Business Studies — Examination Questions & Answers
BUS 001 — Business and Its Environment
Question 1
(a) What is your understanding of the term business? (3 Marks)
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(b) State and explain FOUR reasons why businesses fail. (12 Marks)
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Answer 1
(a) Four roles a business enterprise can play to help keep Nigeria out of recession:
- Employment Generation — Businesses create jobs, putting income in people’s hands and boosting consumer spending, which drives economic activity.
- Tax Revenue Contribution — Profitable businesses pay taxes that fund government infrastructure and social services, stabilising the economy.
- Export and Foreign Exchange Earnings — Businesses that export goods bring in foreign currency, strengthening the naira and reducing trade deficits.
- Innovation and Import Substitution — Producing locally what was previously imported reduces capital flight and builds domestic industrial capacity.
(b) One form of business ownership — Sole Proprietorship:
This is a business owned and managed by a single individual. The owner bears all risks, keeps all profits, and has unlimited liability. It is the simplest and most common form, e.g., a roadside trader or freelance consultant.
© Two factors used to classify a business by size:
- Number of Employees — Small businesses typically have fewer workers than medium or large ones.
- Annual Turnover/Revenue — The volume of sales or income generated is a standard size indicator.
Question 2
(a) What is departmentalization? (3 Marks)
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(b) Discuss any FOUR forms of departmentalization with relevant examples. (12 Marks)
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Answer 2
(a) Family Business:
A family business is one owned, controlled, and usually managed by members of the same family, with the intention of passing it down across generations.
(b) Local Business:
A local business is one that operates within a specific community or geographic area, serving customers in that immediate locality. Its market, workforce, and operations are confined to a town, district, or neighbourhood.
Example: a neighbourhood bakery or local pharmacy.
© External vs. Internal Business Growth:
| Basis | Internal Growth | External Growth |
|---|---|---|
| Meaning | Growth from within, using the firm’s own resources | Growth through linking with or acquiring other firms |
| Method | Reinvesting profits, expanding output, opening new branches | Mergers, acquisitions, takeovers, joint ventures |
| Speed | Gradual and slow | Faster |
| Risk | Lower risk | Higher risk due to integration challenges |
| Control | Owner retains full control | May dilute ownership and control |
| Example | A company opening a new product line | A bank acquiring a smaller bank |
BUS 002 — Finance and Accounting
Question 3
(a) Distinguish between bad debts and depreciation. (3 Marks)
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(b) Explain any THREE reasons a business might make provisions for bad debt and depreciation respectively. (12 Marks)
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Answer 3
(a) Why it is important to identify and calculate costs:
Knowing costs helps a business set the right prices to ensure profitability, avoid underpricing or overpricing, plan budgets effectively, identify areas of waste, and make informed decisions about production levels and expansion. Without cost knowledge, a firm cannot determine whether it is making a profit or loss.
(b) Definitions:
| Term | Definition |
|---|---|
| Direct Cost | A cost traceable directly to a specific product or activity, e.g., raw materials used in manufacturing. |
| Fixed Cost | A cost that remains constant regardless of the level of output, e.g., rent or salaries. |
| Indirect Cost (Overhead) | A cost that cannot be attributed to a single product; supports overall operations, e.g., electricity bills, administrative expenses. |
| Variable Cost | A cost that changes in direct proportion to production levels, e.g., packaging materials or direct labour on piecework. |
© Four differences between Primary and Secondary Market:
| Basis | Primary Market | Secondary Market |
|---|---|---|
| Definition | Where new securities are issued for the first time | Where previously issued securities are traded among investors |
| Purpose | Raises fresh capital for companies/government | Provides liquidity to existing investors |
| Participants | Issuer and investors directly | Investors trading among themselves |
| Price | Fixed by the issuer | Determined by supply and demand |
Question 4
(a) Briefly explain any THREE significance of capital to a business. (6 Marks)
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(b) Explain any THREE sources of long-term capital to a business. (9 Marks)
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Answer 4
(a) Three effective means of debt collection:
- Reminder Letters/Calls — Sending polite but firm written or phone reminders as soon as a debt is overdue.
- Debt Collection Agencies — Engaging third-party agencies specialised in recovering outstanding debts on behalf of the business.
- Legal Action — Filing a court claim to recover debts when other methods fail; the threat alone often prompts payment.
(b) Debt Financing vs. Equity Financing:
| Basis | Debt Financing | Equity Financing |
|---|---|---|
| Definition | Raising capital by borrowing money (loans, bonds) | Raising capital by selling ownership shares |
| Repayment | Must be repaid with interest | No repayment required |
| Ownership | Full ownership retained | Ownership is diluted |
| Profit Sharing | Lender receives fixed interest only | Shareholders receive dividends |
| Example | Bank loan to buy equipment | Issuing shares on a stock exchange |
BUS 003 — Management I
Question 5
(a) Describe market segmentation. (3 Marks)
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(b) Identify and explain any FOUR reasons why the market for clothes might be segmented. (12 Marks)
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Answer 5
(a) Intrinsic vs. Extrinsic Motivation:
| Basis | Intrinsic Motivation | Extrinsic Motivation |
|---|---|---|
| Source | Comes from within the individual | Comes from external rewards |
| Driver | Personal satisfaction, enjoyment, sense of achievement | Salary, bonuses, promotions, praise |
| Example | A teacher who loves imparting knowledge | An employee working harder to earn a year-end bonus |
(b) Short Notes on McClelland’s Needs:
i. Need for Power
The desire to influence, control, or have authority over others. People with a high need for power seek leadership positions and enjoy directing others. It can manifest positively (institutional power — leading teams toward organisational goals) or negatively (personal dominance).
