Business Studies 0450/22 February/March 2024: question paper and mark scheme

Mark scheme

1(a) Explain four reasons why governments support the start-up of new 8 businesses. Award 1 mark for each relevant reason (max 4). Award a maximum of 1 additional mark for each explanation. There are no application marks available for this question. Relevant reasons might include: • To reduce unemployment – new businesses may create jobs • To increase competition – encourages businesses to be efficient (when competing with other businesses) • To provide benefits for society – some start-up businesses may create social enterprises • To provide specialist goods and services not provided by larger businesses – satisfies demand for niche products • To increase output – increasing GDP • To increase the variety of goods and services available to consumers • To increase tax revenue • May grow into larger businesses / larger businesses were small when they started For example: To reduce unemployment (1) by providing jobs/employment which may increase economic growth in the country (1). 1(b) Using Appendix 1 and other information, consider how AF may be 12 affected by the following three changes in legal controls over employment issues in country X. Which legal control will have the most effect on AF? Justify your answer. • Increase in the legal minimum wage • Additional health and safety regulations • Employees can only work a maximum of 50 hours each week Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more legal controls. 3 Well-justified conclusion. 9–12 Candidates discussing the three legal controls in detail, in context and with a well-justified conclusion, including why the alternative legal controls 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 legal control. 2 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing two or more legal controls in detail and applying this 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 legal controls with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the three legal controls in context should be rewarded with the top marks in the band. 0 No Creditable Response 0 1(b) Relevant points might include: • If wages increase it may improve motivation • Increased costs if pay the 10 workers higher pay • Already pay above minimum wage so may not Increase in the have to increase pay – costs may not change • Alternative employers may attract the workers legal minimum away from AF if it does not increase their pay to wage keep the differential – higher recruitment costs • Increase in potential customers due to increase in disposable income leading to more sales of AF’s meals • Increased costs of training production employees in the factory producing food – less likely to have Additional accidents so less time off work through injury – health and more output/fewer errors safety • Workers feel safer so become more motivated – regulations positive impact on output/efficiency • Additional safety equipment may be required – increased cost for AF • May need to employ more than 10 skilled production employees during busy times or fewer customers accepted as each employee can only work a maximum of 50 hours a week – possible impact on ability to meet demand and may lose sales Employees • Workers may be less tired, so work is more can only work efficient/ more motivated / fewer errors a maximum of • Lower wages for employees if regularly paid extra 50 hours each for the additional hours worked – reduced week motivation • May lead to customer orders being delayed – decline in reputation – possibly fewer sales • Workers may have to work faster in busy periods to meet demand in less time. Potential for errors / increased productivity 1(b) Relevant points might include: • The increase in the minimum wage will have the most effect on AF because it is likely to increase the total wage costs for AF which may reduce profit. This will reduce the return on the investment for the partners. Training is not likely to cost much, and it is a one-off payment whereas increases in wage costs will be constant. The maximum of 50 hours will not have much effect as AF can just employ a few more workers and AF will not have to make extra payments to AF's existing employees. Conclusion • The additional health and safety regulations will have the most effect on AF because this will require additional equipment to be purchased. AF already wants to increase the output of meals at the factory, and it will increase the amount AF needs to borrow to finance this expansion. • Employees can only work a maximum of 50 hours each week will have the most effect on AF because AF will need to employ more than 10 production employees or AF will not be able to meet the increased demand for AF's products and therefore may lose the potential increase in revenue.

Mark scheme

2(a) Explain two benefits to AF of segmenting its market. 8 Award 1 mark for each benefit (max 2). Award a maximum of 3 additional marks for each explanation of the benefit of segmenting the market – one of which must be applied to this context. Relevant benefits might include: • May be able to increase sales – by catering to the needs of specific market segments – ensuring the goods or services produced are exactly what the consumer wants • Identifying a gap in the market for a particular product – may meet customer demand that is not currently being satisfied by existing larger businesses – allowing demand to be satisfied that is currently not being met • May make the business more competitive with larger businesses in that market – by serving a niche part of the market – enabling the smaller business to survive • May be able to charge a higher price from segmenting the market – as it may target a niche market – as often few competitors are selling the specific products in this segment / may lead to higher revenue • May make marketing expenditure more effective – target specific market segment – therefore may be more cost effective / not waste scarce resources For example: May be able to charge a higher price (1) as it may target a niche market with fewer competitors (1) for the meals (app) which may lead to higher revenue (1). Application could include: meals; restaurants; workers from another country; food recipes; 90% ingredients imported; partnership; 100 000 workers; produced in own kitchen; new technology may be installed in factory; high demand for AF's food; no other businesses producing similar high -quality food; 60% / 60 000 of target market are high-income employees. 2(b) Using Appendix 2 and other information, consider each of the following elements of the marketing mix for AF’s new meal. Would this be a suitable marketing mix for the new meal? Justify your answer. • Price – using penetration pricing • Place – selling to food retailers in Main City • Advertising – using social media Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more elements. 3 9–12 Well-justified conclusion. Candidates discussing the three elements in detail, in context and with a well-justified conclusion of why this would or would not be a suitable marketing mix, 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 element. 2 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing two or more elements in detail and applying this 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 elements with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of conclusion made. Candidates outlining the three elements in context should be rewarded with the top marks in the band. 0 No Creditable Response 0 2(b) Relevant points might include: • Penetration pricing should attract customers to try the new meal when it is first entering the market by setting low prices – increasing sales/revenue • Customers may think the new meal is low quality – therefore may damage AF's reputation • May not make a profit on each meal if price is set lower than the unit cost of the meal – as quality of its meals is high and imported ingredients are Price – using penetration more expensive than if purchased locally • May not need to set a very low price as target pricing market are people from country A working in country X – 60% earn a high income / 60 000 high-income earners – and no competition for these meals means customers would probably buy the new meal at a higher price • May be better to use an alternative pricing method – such as skimming or cost-plus – high-quality product sold in a niche market • The new meal sold through food retailers will be available to many people who visit food retail outlets and would see AF’s products – reaching a wider market than just people from country A – increasing awareness and possibly sales • Food retail outlets could have a point-of-sale display encouraging people to buy the new meal who may not be aware of AF's meals – increasing accessibility to a wider market than just people from country A – possibly leading to higher sales Place – selling • Selling through food retail outlets is likely to require to food the price paid to AF to be lower – reducing the retailers in profit margin for AF on the meals Main City • Food retail outlets also sell other meals produced by other food manufacturers and customers may not switch to AF's meals but stay loyal to their existing food producer • Food retail outlets may not be visited by people from country A – unless these retailers are located near to where people from country A live – may not be an effective place to distribute the new meal • Alternative channels of distribution may be discussed such as remain using their own street market stalls in Main City 2(b) Advertising • Advertise on social media so will be seen by a – using social large number of people – raising awareness of the media new meal • Can target 100 000 people from country A who are working in country X – advertising focused on target market so more effective advertising • Can use the language/culture of country A to advertise the new meals – making it more accessible and appealing to the target market • Low or no cost to advertise – may not need to pay for adverts to be designed / design own adverts to post • Direct interaction with customers to answer questions / post favourable comments – satisfied customers can quickly advertise the new meal for AF – increasing sales / encouraging customers to try the new meal • Can encourage existing AF customers to post favourable comments about the new meal encouraging other people to try the new meal • Not all customers may use social media – so do not see the advertising and not aware of the new meal • There may be negative comments posted – difficult to counter negative publicity and may reduce reputation for high-quality meals • Alternative methods of advertising may be better such as leaflets, posters, newspapers, billboards 2(b) Conclusion Justification might include: • The marketing mix will be effective as the price will be low to attract new and existing customers to try the new meal. Selling through food retailers will mean a wider market of people, that includes those who do not come from country A, will be able to see and purchase the new meal and advertising on social media will also widen the market for the new meal as more people can be reached than advertising on TV or in newspapers. Social media is low-cost advertising for a partnership as AF is unlikely to have a large marketing budget and it is an effective way to reach existing customers as well as new ones. The marketing mix chosen should make the launch of this new meal a success. • The marketing mix is likely to be successful but using penetration pricing is not the best pricing method to choose because price could be set higher to appeal to the target market, as 60% earn a high income. A low price may make customers think the product is low quality and then they may not try the new meal even if they already buy AF's products. It also reduces the revenue earned from sales so price skimming might be a better pricing method to choose as this will lead to customers thinking the meal is of a high quality and, as it is new, may be willing to pay this high price.

