Business Studies 0450/22 February/March 2021: question paper and mark scheme

Mark scheme

1(a) Explain two advantages and two disadvantages of being a sole trader. 8 One mark for each advantage/disadvantage (maximum of two advantages/ two disadvantages). Award a maximum of one additional mark for each explanation of the advantage/disadvantage of being a sole trader. Advantages could include: • Few legal regulations to follow when setting up/easy to set up and close • The owner is their own boss / make own decisions / be in total control • Freedom for the owner to choose their own hours of work/holidays etc. • Owner has close contact with customers • Owner keeps all the profit • Accounting information can be kept private Disadvantages could include: • No one to discuss business decisions with – lack of ideas • Unlimited liability • Limited sources of finance • May have to remain small because of limited capital / lack of economies of scale • There are limited opportunities for promotion / the business may lose talented staff to larger businesses • If owner cannot work, there is no one to run the business in their absence • No separate legal identity – no continuity if owner retires/dies • Owner may not have knowledge/expertise in all areas of running the business • No one to share risks/losses with For example: There is unlimited liability (1) that means the owner’s personal possessions are at risk of being taken to pay any debts of the business. (1) 1(b) Consider the two orders for ST products in Appendix 2. Which order 12 should ST accept? Justify your answer using relevant calculations. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both orders. 3 9–12 Well-justified conclusion. Candidates discussing both orders in detail, in context and with well-justified conclusion including why the alternative order was rejected should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one order. 2 5–8 Judgement with some justification/some evaluation of choices made. Candidates discussing both orders in detail and applying them to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the orders with little/no explanation. 1 1–4 Simple judgement with limited justification/limited evaluation of choices made. Candidates outlining both orders in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include Option A Option B Revenue $100 000 (L1) $50 000 (L1) Cost of sales $50 000 (L1) $20 000 (L1) Gross profit $50 000 (L2) $30 000 (L2) GPM 50% (L2) 60% (L2) Additional expenses $25 000 (App) $10 000 (App) Total cost $75 000 (L1) $30 000 (L1) Profit $25 000 (L2) $20 000 (L2) PM 25% (L2) 40% (L2) Order A • The revenue is much higher • Gross profit is higher by $20 000 • Profit is higher by $5000 • However, GPM is lower at 50% • PM is lower at 25% • The customer made low number of orders – 3 times last year – may be a relatively new customer • Total profit from the 3 orders is $75 000 Order B • Quantity ordered may be much lower as price is higher • Although gross profit is lower, the GPM is higher at 60% • Profit is lower but the PM is higher at 40% • This is a regular customer and ordered 10 times last year and ST will not want to disappoint them • Total profit from the 10 orders is $200 000 Conclusion To access L3 there must be either correct profit or profit margins calculated for each Order. • On just the amount of profit made I would recommend choosing Order A as both gross profit and profit are higher than Order B and the quantity ordered is higher at 5000 for each order. This will enable ST to increase the amount of profit made. However, Order A is not made very often at only 3 times last year and so overall the amount of profit made over the year may be less for this Option A and so Option B might be better. 1(b) • On the gross and profit margins then Option B is better than Option A. Both margins are higher for Option B and therefore this has the higher profitability. This Option also has a higher number of orders over the year as each order is 1000 products and was ordered 10 times last year and so this Option is the better one to choose.

