Business Studies 0450/13 October/November 2019: question paper and mark scheme

Mark scheme

1(a) What is meant by ‘limited liability’? 2 For both marks must understand that limited liability is a benefit for shareholders Clear understanding [2]: Liability of shareholders in a company is only limited to the amount they invested OR shareholders in a limited liability company which fails only risk losing the amount they have invested in the company and not any of their personal wealth Some understanding [1]: Cannot lose personal assets or only lose amount invested 1(b) Identify two ways S&V can increase added value. 2 Examiners note: only award the first two responses given Award one mark for each way identified. Accept following examples as stated in Points might include: textbook: • increase prices (for herbs and spices) • branding / improve brand image • reduce material / input costs (of ingredients) • excellent quality service • add additional product features • convenience Do not award higher quality ingredients as this will increase rather than decrease costs 1(c) Identify and explain two possible barriers to communication between 4 Application marks may be awarded for S&V and its suppliers. appropriate use of the following: • high quality Knowledge [2 × 1] – award 1 mark for each relevant barrier • spices OR herbs, • restaurants OR shops, Application [2 × 1] – award 1 mark for each explanation in context • imported OR other countries, • partnership Points might include: • not arriving on time OR the wrong items • inappropriate medium used [k] as chosen method may not be used in are sent, some countries so not arrive on time [app] • short notice, • no opportunity for feedback [k] about availability of herbs [app] • up-to-date information, • language problems/jargon [k]may use wrong names when ordering • in season, spices [app] • added value • Suppliers do not have enough time / machines to check for messages [k] so not able to respond at short notice [app] Do not accept answers such as ‘message • Technical issues, e.g. no internet connection [k] without electricity not understood’ OR message not clear’ OR cannot send emails [app] ‘not read correctly’ as this is too vague. To • Message too long [k] award, candidates must identify a reason • Wrong message sent [k] why this is the case • Overload of information [k] 1(d) Identify and explain one effect on S&V of each of the following 6 Application marks may be awarded for changes: appropriate use of the following: Knowledge [2 × 1] – award 1 mark for each effect identified • high quality Application [2 × 1] – award 1 mark for each relevant reference made to this • spices OR herbs, business • restaurants OR shops, Analysis [2 × 1] – award 1 mark for each relevant explanation • partnership • supplies not arriving on time or the Points might include: wrong items are sent, 10% increase in import tariffs: • communication barriers, • Will increase cost (of imported items) [k] such as herbs [app] reducing • up-to-date information, its profit margin [an] • in season, • May need to increase prices charged [k] to restaurants [app] which • email could lead to a fall in sales / revenue [an] • added value • May start buying more of its supplies locally [k] limiting the effect of the increase [an] and can help with its communication barriers [app] Do not award reference to 10% or food quality or imported as application as words Legal controls over food quality: used in the question • May change which items they stock [k] depending on the season [app] which could reduce the range of products available [an] • Increase costs (to comply with laws) [k] which could lower its profit margin [an] so there is less added value [app] • May have to change suppliers [k] • No effect [k] as already sell high quality items [app] 1(e) Do you think using e-mail is the best way for S&V to inform 6 Application marks may be awarded for customers about its products? Justify your answer. appropriate use of the following: • high quality, Knowledge [1] – award max 1 mark for identification of relevant point(s) • spices OR herbs, • restaurants OR shops, Application [1] – award 1 mark for a relevant reference made to this • partnership business • supplies are not arriving on time or the wrong items are sent, Analysis [2] – award up to 2 marks for relevant development of point(s) • up-to-date information, • in season, Evaluation [2] – justified decision made as to whether email is the best way for S&V to inform customers about its products Candidates can discuss other methods of external communication. However to access Points might include: the evaluation marks answer must focus on • Can send to multiple people at same time [k] which is important as whether email is the best way for the customers demand up-to-date information [app] business to communicate with its customers • Low cost method of communication [k] which is important for a business with unlimited liability [app] • Can include a lot of information [k] about its herbs [app] • S&V may not have all customers email details [k] leading to missed sales opportunities [an] • Customers may not have time to read emails [k] so may not be aware of updates [an] Other methods can be discussed including: Text [k], letter [k], website[k], phone [k], face-to-face meeting [k], social media[k]

