Business Studies 0450/22 February/March 2023: question paper and mark scheme

Mark scheme

1(a) Explain one advantage and one disadvantage to RW of using flow 8 production. One mark for each advantage/disadvantage (max 1 adv/max 1 disadv). Award a maximum of three additional marks for each explanation of the advantage/disadvantage of flow production, one of which must be applied to this context. Advantages could include: • High output of a standardised product – potential increase in sales – possibly higher revenue and profit • Unit costs are kept low – allowing prices to be lower – increases competitiveness • More advanced technology may be used – may be operated 24/7 – increases output • May allow purchasing economies of scale – bulk buying discounts – lower unit costs of producing each product • Time saved in moving goods around the factory – all operations carried out on one production line/unlike batch production Disadvantages could include: • Reduces motivation – can be very repetitive for production workers – less efficient / more likely to leave • May lead to high storage requirements – increases costs of storage for inventories / finished product – possibly lower profit • If one machine breaks, then production may be halted – due to interconnected tasks in the production process meaning output cannot proceed if any of the stages are not operating – higher costs as workers paid and not producing any output • Possibly high capital costs – machinery/new technology may be very expensive – may need to borrow to finance purchase of capital For example: A high level of output can be produced (1) of paint for wooden furniture manufacturers (app) leading to a potential increase in sales (1) and possibly higher revenue and profit for the business (1). Application could include: paint; wooden furniture; furniture manufacturers; 100 skilled employees; 1 million tins of paint produced; public limited company; specialist shops; new factory; importing raw materials; maintain the machinery. 1(b) Consider how the following three changes may affect RW. Which 12 change is likely to have the most effect on RW’s revenue? Justify your answer. • Changes in consumer tastes and fashions • Increase in consumer incomes • Decrease in the price of competitors’ products Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more changes. Well- 3 justified conclusion. 9–12 Candidates discussing all three changes in detail, in context and with a well-justified conclusion including why the alternative changes are 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 Judgement with some justification / some evaluation 5–8 of choices made. Candidates discussing two or more 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 the three changes in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: Changes in • Increased demand for paint in bright colours consumer such as yellow – may need to increase production tastes and of this paint and reduce production of darker fashions colours – increased cost in the short term as production lines changed – long term will meet customer needs so revenue will increase • May need to increase market research costs to ensure they are meeting changed customer needs – market-orientated business should lead to increased sales – with the new factory increasing output then sales revenue could potentially double • May introduce new products to meet changing customer needs leading to increasing costs Increase in • May result in increased sales of wooden garden consumer furniture – therefore increased demand for paint incomes from garden furniture producers – increased revenue for RW • May lead to lower sales revenue of paint from retail customers/shops if less paint is sold to consumers with higher incomes – as may pay someone else to improve their homes Decrease in • May lead to decreased sales of RW paint as now the price of less price competitive – decreases revenue competitors' • If the competitors’ paint is lower quality, then may products not have much impact on sales of RW • May need to reduce prices to remain competitive Conclusion as • The changes in tastes and fashions are likely to to the most have the most effect on revenue if RW produces effect on RW's more bright colours then sales are likely to revenue increase and then so will revenue. The increase in incomes may have little effect if consumers do not buy more paint as paint isn’t bought very often. The decrease in the price of competitors' paint will have little effect if it is less expensive paint and not aimed at the same target market. • The increase in incomes will have the most effect on revenue as more customers are spending time in their gardens and are buying more garden furniture. This will increase demand from furniture producers and hence sales of paint will increase and also will RW’s revenue. • The decrease in the price of competitors products will have the most effect on revenue as there is likely to be a decrease in demand for RW’s paint due to it being less price competitive. This will lead to revenue decreasing as fewer furniture manufacturers choose to buy their paint from RW.

