ltd is a small business that offers child care for children aged from six weeks to six years.  way each of the following types of laws is likely to affect Norkids Pty Ltd. a. a.   Outline one one way i. i.   local government by-laws

ii. ii.   occupational health and safety laws

iii. iii. equal  equal opportunity employment laws

3 x 2 = 6 marks

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b. b.   Explain two two instances  instances in which the owners of Norkids might require the services of a lawyer.

2 marks c. c.   List and describe two two different  different types of suppliers that Norkids would depend on. Explain the importance of reliable suppliers of good-quality supplies at competitive prices to a business like Norkids.

4 marks d. d.   Describe two two market  market research strategies that the owners of Norkids could have used before commencing the business. What types of information would each strategy provide?

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4 marks Total: 16 marks

Question 5 a. a.   Explain what a key performance indicator is. Discuss how key performance indicators are used by business.

2 marks b. b.   Explain and justify an appropriate key performance indicator to measure each of the following aspects of the performance of a business. i. i.   financial performance

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ii. ii.   levels of environmental responsibility

2 + 2 = 4 marks Total: 6 marks

Question 6  Using the stimulus material provided, as well as your own knowledge, answer the following question in the spaces provided.

Trang, Mohammed and Emma decided to go into business together. From the time that they made this decision to the time the doors of the business actually opened was 12 months. One year later the business recorded its first monthly profit.

Outline four  types  types of decisions that the owners of this new business would have made during the 12 months leading up to the business opening and four  types  types of decisions they would have made during the first 12 months of the business operating.

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Total: 8 marks

END OF QUESTION AND ANSWER BOOK

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Extra space for responses Clearly number all responses in this space.

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Suggested answers to Unit 1 practice exam 2010 Section A: True/false questions 1 

F



F



T



F



T



F



T



F



F

10

T

Section B: Multiple-choice questions 1 

B



C



D



C

5

C



A

7

D

8

B



D

10 10   C

Section C: Short-answer questions Question 1 a. Define the term ‘organisational stakeholder’. (1 mark)   An organisational stakeholder is a person or group that has ha s a vested interest in the operations of an organisation. That may mean that they have responsibilities towards the organisation and/or an interest in the activities of the organisation. b. Name and outline the interests and expectations held for Potter’s Pty Ltd of one  stakeholder group from each of the following environments of Potter’s Pty Ltd. (3 x 2 = 6 marks) 1 mark each for naming each appropriate stakeholder group. 1 mark for correctly identifying appropriate issues and expectations of each identified stakeholder group—3 x 2 = 6 marks. i. internal environment   Shareholders  generally look for a return on their investment, therefore profits, and may also Shareholders generally have environmental and social responsibility concerns. Employees Employees look  look for good wages and working conditions and fulfilling employment. Managers Managers look  look for financial performance.

