Business Studies 0450/12 May/June 2022: question paper and mark scheme

Mark scheme

1(a) Define ‘current liabilities’. 2 Award 2 marks for a full definition. Award 1 mark for a partial definition. (Short-term) debts owed by a business, to be repaid in less than one year [2] OR Debts of a business which it expects to pay before the date of the (next) statement of financial position [2] Partial definition e.g. money owed by a business [1] 1(b) Identify two examples of non-current assets. 2 Only award the first two responses given. Award 1 mark per example (max 2). Points might include: • Land/buildings/factory/property/warehouse • Machinery/technology/equipment • Fixtures/fittings • Vehicles or examples such as cars/trucks • Investments/shares in another business Other appropriate responses should also be credited. 1(c) Outline two possible reasons why liquidity is important to AHG. 4 To use words from the stem as application, the reference must be Award 1 mark for each relevant reason (max 2). appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for each relevant reference to this business (max 2). The following words are likely to be Points might include: appropriate for this question: • To make sure the business has access to enough cash/money to pay day-to- • Plants / flowers / gardening day expenses / (short term) liabilities / avoid interest charges / keep its products or other examples such suppliers [k] as shown by the current ratio of 1.1 [app] as seeds • To help arrange/apply for finance [k] for this established business [app] • 660 000 to 600 000 • Ensure business survival / allow it to continue trading [k] to sell flowers [app] • Established (business) / operating • To provide for (unforeseen) emergencies [k] for a long time • 4 managers Other appropriate responses should also be credited. • 30 or 34 employees • Competitive pricing Other appropriate examples in context can still be credited. 1(d) Explain two advantages to AHG of its managers using delegation. 6 To use words from the stem as application, the reference must be Award 1 mark for identification of each relevant advantage (max 2). appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for each relevant reference to this business (max 2). The following words are likely to be Award 1 mark for each relevant explanation (max 2). appropriate for this question: • Plants/flowers/garden products or Points might include: other relevant examples such as • Managers cannot do all tasks on own / reduce managers’ workload / seeds managers have time to focus on (important/complex) tasks [k] such as • 4 (managers) improving liquidity [app] so better/quicker decision making [an] • 30 employees • Can motivate employees [k] as there is less control from its 4 managers [app] • Established business / operating increasing productivity [an] for a long time • Quality of managers’ work is often improved / managers are less likely to • Liquidity / current ratio of 1.1 make mistakes [k] leading to a better business reputation [an] of its garden • Statement of financial position products [app] • Builds trust between managers and employee / better working relations [k] Other appropriate examples in context improving loyalty [an] of its 30 employees [app] can still be credited. • Way to develop skills of employees / increase flexibility of workforce [k] leading to new ideas [an] Analysis must refer to impact on business and not employees. Other appropriate responses should also be credited. 1(e) Do you think competitive pricing is the best method for an established 6 This is a general question so there are business to use? Justify your answer. no marks for application. Award up to 2 marks for identification of relevant points. Candidates can discuss other methods of pricing, but evaluation Award up to 2 marks for relevant development of points. must focus on whether competitive pricing is the best method to use. Award up to 2 marks for a justified decision as to whether competitive pricing is the best method for an established business to use. Some points could be awarded as [k] or [an] but do not award the same Points might include: point twice. • Price will not discourage customers from buying [k] so maintain customer loyalty [an] Do not award price skimming or • Prevents business losing market share [k] which could result in less revenue penetration pricing on own unless [an] explained. • Customer may be prepared to pay more (if it is a popular brand) [k] • Need another way to attract customers [k] which could increase costs [an] • May not cover the costs [k] so may find it difficult to break even [an] • Takes time/money to find out competitor’s prices [k] 1(e) Other methods can be discussed such as: Cost-plus pricing [k] • Know that the costs will be covered [an] • Know their profit margin / can make a profit per item [an] • Easy to calculate/apply [an] • Does not consider what competitors do / prices may be higher than competitors [an] • Does not take account of changes in demand/spending patterns [an] so could lead to fewer sales being made [an] • Little incentive to control costs [an] Promotional pricing [k] • Help attract sales [an] • Helps to renew interest in a product if sales are falling [an] Other appropriate responses should also be credited. Justification might include: Competitive pricing will not discourage customers from buying [k] so will buy again [an]. However, if you base your prices solely on competitors, you might not be able to cover costs [k] which makes it difficult for a business to break-even [an]. No, as it depends on what they sell – while cannot ignore what other businesses charge – especially if it’s a competitive market – but if the business has a good reputation which an established business might have [eval] it may be able to use other pricing methods that allow it to charge more [eval].

