IBDP Business Management HL M26 Abraca (ABC) Study Guide

Practice questions and answers focused on Units 1, 3, and 4 of the IBDP Business Management HL M26 Abraca (ABC) case study.

What type of business is ABC?

ABC is a large private-sector business that originally specialized in concrete production before diversifying into e-waste recycling and gold extraction.

What is diversification?

Diversification is when a business expands into new products or markets; for example, ABC diversified from concrete into e-waste processing.

Why did ABC diversify?

To increase revenue streams, reduce dependence on concrete sales, exploit a new innovation, and gain competitive advantage.

What are the advantages of diversification for ABC?

Reduced risk, new profit opportunities, growth potential, improved brand image, and access to new markets.

What are the disadvantages of diversification for ABC?

High costs, lack of experience in new markets, management complexity, and operational risk.

Why is innovation important for ABC?

Innovation gives ABC a competitive advantage because its gold extraction method may be more efficient and profitable than competitors.

What is a stakeholder?

A stakeholder is any person or group affected by the business, such as employees, customers, suppliers, shareholders, and governments.

How might employees benefit from ABC’s expansion?

Through more job opportunities, training, higher wages, and career growth.

How might local communities benefit from ABC?

Reduced e-waste pollution, more employment, and economic development.

How could governments support ABC?

Through grants, tax incentives, environmental support, or favorable regulations because ABC contributes to sustainability.

What is corporate social responsibility (CSR)?

CSR means businesses operate ethically and consider social and environmental impacts.

How does ABC demonstrate CSR?

By recycling e-waste, reducing landfill waste, and recovering valuable metals sustainably.

Why is sustainability important for ABC?

It improves reputation, attracts investors, supports long-term growth, and reduces environmental harm.

What is a competitive advantage?

A feature that makes a business superior to competitors.

What is ABC’s competitive advantage?

Its unique gold extraction technology and sustainability focus.

Why could ABC face ethical issues?

Mining and industrial activities may create pollution, worker safety concerns, or community conflicts.

Why might ABC need more employees?

Expansion into e-waste recycling increases operational size and labor requirements.

What is recruitment?

The process of attracting and selecting employees.

What is internal recruitment?

Hiring existing employees for new positions inside the business.

What are the advantages of internal recruitment for ABC?

It is cheaper, faster, improves motivation, and existing employees already know the business.

What are the disadvantages of internal recruitment?

It provides limited new ideas and leaves another vacancy inside the company.

What is external recruitment?

Hiring workers from outside the organization.

What are the advantages of external recruitment?

New ideas, a wider talent pool, and specialized expertise.

What are the disadvantages of external recruitment?

It is more expensive, slower, and involves greater training needs.

Why is training important for ABC?

Employees may need technical skills to safely handle e-waste and gold extraction technology.

What is the difference between on-the-job and off-the-job training?

On-the-job training involves working with experienced employees at the workplace, while off-the-job training occurs away from the workplace, such as in courses or workshops.

What is motivation and how can it be achieved at ABC?

Motivation is the willingness of employees to work productively. Financial methods include bonuses, higher salaries, profit sharing, and overtime; non-financial methods include recognition, promotion, flexible working, and training.

What problems may occur if communication is poor?

Low morale, confusion, conflict, inefficiency, and lower productivity.

Why is health and safety especially important for ABC?

Employees handle chemicals, machinery, and electronic waste that may be hazardous.

What is labor productivity and how can it be improved?

Labor productivity is output produced per worker in a given time period. It can be improved via training, automation, motivation, communication, and better working conditions.

What is the formula for profit?

$$\text{Profit} = \text{Revenue} - \text{Costs}$$

What are the internal and external sources of finance?

Internal sources include retained profit; external sources include loans or investors.

What are the advantages and disadvantages of retained profit?

Advantages: No interest payments and no loss of ownership. Disadvantages: Limited amount available and slower growth.

What are the advantages and disadvantages of loans?

Advantages: Large amounts available quickly. Disadvantages: Interest payments increase costs and financial risk.

Why is positive cash flow important for ABC?

ABC needs enough cash to pay wages, suppliers, and operating costs.

What causes cash flow problems?

High expenses, delayed customer payments, or rapid expansion.

What is break-even analysis?

The level of output where total revenue equals total costs ($\text{Total Revenue} = \text{Total Costs}$), helping ABC estimate units needed to avoid losses.

What is the formula for break-even quantity?

$$\text{Break-even output} = \frac{\text{Fixed costs}}{\text{Contribution per unit}}$$

What is the formula for contribution per unit?

$$\text{Contribution per unit} = \text{Selling price per unit} - \text{Variable cost per unit}$$

What is the current ratio formula used to measure liquidity?

$$\text{Current ratio} = \frac{\text{Current assets}}{\text{Current liabilities}}$$

What is considered a healthy current ratio?

A current ratio around $1.5$–$2$ is usually considered healthy.

Why could expansion reduce short-term profitability?

High investment costs may temporarily reduce profits before long-term gains occur.

What is gearing and why is high gearing risky?

Gearing is the proportion of finance from long-term loans. High gearing is risky due to higher loan repayments and interest increasing financial risk.

What is the easiest way to gain marks in Paper 1?

Always refer specifically to ABC (application) instead of giving generic textbook answers.