Business Studies 0450/12 May/June 2021: question paper and mark scheme

Mark scheme

1(a) Define ‘cost-plus pricing’. 2 First mark is for explaining what the ‘plus’ is e.g. profit. Second for reference to / description of mark-up. Award 2 marks for a full definition. Award 1 mark for a partial definition. Price is based on / related to cost of product [0] (reordering only). The price is based on the cost of making a product and the addition of a fixed percentage for profit [2] OR The cost of manufacturing the product plus a (profit) mark-up [2] OR Formula e.g. [total cost / total number of units] + % mark up [2] Partial definition e.g. profit added to the cost [1] 1(b) Define ‘marketing mix’. 2 For 2 marks candidates must understand that it involves four elements AND what it is used for (e.g. help sell Award 2 marks for a full definition. Award 1 mark for a products / attract customers / make marketing decisions / partial definition. market a product). All activities that go into the marketing of a product or Do not award answers such as 4P’s or 7P’s these do not service. These activities are often summarised as the four define the term. P’s – product, promotion, place and price [2] OR Four marketing decisions needed for the effective marketing of a product [2] OR The combination of product, price, promotion and place (distribution) that determines how a firm markets itself to its customers and potential customers [2] Partial definition e.g. (combine) price, product, promotion and place [1] OR Different strategies a business can use to help market / sell its products [1] 1(c) Outline two reasons why offering a high quality service 4 Note: To use words from the stem as application, the might be important for Pamela’s business. reference must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for each relevant reason. The following words are likely to be appropriate for this Award 1 mark for each relevant reference to this business. question: Points might include: • Sole trader • 30 years • Increase sales / maintain sales / attract customers [k] of • Photography / posters / calendars / (fashion) calendars / poster [app] magazines / pictures / camera • Helps maintain / increase customer loyalty [k] for this sole • Niche market trader business [app] • Cost-plus pricing • Maintain reputation / improve brand image [k] built up • 2 employees over 30 years [app] • Successful business • Set/maintain high prices [k] which helps as use cost- plus pricing [app] Other appropriate examples in context can still be credited. • Way to add value [k] as operates in a niche market [app] Do not award 2 employees as application where answer • To reduce complaints [k] for the 2 employees [app] refers to sharing profit or using profit to pay wages. • No need to replace faulty work [k] • Gain competitive advantage [k] which can help her business remain successful [app] Other appropriate responses should also be credited. 1(d) Explain two advantages to Pamela of operating as a 6 Note: To use words from the stem as application, the sole trader. reference must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for identification of each relevant advantage (max 2). The following words are likely to be appropriate for this question: Award 1 mark for each relevant reference to this business (max 2). • 30 years • Photography / posters / calendars / (fashion) Award 1 mark for each relevant explanation (max 2). magazines / pictures / camera • Niche market Points might include: • Cost-plus pricing • 2 employees • Keeps all the profit [k] from photography business [app] • High-quality (service) so has an incentive to (continue to) work hard [an] • Successful business • Has complete control / makes all the decisions / does not need to consult with anyone [k] such as the 2 Other appropriate examples in context can still be credited. employees [app] so able to take decisions more quickly [an] Do not award points about start-up as business has been • Own boss [k] operating for 30 years e.g. quick/easy to set up [0], • Freedom to choose her own holidays / schedule / work requires little capital [0], few legal requirements [tv] time [k] so can choose time off when the business is less busy so does not miss out on sales [an] • Able to keep (financial) information private / do not need to produce annual accounts [k] so competitors cannot use information to take away her customers / market share [an] which can help her stay successful [app] • Has close contact with customers / able to offer a more personal service [k] as it’s a niche market [app] which can help encourage customer loyalty [an] Other appropriate responses should also be credited. 1(e) Do you think operating in a niche market will help a 6 This is a general question so there are no marks for small business have a better chance of success than application. operating in a mass market? Justify your answer. To access evaluation marks, candidates must identify Award up to 2 marks for identification of relevant points. points for both types of markets. Award up to 2 marks for relevant development of points. To gain both evaluation marks, answer must clearly relate to a small business. Award 2 marks for justified decision as to whether operating in a niche market will help a small business have a better Do not award definitions of terms as this is NAQ. chance of success than operating in a mass market. Advantages of operating in one type of market can be Points might include: presented as disadvantages of the other option but do not award the same point twice as mirror answers are not Niche market: accepted. • Able to focus more closely on customer’s needs [k] leading to customer loyalty / good customer relations [an] • Less competition [k] less pressure to lower prices / easier to attract customers [an] • May be able to set higher prices (for a high status, exclusive product) [k] so able to have high / increase profit margin [an] • Can become expert in the segment [k] • Small size of market means will not benefit from economies of scale [k] leading to higher average costs [an] • Less potential for growth / low potential demand [k] • Over dependence on single product / less able to spread risk / vulnerable to changes in consumer spending patterns [k] • Likely to attract competition if successful [k] 1(e) Mass market • More (potential) customers/sales [k] leading to higher (potential) revenue [an] • Increased /high level of competition [k] so might have high level of customer loyalty [an] Other appropriate responses should also be credited. Justification might include: In a niche market a business can focus more closely on customer’s needs [k] leading to higher levels of customer loyalty [an]. In a mass market, there are more potential customers [k] which could mean higher revenue [an]. However, I do think a small business has a better chance of success in a niche market because it can continue to charge high prices [eval] as large companies will not see the market as worthwhile because of potentially low sales. [eval]