Mark scheme

2(a) What is meant by ‘sustainable development’? 2 Clear understanding [2], e.g. development / activity which does not put at risk the living standards of future generations OR ability to meet needs of present population without compromising ability of future generations to meet their own needs OR Business activity that has a positive overall impact on the environment and its stakeholders ensuring its survival for the future Some understanding [1] e.g. able to maintain output for ages OR no impact on surroundings or production which does not damage (or pollute) the environment 2(b) What is meant by ‘business cycle’? 2 Do not accept answers such as trade cycle as this is an alternative name for the term Clear understanding [2]: The variation in national output over a period of time Do not award answers which refer to product life cycle or individual businesses Some understanding: e.g. shows GDP OR pattern of boom, recession and slumps in an economy [1] 2(c) Identify and explain one advantage and one disadvantage to HBN of 4 Application marks may be awarded for using job enrichment as one way to motivate its employees. appropriate use of the following: • steel rods, Knowledge [2 × 1] – award 1 mark for an advantage / disadvantage • construction, • flow production, Application [2 × 1] – award 1 mark for each explanation in context • high quality, • demand increase, Points might include: • looking to increase output, • correct use of information in Table 1, Advantages: • 40 employees • Business able to make most use of employees skills [k] when making • Factory steel rods [app] • Better skilled workforce / better reputation [k] help ensure high quality Do not award may demotivate / motivate as [app] this is in the question Disadvantages: Note: Response should focus on the • High cost of training [k] its 40 employees [app] advantage/ disadvantage to the business • Lower productivity / lower output (as not all employees able or want to not the employee do more complex work) [k] • Conflict with some employees (as may not be possible to offer opportunities to all) [k] especially as use flow production [app] 2(d) Identify and explain two ways in which HBN could maintain high 6 Application marks may be awarded for quality. appropriate use of the following: • steel rods, Knowledge [2 × 1] – award 1 mark for each way • construction, • flow production, Application [2 × 1] – award 1 mark for each relevant reference made to this • demand increase, business • sustainable development, • looking to increase output, Analysis [2 × 1] – award 1 mark for each relevant explanation • correct use of information in Table 1, • 40 employees Points might include: • job enrichment • Use quality control [k] so ensure that all finished products are up to • factory standard [an] • Quality assurance [k] so errors are prevented before they happen or Do not award increased automation as [k] spotted earlier in the process [an] so finished product is suitable to be as business already uses flow production used in construction [app] • Buy better quality materials [k] to make the steel rods [app] • Training employees [k] so that all 40 employees [app] make less mistakes / more efficient [an] • Hire skilled workers [k] • Increase motivation OR examples, e.g. use job rotation (allow only once) [k] 2(e) Which option for increasing output do you think HBN should choose? 6 Application marks may be awarded for Justify your answer using the information in Table 1. appropriate use of the following: • steel rods, Knowledge [1] – award max 1 mark for identification of relevant point(s) • construction, • flow production, Application [1] – award 1 mark for a relevant reference made to this • high quality, business • demand increase, • sustainable development, Analysis [2] – award up to 2 marks for relevant development of point(s) • correct use of information in Table 1, • 40 employees Evaluation [2] – justified decision made as to which option for increasing • factory output HBN should choose • job enrichment Points might include: Other relevant calculations include: • Option 1 costs less money (than Option 2) [k] by $750 000 [app+an] • Higher additional output from Option 2 [k] by 16 000 tonnes [app +an] • Cost per extra unit for option 1 £75; • HBN may not have sufficient funds to buy another business [k] • option 2 £57.69 or £58 • May depend on expected demand [k] as may not need to produce • Option 2 is £17 per extra unit cheaper more than 10 000 tonnes each month [app] • When is additional output required [k] as will take 6 months to extend factory [app] so may lose potential sales during this time [an] • Level of control required [k] as other business has a different leadership style [app] this could lead to disagreements [an] Practical issues such as • Impact on existing operations if expand on current site, e.g. is there space to expand [k] the factory [app] • Impact on current employees, e.g. could demotivate workers [k] if they cannot still be offered job enrichment [app] leading to more mistakes/ lower output [an] which is the opposite effect to what they want to achieve

