Business Studies 0450/23 May/June 2019: question paper and mark scheme

Mark scheme

1(a) Identify and explain two reasons why the Government helped Peter 8 start up his new business. Knowledge [2 × 1] Award one mark for each relevant reason Analysis [2 × 1] Award one mark for an explanation of each reason Application [2 × 2] Award two application marks for each reason Answers are likely to include: • To increase employment/reduce unemployment – often in particular areas • To increase economic growth – generate income and tax revenue • To increase competitiveness – particularly in markets where there are few businesses competing Indicative response: To increase employment (k) as Peter will need to employ other workers to convert vans (ap). By giving Peter a grant to start his own business (ap) this will reduce unemployment in the area and increase incomes (an). Possible application marks: Motorhome; van conversion; changes vans and large cars; sole trader business; started 2 years ago; plans to expand by offering additional services; needs 3 new skilled and experienced workers; the business Peter worked for failed. There may be other examples in context that have not been included here. 1(b) Consider the following three pricing methods VC could use for its new 12 products. Which method should Peter choose? Justify your answer. Relevant points might include: Penetration • Helps a new service enter the market pricing • Helps to ensure sales are made • Lower price may mean lower gross profit Price skimming • Help establish the business as a high quality service • May put off many customers as the price is too high Cost plus pricing • Easy to apply • Could lose sales if selling price higher than competitors Knowledge/Analysis/Evaluation – award up to 10 marks using the levels- based mark scheme below. Knowledge/Analysis/ Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified recommendation of which pricing method to choose and why it is more important than the other methods. 7–8 marks for limited recommendation of which pricing method to choose. Level 2 4–6 marks Detailed discussion of the benefits and/or drawbacks of each role of packaging. Level 1 1–3 marks Outline of the advantages and/or disadvantages of each method. 1(b) Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Penetration pricing means the service is sold for a low price to help it enter the market. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Penetration pricing means the service is sold for a low price to help it enter the market and attract customers away from competitors. However, it will result in lower gross profit whilst the prices are kept low and customers may think the service is low quality if the price is too low. (L2) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a recommendation of which pricing method to choose. Award up to 2 additional marks for relevant application. Possible application marks: Motorhome; van conversion; changes vans and large cars; sole trader business; started 2 years ago; plans to expand by offering additional services; needs 3 new skilled and experienced workers; financial information from appendix 3. There may be other examples in context that have not been included here.

