Business Studies 0450/12 May/June 2019: question paper and mark scheme

Mark scheme

1(a) What is meant by ‘social enterprise’? 2 Do not award examples e.g. provide jobs to unemployed Clear understanding [2]: e.g. business with both social objectives as well as aim to make a profit Do not award not for profit or non-profit business OR organisation whose primary / main objective is social (and any profit made is reinvested) [2] Some understanding [1] e.g. not all about profit OR profit is not only objective OR an organisation which has social objectives [1] OR business that aims to help / benefit society [1] 1(b) What is meant by ‘fixed costs’? 2 Note: Must link answer to idea of level of sales OR output / activity to gain both marks. Clear understanding [2] e.g. costs that do not change with output / sales / level of activity Do not award alternative words such as overheads or examples of fixed costs OR Costs which have to be paid whether produce any products or not [2] Some understanding [1] e.g. costs that stay the same OR costs that do not change [1] 1(c) Calculate PLK’s weekly profit. 4 Correct answer with no calculations can gain 4 marks. $ sign not needed. Good application [4] = $700 Note: where there is no other valid calculation the Some application: inaccurate or partial answers formula can be awarded max. 1 (i) Total revenue method: TR-TC E.g. Total revenue – total cost) OR (total) contribution – Total revenue: 3 × 1000 = 3000 [1] fixed cost. Total cost = 2300 [2] OR 2 × 1000 = 2000 [1] + FC 300 = 2300 [1] Do not award 1000 on its own if no working is shown 3000 – 2300 =700 [4] (ii) OR Contribution method: (total) contribution – fixed costs Contribution: (3–2 =) 1 [1] 1 × 1000 [1] = 1000 [+1] Profit = 1000 – 300 = 700 [4] 1(d) Identify and explain two methods of promotion PLK might use 6 Application marks may be awarded for appropriate use of to increase sales. the following: Knowledge [2 × 1] Award 1 mark for each relevant method • social enterprise • chefs or cooks or kitchen Application [2 × 1] Award 1 mark for each relevant reference made to • meals or food this business • local markets or sports events • correct use of data from Table 1 Analysis [2 × 1] Award 1 mark for each relevant explanation (to show how it would work or why it might be used) Do not award answers which simply say ‘cut / reduce prices’ or ‘discounts’ or sales promotion’ on own as this Relevant points might include: is too vague • Free samples [k] at sports events [app] as by allowing people to Do not award answers such as above or below the line try it encourages them to buy it [an] as this is too vague • Use loyalty cards / schemes [k] to encourage customers to return many times [an] for meals [app] • Advertising or examples such as (local) paper OR radio OR television OR leaflets OR social media (allow only once) [k] to raise awareness / inform / attract potential customers [an] about this social enterprise [app] • Sponsorship OR public relations [k] which can help increase its brand image / reputation [an] • Competitions [k] • Free gifts [k] • Use of specific price promotions such as BOGOF, money off coupons or short-term discounts (allow only once) [k] as people able to afford it / willing to buy as its cheaper [an] 1(e) Do you agree with PLK’s manager that to increase profit it is 6 Application marks may be awarded for appropriate use of better to raise prices rather than use cheaper ingredients? the following: Justify your answer. • social enterprise Knowledge [1] Award max. 1 mark for identification of relevant • chefs or cooks or kitchen issue(s) • food or meals • local markets or sports events Application [1] Award 1 mark for a relevant reference made to this • correct use of data from Table 1 business Note: the social objective for this business to offer Analysis [2] Award up to 2 marks for relevant development of training to young people. It is not about providing cheap point(s) food to customers. Evaluation [2] Justified decision made as to whether PLK should Do not award answers which simply state that ‘lower / increase its prices or use cheaper ingredients. higher quality’ would lead to fewer / more sales as needs impact on brand image / reputation which then Points might include: causes the impact on sales. Raise prices Do not award cheaper materials might not taste as • could lead to fewer customers (as cannot afford it) [k] resulting good / taste bad in lower revenue [an] of food [app] • lower break-even point [k] so need to sell less to cover costs [an] • People could be willing to pay higher price as they think it’s for a good cause [k] as it’s a social enterprise [app] • Higher price may suggest better quality [k] Cheaper ingredients • will lower the variable cost [k] which will lower total costs / improve profit margin [an] • could lower quality [k] damaging reputation [an] leading to fewer sales [an] 1(e) Other factors can be also discussed such as: • whether demand is price elastic or inelastic [k] as if meals are price elastic then an increase in price should lead to lower revenue [an] • Level of competition [k]