Mark scheme

2(a) Explain two possible problems for RW of the business growing. 8 One mark for each problem (max 2) Award a maximum of 3 additional marks for each explanation of a problem caused by the business growing – one of which must be applied to this context. Relevant answers might include: • Larger businesses are more difficult to control – some employees may not feel part of the business and may not work effectively – leading to increased unit/average costs • May lead to poor communication – instructions do not get to the right person/get distorted – errors in work carried out / instructions are not carried out correctly • Lack of experience in managing larger business – could lead to poor decision making – leading to higher costs / lower sales / loss of reputation • Problems in financing the expansion – if loans are taken then this may increase cost – due to interest payments / may need to issue more share capital • Poor morale / commitment – as employees may not feel valued by management in a much larger organisation – leading to lower motivation and lower productivity • Over expansion/expand too quickly – may lead to liquidity problems – initially cash outflows may rise faster than cash inflows / output produced but demand not sufficient – leads to unsold inventory and increased storage costs • Weak coordination • Difficulties in recruiting sufficient skilled employees For example: When RW becomes a larger business it may be more difficult to control (1). Some employees may not feel part of the business as they rarely see any of the senior managers and hence may not work effectively (1) leading to increased unit costs (1) and higher prices of the paint (app). Application could include: paint; wooden furniture; furniture manufacturers; 100 skilled employees; $50 million to build the factory; operating 2 factories; need to take out a loan; 200 employees; 2 million tins produced; new factory. 2(b) Using Appendix 2 and other information, consider the three possible 12 locations for RW’s new factory. Which location should RW choose? 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 locations. Well- 3 justified recommendation. 9–12 Candidates discussing all three locations in detail, in context and with well justified recommendation including why the alternative locations are 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 location. 2 Judgement with some justification / some evaluation 5–8 of choices made. Candidates discussing two or more locations 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 the locations with little/no explanation. 1 1–4 Simple judgement with limited justification /limited evaluation of choices made. Candidates outlining three locations in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: Location Advantages Disadvantages • Near to existing • Most raw materials factory so easier to and paint tins move some existing need to be workers across to transported to this train the new factory site – increasing workers – lowers transport costs training costs • High wage rates • Near to customers likely paid in the reducing transport local area to skilled costs of final paint workers – products increases total • Easier to access wage costs customers and • Higher cost of land understand their leading to higher Location A preferences – quicker expenses to respond to changes in tastes and fashions – increasing sales • Near to existing factory – improved communication with senior managers – increasing efficiency • Skilled workers in the local area – reducing training costs • Near port so lowers • No skilled cost of transporting workers in the imported raw local area – materials – 75% of increases training raw materials are costs of new imported – easily employees accessible from ships • Increased cost to in the port transport finished • High levels of products to market Location B unemployment in in Main City the local area leads to lower wage rates paid – lowering total wage costs • Paint tins are available locally – reducing the transport costs 2(b) Location Advantages Disadvantages • Land is low cost – • Imported raw reducing capital materials still required for the have to be factory transported to this • Government grants location – are available in the increasing area for businesses transport costs Location C employing workers – • Power supply less possibly reducing reliable – frequent overall costs and power cuts – increasing profit production may be • Nearer to the market stopped – loss of than Location B/ the output port Justification may include: • Location A should be chosen as it is near the existing factory, and it can have close links with the head office improving communication and paint production employees can be moved to this factory to reduce training costs by using on- the-job training. Whereas location B does not have skilled workers available making recruitment more difficult and location C has frequent power cuts disrupting production and reducing output. Recommendation • Location B should be chosen as 75% of the raw materials to manufacture paint is imported and this location is near the port so reduces the cost of transporting raw materials to the factory. The cost will also reduce as the paint tins are produced here. • Location C should be chosen as the land and wage costs are low. Production costs will be kept low at this location and then the finished paint just needs to be transported to the market in Main City.

Mark scheme

3(a) Explain four legal controls that may benefit employees. 8 One mark for each legal control (max 4). Award a maximum of one additional mark for each explanation of the benefit to employees from the legal control. There are no application marks for this question. Answers could include: • Protected against unfair dismissal – employees will have security of employment • Will be provided with an employment contract – so that employees will know what they will be paid/hours worked • Protected against discrimination – so employees are treated equally • Health and safety laws protects against injury at work – so employees do not get hurt • Should be paid at least the legal minimum wage – prevents strong employers exploiting workers • Restriction on maximum hours that can be worked • Redundancy payments made For example: Should be paid at least the legal minimum wage (1) which prevents strong employers exploiting workers by paying wages that do not meet their basic needs (1). 3(b) Consider the advantages and disadvantages of two methods of 12 training, other than induction training, which RW could use for the employees in the new factory. Which of these two methods should RW choose? Justify your answer. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two training methods. Well- justified recommendation. 3 9–12 Candidates discussing both training methods in detail, in context and with well-justified recommendation including why the alternative training method 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 training method. 2 Judgement with some justification / some evaluation 5–8 of choices made. Candidates discussing one or more training methods 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 the training methods with little/no explanation. 1 Simple judgement with limited justification /limited 1–4 evaluation of choices made. Candidates outlining both training methods in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: Training method Advantages Disadvantages • Individual tuition given • Trainer may pass – tailored to the on bad habits – specific needs of the leading to more tasks on the flow errors production line • Trainer will not be • Ensures some as productive production of paint – whilst training – helps to supply paint slows down output to shops of paint from the • It is relatively cheap experienced compared to off-the- worker doing the job training – as no training need to pay expenses • Employees might On-the-job such as course fees not learn the most training • Meets specific needs up-to-date methods of business – training – hence may be can be the exact way less efficient – RW wants the tasks to making RW less be carried out competitive • Employees may make mistakes whilst learning – creating faulty waste products – increases costs from paint being discarded • A broad range of skills • May be no output can be taught for of paint produced paint production whilst training – so • May be carried out in wages may be paid the evening outside of but no work done work time – so there in the new factory may be no loss of whilst training output • May make it easier • Often uses expert for employee to Off-the-job trainers – gives better find alternative training training to employees employment – – may be more employee leaves efficient at carrying and increased cost out tasks on the flow to recruit and train production line other employees • Most up-to-date • Costs are usually techniques are learnt higher than on-the- – makes RW more job training competitive than other paint manufacturers 3(b) Training method Advantages Disadvantages Justification may include: • On-the-job training may be better to choose as it will allow workers to keep working at the same time as being trained and therefore still producing some output of paint. This will save RW costs of training as it uses existing paint production workers to carry out the training. It may not be able to afford to send all 100 workers on training courses, which may not be Recommendation specific to the needs of RW and likely to be expensive. • Off-the-job training may be better to choose as it will lead to higher quality training being given to the new employees. These are skilled jobs on the flow production line and the employees need to maintain the reputation of RW. There may not be sufficient experience amongst existing workers to train the employees at RW’s new factory.