Mark scheme

2(a) Define ‘off-the-job training’. 2 Do not award examples on own as this does not define the term. Award 2 marks for a full definition. Award 1 mark for a partial definition. First mark is for understanding it is Training that takes place away from the workplace usually by a specialist away from workplace. trainer(s) [2] OR 2nd mark is [+1] for stating by whom Training that takes place away from the workplace, for example at college, or providing example of where e.g. in university or a specialist training providers premises [2] a training centre. OR Training that takes place away from the place of work using methods such as courses/conferences/online learning [2] Partial definition e.g. training away from the workplace [1] 2(b) Identify two reasons (other than financial) why people work. 2 Only award the first two responses given. Award 1 mark per reason (max 2). Points might include: • Job satisfaction / feeling you have done a good job / enjoyment • Social or examples such as feel part of a group / meeting people / making friends at work • Esteem / recognition / status / feel important • Opportunity to reach your potential / challenge yourself to do new things / improve use skills / gain experience • Help others Other appropriate responses should also be credited. 2(c) Outline two methods of financial rewards RWB might use to motivate its 4 To use words from the stem as employees. application, the reference must be appropriate (i.e. make sense) in Award 1 mark for each relevant method (max 2). relation to the point being made. Award 1 mark for each relevant reference to this business (max 2). The following words are likely to be appropriate for this question: Points might include: • Buses • High(er) wages / wage rates / time-based rates [k] for workers in the factory • 1200 (employees) [app] • Factory • Piece rate [k] paid to its 1200 employees [app] • ($1.7 million) loss • High(er) salary [k] for making buses [app] • Bonuses [k] but this may be difficult as business has made a loss [app] Other appropriate examples in context • Profit sharing/share ownership schemes [k] can still be credited. • Performance related pay [k] Other appropriate responses should also be credited. 2(d) Explain two ways RWB might be affected by new legal controls over business 6 To use words from the stem as activities which affect the environment. application, the reference must be appropriate (i.e. make sense) in Award 1 mark for identification of each relevant way (max 2). relation to the point being made. Award 1 mark for each relevant reference 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) • Buses • 1200 (employees) Points might include: • Factory • Change its production methods/equipment e.g. need to buy new machines • ($1.7 million) loss [k] leading to higher interest/finance costs [an] which may increase its loss • Off-the-job training [app] • May need to redesign products [k] so may be able to charge a higher Other appropriate examples in context price/allow the business to reduce variable costs [an] can still be credited. • Require more training / retraining [k] for its 1200 employees [app] which could delay production [an] • May have to buy (pollution) permits / pay fines/higher taxes / may need to recycle/change how it disposes of the waste [k] increasing cash outflows [an] • May have to change materials/components used/switch suppliers / reduced range/access to materials [k] increase variable costs [an] • Stop/limit/slow production [k] of its buses [app] • Lower emissions / use renewable energy [k] in the factory [app] helping to lower energy costs (in the long run) [an] • May need to change location [k] increase cost of rent [an] Other appropriate responses should also be credited. 2(e) Do you think a reduction in the level of unemployment always benefits 6 This is a general question so there are businesses? Justify your answer. no marks for application. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for a justified decision as to whether a reduction in the level of unemployment always benefits businesses. • Increase in sales [k] could lead to higher revenue [an] • Difficult to recruit workers [k] which may lead to an increase in recruitment costs / difficult to increase output / meet orders [an] • Higher wages may need to be paid [k] increasing labour costs [an] • Available workers may lack necessary skills [k] leading to lower productivity / higher training costs / lower quality [an] Other appropriate responses should also be credited. Justification might include: A reduction in unemployment may mean more sales [k] leading to higher potential revenue [an]. However, because there are fewer people looking for work it may be difficult to recruit workers [k] which could make it difficult to increase output [an]. Overall, it may depend on whether the business needs employees or not, as without sufficient workers they may not be able to produce enough to benefit from higher potential sales [eval] [eval].

