Business Studies 0450/11 May/June 2024: question paper and mark scheme

Mark scheme

1(a) Define ‘diseconomies of scale’. 2 For two marks candidates must have the idea that ‘business grows’ and it ‘increases average/unit costs’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Do not award examples as this does not define the term. Factors that lead to an increase in average costs as a business grows beyond a certain size [2] OR Factors that cause average costs to increase as the scale of operations increases [2] OR The disadvantages of a business growing (too large) that result in an increase in costs per unit [2] Partial definition e.g. when costs increase because business grows [1] OR increase in average unit cost [1] 1(b) Identify two ways a business can use cost data to help 2 Only award the first two responses given. make decisions. Allow ‘carry out break-even analysis’. Award 1 mark for each relevant way (max 2). Points might include: Setting prices Decide whether to stop/continue production/change production Decide on the best location Decide if finance is required/set budgets Decide which costs need to be reduced/whether to change suppliers Setting objectives Other appropriate responses should be credited. 1(c) Identify four fixed costs a business might have. 4 Only award the first four responses given. Award 1 mark per fixed cost (max 4). Do not award: wages/direct labour costs or power. Points might include: Allow heating/lighting/electricity/water/utilities once. Rent/rates/storage costs Insurance Advertising Salaries Interest (on loans)/finance payments Cleaning/maintenance Other appropriate responses should be credited. 1(d) Explain one advantage and one disadvantage to FBM of 6 To use words from the stem as application, the reference holding a high level of inventory. must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for identification of each relevant reason (max 2). The following words are likely to be appropriate for this Award 1 mark for each relevant reference to this business question: (max 2). Boat (building) or related words Award 1 mark for each relevant explanation (max 2). 100 employees Skilled (workers) Points might include: Diseconomies of scale Advantages: $5000 (variable cost) Maintain production [k] so able to meet orders on time $600 000 (fixed costs) [an] of boats [app] 300 (boats) Benefit from (purchasing) economies of scale [k] leading Total cost 2 100 000 to lower average/unit cost [an] Able to respond quickly to unexpected order [k] Other appropriate examples can be credited. increasing customer loyalty [an] The same analysis can be used for different points but only Disadvantages: award once. Space needed to store products [k] increasing (storage) costs [an] so costs increase above $600 000 [app] Cash/money tied up in inventory [k] leading to cash flow/liquidity problems [an] Risk of damage/waste[k] Opportunity cost [k] Insurance [k] Other appropriate responses should be credited. 1(e) Do you think customers have a more important role in 6 This is a general question so there are no marks for the success of a business than its employees? Justify application. your answer. For evaluation to be awarded justification will usually follow Award up to 2 marks for identification of relevant points. on from relevant analysis of points. Award up to 2 marks for relevant development of points. Award up to 2 marks for a justified decision as to whether customers have a more important role in the success of a business than its employees. Points might include: Customers: Buy the products [k] and if ignores their needs the business will lose revenue/won’t survive [an] Can share opinions to help improve products [k] which can help increase market share [an] Provide recommendations/word of mouth advertising [k] Employees: Make the products [k] otherwise there is nothing to sell [an] Employees can affect quality [k] which could damage/improve its reputation [an] Employees provide customer service [k] which is important for brand image [an] Without sufficient employees the business may not be able to meet demand [k] Workers can be replaced by machines [k] Other appropriate responses should be credited. 1(e) Justification might include: Customers are important, they buy the products [k] which generates revenue [an]. Employees make the goods [k] without them, there is nothing to sell [an]. However, customers are more important as without revenue, the business cannot cover its costs and survive in long term [eval]. A business can use automation reducing the importance of employees [eval].

