Business Studies 0450/22 October/November 2022: question paper and mark scheme

Mark scheme

1(a) Explain two reasons why the owners of CC might want to expand the 8 business. Award 1 mark for each relevant reason (max 2). Award a maximum of 3 additional marks for each explanation of why the owners of CC might want to expand the business – one of which must be applied to this context. Relevant answers might include: • To possibly gain higher profits for the owners – as expansion will lead to increased sales in new markets – leading to increased revenue – CC shareholders may want higher dividends paid / increase in share price • To lower average/unit costs – gain from economies of scale – such as bulk buying of cocoa beans – a discount could be received for bulk purchases • To gain a larger share of the market – increase in the proportion of total sales in the market may increase revenue – as the home market is saturated so limited potential for growth in this home market • To gain more status and prestige for the owners – may be listed on stock exchanges in other countries • To spread risk / diversify markets For example: To possibly gain higher profits for the owners (1) because expansion is likely to increase revenue, (1) as CC will sell its products in more markets (1). The higher profits should allow the shareholders of CC to be paid higher dividends (app). Application could include: chocolate bars; shareholders of CC; low wage costs in country Z; CC plan to take over NM in country Z; 500 NM employees; 4000 CC employees; public limited company; imports most of its raw materials; cocoa beans; no trade restrictions in its export markets; takeover will cost $35 million. 1(b) Consider the opportunities and threats of globalisation for CC. Which 12 is likely to have the greatest effect on CC? Justify your answer. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both opportunities and threats. 3 9–12 Well-justified conclusion. Candidates discussing both opportunities and threats in detail, in context and with a well-justified conclusion including why the alternative was rejected should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of opportunities or threats. 2 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing opportunities and threats in detail and applying them to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the opportunities and threats with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the opportunities and threats in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: • Start selling exports of products to other countries – increases the number of markets operating in – increases revenue • May become cheaper to produce chocolates than in country X – as it may start operating in other Opportunities countries that may have lower costs – e.g. lower wage costs in country Z • Easier to import products such as cocoa beans into the home country – no trade restrictions may lead to lower unit costs in country X too • Increasing imports of chocolates into the home market from multinational companies – increases competition – sales from abroad may reduce market share at home • Increased investment from multinational companies in the home market – setting up factories making chocolate for the home market – may also lead to increased competition at home Threats • Employees may leave to go and work for the multinational companies setting up in the home market – increased wages and more opportunities may be attractive – higher labour turnover for CC – increased costs of recruitment and training for CC • Lack of knowledge of new markets, competition and local tastes – may make it more difficult to successfully export into global markets • There are more opportunities for CC from globalisation as it may benefit from lower unit costs for its chocolates if it produces in country Z, making it more competitive than many other businesses both in the home country and in foreign markets. Therefore, the opportunities to expand and increase revenue are greater than the threats of increased competition. Conclusion • As CC is relatively new to becoming a multinational company it may find it difficult to compete with other multinational businesses located in country X / importing chocolate into country X. Hence the threats from multinational businesses may be greater than the opportunities to sell chocolates in other countries for CC, possibly leading to lower market share for CC in the home market.

