M17/3/BUSMT/HP1/ENG/TZ0/XX

BUSINESS MANAGEMENT
HIGHER LEVEL
PAPER 1

Practice examination 2017 Utopia

2 hours 15 minutes

INSTRUCTIONS TO CANDIDATES
Do not open this examination paper until instructed to do so.
A clean copy of the IB Business Management case study Utopia is required for this
examination paper.
Read the case study carefully.
A clean copy of the IB Business Management formulae sheet is required for this examination
paper.
Section A: answer two questions.
Section B: answer question 4.
Section C: answer question 5.
A calculator is required for this examination paper.
The maximum mark for this examination paper is [60 marks].
 IB Business Management Higher Level Paper 1 Examination
IB Business Management: www.BusinessManagementIB.com

SECTION A

Answer two questions from this section.

QUESTION ONE

a. Outline the importance of market research (line 69) to Utopia in achieving its sales
targets. [4 marks]

b. Examine why Utopia sets ethical objectives (line 17) and implements corporate social
responsibility strategies. [6 marks]

QUESTION TWO

a. Explain the importance to Utopia of having a unique selling point (USP; line 4).
[4 marks]

b. With reference to Utopia, distinguish between strategic alliance (line 74) and joint
venture (line 50). [6 marks]

QUESTION THREE

a. With reference to Utopia, outline two key features of operating as a private limited
company (line 1). [4 marks]

b. Analyse how John Arikis paternalistic leadership style would impact on the business
objectives of Utopia. [6 marks]

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IB Business Management: www.BusinessManagementIB.com

SECTION B

Answer the compulsory question from this section.

QUESTION FOUR

The following financial information for the latest financial years is Utopias.

Table 1: Selected financial information for Utopia

Selected financial information for Utopia

Year ending 31st December Year ending 31st December

2016 2015

Cash $200 000 $600 000

Creditors $85 000 $75 000

Debtors $31 000 $35 000

Short-term loans $90 000 $40 000

Stock $37 500 $30 500

Sales revenue $2 900 050 $4 330 405

Cost of goods sold $852 112 $600 054

Expenses $3 504 900 $2 904 510

a. Explain why the capital expenditure (line 64) required to rebuild the 17 damaged villas
would not feature in Utopias profit and loss account. [4 marks]

b. Using information in Table 1 above calculate

i. Gross profit margins for the years ending 2016 and 2015 [2 marks]
ii. Net profit margins for the years ending 2016 and 2015 [2 marks]
iii. The current ratios for the years ending 2016 and 2015 [2 marks]
iv. The acid test/quick ratios for the years ending 2016 and 2015 [2 marks]

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IB Business Management: www.BusinessManagementIB.com

c. Discuss the impact of the 2016 natural disaster (line 40) on Utopias liquidity position and
strategies the business could have used to improve its cash flow during that time of crisis.
[8 marks]

Additional information
There is no additional information in this paper for Sections A and B.

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 IB Business Management Higher Level Paper 1 Examination
IB Business Management: www.BusinessManagementIB.com

SECTION C

Answer the compulsory question from this section.

QUESTION FIVE

5. The board of directors at Utopia are exploring long-term strategic options in line with
growth objectives. They have been considering the four strategic options for growth laid
out in the Ansoff matrix.
The board has asked you to prepare an independent report for their consideration.
By applying the Ansoff matrix and using quantitative and qualitative data from the case
study and the additional stimulus material in table 1 above and items 1-4 below,
evaluate what you believe to be the two best options for Utopia to achieve its strategic
objectives. [20 marks]

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 IB Business Management Higher Level Paper 1 Examination
IB Business Management: www.BusinessManagementIB.com

Additional information
ITEM 1: GROWTH IN PACIFIC ISLAND TOURISM

Source: KPMG report into Tourism in the Asia Pacific (Jan 2017)

* Strong demand for Pacific Island tourism leads to significant growth in the future. However, this growth is
somewhat restrained by relatively low rates of infrastructure development in the Pacific Islands (e.g., ports,
airports, hotels and resorts).