Mark scheme

2(a) Define ‘span of control’. 2 Award 2 marks for a full definition. Award 1 mark for a partial definition. (Number of) subordinates working directly under a manager [2] OR (Number of) subordinates reporting to each supervisor/manager [2] OR (Number of) subordinates someone has within their authority/under their control [2] Partial definition e.g. (number of) staff that a manager is responsible for [1] OR subordinates who work under a manager [1] 2(b) Define ‘autocratic leadership style’. 2 For two marks the candidates need to show awareness that the decision making is by a leader or manager not a director Award 2 marks for a full definition. Award 1 mark for a partial or person in the company. definition. Leader/manager makes all the decisions [2] OR Where the manager expects to be in charge of the business and to have their orders followed [2] Partial definitions e.g. employees are simply told what to do [1] OR employees have no say in decisions [1] 2(c) Outline two benefits to ADN of having full-time 4 To use words from the stem as application, the reference employees. must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for each relevant benefit (max 2). Award 1 mark for each relevant reference to this business The following words are likely to be appropriate for this (max 2). question: Food or related words Points might include: 5 (locations) Shops/retailer Consistent service [k] at the 5 shops [app] 300 employees Workers likely to be loyal/less likely to leave [k] the food Tall hierarchical organisational structure retailer [app] Narrow span of control Easy to communicate with/update [k] the 300 employees Autocratic leadership style [app] Planning to expand/internal growth/external growth Need to recruit/train fewer employees [k] Other appropriate examples can be credited. Other appropriate responses should be credited. 2(d) Explain one benefit and one limitation to ADN of using 6 To use words from the stem as application, the reference off-the-job training. must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for identification of each relevant benefit/limitation (max 2). The following words are likely to be appropriate for this Award 1 mark for each relevant reference to this business question: (max 2). Food or related words Award 1 mark for each relevant explanation (max 2). 5 (locations) Shops/retailer Points might include: 300 employees Benefits: Full-time Learn the latest/new methods [k] for use in the 5 shops Narrow span of control [app] so business can remain competitive [an] Autocratic leadership style Broad range of skills can be taught [k] to the full-time Planning to expand / internal growth / external growth employees [app] so they can be become more efficient [an] Other appropriate examples can be credited. Can learn from experts/specialists [k] which may be helpful as trying to expand [app] Can focus 100% on training [k] therefore make less mistakes [an] Mistakes when learning don’t affect the business [k] which can protect the reputation [an] of the food retailer [app] Workers do not learn bad habits [k] so mistakes are avoided [an] It does not disrupt work of other employees [k] Increased motivation of employees [k] 2(d) Limitations: High cost/expensive [k] as have 300 employees [app] which increases expenses [an] Loss of working time [k] leading to less work done/fewer sales [an] Not necessarily tailored to individual business [k] Additional qualifications mean it is easier for the employee to leave/find another job [k] increasing time/cost of recruitment [an] Other appropriate responses should be credited. 2(e) Do you think it is better for a business to use internal 6 This is a general question so there are no marks for growth or external growth when planning to expand? application. Justify your answer. Advantages of one method can be presented as Award up to 2 marks for identification of relevant points. disadvantages of the other method but do not award the Award up to 2 marks for relevant development of points. same point twice as mirror answers are not accepted. Award up to 2 marks for a justified decision as to whether it is better for a business to use internal growth or external Do not award general advantages and disadvantages of growth when planning to expand. growth such as economies of scale as applies to both methods. Points might include: Internal growth: For evaluation to be awarded justification will usually follow Easier to control/manage growth [k] which can help on from relevant analysis of points. avoid diseconomies of scale [an] Lower investment may be needed [k] so less need to borrow (as much) [an] Slow method [k] so business may become uncompetitive/may miss business opportunities [an] Less risk [k] External growth: Quick method [k] so able to take advantage of new market opportunities [an] which can increase revenue [an] Removing a competitor [k] increases market share/power [an] may be able to set/influence prices [an] Large amounts of finance may be required [k] which increases finance costs [an] Other appropriate responses should be credited. 2(e) Justification might include: One advantage of internal growth is it is easier to control the rate of growth [k] which can help avoid diseconomies of scale [an]. However, external growth can be faster [k] so the business can take advantage of opportunities [an]. Overall external growth is better as by taking over a competitor market share can be increased [eval] increasing market power [eval].

