Business Studies 0450/21 October/November 2024: question paper and mark scheme

Mark scheme

1(a) Explain four reasons why a business might remain small. 8 Award 1 mark for each suitable reason (max 4). Award a maximum of 1 additional mark for each explanation of why a business remains small. There are no application marks for this question. Suitable reasons might include: • The product / service is specialised / may be personal / customised – not suitable for production on a large scale / produced using job production • Market size – doesn’t have a large market / maybe niche market / sales are low / lack of demand • Owner’s choice / owner’s preference / owner’s objective – to keep a work life balance / less stress / less pressure / satisfied with current business performance • Easier to manage / control – owner makes decisions himself/herself / may not have the skills to manage a larger business • Owner knows all the employees – personal relationship / paternalistic style / easier communication • Lack of finance / fewer options of finance for a small business • Maintaining close customer relations – wishes to maintain customer loyalty / face-to-face customer service • Not willing to take many / additional risks – does not want more responsibility • Market dominated by large business / many competitors – restricting growth / sales For example: The product is specialised (1) and therefore is not suitable to be produced on a large scale (1). 1(b) Consider the following three roles of packaging for CC’s products. Which 12 role is most important for CC? Justify your answer. • Protecting the product • Promoting the brand image • Providing information about the product Level Description Marks 3 Sound application of knowledge and 9–12 understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more roles. Well-justified conclusion. Candidates discussing three roles, in context and with a well-justified conclusion, including why the alternative roles were rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and 5–8 understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one role. Judgement with some justification / some evaluation of choice made. Candidates discussing two or more roles 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 roles with little / no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining the three roles in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: • Cookies can easily break – delivered to customer in damaged state if packaging not suitable which could reduce the reputation for CC’s high- quality products – leading to lower sales • Needs to ensure the product stays fresh and Protecting the best quality – to be consumed in a good product condition and not deteriorated in any way / no germs/bacteria – keeps customers loyal to CC and maintains sales • May prevent damage when being transported/stored – may lead to increased costs as products have to be replaced • Appendix 1 is an advert showing cookies are of high quality and has a recognised logo – consumers will see the logo and associate the packaging with CC’s products helping to Promoting the advertise the cookies to other potential brand image customers when they see the packaging • Colour on the packaging can be used to associate the logo with the product – make the product easily identifiable on shelves and stand out from competing products • The ingredients can be listed on the packaging – in case customers need to know about allergies – prevents customers from falling ill when Providing consuming the cookies – stops CC getting a bad information reputation for selling products that can cause about the illness product • Information about the fresh ingredients may be a legal requirement – stops CC from being prosecuted and being fined 1(b) Justification might include: • Protecting the products is the most important role of packaging as they are breakable and perishable. The packaging needs to prevent the product being damaged or CC’s reputation for high-quality products will be ruined. Promotion of a brand image is less important as advertising can do this and providing information is only important once the product is considered for buying, so unless the product is being looked at in the first Conclusion place, then the information will not affect sales. • Promoting the brand image is important as if customers are not attracted to CC’s products in its shop in the city centre, then the other two roles of packaging will not be relevant. • Providing information is most important because otherwise if a customer has food allergies and the information is not provided on the packaging then the customer may become ill. CC could be fined and get a bad reputation.