Mark scheme

2(a) What is meant by ‘mass market’? 2 Do not award answers that define other terms such as market share, target market or mass production Clear understanding [2]: e.g. selling the same product to the whole market (everyone) Do not award answers which simply offer alternative words for mass e.g. big or large or larger market Some understanding [1] e.g. Selling to the whole market OR sell to everyone Do not award: Lots of sellers, lots of competitors, lots of products OR lots of customers OR lots of sales OR lots of buyers 2(b) What is meant by ‘job enrichment’? 2 Do not award answers such as ‘to improve motivation’ or ‘to show full abilities’ as this only explains why it is Clear understanding [2]: (Involves looking at jobs and) adding tasks done rather than what it is that require higher skill or more responsibility Do not award answers which confuse the term with job Making work more challenging [1] by giving extra tasks [1] rotation. Answers such as ‘give more jobs / tasks to do’ (on own) are too vague Some understanding [1]: Making work more challenging / difficult OR giving workers more responsibility Do not award examples 2(c) Identify and explain two ways in which employees at JNK 4 Application marks may be awarded for appropriate use of could be affected by the introduction of new technology. the following: Knowledge [2 × 1] Award 1 mark for each way identified • 30 (employees) • Unskilled Application [2 × 1] Award 1 mark for each explanation in context • pottery OR bowls OR plates • batch production Points might include: • quality control • minimum wage • Need for re-training OR fear of change OR opportunity to learn • job enrichment new skills [k] when making pottery [app] • old machines • Possible redundancy / loss of jobs / job insecurity [k] for some of the 30 employees [app] Do not award answers which focus on the impact on • May receive higher pay [k] the business e.g. do not credit higher output, cost of • Safer working conditions [k] as replace old machines [app] equipment, more / less efficient • Higher / lower motivation [1] as may create more / less opportunities for job enrichment [app] Do not award ‘deskilling’ as knowledge because scenario states workers are unskilled Do not award answers such as ‘work easier’, less workload as too vague. 2(d) Identify and explain two ways (other than new technology) that 6 Application marks may be awarded for appropriate use of JNK could use to increase output. the following: Knowledge [2 × 1] Award 1 mark for each relevant way • 30 employees • Unskilled Application [2 × 1] Award 1 mark for each relevant reference made to • pottery or plates or bowls this business • batch production • quality control Analysis [2 × 1] Award 1 mark for each relevant explanation • minimum wage • job enrichment Points might include: • old machines • mass market • Training [k] so likely to make fewer mistakes OR able to work • increased demand quicker / increase productivity [an] when making plates [app] • Employ more workers or workers do longer hours [k] by Do not award job enrichment as [k] recruiting more than 30 [app] will allow increased output with the same number of machines [an] Do not award lean production or examples such as • Recruit / employ specialist or skilled workers [k] as current Just-in-time, kaizen workers are unskilled [app] • Change production method to flow production [k] from batch production [app] allowing continuous production [an] • Improve layout / design of factory [k] so less time is wasted moving semi-finished goods around [an] • Take over another company or expand current site [k] so will have additional capacity [an] to meet increased demand [app] • Examples of methods of financial / non-financial motivation (allow once) e.g. introduce piece rate OR bonuses OR job rotation OR fringe benefits [k] 2(e) Do you think JNK should become more ethical? Justify your 6 Application marks may be awarded for appropriate use of answer. the following: Knowledge [1] Award max. 1 mark for identification of relevant • 30 employees issue(s) • Unskilled • pottery or plates or bowls Application [1] Award max. 1 mark for a relevant reference made to • child labour this business • low cost materials • mass market Analysis [2] Award up to 2 marks for relevant development of • increase in demand point(s) • Competitors have introduced an ethical policy Evaluation [2] Justified decision made as to whether JNK should Do not award answers which refer to legal / quality become more ethical issues as this does not answer the question. Points might include: • Customers may boycott the business [k] leading to lower brand image / reputation [an] which may decrease market share [an] • Many customers want to support ethical businesses [k] so may be willing to pay higher prices [an] for its pottery [app] leading to higher revenue [an] • Help employee recruitment / retention [k] of 30 employees [app] so saving cost of recruitment [an] • Opportunity for new sources of finance [k] would allow increased capital from ethical investors [an] who do not want to be linked with businesses using child labour [app] • Ethical suppliers are likely to charge more [k] leading to higher variable costs [an] as not able to use low cost materials [app] • Could lose sales to competitor [k] • Materials purchased from unethical sources may be cheaper [k] • May not be able to find suitable (ethical) suppliers [k] • Shareholders OR owners may want higher profit [k]

