Business 9709 S11 Qp 31

Topics: Corporate social responsibility, Clothing, Net present value Pages: 8 (1855 words) Published: April 8, 2013

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May/June 2011 3 hours

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Additional Materials:

Answer Booklet/Paper

READ THESE INSTRUCTIONS FIRST If you have been given an Answer Booklet, follow the instructions on the front cover of the Booklet. Write your Centre number, candidate number and name on all the work you hand in. Write in dark blue or black pen. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Section B Answer one question. The businesses described in this question paper are entirely fictitious. You are advised to spend 40 minutes on Section B. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 5 printed pages and 3 blank pages. DC (CB (NB)) 32629/2 © UCLES 2011

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2 Asia Clothing (AC) The current situation Asia Clothing (AC) is a private limited company. All of the shares are owned by the Bappoo family. The company manufactures a wide range of fashion clothing for women. 90% of its output is purchased by three large chains of retail fashion shops in Asia. Increased competition in the retail market has led to these three retailers insisting on: • Lower prices so that the retail shops can become more competitive • Faster production of new styles. The Bappoo family members have held several meetings to discuss how they can meet these demands from these customers. Meeting the demands: Lower prices Abu, the Managing Director, understands that if AC does not meet these demands the company will lose orders quickly. ‘There are so many other clothing manufacturers who would be delighted to supply these three retailers’, he told the other directors at a recent Board meeting. ‘If we lower our prices to the retailers by 10%, as they have demanded, we will make no profit at all. We must look at every means possible of cutting our own costs.’ Meeting the demands: Faster production of new styles The concept of ‘fast fashion’ – putting the latest fashions into shops within weeks of the new styles appearing – is a new challenge to AC. It is well-known for rather traditional designs and well-finished products. ‘Younger consumers are less concerned about how long a dress lasts for – they want the latest styles and they want them now!’ Abu told the directors. ‘We have to be more flexible and adaptable. That means improving the speed of our communications with fashion designers and fashion show organisers, as well as with the retailers who buy our clothes.’ Communication problems Lack of investment in information technology means that internal and external communication methods used by AC are outdated. Customer orders are received by telephone. As a result, errors have been made in noting the precise requirements of the retailers. The postal confirmation of the orders often takes several days. Designs for new styles are sent on paper to AC’s material cutting and sewing sections, rather than using CAD (Computer Aided Design) technology with direct electronic links. AC orders cloth from suppliers once a month and this leads to high inventory (stock) levels. The managers use face-to-face communication with individual workers and work teams, but this takes up much time and reduces hourly productivity. Managers communicate with each other daily through the use of internal ‘memos’. Future expansion – organic growth or takeover of Fancy Fashions? The Bappoo family have always made company growth a key objective. The founder of the company and the present Chairman, Nilesh, has undertaken a study of two growth options for the business. Forecast net cash flows of these options are shown in Appendix A. Option 1: Organic growth...
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