Mark scheme

3(a) Define ‘mass market’. 2 For two marks candidates must have the idea of a ‘Large number of sales’ and it is for ‘one product’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Where there are a large number of sales of a product [2] OR A large market containing lots of customers buying similar products [2] Partial definition e.g. lots of sales/customers [1] OR lots of buyers [1] OR market for goods that are produced in large quantities [1] 3(b) Calculate IDT’s working capital in 2023. 2 Award only 1 mark if $140 million is written as part of the answer but is not given as the final answer. Award 2 marks for correct answer. Award 1 mark for correct method but incorrect answer. Award max 1 where candidate calculates working capital for 2022 using the correct method i.e. $130 million [1]. Correct answer: $140 million [2] For 2 marks the answer must have the right units Correct method e.g. 420 – 280 [1] i.e. million/m in answer. OR Current assets – current liabilities [1] If correct answer given with no working shown award two marks. 3(c) Outline one reason why IDT might need the following 4 To use words from the stem as application, the reference types of finance: must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for each relevant reason (max 2). Award 1 mark for each relevant reference to this business The following words are likely to be appropriate for this (max 2). question: Multinational company Points might include: Clothes or related words such as shirts, trousers Short-term finance: Manufacturer To pay day-to-day costs/working capital [k] when making Mass market clothes [app] Factory Improve cash flow position/liquidity [k] of the 4 countries multinational company [app] $140 million (working capital) Meet any unexpected emergencies/opportunities [k] $280 million (current liabilities) $400 million (non-current liabilities) Long-term finance: Fund expansion/growth [k] such as the new factory Other appropriate examples can be credited. [app] Purchase non-current assets [k] in one of the 4 countries [app] Develop new products [k] Other appropriate responses should be credited. 3(d) Explain two ways an increase in non-current liabilities 6 To use words from the stem as application, the reference might affect IDT. 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). Award 1 mark for each relevant reference to this business The following words are likely to be appropriate for this (max 2). question: Award 1 mark for each relevant explanation (max 2). Multinational company Clothes or related words such as shirts, trousers Points might include: Manufacturer Must pay interest [k] on the $400 m [app] which Mass market increases expenses/cash outflows [an] Factory Difficult to raise additional finance/more collateral 4 different countries required [k] as lenders may worry whether the business Working capital / $140 million will be able to repay [an] despite being a multinational $400 million (non-current liabilities) company [app] $280 million (current liabilities) More difficult to repay loans/more debt to pay back [k] $420 million (current assets) increases financial risk [an] for this clothing retailer [app] Other appropriate examples can be credited. Other appropriate responses should be credited. 3(e) Explain two advantages to a business of being a 6 This is a general question so there are no marks for multinational company. Which advantage do you think is application. likely to be the most important? Justify your answer. 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 which is likely to be the most important advantage to a business of being a multinational company. Points might include: Increase sales/new customers/access new markets [k] increasing revenue [an] Improve brand image/reputation [k] to help increase/maintain customer loyalty [an] Spreading risk [k] as not reliant on one market for all its sales/fall in sales in one country can be offset by increase in another [an] Economies of scale [k] leading to lower average/unit costs [an] Easier access to/cheaper raw materials [k] reducing transport costs [an] Lower cost of labour (in some countries) [k] improving profit margin [an] Avoid import quotas/tariffs [k] Lower/favourable tax rates/government grants/subsidies [k] Other appropriate responses should be credited. 3(e) Justification might include: An advantage is access to new markets [k] increasing revenue [an]. Also easier access to raw materials [k] may reduce transport costs [an]. Access to raw materials is more important because lower costs may lead to lower prices helping the business be more competitive [eval] and improve their market share [eval].