Mark scheme

3(a) What is meant by ‘Gross Domestic Product’? 2 Do not award answers which explain why it is used as this does not answer question e.g. Shows whether Clear understanding [2]: the total value of output of goods and economy growing services in a country (in one year OR at a given point in time) Some understanding [1]: e.g. Output of a country OR amount of goods / services produced by a country [1] 3(b) Identify two possible effects on businesses from falling Gross 2 Note: effect has to be on business, not other Domestic Product. stakeholders such as customers or employees Knowledge [2 × 1] award 1 mark for each effect Do not award answers such as: Points might include: • Lower market share • Lower demand / sales • Inflation / higher taxes • Easier to recruit employees / may need to make workers • Fewer grants redundant • High unemployment • More difficult to raise prices / may need to reduce prices • Less likely to invest / expand • Lower profits • Spare capacity increases • Reduce levels of inventory / stock / less output 3(c) Identify and explain two reasons why REW’s objectives might 4 Application marks may be awarded for appropriate use of change over time. the following: Knowledge [2 × 1] Award 1 mark for each reason identified • award winning • carpets or rugs Application [2 × 1] Award 1 mark for each explanation in context • wool or local suppliers • survival (is main objective) / survive Points might include: • GDP falling / recession • correct use of data from Table 2 • Change in economic conditions e.g. decrease in interest rates / • selling in other countries decrease in taxes / decrease in employment [k] as the country • market research suggests high demand is seeing GDP falling [app] • Previous objectives met / business has become established [k] Do not award examples of new objectives • Change in competition / market / demand e.g. decrease in demand [k] for carpets [app] OR Competitors enter market [k] Examiners note: candidates must state there is a so survival becomes main objective again [app] change or identify the direction of change for [k] • Change in board of directors / ownership OR changing demands of stakeholders [k] • Change in profit / business costs e.g. decrease in profit [k] 3(d) Identify and explain the effect on REW of the changes in the 6 Application marks may be awarded for appropriate use of following ratios. the following: Knowledge [2 × 1] Award 1 mark for each relevant change • 4% or from 20% or to 16% • 0.2 or 0.1 or from 1.2:1 or to 1:1 Application [2 × 1] Award 1 mark for each relevant reference made to • award winning this business • carpets or rugs • wool or local suppliers Analysis [2 × 1] Award 1 mark for each relevant explanation • survival (is main objective) / survive • Selling in other countries Points might include: • Market research suggests higher demand Acid test For Acid Test Ratio accept 0.1 or 0.2 because of the • decreased / fallen [k] by 0.2 or 0.1 [app] layout of Table 2 Analysis could be awarded for: Note: Decrease/fallen is the only possible [k] point. Without this [k] no further marks can be awarded • so may need to reduce creditors / trade payables [an] • improve cash by selling more products / sell unwanted OR Do not award reasons for the decrease as knowledge non-current assets [an] or analysis as this does not answer the question • may have problems paying its short-term liabilities OR may have less liquidity OR may have less cash [an] Do not award answers which say profit has decreased • may make it harder to obtain finance [an] as [k] or [an] as question is about profit margin • suppliers may be less willing to provide goods (on credit) [an] Profit margin • decreased / fallen [k] by 4% [app] Analysis could be awarded for: • need to look for ways to increase added value [an] • may look for ways to lower costs [an] • may increase prices [an] • may need to sell more products to maintain current level of profit [an] 3(e) Do you think REW should start selling its products in other 6 Application marks may be awarded for appropriate use of countries? Justify your answer. the following: Knowledge [1] Award max. 1 mark for identification of relevant • correct use of data from T able 2 issue(s) • award winning • carpets or rugs Application [1] Award max. 1 mark for a relevant reference made to • wool this business • survival (is main objective) / survive • GDP falling / recession Analysis [2] Award up to 2 marks for relevant development of • Market research suggests high demand point(s) Do not award answers which focus on production e.g. Evaluation [2] Justified decision made as to whether REW should access to raw materials / labour start selling its products in other countries. Points might include: • Access to more markets OR more (potential) customers [1] leading to higher revenue [an] • Spread risk [k] as GDP in own country falling [app] and sales elsewhere could make up for the shortfall in demand [an] • Greater recognition OR brand awareness [k] for its award winning products [app] • Existing competition [k] could make it difficult to achieve high sales [an] even though market research suggests high demand [app] • Lack knowledge of local markets and tastes [k] about rugs [app] s o might need to spend money changing products [an] • Language barriers [k] • Exchange rates problems [k] • Tariffs [k] which could increase prices [an] • Quotas [k] which restricts the amount of products the business is able to sell [an] which may make it harder to meet customer demands [an] • Transport problems OR distribution problems [k] increases expenses / cash outflow [an]

