Business Studies 0450/13 May/June 2021: question paper and mark scheme

Mark scheme

1(a) Define ‘partnership’. 2 For 2 marks need idea of two or more people and ownership. Award 2 marks for a full definition. Award 1 mark for a partial definition. Do not accept features e.g. unlimited Two [or more] people who agree to jointly own a business together [2] liability. OR An unincorporated business that has more than one owner [2] Partial definition e.g. 2 or more people create / start a business [1] 1(b) Define ‘customer loyalty’. 2 Do not credit answers such as ‘brand loyal’ on its own as it does not explain the term. Award 2 marks for a full definition. Award 1 mark for a partial definition. Do not award answers which simply reorder Likelihood of previous customers returning to buy goods or services from a the term e.g. having lots of customers who business. [2] are loyal. OR Customers keep buying from a particular shop, business or buy one particular product, rather than use other shops or buy products made by other businesses [2] Partial definition e.g. keeps customers [1] OR Choose your business rather than competitors (even if cheaper) [1] 1(c) Outline two possible reasons why WYP could not get trade credit. 4 Note: To use words from the stem as application, the reference must be Award 1 mark for each relevant reason. appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for each relevant reference to this business. The following words are likely to be Points might include: appropriate for this question: • No previous experience [k] of selling eye glasses [app] • (Eye) glasses/spectacles • Seen as higher risk / lenders don’t trust them / lender unsure whether • $95 or $200 able to repay [k] especially as product is $200 cheaper (than main • Started 7 years ago competitor) [app] • Website • Could offer no security [k] when started 7 years ago [app] • 3 friends • Unproven product/idea [k] of selling only through a website [app] • Customer loyalty • No business plan [k] • Partnership Other appropriate responses should also be credited. Other appropriate examples in context can still be credited. 1(d) Explain two possible problems for WYP of selling products at low 6 Note: To use words from the stem as prices. application, the reference must be appropriate (i.e. make sense) in relation to Award 1 mark for identification of each relevant problem (max 2). the point being made. Award 1 mark for each relevant reference made to this business (max 2). The following words are likely to be appropriate for this question: Award 1 mark for each relevant explanation (max 2). • (Eye) glasses/spectacles Points might include: • $95 or $200 • Started 7 years ago • Seen as cheap / seen as low quality [k] as $200 less [app] could lead to • Website fewer sales [an] • 3 friends • Cash flow problems [k] as does not generate as much revenue per unit • Customer loyalty [an] when selling eye glasses [app] • Trade credit • Low profit margin [k] so harder / need to sell more to break even [an] • Partnership • Can be difficult / less scope to use promotional pricing to encourage sales [k] Other appropriate examples in context can still be credited. Other appropriate responses should also be credited. Do not award $295 as analysis as this does not show any explanation. 1(e) Do you think promotion is more important than product for a new 6 This is a general question so there are no business? Justify your answer. marks for application. Award up to 2 marks for identification of relevant points. Some points could apply to either option or Award up to 2 marks for relevant development of points. be awarded as [k] or [an] but do not award Award 2 marks for justified decision as to whether promotion is more the same point twice e.g. increase sales can important than product for a new business. be [k] or [an]. Points might include: To access evaluation marks, candidates Promotion must discuss both elements of the • Helps raise awareness / inform people [k] leading to more sales [an] marketing mix. therefore increase revenue [an] • Can help attract/persuade potential customers [k] For both evaluation marks response must • Can help create/build brand image [k] increasing customer loyalty [an] be linked to a new business. • Way to communicate with customers [k] • Help compete with competitor’s products [k] Do not award vague statements such as both are important, or that higher sales lead Product to higher profits. • This is what people buy / without a product there is nothing to promote / if dislike the product customers will not buy it [k] • A poor/bad quality product will not last long in the market [k] so time/money spent developing it would be wasted [an] • A good product will not necessarily sell itself [k] Other appropriate responses should also be credited. Justification might include: Promotion is important as it means that the more people are aware of your product, the more likely they are to buy, [k] leading to additional revenue [an]. It can also help build brand image [k] increasing customer loyalty [an]. However, the product is what people are buying so without a product there is nothing to promote. Overall, I think it does depend on the product – if product is unique, this is probably more important especially for a new business as there are no alternatives, so the business has a better chance of establishing itself in the market. [eval] [eval]

