Business Studies 0450/23 October/November 2022: question paper and mark scheme

Mark scheme

1(a) Explain four factors Duncan should consider when choosing which 8 method of communication to use with DD’s employees. Award 1 mark for each relevant factor (maximum of 4 marks). Award a maximum of 1 additional mark for each explanation in context. Relevant answers might include: • How many employees need to be informed – as DD has 120 employees so a method such as a noticeboard would be suitable • Is feedback needed – if so then the manager of the dairy could use telephone calls to discuss points with them • How much information needs to be included in the message – if it is a lot of information about the possible new distribution channel then a written form of communication should be used • If there is need for a written record – could use email as he already uses this with employees • Speed of communication – if an employee producing cream needs to be told quickly then face-to-face may be chosen • Cost of the communication methods chosen – as there are many different departments in the dairy such as cheese and ice cream production then the noticeboard may be the best to use For example: If feedback is needed (1) then the manager of the dairy could use telephone calls to discuss points with the employees (app). Application could include: dairy; dairy products; cheese; high quality imported ingredients; 120 employees; noticeboard; currently uses email; farm; milk; butter; cream; ice cream; currently uses noticeboard or email to inform employees of daily tasks; only supplies local shops; fruit flavoured ice cream; employees are unhappy about their wages; employees left to work for a competitor; figures from Appendix 3. 1(b) Consider two ways DD can increase added value. Which is the best 12 way for DD to choose? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of both ways. Well-justified recommendation. Candidates discussing both ways in detail, in context and with a well-justified recommendation including why the alternative was rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of at least one way. Judgement with some justification / some evaluation of choice made. Candidates discussing at least one way in detail and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and 1–4 understanding of relevant business concepts. Limited ability to discuss the ways with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both ways in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: Increase added • Improve the quality even more – of the ice value by cream – then customers will be willing to pay increasing price a higher price – but it depends on the prices charged by competitors for their dairy products (Note: the two – may lose sales ways can come • Introduce a brand image – advertise the dairy from this section – makes the products more well-known and if explanation is hence DD may be able to raise prices as different) customers like to buy branded products • Provide extra services such as gift wrap the cheese to give as a gift – customers will be willing to pay a higher price if the product is made to appear more attractive in its packaging Increase added • Buy cheaper ingredients by changing supplier value by / buying in bulk to gain a discount / negotiating reducing input cheaper price – but customers may find the costs dairy products are of lower quality – unhappy customers may give DD a bad reputation – (Note: the two lower sales ways can come • Source cheaper ingredients from home from this section country instead of importing ingredients – if explanation is input costs reduce – increase added value – different) but quality may be lower – lose sales Recommendation Justification might include: • Increasing prices by improving the quality of the products is the best way to increase added value because DD has a reputation for good quality dairy products and customers are likely to be willing to pay the higher price. This is safer than potentially getting a bad reputation for poor quality products if alternative cheaper inputs are purchased. • Reducing input costs by purchasing cheaper ingredients is the best way to increase added value because customers may not notice this as long as the quality of the inputs such as imported fruits is not of a lower quality and therefore does not reduce the quality of the ice cream. This is safer than increasing prices and potentially losing customers to competitors.

