6.2 Environmental and ethical issues

MTL is a large business which sells children’s toys. MTL wants to act ethically with all of its stakeholder groups including its 430 employees. The market MTL operates in has become more competitive. The business uses a range of methods to promote its products. Having a good brand image is important. MTL’s directors are considering entering a new market in another country. They are aware there may be problems if they choose to do this.

c) Outline one way MTL could act ethically with each of the following stakeholder groups: [4]
Employees:
Customers:

MDZ manufactures a range of chocolate bars. It has 300 employees. MDZ purchases its ingredients from suppliers in the local area. Acting in an ethical way with its stakeholder groups is important. MDZ has products at different stages of the product life cycle. The business is also developing a new product. The Marketing Director needs to make decisions about the packaging and the price of the new product. She knows it is important for a business to use a suitable method of sales promotion for a new product.

d) Explain one way MDZ could act in an ethical way with each of the following stakeholder groups:[6]
Employees:
Explanation:

Suppliers:
Explanation:

GAE is a multinational company. It manufactures steel. GAE has 2400 employees and has factories in 4 countries. The business regularly introduces new technology. Holding inventory is important. GAE’s directors are planning to build a new factory and want to know how legal controls over location might affect this decision. The Managing Director said, ‘The new factory will create many external benefits.’

a) Define ‘external benefits’.[2]

MHL manufactures tyres for large vehicles. It has factories in 6 countries. The business creates external costs when producing its products. Good communication with MHL’s suppliers is important. The Managing Director knows globalisation provides many opportunities for MHL. She is reviewing data for one of MHL’s factories as she wants to reduce the average cost of the tyres. An extract from this data is shown in Table 4.1.

Explain two methods of communication a business could use to communicate with its suppliers.
Which is likely to be the best method to use? Justify your answer. [6]

PKN manufactures glass. Contributing to sustainable development is important to the business. PKN has factories in 30 countries. It has 27 000 employees. The Managing Director knows PKN has benefited from globalisation. She plans to expand the business using external growth. Retained profit is one source of finance a business could use to fund expansion. Some of PKN’s directors are concerned about possible diseconomies of scale as the business grows.

c) Outline two ways PKN could contribute to sustainable development. [4]
Way 1:

Way 2:

TJK manufactures candles. Contributing to sustainable development is important to TJK. The business uses batch production in its factory in country X. The target market for TJK’s products is females between 20 and 50 years of age. The Managing Director is reviewing TJK’s financial data. An extract is shown in Table 3.1. He is also considering the benefits to a business of becoming multination company.

d) Explain two ways TJK could contribute to sustainable development. [6]
Way 1:
Explanation:

Way 2:
Explanation:

LRL makes skincare products including face cream. It is a private sector business in country X. One of LRL’s objectives is to contribute to sustainable development. Maintaining customer loyalty is important and the Marketing Director knows a business must have an appropriate marketing mix. He is analysing data to calculate the value of LRL’s market share. An extract is shown in Fig. 3.1. The total value of sales of skincare products in country X for 2023 was $120 million.

((c) Outline two ways LRL could contribute to sustainable development. [4]
Way 1:

Way 2:

FSW is a multinational company with operations in 6 countries. It manufactures steel for use in the construction industry. Quality assurance is used to ensure quality production. FSW has many stakeholder groups who are interested in its activities. The Managing Director knows FSW’s business creates external costs. She is aware that pressure groups try to influence business decisions.

a) Define ‘external costs’. [2]

c) Identify four ways a pressure group might try to influence business decisions.
Way 1:

Way 2:
Way 3:
Way 4:

RBG is an oil company. It has operations in 6 countries. RBG has 2000 employees including 60 managers. Some of its managers use a laissez-faire leadership style. All of RBG’s internal communication uses information technology (IT) based methods. The Managing Director knows RBG’s business activities can create external costs and external benefits. She says: ‘Pressure groups often try to influence business decisions.’

c) Outline one external cost and one external benefit RBG’s business activities might create. [4]
External cost:
External benefit:

(e) Explain two ways a pressure group might try to influence business decisions. Which way do you think is likely to be the most effective? Justify your answer. [6]

CFG is a social enterprise. It buys cocoa beans from local farmers and then uses the beans to make chocolate. Being ethical is important to the business. CFG has developed a new chocolate bar. The Marketing Manager plans to use skimming as its pricing method, and retailers as its distribution channel for the new product. He knows there are many legal controls over marketing that might affect a business.