Mark scheme

2(a) Define ‘business plan’. 2 For one mark must have idea of outlines business objectives/goals. The second mark Award 2 marks for a full definition. Award 1 mark for a partial definition. can outline why it is used, information it contains or other relevant development. A document containing the business aims/objectives and important details about the operations, finance and owners of a business [2] OR A detailed written document outlining the purpose and aim of a business which is often used to persuade lenders or investors to finance a business proposal [2] OR States aims and/or objectives and shows how business plans to achieve them [2] Partial definition e.g. A document stating the aims of the business [1] 2(b) Identify two stages in the recruitment process. 4 Only award the first two responses given. Award 1 mark per stage. Note: Answer must be from the business viewpoint not the applicant. Two from: • Job analysis / identify a vacancy To award, candidates must identify, and not • Job description simply describe the stages. • Person/job specification • Advertising (the vacancy) • Application forms sent out / received • Shortlisting/screening • Interview/testing • Selection / job offer Other appropriate responses should also be credited. 2(c) Outline one advantage and one disadvantage to Nadia’s business of 4 Note: To use words from the stem as selling franchises to expand. application, the reference must be appropriate (i.e. make sense) in relation to Award 1 mark for each relevant advantage/disadvantage. the point being made. Award 1 mark for each relevant reference to this business. The following words are likely to be appropriate for this question: Points might include: • Hairdressing/shop • Receives a fee to use her brand name / franchisee has to buy a licence • Maintain quality (is important) / franchisee has to pay start-up costs [k] of her hairdressing business • $100 000 (profit) [app] • 5 (shops) • Expansion is much faster [k] so will not take as long to open the next 5 • 20 (employees) shops [app] • 4 years ago • Nadia will receive a share of franchisee’s profits/royalties [k] helping • (No experience of) business plans increase her $100 000 profit [app] • Inflation • Franchisees will have local knowledge [k] which is helpful as business only started 4 years ago [app] Other appropriate examples in context can • Management of outlet is responsibility of franchisee [k] still be credited. • All products sold must be obtained from franchisor [k] Do not award answers which focus on Disadvantages: whether she should expand or benefits of growth in general e.g. more well known, • Poor management of one franchise could damage whole business increase sales. reputation [k] as maintaining quality is important [app] • The franchisee keeps some/most of the profits from the outlet [k] • Has to offer franchisees help and advice / training [k] which may take time as when she started she had no experience [app] Other appropriate responses should also be credited. 2(d) Explain two possible effects of an increase in the rate of inflation on 6 Note: To use words from the stem as Nadia’s business. application, the reference must be appropriate (i.e. make sense) in relation to Award 1 mark for identification of each relevant effect (max 2). the point being made. Award 1 mark for each relevant reference made to this business (max 2). The following words are likely to be appropriate for this question: Award 1 mark for each relevant explanation (max 2). • Hairdressing/shops Points might include: • Maintain quality (is important) • $100 000 • Lower demand / fewer sales (as people have less money to spend) [k] • 5 (shops) for hairdressing [app] reducing revenue [an] • 20 employees • Workers may demand higher wages [k] in her 5 shops [app] increasing • 4 years ago labour costs [an] • (No experience of) Business plans • May want to delay plans to expand [k] such as selling franchises [app] • Selling franchises / looking to expand • May need to increase prices [k] [an] leading to fewer customers [an] Other appropriate examples in context can Other appropriate responses should also be credited. still be credited. Do not award points such as less disposable income as this does not identify the effect on the business. 