Business Studies 0450/22 February/March 2019: question paper and mark scheme

Mark scheme

1(a) Identify and explain two ways a business plan could help Peter when 8 expanding his business. Knowledge [2 × 1] – award one mark for each way Analysis [2 × 1] – award one mark for a relevant explanation for each way Application [2 × 2] – award two application marks for each way Answers are likely to include: • To obtain a bank loan – show the bank manager so more likely to be given the loan • To plan the strategy for the new business – reduces risk of failure • To help to set a budget/see if he can afford to expand • To help identify the best location/premises • To identify the HR requirements/number of staff needed/skills required • To set aims/objectives/targets for the business • To help analyse the market/demand for the new restaurant/marketing mix for the new business • Break-even • Accounting information – cash flow forecast/Income statement/Statement of financial position • Sources of finance • Resources/capital equipment Award a maximum of three additional marks for each explanation of the way – 2 of which must be applied to this context. Indicative response: Helps to gain a bank loan (k) as Peter can show the manager his business plan for the new restaurant and takeaway business (ap). This means that it will be easier to gain a loan as it will show the cash flow forecast and forecast profits for the new business (an). This will convince the bank manager that Peter has researched and planned out the new business so it will be as successful as the other 5 restaurants (ap). Possible application marks: restaurant business; 5 restaurants; set up 10 years earlier; takeaway service; well known for good quality food; $150 000; chefs; delivery drivers; kitchen assistants; waiters; meals; different target market of low income groups; to buy buildings; new technology available with Apps on mobile phones to order food. There may be other examples in context that have not been included here. 1(b) Consider the following three ways Peter could use to motivate his 12 employees in the new restaurant. Recommend which way he should choose. Justify your answer. Relevant points might include: Pay a higher • Taylor’s theory suggests that higher pay motivates wage rate than workers competing • Earning more at PR than competitors/higher restaurants income • It is more expensive for the restaurant – may charge higher prices to cover the costs Use job • Makes the job more varied – more interesting rotation • Increased costs from additional training – may not be as suited to different jobs so less efficient – more mistakes made Offer free food • Little or no cost as food is left over and would be for the thrown away employees to • Employees might prefer higher pay as they can take home then choose how to spend this each day Knowledge/Analysis/Evaluation – award up to 10 marks using the levels- based mark scheme below. Knowledge/Analysis/Evaluation Level 3 At least 2× Level 2+ 9–10 marks for well justified recommendation as to which is the best way to motivate workers compared to the other ways. 7–8 marks for some limited judgement shown in the recommendation as to which is the best way to motivate workers. Level 2 4–6 marks Detailed discussion of the advantages and/or disadvantages of each way to motivate workers. Level 1 1–3 marks Outline of the advantages and/or disadvantages of each way to motivate workers. 1(b) Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Taylor’s theory on motivation states that workers are motivated by higher pay. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Taylor’s theory on motivation states that workers are motivated by higher pay and so as pay is higher than many competing restaurants then labour turnover would be lower. However, this will increase the costs of the business and therefore profit will be lower or prices higher to compensate. (L2) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a recommendation as to the best way to choose. Award up to 2 additional marks for relevant application. Possible application marks: 5 restaurants; set up 10 years earlier and has been successful; chefs; kitchen staff; takeaway service; new technology available with Apps on mobile phones to order food. There may be other examples in context that have not been included here.

