OCR GCSE BUSINESS CASE STUDY REVISON 2015 Holden plc and Bromley Furnishings

QUIZ - ALL ANSWERS IN THE CASE STUDY

•1.What do all the directors have in common? As a consequence what type of business can we call Holden plc?2. Where was production moved in 2008 and why?3.What method of production is used?4. What is the price range of their cushions?5.How much would a new factory cost?6.What has Bowton suffered from in recent years?7.Bromley Furnishings is owned by who?8. What is he planning in the New Year?

WHAT ARE THE BUSINESS CONSEQUENCES OF THESE

DISASTERS? REVENUE

REPUTATIONBRAND IMAGESWEAT SHOPS

POOR WORKING CONDITIONSPOOR SAFETY

WHAT'S THE BENEFIT OF HOLDEN PLC USING KAPOK FIBRES? WHAT’S THE BUSINESSES CONSEQUENCE? 

WHO MAY BE ENCOURAGED TO BUY THERE FURNISHINGS AS A RESULT? 

LIST THE POSITIVES AND NEGATIVES

•Cost RevenueSocio demographic groups A and BBrand image/Reputation Disposable incomeCompetitive advantageMeeting consumer expectationsPrice range

+ves

-ves

THE IMPORTANCE OF THE ENVIRONMENT PAGE 345

Environmental concerns

• List the positives and negatives of kapok

• List the positives and negatives of the factory

HintsGlobal warming?

Relate to the social costs of production.Shorter transportation. 

Supply chain. 

HOW CAN HOLDEN BECOME MORE ENVIRONMENTALLY FRIENDLY?

Recycle off cuts. Video conference call the suppliers of materials rather than visit. Implement the cycle to work scheme. Use sustainable resources - energy and materials

•Could the factory be built with renewable energy methods installed?

THE SOCIAL COSTS OF PRODUCTION

•Recycling • Local councils set targets as to how much rubbish will be recycled. If recycling is contaminated then a charge is given to the business. The UK is behind other EU countries in terms of how much waste is recycled. Education needs to be used to ensure businesses and people separate their waste

GRANTS AND TAX RELIEF

•The government encourages organizations to develop greener technologies by offering grants. It also encourages the use of bio fuels by reducing the amount of tax paid on them.

RULES AND REGULATIONS

•Green belt - planning laws designed to prevent the destruction of habitats. MOT - cars are checked to ensure they do not emit too much pollution. Disposing of fridges and freezers to prevent the escape of ozone harming gases.

CARBON PERMITS

•Businesses are given permits that allow them to emit a certain amount of carbon. If they need to emit more then they must buy credits from another business who is expecting to emit less than their permit allows. It is designed to reduce carbon dioxide emissions through giving emissions a cost. 

TAXES

•Car tax is based on how much pollution that car creates. More pollution more tax.

ADVERTISING, LABELLING AND EDUCATION 

• Labelling laws encourage organizations to produce environmentally friendly products. The European energy label highlights how energy efficient an electrical product is. Organic food labelling is....Education - Schools children are educated how important it is to save energy, employ renewable energy, recycle where possible and to encourage innovative design to ensure technological breakthroughs encourage a more sustainable lifestyle. 

SHOULD HOLDEN RENT OR BUILD A NEW FACTORY? 

 

For Renting For Building

CONCLUSIONThe most influential factor is..... and therefore Holden should ........

Government and DemandCompetitionGlobalisationGovernment and SupplyThe European Union

Of all the negative factors related to building a factory in Bowton which is the most severe and why? 6 marks

UK MEMBERSHIP

Bigger MarketCommon StandardsFree tradeFree movement of goodsGrants and subsidiesFree movement of servicesFree movement of workers

BIGGER MARKET

Economies of scale can be utilized to meet higher levels of demand. This results in the unit cost reducing and therefore profit margins increasing. Selling to 500m people rather than 65mIncreased demand leads to increased revenue.

COMMON STANDARDS

The labelling of goods is uniformed across the entire EU and therefore if a British company wishes to export to another EU member state it doesn't need to change its packaging and labels. This reduces costs as multiple labels are not required. 

