Business Studies 0450/11 October/November 2023: question paper and mark scheme

Mark scheme

1(a) Define ‘unincorporated business’. 2 Max 1 for features of an unincorporated business e.g. business ends if an owner leaves. Award 2 marks for a full definition. Award 1 mark for a partial definition. A business that does not have a separate legal identity [2] Partial definition e.g. owner is/are responsible for business debts/unlimited liability [1] 1(b) Identify two objectives a new business might have. 2 Only award the first two responses given. Award 1 mark per objective (max 2). Points might include: • Survival • Break-even • Make a profit • Become known in the market/create good reputation • Generate sales/gain customers • Encourage customer loyalty • Offer good customer service • Create added value • Social responsibility/ethical • Growth/expansion/increase market share Other appropriate responses should also be credited. 1(c) Identify four characteristics of a successful entrepreneur. 4 Only award the first four responses given. Award 1 mark for each relevant characteristic (max 4). Points might include: • Risk-taker • Problem solver • Decisive • Creative • Innovative • Hard-working • Perseverance/determined/focused/(self-)motivated • Resourceful/adaptable • Optimistic • Self-confident/esteem • Independent • Effective communicator • Organised • Multi-skilled • Results driven/ambitious • Leadership • Team player • Good at networking/prepared to learn from others Other appropriate examples should be credited. 1(d) Explain two reasons (other than lack of finance) why Desmond’s 6 To use words from the stem as application, the new business might be at greater risk of failure than an established reference must be appropriate (i.e. make sense) business. 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 question: Award 1 mark for each relevant reference to this business (max 2). • Gardening or examples such as cutting grass/planting flowers Award 1 mark for each relevant explanation (max 2). • Service • Entrepreneur Points might include: • $750 • Inadequate/no market research [k] about gardening [app] so may not • Office job offer what customers want [an] • Unincorporated business • Providing wrong/poor quality [k] service [app] • Business objectives • Lack of experience/poor decision-making/skills [k] as only worked in an office [app] so more likely to make mistakes [an] Other appropriate examples can be credited. • Difficult to compete with competitors/lack of customers/insufficient sales [k] for this unincorporated business [app] leading to less revenue Some answers could be awarded as either [k] or [an] [an] but do not award the same point twice. • Poor planning/no business plan [k] despite setting objectives [app] so does not have time/opportunity to resolve problems [an] • No reputation/brand image/poor marketing [k] therefore potential customers do not trust him [an]. Other appropriate responses should also be credited. 1(e) Do you think owner’s savings are the most suitable source of 6 This is a general question so there are no marks finance for a start-up business? Justify your answer. for application. Award up to 2 marks for identification of relevant points. For evaluation to be awarded justification will usually follow on from relevant analysis of Award up to 2 marks for relevant development of points. points. Award up to 2 marks for a justified decision as to whether owner's Advantages of one source can be presented as savings are the most suitable source of finance for a start-up business to disadvantages of another but do not award the use. same point twice as mirror answers are not accepted. Points might include: Do not award 'issue shares' or 'profit' as these are Owner's savings: not appropriate for a start-up business. • No need to repay/no debt [k] helping to reduce/keep cash outflows low/less risk [an] • No interest payable [k] therefore not increasing cost [an] • May not have enough/any savings [k] delaying/stop their plans [an] • Immediately available [k] Crowdfunding [k] • No initial fees payable (to the crowdfunding platform) [an] • Allows public‘s reaction to the new business venture to be tested [an] • Crowdfunding platform might reject the entrepreneur’s proposal [an] • Publicising could allow competitors to copy the idea [an] leading to fewer sales [an] Bank loan [k] • Could provide all the finance (at once) [an] but must be repaid [an] • Interest payable [an] increases expenses [an] • Quick to arrange [an] Borrow from friends and family [k] • May give longer time/better terms to repay [an] 1(e) Government grant [k] • No need to repay/no interest [an] • May be conditions attached [an] Microfinance [k] Overdraft [k] Other appropriate responses should also be credited. Justification might include: Owner’s savings may not provide enough funds [k]. Another option is a bank loan [k] although interest must be paid [an] increasing expenses. [an]. The best option is a bank loan because plans are not delayed through lack of finance [eval]. By the time the owner has saved enough, they might have missed out on the business opportunity [eval].