Mark scheme

2(a) Identify and explain two possible reasons for the failure of the 8 business that Peter used to work for. Knowledge [2 × 1] Award one mark for each relevant reason Analysis [2 × 1] Award one mark for an explanation of each reason Application [2 × 2] Award two application marks for each reason Answers are likely to include: • Poor management – lack of experience leading to bad decisions • Failure to plan for change – not reacting to changes in technology, markets or economic changes • Poor financial management – leading to shortage of cash/cash flow problems • Over-expansion – problems with finance and management if grows too quickly Indicative response: Poor management (k) as the owner had not been able to pay its suppliers of car parts (ap). The owner did not have the experience to deal with car repair businesses entering in the market (ap) and this may have resulted in cash flow problems as the owner ran out of cash (an). Possible application marks: Motorhome; van conversion; changes vans and large cars; sole trader business; started 2 years ago; financial information from appendix 3; the previous employer lacked management experience; had been unable to pay its suppliers of car parts; car repair business. There may be other examples in context that have not been included here. 2(b) Consider the following three ways Peter could recruit a new skilled 12 worker. Recommend which would be the best way to use. Justify your answer. Relevant points might include: Benefits Drawbacks Ask family • Cheap as no cost • May not be a wide and friends if involved range of people known they know • Quick to carry out to family/friends someone • Personal qualities • Friends may not know suitable known as coming the type of person who recommended – more will be suitable likely to be honest Use a job • Wide range of people • Suitable people may not vacancy may see it see the job website • more likely to be seen advertisement unless by someone with they are looking for a suitable skills new job • It may be a website for many different types of jobs and the job may be lost amongst the many jobs advertised on it Use a • Saves time as do not • Have to pay the agency recruitment need to carry out own – it is expensive agency recruitment • May have to keep • Sends suitable people paying the agency part so saves time of the wages interviewing • Lower wages for the • Already gone through person recruited – may earlier selection leave for competitor procedures who pays the going wage rate 2(b) Knowledge/Analysis/Evaluation – award up to 10 marks using the levels- based mark scheme below. Knowledge/Analysis/ Evaluation Level 3 9–10 marks for well justified recommendation of which way to choose and why the others will be less effective. 7–8 marks for some limited judgement shown in the recommendation of which way to choose. Level 2 4–6 marks Detailed discussion of the benefits and/or drawbacks of each way. Level 1 1–3 marks Outline of the benefits and/or drawbacks of each way. Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Asking friends means that it will not cost any money to recruit the new worker. Level 2 – 1 x L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Asking friends means that it will not cost any money to recruit the new worker and the person will come recommended by someone who knows them so their suitability may be more accurate. However, the friend may not know how this person works and they may not have the right skills or be suitable for Peter. (L2) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a justified recommendation of which way to choose. Award up to 2 additional marks for relevant application. Possible application marks: Motorhome; van conversion; changes vans and large cars; sole trader business; started 2 years ago; plans to expand by offering additional services; needs 3 new skilled and experiences workers; information about the recruitment agency in appendix 2; financial information from appendix 3. There may be other examples in context that have not been included here

Mark scheme

3(a) Identify and explain two reasons why building customer relationships 8 is important for VC. Knowledge [2 × 1] Award one mark for each relevant reason Analysis [2 × 1] Award one mark for an explanation of each reason Application [2 × 2] Award two application marks for each reason Answers are likely to include: • Getting to know customers’ wants by asking them – makes them loyal to the business – retains customers and reputation • To identify what customers want from the van conversion – Peter can adapt the service to meet customer needs • Peter wants to maintain a good reputation – so customers tell others about the business and increase advertising by word of mouth – increase sales • Increase customer loyalty Indicative response: By having a good relationship with customers Peter can ask them about what they want (k). This means Peter must find out what sort of van conversions customers might want. (ap) If Peter then offers these services he will be more likely to attract customers to VC (an) and the business will continue to grow as this is what Peter wants as his main business objective. (ap) Possible application marks: Motorhome; van conversion; changes vans and large cars; sole trader business; started 2 years ago; plans to expand by offering additional services; financial information from Appendix 3; main business objective is growth; job production; every vehicle is different. There may be other examples in context that have not been included here. 3(b) Consider how the following three factors can affect the accuracy of the 12 questionnaire data. Which is the most important factor for achieving accurate results? Justify your answer. Relevant points might include: Sample size • Larger size will mean more accurate results but more expensive to carry out • Smaller sample size will mean there is less likelihood of this being representative of the market Location where • If carried out in the city then may not ask people questionnaire is who are interested in van conversions – so carried out results will be less reliable • If carefully selected area such as near campsites for camper vans or motorhomes then the results will be more accurate as people interested in these conversions will be sampled Questions asked • If badly phrased questions are asked then the results will be less likely to be truly what the respondents think • Closed questions will not gain qualitative information Knowledge/Analysis/Evaluation – award up to 10 marks using the level levels-based mark scheme below. Knowledge/Analysis/ Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified conclusion as to which is the most important factor in ensuring accurate results compared to other factors. 7–8 marks for some limited judgement shown in conclusion as to which is the most important factor in ensuring accurate results. Level 2 4–6 marks Detailed discussion of the benefits and/or drawbacks of each factor. Level 1 1–3 marks Outline of the benefits and/or drawbacks of each factor. 3(b) Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. A larger sample size will mean more possible customers will answer it. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. A larger sample size will mean more possible customers will answer the questionnaire giving more accurate results. However, to ask more people will take more time to gather the data and more time to analyse it. This will all cost Peter more money and so he may have to just ask a small number of people but try to ensure the sample is from the target market. (L2) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a recommendation as to which is the most important factor in ensuring accurate results. Award up to 2 additional marks for relevant application. Possible application marks: Motorhome; van conversion; changes vans and large cars; sole trader business; started 2 years ago; plans to expand by offering additional services; financial information from appendix 3. There may be other examples in context that have not been included here.

