Entrepreneurship and Business Management N4
INSTRUCTIONS AND INFORMATION
- Answer any THREE of the four questions.
- Read all the questions carefully.
- Number the answers according to the numbering system used in this question paper.
- Start each section on a new page.
- Use only a black or blue pen.
- Write neatly and legibly.
NOTE: If you answer more than the required number of questions, only the required number will be marked. Clearly cross out all work you do not want to be marked.
QUESTION 1
Read the scenario below and answer the questions.
Suntoy is a proudly South African company that designs and manufacturers the Consol Solar Jar™. Herald Schulz, born in Bregenz, Australia, is Suntoy's Technical and Managing Director. He has thirty years experience in electronic and hydraulic engineering. He began Suntoy in 2008 and has grown it into a successful SMME employing around 60 staff.
The Consol Solar Jar™ is a genuine, high-tech, proudly South African product which was originally developed for people in areas without electricity. It saves energy and is environmentally friendly. Now the Consol Solar Jar is available globally.
[Source: www.solar-jar.co.za]
1.1
Explain the economic importance of the products that carry the Proudly South African logo.
(8)
SHOW ANSWER
- Job creation: Proudly South African products create employment because local businesses need people to manufacture, distribute, market and sell the products.
- Economic growth: Successful local products increase business activity and contribute to the growth of the South African economy.
- Increase local productivity: Supporting locally produced goods encourages businesses to increase production and use local resources and skills productively.
- Entrepreneurship and creativity are encouraged: A market that supports local products gives entrepreneurs an opportunity to develop new ideas, products and businesses.
- Money is invested back into the country: Income generated by local businesses can circulate within South Africa and support further economic activity and investment.
- Export development: Strong South African products can be taken into international markets, creating opportunities to increase exports.
1.2
Identify TWO creativity methods that were used in creating the Consol Solar Jar. Substantiate your answer.
(6)
SHOW ANSWER
- Problem redefinition: The original problem was that people in some areas had no electricity. The problem was redefined as a need for a practical source of light, leading to the Solar Jar as the solution.
- Forced connections: The idea connected the Consol Jar with solar energy. Combining these two existing ideas resulted in the Consol Solar Jar.
1.3
Describe THREE benefits of a Consol Solar Jar.
(2 × 3) (6)
SHOW ANSWER
- Saves energy: The Consol Solar Jar provides lighting while using an energy-saving solution, making it useful where conventional electricity is limited or unavailable.
- Environmentally friendly: The product provides a more environmentally friendly way of providing light and therefore supports a more sustainable approach to energy use.
- Can be used when there is no electricity: Because it uses solar energy, the product can provide light to people living in areas without an electricity supply.
1.4
Identify TWO personal resources of a successful entrepreneur which led to Herald Schulz's success.
(4)
SHOW ANSWER
- 30 years' experience: Herald Schulz's extensive experience gave him practical knowledge that supported his ability to develop and manage the business.
- Experience in electronic and hydraulic engineering: His engineering experience provided relevant technical knowledge for developing and managing a high-tech product such as the Consol Solar Jar.
1.5
Design a business card for Herald Schulz.
(10)
SHOW ANSWER
SUNTOY
☀
Herald Schulz
Technical and Managing Director
Suntoy · Consol Solar Jar™
Proudly South African · Energy-saving solar lighting
Business card requirements shown: logo, Herald Schulz's name, Suntoy, Technical and Managing Director, and a neat, attractive presentation.
1.6
Suntoy has grown into a successful SMME, employing around 60 staff. What does SMME stand for?.
(2)
SHOW ANSWER
Small Medium Micro-Enterprise
1.7
Naledi wants to open a gift shop in Vaal Mall. There are already three gift shops in the mall and each store receives 3 500 customers on average per month. Naledi knows that she will not receive her full market share for the first year but can only rely on about 70%. She expects to have a selling price of around R150 per customer and her cost per customer is around R80. Naledi also buys from a supplier that gives 20% discount for cash purchases. Calculate Naledi's gross profit per month. Use the ANSWER SHEET (attached).
(14)
SHOW ANSWER
| Calculation | Working | Answer |
|---|---|---|
| Market potential per month | 3 500 × 3 = 10 500 10 500 ÷ 4 | 2 625 |
| Market potential share | 2 625 × 70% | 1 838 |
| Supplier analysis | 20% discount on R80 = R16 R80 − R16 | R64 |
| Number of units to be sold in one month | Market potential share | 1 838 units |
| Monthly sales | 1 838 × R150 | R275 700 |
| Less: Monthly unit costs | 1 838 × R64 | R117 632 |
| Gross profit per month | R275 700 − R117 632 | R158 068 |
QUESTION 2
Read the case study below and answer the questions.
