Business Studies 0450/23 May/June 2021: question paper and mark scheme

Mark scheme

1(a) Explain four factors that may influence the location of a tertiary sector 8 business. Award 1 mark for each relevant factor (maximum 4). Award a maximum of 1 additional mark for each explanation - of the location factor. Relevant factors might include: • Cost / rent / availability of site – needs to be affordable for the size of business • Access to market/customers – close to customers to increase demand • Access to suppliers – quicker delivery / reduce delivery costs • Transport / infrastructure / communication links – increases accessibility • Competition • Government support/controls • Owners’ preference • Availability of labour • Security / level of crime in the area • Utilities / availability of power and water For example: Access to supplier (1). The business wants to be close to the supplier to make the transport of supplies cheaper (1). 1(b) Explain how the following three factors could cause Ruben’s new 12 business to fail: • Lack of management experience • Insufficient working capital • Poor planning Which factor do you think is most important to Ruben? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of two or more factors. Well-justified conclusion. Candidates discussing all three factors in detail, in context and with a well-justified conclusion including why the alternative factors were rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one factor. Judgement with some justification / some evaluation of choices made. Candidates discussing two or more factors in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss factors with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining all three factors in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: Lack of • Does not know how to manage/motivate workforce - management takeaway staff may not be aware of their job role and experience may not be efficient • Does not know how to manage inventory – ordering too much or too little food - leading to wastage • Does not know how to manage financial records – difficult to make decisions based on revenue and cost Insufficient • Problems paying suppliers for ingredients – working negatively impacts relationships with the suppliers capital • Problems maintaining equipment – reduces productivity • May only be able to afford poor quality ingredients – food not good quality and customers don’t return Poor • Insufficient staff - if owner does not plan for the correct Planning number of staff in the takeaway at busy times customers will be waiting longer for food - poor customer service • Incorrect/missing food items due to incorrect/missing orders may mean that the takeaway cannot meet the full menu. • Inappropriate market research - leading to wrong decisions made - about menus Conclusion • Lack of experience is likely to be the biggest risk as he has only worked in one fast food takeaway for a short period of time and so is unlikely to have good knowledge or experience of all the areas of the business. This will increase the chances of the business failing. If he finds that working capital is insufficient, he can look at using a short-term bank loan to improve liquidity. A business plan would help to reduce the risk of poor planning. • This would be a big negative for the business as working capital is the life blood of the business. It is needed for the day-to-day expenses. Without sufficient working capital the takeaway business will not survive in the long term. • Poor planning is the biggest risk as it can have a negative impact on all areas of the business. If he plans incorrectly, he might not recruit the most suitable four full-time or eight part-time employees. He may not be able to serve his customers if he orders the wrong food and cannot produce the meals listed on his menu. Customers will go elsewhere, and his revenue will fall.

Mark scheme

2(a) Using Appendix 2, explain one external cost and one external benefit of 8 Ruben’s business. Award 1 mark for each relevant external cost/benefit (max2). Award a maximum of 3 additional marks for each explanation of the external cost/benefit of a takeaway - one of which must be applied to this context. Relevant reasons might include: External costs External benefits • Cost of cleaning up litter paid by • Provides employment for other other companies or the local local companies or the local government government • Impact of litter on environment • Government can earn revenue from takeaway boxes from tax (income tax / corporate tax) For example: An external cost would be that more litter is created (1) this will cause the local area to look untidy (1) due to the leftover food wrappers (app). The local government may have to pay to clean up the rubbish (1). Application might include: Fast food takeaway; new business; franchise; food menu; burgers / fried chicken; buy ingredient from local suppliers; 4 full-time employees; 8 part-time employees; free toys; plastic cups; litter in the streets; information from Appendix 2. 2(b) Consider the following three possible ethical issues for Ruben’s 12 business: • Advertising aimed at children • Seeking profit maximisation by paying low wages • Only buying from local suppliers. Which do you think will have the greatest effect on Ruben’s business? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of two or more ethical issues. Well-justified conclusion. Candidates discussing all three ethical issues in detail, in context and with a well-justified conclusion including why the alternative ethical issues were rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one ethical issue. Judgement with some justification / some evaluation of choices made. Candidates discussing two or more ethical issues in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss ethical issues with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining all three ethical issues in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: Advertising • If the advertising is aimed at children (giving away toys aimed at and small size meals) then this could encourage children children to develop unhealthy eating habits from a young age • Free gifts encourage repeat purchases by young children – increasing sales of fast food – increase revenue/profit • High advertising budgets spent on adverts in children’s magazines and characters developed to appeal to children will increase costs • Largest percentage of customers eating fast food are older children aged 16–18 • Only market which is growing from 2019 to 2020 are children under 15. Market share grew by 5% Seeking • Ruben may not pay his workers a competitive wage - profit he wants to reduce expenses to maximise profits maximisation • Workers may not be motivated leading to high labour by paying turnover – likely to go to competitors who pay above low wages minimum wage • Makes it harder to recruit 8 part-time employees Only buying • Lack of variety or difficult to obtain some ingredients - from local reducing menu choice suppliers • Purchasing food from local suppliers may be more expensive - leading to higher costs • May not be able to obtain environmentally friendly packaging • Reduced carbon footprint could be used as a positive marketing point to attract customers Conclusion • Advertising aimed at children will have the biggest effect on profits as children under the age of 18 are his largest market segment. Focusing on profit maximisation by paying low wages will not have much impact as he is likely to be employing part-time workers where the wage may not be their main income. Buying from local suppliers will have little effect on the business as he is likely to be doing this anyway. • Paying low wages, will reduce the wage costs, this means that the fast food business is more likely to survive in the long term as he should have higher profits to reinvest. • Buying from local suppliers will mean that the food will be delivered more quickly and may be fresher. This will mean his customers are more likely to be satisfied and his reputation, revenue and profits will increase.

