QUESTIONS & ANSWERS
Question 1
Examine the relative suitability of the following forms of financing for a new company: Equity shares, Preference shares, Debentures and Long-term loans.
Answer:
a) Equity Shares
These represent ownership capital. Shareholders are the real owners of the company.
- Suitability: Best for new companies as there is no obligation to pay fixed dividends. However, it dilutes ownership and control.
- Dividends are paid only when profits are made.
- Shareholders bear the highest risk but enjoy voting rights.
b) Preference Shares
Holders receive a fixed dividend before ordinary shareholders. - Suitability: Suitable for investors who want stable returns. For a new company, it’s useful because dividends can be deferred (cumulative preference shares) if profits are low.
- No voting rights generally, so founders retain control.
c) Debentures
These are loan instruments issued to the public with a fixed interest rate. - Suitability: Suitable when the company has assets to offer as collateral. Interest is a tax-deductible expense.
- Risk: A new company may struggle to meet fixed interest obligations during early low-profit periods.
d) Long-term Loans
Obtained from banks or financial institutions. - Suitability: Useful for asset acquisition. Repayment is structured over time.
- Risk: New companies may not meet collateral requirements and face higher interest rates due to perceived risk.
Conclusion: For a new company, equity shares are most suitable as they carry no repayment obligation. Preference shares and long-term loans become viable as the company stabilizes.
Question 2
What are the importance of production planning? Explain the major considerations in process selection and facility planning in a manufacturing organization.
Answer:
Importance of Production Planning:
- Ensures efficient use of resources (men, machines, materials).
- Reduces waste and idle time.
- Helps in meeting delivery schedules and customer satisfaction.
- Facilitates cost control and budgeting.
- Improves coordination among departments.
- Helps anticipate shortages and bottlenecks in advance.
Major Considerations in Process Selection: - Nature of product – whether the product is standardized or customized.
- Volume of production – high volume favors mass production; low volume favors job-shop processes.
- Technology available – capital-intensive vs. labor-intensive methods.
- Cost considerations – unit cost, setup cost, and operating cost.
- Flexibility needed – ability to adapt to changes in product mix.
Major Considerations in Facility Planning: - Location – proximity to raw materials, labor, and markets.
- Layout – arrangement of machines and workstations for smooth workflow.
- Capacity planning – determining the right level of output capacity.
- Material handling – systems for moving goods within the facility.
- Expansion possibilities – future growth considerations.
Question 3
What is a career and how are careers managed? Explain five major human resource problems currently facing managers in organizations.
Answer:
Definition of Career:
A career is a sequence of jobs, roles, and positions held by an individual over their working lifetime, accompanied by growth in skills, responsibilities, and earnings.
Career Management:
Career management involves planning and developing an employee’s career path through:
- Career planning – identifying goals and the path to achieve them.
- Training and development – equipping employees with needed skills.
- Mentoring and coaching – guidance from experienced personnel.
- Performance appraisal – assessing and guiding career progress.
- Succession planning – preparing employees for higher roles.
Five Major HR Problems Facing Managers:
- Talent Acquisition and Retention – Difficulty attracting and keeping skilled employees, especially with competition from other organizations.
- Employee Motivation and Engagement – Keeping workers motivated and committed to organizational goals.
- Managing Workforce Diversity – Handling differences in culture, gender, age, and background in a harmonious way.
- Training and Development – Keeping pace with technological changes and upskilling employees continuously.
- Labour Turnover and Absenteeism – High rates of turnover and absenteeism increase costs and disrupt operations.
Question 4
Differentiate between non-programmed and programmed decisions. Explain the major factors that influence decision making in organizations.
Answer:
Feature
Programmed Decisions
Non-Programmed Decisions
Nature
Routine, repetitive
Novel, unstructured
Level
Lower management
Top management
Rules
Based on policies/procedures
Requires judgment and creativity
Examples
Reordering stock, payroll processing
Entering a new market, mergers
Certainty
High certainty
High uncertainty
Major Factors Influencing Decision Making:
- Availability of Information – Quality and quantity of data available affects the decision outcome.
- Time Constraints – Urgent situations limit the depth of analysis.
- Organizational Goals – Decisions must align with the company’s objectives.
- Risk and Uncertainty – Decision makers consider the level of risk involved.
- Human and Emotional Factors – Personal values, biases, and emotions of the decision maker.
- Environmental Factors – Political, economic, social, and technological (PEST) conditions.
- Resource Availability – Financial, human, and material resources constrain options.
Question 5
Differentiate between price skimming and penetration pricing. Identify the four major channels of distribution and explain the ways they differ from one another.
