Business Studies 0450/23 October/November 2023: question paper and mark scheme

Mark scheme

1(a) Explain four differences between a partnership and a limited company. 8 Award 1 mark for each difference between a partnership and a limited company (max. 4). Award a maximum of one additional mark for each explanation of the difference. There are no application marks for this question. Relevant answers might include: • Liability – partnership has unlimited liability which means personal possessions can be taken to pay business debts / company has limited liability meaning personal possessions are not at risk • Sources of capital – partnership has capital from owners’ savings / company can sell shares • Legal formalities – partnership has no legal documents to complete to start the business / company has to register and complete legal documents • Legal identity – partnership is unincorporated with no separate legal identity between owner and business / company is incorporated and has separate legal identity • Continuity – partnership ends with the death of a partner / company shares can be transferred to others and therefore continues even after the death of shareholders • Visibility of financial statements – partnership all financial statements are company or can be accessed if private limited company • Management – partnership often managed by the partners / company directors make the decisions and they may or may not also be shareholders For example: Liability is different (1). In a partnership the owners have unlimited liability which means personal possessions can be taken to pay business debts whereas a company has limited liability and personal possessions are safe (1). 1(b) Consider three leadership styles that Benjy could use when managing 12 BB. Which leadership style should Benjy use? Justify your answer. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more leadership styles. 3 Well-justified recommendation. 9–12 Candidates discussing all three leadership styles in detail, in context and with a well-justified recommendation, including why the alternative styles were 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 leadership style. 2 Judgement with some justification / some evaluation of 5–8 choice made. Candidates discussing two or more leadership styles 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 leadership styles with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the three leadership styles in context should be rewarded with the top marks in the band. 0 No Creditable Response 0 1(b) Relevant points might include: • The manager expects to be in charge and have all employees follow orders – such as which timber should be used • Manager keeps himself separate from the 10 employees • Communication is one-way with employees having no Autocratic opportunity to comment or take part in any decisions about the house building which can be demotivating • Benjy will make all the decisions and keep information to himself – 2 unskilled employees will need to be told what to do • Decision-making is quicker than a democratic leadership style • 8 skilled employees will be motivated – gets employees involved in decision making – when asked what they think • Information about future plans of the house business may be shared with employees and discussed before the manager makes the final decision – employees may be more accepting of changes • Communication is both downward and upward allowing the experience of 8 skilled employees to be Democratic considered by the manager, possibly leading to better decisions being made • Employees feel more involved in the business – employees less likely to leave – reducing recruitment costs • May be time-consuming to ask employees – reducing the work carried out by the ten employees • Unpopular decisions may need to be made and employee ideas may be ignored • Main objectives of the new business may be shared with employees but then they are left to organise their own work and take decisions without any interference from the manager which can be motivating – they feel valued and trusted to take the decisions • Communication between the manager and the Laissez-faire employees can be difficult as the manager has little involvement in the decisions being made • Employees can be creative with fresh ideas about how to build houses more quickly • Not suitable if a clear direction is needed and consistent approach to building houses of a certain specification 1(b) Justification might include: • Autocratic might be best so that Benjy gives clear instructions to be followed by his 10 employees. They may not be all working together, and mistakes may be made if decisions are left to these ten people if laissez- faire is used. They will not have all the information about the business and what the future plans are which may make it more difficult for the 10 employees to make valid suggestions if democratic leadership style is used. Recommen- • Democratic might be most suitable as there will be 10 dation employees and Benjy may have a close working relationship with them so it will be easy to listen to their opinions before making a decision which will motivate his employees as they will feel valued. • Laissez-faire is suitable as each customer will have very different needs to be met and more creativity and problem solving may be achieved if the employees are able to make their own decisions when building these specialist houses for people with disabilities and the business will gain more customers.