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ii. operating environment   Trade unions represent unions represent employees and have similar expectations to employees and look to be involved in decision-making regarding employee issues. Customers Customers look  look for value for money, good customer service and high-quality products at the lowest possible price. Suppliers Suppliers look  look for prompt payment of accounts, sometimes ethical and social responsibility concerns, and a longterm relationship that ensures a guaranteed income. Creditors/banks Creditors/banks look  look for payment of debts and loans. Competitors Competitors are  are interested in maintaining a competitive advantage over a competitor business, and are interested in benchmarking their performance against the business. iii. macro environment The government  expects  expects to receive taxation revenue from business income and wages earned, it expects that all laws applying to the business will be followed, that the business will engage in ethical practices, and that it will continue to contribute to Australia’s economic growth. The wider community  expects  expects the business to engage in ethical and socially responsible practices, and to continue to provide employment for its workers. c. Identify and explain at least one factor that demonstrates that Potter’s Pty Ltd would be classified as a small business by the Australian Bureau of Statistics. (2 marks)  Potters Pty Ltd employs 15 people, which means that it would be classified as a small organisation by the Australian Bureau of Statistics, that is, fewer than 20 employees. d. Explain what the letters Pty Ltd denote about the ownership structure of this business. Discuss the advantages that this form of ownership structure has for the owners of the business. (3 marks) Pty Ltd after a business name signifies that the business has been incorporated as a private company. The letters indicate that limited liability applies to the owners should the business be unable to meet its financial commitments. This means that the owners are risking only the money that has been invested in the business and will not be required to sell personal assets in the event of the business being unable to meet its financial obligations. e. Jim and Gemma are intending to franchise this business. Explain what this means and the implications for them and the franchisee that purchases the new branch of Potter’s Pty Ltd. In your answer, explain at least two advantages and two disadvantages of purchasing a franchise rather than starting a new business from scratch for the new franchisee. (8 marks) 1 mark for an accurate definition of a franchise. 3 marks for an accurate description of the features of a franchise operation. 4 x 1 marks for identification of two advantages and two disadvantages of being a franchisee (that is, 2 + 2 = 4 marks).  A franchise is a business based on the purchase of a franchise licence from a franchisor by a franchisee. The franchisee pays for the right to use the trade name, products and operating systems of the franchisor. The franchisee must follow what is stipulated in the franchise agreement. Franchises are generally proven systems and offer support to the franchisee. Therefore, this is usually the safest option out of the alternatives available. Training, marketing and a proven and recognisable brand name are other advantages. Disadvantages of purchasing a franchise include the lack of control the franchisee has over their own business, the lack of flexibility, and the added costs and charges to be paid to the franchisor.

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f. Suggest and justify an appropriate location for the new outlet of Potter’s Pty Ltd. In your response consider the following factors. (4 marks) i. the location requirements for a retail outlet ii. the requirements for conducting children’s birthday parties in terms of location 2 marks for identifying and explaining one appropriate location factor for a retail business. 2 marks for identifying and explaining one location requirement for a business holding children’s birthday  parties. The business is a retailer and requires a position that maximises visibility and therefore sales, that is, an area with a high volume of passing foot and vehicle traffic. The business would attract both impulse buys and planned purchases, therefore visibility is important. The availability of parking and easy access to the premises is essential for the children’s birthday parties. A large amount of floor space is also necessary. Occupational health and safety considerations for children are another requirement, such as nearby pedestrian crossings, toilet facilities, no hazards on the premises, and safe access points. In addition, an online presence would assist with sales.

Question 2 a. List and describe three skills and/or qualities that would be advantageous for the owners of the type of business described above to possess. In your answer, explain how each skill or quality mentioned would benefit the business owners. (6 marks) 3 x 1 marks for an accurate definition and description of three relevant skills or qualities. 3 x 1 marks for accurately showing how each skill/quality could be useful to a small business operator. Examples of skills include: communication skills are skills are required when serving customers (customer service skills), dealing with staff, and marketing the services of the business; communication and negotiation skills would skills would be needed when dealing with suppliers; decision-making skills would skills would be needed when planning any changes to the business; basic accounting or financial management skills would skills  would needed to manage the finances of the business; organisational skills would skills would be needed to manage the resources of the business; and food preparation and coffee-making skills  skills   (hospitality skills) skills) would be needed by the owner/operators. b. Which option for embarking on small business ownership would you recommend be adopted by Marco and Matthew as having the most chance of financial success? Give reasons for your answer. (2 marks) Students may recommend any option, providing they are able to provide a logical justification.  An existing business, especially a successful one, may have more chance of ongoing success as it has established customers, a reliable income, a network of contacts including suppliers, trained employees and an established reputation (goodwill).  A franchise may be the best choice as it offers a proven operations system, brand bran d recognition, an established image, training, and assistance with business set-up.  A new business may be the best option if it is based on an innovative concept; start-up start- up costs may be lower than a franchise or an established business; new staff can be trained from scratch to meet the expectations of the new business; there is no history to overcome that may disadvantage the new business; and the owners will have more flexibility about where to locate the business.