Mark scheme

2(a) Explain four roles of marketing for a business. 8 Award 1 mark for each role (maximum of 4 marks). Award a maximum of 1 additional mark for each explanation. Relevant roles might include: • Identifies customer needs – finds out exactly what goods or services consumers want before producing them • Satisfies customer needs – so that the goods or services provided by the business will be sold at a profit • Maintains customer loyalty – makes sure the business continues to meet any changing customer needs to ensure they keep coming back to buy from the business • Builds customer relationships – over the long-term to keep a good relationship with customers to understand them and to understand any changes in their needs For example: Identifies customer needs (1) so the business can find out exactly what goods or services consumers want before producing them (1). 2(b) Consider the advantages and disadvantages of the following three 12 channels of distribution DD could use for its products. Which channel should DD choose? Justify your answer. • Setting up a shop at the dairy • Selling to a number of large supermarkets • Selling to a wholesaler Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of two or more channels. Well-justified recommendation. Candidates discussing all three channels in detail, in context and with a well-justified recommendation including why the alternative channels were rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of at least one channel. Judgement with some justification / some evaluation of choice made. Candidates discussing two or more channels in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and 1–4 understanding of relevant business concepts. Limited ability to discuss the channels with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining all three channels 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 Setting up a shop • Simple to set up and • Consumers may not at the dairy operate as dairy live nearby and may products sold not be willing to directly from the regularly travel 30 dairy miles from Main • Farm produce is city for fresh fresh as there are no produce intermediaries • If customers are only between the farm from the local area, and the customer – then this will restrict good reputation for sales – possibly high quality lower revenue • Prices may be lower • Increased costs of as no profit margins setting up a retail for intermediaries to outlet at the dairy to be added to the price sell the products of milk, butter, and cream Sell to a number • Dairy can sell large • No direct contact of large quantities of cream with consumers – so supermarkets and other dairy may not know what products – lower consumers think administration costs about the specialist • Likely to have an new cheese increased number of • Retailer adds a customers – over a mark-up to milk and wider area – possibly cream so prices are increasing revenue higher – may be less from ice cream competitive as there sales are many different brands available for consumers to choose between at supermarkets – possibly fewer sales Sell to a • Lower distribution • Supermarkets buy in wholesaler costs for the dairy – bulk so they might usually buys in large expect to purchase quantities from dairy at a discount – – then sells to many lowering the DD’s small retailers in profit margin small quantities 2(b) Advantages Disadvantages • Can offer storage for • Wholesaler will add a the products – mark-up, so prices reduce warehouse are likely to be costs for DD higher than if • Small retailers more products are likely to buy DD purchased directly products as they are from the dairy fresh and therefore • Wholesaler may not need to be purchase the full purchased range of products regularly and in such as cream and small quantities milk – so DD still needs to find alternative outlets for the full range of the products • Takes longer for the fresh dairy products to reach consumers – product quality may be reduced 2(b) Recommendation Justification might include: • Selling directly to customers is the best channel to use because this will allow the dairy to sell at lower prices than if it sold its products through supermarkets or wholesalers. It will also allow DD to possibly make more profit on its dairy products if it keeps all the mark-ups. Supermarkets stock many different brands, and it might be more difficult to get DD’s products noticed and then chosen. A wholesaler will delay the products getting to customers and therefore the quality may be lower leading to poor sales. • Selling to a number of large supermarkets is the best channel to use because the supermarkets will buy its products, such as cheese and ice cream, in large quantities which may reduce DD’s distribution costs and increase sales due to the large number of customers who use large supermarkets. • Using a wholesaler is the best channel to use because then DD’s products will be distributed to many small retailers and its dairy products can be sold over a larger geographical area, possibly leading to higher sales and increased revenue for DD.

Mark scheme

3(a) Explain two possible reasons why DD might hold low levels of 8 inventory. Award 1 mark for each reason (maximum of 2 marks). Award a maximum of 3 additional marks for each explanation of the reason for holding low levels of inventory – one of which must be applied to this context. Answers might include: • Dairy products are perishable – cannot easily be stored – or they may be of lower quality – and customers will be dissatisfied and give DD a bad reputation • The products are sold quickly – as DD sells food products such as milk and butter – it is expensive for DD as these products need to be refrigerated – adds to costs for DD if high levels of inventory are kept • Consumers use milk and butter regularly – so it is bought regularly from retailers – therefore milk and butter are delivered to customers quickly – so DD does not need to hold large levels of inventory of milk or butter • Reduces the need for working capital / improves cash flow – capital not tied up in inventory • Reduced space required for finished products – lowers storage costs For example: Dairy products are perishable (app) and so cannot easily be stored (1) or they may be of lower quality if stored too long (1). Not storing these products means customers are satisfied and will not give DD a bad reputation (1). Application could include: dairy; dairy products; cheese; high quality imported ingredients; 120 employees; noticeboard; currently uses email; farm; milk; butter; cream; ice cream; currently uses noticeboard or email to inform employees of daily tasks; only supplies local shops; fruit flavoured ice cream; employees are unhappy about their wages; employees left to work for a competitor; figures from Appendix 3; new refrigerators, fruit. 3(b) Consider the following three methods DD could use to motivate its 12 employees. Which is the best method to use? Justify your answer. • Give employees a 50% discount on all DD products • Introduce profit sharing • Introduce job rotation Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of two or more methods. Well-justified recommendation. Candidates discussing the three methods, in context and with a well-justified recommendation including why the alternative methods were rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of at least one method. Judgement with some justification / some evaluation of choice made. Candidates discussing two or more methods in detail and applying these to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and 1–4 understanding of relevant business concepts. Limited ability to discuss the methods with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the three methods in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: Give employees a • Half price essential food products – 50% discount on equivalent to an increase in wages – leaves all DD products more money available to spend on other things for the family • Discounts may be of limited value if employees only buy small quantities of dairy products – the rest of their food spending will cost a lot more • May not cost DD much because 50% discount will not cost DD 50% of the price, as selling price includes a profit for DD, but would still motivate employees Introduce profit • Employees now receive an additional payment sharing to their wages. A share of the profits may increase motivation which may lead to increased productivity in the dairy, and this may lead to lower costs per unit and possibly higher profit • However, existing shareholders of this private limited company may lose some control if profit sharing is from the issue of shares to employees • Employees may see no link between their day-to-day effort and their contribution to profit which is shared at the end of the year • Other factors may affect profit which employees may have no influence over • May lead to reduced dividends per share or less retained profit for the private limited company Introduce job • Makes the work more interesting / less boring rotation • Change tasks around from one product to another in the dairy – and may need different skills to complete this work – may prefer to work with different employees each day • However, may increase training requirements as each worker may only perform one task – increases costs for DD • Quality of products such as ice cream may be lower if employees are less specialised in different tasks • May mean sometimes a worker does a task that is not liked – may reduce motivation • May only be motivating in the short term until the worker gets used to the new tasks – the production tasks may still be boring 3(b) Recommendation Justification might include: • Introducing discounts on DD’s dairy products is the best method to choose as this will make employees feel as though they have had a wage increase at little additional cost to DD. This is likely to be cheaper than training employees for job rotation or sharing profits which may disappoint Duncan and his family when dividends are reduced. • Giving a share of the profits to DD’s employees is the best method to choose because if employees are more motivated then productivity and profit from the dairy is likely to increase which may mean Duncan and his family may not receive less profit overall. • Introducing job rotation between products such as cheese or ice cream is the best method to choose because it will not cost DD any money if no training is required. It will give variety to the employees’ jobs and will encourage them to stay at DD instead of leaving to work for a competitor.