2(e) Do you think making a profit is more important for a growing business 6 This is a general question so there are no than managing cash flow? Justify your answer. marks for application. Award up to 2 marks for identification of relevant points. For both evaluation marks response must Award up to 2 marks for relevant development of points. be linked to a growing business. Award 2 marks for justified decision as to whether making a profit is more important for a growing business than managing cash flow. Do not award answers which state profit is used to pay day-to-day costs. Points might include: Do not award definitions of profit or Profit: cashflow as this does not answer the question. • Main objective is to make a profit [k] without it owners will question point of business [an] • A source of finance [k] which can allow for expansion [an] • A measure of success [k] • Reward for risk taking [k] • Important for long-term survival [k] • Can help attract investors [k] Cash flow: • Need cash to pay day-to-day costs [k] such as suppliers, otherwise might not have sufficient materials to continue production [an] • Helps avoid cash flow problems [k] • A negative cash flow means business is receiving less cash than it is spending [k] • If negative might mean business is insolvent / forced into liquidation [k] whether business makes a profit or not [an] • Sales may be on credit [k] so even if making a profit may not receive money until later [an] so need cash to pay other costs [an] • Less likely to need overdraft [k] which could add to cash outflows / higher expenses [an] Other appropriate responses should also be credited. 2(e) Justification might include: • The main objective for most private sector businesses is making a profit [k] without it owners will question point of business [an]. However, a business needs to manage its cash flow to make sure it can pay day-to- day costs [k] such as suppliers otherwise it might not have sufficient materials to continue production [an]. I think cash flow is more important as a business can continue for a while without making a profit, but it will find it very difficult to survive without cash [eval] especially at a time when a business is growing as it will need to be in a position to purchase additional items. [eval]

Mark scheme

3(a) Define ‘ethical business’. 2 Needs idea of what being ethical is about doing i.e. what is right / moral code [1]. For Award 2 marks for a full definition. Award 1 mark for a partial definition. 2nd mark how they act / actions they take in relation to stakeholders. An organisation that takes decisions based on a moral code [2] Do not award answers that simply refer to OR The moral judgements that a business makes about their behaviour, protecting the environment. and the way they operate and interact with their stakeholders [2] Partial definition e.g. Doing the right thing [1] 3(b) Calculate the total variable cost for product X. Show your working. 2 Award 1 mark for correct method but incorrect answer. Award 2 marks for a correct answer. Award only 1 mark if $450 000 is written as Correct answer: $450 000[2] part of the answer but is not given as the final answer. Partial calculation e.g. variable cost per unit x number of output [1] $ sign not required. OR 18 000 × 25 [1] 3(c) Outline one benefit and one limitation to CTF of using break-even 4 Note: To use words from the stem as analysis. application, the reference must be appropriate (i.e. make sense) in relation to Award 1 mark for each relevant benefit/limitation. the point being made. Award 1 mark for each relevant reference to this business. The following words are likely to be appropriate for this question: Points might include: • Toys Benefits: • Import raw materials • Ethical • Shows the expected level of profit/loss at different levels of output • Competitive market [k] of toys [app] • $40 (price) • Shows the margin of safety [k] of 4000 [app] • 18 000 (output) • Helps planning / forecasting / decision-making [k] such as whether to • $25 (variable cost per unit) import raw materials [app] • $210 000 (fixed costs) • Can see what will happen if costs/prices change [k] such as lower price • 14 000 units (break-even) from $40 [app] • 4000 (margin of safety) • Helps apply for finance [k] • Easy to construct/interpret [k] Other appropriate examples in context can • Provides useful information about output that must be sold to cover still be credited. costs [k] Limitations: • Assumes all output sold / sales not always the same as output [k] so may have sold less than 18 000 [app] • Variable costs do not always stay the same / ignores effect of purchasing economies of scale / assume all costs can be represented by straight lines [k] • Not easy to separate costs into fixed and variable [k] • Hard to calculate when sell many products [k] Other appropriate responses should also be credited. 