Business Studies 0450/21 October/November 2023: question paper and mark scheme

Mark scheme

1(a) Explain two advantages and two disadvantages of PH being a public 8 limited company. One mark for each advantage/disadvantage (max of 4). Award a maximum of 1 additional mark for each explanation of the advantage/disadvantage of being a public limited company in the context of PH. Relevant answers might include: Advantages: • Can sell shares to the public – which may be attractive to prospective shareholders as this business has a long history of producing high quality products • Limited liability – giving protection to the assets of shareholders when the business is expanding in other countries • Continuity – if shareholders die their shares will be passed on to others which has allowed the company to exist for over 50 years • As it has a higher status it may find it easier to borrow from banks • Rapid expansion may be possible/can raise large amounts of capital • Incorporated identity/separate legal identity Disadvantages: • Legal formalities – for this business that manufactures protective hats want to become the market leader instead of PH • Divorce between ownership and control/potential conflict between managers and shareholders • The company may be at risk of a takeover/no control over who buys shares • Directors' decision making may be influenced by major investors when seeking to satisfy their own objectives For example: A public limited company can sell shares to the public (1), and this makes it easier to raise capital for investment in new factories to produce its protective hats (app). Application could include: protective hats; construction sites; construction workers on building sites; mining workers; plan to expand by opening factories in other countries; remain the market leader; has a long history of producing high quality products; been in business for 50 years; becoming a multinational company. 1(b) Consider the following two ways PH could ensure quality production. 12 Which way should PH choose? Justify your answer. • Quality control • Quality assurance Level Description Marks 3 Sound application of knowledge and understanding of 9–12 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 way was rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 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 understanding of 1–4 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: Quality Method Advantages Disadvantages • Products checked • It raises costs as at the end of the inspectors need to production line tries be employed to eliminate faults • Identifies faulty hats and errors before at the end of the the customer process but does receives the not identify where protective hats the fault has • Less training is occurred required for the 100 • If PH does not workers as identify the fault, inspectors check the then it does not quality of the hats eliminate the faulty Quality control before they leave process – higher the factory costs if protective hats need to be scrapped/reworked • Employees may be demotivated as quality checks are not their responsibility and so do not feel trusted – possibly making more careless errors when carrying out their tasks 1(b) Quality Method Advantages Disadvantages • Products checked • Can be expensive to at every stage of train employees to the production check the quality of process to try to their own work eliminate faults or • The reliability of errors at each stage employees is of production before important, and they passing to the next need to be stage - reducing committed or quality faults at the end assurance will not • There are fewer be effective customer • Takes longer to complaints of faulty produce protective protective hats hats as each worker • Reduced costs of needs to do their Quality wastage as fewer own check for faults assurance hats are scrapped • Components and due to being faulty raw materials need • Can make workers to be of an feel trusted and approved standard may improve to comply with motivation quality assurance - may restrict the suppliers that can be used - possibly increasing costs • Employees may expect to be paid more to carry out the quality checks as they are currently only on the minimum wage 1(b) Quality Method Advantages Disadvantages Justification may include: • If the process to produce protective hats is simple, then quality control may be most suitable as inspectors may just carry out a simple check at the end of the production line. The 100 production workers do not need to be trained to check their own work, reducing training costs, which they would have to do if quality assurance was used. This makes the production process faster than if quality assurance is used as production workers Recommendation would need to keep checking the hats at each stage of the production process. • Quality assurance is best because each stage of production can be checked so it is less likely for a faulty product to go to customers than if quality control is used. It keeps a good brand image and reputation for PH products which is very important for protective hats. It will ensure faults do not need to be repaired, reducing cost of faulty products being scrapped.