Mark scheme

2(a) Explain two functions of management for CC’s new manager. 8 Award one mark for each named function (max 2). Award a maximum of 3 additional marks for each explanation of the function of management – one of which must be applied to this context. Functions might include: • Planning – setting aims and targets for the business – will give a sense of direction with common targets to work towards • Organising – arranges the tasks for the employees – as a manager cannot do all tasks and will need to delegate • Coordinating – bringing together the different departments in the organisation – so tasks are carried out efficiently • Commanding – instructs the employees on how to carry out their tasks – gives guidance as required • Controlling - checking the employees work so that the expected output is produced each week – and that all aims are achieved For example: Planning (1) setting aims and targets for the business (1) such as sales targets for the cookies (app) will give CC a sense of direction with common targets to work towards (1). Application could include: cookies; batch production; high-quality products; fresh ingredients; baking equipment; messages put on cookies; orders for birthdays or weddings; 10 production employees; 5 shop employees; Operations manager; oversee production; sole trader; small business; established for 5 years; sells at own shop in city centre. 2(b) Consider how a decrease in interest rates and an increase in taxes in 12 country P could affect CC. Which is likely to have the biggest effect on CC’s profit? Justify your answer. Level Description Marks 3 Sound application of knowledge and 9–12 understanding of relevant business concepts using appropriate terminology. Detailed discussion of both changes. Well-justified conclusion. Candidates discussing both changes in detail, in context and with a well-justified conclusion, including why the alternative change, is rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and 5–8 understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one change. Judgement with some justification / some evaluation of choices made. Candidates discussing both changes 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 changes with little / no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining both changes in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: • Decrease in interest costs of a new bank loan – Sam may be more likely to invest in batch production facilities using a bank loan – may buy new ovens – lower interest rates reduce expenses • Reduces the cost of overdrafts – reduces interest payment for expenses – lower costs Decrease in • May lead to higher economic growth – lower interest rates unemployment – higher incomes for consumers – increased demand for cookies • Increases the available income consumers can spend • If customers had a mortgage to repay – lower repayments – may increase demand for high- quality cookies • May reduce CC‘s sales – as a result of less spending by consumers on high-quality products • Less retained profit and less investment in bakery equipment Increase in • May lead to an increase in the price of cookies – taxes may lead to lower sales and revenue • May allow an increase in government payments to people on a lower income – may increase the sale of CC cookies if these people choose to celebrate an occasion such as a birthday or wedding with a cookie Justification could include: • A decrease in interest rates will have the biggest effect on CC’s profit as higher taxes may not affect demand for products that are not a high proportion of consumers incomes. Whereas a decrease in interest rates may encourage Sam to expand CC’s production facilities by purchasing Conclusion bakery equipment and increase future profit from higher sales of cookies / reduced average costs. • An increase in taxes will have the biggest effect on CC’s profit as consumers will have less income after tax to spend and therefore revenue from the sale of cookies in their shop will fall reducing profit.

Mark scheme

3(a) Explain two benefits and two limitations of CC using batch production. 8 Award 1 mark for each relevant benefit/limitation (max 4). Award 1 additional mark for each explanation of the benefit/limitation applied to this context. Relevant benefits might include: • Flexible way of working – can easily change to produce cookies for different special occasions • More variety in tasks than if flow production is used – better motivation for the 10 production employees • More variety of products produced - to have personal messages written on them • Production may not be affected too much if baking equipment breaks down • Larger quantity produced than job production – can keep restocking the shop with full variety of cookies • Raw materials can be purchased in larger quantities than job production so gain discounts / economies of scale / lower unit cost of fresh ingredients Relevant limitations might include: • Can be expensive / awkward to move part-finished goods around the factory – the business is only small • Machines have to be reset between batches – takes time / delays production for the new Operations Manager • One mistake in production may mean the whole batch is affected / needs to be thrown away – wasted ingredients • Warehouse space needed - for finished batches stored before being sold in CC’s shop • Size of batch may be too small – not enough cookies to meet demand / may be too large / left over cookies if not popular • May be more repetitive than job production – 10 production workers may become bored For example: Flexible way of working (1) and can easily change the production process to produce different types of cookies (app). Application could include: cookies; sells at own shop; messages put on cookies; 10 production employees; 5 shop employees; Operations manager; fresh ingredients; special occasions; small business; sole trader; established for 5 years; competitors’ products sold in retail shops in other cities, personalised messages. 3(b) Consider the two options for CC’s new cookies outlined in Appendix 3. 12 Which option should CC choose to produce? Justify your answer using appropriate calculations. Level Description Marks 3 Sound application of knowledge and 9–12 understanding of relevant business concepts using appropriate terminology. Detailed discussion of both products. Well-justified recommendation. Candidates discussing both products in detail, in context and with a well-justified recommendation, including why the alternative product was rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and 5–8 understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one product. Judgement with some justification / some evaluation of choice made. Candidates discussing both products 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 products with little / no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both products in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: • Sales are higher by 6500 per month – 8000 compared to 1500 • Total cost is $7000 per month • Total revenue is $8000 per month • Profit per month is $1000, $500 less than Option 2 Option 1 • Forecast growth is high so revenue in the future should increase • Gross profit margin 50% • Profit margin 12.5% • Break-even output 6000 cookies a month, 2000 less than predicted sales • Total revenue $7500 • Total cost is $6000 per month with same fixed cost of $3000 and variable cost of $2 per cookie • Profit per month is $1500 Option 2 • Forecast low growth so revenue in the future may not increase • Gross profit margin 60% • Profit margin 20% • Break-even output 1000 cookies a month, 500 less than the predicted sales Justification might include: • Option 1 is the better one to choose as the revenue is higher by $500 than Option 2. Even though its profit is $500 per month lower than Option 2 it has high future growth opportunities and could earn higher revenue Recommendation and higher profit in the future. • Option 2 is better than Option 1 as it has a higher profit by $500 per month. The gross profit margin and profit margin are both higher giving more profit from the sale of each Option 2 cookie.