Mark scheme

3(a) Explain the possible effect of four legal controls over employment on 8 Ruben’s business. Award 1 mark for each relevant legal control over employment (maximum of 4). Award a maximum of 1 additional mark for each explanation of the effect of the legal control which must be applied to Ruben’s business. Relevant legal controls over employment might include: • Unfair dismissal – of any of the new 4 full-time or 8 part-time employees • Legal minimum wage – increases the labour cost at the takeaway • Controls over employment contracts – maximum hours employees can work serving food • Discrimination • Health & safety • Proportion of local to non-local employees • Legal minimum age to work For example: Employees must be paid a legal minimum wage (1). This may increase his labour cost for the takeaway. (app) Application might include: Fast food takeaway; inherited $50 000; new business; franchise; food menu; burgers / fried chicken; buy ingredient from local suppliers; 4 full-time employees; 8 part-time employees; pay minimum wage; free toys; plastic cups; information from Appendix 2; employment for local people. 3(b) Consider the benefits of having part-time employees or full-time 12 employees. Which do you think Ruben should choose for his business? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both options. Well-justified conclusion. Candidates discussing both options in detail, in context and with a well-justified conclusion including why the alternative option was rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one option. Judgement with some justification / some evaluation of choices made. Candidates discussing at least one option in detail and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss options with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining both options in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: Part-time – Flexible workforce employees can have employees work during busy periods when more food needs to be prepared – Lower labour costs only pay employee for when they are needed, likely to be on an hourly rate • Improved work life balance for employees Full-time • 4 full-time employees have this job as main focus – employees better relationship with other employees - improving efficiency • Consistency in the workplace • May make it easier to plan shift patterns due to high number of contracted hours Conclusion • As the business is likely to have variable demand, he should employ 8 part-time workers as it would enable him to increase the number of employees in the busy periods to serve the customers quickly and avoid queues. If he employed full-time employees, he would have to pay them even when the takeaway was quiet. This would increase his expenses. • The 4 full-time employees would be committed to the business and this may reduce labour turnover. These employees are also likely to be well trained so the takeaway can run smoothly when Ruben is not there.

Mark scheme

4(a) Explain two ways the market research data shown in Appendix 1 could 8 help Ruben make business decisions. Award 1 mark for each way (maximum of 2). Award a maximum of 3 additional mark for each explanation of the way - one of which must be applied to this context. Relevant ways might include: • Menu decisions - improved understanding of target market - offer menu choices to attract 16-18-year-olds - this group represent the largest proportion of his market so is likely to increase revenue • Informed choice of promotional methods – promotional messages can be tailored to suit the target market for the takeaway - under 15 age group is a growing market • Decide on a suitable location - location needs to be close to the target market – and a place that is easily accessible to teenagers and young families - this will make up the largest percentage of his sales For example: He can understand his target market (1) so can decide which dishes to add to his menu (app) making it more suitable and so attract more customers (1). This will help to ensure a successful start to his business by increasing sales revenue (1). Application might include: Fast food takeaway; new business; franchise; food menu; burgers / fried chicken; buy ingredient from local suppliers; 4 full-time employees; 8 part-time employees; free toys; information from Appendix 1. 4(b) Consider the advantages and disadvantages of the three sources of 12 finance outlined in Appendix 3 if Ruben chooses to buy the franchise. Which source of finance should Ruben choose? Justify your choice using cost calculations for each source. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of two or more sources. Well-justified recommendation. Candidates discussing all three sources in detail, in context and with a well-justified recommendation including why the alternative sources were rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one source. Judgement with some justification / some evaluation of choices made. Candidates discussing two or more sources in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the sources with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining the three sources in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: Bank loan • $50 000 franchise cost • Highest rate of interest over 1 year can be repaid after a at 5% short amount of time • Highest repayments • Only affects cash each month outflow for 1 year • High cash outflows for a • Total interest paid is new business – may lowest at $2500 take longer to get established • Higher monthly repayments of $4375 • Total repayment $52 500 Bank loan • Lowest rate of interest • Higher total interest over 3 years 3% payment • Interest is $1500 per • Total payment is year $54 500 • Lower repayments each • Total interest paid over month – helps spread 3 years is $4500 cash outflows – improves liquidity of the takeaway business • Lower monthly repayments – $1514 Inheritance • No interest is paid on • Loss of 6% interest from the inheritance - so from the bank savings grandparents cheaper than other account alternatives • Loses potential $3000, if inheritance had been placed in the savings account 4(b) Recommendation • Using the short-term loan is best because the total cost of borrowing $50 000 is lower if he takes the loan over just one year. This would keep his expenses lower in following years and help liquidity after the first year. If he took the loan over three years his cash outflow would be increased. If he used his inheritance, he would potentially lose the additional $3000 he would have made from placing his inheritance in the savings account. • He should use the 3 year loan to buy the franchise as the monthly repayments are £2861 lower than the 1 year loan. He will also have his inheritance available for emergencies in the future. • Using his inheritance of $50 000 is the best option as there would be no cost involved and it is debt free finance. He would save paying interest and keep cash outflows lower each month.