Mark scheme

3(a) Identify one benefit and one cost to a business of developing new products. 2 Only award the first response given for each benefit/cost. Award 1 mark per benefit/cost (max 1 for each). Do not award answers such as cost Benefits might include: on its own. • Provides diversification / spreads risk • Increase revenue/sales • Enter new markets / attracts new customers • Allow the business to expand into existing markets / increase market share / improved competitive advantage • Maintain customer loyalty Costs might include: • Costs of carrying out (market) research • Producing trial products • (Cost of) raw materials/labour/equipment • Marketing/advertising costs Other appropriate responses should also be credited. 3(b) Calculate the break-even level of output for 2021. Show your working. 2 Max 1 where include $ sign as it is not a financial value. Correct answer: 2500 [2] Correct method but incorrect answer e.g. 200 000 / 80 [1] OR 200 000 / (120-40) [1] OR Total fixed costs / selling price (per unit) – variable cost (per unit) [1] OR Fixed costs / contribution (per unit) [1] If correct answer given with no working shown, award 2 marks. Award only 1 mark if 2500 is written as part of the answer but is not given as the final answer. 3(c) Outline two ways CHW could increase its margin of safety. 2 To use words from the stem as application, the reference must be Award 1 mark per way (max 2). appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for each relevant reference to this business (max 2). The following words are likely to be Points might include: appropriate for this question: • Lower fixed costs [k] from $200 000 for the year [app] Factory • Lower variable costs / variable cost per unit [k] from $40 [app] Cameras/electrical products • Increase price [k] of cameras [app] 500 (margin of safety) 2500 (break even output) Other appropriate responses should also be credited. Flow production 200 000 (fixed costs) $120 (selling price) $40 (variable cost per unit) 3(d) Explain two ways in which the stage of the product life cycle might affect 6 To use words from the stem as CHW’s marketing decisions about promotion. application, the reference must be appropriate (i.e. make sense) in Award 1 mark for identification of each relevant stage and way (max 2). relation to the point being made. Award 1 mark for each relevant reference 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). • Cameras/electrical products • 500 / margin of safety Points might include: • Develop new products • 2500 (break-even output) Must name the stage and why or how much promotion to access the • $120 (selling price) knowledge marks. • $200 000 (fixed costs) • $40 (variable cost per unit) Introduction: • Factory High level/amount of promotional activity [k] to help raise awareness/inform/ attract/persuade new customers [an] about its cameras [app] Other appropriate examples in context Attract/inform/persuade customers [k] to increase sales/revenue [an] can still be credited. Establish brand image [k] to make business competitive [an] Do not award answers which identify Growth: methods of promotion as this does not High level/amount of promotion/promotional spending [k] to try to encourage answer the question. brand loyalty [an] so it can sell 2500 to break even [app] Attract/inform/persuade customers [k] to increase revenue [an] Maturity: Likely to be less promotion [k] as product is well known / business wants to use its funds for other purposes [an] such as developing new products [app] To remind customers about its products [k] so maintain sales/market share [an] Spending might increase if use an extension strategy [k] to inform people that the product is worth buying again [an] 3(d) Decline: Limited promotion/spending [k] to reduce marketing costs [an] May only use to inform customers of price reductions [k] so no longer selling at $120 [app] to encourage some sales [an] May decide to stop promotion during this stage [k] To clear out inventory [k] Other appropriate responses should also be credited. 3(e) Do you think flow production is the best method of production for a 6 This is a general question so there are manufacturing business to use? Justify your answer. no marks for application. Award up to 2 marks for identification of relevant points. Can accept discussion of other methods such as batch production or Award up to 2 marks for relevant development of points. job production but evaluation must focus on flow production. Award up to 2 marks for a justified decision as to whether flow production is the best method of production for a manufacturing business to use. Advantages of one method could be presented as disadvantages of Points might include: another method, but do not award the • High output [k] so able to meet demand (on time) [an] same point twice. • Benefit from economies of scale [k] leading to lower unit costs [an] • More capital intensive [k] leading to lower labour costs [an] • Lower (employee) motivation [k] leading to lower productivity [an] • Can produce 24 hours a day [k] • If one machine breaks down whole production line stops [k] lose output/fewer sales [an] • Requires a large capital investment [k] Batch production [k] • More flexible / produce a variety of products [an] Job production [k] • Unique products so able to charge a higher price [an] Other appropriate responses should also be credited. Justification might include: Materials can be purchased in large amounts / benefit from economies of scale [k] leading to lower unit costs [an]. However, it requires a large capital investment [k] which the business might not be able to afford. [an] It might only be worthwhile if there is a large market for a standardised product [eval] which can cover the high initial costs [eval].