Alvada Creations (Pty) Ltd is a clothing brand specialising in funky African print clothing for weddings, matric dances and other special events. The clothing line includes male and female casual and formal wear. Tshukudu Phasha, the owner and founder of Alvada Creations, reaches out to her customers through social media platforms like Facebook, Twitter, Instagram and WhatsApp. She runs Alvada Creations in a shopping mall in Diepsloot.
[Adapted from: Successful Woman Magazine]
2.1
Design a trademark for Alvada Creations and explain why you think it is a relevant trademark for this business.
(6)
SHOW ANSWER
AC ✦
ALVADA CREATIONS
Funky African Print Clothing
- Relevant design: The trademark uses the initials AC together with the business name, so it clearly identifies Alvada Creations.
- Short and easy to remember: The simple initials and business name make the trademark easy for customers to recognise and remember.
2.2
Describe Tshukudu's target market referring to gender, location, income and age.
(8)
SHOW ANSWER
- Gender — both female and male: Alvada Creations sells male and female casual and formal clothing, so both genders form part of the target market.
- Location — Diepsloot: The business operates from a shopping mall in Diepsloot, making customers in that area an important part of its market.
- Income — middle- and upper-income groups: The clothing is aimed at customers in these income groups who can afford clothing for special occasions and other purchases.
- Age — children and grownups: The target market includes both younger customers and adults because the clothing line serves different age groups.
2.3
Which type of business is Alvada Creations? Name THREE advantages of this business structure.
(8)
SHOW ANSWER
Private company.
- Separate legal entity: The company exists as a legal entity separate from its owners.
- Uninterrupted existence: The business can continue to exist even when ownership or membership changes.
- Limited liability: The owners' liability is limited in accordance with the company structure.
- Borrowing capacity: A private company can have access to borrowing as a way of obtaining finance for the business.
2.4
Classify clothes by choosing the correct answer from those between the brackets below. (Convenient products/Shopping products/Speciality products). Substantiate your answer.
(4)
SHOW ANSWER
- Shopping products: Clothing is classified as a shopping product because customers normally compare alternatives before buying. In particular, they compare the quality and style of the clothing before deciding which product best meets their needs.
2.5
Design an advertisement for Alvada Creations.
(12)
SHOW ANSWER
ALVADA CREATIONS
FUNKY AFRICAN PRINT FASHION FOR YOUR SPECIAL MOMENTS
Weddings · Matric Dances · Special Events · Casual & Formal Wear
SPECIAL OFFER — Ask us about our latest African-print styles and prices!
HEADLINE
Stand out in distinctive African-print clothing designed for your special moments.
BUSINESS NAME & ADDRESS
Alvada Creations
Shopping mall, Diepsloot.
LOGO / BRAND
AC ✦ — Alvada Creations.
PICTURES
Use clear, attractive pictures of the African-print clothing to show customers what is available.
PRICES
Display the relevant clothing prices clearly so customers can compare the offer with their budget.
SPECIAL OFFER
Highlight the current special offer so that it immediately attracts attention and encourages customers to enquire.
Visit Alvada Creations today and choose your African-print style!
This advertisement is designed to be neat and attractive while presenting the business identity, products, offer and customer information clearly.
2.6
Your friend is running a spaza shop. His forecasted sales for the month is R2 500, and his fixed costs are R350 per month. He calculated that he needs to buy goods to the value of R900 to generate the forecasted sales figure. Use the ANSWER SHEET (attached).
2.6.1
Calculate the gross profit and the net profit for your friend's spaza shop.
(6)
SHOW ANSWER
Sales: R2 500
Less: Cost of sales: R900
Gross profit: R2 500 − R900 = R1 600
Less: Fixed costs: R350
Net profit: R1 600 − R350 = R1 250
2.6.2
Calculate gross profit % and the net profit % for your friend's spaza shop.
(6)
SHOW ANSWER
Gross profit %: GP ÷ SP × 100
= R1 600 ÷ R2 500 × 100 = 64%
Net profit %: NP ÷ Sales × 100
= R1 250 ÷ R2 500 × 100 = 50%
QUESTION 3
3.1
Best Pies is a one-person business owned by Clifford Nyathi. He sells pies at an outlet close to a taxi rank. Use the following information to draw up the projected Cash Flow Statement for the next three months. At the end of January, it had a favourable bank balance of R6 500. Use the ANSWER SHEET (attached).
(24)
| MONTH | ESTIMATED SALES | ESTIMATED PURCHASES |
|---|---|---|
| January | 5 500 | 3 000 |
| February | 3 000 | 2 800 |
| March | 5 700 | 2 300 |
| April | 6 600 | 3 200 |
Other information:
- Best Pies bought a new pie machine in January and paid R900 deposit. The monthly payments thereafter are R250 for the next two years.
- The average monthly expenses are R2 650 per month.
- 40% of purchases are on credit. Best Pies pays 30 days later.