Mark scheme

2(a) Define ‘opening balance’. 2 Award 2 marks for a full definition. Award 1 mark for a partial definition. Amount of cash held by a business at the start of the month / trading period [2] Partial definition e.g. cash that a business has [1] 2(b) State two ways a business can increase productivity. 2 Only award the first two responses given. Award 1 mark per way. Points might include: • Improve labour skills / (improve) training • (Increase) motivation (or examples – max 1) • Automation / replace workers with machines • Use more automation • (Introduce) new technology / (use) better machinery • Improve quality of materials / improve quality control / introduce quality assurance • Improve/introduce inventory control / kaizen / JIT / lean production • Reorganise layout of factory / eliminate bottleneck. Other appropriate responses should also be credited. 2(c) Identify four sources of internal finance a business 4 Only award the first four responses given. might use. Award 1 mark per source. Four from: • (Retained) profit • Sale of (existing) non-current assets • Sale of inventories / reduce inventory levels / sell current assets • Owner’s savings • Reduce trade receivables / ask customers to pay more quickly / reduce time given for customers to pay Other appropriate responses should also be credited. 2(d) Explain two possible effects on NPX’s cash-flow 6 Note: To use words from the stem as application, the forecast of introducing the new technology. reference must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for identification of each relevant effect (max 2). The following words are likely to be appropriate for this question: Award 1 mark for each relevant reference made to this business (max 2). • $40 000 • 35 / 60 full-time (employees) / redundant Award 1 mark for each relevant explanation (max 2.) • Correct use of data e.g. $110 000 cash outflow in September Points might include: • Online retailer • Warehouse • Higher repayment costs / initial cost to buy machinery [k] • Selecting and packing items which increases cash outflow [an] as need to pay • To improve productivity $40 000 [app] • Internal/external source of finance • Reduce wage costs [k] as need 35 fewer employees [app] lowering cash outflow [an] Other appropriate examples in context can still be credited. • Increased training costs [k] increasing cash outflows [an] For analysis answers must focus on the impact on cash • Possible redundancy payments [k] increasing cash- outflow or cash inflow. outflow [an] • Sell old machinery / use an external source of finance [k] which would generate a cash inflow [an] Other appropriate responses should also be credited. 2(e) Do you think it is better for a tertiary sector business to 6 This is a general question so there are no marks for use full-time employees rather than part-time application. employees? Justify your answer. Do not award answers about manufacturing/production as Award up to 2 marks for identification of relevant points. question about tertiary sector Award up to 2 marks for relevant development of points. Do not award definitions or statements such as full-time employees work longer hours. Award 2 marks for justified decision as to whether it is better for a tertiary sector business to employ full-time workers Do not award vague statements about skills, experience, rather than part-time employees. tiredness. Points might include: Advantages of one method can be presented as disadvantages of the other method but do not award the Full-time: same point twice as mirror answers are not accepted. • Consistent service / more familiar with business [k] Some points could be awarded as [k] or [an] but do not which helps build / maintain customer relationships / award same point twice. better reputation [an] • Workers likely to be loyal / more committed / less likely to To gain both evaluation marks, response must clearly leave business [k] reducing recruitment costs [an] relate to a tertiary sector business. • Easy to communicate / update (compared to part-time employees) [k] leading to fewer errors / misunderstandings [an] • Need to recruit / train fewer employees [k] saving time or cost of recruitment / training [an] 2(e) Part-time: • Able to extend business hours [k] to maximise potential sales [an] • More flexible in hours of work [k] so able to cover absent workers / cover busy times [an] • Reduces labour costs (compared to full time) [k] as only pay employees for hours worked / when needed [an] • Provide different / more skills / increase the experience / more ideas [k] which otherwise may not be able to afford on a full-time basis [an] • (Some employees may not want full-time jobs so) may miss out on possible candidates if not offered part-time option [k] • Can attract well qualified employees who want to return to work but need to have flexible hours [k] Other appropriate responses should also be credited. Justification might include: A business only has to pay part-time employees for the hours worked [k] reducing its wages costs [an]. However, using full-time workers means they can provide a consistent service [k] leading to customer loyalty [an]. Therefore, I think full-time employees are better especially for a tertiary sector business as quality of service is likely to be an important way customers judge the business [eval] and therefore more likely to return, ensuring sales. [eval] Other appropriate responses should also be credited.