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c. Which option would you advise if Matthew and Marco were considering an innovative idea, such as a new type of cuisine for their cafe? Give reasons for your answer. (2 marks) The best option for a business plan based on an innovative idea would be to start a business from scratch. The owners will have the flexibility to develop the business concept in a way that is unique and will not be limited by either the restrictions that are associated with a franchise or the history of an established business. A franchise, in particular, will not allow for the innovation. d. Which option is likely to be the most expensive in terms of establishment and operating costs? Give reasons for your answer. (2 marks)  marks)   Any of the three options could be the most expensive. Starting a business from fr om scratch means that all resources and equipment needed for the business will have to be purchased. Purchasing an existing business will include the cost of the goodwill that has been developed. On the other hand, purchasing a franchise includes an up-front purchasing fee and supply costs, as well as ongoing monthly fees based on sales. e. Explain what a feasibility study is. Would you recommend that Marco and Matthew conduct a feasibility study before embarking on this business venture? Give reasons for your answer. (3 marks) 1 mark for definition. 2 marks for recommendation with valid reasons.  A feasibility study is initial research that is conducted to ascertain whether a business idea is viable (feasible) or not. A feasibility study reduces risk and gauges whether there is sufficient demand for the product at the prices to be charged. It also identifies barriers to entering the market and resources that will be required. f. Explain what a business plan is. Discuss small business owner. (3 marks)

two advantages

of writing a business plan for a

1 mark for definition of a business plan. 2 marks for discussing two advantages of preparing a business plan.  A business plan is a document that sets out the details of a business or business proposal, the direction the business intends to take and how it intends to achieve the goals. The advantages of writing a business plan include: it clarifies and establishes clearly defined goals and objectives; it helps to identify the risk involved; it helps the owners to determine if a product has a sufficient market to support it and whether the venture will be profitable; it helps to keep the business on track; it enables a realistic estimation of start-up costs and needed finance; having a business plan will help the owners to obtain finance; it can be used to identify the competition in the marketplace; and it enables a realistic assessment of the strengths and weaknesses of the business idea. g. Identify two potential sources of support, advice and assistance in establishing and operating a small business that the two owners of this business could utilise for little or no cost. (2 marks) 2 x 1 marks for identifying each source of support. Examples: Business centres; industry associations; business mentors; previous owners; websites such as the ATO website, business,gov.au, the Business Victoria website and the Department of Innovation, Industry, Science and Research website (innovation,gov.au); TAFE business courses.

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Question 3 Identify a complementary business that the owners of each of the following businesses would want to be located near. In each case, explain the complementary effect that the businesses would have on each other. (3 x 2 = 6 marks) 3 x 1 marks for identifying a complementary business for each business type. 3 x 1 marks for explaining why each business is complementary. i. a pharmacy  A pharmacy would be complemented by a doctor’s surgery, as patients could have prescriptions filled after a consultation. Another complementary business would be a community health centre. ii. a milk bar  A milk bar would benefit from having a school nearby, as the milk bar could supply items to the th e school such as milk, lunches, and students or parents could purchase items on the way home from school. iii. a fast-food outlet  outlet   A fast-food business might want to be located near a supermarket in a shopping shop ping centre to have ready access to supplies and potential customers or near entertainment venues, such as a cinema where people want to purchase food before or after seeing a movie.

Question 4 a. Outline one way each of the following types of laws is likely to affect Norkids Pty Ltd. (3 x 2 = 6 marks) 2 marks for each accurate answer outlining the effects of each type of regulation. i. local government by-laws Local government by-laws include health regulations that are enforced by health inspectors; other examples include laws relating to noise levels, fire hazards and parking. ii. occupational health and safety laws Occupational health and safety (OHS) laws aim to ensure that workplaces are safe for workers and that any hazards are removed—OHS inspectors enforce these. iii. equal opportunity employment laws Equal opportunity laws govern how workers are recruited and treated in the workplace; for example, job advertisements cannot specify gender or religion, and job candidates cannot be asked questions in job interviews that could be used to discriminate against them, such as ‘What are your child care arrangements?’ Employees who are discriminated against can lodge a complaint with the Victorian Equal Opportunity & Human Rights Commission. b. Explain two instances in which the owners of Norkids might require the services of a lawyer. (2 marks) Lawyers can be employed for: completing the legal requirements of changing the legal structure of the business; managing compliance requirements associated with the existing private company legal structure of the business; providing commercial law advice; representing the business in court over a commercial dispute such as a breach of contract or to recover a debt; managing intellectual property such as Norkids’ brand name or trademark, preparing documents relating to commercial leasing or conveyancing related to the purchase of premises; preparing contracts with suppliers.

