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Paper 3 Exam Practice Question (HL only) – Lisa Accessories
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Business Management
Higher level
Paper 3
Time: 1 hour and 15 minutes
Instructions to candidates
• Do not open this examination paper until instructed to do so.
• Read the case study carefully.
• Answer all questions.
• A calculator is permitted for this examination paper.
• The maximum mark for this examination paper is [25 marks].
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Paper 3 Exam Practice Question (HL only) – Lisa Accessories
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Lisa Accessories – Creating treasures from plastic
Read the resources and answer all the questions that follow.
Resource 1 – About Lisa Accessories (extracts from official website)
Our CEO’s vision – by Lisa, the founder of Lisa Accessories (LA)
“Plastic waste management has, over the years, become a major
issue in Douala. I realized that I wanted to develop a social business
that would incorporate “creating treasures from plastic”. Yes, let’s
make plastic become the next favourite accessory in your wardrobe.
Let us be creative, and let us upcycle these plastics while providing
jobs to underprivileged people; this is the essence of my social
business”.
Image. 1. “Upcycled accessories made of plastic” prompt, Canva, version 1, 2 November. 2023, canva.com/
Our mission statement
In plastic, we trust, by developing distinct designs for all seasons and looks. This is our simple
formula for creating the most stylish plastic accessories line.
We take strict care to implement ethical trade practices by providing fair and living wages and
excellent working conditions for our staff. We also provide healthcare insurance and pay the school
fees to workers with young children.
How our accessories are made
At Lisa Accessories (LA), our manufacturing process solely
relies on the help of human resources. Our wonderful team
carefully segregates plastic bags based on their colours,
shapes, and sizes. No machine can replace this process.
The plastic is washed, dried, and ironed to be stitched for a
true makeover and transformation work. Our accessories
collection includes handbags, bracelets, necklaces, scarves
and hats. Each product is made with its very own variation
of colours, so we have a unique piece that is always made
just for you…
Image 2. “Upcycled accessories made of plastic” prompt, Canva, version 1, 2 November. 2023, canva.com/
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Paper 3 Exam Practice Question (HL only) – Lisa Accessories
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Resource 2 – Minutes of Meeting from February 2nd, 2023 (internal document)
Collaborative planning meeting – Update of the beginning of Quarter 1
Chair: Lisa (CEO)
Meeting start time: 9AM Meeting end time: 10:30AM
Date: February 2nd, 2023
Attendees: Management Team of Lisa Accessories (CEO, Finance manager, Operations manager,
Human Resources manager, and Marketing manager)
The discussions held and the plan of action taken in the meeting are as follows:
• A new deal has been signed with 10 retail outlets based in the Middle East. The Marketing
manager is already working on a new marketing mix for customers in the region, with their
different preferences and expectations. The finished accessories will be shipped and taken
care of by LA, including additional export and marketing costs. The retail outlets in the Middle
East will take a 20% commission on each sale.
• LA’s inventory management software system needs to be repaired or replaced. The inventory
management system has been down for two weeks already. During this time, the inventory for
the finished accessories has been counted manually. The Operations manager has reached
out to a few suppliers as the previous inventory management system supplier has gone out of
business. This issue is having a negative impact LA’s labour productivity.
• Discussion on water consumption included the Finance manager presenting her concerns at
the increase in water consumption at LA, especially with a noticeable increase of 50% shown
on LA’s January bill. According to the Human Resources manager, new staff in LA’s workshop
were recruited last month but were not provided with the usual induction or on-the-job training
sessions due to the lack of experienced staff available at the time.
• LA needs to secure additional short-term sources of finance. Based on the current financial
situation, the Finance manager is urging Lisa to find new investors or be able to find immediate
sources of finance so expenses can be paid in February. All expenses from January and the
loss stated in LA’s profit and loss account have been covered thanks to the emergency fund.
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Paper 3 Exam Practice Question (HL only) – Lisa Accessories
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Resource 3 – Financial abstract of Lisa Accessories profit & loss account in 2023 (converted
into USD currency)
• Sales revenues: $365,600
• Cost of sales: $30,000
• Expenses for purchasing new machinery: $120,000
• Marketing expenses: $100,000
• Production workshop rent: $10,000
• Utility bills: $6,500
• CEO salary: $22,000
• Finance manager, Operations manager, Human Resources manager, Marketing manager
combined annual salaries: $57,600
• Employees’ salaries: $4,000
• Employees’ children’s school fees (paid for 10 children): $18,000
• Health insurance coverage for 40 employees: $6,000
• Dividends paid: $41,100
Resource 4 – Email sent from LA’s CEO to shareholders
Dear valued Shareholders
I would like to invite you for an exceptional general meeting this Friday to look into the issues that
were discussed with the Management Team on February 2nd, 2023 (attached herewith the
minutes).