Mark scheme

2(a) Explain two limitations and two benefits to a business of developing new 8 products. 1 mark for each limitation/benefit (max of two limitations/benefits). Award a maximum of one additional mark for each explanation of the limitation/benefit of developing new products. There are no application marks available for this question. Relevant answers might include: Limitations: • Would need to carry out market research to see if there is a market for the new product – which is expensive/may not be accurate • Analysing the results to develop a new product that meets customer needs takes time – could have been used for alternative tasks • Trailing new products is expensive – as a free sample of the new product to try out still costs the business to produce • Demand may be so low that revenue does not cover costs/may not be a market for the new product – the new product may have to be withdrawn • Image of the business could be damaged – if the new product does not meet customer needs Benefits: • It could have a USP – which could make the products more popular with consumers than those of other businesses/business remains competitive • It could attract a different market segment/new customers/expand into a new market – leading to higher sales and revenue • It could encourage existing customers to buy the new product/return more often – increasing market share • It spreads risk/diversifies as the choices for customers may now be wider – reducing the likelihood of revenue falling if one product does not sell • Developing new products first before competitors – may be able to charge a higher price and achieve higher sales/revenue For example: Trialling new products is expensive (1) as a free sample of the new product to try out still costs the business to produce (1). 2(b) Consider the advantages and disadvantages of the following three 12 methods PH uses to collect market research data. Which method is most likely to ensure that accurate data is collected? Justify your answer. • A focus group made up of existing customers • An online survey with only 5 questions • Secondary research including government sources Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of two or more methods. Well-justified conclusion. Candidates discussing all three methods in detail, in context and with a well-justified conclusion including why the alternative methods were rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one method. Judgement with some justification / some evaluation of choices made. Candidates discussing two or more methods in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding 1–4 of relevant business concepts. Limited ability to discuss the methods with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining three methods in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: Market Advantages Disadvantages research method • Asking questions of • Discussion is likely to be people that work in biased – as the sample the construction and in the focus group is mining industries restricted to existing who are already customers – may not familiar with the gain information about products – more existing competitors/the likely to gain requirements for a new detailed/honest mining hat – may lose information about sales if new product A focus existing products - doesn’t meet customer group made good and bad points needs up of to help develop a • Limited number of existing new protective hat people asked as focus customers • Interaction between groups are small – may members of the focus not gather the opinions group can help the of a large enough researchers sample to gain accurate understand the research data reasons for existing • Can be time-consuming customer opinions and expensive to conduct – especially if carried out for PH by a specialist market research agency 2(b) Market Advantages Disadvantages research method • Results can be • Only including 5 automatically questions may restrict analysed and the answers – less likely presented using IT – to be accurate due to quicker and cheaper other options not being to collate the results available to answer than alternative forms • Absence of interviewer of survey or person to explain the • Fast and with quicker question – may be response times than misinterpreted so postal survey – can results less accurate be emailed out to • May be completed An online existing customers of quickly and therefore survey with the hats to complete may not be taken as only 5 the survey – already seriously as an questions have their email interview when being addresses so quick asked questions – again to send out links to results may not be the survey accurate • Cheaper to carry out • May not be completed than interviews or by a wide range of postal questionnaires potential customers – no personnel or from the construction postage to pay industry – as don’t • Larger sample from have access to their different parts of the contact details/they world don’t have the internet • Reliable as collected • May be out of date – by the government – therefore may not reflect more likely to be current trends accurate as less • Restricted to single likely to be secondary source – Secondary biased/carried out by may have been research experts collected for a purpose including • May be free to that does not inform PH government access information about their market – e.g. sources about the general information construction about mining companies in the industries country – reducing • Available to competitors market research – so may not help costs competitiveness 2(b) Market Advantages Disadvantages research method Justification may include: • A focus group is likely to be the most accurate as it uses existing customers who are already familiar with the hats. It will allow detailed information to be gathered on the opinions of existing customers. Online surveys may not sample a wide enough group of people and the answers will be restricted by only 5 questions being asked so the answers to other questions will not be gathered. Government statistics may be out of date and therefore not reflect current trends in industries such as mining. Conclusion • An online survey is likely to be most accurate as it can ask for responses about hats for construction sites and mining from a much larger sample than the focus group. This is more likely to provide opinions from a wider group of people than just existing customers as well. • Secondary research is likely to be the most accurate as government data on construction and mining industries will have been gathered by experts and hence is unlikely to contain inaccuracies or be biased.