Mark scheme

2(a) Explain four methods of primary market research Benjy could use to 8 find out if there is a demand for BB’s services. Award 1 mark for each method of primary research identified (max. 4). Award a maximum of one additional mark for each explanation of the method applied to this context. Relevant methods might include: • Postal questionnaire – a set of questions to be answered by sending them through the post to a sample of people to collect quantitative data and/or opinions on adaptations to the houses • Online survey – require a target sample of potential consumers that have physical difficulties to answer a series of questions over the internet • Interviews – ask individuals who have visual difficulties a series of questions, either face-to-face or over the telephone • Focus groups – a group of people who are representative of the target market are asked to discuss wheelchair access required • Observation – of people with mobility difficulties moving round a house that has not been adapted for people with disabilities to use For example: Postal questionnaire (1) is a set of questions to be answered by sending them through the post to a sample of people to collect opinions on the adaptations needed for houses (app). Application could include: house buildings; timber; metal roofs; visual difficulties; physical difficulties; wheelchair users; new business. 2(b) Consider the following three pricing methods Benjy could use for BB’s 12 products. Which pricing method should be used? Justify your answer. • Cost-plus • Penetration • Skimming Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more pricing methods. 3 Well-justified recommendation. 9–12 Candidates discussing all three pricing methods in detail, 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. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one pricing method. 2 Judgement with some justification / some evaluation of 5–8 choice made. Candidates discussing two or more pricing methods 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 pricing methods with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the three pricing methods 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 • Easy to apply. Can have • The costs of building the different mark-up for new house may be high different houses – and so the price of the depending on demand house may be too high • Each house will make a to be competitive – profit for the business – losing customers Cost-plus as the different costs will • Time taken to research be covered by the price and calculate cost prices charged such as timber and metal – increases costs for BB • No incentive to reduce costs • Lower price (than • Low price could mean competitors) for each low profit per house house attracts • People with disabilities customers – increases who have yet to sales purchase a house may Penetration • Helps to ensure a expect house prices to pricing successful launch into a remain low and therefore new market for people not purchase a house with disabilities when the price is • Market share should increased later on build up quickly • Customer may think the • High price may put off house adapted for potential customers people with disabilities • The high house price is of high quality and possible high profits • High research and may encourage development costs for competitors to quickly the adaptations to the enter the market taking house that are needed away BB's advantage of Skimming will quickly be recovered being first with the newly • The house will be designed houses to unique so customers meet the needs of with disabilities may people with disabilities expect to pay high prices - leading to high profits before competitors enter the market 2(b) Justification might include: • Cost-plus pricing should be used as each house will be different and use different amounts of materials to meet the individual needs of customers with disabilities. This ensures that a profit is made for each house built. Penetration pricing should not be used as there are no competitors in the market in country X so there is no need to lower the price to enter the market. Skimming should also not be used as Benjy will not want to make Recommen the maximum profit from people with disabilities as his -dation own son has disabilities. • As the houses are a new design then penetration pricing should be used to get the house builder established in the market and become well-known. This will build a good reputation and help increase sales in the future. • Skimming should be used as a specially designed house for people with disabilities is a new idea and BB will be the first in the market so high prices should be charged to gain the most profit before competitors enter the market.