Answer:
Price Skimming vs. Penetration Pricing:
Feature
Price Skimming
Penetration Pricing
Definition
Setting a high initial price, then lowering it over time
Setting a low initial price to capture market share quickly
Target
Early adopters willing to pay premium
Price-sensitive mass market
Goal
Maximize profit per unit early
Gain market share rapidly
Risk
May attract competitors
May result in low initial profits
Example
New tech gadgets (e.g., smartphones)
New supermarkets offering low prices
Four Major Channels of Distribution:
- Producer → Consumer (Direct Channel)
No intermediaries. The producer sells directly to the consumer (e.g., farm produce sold at the farm gate, online sales). Offers maximum control and higher profit margins. - Producer → Retailer → Consumer
Producer sells to retailers who sell to consumers. Common in supermarkets. The retailer handles last-mile delivery. Fewer intermediaries, moderate control. - Producer → Wholesaler → Retailer → Consumer
Most common traditional channel. Wholesalers buy in bulk and distribute to retailers. Suitable for fast-moving consumer goods (FMCG). Less control for producer. - Producer → Agent/Broker → Wholesaler → Retailer → Consumer
Longest channel. Agents facilitate the sale. Common in international trade or when manufacturers lack market knowledge. Least control but widest reach.
How They Differ:
- Length – direct is shortest; agent-based is longest.
- Control – direct gives most control; longer channels reduce control.
- Cost – more intermediaries means higher distribution cost passed to consumers.
- Market Reach – longer channels reach wider and more dispersed markets.
Question 6
Critically differentiate a public liability company from a private liability company.
Answer:
Feature
Public Limited Company (PLC)
Private Limited Company (Ltd)
Membership
Minimum 7, no maximum
Minimum 2, maximum 50
Share Transfer
Shares freely transferable on stock exchange
Share transfer is restricted
Public Invitation
Can invite public to buy shares
Cannot invite the public to subscribe to shares
Listing
Listed on stock exchange
Not listed on stock exchange
Capital
Can raise large capital from public
Limited to private sources
Disclosure
Must publish annual accounts
Less stringent disclosure requirements
Formation
More complex and regulated
Simpler to form
Management
Board of directors; wider ownership
Often owner-managed; family controlled
Minimum Capital
Higher minimum paid-up capital required
Lower minimum capital
Examples
Dangote Cement PLC, GTBank PLC
Small/medium family businesses
Critical Analysis:
A PLC enjoys greater access to capital but is subject to stricter regulatory control and public scrutiny. A private limited company offers privacy and control but is restricted in capital-raising ability. For growth-oriented companies, transitioning from private to public is a strategic move.
Question 7
Why inventory control? In your own words, explain these concepts: human resource management, job analysis, job description and job specification.
Answer:
Why Inventory Control?
Inventory control is necessary to:
- Avoid overstocking (which ties up capital and increases storage costs).
- Prevent stockouts (which halt production or disappoint customers).
- Minimize wastage, theft, and obsolescence.
- Ensure smooth production flow and timely order fulfillment.
- Aid in financial planning and cost control.
Key Concepts:
1. Human Resource Management (HRM):
HRM is the strategic approach to managing people in an organization. It covers recruitment, training, performance management, compensation, and employee welfare — all aimed at achieving organizational goals through people.
2. Job Analysis:
Job analysis is the process of studying a job to understand its duties, responsibilities, required skills, and working conditions. It forms the foundation for all HR activities. It answers: “What does this job involve?”
3. Job Description:
A job description is a written document derived from job analysis. It outlines the title, duties, responsibilities, reporting relationships, and working conditions of a specific job. It tells the employee what to do.
4. Job Specification:
A job specification lists the minimum qualifications, skills, education, experience, and personal attributes required of a person to perform a job successfully. It tells HR who to hire.
Question 8
Differentiate between product and services. Enumerate and explain the causes of product failure.
Answer:
Product vs. Services:
Feature
Product
Service
Tangibility
Tangible (can be seen/touched)
Intangible (cannot be touched)
Storage
Can be stored/inventoried
Cannot be stored
Production & Consumption
Separate (produced then consumed)
Simultaneous (produced and consumed together)
Consistency
Uniform quality possible
Quality varies (human-dependent)
Ownership
Ownership is transferred
No transfer of ownership
Examples
Car, phone, food
Banking, teaching, transportation
Causes of Product Failure:
- Poor Market Research – Failure to understand what customers actually want leads to products with no demand.
- Inadequate Product Differentiation – If the product is not distinct from competitors, customers have no reason to switch.
- Pricing Problems – Setting the price too high (unaffordable) or too low (perceived as low quality) causes failure.
- Poor Promotion/Marketing – Even a good product fails if the target market is unaware of it.
- Technical/Quality Defects – Products that malfunction or fail to meet quality expectations are rejected by consumers.
- Poor Timing – Launching a product when the market is not ready or when demand has already declined.
- Distribution Problems – If the product is not available where and when consumers need it, it fails.
- High Competition – Established competitors with strong brand loyalty can squeeze out new entrants.
- Inadequate Capital/Support – Running out of funds before the product reaches profitability.
- Legal/Regulatory Issues – Products that fail to meet government regulations may be banned from the market.