Business – practice exam questions on business ideas
Seaview is a ten-room bed and breakfast boarding house at a seaside resort on the north-east coast. At present, it is open for eight months of the year, from 1 April to 1 December, but many of the rooms remain unlet. The owners have three plans to attract more customers. Plan 1-to offer evening meals Plan 2-to reduce prices, although these are competitive with similar establishments for the town Plan 3-to open for the whole year Questions: 1. (a) Explain the possible effects on the business of each plan Plan 1 may reduce profits of the boarding house because the owners would have to hire more staff to cook and serve the meal.
An evening meal would be a necessity for every guest who would eat dinner anyway. It depends if other establishments in the area offer evening meals; if they don’t then this boarding house has a unique advantage. Plan 2 suggests that the owners reduces prices and this will immediately make it more competitive. It is possible that if there were 10 B;Bs in the area with the same price, then the other 9 would loose some customers who would go to this boarding house. However, this may initially mean less profit as it will take quite a while before the B;B solidifies its status as a competitive option for tourists.
Plan 3 entails that the owners open the B;B all-year round, and this will cause the owners to employ more people from December to March. However it may not be a wise decision as wintertime is not a popular time to go to the seaside so not many people will go to the north-east coast. This is probably why the B;B is open from April to November anyway as it is not worth running an establishment during the off-season. (b) Which plan do you think is likely to be most effective? Give reasons for your views. I think the most effective plan is Plan 2 as reducing prices will make Seaview in league with other establishments in the area.
It was better than Plan 1 and Plan 3 because the former would not have a big impact on revenue although it is probably cheaper, and Plan 3 because any establishment would loose money if it ran during the off-season. Plan 2’s cut prices would attract more holiday-makers. For example, if there are 10 B&Bs in the area and they received 2,000 guests per month, with the same price they would 200 guests. Price reduction may not necessarily encourage more people to visit the north-coast, but it would certainly equalize the guests: B&Bs ratio with the same price. 2.
How would the boarding house be affected by the falling prices of Continental holidays? With Continental holiday prices falling, then this would mean that more people will be able to travel to mainland Europe on a more regular basis. With more people traveling outside the UK, then naturally at least some of them will stop holidaying at rural coastal boarding houses. However, it should be noted that boarding houses may still support a fruitful income as there are people who enjoy going there, whether they can afford overseas travel or not, so there is no doubt that boarding houses will always retain their share of popularity.
Higher Tier Seaview is a small, select, ten-room hotel at a seaside resort on the east coast. The three partners who run the hotel as a partnership are thinking of changing it to a private company. Questions: 1. How would the source of finance for a company be different from partnerships and what benefits would it offer? If the company was changed into a private company, then its source of finance would be the money the company has. The owners or the people in charge of the company would in no way be responsible if the company files for bankruptcy and its assets are liquidates.
There is limited liability. 2. How might the business be affected by a general increase in wages and salaries? If a business increases the wages of its employees, then this will automatically reduce the profit margin. The profit might increase, but the margin will remain the same. For example, if a company spends $50,000 on wages and earns $2 million a year, the profit margin will be the same if the company spends $5,000 on wages and earns $200,000 per annum.