- In March Best Pies will sell an old counter for R2 500.
- In April Best Pies will buy a new computer of which the deposit will be R1 200 and the monthly instalments will be R500.
SHOW ANSWER
The workings below show how each figure in the projected cash-flow statement is obtained.
STEP 1 — Calculate cash and credit purchases
Cash purchases = 60% of estimated purchases | Credit purchases = 40% of estimated purchases
| Month | Estimated purchases | Cash purchases — 60% | Credit purchases — 40% |
|---|---|---|---|
| January | R3 000 | R3 000 × 60% = R1 800 | R3 000 × 40% = R1 200 |
| February | R2 800 | R2 800 × 60% = R1 680 | R2 800 × 40% = R1 120 |
| March | R2 300 | R2 300 × 60% = R1 380 | R2 300 × 40% = R920 |
| April | R3 200 | R3 200 × 60% = R1 920 | R3 200 × 40% = R1 280 |
STEP 2 — Apply the 30-day credit-payment rule
Credit purchases are paid 30 days later, so the credit purchase from one month becomes a cash payment in the following month.
| Cash-flow month | Credit purchase paid | Working | Amount paid |
|---|---|---|---|
| February | January credit purchases | R3 000 × 40% | R1 200 |
| March | February credit purchases | R2 800 × 40% | R1 120 |
| April | March credit purchases | R2 300 × 40% | R920 |
April's R1 280 credit purchases are not paid in April; they would be paid in May because the business pays credit purchases 30 days later.
STEP 3 — Calculate other payments
| Month | Working | Other payments |
|---|---|---|
| February | Pie machine instalment = R250 | R250 |
| March | Pie machine instalment = R250 | R250 |
| April | Computer deposit R1 200 + pie machine instalment R250 | R1 450 |
STEP 4 — Calculate total cash available
Total cash available = Opening bank balance + Cash sales + Credit sales + Other income
| Month | Working | Total cash available |
|---|---|---|
| February | R6 500 + R3 000 + R0 + R0 | R9 500 |
| March | R3 720 + R5 700 + R0 + R2 500 | R11 920 |
| April | R6 520 + R6 600 + R0 + R0 | R13 120 |
STEP 5 — Calculate total cash payments
Total cash payments = Monthly expenses + Cash purchases + Credit purchases paid + Other payments
| Month | Monthly expenses | Cash purchases | Credit purchases paid | Other payments | Total |
|---|---|---|---|---|---|
| February | R2 650 | R1 680 | R1 200 | R250 | R5 780 |
| March | R2 650 | R1 380 | R1 120 | R250 | R5 400 |
| April | R2 650 | R1 920 | R920 | R1 450 | R6 940 |
STEP 6 — Calculate the closing bank balance
Closing bank balance = Total cash available − Total cash payments
| Month | Working | Closing bank balance |
|---|---|---|
| February | R9 500 − R5 780 | R3 720 |
| March | R11 920 − R5 400 | R6 520 |
| April | R13 120 − R6 940 | R6 180 |
FINAL ANSWER — PROJECTED CASH FLOW STATEMENT
| Cash-flow item | February | March | April |
|---|---|---|---|
| Bank balance beginning of the month | R6 500 | R3 720 | R6 520 |
| Cash sales | R3 000 | R5 700 | R6 600 |
| Credit sales | R0 | R0 | R0 |
| Other income | R0 | R2 500 | R0 |
| TOTAL CASH AVAILABLE | R9 500 | R11 920 | R13 120 |
| Monthly expenses | R2 650 | R2 650 | R2 650 |
| Cash purchases | R1 680 | R1 380 | R1 920 |
| Credit purchases | R1 200 | R1 120 | R920 |
| Other payments | R250 | R250 | R1 450 |
| TOTAL CASH PAYMENTS | R5 780 | R5 400 | R6 940 |
| Bank balance end of the month | R3 720 | R6 520 | R6 180 |
3.2
CLICK, GO AND LOOK SMART
Effie is a new domestic appliance that irons your clothes for you. You can take your clothes from the washing machine, hang them on Effie and press start. This amazing appliance will dry and iron your clothes.
3.2.1
Is Effie an invention or innovation? Substantiate your answer.
(4)
SHOW ANSWER
- Invention: Effie is an invention because such a product has never been made before.
3.2.2
Give THREE reasons why creativity is crucial for businesses today.
(6)
SHOW ANSWER
- To bring new ideas: Creativity helps a business generate fresh ideas that can lead to new products, services or ways of doing business.
- To improve products: Creative thinking allows an existing product to be changed or improved so that it can meet customer needs more effectively.
- To bring inventions: Creativity can turn new ideas into inventions that give a business new opportunities in the market.
- Problem solving: Creative thinking helps entrepreneurs find new and practical solutions when normal methods do not solve a business problem.
3.2.3
Mention THREE market segments that could be attracted by this domestic appliance.