Mark scheme

4(a) Identify and explain one advantage and one disadvantage to VC of 8 using job production. Knowledge [2 × 1] Award one mark for each relevant advantage/disadvantage Analysis [2 × 1] Award one mark for an explanation of each advantage/disadvantage Application [2 × 2] Award two application marks for each advantage/disadvantage Answers are likely to include: Advantages: • It is suitable for these one-off personalised van conversions – each one is different according to customer preferences – can charge higher prices • The service meets the exact requirements of the customer – increasing customer satisfaction • More interesting and varied work for employees – can be more motivating than flow or batch production Disadvantages: • Likely for higher wages to be paid to skilled workers – costs are higher • Labour-intensive production often takes longer – as each job is different – it may take more time to complete a customer order • Materials used may need to be ordered separately – take time to arrive as made especially to order and any mistakes will be expensive to replace • Cannot easily be sold to someone else – materials may have to be specially purchased – increasing costs Indicative response: Service meets the exact requirements of the customer (k) so increases customer satisfaction leading to good image for the business and increase sales. (an) The vans will be converted in the exact way the customer wants (ap) and then when travelling round other people will see the van and if they like the inside, such as a cooker included, then they may be more likely to ask VC to undertake a conversion for them. (ap) Possible application marks: Motorhome; van conversion; changes vans and large cars; sole trader business; started 2 years ago; plans to expand by offering additional services; needs 3 new skilled and experienced workers; financial information from appendix 3; ordering car parts. There may be other examples in context that have not been included here. 4(b) Using Appendix 3 and other information, consider whether Peter 12 should be worried about VC’s profitability. Justify your answer using profitability ratios. Relevant points might include: Profitability ratios 2017: L2 GPM = 20% NPM = 5% ROCE = 16.66% 2018: GPM = 14% NPM = 4% ROCE = 15% Basic statements 2017: L1 Gross profit =$ 20 000 (Net) Profit = $5000 Capital employed = $30 000 2018: Gross profit = $21 000 (Net) profit = $6000 Capital employed = $40 000 Revenue increased by $50 000 Cost of sales increased by $49 000 Expenses remained the same at $15 000 Award up to ten marks using the levels-based mark scheme below. Knowledge/Analysis/ Evaluation Level 3 At least 2 × Level 2 profitability ratios 9–10 marks for well justified conclusion as to whether Peter should be worried about VC’s profitability. 7–8 marks for some limited judgement shown in conclusion as to whether Peter should be worried about VC’s profitability Level 2 4–6 marks Profitability ratios correctly calculated and analysed Analysis of financial information in Appendix 3 Level 1 1–3 marks Outline of changes in financial position without profitability ratios calculated. Formula for profitability ratios 4(b) Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. The gross profit in 2018 was $1,000 more than in 2017. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. The gross profit margin for the motorhome business in 2017 was 20%. (L2 plus application for referring to the products being motorhomes). Level 3 – For L3 to be awarded there needs to be at least two correct L2 profitability calculations and then a conclusion of whether or not Peter should be pleased with the figures. Award up to 2 additional marks for relevant application. Possible application marks: Motorhome; van conversion; changes vans and large cars; sole trader business; started 2 years ago; plans to expand by offering additional services; needs 3 new skilled and experiences workers; figures from Appendix 3 used to support L1/L2/L3 answers. There may be other examples in context that have not been included here.