(e) Do you think being ethical will always lead to lower profit for a business? Justify your answer. [6]

PLY manufactures hats in its factory in country X. The economy of country X is in a recession. PLY sells its hats online to the mass market. It uses email to communicate with its customers. PLY uses market research when making decisions. The Managing Director is considering ways for PLY to become more environmentally friendly as she is aware of new legal controls over business activity. She is also aware of the role of pressure groups.

b) Define ‘pressure group’.[2]

Outline two ways PLY could be affected by legal controls over business activity affecting the environment.[4]
Way 1:

Way 2:

TBX manufactures high-quality steel which is used to build railways. The method of production used allows TBX to benefit from economies of scale. The business holds a high level of inventory including iron ore. The Managing Director knows business activity could have an impact on the environment and is considering ways the business can contribute to sustainable development.

a) Identify two ways business activity could have an impact on the environment. [2]
Way 1:

Way 2:

b) Identify two ways a business could contribute to sustainable development. [2]
Way 1:

Way 2:

ACP manufactures computers. Being ethical is important to ACP. The business employs 3000 workers in its factory. ACP imports 65% of its raw materials. As internal users of accounts, the directors plan to analyse ACP’s financial performance using profitability ratios. The Finance Director thinks making a profit is more important for a business than managing its cash flow.

d) Explain one benefit and one limitation to ACP of being ethical. [6]
Benefit:
Explanation:

Limitation:
Explanation:

PCY provides insurance services for businesses such as farms and factories. Being ethical is important to PCY. The business has 4 offices and 500 employees. Managers use different leadership styles. The Managing Director is planning to change how PCY is organised and managed. He said: ‘I want to reduce communication barriers within the business. Delegation will be encouraged. The span of control could change.’

(e) Do you think lack of feedback is the main barrier to effective communication in a business? [6]

KCL manufactures paper which is used in the production of newspapers and books. KCL holds a high level of inventory and buys all its raw materials, including wood, from local suppliers. Quality control is important. The Operations Director is considering ways to increase efficiency in the factory. Pressure groups are trying to influence KCL’s decisions to ensure that the business does not create more external costs than external benefits.

b) Identify two ways a pressure group might try to influence business decisions. [2]
Way 1:

Way 2:

d) Explain one external cost and one external benefit that may be created by KCL’s business. [6]
External cost:
Explanation:

External benefit:
Explanation:

AH is an insurance business. It operates in a competitive market. AH has 1000 employees including 50 supervisors. The supervisors use an autocratic leadership style. AH currently has a 5% market share and is planning to take over a competitor. The Managing Director is considering how to communicate with AH’s employees about the takeover. There are many sources of finance available to fund business growth.

c) Outline two ways HCB could become more ethical. [4]
Way 1:

Way 2:

HCB manufactures cars in country X. It has 200 employees working in its factory. The business has changed its method of production due to new technology. HCB’s Managing Director is considering ways to become more ethical. She is aware that other businesses in country X have started to import cars. The interest rate in country X has increased due to rising inflation.

c) Outline two ways HCB could become more ethical. [4]
Way 1:

Way 2:

CTF is a public limited company. It manufactures beds using batch production. The Operations Director is using break-even analysis to calculate the margin of safety for children’s beds. An extract from CTF’s output data is shown in Table 2.1. The Operations Director wants to know how an increase in inflation might affect CTF. She knows there are many environmental pressures that a manufacturing business could respond to.

(e) Do you think manufacturing businesses should always respond to environmental pressures? Justify your answer. [6]

SNT is an ethical business. It manufactures a range of soft drinks using batch production. In 2023 SNT produced 300 000 bottles of soft drinks each week. There are many factors which affect how much inventory the business should hold. SNT’s directors are planning to expand the business into new markets in other countries by forming a joint venture. They are considering licensing as another way to help overcome the potential problems of entering these new markets.

(e) Do you think the advantages to a business of being ethical are greater than the disadvantages? Justify your answer. [6]

MHL manufactures tyres for large vehicles. It has factories in 6 countries. The business creates external costs when producing its products. Good communication with MHL’s suppliers is important. The Managing Director knows globalisation provides many opportunities for MHL. She is reviewing data for one of MHL’s factories as she wants to reduce the average cost of the tyres. An extract
from this data is shown in Table 4.1.

a) Define ‘average cost’.[2]

b) Calculate total variable cost per month. Show your working. [2]
Working: