Business Studies 0450/12 May/June 2023: question paper and mark scheme

Mark scheme

1(a) Identify two reasons why a business might offer training to its 2 Only award the first two responses given. employees. Award 1 mark per reason (max 2). Points might include: • To introduce a new process/new equipment • Improve efficiency/productivity • Increase output • Reduce mistakes/fewer errors/better quality goods or services • Improve employee skills • Increase knowledge • Improve motivation • Help reduce labour turnover • Decrease the chance of accidents • Familiarise new employees with business/other employees Other appropriate responses should also be credited. 1(b) Calculate the following values using Fig. 1.1: 2 Award 1 mark for each correct answer. Break-even output: 500 (watches) [1] Break-even revenue: $60 000 OR 60 000 [1] 1(c) Outline two possible effects on FBW’s break-even chart if the prices of 4 To use words from the stem as application, its products are increased. the reference must be appropriate (i.e. make sense) in relation to the point being Award 1 mark for each relevant effect (max 2). 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: Watches Reduce/lower break-even output [k] below 500 units [app] 5 (employees) Increase the margin of safety [k] above 100 [app] Training (every year) Increase contribution per unit [k] when using job production [app] Job production Increase revenue [k] from sale of its watches [app] 600 units (sold) Reduce break-even revenue [k] 500 (break-even output) Increase profit margin [k] 100 (margin of safety) Increase (potential) profit/reduce (potential) loss [k] $4000 (profit at 600 units) $60 000 (break even revenue) Other appropriate responses should also be credited. Other appropriate examples can be credited. 1(d) Explain two benefits to FBW of having full-time employees. 6 To use words from the stem as application, the reference must be appropriate (i.e. make Award 1 mark for identification of each relevant benefit (max 2). 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 appropriate for this question: Award 1 mark for each relevant explanation (max 2). Watches 5 (employees) Points might include: (Regular) training Workers likely to be more loyal/committed [k] so lower labour Job production turnover/lower cost of recruitment [an] for its 5 employees [app] 600 units sold Easy to communicate/update [k] when making its watches [app] so could 500 (break-even output) be more efficient [an] Consistent standard of work [k] leading to better reputation [an] which is Other appropriate examples can be helpful as using job production [app] credited. Fewer workers needed [k] so less training required [an] Less employees to manage [k] so managers can focus on other issues [an] Employees become more familiar with the business [k] Always available/can find when needed [k] Other appropriate responses should also be credited. 1(e) Do you think job production is the best method of production for a 6 This is a general question so there are no small business to use? Justify your answer. marks for application. Award up to 2 marks for identification of relevant points. Some points could be written as an advantage or a disadvantage of each method but only Award up to 2 marks for relevant development of points. award once. Award up to 2 marks for a justified decision as to whether job production is Some points can be [k] or [an] but do not the best method of production for a small business to use. award the same point twice. Points might include: Do not award: Job production: Comparisons between batch and flow e.g. Meet exact customer requirements [k] which increases customer batch production not greatly affected by loyalty/sales [an] machine breakdown, batch is flexible/can Unique/high-quality products [k] can charge higher price [an] change production easily as not appropriate Products made to order/can take a long time to make [k] so low output for this question. [an] No economies of scale [k] leading to higher average cost [an] Skilled labour is needed [k] increases labour/training costs [an] Requires a lot of employees/labour intensive [k] Batch production [k]: Some economies of scale [an] Able to produce more [an] so unit costs lower [an] Can produce range/variety of products [an] Demotivated employees [an] increasing labour turnover [an] Machines must be reset between batches [an] Added cost of moving/storing semi-finished goods [an] Warehouse space is needed [an]/increases storage costs [an] Other appropriate responses should also be credited. 1(e) Justification might include: Job production allows a business to produce goods that meet exact customer demands [k] so able to charge a higher price [an]. However, skilled labour can cost more [k] which can lead to high labour costs [an]. Overall, I think job production is not the best method for a business, especially if it is small as the number of sales may not cover the additional cost of the labour [eval] so the business is unable to make a profit. [eval]

Mark scheme

2(a) Identify two ways a business plan can help a business to reduce risk. 2 Only award the first two answers given. Award 1 mark per way (max 2). Points might include: Help secure funding/attract investors Can show whether/when extra finance needed/help budgeting Help set goals/objectives/provide sense of direction Help monitor/check/track progress Test feasibility of idea/identify demand Help set (suitable) prices Understand level/type of competition Help identify skills/employees needed Help allocate resources (appropriately) Other appropriate responses should also be credited. 2(b) Identify two possible reasons why a business might want to expand. 2 Only award the first two answers given. Award 1 mark per reason (max 2). Points might include: Increase sales/revenue Increase profit Widen customer base/target new markets Increase market share Increase reputation/more prestige/status Increase output Spread risk/diversify Gain economies of scale Other appropriate responses should also be credited. 2(c) Outline one advantage and one disadvantage to Gloria of using 4 To use words from the stem as application, telephone calls as a method of communication with her employees. the reference 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 on this question: Award 1 mark for each relevant reference to this business (max 2). (House) cleaning 4 employees Points might include: Sole trader Can help share her workload Advantages: Instant/quick to contact [k] her 4 employees [app] Other appropriate examples can be Opportunity to get immediate feedback [k] about cleaning jobs [app] credited. Can talk to employees who are anywhere/elsewhere [k] Can leave a message/voice note [k] Disadvantages: Technical problems e.g. no internet/signal [k] so will not help reduce her workload [app] No hard copy/nothing to refer to [k] Receiver may not answer the phone/might be busy when call [k] Not face to face/no body language [k] May only be able to speak to one person at a time [k] Cannot show data/chart over a phone [k] Cost [k] Other appropriate responses should also be credited. 2(d) Explain two factors Gloria should consider when deciding whether to 6 To use words from the stem as application, take on a business partner. the reference must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for identification of each relevant factor (max 2). The following words are likely to be Award 1 mark for each relevant reference to this business (max 2). appropriate for this question: (House) cleaning Award 1 mark for each relevant explanation (max 2). Expand/repair service 4 employees Points might include: Effective communication is important Have to share responsibilities/management/control [k] of the cleaning Reduce her workload business [app] which could lead to conflict [an] Sole trader Offer skills (or examples of) [k] which could lead to business Market research opportunities [an] such as the repair service [app] May offer experience/expertise/knowledge [k] increasing efficiency [an] Other appropriate examples can be to help reduce the workload [app] credited. Access to finance/capital [k] so can grow faster/upgrade equipment [an] making it easier to expand [app] Takes time to make decisions is [k] or [an] Different objectives/ways of working [k] which could lead to slower but do not award the same point twice. decision-making/conflict [an] Whether want to share decision-making/take longer to make decisions Reduce workload can be [k], [app] or [an] [k] but may lead to better decisions [an] but only award once. Someone to share risk/losses/costs [k] Whether wants/have to share any profit [k] compared to staying as a Conflict/argument is [an] only. sole trader [app] Other appropriate responses should also be credited. 2(e) Explain two methods of primary market research a business could use 6 This is a general question so there are no to find out the demand for a new product or service. Which would be marks for application. the best method to use? Justify your answer. Some points could be written as either Award up to 2 marks for identification of relevant points. advantages or disadvantages of different methods but only award once. Award up to 2 marks for relevant development of points. Some points can be awarded as [k] or [an] Award up to 2 marks for a justified decision as to which is the best method of but only award once. primary market research for a small business to use to find out the demand for a new product or service. (Postal) questionnaire/survey [k] – apply to either method: Customer opinions/preferences/suggestions can be gathered [an] Large amounts of information can be collected [an] Detailed information can be gathered [an] Allows many people to be asked (the same questions) [an] Questions may be poorly worded/difficult to phrase questions properly/people interpret questions in a different way [an] People may not tell the truth/say what they think sounds good [an] Customers may not complete/return the questionnaires [an] May have to pay someone with the right skills to design the questionnaire properly [an] which increases the cost [an] Online survey [k] – additional specific points Data can be quickly presented/analysed using IT tools [an] Fast/quicker response time (than other forms of survey) [an] Cheaper than interviews/postal questionnaire/focus group etc. [an] No representative needed to carry it out [an] (Postal) questionnaire/survey [k] – additional specific points Carrying out questionnaire takes time/money [an] Analysing results takes time [an] 2(e) Interview [k] Allows for detailed information to be gathered [an] Can explain questions [an] Interviewer bias possible (if interviewer is not properly trained) [an] Expensive [an] Time consuming to carry out [an] Focus group [k] Highly detailed responses [an] Chance to ask follow-up questions [an] Some group members can influence what others say [an] leading to unreliable results [an] Can only ask a few people [an] Expensive [an] Time consuming [an] Observation [k]: • Seeing what people do can be more accurate than what they say [an] • More expensive (than other methods) [an] • Test marketing/product trials [k]: • Cost of any mistake is limited to a small output [an] • Takes longer for final product to reach main market [an] Other appropriate responses should also be credited. Justification might include: One method is a questionnaire [k] which allows many people to be asked the same questions [an]. Another option is a focus group [k]. This might be better because it could provide highly detailed responses [an]. Although fewer people can be asked, the ability to ask follow-up questions is important especially when offering a new product [eval] so the extra detail could allow the business to make more informed decisions increasing the chances of success [eval].