Mark scheme

3(a) Define ‘fixed cost’. 2 Do not accept examples. Award 2 marks for a full definition. Award 1 mark for a Do not award also ‘known as overhead costs’ as this does partial definition. not define the term. Costs that do not change with the level of output/sales [2] OR Costs that do not vary in the short run with the number of items sold or produced. [2] Partial definition e.g. costs that do not change [1] 3(b) Calculate the margin of safety for product X in 2020. 2 Award only 1 mark if 7500 is written as part of the answer Show your working. but is not given as the final answer. Award 2 marks for correct answer. Award 1 mark for correct Where candidates present their answer with a $ sign method but incorrect answer. award only 1 mark as this is not a financial value. Correct answer: 7500 (units) [2] If correct answer given with no working shown, award 2 marks. Correct method but incorrect answer: e.g. Current output – breakeven output [1] OR 30 000 – 22 500 [1] 3(c) Outline two advantages to GHT of having a short chain 4 Note: To use words from the stem as application, the of command. reference must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for each relevant advantage. The following words are likely to be appropriate for this Award 1 mark for each relevant reference to this business. question: Points might include: • Steel / gates / garage doors • 600 employees • Communication is quicker / communication is more • Public limited company accurate / quicker decision-making [k] within the public • Flat (organisational structure) limited company [app] • Job rotation • Easier to delegate tasks / more delegation [k] to its 600 • Improve employee motivation employees [app] • 22 500 (break-even output) • Workers feel more motivated [k] • 30 000 (units sold) • Lower costs as fewer managers/supervisors needed • $100 (price per unit) [k] • $900 000 (fixed costs) Other appropriate responses should also be credited. • $60 (variable cost per unit) Other appropriate examples in context can still be credited. Only award points about communication once. 3(d) Explain one advantage and one disadvantage to GHT of 6 To use words from the stem as application, the reference using job rotation to improve employee motivation. must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for identification of each relevant advantage/disadvantage (max 2). The following words are likely to be appropriate for this question: Award 1 mark for each relevant reference made to this business (max 2). • Steel / gates / garage doors • 600 employees Award 1 mark for each relevant explanation (max 2). • Public limited company • 22 500 (break-even output) Points might include: • 30 000 (units sold) • $100 (price per unit) Advantage: • $900 000 (fixed costs) • $60 (variable cost per unit) • (As work more varied) fewer workers might leave [k] from its 600 employees [app] leading to lower Other appropriate examples in context can still be credited. recruitment costs [an] • Business has a more flexible / skilled workforce / Do not award motivate or demotivate employees as stated multiskilling [k] leading to higher productivity / higher in the question. output [an] • Easier to cover / replace others when someone is absent [k] so may be able to meet an order on time [an] • Can help business identify where employees work best [k] 3(d) Disadvantage: • Increased training needed [k] increasing costs/expenses [an] so may increase its break-even output above 22 500 [app] • Workers may not be familiar with each task / less specialist in task / not good at all tasks [k] lowering quality / increase waste / leads to mistakes [an] increasing variable cost above $60 [app] • Takes time to learn different tasks / switch between jobs [k] Other appropriate responses should also be credited. 3(e) Do you think the shareholders are the most important 6 This is a general question so there are no marks for stakeholder group to the success of a limited application. company? Justify your answer. Candidates may focus on other stakeholders, but the Award up to 2 marks for identification of relevant points. evaluation must focus on whether shareholders are the most important stakeholder to the success of a limited Award up to 2 marks for relevant development of points. company. Award 2 marks for justified decision as to whether To gain both evaluation marks, response must clearly shareholders are the most important stakeholder group to relate to a limited company. the success of a limited company. Points might include: Shareholders/owners • Provide finance / invest money / capital in business [k] which can help the business expand / buy more equipment [an] so can increase output [an] • Influence the aims of the business [k] • Have the power to vote out the directors [k] • They have little / no influence over day-to-day decisions [k] 3(e) Other stakeholders can include: • Customers [k] as they buy the products [an] and if ignores their needs the business will lose sales/revenue [an] • Directors/managers [k] are responsible for day-to-day decision-making [an] • Employees [k] make the products [an] so if they become demotivated quality may fall [an] • Suppliers [k] provide materials/inventory [an] • Local community [k] provide the workers [an] • Government [k] provide the legal framework in which the business operates [an] • Bank [k] provide finance/loans [an] Other appropriate responses should also be credited. Justification might include: Shareholders are important as they invest money in the business [k] which can help the business expand [an]. However, once the business is established, they have little / no influence over day-to-day decisions. Customers [k] matter as they buy the products [an]. While shareholders provide important finance, without customers even a limited company cannot generate income [eval] and without this cannot cover its costs or make a profit, so the customer is probably the most important stakeholder. [eval]