Mark scheme

3(a) What is meant by ‘customer loyalty’? 2 Clear understanding [2]: Likelihood of existing customers to continue to buy from a business 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 Some understanding [1]: E.g. keep customers OR choose your business rather than competitors (even if cheaper) 3(b) Identify two advantages to RGO of being a large business. 2 Award 1 mark per advantage Points might include: • Benefit from economies of scale OR lower unit costs, • Less risk of being taken over • (Perceived) better reputation OR status • May be able to dominate market • Specialisation of roles possible 3(c) Identify and explain two possible problems to RGO of reducing 4 Application marks may be awarded for prices. appropriate use of the following: • large airline OR flights OR other airline Knowledge [2 × 1] – award 1 mark for each problem identified related words • 120 countries, Application [2 × 1] – award 1 mark for each explanation in context • holiday, • 80% OR tickets OR website, Points might include: • competitive market, • Reduce profit margin [k] of each flight [app] • maintaining customer loyalty (is • Could reduce revenue (if demand is not price elastic) [k] as sell fewer important) tickets [app] • market share increased • Create bad image OR seen as too cheap OR low quality [k] so • latest OR up-to-date (planes) customers choose other businesses for their holidays [app] • May not be able to reduce costs [k] • Less added value [k] 3(d) Identify and explain two ways (other than lower prices) that RGO 6 Application marks may be awarded for could use to increase its market share. appropriate use of the following: • large airline OR flights OR other airline Knowledge [2 × 1] – award 1 mark for identification of each way related words • 120 countries Application [2 × 1] – award 1 mark for each relevant reference made to this • holiday, business • 80% of tickets OR website, • competitive market, Analysis [2 × 1] – award 1 mark for each relevant explanation • maintaining customer loyalty is important, Points might include: • 8% to 10%, • takeover rival business [k] as this is a competitive market [app] so able • latest OR up-to-date (planes) to gain customer base of the other business [an] • offer new routes [k] in addition to 120 countries [app] so able to attract Accept promotional methods e.g. customers to use their services rather than competitors [an] competitions, BOGOF, advertising [allow • spot new trends or market gaps quicker than rivals [k] only once] [k] • enter new markets [k] • offer better customer service (to maintain customer loyalty) [k] • get existing customers to buy more [k] • sell through new channels [k] such as travel agents [app] 3(e) Explain two ways in which RGO could reduce its costs. Recommend 6 Application marks may be awarded for which way RGO should choose. Justify your answer. appropriate use of the following: • large airline OR flights OR other airline Knowledge [1] – award max 1 mark for identification of relevant way(s) related words • 120 countries Application [1] – award 1 mark for a relevant reference made to this • holiday, business • 80% of tickets OR website, • competitive market, Analysis [2] – award up to 2 marks for relevant development of point(s) • maintaining customer loyalty (is important), Evaluation [2] – justified decision made as to which is the best way for • increase market share RGO to lower its costs • lower prices, • latest OR up-to-date (planes) Relevant points might include: • Employ fewer people [k] so less wages to pay [an] • Cut number of locations [k] from 120 countries [app] so do not have as many planes [an] • Less advertising [k] but this could lead to less awareness of its business [an] • Use cheaper, more remote airports [k] to cut landing fees charged [app] but could lead to fewer customers as may be difficult to get to the actual location they want to go to [an]