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IB Business Management: www.BusinessManagementIB.com

ITEM 2: COFFEE PRICES CONTINUE TO RISE ON FALLING SUPPLY AND INCREASING DEMAND

13 14 15 16 17 18 12 13 14 15 16 17 13 14 15 16 17 18 19

Global coffee prices are expected to increase as droughts in Brazil and Sub-Saharan Africa continue
to limit the supply of coffee, and at the same time global demand for coffee continues to increase.
This is expected to put pressure on both wholesalers and retailers who will not be able to increase their
prices in a highly competitive market.

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 IB Business Management Higher Level Paper 1 Examination
IB Business Management: www.BusinessManagementIB.com
ITEM 3: UTOPIA SUMMARY SWOT ANALYSI S
Strengths:
Established and profitable business operation.
Finance. Strong balance sheet with low levels
of debt.
Established brand.
Differentiated product.
Customers are mostly wealthy and relatively
insensitive to price.
Relatively high gross profit margins.
The location of Utopia.
Privately held company.
Low cost of local labour.
Effective supply chains sourcing fresh local
produce.
Opportunities:
Increase prices as wealthy customers may be
relatively insensitive to higher prices.
Expand the number of villas to cater for higher
numbers of guests.
Pursue additional revenue streams souvenirs.
Pursue additional revenue streams selling
Aora coffee beans in New Zealand.
Pursue additional revenue streams develop
additional tours and activities for guests (e.g.,
weddings).
Pursue additional revenue streams develop
a new resort in a new location on Ratu or
other Pacific Island.
Improving internet infrastructure will enable
better and faster communication and allow
Utopia to establish an effective social media
presence.
Develop a promotional campaign to target
potential customers instead of relying on
word-of-mouth promotion.
Weaknesses:
Finance. The business will only consider internal
sources of finance to pursue growth opportunities.
Relatively undiversified with just two revenue streams.
Marketing. Utopias reliance on word-of-mouth
advertising limits its promotional opportunities and
reduces sales revenues.
Management. The paternalistic style of Johns
leadership has resulted in businesses that are family-
run and this means that they are unlikely to have the
skills of qualified and professional managers.
Threats:
Natural disasters such as hurricanes and tsunamis can
quickly destroy Utopias own infrastructure as well as
the supporting infrastructure on Ratu (e.g., roads) and
neighbouring islands (e.g., airports and ports) that
tourists are reliant on to reach Utopia.
Other threats from nature such as mosquito borne
diseases (dengue fever and Zika virus) or an influx of
jellyfish.
Sea level rises and an increase in the number and size
of storm surges.
Increased competition from a new resort on Ratu or
nearby islands.
Poor word-of-mouth promotion from guests (e.g., a
shark attack or bout of food poisoning amongst
guests).
Supply chains. The caf (and potential wholesale
operation) is reliant on a single supplier of coffee
beans.
Coffee is a commodity, and thus subject to high
levels of price volatility.
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 IB Business Management Higher Level Paper 1 Examination
IB Business Management: www.BusinessManagementIB.com

ITEM 4: BREAKING NEWS

News item appearing in major newspapers and global media.

American antitrust regulators rule that the Ford and Hyundai

merger can proceed
NEW YORK

Zika virus disease is caused by a virus transmitted primarily by Aedes mosquitoes.

REUTERS/MILENA BAENSCH

For the relatively few people who show signs of a Zika infection, the illness is
often very mild. But in pregnant woman, the effects can be devastating, and
can include pregnancy loss or a baby born with an abnormally small head and
brain a condition known as microcephaly.
The Zica virus has now been confirmed in Southern Fiji and across all parts of
Samoa. Experts predict that the Aedes mosquito which carries the Zika virus
and transmits it to people will quickly spread across most, if not all, of the
South Pacific.
The first cases of babies born with microcephaly have been reported in Fiji and
Samoa and health professionals are warning women travelling to Pacific
Islands to take extra precautions.

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