Mark scheme

4(a) Define ‘primary sector’. 2 Do not award examples as this does not answer the question. Award 2 marks for a full definition. Award 1 mark for a partial definition. For 2 marks need to understand extraction of raw materials or they are raw materials / natural resources Extracts and uses the natural resources of the earth to gathered for use by other businesses. produce raw materials used by other businesses [2] OR The sector that generates raw materials which the secondary sector then uses to make a product [2] Firms whose business activity involves the extraction of raw materials [2] Partial definition e.g. Involves natural resources [1] Generate/produce raw materials [1] 4(b) Identify two government economic objectives. 2 Only award the first two responses given. Award 1 mark per economic objective. Two from: • Low(er) unemployment / full employment / high(er) level of employment • Economic growth / increase in GDP / improve standards of living • Low inflation / price stability • Improve balance of payments 4(c) Outline one external benefit and one external cost that 4 Note: To use words from the stem as application, the Raul’s business activity might create. reference must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark per external benefit/external cost. The following words are likely to be appropriate for this Points might include: question: External benefit: • (Small) farm / farming • Oranges/fruit • Jobs created [k] on the farm [app] • Primary sector • Pay taxes [k] on the oranges [app] • 600 tonnes • Other businesses move into area [k] • Export business / manufacturer in another country • Trees release oxygen / planting trees improve air • (Sell direct to) drinks manufacturer quality / trees absorb carbon dioxide [k] Other appropriate examples in context can still be credited. External cost: Do not award manufacturer as [app] on own. • Loss of space / land use [k] to produce 600 tonnes [app] Do not award country Z or E as application. • Pollution/congestion [k] caused by exporting [app] • Deplete natural resources / use up water [k] Other appropriate responses should also be credited. 4(d) Explain two advantages to Raul’s business of selling 6 Note: To use words from the stem as application, the direct to a manufacturer. reference must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for identification of each relevant advantage (max 2). The following words are likely to be appropriate for this question: Award 1 mark for each relevant reference made to this business (max 2). • (Small) farm • Oranges Award 1 mark for each relevant explanation (max 2). • Primary sector • 600 tonnes Points might include: • Export business / manufacturer in another country • (Sell direct to) drinks manufacturer • No need for intermediaries / middlemen [k] increasing • Quotas/tariffs profit margin [an] for the farm [app] • More predictable demand [k] which makes planning Other appropriate examples in context can still be credited. easier [an] • Better understand customer needs [k] such as which Do not award country Z or E as application. type of oranges [app] which can help maintain customer loyalty / sales [an] Do not award manufacturer as [app] as stated in question. • Can sell in large quantity / does not need to deliver to many businesses [k] as sell all to drinks manufacturer [app] which can reduce distribution / transport cost [an] • Less paperwork / saves time as have to deal with fewer / one customer [k] which reduces administration costs [an] • Less / no need for marketing [k] as does not need to find retailers to buy his oranges [app] which reduces cash outflows [an] Other appropriate responses should also be credited. 4(e) Do you think the introduction of import tariffs is likely 6 This is a general question so there are no marks for to have a greater effect than the introduction of import application. quotas on an exporting business? Justify your answer. To access evaluation marks must have at least identified Award up to 2 marks for identification of relevant points. relevant points for both tariffs and quotas. Award up to 2 marks for relevant development of points. To gain both evaluation marks, response must clearly relate to an exporting business. Award 2 marks for justified decision as to whether the introduction of import tariffs is likely to have greater effect than the introduction of import quotas on an exporting business. Points might include: Tariffs • May lead to an increase in the price of goods / makes goods more expensive [k] which makes the products less competitive [an] leading to fewer sales / less revenue [an] • Business may decide to maintain prices / not pass on price increase to customers [k] reducing profit margin [an] Quotas • Will limit the amount of goods that can be brought into a country [k] which will reduce the supply [an] reducing potential sales / revenue [an] • May have to find new market for remaining products / store leftover inventory [k] increasing storage costs [an] increasing total cost [an] 4(e) Other appropriate responses should also be credited. Justification might include: Quotas will limit the amount of goods that can be brought into a country [k] which reduces the supply [an]. Whereas tariffs could increase the price of goods [k] leading to lower demand [an]. I think tariffs are likely to have less effect as at least you can still export the amount you want [eval] and customers may still be prepared to pay the extra whereas quotas could reduce or restrict the possibility of any sales. [eval]