Mark scheme

2(a) Identify two limitations of break-even analysis. 2 Only award the first two responses given. Award 1 mark per limitation (max 2). Points might include: • Assumes that all costs can be represented by straight lines • It is not easy to separate costs into fixed and variable • Assumes that all output is sold/does not allow for inventory (stock) holding costs • Assumes only one type of product sold • Assumes selling price remains unchanged for all products sold • Concentrates on break-even point/ignores other aspects of operations such as how to reduce wastage/increase sales • It is a prediction/forecast/does not include unexpected costs. Other appropriate responses should also be credited. 2(b) Calculate LCT’s profit if it sells 800 units. Show your working. 2 $ sign is not required. Award 2 marks for a correct answer. Award 1 mark for a correct method but incorrect answer. Correct answer e.g. $2000 [2] Correct method but incorrect answer e.g. Profit = total revenue – total cost [1] OR 8000 – 6000 [1] Award only 1 mark if 2000 is written as part of the answer but is not given as the final answer. 2(c) Outline two possible benefits to LCT of having a good brand image. 4 To use words from the stem as application, the reference must be appropriate (i.e. make sense) Award 1 mark for each relevant benefit (max 2). 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: • (Cooking) pots • Encourage/maintain (customer) loyalty [k] for this small business • Manufactures/production [app] • 16 (employees) • Can help increase sales/customers/market share [k] of cooking pots • Small business [app] • Social media (for advertising) • Aids recognition/awareness/advertising [k] on social media [app] • (Lower) break-even output • May be able to charge high price (than for unbranded products) [k] • 400 units (break-even output) which can help lower its break-even output [app] • $10 (price per unit) • Helps differentiate product from competitors [k] so may be able to sell • 800 units more than 800 units [app] • Total revenue $10 000 • Helps launch new products in the market (as customers already know • Total costs $7000 and trust the brand) [k] • May attract investors [k] Other appropriate examples can be credited. • Helps with employee recruitment [k] Other appropriate responses should also be credited. 2(d) Explain two ways LCT might lower its break-even level of output. 6 To use words from the stem as application, the reference must be appropriate (i.e. make sense) Award 1 mark for identification of each relevant way (max 2). 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). • (Cooking) pots • Manufactures/production Points might include: • 16 (employees) • Increase price [k] higher than $10 [app] which would increase • Small business revenue [an] • Good brand image • Lower rent or other example [k] below $2000 [app] so lowering fixed • $2000 (fixed costs) costs/expenses [an] OR lower fixed costs [k] lead to lower total costs • $10 (price) (TC) [an] • $5 (variable costs per pot) • Buy cheaper raw materials or other example [k] for its cooking pots • 400 (break-even output) [app] reducing variable cost [an] OR lower variable costs [k] lead to • Social media lower total costs (TC) [an] • $10 000 • $7000 Other appropriate responses should also be credited. Other appropriate examples can be credited. Some points can be awarded as [k] or [an] but do not award the same point twice e.g. lower rent [k] so lower costs [an] Only allow one example of fixed costs and one example of variable costs. For this question, candidates can use the same point of analysis e.g. increase contribution per unit. 2(e) Do you think social media is the best method of advertising for a 6 This is a general question so there are no marks small business to use? Justify your answer. for application. Award up to 2 marks for identification of relevant points. For evaluation to be awarded justification will usually follow on from relevant analysis of points. Award up to 2 marks for relevant development of points. Candidates do not need to discuss other methods Award up to 2 marks for a justified decision as to whether social media is to gain full marks. the best method of advertising for a small business to use. Do not award examples of sales promotion as Points might include: these are excluded by the question. Social media: Advantages of one method can be presented as • Cover wide area/seen by many people [k] leading to an increase in disadvantages of the other method but do not sales[an] more revenue [an] award the same point twice as mirror answers are • Low-cost method of advertising [k] so fewer cash outflows [an] not accepted. • Easy/quick to update [k] so can spend time on other tasks [an] • Can target specific groups [k] could encourage brand loyalty [an] Allow only one reference to costs e.g. this • Way to build relationship/communicate with customers/gain direct method is cheap and this one is expensive. customer feedback [k] • Risk of hacking/fraud/virus [k] • Bad reviews can be seen by everyone [k] could lead to a bad reputation [an] • No internet access/not everyone uses social media/easy to lose message among many messages on social media [k] • Takes time to continually post/monitor messages [k] Other methods might include: • Newspapers [k] can contain lot of information [an] but fewer people read newspapers these days [an] • Leaflets [k] can be kept for future reference [an] but may not be read/thrown away (as seen as junk) [an] 2(e) • Posters/billboards [k] can be seen by anyone when passing [an] but cannot include detailed information [an] • Website [k] more information can be added [an] • Pop-up adverts [k] can be expensive [an] • Television [k] can be high cost [an] • Radio [k] Other appropriate responses should also be credited. Justification might include: Social media is low-cost [k] reducing cash outflow [an]. Another method is leaflets [k] which may only reach a limited number of people [an]. Social media is the best way, for a small business, because it is unlikely to have a large marketing budget [eval]. Therefore the cost is likely to be important as it allows the business to have funds available for other purposes [eval].