Mark scheme

3(a) Explain two reasons why training is important to PH. 8 1 mark for each reason (max 2). Award a maximum of 3 additional marks for each explanation of the reason why training is important to PH – one of which must be applied to this context. Relevant answers might include: • To introduce a new process or equipment – so that employees know how to use the new equipment without damaging it/operate it safely – or not being sure how to operate it and become less productive • To improve the efficiency/productivity of employees – as they will be skilled in operating equipment – and output will increase • To train unskilled workers to perform a wider range of tasks – so they may be moved to other areas of the factory – which makes production more flexible when increased output of a particular product is required • To decrease the chances of faulty products being produced/fewer mistakes – to ensure high quality products are manufactured – so the reputation of PH does not fall • To decrease the chance of accidents • To provide opportunities to internally recruit • To improve the motivation of employees • To provide induction training to introduce new employees to the business • Less supervision of workers may be required For example: To decrease the chances of faulty products being produced (1) because PH has a reputation for producing high quality products (app) and PH does not want to get a bad reputation (1) as sales would decrease (1). Application could include: protective hats; construction sites; construction workers on building sites; mining workers; plan to expand by opening factories in other countries; remain the market leader; has a long history of producing high quality products; 100 production employees; been in business for 50 years; becoming a multinational company; workers are currently demotivated; flow production line. 3(b) Consider how the following three groups might use the financial data 12 shown in Appendix 3. Which group will find this data most useful? Justify your answer. • PH’s employees • PH’s shareholders • Competitor considering taking over PH Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of how two or more stakeholder groups might use the financial information in Appendix 3. Well-justified conclusion. Candidates discussing in detail how all three stakeholder groups might use the financial information in Appendix 3, in context and with a 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. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of how at least one stakeholder group might use the financial information in Appendix 3. Judgement with some justification / some evaluation of choice made. Candidates discussing in detail of how two or more stakeholder groups might use the financial information in Appendix 3 and applying them to the case should be rewarded with the top marks in the band. 3(b) Level Description Marks 1 Limited application of knowledge and understanding 1–4 of relevant business concepts. Limited ability to discuss how the stakeholder groups might use the financial information in Appendix 3 with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining how the three stakeholder groups might use the financial information in Appendix 3 and in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: • Whether to ask for a pay rise - may use the profit to indicate if PH can afford to increase its wages from just paying the minimum wage - $20m profit in 2022indicates that PH may have sufficient profit to increase wages the following year PH’s • Whether to look for another job - revenue has employees increased 25% from $100m to $125m - may indicate that their jobs are secure as the business is doing well • Whether there is sufficient revenue to improve working conditions • Whether to sell shares - profit margin has fallen from 20% to 16% which is a fall of 4%. May indicate losing control of expenses or costs are rising • The level of profit has remained the same at $20m so PH's dividend payments may remain the same shareholders • Whether to buy more shares - business has made more revenue as it has increased by $25m which may indicate the business is successful and growing – buy more shares or keep existing shares • Whether to take over PH as revenue has increased by $25m from $100m so may be taking market share away from the competitor – may indicate the competitor should take over PH – although profit margin is falling and needs to have greater control Competitor of expenses – may indicate higher profit and profit considering margin possible if better managed taking over • Comparison with own revenue and profit to see if PH PH is doing better than competitor – may learn how to improve its own competitiveness - gross profit margin has increased indicating that the cost of sales is lower - may be due to cheaper materials being purchased - may lead to lower quality products and may not want to take over the business 3(b) Justification might include: • PH's employees will find the financial information in Appendix 3 most useful as it will show if PH can afford to increase the wages of the 100 production employees higher than the minimum wage. Profit has remained at $20m and so PH should be able to afford higher wages. Without knowledge of the revenue increasing and profit it would be harder for employees to argue for an increase in their pay. Shareholders may find this information less important as they would want to know the dividends that were going to be paid out of the profit rather than just the profit figure. Competitors would also want to see the share price if they were considering taking over PH as well as the profit made so this Conclusion information is less useful to them. • PH's shareholders would find the financial information most useful as they want to know if profit has increased to indicate whether they are likely to receive a dividend. The profit margin of 16% would indicate that PH is still relatively successful, and their shares may remain at the same value. • PH's competitors would find the financial information most useful as they want to know if PH is worth taking over. If the profit margin has fallen to 16%, then there may be room to increase the profit margin if the business is better managed after a takeover. This would allow a comparison with their own profit margin to see if it is higher than theirs and hence worth taking over.