Mark scheme

2(a) Identify and explain two ways in which the results from the questions 8 in Appendix 1 might affect Peter’s decisions about the new service. Knowledge [2 × 1] – award one mark for each way Analysis [2 × 1] – award one mark for how each way would affect decisions Application [2 × 2] – award two application marks for how each way the questionnaire results would affect decisions Examples might include: The way the questionnaire results might affect decisions: • pricing decisions e.g. a result of 3 was given to the question about the importance of price so they should try to keep prices low so that they remain competitive • types of meals sold – so Peter will need to think carefully about the menu available as types of meals scored 4 and is seen as important • spending money on decorating the takeaway part of the restaurant only scored 1 and will not affect whether customers use the restaurant or not. • whether to offer a delivery service as customers are very interested in the delivery service and so this is something Peter should promote as it may attract more sales • what times the restaurant should be open needs to be considered so it is convenient for customers to help increase sales. Award a maximum of three additional marks for each explanation of how each question result would affect decisions – 2 of which must be applied to this context. Indicative response: The results will affect the decision about the opening times so the business is open when customers want to use it (k) and if the restaurant is not open when they want a takeaway then sales will be lost (ap). Knowing when there is customer demand will help to increase sales and profit for Peter (an). Although in this questionnaire customers see opening times as only quite important with a score of 3 (ap). Possible application marks: use of results from Appendix 1; restaurant business; 5 restaurants; set up 10 years earlier; expand the business by opening another restaurant; takeaway service; different target market of low income groups; delivery service. There may be other examples in context that have not been included here. 2(b) Consider how the following three economies of scale might benefit 12 Peter’s business. Which economy of scale is likely to have the biggest effect on profits? Justify your answer. Relevant points might include: • Raw materials can be purchased in bulk – Purchasing discounts received – lower unit costs • Can use improvements in technology – such as using business apps for ordering food – quicker Technical production of meal orders – possibly lower labour costs – increased efficiency of equipment – lower unit costs • Less risk as larger business Financial • lower interest rates charged on loans and overdrafts – lower interest costs – lower unit costs Knowledge/Analysis/Evaluation – award up to 10 marks using the levels- based mark scheme below. Knowledge/Analysis/Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified recommendation of which economy of scale is likely to have the biggest effect on profits rather than the other two. 7–8 marks for limited recommendation of which economy of scale is likely to have the biggest effect on profits. Level 2 4–6 marks Detailed discussion of each economy of scale and why it would lead to lower unit costs. Level 1 1–3 marks Outline of each economy of scale. Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. To buy raw materials in bulk. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. To buy raw materials in bulk so discounts will be given. This makes the food ingredients cost less than might otherwise have been so the unit cost for each meal will be lower (L2 plus application for reference to food ingredients and meals). 2(b) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a conclusion of which economy of scale is likely to have the biggest effect on profits. Award up to 2 additional marks for relevant application. Possible application marks: restaurant business; 5 restaurants; opening another restaurant; ingredients; delivery service; takeaway service; new technology available with Apps on mobile phones to order food; considering bank loan or retained profit to fund the expansion. There may be other examples in context that have not been included here.

Mark scheme

3(a) Identify and explain two methods of sales promotion Peter could use 8 for the new service. Knowledge [2 × 1] – award one mark for each relevant method Analysis [2 × 1] – award one mark for a relevant explanation for each method Application [2 × 2] – award two application marks for each method Award one mark for each relevant method (max 2), such as: • Price reductions • Money-off coupons • Gifts • BOGOF • Competitions • Demonstrations • Free samples • Free delivery Note: Do not accept methods of advertising Award a maximum of three additional marks for each explanation of the method – 2 of which must be applied to this context. Indicative response: Money-off coupons (k) means meals will be cheaper and so attract customers (ap). If customers like the service they will return to the restaurant, (ap) it will gain loyal customers and lead to an increase in sales (an). Possible application marks: restaurant business; 5 restaurants; opening another restaurant; food; meals; takeaway service; different target market of low income groups; new technology available with Apps on mobile phones to order food. There may be other examples in context that have not been included here. 3(b) Consider the two options for the location of the new business. 12 Recommend which option Peter should choose. Justify your answer. Relevant points might include: Advantages Disadvantages Option 1 • (Near a railway station) • (1 year to convert it) is a so a lot of passing trade long time to convert it • (Busy area) so many into a restaurant – no potential customers pass revenue whilst by converting it • (Large area) as it is a • ($150 000) worse cash warehouse at the flow as cash out will be moment and plenty of large without any cash in scope to change it from revenue for 1 year Option 2 • (6 months to convert it) • (Located on a quiet road) quicker to convert as so may not be much already a restaurant – passing trade revenue starts to flow in • (Much smaller) than quicker Option 1 so may limit • (Already well known as a future growth restaurant in the area) – may attract more local people • (Owner retiring) suggests the restaurant has already been successful in that location – may retain existing customers of previous owner Knowledge/Analysis/Evaluation – award up to 10 marks using the levels- based mark scheme below. Knowledge/Analysis/ Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified recommendation as to which option to choose and why not the alternative option. 7–8 marks for some limited judgement shown in the recommendation as to which option to choose. Level 2 4–6 marks Detailed discussion of the advantages and/or disadvantages of each option. Level 1 1–3 marks Outline of the advantages and/or disadvantages of each option. 3(b) Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. As it is near a railway station there will be a lot of passing trade so may attract many customers. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. As it is near a railway station there will be a lot of passing trade so may attract many customers. This should ensure high revenue and high profits. However, it will take a long time to convert into a restaurant so cash flow may be a problem as cash out will be higher than cash in for a long time and there may be insufficient working capital. (L2) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a recommendation of which option to choose. Award up to 2 additional marks for relevant application. Possible application marks: Near a railway station; busy area; large area; 1 year to convert it; $150 000; 6 months to convert it; already well known as a restaurant in the area; owner retiring; restaurant business; located on a quiet road; much smaller; 5 restaurants; expand the business by opening another restaurant; takeaway service; different target market of low income groups; considering bank loan or retained profit to fund the expansion. There may be other examples in context that have not been included here.