Mark scheme

3(a) Define ‘import tariff’. 2 First mark for understanding it is a tax. Idea of from another/into the country is +1 Award 2 marks for a full definition. Award 1 mark for a partial definition. only. A tax placed on imported goods when they arrive into a country [2] OR A specific form of tax imposed on imported goods [2] Partial definition e.g. type of tax [1] OR tax on imported goods [1] Other appropriate responses should also be credited. 3(b) Identify two reasons why some markets can become more competitive. 2 Only award the first two answers given. Award 1 mark per reason (max 2). Do not award: Factors affecting demand/spending patterns Points might include: e.g. changes in population, spending on Globalisation/free trade advertising, lower prices/actions of Internet/ecommerce/social media/developments in technology competitors Improvements in transport/infrastructure New legal controls/provide grants/removal of tariffs/quotas Increase in competitors Other appropriate responses should also be credited. 3(c) State the four stages of the business cycle. 2 Award the first four responses only. Award 1 mark per stage (max 4). The order does not matter. Recession (Economic) growth Boom Slump/depression 3(d) Explain one possible effect of the following changes on VVA when 6 To use words from the stem as application, importing raw materials: the 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 Award 1 mark for each relevant reference to this business [max 2]. appropriate for this question: School backpacks/bags Award 1 mark for each relevant explanation [max 2]. 45% (raw materials) / 55% locally Retailers Points might include: Increased level of competition Introduction of import quotas in country X: Other appropriate examples can be credited. Limit/reduce the amount of imports [k] as import 45% of these [app] which could reduce output/may have to find more (local) suppliers [an] Do not award: Tariff as [app]. May mean have to find local/alternative suppliers/may not be able to find suitable suppliers [k] leading to increase time/cost [an] Fewer imports possible [k] leading to fewer (potential) sales [an] Lower production [k] Appreciation of country X's exchange rate: Imports become cheaper [k] reducing VVA’s costs [an] of its school bags [app] Imports become cheaper [k] so may be able to lower prices [an] Lower import price [k] so could increase its profit margin [an] Imports become cheaper [k] so can import more [an] Can import more (materials) [k] so can increase output [an] Other appropriate responses should also be credited. 3(e) Do you think retailers are the best channel of distribution for a 6 This is a general question so there are no manufacturing business to use? Justify your answer. marks for application. Award up to 2 marks for identification of relevant points. Points must focus on viewpoint of manufacturing business. Award up to 2 marks for relevant development of points. Some points can be presented as Award up to 2 marks for a justified decision as to whether using retailers is advantages/disadvantages of different the best channel of distribution for a manufacturing business to use. channels but only award point once. Points might include: Some points can be written as [k] or [an] but only award once. Retailers: Wide distribution/access to customers/sell in different places [k] increase sales/revenue [an] Retailers will carry out/pay for advertising/promotional activities [k] raise awareness/increase sales [an] Can sell in large quantities/higher sales [k] Manufacturer can hold less inventory [k] lower storage costs [an] Price may be higher [k] leading to fewer sales [an] No direct contact with customers [k] so difficult to build/maintain customer relationship [an] Loss of (some) control of marketing mix/promotion/price/product [k] Retailer takes some of the profit [k] which reduces profit margin [an] Manufacturer must pay delivery costs to the retailers [k] Other options could include: Sell direct to customers/direct selling/online/internet/ecommerce open own shops [k] All/more profit goes to manufacturer [an] Can sell at a lower price [an] leading to more sales [an] Can control all/more of the marketing [an] Allows for direct customer contact/feedback/market research [an] Increased delivery costs/customers over a wide area/[an] May need to employ extra workers (to manage paperwork/pack) [an] 3(e) Use wholesalers [k] Wholesalers will buy in bulk/large amounts [an] Saves storage space for manufacturer [an] Loss of control over marketing mix [an] Takes part of the profit [an] Agents (when selling in other countries) [k] Have local market knowledge [an] Other appropriate responses should also be credited. Justification might include: Retailers offer a wide distribution [k] which can help increase potential sales [an]. Selling direct to customers [k] would mean the business could keep all the profit [an]. I think selling to retailers is better as the high sales will increase the total revenue [eval] which will offset the lower profit margin. [eval]

