Business Studies 0450/11 May/June 2019: question paper and mark scheme

Mark scheme

1(a) What is meant by ‘break-even’? 2 Accept the formula Fixed costs / contribution [2] Clear understanding [2]: Where total costs equal total revenue Where business makes neither profit or loss Some understanding [1]: Revenue same as costs 1(b) Calculate the revenue per day. 2 $ not required for [2] Good application: 90 × $2.50 = $225 Some application: Correct method but incorrect answer 1(c) Identify and explain two objectives Y2M might have if it was in 4 Application marks may be awarded for appropriate use the private sector. of the following: Knowledge [2] award 1 mark for each objective identified • bus or related words e.g. tickets drivers, passengers, trips, routes, journey Application [2] award 1 mark for each explanation in context • appropriate use of numbers from Table 1 • public sector Relevant point might include: • increased number of customers • profit [k] so prices for journeys could be set higher [app] • competitors • reduce costs [k] as it is more concerned about profit than • pricing methods providing bus services [app] • higher / same wage rate • increased returns to shareholders [k] • break-even • survival [k] • growth / increase sales [k] Do not accept – Break even on all bus routes as this is • increased market share [k] their current public sector objective. • improved service [k] 1(d) Identify and explain two pricing methods Y2M could use. 6 Application marks may be awarded for appropriate use of the following: Knowledge [2 × 1] – award 1 mark for each relevant method • bus or related words e.g. tickets drivers, Application [2 × 1] – award 1 mark for each relevant reference to passengers, trips, routes, journey this business • appropriate use of numbers from Table 1 • public sector Analysis [2 × 1] – award 1 mark for each relevant explanation • private sector • increased number of customers Points might include: • competitors • competitive pricing [k] charging similar prices will retain existing • higher/ same wage rate [an] passengers [app] • variable costs • cost plus pricing [k] as Y2M aims to break even [app] so price • break even must cover costs [an] • promotional pricing [k] lower prices encourages more people to Accept dynamic pricing and psychological pricing as use [an] its bus services [app] these are appropriate pricing methods for transport • penetration [k] • skimming [k] 1(e) Do you think Y2M should pay its workers the same wage rate 6 Application marks may be awarded for appropriate use as its competitors? Justify your answer of the following: Knowledge [1] – award 1 mark for identification of relevant issue(s) • bus or related words e.g. tickets, drivers, passengers, trips, routes, journey Application [1] – award 1 mark for a relevant reference made to this • appropriate use of numbers from Table 1 business • public sector • private sector Analysis [2] – award up to 2 marks for relevant development of • increased number of customers point(s) • variable costs • break even Evaluation [2] – justified decision made as to whether Y2M should • $2.20 pay its workers the same wage rate as its competitors Points might include: • Help retain employees [k] so fewer drivers leave [app] saving on recruitment costs [an] • Increase labour costs [k] leading to a higher break-even point [an] so need to attract more passengers [app] to be able to cover its costs [an] • Total costs may rise [k] which may lead to higher prices [an] which could reduce demand [an] for its buses [app] • Employees may be happy with their current pay [k] in the public sector [app] because they receive other benefits [an] • Higher pay may lead to reduced services [k] • Increasing pay may motivate workers [k]

Mark scheme

2(a) What is meant by ‘entrepreneur’? 2 Clear understanding [2]: A person who organises/ operates/ takes the risk for a new business venture. A person who combines all factors of production to make a product or service Some understanding [1] : e.g. Someone who starts a business 2(b) Identify two reasons why obtaining finance may not be easy 2 Do not accept ‘not well known ‘as it is unclear how this for a new business. relates to finance. Knowledge [2 × 1] award 1 mark per reason Points might include: • Asking for too much money OR seen as too high a risk OR not certain able to repay • does not have an accurate/ has an inaccurate business plan • no security/collateral • lack of experience/ relatively new to the market • unproven product/ lack of credit history/ no documents 2(c) Identify and explain two possible reasons why Kate decided to 4 Application marks may be awarded for appropriate use start up her own business of the following: Knowledge [2 × 1] – award 1 mark for each relevant reason • Fashion / sports clothing or related words • 3 retail shops Application [2 × 1] – award 1 mark for each relevant reference to • 2 years this business • website • leaflets Points may include: • multinational • To be her own boss [k] instead of working for a multinational • market segmentation / high income/ women business [app] • entrepreneur • To make her own decisions [k] e.g. how to promote clothes • spotted a gap in the market [app] • obtaining finance • She believes the business could be successful / make profit [k] • $500 000 as she spotted a gap in the market [app] • To work on something she enjoys [k] 2(d) Identify and explain two reasons why segmenting the market 6 Application marks may be awarded for appropriate use might help BBB. of the following: Knowledge [2 × 1] – award 1 mark for a relevant reason • Fashion / sports clothing or related words • 3 retail shops Application [2 × 1] – award 1 mark for each explanation in context • 2 years • website Analysis [2 × 1] - award 1 mark for each relevant explanation • leaflets • multinational Relevant points might include: • high income/ women • Able to tailor goods to specific needs OR know what to • entrepreneur produce [k] • spotted a gap in the market e.g. clothes for high income women [app] so that costs / • obtaining finance materials are not wasted producing wrong products [an] • $500 000 • To help decide best place to sell [k] as sportswear [app] needs a specialist shop to increase sales[an] Identify gaps in the market [k or app] • Research is simpler/help identify customer needs [k] as know which women to ask [app] so products better meet customer needs [an] • Help target advertising [k] such as where to use leaflets [app] to ensure maximum number of people see them [an] • Help set prices [k] • Identify gaps in the market [k] 2(e) Do you think that using leaflets is the best way for Kate to 6 Application marks may be awarded for appropriate use promote her products? Justify your answer of the following: Knowledge [1] – award 1 mark for identification of relevant issue(s) • Fashion / sports clothing or related words • 3 retail shops Application [1] – award 1 mark for a relevant reference made to this • 2 years business • website • multinational Analysis [2] – award up to 2 marks for relevant development of • market segmentation / high income / women point(s) • entrepreneur • spotted a gap in the market Evaluation [2] – justified decision made as to whether using leaflets • obtaining finance is the best way for Kate to promote her products • $500 000 Relevant points might include: • Leaflets can contain lots of information about her products [k] Can accept discussion of other appropriate methods of these can be handed out outside gyms [app] to attract promotion e.g. sales promotions e.g. sponsorship, appropriate target market which could lead to increased sales competitions. [an] • Leaflets can be handed out in the local area [k] around the 3 For evaluation, answers must have considered the retail shops [app] which is cost effective [an] suitability of leaflets. • People may throw leaflets away or see leaflets as litter [k] • Cheaper than television or radio [k] Award 1 knowledge mark for any other appropriate methods of promotion

Mark scheme

3(a) What is meant by ‘return on capital employed’? 2 Clear understanding [2]: measures the amount of profit made for each dollar invested. Profit of a business expressed as a percentage of capital invested Formula : Profit / Capital employed × 100 Some understanding [1]: e.g. profit / money made on investment 3(b) Calculate the following values: X and Y 2 Application [2 × 1] award 1 mark for each correct answer. X 20 (20 000) Y 40 (40 000) 3(c) Identify and explain two reasons why a cash flow forecast 4 Application marks may be awarded for appropriate use might be important for BVC. of the following: Knowledge [2 × 1] – award 1 mark for each relevant reason • paint • correct use of data from Table 2 Application [2 × 1] – award 1 mark for each explanation in context • exports OR 60% • chemicals Relevant points might include: • new legal controls • Can identify possible causes of cash flow problems [k] e.g. as in August, cash-in is 40 000 lower than July [app] • Help manage cash flow better OR help avoid cash flow problems [k] • Supports a loan application / attract investors [k] as opening balance should improve from $20 000 to $80 000 over the 3 months [app] • Show how much is spent each month [k] 3(d) Identify and explain two possible problems for BVC when 6 Application marks may be awarded for appropriate use exporting its products. of the following: Knowledge [2 × 1] – award 1 mark for each relevant problem • paint • correct use of data from Table 2 Application [2 × 1] – award 1 mark for each relevant reference • 60% made to this business • chemicals • new legal controls Analysis [2 × 1] – award 1 mark for each relevant explanation • return on capital employed • cash-flow forecast Relevant points might include: • Different tastes [k] e.g. different countries might prefer different paint colours [app] adding to production costs [an] • Different standards/legislation [k] so may not be able to use certain chemicals [app] stopping possible sales [an] • Effect of exchange rates [k] as an appreciation in own currency would mean its products are more expensive [an] so not able to export as much as 60% [app] • Knowledge of market OR competition [k] • Tariffs [k] • Quotas [k] will restrict numbers of products that can be sold [an] • Increased costs of transport/ increased risk of delay [k] • Increased competition [k] 3(e) The Managing Director thinks the new legal controls to protect 6 Application marks may be awarded for appropriate use the environment will be bad for business. Do you agree? of the following: Justify your answer. • paint Knowledge [1] – award 1 mark for identification of relevant issue(s) • correct use of data from Table 2 • exported OR 60% Application [1] – award 1 mark for a relevant reference made to this • chemicals business • return on capital employed • cash-flow forecast Analysis [2] – award up to 2 marks for relevant development of point(s) Evaluation [2] – justified decision made as to whether the new legal controls to protect the environment will be bad for business. Points might include: • Increased costs [k] from new paint production methods [app] which could lead to higher prices [an] and therefore less demand [an] • Reduces quality [k] by removing some of the chemicals [app] leading to customer complaints [an] • Competitors also affected by new laws [k] so BVC could still remain competitive [an] • New rules may not apply in some of their markets [k] as 60% are exported [app] • Customers may be willing to pay more for environmentally friendly products [k] so the business could increase their profit margin [an]

Mark scheme

4(a) What is meant by ‘off-the-job training’? 2 Clear understanding [2]: Trained away from the work place by specialist trainers Some understanding [1] : Trained away from the work place 4(b) What is meant by ‘total cost’? 2 Clear understanding [2]: Sum of (total) fixed cost plus (total) variable costs Sum of (total) direct and (total) indirect costs Some understanding [1]: All the costs of the business. 4(c) Identify and explain two advantages of FGH having a tall 4 Application marks may be awarded for appropriate use hierarchical organisational structure of the following: Knowledge [2 × 1] – award 1 mark for each advantage identified • book retailer • 6500 shops Application [2 × 1] – award 1 mark for each explanation in context • 20 countries • $300m Points might include: • off the job training Many opportunities for promotion [k] in the 20 countries [app] • $800m Managers have narrower span of control OR fewer people to • competitors supervise [k] so have more time to focus on the takeover [app] • take over one its competitors Clear chain of command/ know their manager [k] in the book store [app] Clear line of communication [k] 4(d) Identify and explain one advantage and one disadvantage to 6 Application marks may be awarded for appropriate use FGH of becoming a public limited company of the following: Knowledge [2 × 1] – award 1 mark for each relevant advantage / • book retailer disadvantage • 6500 shops • 20 countries Application [2 × 1] – award 1 mark for each relevant reference • $300m made to this business • on the job training • $800m Analysis [2 × 1] – award 1 mark for each relevant explanation • take over one its competitors Relevant points might include: Do not award limited liability or separate legal identity as already has this as a private limited company. Advantages • Better access to capital [k] i.e. raising share capital from existing and new investors [an] to pay for the takeover [app] • Can give a company a more prestigious profile OR status [k] so more likely to be offered credit OR better interest rates as seen as lower risk [an] to raise capital to open more bookshops [app] • Shares tradeable on the stock exchange [k] Disadvantages: • Cannot control who buys the shares [k] so easier to be taken over [an] by other book retailers [app] • Shareholder may expect dividends to be paid [k] all their results [an] so the business FGH wants to take over might reject its offer [app] • Legal formalities need to be followed [k] • Divorce of ownership and control [k] 4(e) Do you think FGH should take over the other business? 6 Application marks may be awarded for appropriate use Justify your answer of the following: Knowledge [1] – award 1 mark for identification of relevant issue(s) • book retailer • 6500 shops Application [1] – award 1 mark for a relevant reference made to this • 20 countries business • $300m • on the job training Analysis [2] – award up to 2 marks for relevant development of • $800m point(s) • competitor Evaluation [2] – justified decision made as to whether FGH should Note: Cost of takeover $800m, saving $300m therefore take over the other business payback will be by 2 years 8 months. (2.66 years) Points might include: Note: accept examples of appropriate economies of • Does not spread risk [k] as still in book retailing [app] so falling scale [k] demand for books will reduce FGH’s sales [an] • Benefit from economies of scale [k] as would have 6500 shops [app] helping to reduce average costs [an] • Increase its market share [k] by removing a competitor [app] • Can they afford to pay the cost of purchase [k] of $800m [app] • Reduced total costs [k] means repayment of $800m [app] within 2.66 years OR 2 years 8 months [an] • Risk of diseconomies of scale [k] as communication errors may arise [an] across 20 countries [app] • Different management styles [k] may reduce productivity [an] across all the shops [app] • Cost savings may not happen [k]