Decision Making – The Small Shop, selling computer peripherals

XAT 2020 Exam Paper – Decision Making – The Small Shop, selling computer peripherals

Read the situation below and answer the 3 associated questions:
The Small Shop, selling computer peripherals, is the only one of its kind in the remote village of Turturunk. Because online purchases take two weeks or more to arrive, The Small Shop is a quick stop for buying items such as pen drives and USB cables. Besides selling computer peripherals, The Small Shop also undertakes repairs of out-of-warranty products.
Question 1
The Small Shop which earlier recorded an annual increase of approximately 12% in revenues has been stagnating at 4% for the last three years, during which e-commerce sidelined brick and mortar outlets. The shop is struggling to increase profitability. In general, The Small Shop has been offering a discount on MRP to compete with e-commerce prices.
Which of the following is the BEST reason for The Small Shop NOT to reduce the current discount offered to the customers?

  1. A large fading sign prominently placed behind the shop’s cash counter reads “in business and in life, always be fair”.
  2. Recently customers from a nearby village have started shopping at The Small Shop for low-end peripherals, accounting for around 3% of the shop’s total revenues.
  3. To cover insurance costs, e-commerce has begun charging a delivery fee from last year.
  4. A new resident who earlier worked in the computer hardware industry is contemplating starting a business in Turturunk.
  5. Even though e-commerce offers a greater range of choices, villagers prefer buying readily available products from The Small Shop.

Answer: E

Question 2
The Small Shop wants to increase the variety of products sold, including expensive ones. However, it is averse to accumulating unsold products, specifically of the expensive kind.
Which of the following is the BEST option if The Small Shop wants to increase the variety of the products it sells?

  1. The Small Shop should make an arrangement with a retailer of the nearest city. The shop can spare one of its employees once a week to procure the weekly requirements.
  2. The Small Shop should focus only on low-end peripherals that currently contribute to 60% of its revenues.
  3. The Small Shop should get suppliers to courier its requirements to the shop whenever needed. The suppliers require that The Small Shop orders a minimum quantity every month.
  4. The Small Shop should acquire extra space at lower rentals available at a distance of three kilometres from its current location.
  5. The Small Shop should focus exclusively on high-end peripherals which contribute to 10% of its revenues but 25% of its profits.

Answer: A

Question 3
An emerging brand offers a franchise to The Small Shop for repairing its products, on a condition that other brands are not to be repaired. Repairs currently account for 15% of its revenues.
Which of the following, if true, will BEST help The Small Shop to decide on the franchise?
  1. The Small Shop will have to send two of its employees for a three-month training if it wishes to be a franchisee. The emerging brand will bear the training cost.
  2. The upcoming brand is very new and needs franchisees desperately.
  3. Revenues from repairs are expected to increase by about 3-5 percent annually.
  4. No big and reputed brand has shown any interest in franchising The Small Shop.
  5. For the first three years, the emerging brand has offered to pay a fixed amount equal to the revenues earned from repairs the previous year.
Answer: C

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