Mark scheme

4(a) Explain two ways a reduction in interest rates might affect DD. 8 Award 1 mark for each way (maximum of 4 marks). Award a maximum of 3 additional marks for each explanation of an effect of a reduction in interest rates – one of which must be applied to this context. Ways might include: • Decrease the interest costs of a new bank loan – Duncan may be more likely to invest in the dairy – may buy new refrigerators – lower interest rates reduce the total cost of investment for the dairy / may benefit from lower interest rates on existing long-term bank loan of $5000 • Reduces the cost of an overdraft – reduces interest payment for expenses – as the dairy has an overdraft of $1000 – lower costs are likely to lead to higher profit • May lead to higher economic growth and lower unemployment – higher incomes for consumers – increased demand for dairy products • May increase demand for dairy products which increases revenue for DD – available income consumers could spend increases – if they had a mortgage to repay – as lower repayments due to lower interest rates For example: Decrease the cost of the overdraft (1) as DD has an overdraft of $1000 in 2021 (app). This will lead to a decrease in DD’s expenses for interest payments (1), which means lower total costs possibly leading to higher profit (1). Application could include: dairy; dairy products; cheese; high quality imported ingredients; 120 employees; noticeboard; currently uses email; farm; milk; butter; cream; ice cream; currently uses noticeboard or email to inform employees of daily tasks; only supplies local shops; fruit flavoured ice cream; employees are unhappy about their wages; employees left to work for a competitor; figures from Appendix 3; new refrigerators, overdraft of $1000. 4(b) Using Appendix 3 and other information, consider the financial 12 position of DD and its main competitor. Which company is in a better financial position? Justify your answer using suitable calculations. Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of whether DD is in a better financial position than its competitor. Well-justified conclusion. Candidates discussing in detail which business is in a better financial position, in context and with a well-justified conclusion including why the other business a better financial position should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of whether DD or its competitor is in a good financial position. Judgement with some justification / some evaluation of choice made. Candidates discussing in detail whether DD and its competitor are in a good financial position and applying this to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and 1–4 understanding of relevant business concepts. Limited ability to discuss the financial position of DD or its competitor with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the financial position of DD and its competitor in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: Level 1 • Trade receivables are higher by $20 000 – as statements more customers are allowed credit by DD • Cash is held by its competitor but not by DD as it has an overdraft of $1000 • Amount of trade payables is lower by $41 000 • DD has taken out a bank loan for $5000 which is $45 000 lower than the competitor • DD has current assets of $80 000 • DD’s competitor has current assets of $80 000 • DD has current liabilities of $40 000 • DD’s competitor has current liabilities of $80 000 Level 2 • The current ratio of DD’s competitor is 1 and statements DD’s is 2 • The acid test ratio of DD’s competitor is 0.75 and DD’s is 1.95 • The current ratio of DD is reasonable at 2 and indicates that DD has twice as many current assets to pay current liabilities • The current ratio and acid test ratio of competitor are low and shows that it is only just liquid Conclusion • DD is in a better financial position because both liquidity ratios are better with the current ratio of 2 and acid test ratio of 1.95, indicating DD has better liquidity and is easily able to pay the current liabilities of $40 000. DD is at much less risk of insolvency than its competitor. It has less debt than its competitor. • DD’s competitor is in a better financial position because it has twice the revenue of DD showing it is successful and has high sales. It can also cover its current liabilities of $80 000 with a current ratio of 1 and its acid test ratio is acceptable at 0.75, especially as the inventory is sold quickly.