Mark scheme

4(a) What is meant by ‘autocratic leadership style’? 2 Do not award answers which refer to owners Clear understanding [2]: where the manager expects to be in charge / control of the business and to have their orders followed Managers takes decisions without consulting employees [2] Some understanding [1]: e.g. Manager takes / make all decisions Or employees have no say in decisions 4(b) Identify two possible sources of finance George could use. 2 Examiners note: only award the first two responses given Application [2 × 1] award 1 mark for each source Do not award retained profits as this is a new business. Points might include: Do not award debentures or sell shares as these are • own savings not appropriate • bank loan OR overdraft • government grants Accept suitable sources for either start-up or working • micro-finance capital (as question does not specify purpose) • borrow from friends and family • trade credit Note: Crowdfunding can be accepted • lease / hire purchase 4(c) Identify and explain two reasons why building good customer 4 Application marks may be awarded for appropriate use of relationships might be important to the success of George’s the following: business. • Start-up or new / own business Knowledge [2 × 1] Award 1 mark for each reason identified • flowers • (small) shop or store or florist Application [2 × 1] Award 1 mark for each explanation in context • Franchise • $5000 Points might include: • 10 years • Increase sales [k] of its flowers [app] Do not award ways to build customer relationships as • Increase retention / customer loyalty [k] so customers keep this does not answer the question. returning to his shop [app] • Help build reputation / act as free advertising / recommendations [k] for this new business [app] • Opportunity for feedback / help identify customer needs [k] • Provide a competitive advantage [k] so can compete against the franchise [app] 4(d) Identify and explain one advantage and one disadvantage to 6 Application marks may be awarded for appropriate use of George’s business of having part-time employees. the following: Knowledge [2 × 1] Identification of relevant advantage / • Start-up or new / own business disadvantage • flowers • shop or store or florist Application [2 × 1] Award 1 mark for each way if relevant reference • franchise made to this business • 2 (part time employees) • 10 years Analysis [2 × 1] Award 1 mark for each relevant explanation. • $5000 • Build (good) customer relationships Relevant points might include: Do not award points such as less / less motivated / Advantages: efficient OR less skilled / less trained as these are • More flexible OR able to extend hours [k] of the shop [app] to based on unknown assumptions maximise possible sales [an] • When not working no need to pay wages OR only pay for hours Do not award answers which confuse part-time worked [k] helps lower labour costs [an] which is important for a employees with temporary workers. new business [app] • Can help attract workers who only want to work a few hours OR Do not award ‘less expensive’, ‘lower costs’ or ‘saves help keep workers [k] money’ as [k] or [an] unless clearly linked to idea that • Provide different skills or experience or ideas [k] they are only paid less because they work for fewer hours. Disadvantages: • Can take longer / more expensive to recruit (as need more part- time workers for each full time equivalent) [k] so takes him away from other important jobs [an] when setting up his new business [app] • Can be less committed to business OR more likely to leave [k] • May create problems when trying to offer a consistent level of service [k] which doesn’t help build customer relationships [app] leading to fewer (loyal) customers [an] • Communication / coordination OR supervision is more difficult [k] 4(e) Do you think George should buy a BunchesRUs franchise? 6 Answer should be from point of view of franchisee not Justify your answer. franchisor. Knowledge [1] Award 1 mark for identification of relevant issue(s) Note: candidate’s final decision can be either for or against opening shops as a franchise Application [1] Award 1 mark for a relevant reference made to this business Application marks may be awarded for appropriate use of the following: Analysis [2] Award up to 2 marks for relevant development of point(s) • Start-up or new / own business • flowers Evaluation [2] Justified decision made as to whether George should • shop or store or florist buy a BunchesRUs franchise • 2 (part time employees) • 10 years Points might include: • Didn’t like autocratic leadership • $5000 Reasons for: • Training and / or support • Help offered by franchisor [k] for training and support [app] which • build (good) customer relationships saves costs [an] • Competition [k] if does not accept franchise, someone else may Do not award answers such as cheaper as do not have accept it leading to lower sales [an] as it may be more difficult information to allow such comparisons for him to compete against an established brand name [an] • Established brand name of franchise [k] may persuade people Do not award ‘less risk’ or ‘more chance of success’ as to buy from him [an] even though it is a new business [app] [an] on own. Must clearly show how the point identified would help reduce risk / increase chance of success. Reasons against: • Gives George less control [k] and as he didn’t like the autocratic style of his old manager [app] may want the freedom to make his own decisions [an] • High cost [k] of $5 000 [app] could be too expensive / not be able to afford as it’s a new business [an] • He has experience [k] as he has worked in a flower shop [app] so support of franchisor is less important [an] • Has to pay percentage of sales revenue to franchisor [k]