Mark scheme

3(a) Identify two external users of accounts. 2 Only award the first two responses given. Award 1 mark per external user of accounts identified (max 2). Do not award examples of internal users of accounts e.g. employees. Points might include: • Banks/lenders Do not award 'stakeholder' as this does not • Suppliers answer the question. • Government • Competitors Accept creditors alone as an alternative to • Other businesses e.g. insurance companies lenders/bank/suppliers if no specific example is • Pressure groups given of a creditor. • Investors/shareholders • Customers Other appropriate responses should also be credited. 3(b) Identify two profitability ratios. 2 Only award the first two responses given. Award 1 mark per profitability ratio (max 2). Allow correct formula e.g. Gross profit:sales revenue Two from: • Gross profit margin/ratio/percentage • Profit margin/ratio/percentage • Return on capital employed/ROCE Other appropriate responses should also be credited. 3(c) Outline two possible reasons why ACP imports its raw materials. 4 To use words from the stem as application, the reference must be appropriate (i.e. make sense) Award 1 mark for each relevant reason (max 2). 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: • 65% • Lower prices/cost of materials [k] which could help the business • Cash flow manage its cash flow [app] • Production/manufacture • Access to a wider range of materials [k] to make its computers [app] • (Manufacture) computers • Limited resources available from own country [k] especially as trying • (Act in an) ethical way to act in an ethical way [app] • 3000 (workers) • Better quality (than available in own country) [k] which may be why • Factory the business already import 65% [app] • Profit is important • Purchasing from ethical supplier [k][app] Other appropriate examples can be credited. Other appropriate responses should also be credited. 3(d) Explain one benefit and one limitation to ACP of being ethical. 6 To use words from the stem as application, the reference must be appropriate (i.e. make sense) Award 1 mark for identification of each relevant benefit/limitation (max 2). 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). • 65%/import • Cash flow Points might include: • Raw materials • Computers Benefits: • 3000 employees • Good image/good reputation/customer loyalty [k] so customers more • Factory willing to pay high prices [an] for its computers [app] • Production/manufacture • High/higher demand/sales [k] which can help increase revenue [an] • Profit is important/profitability ratios • Can help recruit/motivate/retain workers [k] reducing recruitment costs [an] as the business has 3000 employees [app] Other appropriate examples can be credited. • Better supplier relations (as pay a fair price) [k] which can help ensure the necessary supply to maintain production [an] Some points can be awarded as [k] or [an] but do • Investors more likely to invest [k] not award the same point twice. • Less opposition from pressure groups [k] Limitations: • Limited/fewer sources of materials [k] which may lead to less output [an] as already imports 65% of its raw materials [app] • May have to pay more to suppliers [k] leading to higher variable costs/cost of goods sold [an] • Workers may have to be paid more [k] at the factory [app] increasing labour costs [an] • Higher costs [k] could lead to higher prices [an] Other appropriate responses should also be credited. 3(e) Do you think making a profit is more important for a business than 6 This is a general question so there are no marks managing its cash flow? Justify your answer. for application. Award up to 2 marks for identification of relevant points. Allow attracts investors/investment as a [k] or [an] once Award up to 2 marks for relevant development of points. Do not allow ‘important for growth’ without the Award up to 2 marks for a justified decision as to whether making a profit idea that it is a source of finance/or for is more important for a business than managing its cash flow. reinvestment. Points might include: Profit: • It is a source of finance [k] may increase opportunity for growth [an] • Reward for risk-taking/allows dividend for owners [k] without it, owners will have less incentive to invest [an] • Reward for enterprise [k] • Indicator/measure of success [k] • Important for long-term survival [k] Cash flow: • Need cash to pay day-to-day costs/ensures liquidity/help avoid cash flow problems/pay debt [k] otherwise might have insufficient funds/working capital to continue production [an] • Sales may be on credit [k] therefore money received later [an] • Reduced need for overdraft [k] which would add to interest costs [an] Other appropriate responses should also be credited. Justification might include: Profit is a reward for risk-taking [k], without it owners will have less incentive to invest [an]. Cash flow is needed to pay day-to-day costs [k] to ensure sufficient inventory to continue production. [an] Managing cash flow is likely to be more important because a business can continue in the short term without making a profit, [eval] but without sufficient cash flow a business may be unable to operate and earn revenue [eval].