Mark scheme

4(a) Define ‘retained profit’. 2 Award 2 marks for a full definition. Award 1 mark for a partial definition. Profit (left, or) reinvested back into the business, (after all payments have been made) [2] OR Profit (remaining after all expenses, tax and dividends have been paid), which is ploughed back into the business [2] Partial definition e.g. profit /money to reinvest [1] OR profit left after dividends / shareholders paid [1] Other appropriate responses should be credited. 4(b) Define ‘current assets’. 2 Award 2 marks for a full definition. Award 1 mark for a partial definition. Items owned by/belong to business and used within one year [2] OR Resources that the business owns and expects to convert into cash before the date of the next statement of financial position [2] Partial definition e.g. items in the business for less than one year/12 months/within a financial year [1] OR assets owned Other appropriate responses should be credited. 4(c) Outline two possible reasons why working capital is important for CPF. 4 To use words from the stem as application, the reference must be appropriate (i.e. make Award 1 mark for each relevant reason (max 2). 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 appropriate for this question: Points might include: (4) shops/retailer/stores To pay day-to-day expenses/(short term) debts or examples such as pay 30 (employees) wages [k] for its 30 employees [app] Clothes To pay for unexpected expenses/emergencies [k] especially as the Private limited company business is looking to expand [app] Plans to expand To ensure the business has a good credit reputation [k] for the 4 shops Retained profit is low [app] Ensures the business can take advantage of special offers/discounts on Other appropriate examples can be credited. bulk purchases [k] of its clothes [app] To cope with seasonal demand [k] Other appropriate responses should also be credited. 4(d) Explain one way each of the following stakeholder groups might be 6 To use words from the stem as application, affected by CPF’s plans to expand its business. the reference must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for identification of each relevant way (max 2). The following words are likely to be Award 1 mark for each relevant reference to this business (max 2). appropriate for this question: (4/new) shops/retailer/stores Award 1 mark for each relevant explanation (max 2). 30 (employees) Clothes Points might include: Private limited company Low retained profit Employees: Opportunities for promotion [k] for the 30 employees [app] so may be Other appropriate examples can be credited. able to benefit from higher wages [an] Work extra hours [k] at the new shop [app] so gain extra payments/which Some points can be [k] or [an] but only may lead to mistakes [an] award once. Greater variety/different tasks/work to do [k] making the work more interesting/less boring for them [an] More job security [k] increasing motivation [an] Employees may have to move location [k] so long time to get to work/travel costs increase [an] Suppliers: Additional orders/sales/produce more [k] of clothing [app] leading to additional revenue [an] Security/certainty of regular orders [k] so able to plan effectively [an] May struggle to meet extra demand [k] May have to distribute goods to a new area [k] increasing transport costs [an] Other appropriate responses should also be credited. 4(e) Do you think it is better for a private limited company to use debt (e.g. 6 This is a general question so there are no a loan) or equity (issuing more shares) as a source of long-term marks for application. finance? Justify your answer. Some points could be written as either Award up to 2 marks for identification of relevant points. advantages or disadvantages of different sources but only award once. Award up to 2 marks for relevant development of points. Some points can be written as [k] or [an] but Award up to 2 marks for a justified decision as to whether it is better for a only award a point once. limited company to use debt (e.g. a loan) or equity (issue shares) as a source of long-term finance. Points might include: Debt: May be difficult to raise additional finance [k] if banks/suppliers concerned about its ability to repay existing loans [an] No change of ownership [k] so lenders have no say in decisions [an] Can receive all the money at once/at the same time [k] Must pay interest [k] which increases costs/cash flow problems [an] Need to repay [k] Need security [k] which can lose if unable to repay debt [an] Equity/issue shares: No interest/finance costs to pay [k] so no extra cash outflows [an] Permanent source of capital/no need to repay [k] Can only sell to friends and family/small number of shareholders [k] which can limit the amount of capital raised [an] Dividends expected/paid to shareholders [k] so less retained profit [an] Give up some ownership [k] Other appropriate responses should also be credited. 4(e) Justification might include: Using debt may be difficult to raise additional finance [k] if banks are concerned about its ability to repay existing loans [an]. Selling shares means no interest [k] so no extra cash outflows [an]. Equity is better because if the business has financial difficulties debt is still expected to be repaid [eval] which increases the risk of the business failure. [eval]