Mark scheme

3(a) Explain two ways an appreciation in the exchange rate of country X 8 might affect AF. Award 1 mark for each way (max 2). Award a maximum of 3 additional marks for each explanation of the way an appreciation of the exchange rate might affect AF – one of which must be applied to this context. Relevant ways might include: • Decreases the cost of imports – enabling price to be reduced – making AF's products more competitive so sales/revenue may rise • May increase spending on AF’s meals – lower prices of imported consumer products may mean a lower proportion of income spent on essentials – leaving more income to be spent on other products • AF may become more competitive – other restaurants do not import their ingredients – they will not be affected by lower import costs, so competitors’ prices are unlikely to fall • Profit margin may increase due to lower raw material costs – lowering cost of production – profit may increase For example: Lower cost of imported raw materials (1) leads to a reduction in the total cost of producing meals (app) which may lead to lower prices being charged to customers (1) increasing sales for AF (1). Application could include: meals; restaurants; workers from another country; food recipes; 90% ingredients imported; partnership; 100 000 workers; produced in own kitchen; new technology may be installed in factory; high demand for AF’s food; no other businesses producing similar high-quality food. 3(b) Consider the following two ways AF could increase output in its factory. 12 Which would be the best way to use? Justify your answer. • Investing in new technology • Buying more of their existing equipment Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both options. 3 9–12 Well-justified recommendation. Candidates discussing both options in detail, in context and with a well-justified recommendation, including why the alternative option 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 option. 2 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing in detail at least one option 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 options with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both options 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 • Productivity • The traditional increases – allows a recipes from greater quantity of country A may not meals to be be suitable to produced – possibly produce using new increasing sales if technology – may this output is sold lose the authentic • More motivated taste – reduces employees – from demand/sales/ being trained to use revenue new technology – • Expensive to possibly greater job purchase the new satisfaction for technology – may employees / boring require additional jobs may be finance of $50 000 removed such as a bank loan • Better high-quality – increased costs food products are from interest paid on produced – as new loan technology • New technology is accurately regulates changing all the time the mixing of – so the investment Investing in new ingredients may become technology • Information is obsolete/out-of-date available to the – may need manager – new replacing quite technology gives regularly constant monitoring • Employees may lose of the production motivation when processes using the new • May reduce labour technology to costs – if fewer produce the production traditional food – as employees needed work methods may need to change • Some employees may need to be made redundant – lowers motivation of existing employees – lower quality / increased absenteeism • Employees need training which will also increase costs 3(b) Advantages Disadvantages • Maintain the • May not be as traditional taste of efficient as new the food – therefore technology – so maintain sales output may not • Little or no training increase as quickly – needed as unit costs may not employees already fall as far as if new know how to use the technology had been existing equipment – used stops costs • May not be sufficient increasing space so requires a • Much cheaper to change in the layout Buying more of purchase – as cost of the factory which is $25 000 – less could slow down their existing need to take out a production equipment bank loan – may not • May need more need to make labour to be interest payments employed to • If need to recruit produce the new employees, traditional meals – then may be able to increasing wage use on-the-job costs training – which may be cheaper than off - the-job training that may be required if new technology had been purchased Relevant points might include: • AF should buy new technology for its factory as it will increase productivity and therefore reduce the unit cost of meals. This will either increase its profitability or allow AF to reduce prices to further increase demand. More existing equipment should not be purchased as it may Recommendation not be as efficient as the new technology giving AF no competitive advantage. • AF should buy more of its existing equipment as it allows traditional tasting meals from country A to be produced. If new technology was introduced this may affect the taste of the meals and lead to reduced demand as the product no longer tastes authentic.

Mark scheme

4(a) Explain two advantages and two disadvantages for AF of using retained 8 profit as a source of finance for the investment in the factory. Award 1 mark for each advantage/disadvantage (max 4). Award a maximum of 1 additional mark for each explanation of the advantage/disadvantage of using retained profit as a source of finance which must be applied to this context. Relevant advantages might include: • Does not have to be repaid – unlike if new technology was purchased using a bank loan • Available straight away – no delay in investment for the two partners • No interest to pay unlike a bank loan – may mean prices of food products may remain the same • No collateral or security needed / no additional borrowing required Relevant disadvantages might include: • May not have sufficient retained profit – as only been trading as a partnership for 2 years • Reduces payments to owners – so little return on the investment of the partners • Not available for other uses in the business For example: AF may not have sufficient retained profit for the investment (1) as the partnership has only been trading for 2 years (app). Application might include: meals; restaurants; workers from another country; food recipes; 90% ingredients imported; 2 years as a partnership; 100 000 workers; produced in own kitchen; new technology may be installed in factory; high demand for AF's food; no other businesses producing similar high -quality food; existing equipment; brother; 10 skilled production workers. 4(b) Using Appendix 3 and other information, consider the advantages and 12 disadvantages of the two new meals AF could choose to produce. Which meal should AF choose? Justify your answer using suitable calculations. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both meals. 3 9–12 Well-justified recommendation. Candidates discussing both meals in detail, in context and with a well-justified recommendation, including why the alternative meal 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 meal. 2 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing at least one meal 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 meals with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both meals in context should be rewarded with the top marks in the band 0 No Creditable Response 0 4(b) Relevant points might include: Advantages Disadvantages • Price will be higher • Higher fixed costs by by $5 per meal $4000 per month • Total cost will be • The profit per month lower at $14 000 per will be lower at month assuming $6000 forecast sales are • The cost of the accurate ingredients will be • The gross profit is higher at $4 per higher per month at meal $12 000 • The profit margin will • The gross profit be lower at 30% margin will be higher • Forecast sales are Meal 1 at 60% lower at 2000 per • The impact of the month appreciation in the exchange rate will be more beneficial for Meal 1 as it imports 90% of its ingredients as the variable cost per meal is higher • Variable cost is 40% of price for Meal 1 and 60% for Meal 2 • Total revenue will be • The gross profit per higher at $25 000 month will be lower per month at $10 000 • Forecast sales are • The gross profit higher than Meal 1 margin will be lower at 5000 per month at 40% Meal 2 • The profit margin will • The total cost will be be higher at 32% higher at $17 000 which is $3000 more • The break-even number of sales will be the same as Meal 1 at 1000 per month 4(b) Justification might include: • Meal 1 is better as it has a higher gross profit margin which is likely to increase further after the appreciation in the exchange rate for country X leading to lower import costs for ingredients. The price is higher than Meal 2 Recommendation which should not deter workers from another country as there are 60 000 high-income workers from country A working in country X and they are its target market. • Meal 2 is better as it achieves a higher profit per month of $8000 and has a higher profit margin by 2% than Meal 1.