Mark scheme

2(a) Explain two ways Saanvi can increase the added value of ST products. 8 One mark for each way (maximum of 2). Award a maximum of 3 additional marks for each explanation of how added value can be increased – one of which must be applied to this context. Relevant answers might include: Increase price (1) – explanation of why/how prices can be increased (1) such as: • improve quality of the T-shirts • improve reputation for high quality logos on the products • establish brand image • improve product features such as excellent customer service/USP Reduce input/raw material costs (1) explanation of how these can be reduced (1) such as: • buy cheaper raw materials/find cheaper suppliers of T-shirts • lower the quality of inputs such as cheaper fabric • reduce the amount of inputs needed, for example redesign the T-shirts so they do not use as much fabric For example: Reduce raw material costs (1) such as buy cheaper fabric/material (app). ST could change to a cheaper supplier of raw materials (1). This will increase the gap between price and input costs and therefore increase added value (1). Application could include: t-shirts; customers’ own designs; no other company offers guarantee of 100% satisfaction; high priced products aimed at niche markets; digital sewing machines; logo name or picture provided by customer. Note: The two ways can both come from either increased price or reduce input costs or one from each. 2(b) To expand the business in the future ST need to decide whether to 12 change from niche marketing to mass marketing. Consider the advantages of both methods. Which method should ST use? Justify your answer. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of niche and mass marketing. 3 9–12 Well-justified recommendation. Candidates discussing both types of marketing in detail, in context and with well-justified recommendation including why the alternative type was rejected should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one type of marketing. 2 5–8 Judgement with some justification/some evaluation of choices made. Candidates discussing both types of marketing in detail and applying them to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss niche and mass marketing with little/no explanation. 1 1–4 Simple judgement with limited justification/limited evaluation of choices made. Candidates outlining niche and mass marketing in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: • ST T-shirts are a better match to customer needs whereas competitors’ products may be aimed at mass markets • Appeals to a specific type of customer wanting their own designs/brand loyalty Niche marketing • May be able to charge a higher price • Higher profit margin • Build market expertise in their specialist field • Marketing well targeted and more cost effective • Mass marketing usually has a large number of potential customers • Targets a wide market – greater opportunities for increased sales Mass marketing • Standardised T-shirts can be mass produced • Lower unit costs for standardised product • Prices may be lower as unit costs lower – increased demand – higher profit • Stay with niche marketing as ST already has a good reputation for high-quality products and has many loyal customers. If ST went into mass marketing, there are many competitors and it might be more difficult to expand sales. New products and operations would also be required to expand into a mass market, and this may be expensive and Recommendation difficult to finance. • Mass marketing could also be justified because it will be a larger market with more opportunities for sales of standardised T- shirts and higher revenue. This may be high enough to cover the higher capital costs of setting up production of standardised T- shirts.

Mark scheme

3(a) Explain two benefits to ST of having well-motivated employees. 8 One mark for each benefit (maximum of 2). Award a maximum of 3 additional marks for each benefit of having well- motivated employees – one of which must be applied to this context. Relevant answers might include: • Increases labour productivity / higher output per worker – increases number of products produced – possibly increases revenue • May reduce unit costs • Reduced / low labour absenteeism • Reduced labour turnover – reduces recruitment costs • Improved reputation so easier to recruit workers • More willing to accept changes / new methods of working • Improved quality of products if more pride in their work – help reduce waste / better or maintained reputation – lower costs / increases sales For example: May reduce labour absenteeism (1) as employees will be happy in their work and will not take time off unless absolutely necessary (1) therefore, employees will produce more T-shirts and ST’s output will increase (app). This should help ensure that ST can satisfy demand and increase sales (1). Application could include: t-shirts; customers’ own designs; no other company offers guarantee of 100% satisfaction; high priced products aimed at niche markets; digital sewing machines; produced using batch production; plans for expansion. 3(b) ST need to recruit a new Operations Manager. Consider the 12 advantages and disadvantages of the three applicants in Appendix 3. Which of the applicants should ST employ? Justify your answer. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more applicants 3 9–12 Well-justified recommendation. Candidates discussing all three applicants in detail, in context and with well-justified recommendation including why the alternative applicants were rejected should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one applicant. 2 5–8 Judgement with some justification/some evaluation of choices made. Candidates discussing two or more applicants in detail and applying it to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss applicants with little/no explanation. 1 1–4 Simple judgement with limited justification/limited evaluation of choices made. Candidates outlining three applicants in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: Advantages Disadvantages Aarav • Well qualified in • Lacks experience as management as has worked for only 1 a degree which year and not as an should make him Operations Manager more equipped to only the assistant manage the department • Has the skills to manage people in the Operations department Vivaan • Skilled at • May be set in his designing T-shirts ways as only and can use the worked for one computer programs business for 20 to do this year – may not • Is very experienced adapt easily to the as he has worked culture of a different for 20 years for one business clothing • Lacks experience of manufacturer working for several • Loyal employee as textile businesses he has worked for which may mean a the same business lack of new ideas for 20 years 3(b) Sai • He has a wide range • Does not have a of experience as he degree so may lack has worked for knowledge of how to three different run a department clothing • Lacks experience of businesses – management of a suggests he is a department as he talented employee has only been a • He is able to repair Supervisor and an digital sewing Assistant Manager machines – so can save ST the cost of repair – but he should be focusing on managing the Operations department and not repairing machinery Recommendation • Vivaan should be chosen as he has the most experience and this may help to increase output and improve efficiency for ST. Aarav lacks experience even though he is well qualified in management and Sai has not been an Operations Manager only an Assistant so also lacks the relevant experience when compared to Vivaan. • Aarav should be chosen as he is well qualified and should be able to communicate well with employees which is required due to the previous Operations Manager not motivating employees. Motivation and productivity need to be increased and Aarav seems to be more of a people person, whereas the other two applicants are skilled in using and repairing machines which is not required for the Operations Manager who should be focusing on running the factory. • Sai should be chosen as he is very experienced having worked in 3 different clothing factories and should be able to easily cope with gaining promotion to the Operations Manager having been an Assistant Manager for 2 years. This is better experience than the other two applicants as Aarav only has one years’ experience and not as an Operations Manager only an Assistant and Vivaan has only worked for one business so may lack new ideas from other businesses.