Mark scheme

4(a) Define ‘entrepreneur’. 2 For both marks must have idea of a person starting a new business, and Award 2 marks for a full definition. Award 1 mark for a partial definition. that they take a risk to do this [+1]. A person who takes the risk for a new business venture [2] OR An individual who takes the financial risk of starting and managing a new business [2] Partial definition e.g. person who starts up a business [1] 4(b) Define ‘opportunity cost’. 2 Do not award examples as this does not define the term. Award 2 marks for a full definition. Award 1 mark for a partial definition. The next best alternative given up by choosing another item [2] OR The benefit that could have been gained from an alternative use of the same resource [2] OR A benefit, profit or value that a firm has to give up in order to achieve something else [2] Partial definition e.g. what you have to give up / forgo [1] 4(c) Identify four reasons why a new business might be at greater risk of failure 4 Only award the first four points given. than an established business. Award 1 mark for each relevant reason (max 4). Points might include: • Lack of / cannot get finance / cash flow problems / lack of liquidity • Level of competition / lack customer loyalty / lack of customers / demand / sales • Poor planning / no business plan / lack of objectives • Lack of (managerial/business) experience/skills/knowledge • Inadequate/no market research • No reputation / low brand awareness / no brand image Other appropriate responses should also be credited. 4(d) Explain two suitable sources of start-up capital Tom’s business might use. 6 To use words from the stem as application, the reference must be Award 1 mark for identification of each relevant source of start-up capital (max 2). appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for each relevant reference made to this business (max 2). The following words are likely to be Award 1 mark for each relevant explanation (max 2). appropriate for this question: • Window cleaning Points might include: • $700 • Own savings [k] from his time working in his other job [app] as no need to • Wants to leave his job/other job repay/no interest to pay [an] • Sister • Borrow from friends/family [k] such as his sister [app] as may give long time to • Partnership repay [an] • Opportunity cost • (Bank) loan [k] for this window cleaning business [app] as could provide all the • Entrepreneur money at once [an] • Overdraft [k] can arrange quickly/only pay interest when used [an] Other appropriate examples in context • Government grant [k] as may be willing to support entrepreneurs [app] as no can still be credited. interest/no need to repay [an] • Crowdfunding [k] to raise the $700 [app] so no interest to repay [an] Do not award answers such as • Micro-finance [k] as does not need security to obtain [an] retained profit/profit or sell shares as these are not appropriate/available to Other appropriate responses should also be credited. a start-up. 4(e) Do you think a partnership is the best form of business organisation for a 6 This is a general question so there are new business? Justify your answer. no marks for application. Award up to 2 marks for identification of relevant points. Candidates can discuss other forms of business organisation, but evaluation Award up to 2 marks for relevant development of points. must focus on whether a partnership is the best form. Award up to 2 marks for justified decision as to whether a partnership is the best form of business organisation for a new business. Points might include: Partnership: • Share workload/responsibility [k] which could allow time for each partner to focus on different business activities [an] • More ideas/skills [k] which could help make the business more competitive [an] • Can share any potential loss/risks [k] • Unlimited liability [k] personal possessions at risk if unable to pay business debts [an] • Risk of disagreements / slow decision making [k] so less responsive to changes in customer demand [an] • Must share any profits made [k] Other options might include: Sole traders [k] • It’s simple/very little paperwork required to set up [an] • Require limited start-up capital [an] • Make all the decisions / has total control of business [an] • Keep all the profit [an] • Limited access to finance [an] 4(e) Private limited company [k] • Benefit from limited liability • More paperwork/legal requirement to set up/operate [an] Other appropriate responses should also be credited. Justification might include: A partnership allows owners to share workload [k] which could allow time for each partner to specialise on certain activities to improve the business [an]. The main problem is unlimited liability [k] which means they could lose personal possessions if unable to pay business debts [an]. However, partnership is a better choice than starting up as a sole trader. While there is still unlimited liability, it is possible to share some of the risk with others if you can work together, then extra skills can help reduce potential problems [eval] which could increase the chances of success [eval].