FREE TRADE

More importantly safety requirements and the quality of goods is maintained across the entire EU. This makes it easier for organisations to compete as they must all abide by the same rules. Safety No tariffs - no taxes for importing goods. An added increase in variable costs 

FREE MOVEMENT OF GOODS

Goods can cross borders without delay. Perishable goods - this is particularly important.

GRANTS AND SUBSIDIES

EU - funds projects to enhance certain areas of the EU. This maybe infrastructure projects such as roads or land to aid inward investment.  Farm subsidies

RENTING BUILDING

ADVANTAGESOnce the mortgage has been paid off the Holden owns a significant fixed asset. They can also take advantage of a rise in value of the land. Factory could be extended and changed to meet Holden's needs. Therefore Holden could expand without changing premises. Less annual maintenance costs due to it being a new building. Modern buildings tend to be more energy efficient and could implement solar panels and light tunnels. This would reduce the energy costs. 

5 X 79,000 = £395,000 = £40,000 less than building a new factory. No initial outlayMaintenance of the building is the responsibility of the landlord.

Flexibility - Holden would be able to move and therefore if demand rises they could move into a larger factory or if another recession hit they could down size ensuring that costs are reduced. Using an existing site is more ethical as no green belt land is destroyed. - Ethical considerations. 

DISADVANTAGESConflict with the local community. Building on the green field site would inflame local people and would damage Holden's reputation in the community. Unethical behaviour counteracting their desire to improve the environmental credentials of the business by using Kapok. 

Lack of security - the owner of the building may choose not to renew the contract. They may also choose to increase the rent. Relocation would be a significant fixed cost due to the moving of heavy equipment. Eviction possible. Can't adapt or use the factory as you wish.

OTHER THAN KAPOK WHAT ETHICAL CONCERNS MAY HOLDEN PLC HAVE? 

Cheap labour in the far east - poor working conditions?Environmental damage of importing goods from the far east. Sofa miles....Destruction of the greenbelt and therefore environmental damage. Fair trade - paying a decent price for goods from third world producers. Environmentally friendly materials used to enhance the credentials of the organization in the eyes of its consumers. Environmental credentials are important to Holden's target market.

Recommend whether Holden should use fair trade Kapok as the filling for their cushions. 6 marks 

TERMINOLOGY KEY

Variable costsFixed costsRevenue

Interest rates - are a cost therefore lower interest rates will be mean that Holden's fixed costs will be lowerLower interest rates encouraging spending by reducing the reward for saving. Consumers mortgage interest payments are less and therefore their disposable income is higher allowing them to spend more on luxuries such as Holden's cushions.

Higher quality cushions allow for a higher price to be charged and therefore increasing sales revenue. Providing demand stays the same. Fewer mistakes by skilled workers will see a reduction in waste. This leads to a reduction in variable costs and therefore improves the profitability of Holden.

KEY TERMS

Kapok fair trade Implement lower pricesMarket researchprovide superior goodsUsing fair trade raw materials 

ADVERTISING

Increased use of website advertising or through the use of search engine optimization. This will allow more consumers to become aware of the Holden brand in overseas markets such as the USA. This would lead to an increase in sales revenue. Due to the relatively low cost of implementing this tactic Holden's profitability should improve. 

TWO WAYS IN WHICH TO SOLVE A CASH FLOW SHORTAGE. 

Taking out an overdraft would solve the cash flow issue as this short term form of finance will allow Sunil to pay any outstanding bills. If Sunil already has an overdraft he could ask for it to be extended. An overdraft does generate fixed costs in the form of interest paid on the amount "borrowed" from the financial institution. 

Sell unused assets - selling unused assets such as an obsolete machine will provide Sunil with an injection of cash that would allow him to pay any outstanding bills. Trade credit - lengthen the amount of time that Sunil needs to pay his suppliers. Reduce costs - Cost saving will reduce outgoings therefore his modest inflows will be able to cover the outflows. reduce debtors - ensure that customers on time ensuring that finance remains in business for longer. 

Managerial economies of scale benefit an organization through improved decision making by specialist managers. Holden's will have a marketing director who's experience and expertise lead to more effective marketing campaigns leading to higher sales revenue. 

Previous months closing balance

Percentage change between Feb and March = 1000/12,500 X100 = 8%

Percentage change = difference / original 

Difference between total income and total expenses 

Expenses = costsIncome (Sales) = RevenueForecast = Prediction