To deal with the current situation faced by LA, I am willing to consider the following plan:
• Seek and apply for suitable sources of finance to ensure LA is able to pay all payments due
for this quarter and into the future.
• Find appropriate ways to improve our water consumption management in our production
workshop. In particular, LA would like to look into setting up a rainwater collection system.
• Make progress with our market development strategy in the Middle East, which has growth
potential but also to be careful about the costs associated with exporting our accessories.
I am open to additional suggestions for this plan.
Yours faithfully,
Lisa
CEO, Lisa Accessories
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Paper 3 Exam Practice Question (HL only) – Lisa Accessories
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Questions
Answer all the questions.
(a) Using an appropriate business management theory, describe a human need that Lisa
Accessories (LA) meets by providing health care insurance to its employees and paying
school fees on behalf of their employees with young children. [2 marks]
(b) Explain two possible challenges facing Lisa Accessories (LA). [6 marks]
(c) Using all the resources provided and your knowledge of business management, recommend
a possible plan of action to ensure the sustainability of Lisa Accessories (LA) for the next five
years. [17 marks]
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Mark scheme
(a) Using an appropriate business management theory, describe a human need that Lisa
Accessories (LA) meets by providing health care insurance to its employees and paying
school fees on behalf of their employees with young children. [2 marks]
● Maslow’s hierarchy of needs, such as the security/safety needs of LA’s employees being
fulfilled. By providing these perks, the social enterprise is ensuring that its employees
have access to essential healthcare services and that their children receive education.
This contributes to a sense of security and well-being for the employees and their
families.
● According to Herzberg’s two-factor theory, the health care insurance and payment of
school fees represent hygiene factors or maintenance factors. These factors contribute
to the prevention of dissatisfaction rather than directly motivating employees. Hygiene
factors are essential for creating a baseline level of satisfaction, related to employees’
basic needs and external working conditions, and preventing potential sources of
dissatisfaction at LA such as concerns about health and education expenses. While
these factors may not directly motivate LA’s employees, their absence or inadequacy
could lead to dissatisfaction.
● Accept any other appropriate business management theory that is accurately described
in the context of the case study.
Mark as [1 + 1]
Award [1] for using an appropriate business management theory and [1] for describing the human
need in the context of the case study.
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Paper 3 Exam Practice Question (HL only) – Lisa Accessories
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(b) Explain two possible challenges facing Lisa Accessories (LA). [6 marks]
● Inventory management issues – The malfunctioning of LA’s inventory management
system creates a significant challenge. Manual counting of inventory is time consuming
and may lead to human errors. The delay in resolving this issue negatively impacts LA’s
labour productivity, potentially affecting production efficiency and the timely fulfillment of
orders. It can also have a negative impact on the motivation of employees (Resource 2).
● Increased water consumption – The notable 50% increase in water consumption is a
financial and environmental concern for LA. Addressing this challenge involves not only
managing costs but also implementing sustainable practices. The lack of induction or on-
the-job training for new staff may contribute to inefficient water usage in the production
workshop (as they spend more time washing the plastic than expected), requiring
immediate attention to mitigate further increases (Resource 2).
● Short-term financial strain – The need to secure additional short-term sources of finance
indicates that LA faces financial challenges. The urgency to find new investors or
immediate sources of finance to cover February’s expenses suggests potential cash flow
issues. Addressing this challenge requires strategic financial planning, exploring
investment opportunities, and possibly negotiating with existing stakeholders (Resources
2 and 3). Lisa’s salary seems very high in comparison to the salaries paid to employees
(despite the website stating the firm pays fair and living wages to its employees
(Resource 1).
● Market expansion risks – While the deal with 10 retail outlets in the Middle East presents
growth opportunities for LA, it also creates new challenges. The need for a new
marketing mix tailored to the preferences and expectations of customers in the Middle
East, coupled with additional export and marketing costs, requires careful planning.
Furthermore, cultural views could differ between the Marketing manager and the owners
of the retail outlets from the Middle East (Resources 2 and 4). Managing these costs and
potential cultural differences, while ensuring profitability, poses a challenge for LA’s
market expansion strategy.
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Paper 3 Exam Practice Question (HL only) – Lisa Accessories
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● Possible conflict in the workplace – There is potential conflict between the Human
Resources manager and the employees if LA’s financial situation is not resolved,
especially if the salaries will not be paid by the end of February (Resource 2 and
Resource 3). This situation is also likely to lead the employees to feel demotivated. In
particular, employees may feel that it is unfair for the CEO to receive a high annual salary
and a significant amount of the profits is paid as dividends to the shareholders, while
they do not receive a fair wage (Resources 1, 2, and 3).