Mark scheme

4(a) What is meant by ‘non-current liabilities’? 2 Do not award examples Clear understanding [2]: Debts of a business which will be payable after more than 1 year OR items owed by the business for more than one year Some understanding [1]: E.g. long-term debts or money owed 4(b) Calculate PBG’s current ratio for 2019. 2 Award only 1 mark if 1.3 is written as part of the answer, but is not given as the final Clear application [2]: 1.3 or 1.3:1 answer Some application [1]: 390 /300 OR identifies correct formula = current assets / current liabilities 4(c) Identify and explain one way each of the following stakeholder 4 Application marks may be awarded for groups might use PBG’s financial accounts. appropriate use of the following: • cars or manufacturer Knowledge [2 × 1] – award 1 mark for each way identified • new legal controls, • electric (cars), Application [2 × 1] – award 1 mark for each explanation in context • find new markets, • develop new models, Points might include: • joint venture, Creditors: • correct use of data from Table 2, • Check able to repay its debts/ current liabilities [k] of $256 m / $300 m • worries about liquidity, [app] • Help decide credit terms [k] • Help decide whether to lend money [k] Shareholders: • Know level of profit (to see possible dividend) [k] • Help make investment decisions [k] such as the possible joint venture [app] • Want to know if business performance has improved [k] when selling cars [ap] 4(d) Identify and explain one advantage and one disadvantage to PBG of 6 Application marks may be awarded for forming a joint venture. appropriate use of the following: • cars or manufacturer, Knowledge [2 × 1] – award 1 mark for an advantage / disadvantage • new legal controls, • electric (cars), Application [2 × 1] – award 1 mark for each relevant reference made to this • find new markets, business • develop new models, Analysis [2 × 1] – award 1 mark for each relevant explanation • correct use of data from Table 2, • concerns about liquidity Points might include: Advantages: • Access to new markets [k] increasing brand awareness [an] of its cars [app] • Access to local knowledge/ expertise [k] so help them select correct new market [app] to increase its market share [an] • Wider range of contacts / better access to resources [k] so might be able to obtain cheaper materials / lower costs [an] • share costs / Increased capital [k] which is important as have concerns about liquidity [app] • Increased capacity [k] as want to develop new models [app] so able to meet potential demand [an] • Way to avoid government restrictions [k] such as new legal controls [app] • Risks are shared [k] 4(d) Identify and explain one advantage and one disadvantage to PBG of forming a joint venture. [continued] Disadvantages: • Different management styles or objectives / culture [k] could lead to conflict or problems with decision making [an] • Skills and expertise of partners differ [k] so might have to spend more time or money than other company [an] • Any mistakes might damage reputation [k] lowering revenue [an] • Have to share any profit with joint venture partner [k] • Disagreements over important decisions might occur [k] 4(e) Do you think the Managing Director is right to be worried about 6 Application marks may be awarded for PBG’s liquidity position? Justify your answer by referring to appropriate use of the following: appropriate ratios. • cars or manufacturer Knowledge [1] – award max 1 mark for identification of relevant points (s) • new legal controls, • electric (cars), Application [1] – award 1 mark for relevant reference made to this business • find new markets, • develop new models, Analysis [2] – award up to 2 marks for relevant development of point(s) • joint venture, • correct use of data from table 2 Evaluation [2] – justified decision made as to whether the Managing Director is right to be worried about PBG’s liquidity position Relevant calculations that can access analysis marks are: Points might include: Current ratio in 2018: 1.25 • Current ratio has improved [k] from 1.25 [app +an] showing that Current ratio improved by 0.05 in 2019 business is able to repay its current liabilities from its current assets [an] • Acid test has fallen [k] by 0.1 [app +an] so less able to pay its short- term creditors without using stock [an] • Need to compare against liquidity ratios for industry [k] • Need to know the reason why inventories have increased [k] as if the cars [app] are unsuitable for sale the business will become insolvent [an] • Value of current assets increased [k] by $70 m [app] • Value of current liabilities increased [k]