3(d) Explain two ways that technology might have changed production at 6 Effects can be positive or negative. CTF. Note: To use words from the stem as Award 1 mark for each relevant way. application, the reference must be Award 1 mark for each relevant reference to this business. appropriate (i.e. make sense) in relation to Award 1 mark for each relevant explanation (max 2). the point being made. Points might include: The following words are likely to be appropriate for this question: • More variety / help design new products [k] of toys [app] increasing potential sales [an] • Toys • Improve productivity / improve efficiency / increased speed of • Import raw materials production / increased output [k] so easily able to make 18 000 [app] • Ethical allowing business to meet expected demand [an] • Competitive market • Less errors / wastage / better / maintain quality [k] improving its • $40 (price) reputation [an] as this is an ethical business [app] • 18 000 (output) • Fewer workers needed [k] reducing wage costs [an] • $25 (variable cost per unit) • Improved inventory control [k] as easier to keep track of raw materials • $210 000 (fixed costs) [app] so do not have to order excess inventory [an] • 14 000 units (break-even) • Different skill set for workers [k] • 4000 (margin of safety) • More complex work possible [k] • Continuous production (24/7) / no breaks [k] Other appropriate examples in context can still be credited. Other appropriate responses should also be credited. 3(e) Do you think reliability of the supplier is the most important factor for 6 This is a general question so there are no a large manufacturing business to consider when deciding whether to marks for application. import materials? Justify your answer. Candidates can discuss other factors, but Award up to 2 marks for identification of relevant points. evaluation must focus on whether reliability Award up to 2 marks for relevant development of points. of supplier is the most important factor. Award 2 marks for justified decision as to whether reliability of supplier is the most important factor for a large manufacturing business to consider when For both evaluation marks response must deciding whether to import materials. be linked to a large manufacturing business. Points might include: Do not award general factors such as demand / competition / cost of transport as Reliability of supplier: these would be affected whether import or not. • Need to ensure materials can be delivered on time [k] so there is no delay / stop production [an] otherwise not able to meet orders on time [an] • Supplier must be able to respond to changes in orders so business can adapt to changes in customer needs quickly [k] or customers may switch to competitors [an] leading to lower revenue [an] Other factors: • Import tariffs [k] would increase the price of imports [an] • Import quotas [k] could limit amount of goods able to bring into country [an] potentially restricting amount of output [an] • Different (legal/quality) standards in other country [k] • Exchange rates [k] as an increase/appreciation in own country could mean imports are cheaper [an] which would lower costs [an] Other appropriate responses should also be credited. 3(e) Justification might include: A business needs materials to be delivered on time [k] otherwise this could delay production [an] so not able to meet orders [an]. Other factors could include tariffs [k]. However, I think having a reliable supplier is the most important factor – especially as a large business will need high levels of inventory to make sure orders can be met – customers may be willing to pay more to guarantee orders – which protects reputation [eval] which may be more important than other factors such as tariffs – as customers may be willing to pay extra to obtain the goods they require. [eval]

Mark scheme

4(a) Define ‘business objective’. 2 Do not award examples as this does not explain the term. Award 2 marks for a full definition. Award 1 mark for a partial definition. For 2 marks needs the idea of ‘target’ and A statement of a specific target that a business works towards [2] that it is something to work towards. OR A statement of a specific target to be achieved. (They should be SMART) [2] Partial definition e.g. target/goal [1] OR Something the business works towards [1] 4(b) Identify two ways that business activity might affect the environment. 2 Only award the first two responses given. Award 1 mark per way. Max 1 for answers which identify different examples of pollution. Points might include: • Pollution (or examples such as air pollution, noise pollution, water pollution) • (Traffic) congestion / transport of goods • Deplete / use of natural resources • Use up green space / land use / deforestation / loss of habitat • Energy use • Emission of greenhouse gases / global warming • Waste (or examples such as IT waste, packaging waste, commercial waste) Other appropriate responses should also be credited. 