Mark scheme

4(a) Explain two external benefits and two external costs from RW’s 8 factories. One mark for each external benefit /cost (max 2 external benefits / max 2 external costs). Award a maximum of 1 additional mark for each explanation in the context of RW of the external benefit/cost. External benefits could include: • Jobs created – in the local area from the building of the second factory • Local businesses that supply RW may increase sales – of paint tins produced at location B • Taxes will be paid to the government – from the profits earned selling 1 million tins • Roads improved by the government to aid increased traffic – also benefits businesses including furniture manufacturers • Improved infrastructure (other than roads) – helps to ensure power supplies are reliable if Location C is chosen External costs could include: • Pollution caused by waste products – which are put into local rivers • Noise from the construction of the new building – as flow production lines are built • Increased road congestion in the local area – from more lorries transporting paint for wooden products to the market For example: An external benefit will be the tax paid to the government (1) out of the profit made by RW from selling paint (app). Application could include: paint; wooden furniture; furniture manufacturers; 100 skilled employees; 1 million tins of paint produced; public limited company; specialist shops; new factory; importing raw materials; maintain the machinery. 4(b) Using Appendix 3 and other information, consider whether the 12 following forecasts are likely to be accurate after the new factory has been built. Do you think RW will achieve its forecast profit? Justify your answer. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of whether two or more forecasts are likely to be accurate. 3 Well-justified conclusion. 9–12 Candidates discussing in detail whether three forecasts are likely to be accurate, in context and with well-justified conclusion of whether or not the forecast profit will be achieved 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 whether one or more forecasts are likely to be accurate. 2 Judgement with some justification / some evaluation 5–8 of decision made. Candidates discussing in detail whether two or more forecasts are likely to be accurate 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 whether the forecasts are likely to be accurate with little/no explanation. 1 Simple judgement with limited justification /limited 1–4 evaluation of the decision made. Candidates outlining whether the three forecasts are likely to be accurate and in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: • Likely to have increased as new factory increase the output of paint per year to 2 million tins – may increase revenue to $20m assuming all output is sold, and the price remains the same • Price of the paint may have to be reduced to Revenue forecast sell the higher output – revenue may not $20 million increase by $10m • Extent of the increase in revenue depends on price elasticity of demand for paint in country X if prices change • It will take time for the factory to reach full capacity and the output is unlikely to all be sold • Should increase to $6m assuming there are no economies of scale – and factory is producing Cost of sales the maximum output of 1 million tins of paint forecast $6 per year million • If bulk buying discounts apply, then this will increase by a smaller amount than $3m due to purchasing economies of scale • Likely to be higher than $12m as there will be Expenses interest payments on the bank loan for $50m forecast, taken out to build the new factory including interest • Higher set up costs such as training costs may paid, $12 million raise the expenses above $12m in the first year after the factory has been built Justification may include: • RW is likely to achieve a profit of $2m or more after the factory has been built because the new factory will enable RW to increase output and revenue from the sales of paint. The larger business is likely to benefit from economies of scale such as purchasing economies and therefore the cost of sales may not double. This may lead to a higher gross profit than $14m. However, this will assume that all the output is sold, and the revenue is as forecast. Training Conclusion costs may be lower if on-the-job training is used and therefore expenses may be lower than forecast. Overall the profit may be higher than $2m. • RW is not likely to achieve a profit of $2m after the factory has been built because RW is unlikely to be able to double its paint sales in one year and therefore the revenue is unlikely to increase significantly. Higher interest payments from the bank loans taken out to build the factory will need to be paid leaving higher expenses and a lower profit.