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c. List and describe two different types of suppliers that Norkids would depend on. Explain the importance of reliable suppliers of good-quality supplies at competitive prices to a business like Norkids. (4 marks)  Any type of supplier can be described, providing it is relevant to the business. 2 marks mar ks for listing two different suppliers. 2 marks for explaining the importance of reliable suppliers. Examples: Nappy wash product suppliers, food suppliers, labour contractors, employment agencies. Suppliers are crucial to a business. A supplier’s unreliability will affect the ability of a business to operate effectively, thus affecting its profitability. The quality of supplies will also determine the quality of services that the business can provide, hence affecting its competitiveness. d. Describe two market research strategies that the owners of Norkids could have used before commencing the business. What types of information would each strategy provide? (4 marks) 2 x 1 marks for naming each market research strategy. 2 x 1 marks for explaining the types of information each strategy would provide. Examples: Surveys and interviews will help to determine their requirements and preferences of potential customers, such as what they are looking from a child care centre, what facilities they expect to be provided, and how much they are prepared to pay. Norkids could have used this information in planning their business. The Norkids owners could refer to Australian Bureau of Statistics demographic data, such as Census statistics, to help them identify a suitable location for the business. This information could have helped them to locate the business in an area where there are many young working families.

Question 5 a. Explain what a key performance indicator is. Discuss how key performance indicators are used by business. (2 marks) 1 mark for a definition of key performance indicator (KPI). 1 mark for explaining how they are used.  A KPI is a criterion or measure used to evaluate business performance perfor mance in terms of its effectiveness and efficiency. Businesses use KPIs to measure effectiveness in achieving stated goals and efficiency in the use of resources. b. Explain and justify an appropriate key performance indicator to measure each of the following aspects of the performance of a business.  business.  (2 + 2 = 4 marks)  marks)   i. financial performance Financial performance can be assessed using measures such as profit (what is left after costs are deducted) or revenue (gross income). ii. levels of environmental responsibility Levels of environmental responsibility can be assessed using measures such as amount of waste produced, the number of violations of environment protection laws, levels of greenhouse gas emissions, and energy and water use.

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Question 6 Outline four   types types of decisions that the owners of this new business would have made during the 12 months leading up to the business opening and four  types  types of decisions they would have made during the first 12 months of the business operating.  operating.  (8 marks)  marks)  4 x 1 marks for each type of decision in the 12 months prior to commencing the business. 4 x 1 mark for each type of decision made during the first 12 months of operation. Types of decisions made in the 12 months prior to commencing the business include:   Are we suited to running a small business?



  What type of business should we open?



  Is the business idea viable?



  Should we start a business from scratch, buy an existing business or purchase a franchise?



  What form of ownership structure should we adopt?



  Where should we locate the business?



  How should we design the layout of the business?



  What is required in writing up an effective business plan?



  What are the legal compliance requirements of setting up the business?



  What licences and permits do we need to obtain?



  What insurance should we take out?



  What are the human and physical resource requirements of the business?



  What will be the operating hours?



Types of business decisions made in the first 12 months of operation include:   Do we need to extend or change the hours of operation?



  Do we need to recruit more staff to meet the needs of the business?



  How should we market the business? Do we need to change the marketing strategies?



  Should we invest more capital into the business?



  Do the staff need additional training?



  How should we evaluate the performance of the business?



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