4(c) Identify four examples of communication barriers. 4 Only award the first four responses given. Award 1 mark per example. Points might include: • Problem with receiver / examples given – e.g. not paying attention, does not check messages • Problems with medium / examples given – e.g. message gets lost, distorted, technology breaks down, wrong channel used • Problems with sender / examples given – e.g. (different) language used, technical language, speaks too quickly, sends wrong message, message too long • No opportunity for feedback • Different time zones • Long chain of command / wide span of control • Cultural differences Other appropriate responses should also be credited. 4(d) Explain two possible advantages to DCN of setting up a joint venture 6 Note: To use words from the stem as with the other business. application, the reference must be appropriate (i.e. make sense) in relation to Award 1 mark for identification of each relevant advantage (max 2). the point being made. Award 1 mark for each relevant reference made to this business (max 2). The following words are likely to be appropriate for this question: Award 1 mark for each relevant explanation (max 2). • Chemical Points might include: • Glass making • Packaging • Increase capital / share costs [k] when making the packaging [app] • Different leadership styles which can help reduce borrowing [an] • 8000 employees • Access to new knowledge / expertise [k] as may learn things from their different leadership styles [app] which could lead to greater productivity / Other appropriate examples in context can efficiency / higher output [an] still be credited. • Access new markets [k] as no longer just selling chemicals [app] leading to higher revenue [an] • Share risk [k] • Share resources / share distribution networks / wider range of contact [k] • Avoid/reduce competition [k] increasing market share [an] • May be a legal requirement (in some countries) / avoid government restrictions [k] • Increase production capacity [k] so able to meet potential demand [an] Other appropriate responses should also be credited. 4(e) Do you think autocratic leadership is the most effective style for 6 This is a general question so there are no managers to use when an organisation has a large number of marks for application. employees? Justify your answer. Advantages of one style can be Award up to 2 marks for identification of relevant points. disadvantages of another, but do not award Award up to 2 marks for relevant development of points. the same point twice as mirror arguments Award 2 marks for justified decision as to whether autocratic leadership is are not accepted e.g. democratic motivate / the most effective style for managers to use when an organisation has a autocratic demotivate. large number of employees. Candidates can discuss other leadership Points might include: styles, but evaluation should focus on whether autocratic leadership is the best Autocratic: style to use when an organisation has a large number of employees. • Quick decision-making possible [k] so may be able to respond to opportunities as soon as they become available [an] Do not award definitions. • Demotivating workers (as have no say) [k] leading to higher absenteeism / workers leaving / less employee loyalty / less output / lower productivity[an] • No new ideas [k] Democratic [k] • (Workers have a say) which can motivate employees [an] • As it can help lead to more / better ideas / better decisions [an] • Takes time / time consuming / disagreements might arise [an] • Creates time for managers to do other work [an] • Can help maintain employee loyalty [an] reducing recruitment costs [an] • Mistakes can be made if workers not skilled / lack experience [an] could damage reputation [an] • Some workers might not want to be consulted [an] slowing down decision-making [an] • Unpopular decisions difficult to make using this method [an] 4(e) Laissez-faire [k] • Can be highly motivating [an] • Encourages employees to show creativity / responsibility / take decisions [an] • Task/work may not be suitable to delegate power (especially if low skilled workers) [an] • Does not allow for consistent approach [an] which can damage reputation [an] Other appropriate responses should also be credited. Justification might include: The problem with an autocratic leadership style is that there is no opportunity for employees to be involved in key decisions which can demotivate workers [k] leading to lower quality work [an]. Democratic [k] takes time to ask people especially as there are a lot of employees [an]. Therefore, I think autocratic is the best method in this situation as when quick decisions need to be taken it may not be possible to use democratic leadership [eval] especially as there are a large number of employees, and the business may miss an opportunity if it waits to hear everyone’s views. [eval]