Mark scheme

4(a) Explain two benefits of PH’s employees becoming members of a trade 8 union. 1 mark for each benefit (max of 2). Award a maximum of 3 additional marks for each explanation of the benefits of PH's employees becoming members of a trade union – one of which must be applied to this context. Relevant answers might include: • More likely to be listened to as strength in numbers – employee’s views are represented in grievances with managers – so more likely to get their demands actioned • Provides advice to members – such as if they feel they have been dismissed unfairly/unfairly treated by the business – then employees will know if they have a case against the business/whether to take action • The communication between employers and employees is better – as there is a channel through which points from employees can be raised – it is more likely that problems are sorted without causing disputes between employers and employees • Possibly improved pay – as there is strength in numbers to make wage demands for a pay rise more likely to be successful – employees more satisfied with work/happier • Improved working conditions – as trade union can put forward a case to the employer if conditions are not good • Provides services to members – reduced rates of insurance making it more affordable • Helps to protect legal rights of employees – may improve job security For example: Provides advice to members (1) if they feel they have been dismissed unfairly by the business (1) then the 100 employees (app) will know if they have a case against the business to take action (1). Application could include: protective hats; construction sites; construction workers on building sites; mining workers; 100 employees; flow production; same tasks every day; paid minimum wage; working conditions are bad. 4(b) Consider three possible benefits for PH of becoming a multinational 12 company. Which benefit is likely to be the most important? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of two or more benefits of becoming a multinational company. Well-justified conclusion. Candidates discussing in detail all three benefits of becoming a multinational company, in context and with a well-justified conclusion, including why the other benefits of becoming a multinational company will be less important to PH, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one benefit of becoming a multinational company. Judgement with some justification / some evaluation of choice made. Candidates discussing in detail two or more benefits of becoming a multinational company and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding 1–4 of relevant business concepts. Limited ability to discuss the benefits of becoming a multinational company with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining three benefits of becoming a multinational company in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant benefits might include: • Low rents will reduce the total costs of producing goods – may lead to lower prices – increases sales as more competitive • Low production costs may allow higher profit Produce goods margins than 16% in 2022 if prices remain the in countries same with low costs • May produce protective hats in countries with low labour costs – leading to lower unit costs – may be able to reduce prices – become more competitive in other markets/increases sales in other markets • Reduced transport costs in other countries – lower total costs Easier access • Quicker delivery of raw materials to produce to raw material construction hats – reduces the time from source development to the market • Access to raw materials that stops/reduces competitors access to these supplies • Reduces transport costs and quicker delivery to customer - improves customer satisfaction • Nearer to the market for protective hats may be more familiar with customer needs in that market – therefore more likely to meet customer needs – Produce nearer increasing revenue the market • Markets may be quite spread out across the globe as there may not be mines in all countries – however, near to one market may not be near to other markets – limiting the advantage from lower transport cost • Do not pay tariffs – reduces price of goods to customers Avoid trade barriers • Do not have quotas – no restrictions on quantity of goods supplied to the market – increases sales • Able to expand into more markets in the mining and construction industries more easily in other countries – increases revenue/encourages Increase growth of the business market share • Spreads risk of selling protective headwear – if demand falling in one market can be compensated for by increasing demand in other countries 4(b) • Reduces investment required to set up the factory to produce protective hats – less borrowing required – lower interest payments/lower expenses Receive • The government may require the business to government undertake certain activities such as locating in grants an area of high unemployment – may not always be the best location for the hat factory as other areas may have more factors to attract the business - may not lead to lower costs • Competitors producing safety equipment are Remain expanding into more markets abroad - may lead competitive to falling sales of protective hats – needs to compete in all markets to retain sales • Selling protective hats on a larger scale may Benefit from allow for reduced average costs – for example economies of marketing economies when advertising globally scale and products ordered through its website • A globally recognised brand may give a better May be able to reputation to the already leading supplier of raise prices protective products – leading to higher prices being charged and increased revenue 4(b) Justification might include: • Reduced production costs are likely to be the most important as unit costs can be reduced which will make the hats cheaper to produce and can be sold at a lower price. They will be more competitive, and it will be easier to increase sales in many countries. It may be that competitors are also locating in low-cost countries and so if PH doesn’t do this then it may not be able to compete. As PH is a multinational it will produce and sell in many countries around the world and so locating near to just one market will not have significant savings in transport costs. Government grants are a one-off payment when setting up in a country and are not likely to have much impact Conclusion on the business in future years. • Producing protective hats nearer to the market is likely to be most important as not only will transport costs be reduced, helping to increase profit, but improved knowledge of the market will help to increase sales and hence revenue will increase. Increased revenue and lower transport costs together could lead to a higher profit. • Government grants could be substantial which means a much smaller bank loan is required. This will lower borrowing costs by reducing interest payments and therefore costs may be reduced significantly and profit from the manufacture of hats to protect employees’ heads whilst working will increase for many years whilst the smaller loan is being paid off.