● Possible conflict between the CEO and the Management team – The significant
difference in pay of the CEO and the rest of the Management team (the Finance
manager, Operations manager, Human Resources manager, and Marketing manager)
can cause another challenge (Resource 3). The pay differential can create some friction
or conflict as this creates a cognitive dissonance based on J.S. Adams’ equity theory.
● Accept any other appropriate challenge that is explained in the context of the case study.
Mark as [3 + 3]
For each challenge, award [1] for identification of an appropriate challenge, [1] for the explanation,
and [1] for application to Lisa Accessories.
(c) Using all the resources provided and your knowledge of business management, recommend
a possible plan of action to ensure the sustainability of Lisa Accessories (LA) for the next five
years. [17 marks]
● Financial plan of action:
○ Seeking appropriate sources of finance is an immediate priority, such as taking out
an overdraft or a short-term loan (the advantages and drawbacks of these two
sources of finance should be discussed). Internal sources of finance cannot be
considered at this point in time since LA’s retained profit is negative (Resource 3).
○ LA could seek alternative funding sources, such as actively seeking new investors
to address the social enterprise’s short-term financial strains.
○ LA could seek to implement cost-cutting measures where possible without
compromising product quality or employee well-being.
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○ Seeking finance for the long-term is a priority for LA, such as looking for new
investors (business angels and / or new shareholders) to raise more share capital
and/or equity (Resources 3 and 4).
○ The new initiative to enter the Middle East region with 10 retail outlets also requires
a detailed financial plan (Resources 2 and 4), such as a thorough investment
appraisal.
● Operations Management plan of action:
○ The faulty inventory management system needs to be repaired or replaced
imminently, depending on whether the Operations manager can find the right
supplier (Resource 2), although this needs top priority. The Operations manager
needs to explore modern, efficient, and reliable inventory management software
solutions to streamline LA’s operations and reduce or eliminate manual errors.
○ LA can introduce quality management measure prior to entering new markets in
the Middle East. This could include conducting regular audits and system checks
to ensure the smooth functioning of the inventory management system.
○ Discussions about LA’s plastic management system need to take place. For
example, LA could consider implementing a “resource recovery model” (a type of
circular business model) which also aligns with its mission statement (Resources
1 and 2).
○ Sustainable practices could include developing and implementing a rainwater
collection system at the workshop to address the increased water consumption
concern and promote sustainability (Resource 2). LA could also explore eco-
friendly packaging options to align with environmental values and reduce its overall
ecological impact. LA could also examine ways to improve the upcycling process
for efficiency and sustainability.
● Human resources plan of action:
○ LA needs to implement a comprehensive training programme for existing and new
employees to address the manual inventory counting issue and improve its water
consumption efficiency.
○ This would entail LA investing in employee skills development to enhance the
quality and efficiency of the upcycling process.
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Paper 3 Exam Practice Question (HL only) – Lisa Accessories
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○ LA could establish mentorship programmes to transfer knowledge and skills from
experienced staff to new recruits. This will ensure that all new staff are properly
inducted and upskilled (Resource 2).
○ Besides training and development, LA needs to improve its policy of ensuring fair
wages that align with the firm’s mission and in order to retain its workforce
(Resources 1 and 2).
● Marketing plan of action:
○ Developing a marketing plan is required to launch the LA’s products in the 10 retail
outlets in the Middle East. The Marketing manager needs to develop a distinctive
or unique selling point, appropriate segmentation strategies, and look into sales
forecasting for the region (Resources 2 and 3).
○ Market development in the Middle East requires LA to continue the collaboration
with retail outlets in the Middle East region and to conduct a thorough market
analysis to tailor products to local preferences in terms of designs and finishes
(Resource 2).
○ LA needs to develop a targeted marketing mix for the Middle Eastern market,
considering cultural nuances and different customer expectations and inclinations.
To this effect, effective market research is also needed as a pre-requisite.
○ LA could implement cost-effective international marketing strategies, leveraging
digital platforms and influencer marketing to maximize its reach. These need to be
cost-effective, given LA’s limited sources of finance.
● Other considerations for the plan of action could include application of relevant
components of the Business Management Toolkit (BMT). This could include elements of
SWOT analysis, Ansoff’s growth matrix, and force field analysis, for example.
By addressing these aspects in the marketing, human resource, finance, and operations functions,
LA can build a solid foundation for sustained growth and success over the next five years. Regular
monitoring and adjustments to the plan of action will be essential to adapt to changing market
conditions and ensure its long-term survival.
Marks for this question should be allocated according to the assessment criteria on pages 48 – 50
in the Business Management Guide (May 2022).
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