Mark scheme

3(a) Explain one benefit and one limitation for BB of using job production. 8 Award 1 mark for each relevant benefit/limitation (max. 2). Award a maximum of 3 additional marks for each explanation of the benefit/limitation – one of which must be applied to this context. Relevant answers might include: Benefits might include: • Suitable for individually designed products where the product needs to meet the exact requirements of the customer – increases demand/sales • Higher employee motivation from more interesting work – the employees have more varied tasks – less likely to leave / lower labour turnover / higher productivity / efficiency • A high price may be charged – due to high-quality goods that meet customer demands – increased revenue Limitations might include: • Often requires skilled labour – higher wages paid – increased costs • Usually labour intensive – higher unit costs – higher prices charged to maintain profit margin • Takes longer to make the product – may delay the completion in making the product – reduces customer satisfaction/damages reputation • If errors are made, they are expensive to repair – as each product is individual • Small quantities of specific raw materials are required – raises costs as cannot bulk buy – leads to higher prices/lower profit margin For example: The employees are more motivated (1) as their jobs are more interesting for each house built (app) and they are less likely to leave to find another job (1) which prevents higher recruitment costs (1). Application could include: house buildings; timber; metal roofs; visual difficulties; physical difficulties; wheelchair users; new business. 3(b) Using Appendix 2 and other information, consider the two options for 12 BB’s first house. Which house should Benjy choose to build? 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 both options. 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. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one option. Judgement with some justification / some evaluation of choice made. Candidates discussing at least one option 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 options with little/no explanation. 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 3(b) Relevant points might include: Advantages Disadvantages • The timber costs are • The profit is lower at lower at $10 000 rather $7000 than $20 000 for House • This house will not use B all the capital invested – • The total cost is lower at this could be put to $63 000 better use in another • The profit margin is 10% house House A • The labour cost is $5000 • Fewer people have lower than House B visual problems – 10% of the population with disabilities in country X – 1.25 million – so potentially much lower demand in the future relative to people with physical difficulties • The profit is higher at • Labour costs are higher $10 000 at $20 000 than $15 000 • The profit margin is 9.1% for House A (accept 9%) • The total cost is higher • A larger percentage of at $100 000 the population have • The total cost is higher physical disabilities – than the initial at 30% of the investment of $90 000 – population with will need to borrow the House B disabilities – difference to build the 3.75 million people – house may be much higher • The cost of timber future demand for this required is much higher type of house than House A – may • If a popular design, then increase in price as the may increase its exchange rate has reputation in the future – depreciated – costs increasing sales/revenue may increase Recommen- Justification could include: dation • Build House A as this will mean lower total costs and Benjy will not need to take out a bank loan and have to pay interest. Whereas for House B BB will need to borrow as there is only an initial investment of $90 000 from the 3 partners who invested $30 000 each and this will increase expenses still further as interest will need to be paid. • Build House B as this will give the higher profit of $10 000 which is $3000 more than House A. It is also the house style that has the most potential for future demand if people with disabilities visit it and want something similar.

Mark scheme

4(a) Using Appendix 3 and other information, explain two ways the 8 depreciation in the exchange rate may affect BB. Award 1 mark for each relevant way (max. 2). Award a maximum of 3 additional marks for each explanation of the way – one of which must be applied to this context. Relevant effects of the depreciation might include: • Higher cost of imported raw materials – possibly decreased profit margin/higher price which may discourage sales • Lower demand for BB products/houses – because higher price for imported consumer products so higher proportion of income spent on essential products – such as wheelchairs for people with physical difficulties – therefore less revenue for BB For example: Depreciation in the exchange rate will result in import prices rising (1) including imports of timber (app). This will increase the costs for BB (1) which will lead to higher prices and possibly lower demand/sales (1). Application could include: house buildings; timber; metal roofs; visual difficulties; physical difficulties; wheelchair users; imported food; manufactured goods. 4(b) Consider the following three reasons why profit will be important to BB. 12 Which reason is likely to be the most important? Justify your answer. • Reward for risk-taking • Source of finance • Way to measure the success of the business Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more reasons why profit is important. 3 9–12 Well-justified conclusion. Candidates discussing all three reasons in detail, in context and with a well-justified conclusion, including why the other reasons were 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 reason. 2 Judgement with some justification / some evaluation of 5–8 choice made. Candidates discussing two or more reasons 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 reasons with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the three reasons in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: • Provides an incentive to Benjy, his father and sister for taking the risk of starting the business • Provides a return for the risk of losing the capital Reward for invested in the house building business – opportunity risk-taking cost for alternative use of capital • Potential investors may judge whether profit is sufficient to be worth risking their capital – if not successful then may not be willing to invest • Provides a source of funds for investment/purchase of non-current assets to help build houses – no interest charged on retained profit – no need for it to be paid A source of back – lower cost for business due to no finance interest/expense paid • Less need for bank loans – less liability – less cash outflow to repay a loan • Can be compared to other similar house building businesses to judge which is most successful – if competitor is less successful then may take action to A way to improve position measure • The 10 employees may judge the success of the the success business and persuade BB to award a pay rise if there of the are large profits business • May help make a decision whether to expand or contract the house building business – if profit is low then may indicate the business should change to doing something else/high profits may attract new investors Justification might include: • The reward for risk-taking is the most important reason as without it then there is unlikely to be any investment to build houses for people with difficulties. There are alternative sources of finance such as a bank loan so this is less important, and success can be measured in other ways such as changes in revenue. • A source of finance is the most important reason Conclusion because it reduces the need to borrow which keeps expenses down for the new business. • A way to measure success of the business that builds houses for people with difficulties is the most important as it may indicate that the business should change what it is doing and start producing something else that will yield a greater profit and is a better use for their investment.