Mark scheme

2(a) Explain four roles of packaging for CC’s products. 8 Award 1 mark for each role (max 4). Award a maximum of 1 additional mark for each explanation in context. Relevant answers might include: • Protects the product – as chocolate bars could be broken • Makes it easier to transport the product in vehicles – from the factory to the small retailers • Promotes the brand image of the product – such as the market leader called Choco • Makes the product eye-catching – so it will stand out from competing chocolate bar brands such as Nuttybar • Information about the product can be written on the packaging – such as that it may contain nuts as some people are allergic to nuts • Makes it easy to open and consume the product – young children will be able to hold the bar whilst eating it in the packaging and not getting too messy • Is suitable for the product to fit in – when moving the products around the chocolate factory For example: Protects the product from getting damaged (1) or the chocolate bar could be broken into several pieces leading to customer dissatisfaction (app). Application could include: chocolate bars; CC plan to take over NM; public limited company; imports most of its raw materials; cocoa beans; no trade restrictions in its export markets; aimed at young children; allergies; adult customers; perishable food; expiry date; ingredients; calories. 2(b) Using Appendix 1 and other information, consider the advantages and 12 disadvantages of the two CC brands. Which brand should CC stop producing? Justify your answer. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both options. 3 9–12 Well-justified recommendation. Candidates discussing both options in detail, in context and with a well-justified recommendation including why the alternative option was rejected should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one option. 2 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing both options in detail and applying them to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the options with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both options in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: Advantages Disadvantages • Is in the growth • May still be making stage of the product a loss if the life cycle – sales development costs have been growing have not yet been steadily in its first fully recouped year • A lot of competition • May have a lot of from existing potential to grow in multinationals may the future as the test make it hard to marketing was establish another positive brand in this market • New product segment development leads • New target market to diversification and for CC so less spreads risk if sales experienced in this of other products market decline • Increased • CC is already a competition may well-known lead to prices company in country needing to be Option 1 Tiabar X and this may reduced a little to make it easier to retain customers introduce and grow • Persuasive a new brand aimed advertising used to at a different target develop brand market loyalty which • May be starting to increases costs make a profit after • Just targeting development costs children means a have been smaller target recovered market compared to • Potential for sales to Choco grow further and for this to be a successful brand for CC – perhaps for several years to come – replacing brands that have been withdrawn 2(b) Advantages Disadvantages • The market leader • Is at the and sales are at maturity/saturation their highest stage of the • Likely to be product life cycle – profitable since is a so sales are likely to well-established decline in the near brand and market future without leader. Profit is extension strategies likely to support the • May have to lower development of new prices to retain high products sales • Has the highest • Next move is to the market share and decline stage and been a very sales fall off quickly Option 2 Choco successful brand for – falling prices and several years profits • Although • Competitive pricing competition may be may lead to lower high there are no total revenue – lower new competitors profits entering this market • High promotional expenditure not required since it is a well-established brand • Could introduce extension strategies to revitalise sales • It is better to stop producing Tiabar and keep Choco because this is the market leader, and it has many brand loyal customers. The sales are higher than Tiabar and it brings in more revenue and profit for CC. If sales start to fall slightly then extension strategies can be introduced to keep Recommendation the sales high. • It is better to stop producing Choco and keep Tiabar as it is a new brand for CC and has steadily growing sales. This is a new market which has potentially higher sales in the future. Whereas Choco, although successful, may have limited opportunity for growth in the future.

Mark scheme

3(a) Explain two diseconomies of scale CC might experience as it expands. 8 Award 1 mark for each diseconomy of scale (max 2). Award a maximum of 3 additional marks for each explanation of the diseconomy of scale – one of which must be applied to this context. Diseconomies might include: • Poor communication – more layers of hierarchy for messages to be transmitted after the takeover of NM – more likely to be distorted • Lack of commitment from employees – larger businesses may make employees feel unimportant as there are so many employees in the organisation / lower or poor morale – increased absenteeism or higher labour turnover – increased average costs • Weak coordination – decisions may be taken by some managers in country X that do not fit well with other department decisions elsewhere in the business – leading to a lack of efficiency • Lack of control – because a larger business may not have a close working relationship with all employees – so some employees may not be motivated to work hard producing chocolates – has higher unit costs from employing and training more supervisors For example: There may be poor morale amongst the employees (1) because a larger business may make employees feel unimportant as there are so many employees in the organisation (1). Many of the 4500 employees may lack commitment after the takeover (app) leading to lower efficiency and higher unit costs (1). Application could include: chocolate bars; shareholders of CC; low wage costs in country Z; CC plan to take over NM in country Z; 500 NM employees; 4000 CC employees; public limited company; imports most of its raw materials; cocoa beans; no trade restrictions in its export markets; takeover will cost $35 million. 3(b) Consider the information about the two managers outlined in 12 Appendix 2. Who should be chosen as the Operations Manager for the NM factory? Justify your answer. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both employees. 3 9–12 Well-justified recommendation. Candidates discussing both employees, in context and with a well-justified recommendation including why the alternative employee was not chosen should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one employee. 2 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing both employees in detail and applying these to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the employees with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both employees in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: Benefits Drawbacks • Many years of • Lowest qualified experience working of the two applicants for CC – worked for • Not familiar with the 20 years – 10 of market in country Z which were as the • Not familiar with the Operations Manager brands produced by – very familiar with NM and these are CC production different to those of methods CC • Easier for the • Only had on-the-job production methods training and this used by CC to be may be less transferred to NM as effective than the necessary, as he external training for has a wide range of Ritesh Samuel experience and • May not be happy to training at CC – may move to country Z be more efficient as as lives in country profit margin higher X for CC than NM • Familiar with all CC brands and the processes to make them • Established links with CC’s existing suppliers of cocoa beans – useful for future orders and consistent quality of chocolates made 3(b) Benefits Drawbacks • The best qualified of • Not worked for NM the 2 managers very long and already works in therefore not very country Z so may be experienced in the worth keeping as he way NM operates will understand the • Not familiar with CC new market and the brands or the way of company being working at CC – taken over production process • Experience of retail may be different at outlets in country Z CC and this may be • May not be happy to useful to CC when work for CC and will distributing its own not have worked brands in country Z with managers at • Experience of CC – may be less working for a efficient competitor in • May be resistant to country Z may be changes CC may able to offer an introduce after the Ritesh insight into the takeover competitor which may help CC be more competitive in country Z • Already has links with suppliers for the chocolate ingredients in country Z which may be useful for CC when first establishing itself there • Is already familiar with the employees at NM which could be useful for motivating them when they are being taken over 3(b) • Samuel should become the Operations Manager at NM because he is experienced in the way CC wants the factory to be run and the working practices it uses. He is very experienced and has worked for CC for 20 years. Ritesh is not familiar with the working practices at CC, and this might lead to errors and therefore lower efficiency. Recommendation • Ritesh should be kept as Operations Manager because he has far more knowledge and experience of NM and its brands. He understands the market for chocolates in country Z and also has established links with suppliers of ingredients. This would be missing if Samuel tried to run the operations department in NM, resulting in lower efficiency.