Mark scheme

4(a) Define ‘social enterprise’. 2 Award 2 marks for a full definition. Award 1 mark for a partial definition. An organisation that has social objectives as well as an aim to make a profit to reinvest back into the business [2] OR A business with social objectives that reinvests most of its profits back into the business/into benefiting society at large [2] OR A business that seeks to raise income, which it invests in a specific social or environmental issue [2] OR A business set up to help society/a community rather than make a profit [2] Partial definition e.g. a business that aims to help/benefit society [1] 4(b) Identify two ways legal controls over marketing might 2 Only award the first two responses given. affect a business. Award 1 mark per way (max 2). Points might include: No misleading promotion/advertising No price fixing/charging very high prices where there is little or no competition No selling faulty/dangerous goods/certain ingredients Ensure products are fit for purpose Price reductions must be genuine Increased costs to meet the legal controls/pay fines Spend longer time ensuring they meet the legal controls May need to alter packaging Restrictions on advertising certain products to some age groups/places. Other appropriate responses should also be credited. 4(c) Outline one advantage and one disadvantage to CFG of 4 To use words from the stem as application, the reference using skimming as its pricing method. must be appropriate (i.e. make sense) in relation to the point being made. Award 1 mark for each relevant advantage/disadvantage (max 2). The following words are likely to be appropriate for this Award 1 mark for each relevant reference to this business question: (max 2). Social enterprise Cocoa beans Points might include: Local farmers Advantages: Chocolate (bar) Helps establish a high-quality image/customers may Retailers think it is a good quality [k] which may also help as want Ethical to be ethical [app] (Developed) a new product Can quickly recover research/development costs [k] which Legal controls over marketing is important as developed a new product [app] Higher revenue per item [k] for its chocolate [app] Other appropriate responses can be credited. May have a lower break-even output [k] Disadvantages: High price might discourage (potential) customers [k] for this social enterprise [app] High prices/profitability could encourage competitors to enter market [k] so may not be able to support local farmers [app] Other appropriate responses should be credited. 4(d) Explain one advantage and one disadvantage to CFG of 6 To use words from the stem as application, the reference using retailers as its distribution channel for the new must be appropriate (i.e. make sense) in relation to the point product. being made. Award 1 mark for identification of each relevant The following words are likely to be appropriate for this advantage/disadvantage (max 2). question: Award 1 mark for each relevant reference to this business Social enterprise (max 2). Cocoa beans Award 1 mark for each relevant explanation (max 2). (Make) bars of chocolate Ethical Points might include: (Local) farmers Advantages: Legal controls over marketing Producers can sell in large quantities to retailers [k] increasing revenue [an] from its new product [app] Other appropriate responses can be credited. Reduced costs (compared to selling direct to consumers) [k] increasing profit margin [an] in this social enterprise [app] Retailer shares the cost of holding inventory [k] lowering expenses [an] Retailers will promote the product [k] reducing the cost of promotion/increasing sales [an] Access wider range of customers [k] Disadvantages: No direct contact with consumer [k] about its chocolate bar [app] so may not adapt to changing needs [an] Final price (paid by consumer) is often high [k] so may be uncompetitive [an] Retailer takes some of profit away from the producer [k] Producer loses some control of marketing mix [k] Retailers usually sell competitors’ products as well [k] Other appropriate responses should also be credited. 4(e) Do you think being ethical will always lead to lower 6 This is a general question so there are no marks for profit for a business? Justify your answer. application. Award up to 2 marks for identification of relevant points. Increase cost can be awarded as [k] once where candidates Award up to 2 marks for relevant development of points. do not refer to specific examples of costs. Award up to 2 marks for justified decision as to whether being ethical will always lead to lower profit for a business. Do not credit answers which relate to the costs of being unethical as this is NAQ. Points might include: Limited/fewer sources of materials [k] leading to less output [an] Higher cost of materials [k] leading to higher variable costs/cost of goods [an] which lowers gross profit margin [an] Workers may have to be paid more/fair pay [k] increasing labour costs [an] May take time to source ethical supplies [k] which could delay production [an] Good image/reputation [k] so can charge high(er) prices/ lead to customer loyalty [an] High(er) demand / increase sales / enter new market / more customers [k] which could increase revenue [an] Help recruit/motivate/retain workers [k] leading to lower absenteeism/increased productivity [an] Investors more likely to invest [k] Can help create better supplier relations (by paying a fair price) [k] Less opposition from pressure groups [k] 4(e) Justification might include: Being ethical could mean having to pay more to suppliers [k] increasing variable costs [an]. However, this could improve the business’s reputation [k] allowing them to increase prices [an]. Being ethical will not always mean lower profit because a better reputation is likely to attract more customers [eval], and the extra revenue gained could cover the costs increasing profit overall [eval].