ii. Need for Achievement
The drive to accomplish challenging tasks, meet standards of excellence, and succeed. High achievers prefer tasks of moderate difficulty, take personal responsibility for outcomes, and seek feedback. They are often entrepreneurs and self-starters.
iii. Need for Affiliation
The desire to form warm, friendly relationships and belong to groups. People high in affiliation motivation prefer cooperative environments, avoid conflict, and value team harmony over competition. They are best suited to roles requiring teamwork and customer relations.
Question 6
(a) Define leadership. (2 Marks)
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(b) Explain any FOUR roles a leader needs to play. (6 Marks)
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© Explain the leadership styles known to you. (7 Marks)
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Answer 6
(a) What is a brand?
A brand is a name, symbol, design, or combination thereof that identifies a seller’s product or service and distinguishes it from competitors.
(b) Two characteristics of a good brand:
- Memorability — A good brand is easy to remember and recall, making it stick in the minds of consumers.
- Distinctiveness — It must stand out clearly from competitors, giving consumers a reason to choose it over alternatives.
© Marketing vs. Sales:
| Basis | Marketing | Sales |
|---|---|---|
| Definition | Identifying customer needs and creating strategies to satisfy them profitably | Directly persuading customers to purchase a product or service |
| Focus | Long-term customer relationships and market positioning | Short-term transactions and closing deals |
| Approach | Pull strategy — attracting customers through branding, research, advertising | Push strategy — pushing products to customers through direct contact |
| Scope | Broader; includes research, pricing, promotion, distribution | Narrower; focused on converting leads into buyers |
| Timeframe | Long-term | Short-term |
| Start Point | Begins with understanding the customer | Begins with the existing product |
In summary: Marketing creates the conditions for a sale; sales is the execution of converting those conditions into revenue.
BUS 004 — Management II
Question 7
(a) What is a business plan? (3 Marks)
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(b) Briefly discuss the components of a business plan. (12 Marks)
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Answer 7
(a) Inventory:
Inventory refers to the stock of goods, raw materials, or finished products held by a business at any point in time.
Three reasons for holding inventory:
- To meet unexpected increases in customer demand without delays.
- To avoid production stoppages caused by supply shortages.
- To take advantage of bulk purchasing discounts from suppliers.
(b) Inventory Cost Terms:
i. Carrying/Holding Costs
The costs of storing inventory over time, including warehouse rent, insurance, spoilage, and the opportunity cost of capital tied up in stock.
Example: A supermarket storing large quantities of perishable goods incurs refrigeration and spoilage costs.
ii. Ordering Costs
Costs incurred each time an order is placed for new stock, including administrative costs, shipping fees, and inspection costs.
Example: A manufacturer paying courier charges and processing fees each time it orders raw materials.
iii. Shortage Costs
Costs arising when inventory runs out and demand cannot be met, including lost sales, customer dissatisfaction, and emergency procurement costs.
Example: A pharmacy losing customers and revenue because a popular drug is out of stock.
Question 8
Given that Jacque’s Bakery, with 5 bakers working 8 hours each per day, produces a total of 3,000 loaves of bread each day; calculate:
(a) Productivity per day for Jacque’s Bakery (7½ Marks)
(b) Daily productivity per baker (7½ Marks)
Answer 8 — Short Notes
(a) Productivity
Productivity measures the efficiency with which inputs (labour, capital, materials) are converted into outputs. Higher productivity means more output per unit of input.
Improving productivity reduces cost per unit and increases competitiveness.
(b) Added Value
Added value is the difference between the selling price of a product and the cost of the inputs used to produce it. It represents what the business contributes through production, design, or branding.
© Capital Intensity
The degree to which a business relies on machinery, equipment, and technology relative to labour in its production process.
- Capital-intensive business (e.g., oil refinery) — uses more machines than people.
- Labour-intensive business (e.g., farming) — uses more workers than machines.
(d) Level of Production
The quantity of goods or services a business produces within a given period. It can operate at:
| Level | Description |
|---|---|
| Below Capacity | Underproduction; resources not fully utilised |
| Full Capacity | Optimal use of all resources |
| Above Normal Capacity | Overproduction; may lead to strain or waste |
The optimal level minimises cost and satisfies demand.
(e) Scale of Operation
The size at which a business operates, determined by the volume of inputs used and output produced. Businesses can operate on a small, medium, or large scale.
Larger scale often brings economies of scale — reductions in cost per unit as output increases — giving a competitive pricing advantage.
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