Mark scheme

4(a) Explain four benefits to employees of being members of a trade union. 8 Award 1 mark for each effect (max 4). Award a maximum of 1 additional mark for each explanation. There are no application marks for this question. Relevant effects might include: • Possibly improved pay – trade union negotiations make wage demands for a pay rise more likely to be successful • Improved working conditions – as trade union can put forward a case to the employer if conditions are not good • Employee views are represented in grievances with managers – more likely to be listened to as strength in numbers • Provides advice to members – such as if they feel they have been dismissed unfairly / unfairly treated, employees will know if they have a case against the business • The communication between employers and employees is better – as there is a channel through which issues/points from employees can be raised • Provides services to members – such as insurance or social facilities at reduced rates • Improved job satisfaction – by encouraging training • Improved job security – especially if it is a closed shop • Influence government policy e.g. pressure to increase legal minimum wage For example: A trade union will give advice to employees (1) such as if they feel they have been unfairly treated then the trade union can represent them in meetings with employers (1). 4(b) Using Appendix 3 and other information, consider how the financial 12 statements might be useful to the following three stakeholder groups. Which stakeholder group will find the financial information most useful? Justify your answer. • NM’s shareholders • CC’s managers • CC’s bank manager Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of how two or more stakeholder groups could use the financial information. 3 Well-justified conclusion. 9–12 Candidates discussing in detail how all three stakeholder groups might use the financial information, in context and with well-justified conclusion including why the other stakeholder groups may find the financial information less useful should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of how at least one stakeholder group might use of the financial information. 2 Judgement with some justification / some evaluation 5–8 of choice made. Candidates discussing in detail how two or more stakeholder groups might use the financial information and applying them to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss how the stakeholder groups might use the financial information with little/no explanation. 1 Simple judgement with limited justification / limited 1–4 evaluation of choice made. Candidates outlining how the three stakeholder groups might use of the financial information in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: • CC’s profit is $42m which is higher than NM’s profit of $3.5m – may result in higher dividends paid if the takeover goes ahead – more likely to accept shares in CC • ROCE is also higher by 10% for CC – which may lead to better returns for shareholders if NM is taken over NM’s • NM’s liquidity is lower than CC’s as its current shareholders ratio is only 1 and this means current assets only just cover current liabilities – acid test is less than 1 which is a concern – may be better to support the takeover as CC has much better liquidity • CC is much bigger by $170m than NM in terms of shareholders’ equity – more stable and safer company to own shares in • CC is more efficient as they have a better control of their costs as profit margin is 25% and is higher by 10% – managers at CC may be able to help NM by using CC’s working practices at NM and to improve its efficiency • Inventory is high and acid test is low at 0.33 for CC’s NM - CC’s managers may improve NM’s profit by managers keeping lower levels of inventory and lowering warehousing costs • NM already based in country Z and so will be familiar with the market there – help CC to enter this new market and use NM’s distribution channels for CC’s brands leading to higher revenue for CC • CC already has a loan of $10m and needs $35m to takeover NM – this is still small relative to the amount of shareholders’ equity of $200m CC’s bank • Needs to know if CC can repay the bank loan – CC manager has profit of $42m and NM has profit of $3.5m - NM is a profitable company to take over – making it likely the loan to CC will be repaid, and the bank will be confident in granting the loan 4(b) • NM’s shareholders will find the information most useful because they need to assess how they might benefit from the takeover. CC’s managers will use other information about the efficiency of NM or its sales figures before making decisions about NM. The bank manager is only interested in the ability of the business to repay a loan. Conclusion • CC’s managers will find the information most useful because they will be able to assess if CC is more efficient than NM and if so, they will need to make NM more efficient after the takeover. • CC’s bank manager will find the information most useful because they need to assess whether to offer a loan for the takeover and judge if the loan is likely to be repaid.