(6)
SHOW ANSWER
- Bachelors: A person living alone may value an appliance that reduces the time and effort needed to dry and iron clothing.
- Newlyweds: Newly married customers may be attracted to an appliance that makes household tasks easier and more convenient.
- Students: Students may value a product that reduces the time spent on household chores and allows them to concentrate on other responsibilities.
- Working people: People with busy working schedules may be attracted to an appliance that combines drying and ironing and saves time.
3.2.4
Which pricing strategy could be used to introduce Effie in the market? Substantiate your answer.
(4)
SHOW ANSWER
- Skimming: A new and distinctive appliance such as Effie can be introduced using skimming, where the product is positioned as a new offering and a relatively high initial price can support an exclusive market image.
- Create an exclusive image for a business: Positioning the new appliance as distinctive and desirable can make the business appear innovative and give the product an exclusive image while it is new.
- Sliding down the demand curve: As the product becomes more established, the price can be adjusted downwards so that the business can reach customers who are less willing to pay the initial price.
3.2.5
Suggest TWO other pricing techniques that could be used to sell this domestic appliance. Substantiate your answer.
(6)
SHOW ANSWER
- Odd pricing: This pricing technique can be considered as another way of presenting the selling price of the appliance to customers.
- Opportunistic pricing: This can be used to create an exclusive image for the business by taking advantage of the opportunity presented by a distinctive new product.
QUESTION 4
You intend to start a new business in your local community. To increase your chances of getting the funds for your business, you need to complete the business plan.
4.1
Complete an executive summary for your business plan. Cover the following topics:
(3 × 4) (12)
4.1.1
A brief description of your business
(4)
SHOW ANSWER
- Business activity and product lines/services: Ace Stationery will operate as a local stationery business supplying everyday stationery products such as writing materials, notebooks, files, paper and other commonly required stationery.
- Locality: The business will operate from a convenient local retail location where the target customers can reach the store easily.
- Business structure: The business will use a straightforward owner-managed structure so that decisions and daily operations can be controlled directly.
4.1.2
The business objectives you want to achieve in the next five years. Mention TWO objectives.
(4)
SHOW ANSWER
- Increase the market share by 20%: Ace Stationery will aim to attract more customers and strengthen its position in the local stationery market so that its market share increases by 20% over the five-year period.
- Expand the business to neighbouring countries: Once the local operation is established and financially sustainable, the business will aim to expand beyond the local market into neighbouring countries.
4.1.3
The funding needs, including own and loan capital requirements for your business enterprise
(4)
SHOW ANSWER
| Funding item | Amount | Funding source / calculation |
|---|---|---|
| Start-up capital | R120 000 | Capital needed to establish and equip Ace Stationery. |
| Owner's contribution | R50 000 | Own capital contributed by the owner. |
| Loan capital required | R70 000 | Additional finance required from a business loan. |
| Total capital required | R120 000 | R50 000 owner contribution + R70 000 loan capital. |
4.2
Compile a marketing plan for your business plan. Include any THREE components of the marketing plan. Hint: Description of the target market, competitor analysis, market strategy, SWOT analysis and positioning (how you want to be perceived by the customers)
(15)
SHOW ANSWER
Ace Stationery — complete marketing plan
| Marketing-plan component | Application to Ace Stationery | ||||
|---|---|---|---|---|---|
| Description of the target market |
| ||||
| Competitor analysis |
| ||||
| SWOT analysis |
| ||||
| Marketing strategy |
| ||||
| Positioning |
|
4.3
Give THREE reasons why you think your business will be successful.
(3 × 2) (6)
SHOW ANSWER
- Knowledge and skills: I have knowledge and skills in running this kind of business, which gives me a practical foundation for managing the business and making appropriate operating decisions.
- Research and demand: I have done research and there is a big demand for this product or service, which indicates that the business is responding to an identified customer need.
- Customers are willing to pay: Customers are willing to pay for the product or service, giving the business an opportunity to generate sales and income.
4.4
Name FIVE pre-operating costs for your business.
(5)
SHOW ANSWER
- Starting stock
- Advertising
- Legal and accounting fees
- Water and electricity connections
- Telephone connections
4.5
Create a profile for your business's suppliers by reading the questions below and writing your answers into the supplier profile chart. Use the ANSWER SHEET (attached).
(4 × 3) (12)
4.5.1
What is their business name?
SHOW ANSWER
Mastertons Coffee and Tea Specialists
4.5.2
Where is their business located?
SHOW ANSWER
Johannesburg industrial area
4.5.3
How do they advertise and market themselves?
SHOW ANSWER
Online / Yellow Pages
4.5.4
List THREE of their competitive advantages.
SHOW ANSWER
- Good reputation
- Supply quality products
- Guarantees and warranties
- Reasonable prices
TOTAL: 150