Mark scheme

4(a) Define ‘delegation’. 2 For two marks needs the idea of who is giving/receiving authority/responsibility and for Award 2 marks for a full definition. Award 1 mark for a partial definition. what. Giving a subordinate the authority to perform particular tasks [2] Do not award answers which identify reasons for OR using delegation e.g. motivates, create time for When a manager gives authority to another employee to complete a managers to do other jobs [0]. task, although the manager retains the ultimate responsibility for the completion of the task [2] OR Passing responsibility to perform tasks to employees (lower down the organisation) [2] Partial definition e.g. manager gives task to employee [1] OR subordinate given task to do [1] OR giving authority to a subordinate/employee [1] 4(b) Identify two legal controls over employment. 2 Only award the first two responses given. Award 1 mark per legal control (max 2). Points might include: • (Unfair) dismissal • Discrimination/equal opportunities • Health and safety • Legal minimum wage • Legal minimum age/child labour • Contract of employment/conditions of employment • Redundancy Other appropriate responses should also be credited. 4(c) Outline two functions of MRN’s shop managers. 4 To use words from the stem as application, the reference must be appropriate (i.e. make sense) Award 1 mark for identification of each relevant function (max 2). 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: Two from: • Food • Planning [k] so have the necessary resources for this food retailer • 490/410 shops [app] • 80 • Organising [k] to ensure everyone is working effectively in each of • 70 000 employees the 490 stores [app] • (Increased) competition • Commanding [k] to help guide the 70 000 employees [app] • 20% (management) jobs • Co-ordinating [k] so better placed to respond to increased competition • Delegation [app] • Legal controls over employment • Controlling [k] Other appropriate examples can be credited. Do not award answers such as motivate/communicate as knowledge. 4(d) Explain two factors MRN should consider when deciding which 6 To use words from the stem as application, the shops to close. 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 appropriate Award 1 mark for each relevant reference to this business (max 2). for this question: • Food Award 1 mark for each relevant explanation (max 2). • 490/410 shops • 70 000 employees Points might include: • 80 • Level of demand/where its customers are/number of sales [k] of food • Increased competition [app] as some might have lower revenue [an] • 20% management jobs • Level of competition/number/type of shops in area [k] which could • Delegation reduce sales/demand [an] • Legal controls over employment • Rent/rates [k] for each of the 80 locations [app] as this could make some sites too expensive to run [an] Other appropriate examples can be credited. • Distance from suppliers [k] increased transport costs [an] • Space [k] as in some locations there may not be (enough) room to Some points can be awarded as [k] or [an] but display everything [an] do not award the same point twice. • Shops which are too close together [k] • Economic state of area/area in decline [k] Award the word costs [k] only once if no specific • Local wage rates/labour availability [k] leading to higher costs [an] costs identified. • Number of workers employed [k] to reduce redundancy payments [an] • Profitability of each shop [k] Increased competition can be [k] or [an] but only award once. Other appropriate responses should also be credited. 4(e) Explain two ways a retail business could respond to increased 6 This is a general question so there are no marks competition. Which would be the best way to use? Justify your for application. answer. For evaluation to be awarded justification will Award up to 2 marks for identification of relevant points. usually follow on from relevant analysis of points. Award up to 2 marks for relevant development of points. Some points could apply to more than one way but do not award the same point twice as mirror Award up to 2 marks for a justified decision as to which is the best way a answers are not accepted. retail business could respond to increased competition. Points might include: • Introduce new products [k] therefore gaining a unique selling point [an] but may have limited shelf space [an] • Lower prices/change pricing method [k] can sell more products/increased market share [an] increasing revenue [an] • Improve quality of service/products [k] but this might increase (training) costs [an] but this may lower its profit margin [an] • Maintain/build good customer relationships [k] which could encourage customer loyalty [an] • Increase promotion/advertising (only award once) [k] • Renovating shop [k] • Relocate [k] • Merger/takeover [k] Other appropriate responses should also be credited. Justification might include: The business could lower its prices [k] therefore sell more products [an]. Introducing new products [k] may appeal to a wider range of customers [an]. Introducing new products is a better way because price might not be important to the customer [eval] therefore lowering the price will simply reduce profit margin [eval].