Mark scheme

4(a) Explain two reasons why CC might need finance. 8 Award 1 mark for each relevant reason (max 2). Award a maximum of 3 additional marks for each explanation of the reason why finance may have been needed – one of which must be applied to this context. Relevant answers might include: • For the purchase of investment / capital goods – buy equipment to replace worn out machinery – high amount of finance needed so may not all be from owner’s capital • To finance the expansion/growth of the business – the business plans to increase output on a larger scale so may need a larger factory • To invest in the latest technology – to remain competitive • To provide working capital / pay expenses / fixed costs / variable costs / overheads / day-to-day expenses – e.g. payment of wages / raw materials – if not able to pay costs then output cannot be produced and/or prevents cash flow problems / lack of liquidity • Development of new product / new markets – high cost of producing prototypes / cost of market research for new product – outflow of cash with no inflow for a certain time • Start up another new business – needs to purchase equipment / raw materials owner may lack sufficient capital and/or – may take time for sufficient cash to be built up in the business to pay for assets For example: For the purchase of investment goods (1) to replace old worn-out machinery (1) for example machinery to produce cookies (app) to improve productivity and remain competitive (1). Application could include: cookies; high-quality products; small business; sole trader; established for 5 years; considering taking out a bank loan; using specialized baking equipment; sells at own shop; wants to sell more cookies; developing new cookies;10 production employees; 5 shop employees; Operations manager; fresh ingredients purchased regularly. 4(b) Consider the following three pricing methods CC could use for its 12 existing products. Which pricing method should CC use? Justify your answer. • Cost-plus • Promotional • Competitive Level Description Marks 3 Sound application of knowledge and 9–12 understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more methods. Well-justified recommendation. Candidates discussing all three 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. 2 Sound application of knowledge and 5–8 understanding of 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 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 choices made. Candidates outlining three methods in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: Advantages Disadvantages • Easy to apply to • Profit will only be cookies – as just made if CC sells add a percentage sufficient high- mark-up to costs quality products • Can have different to break-even mark-ups in • Time is taken to different markets – research costs of can gain more all the fresh profit from markets ingredients and where a higher difficult to calculate Cost-plus price can be costs charged • No incentive to • Each product reduce costs makes a profit for • If costs are high, the business then the selling price of the products with personalised messages may be too high to be competitive 4(b) • Low price attracts • Low price will customers and mean low profit per increases sales of cookie cookies for • Customers may special occasions expect prices to such as birthdays remain low and – attracts attention therefore not to the products to purchase the encourage new products with customers to try personalised them – hopefully messages on establish regular them when the sales price is raised at a • Helps to ensure a later date successful launch • Consumer may into a new market think low price is Promotional in other cities – due to low quality could increase product sales and • May lead to price potentially increase competition with market share competitors that • It is useful to get rid sell in retail shops of unwanted in other cities – so inventory that did business may have not sell – as to reduce prices cookies are again perishable and need to be sold quickly • Can help to renew interest in a product if sales are falling 4(b) • Sales are likely to • High research be high due to costs to find out prices being set competitor’s prices around the same – may increase price as costs overall competitors’ prices • If costs of fresh in retail shops in ingredients to other cities produce the • May avoid price cookies are higher competition – so than the costs of achieves steady competitors, then revenue for the may be harder to high-quality achieve a profit – Competitive cookies may even be a loss • The cookies may • Higher-quality not be very different cookies might to the cookies of need to be sold at a competitors – so slightly higher customers will buy prices than from CC as they competitors to cannot tell the emphasise the difference between higher quality products image • May compete on quality rather than price Justification might include: • Cost-plus pricing method should be used as it ensures a profit is made on each cookie. Whereas promotional pricing does not ensure a profit is made and may even lead to a loss initially. The cookies are of high-quality which will mean the price is likely to be higher than competitors’ cookies and therefore low profits are likely if it uses competitive pricing. • Promotional pricing method should be used as it will ensure the cookies attract attention Recommendation and renew interest in the products. Sales should increase as this will help to maintain customer loyalty when the price is raised later. • Competitive pricing method should be used as it will mean the cookies will often be chosen over competitors cookies that are sold in retail shops in other cities as it has a higher quality but sold at a similar price. So the cookies will have high sales increasing market share.