Mark scheme

4(a) Identify and explain how the following four changes might affect the 8 success of the new business. Award one mark for an effect of each change (max 4) plus one additional mark for an explanation of how this impacts the business. • The economic cycle in country Z moves from boom into recession – Lower incomes – as unemployment increases – less demand for restaurants and takeaway food • Government in country Z lowers income tax – increased disposable income – increased demand for restaurant • New legal controls so all packaging for takeaways must be able to be recycled – increased costs – higher prices – changes in packaging may affect food • New legal controls that all menus must contain full information on the ingredients used – increased costs – reprint menus – increased demand if healthy food ingredients listed Indicative response: As country Z has moved into recession it will result in an increase in unemployment as there is less demand in the economy (1) this will reduce the demand for takeaway food and sales will fall (1). 4(b) Consider the advantages and disadvantages of the three sources of 12 finance outlined in Appendix 3 for the new business. Recommend which source of finance Peter should choose. Justify your choice using cost comparisons for each source. Relevant points might include: Advantages Disadvantages 1 year • Repaid after a short time • Highest rate of interest at bank of only 1 year (L1) 5% (L1) loan • Only affects cash • High repayments each outflows for 1 year (L1) month (L1) • Total interest paid is • High cash outflows and lowest at $7500 (L2) the new business may take some time to get established so more difficult to repay (L2) • High monthly repayments of $13 125 for one year (L2) • Total payment = $157 500 (L2) 3 year • Lowest rate of interest at • Higher total interest bank 3% (L1) payment (L1) loan • Interest paid is $4500 • Total payment of per year (L2) $163 500 (L2) • Low repayments each • Total interest paid is month $13 500 over three years • helps cash outflows (L1) (L2) • Low monthly repayments at $4 542 (L2) Retained • No interest to pay so • Loss of 4% interest from profit cheaper than the other the bank savings two alternatives (L1) account (L1) • Loses $6000 interest per year if $150 000 available as retained profit (L2) • May not have sufficient cash in retained profit (L1) 4(b) Knowledge/Analysis/Evaluation – award up to 10 marks using the levels- based mark scheme below. Knowledge/Analysis/ Evaluation Level 3 At least 2 × Level 2 correct interest cost calculations 9–10 marks for well justified recommendation of which source of finance to use and rather than the alternatives. 7–8 marks for some limited judgement shown in the recommendation of which source of finance to use. Level 2 4–6 marks Detailed discussion of the advantages and/or disadvantages of each source and/or interest cost calculations Level 1 1–3 marks Outline of the advantages and/or disadvantages of each source. Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Retained profit does not have any interest payable on it. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Retained profit does not have any interest payable on it and so it is cheaper than taking out a bank loan. However, if the money was saved it would gain more return in interest than is being paid out on the loan. (L2) Level 3 – For L3 to be awarded there needs to be at least two correct L2 interest cost calculations and then a recommendation of which source of finance to use. Award up to 2 additional marks for relevant application. Possible application marks: 3% interest over 3 years; 5% interest over 1 year; 4% on savings account; restaurant business; 5 restaurants; expand by opening another restaurant; new restaurant will have a takeaway service. There may be other examples in context that have not been included here.