The macroeconomic environment of business

Options A to D show four possible changes to the UK economy.

Based solely on these changes, which option will lead to the largest increase in UK imports?

Analyse how a government changing its fiscal policy might affect a business which produces healthcare products.

Read the information below and then answer the questions that follow.

SCF

SCF is a UK-based manufacturer of components that are sold to UK and EU businesses which use them to produce computers. It has strong relationships with its small number of customers. However, recent vertical and horizontal mergers involving other firms in the sector have reduced the number of buyers. As a result, there are fewer opportunities to win new contracts. Furthermore, many of the biggest computer manufacturers only want to deal with large suppliers. Some manufacturers will only purchase components made in the European Union (EU).

SCF’s owners are increasingly concerned about falling sales and profit margins. They recently appointed a new Chief Executive who set out a vision for ambitious growth. The growth plans focus on supplying directly to EU manufacturers from a new factory in Spain. This factory would replace the existing UK site, where efficiency has been falling.

Appendix A Extract from SCF’s cash flow forecast

Note: The closing balance for 31 October is £4.30 million.

Appendix B Financial information for SCF, 2022–2024

Appendix C Value of total market and SCF’s sales in different markets, 2020–2028

Note: Values for 2026 onwards are forecasts. These do not take into account the plan to move production to Spain.

Appendices continue on the next page

Appendix D Decision tree showing outcomes of different strategic options predicted by

SCF’s sales forecasting

Option 1: Upgrade existing UK factory Option 2: Build new factory in Spain

Appendix E Forecasts for selected economic variables, 2025–2028

The data in Appendix A assumed all customers would make immediate payments. With effect from 1 November, customers will be given one month’s credit.

Calculate SCF’s closing balance for November, assuming all customers take advantage of the new payment terms.

Explain one possible reason for the change in inventory turnover shown in Appendix B.

Using Appendix D and the other information available, analyse why SCF chose Option 2.

Your answer should include quantitative and qualitative information.

To what extent do the changes in the economic environment create more threats than opportunities for SCF?

Use Appendix E and the other information provided in your answer.

The exchange rate for the £ increases.

A UK manufacturer is highly geared and exports 60% of its output.

Analyse the impact of a significant increase in UK interest rates on this business.

Which government policy is most likely to increase both GDP and inflation?

Which one of these changes is most likely to lead to higher costs and higher demand for a product?

Read the information below and then answer the questions that follow.

Disrupted supply

DT is a UK-based business manufacturing circuit boards which it sells to other businesses. All of DT’s output is exported to Europe. The components that DT uses are sourced in the UK.

The supplier of a vital component closed suddenly in early 2020 disrupting DT’s supply chain. DT’s usual pattern of inventory control for this component is shown in Figure 1.

DT was forced to buy this component from a new and more expensive supplier.

DT stated: ‘We had no contingency plan. It was impossible for us to find alternative supplies quickly enough to fulfil all our existing orders. The new supplies had higher levels of defects.’

Figure 1 Inventory control chart showing DT’s usual pattern before disruption

With reference to Figure 1, calculate the lead time.

With reference to Figure 1, calculate the re-order quantity.

With reference to Figure 1, calculate how much inventory DT uses each day.

Explain one impact of a fall in the value of the pound on DT’s sales.

Analyse how contingency planning might have helped DT maintain its competitiveness.

Reliability is the most important factor in a business’ choice of supplier. To what extent is this true for all businesses?

Statement 1: ‘Usually there is a negative correlation between changes in consumers’ incomes and changes in the quantity demanded of a product.’

Statement 2: ‘Usually there is a positive correlation between changes in the price of a competitor’s product and changes in the quantity demanded of a product.’

Read statements 1 and 2 and select the correct option from the following options.