Mark scheme

4(a) Explain four reasons why high quality is important to ST. 8 Award one mark for reason (maximum of 4). Award a maximum of 1 additional mark for each explanation in the context of ST of the reason of why quality is important. Relevant answers might include: • Establishes a brand image – for its T-shirts • Builds brand loyalty – for the own-designed products • Maintains a good reputation for its products / avoids a bad reputation being communicated to potential customers – ensures 100% guarantee of satisfaction for customers as stated in the advert • Increases sales of ST products • Attracts new customers to buy the products • Decreased costs from not replacing faulty products / reduces waste • May lead to increased market share / improved competitiveness • Allows ST to charge a higher price For example: Avoids a bad reputation being communicated to potential customers (1) so ST can maintain its excellent brand image for high quality T-shirts (app). Application could include: t-shirts; customers’ own designs; no other company offers guarantee of 100% satisfaction; high priced products aimed at niche markets; digital sewing machines; plans for expansion; business has grown quickly; producing designs with a logo or pictures. 4(b) Consider how the following two changes might affect ST. Which 12 change is likely to have the most effect on ST’s revenue? Justify your answer. • The business cycle in country Z moves into a slump • The government of country Z focuses on reducing unemployment Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both changes. 3 9–12 Well-justified conclusion. Candidates discussing both changes in detail, in context and with well-justified conclusion including why the alternative change is rejected should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one change. 2 5–8 Judgement with some justification/some evaluation of choices made. Candidates discussing both changes in detail and applying them to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the changes with little/no explanation. 1 1–4 Simple judgement with limited justification/limited evaluation of choices made. Candidates outlining both changes in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: The business • Unemployment rises cycle in country Z • Economic growth falls into negative moves into a • Demand for many products such as T-shirts will slump fall • Prices may fall as demand has fallen • Many businesses will fail – especially those that sell non-essential or luxury products such as high-quality T-shirts The Government • May increase government spending to boost of country Z spending in the economy focuses on • Reduce tax / income tax / indirect taxes / profits reducing tax unemployment • Lower interest rates • All these changes in economic policies are designed to boost spending in country Z • If effective, then demand for many products will increase – may include demand for ST’s T- shirts • Businesses will see demand increase and the demand for specialist T-shirts may increase – leading to increase in revenue for ST Conclusion • Moving into a slump is likely to have a bigger effect on revenue than other changes. Demand will fall significantly, and many businesses will fail leading to much lower sales of personalised T-shirts for businesses – even those businesses that survive will reduce spending on non-essential marketing such as buying ST products. Whereas increased government spending or lower taxes will take time to be effective and to have an effect on business marketing budgets. • Government policies aimed at increasing spending could be argued as having the biggest effect on ST’s revenue and moving into a slump as having less effect. This is because T-shirts are not an expensive item and if consumers have increased incomes from lower direct taxes then sales are likely to increase significantly. Also, if incomes have increased then the high- quality T-shirts may be more attractive than standardised ones leading to sales increasing by a higher amount and revenue therefore rising by a higher amount.