Business Studies 0450/22 October/November 2024: question paper and mark scheme

Mark scheme

1(a) Explain two advantages and two disadvantages of BB being a public 8 limited company. Award 1 mark for each relevant advantage/disadvantage (max 4). Award 1 additional mark for each explanation of the advantage/disadvantage applied to this context. Relevant advantages might include: • Able to sell shares to the public – so additional capital can be raised to finance the new factory • Rapid expansion possible by raising large sums of capital – to become a multinational company • Limited liability would encourage more people to invest in the public limited company • Continuity Relevant disadvantages might include: • Accounts available to the public – competing bike manufacturers can see the accounts • Pressure to pay large dividends to shareholders – this restricts the planned expansion for the children’s bike • Risk of takeover/original owners may lose control – and use its flow production line to produce competitors’ products • Divorce between ownership and control • More complex accounting and reporting requirements/more legal formalities For example: Able to sell shares to the public (1) so additional capital can be raised to finance the new factory (app). Application could include: new factory; bikes; flow production; wants to become a multinational company; bike manufacturer; exports 30%; target market of adults and young children; components of bikes e.g. gears; 100 production workers; sells through specialist bike shops; high labour turnover; sales have increased every year since set up. 1(b) Consider the advantages and disadvantages of the following three 12 methods BB could use to motivate its production workers. Which method should BB use? Justify your answer. • Piece rate • Teamworking • Job rotation Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of two or more methods. Well-justified recommendation. Candidates discussing all three methods, in context and with a well-justified recommendation, including why the alternative methods were rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of at least one method. Judgement with some justification/some evaluation of choice made. Candidates discussing two or more methods in detail and applying these to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and 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 choice made. Candidates outlining the three methods in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: Piece rate • Employees would receive payment for each product/task they carry out – encourages them to work harder/carry out more tasks – produce more output – possibly increased sales from higher output of bikes • Taylor – increased pay leads to employees being more motivated and may reduce the high labour turnover • May be unfair if some tasks take longer than other tasks – so some employees gain more than others in higher payment – may demotivate some employees • If machinery breaks down, then the employees will earn less total pay • The 100 skilled production employees may work quickly to earn higher wages and hence may make more mistakes/reduce quality • May not be able to sell the increased output – increasing storage costs • May be difficult to measure the output of each of the 100 production employees – so difficult to calculate piece–rate and easier to stick to paying $10 per hour Teamworking • Production employees become more involved with the decision–making when working together in a team – makes them feel more valued as have more responsibility in the production process manufacturing bicycles • Feel have more control over tasks – more loyal to BB – less likely to leave so may reduce recruitment costs • Some parts of the flow production process may not easily be divided so a team of employees can work together/may not be easy to apply to the flow production process 1(b) Job rotation • Makes the employees’ job more interesting/less boring • Change tasks around from one product to another on the flow production line – and may need different skills to complete this work • May keep working with different employees from the 100 production workers which employees prefer • May increase training requirements as each worker may only be able to perform one task – so may need additional training to carry out different tasks – increases costs for BB • Quality of bikes may be lower if employees are less specialised in different tasks • May mean sometimes a worker does a job that is not liked – may reduce motivation • May only be motivating in the short term until the worker gets used to the new tasks • Does not make the individual tasks themselves more interesting Recommendation Justification might include: • Introducing piece–rate should be chosen as it will motivate the 100 production employees to increase output to increase their wages. BB will earn a higher revenue if all output is sold, and employees are less likely to leave. Teamworking may make employees feel more motivated but may not lead to a higher output just happier production employees. Job rotation may not increase motivation if the different tasks are all equally boring on the production line. • Introducing teamworking should be chosen as this will make employees feel some control over the tasks they carry out on the flow production line and will give them chance to work together leading to higher motivation and they are less likely to leave. • Introducing job rotation between tasks producing bikes is the best method to choose because it will not cost BB any money if no training is required. It will give variety to the employees’ jobs and will encourage them to stay at BB instead of leaving.

Mark scheme

2(a) Explain two effects of BB having a short chain of command. 8 Award 1 mark for each effect (max 2). Award a maximum of 3 additional marks for each explanation of the effect of having a short chain of command – one of which must be applied to this context. Relevant effects might include: • Communication is more accurate – as fewer people for messages to be passed through – less chance of errors being passed on • Senior managers are less remote from lower levels in the hierarchy - allows these managers to be more aware of the views of employees - less likely to be disputes between production employees and managers • Decision–making can be quicker – as fewer levels to discuss issues and pass on decisions – react to customer changes more quickly • Manager may have a wider span of control – which may increase the opportunities for delegation – employees feel more trusted/greater job satisfaction • Managers may have less control of what their subordinates are doing may be more likely for subordinates to make mistakes – increases costs • Increased workload for managers • Communication is quicker For example: Communication is more accurate (1) as there are fewer people for messages to be passed through (1) less chance of errors in the messages (1) about the production of bikes (app). Application could include: new factory; bikes; flow production; wants to become a multinational company; bike manufacturer; exports 30%; target market of adults and young children; bike components e.g. gears; 100 production workers; sells through specialist bicycle shops; higher labour turnover; flat organisational structure; named director/manager from Appendix 1. 2(b) Consider the following three extension strategies BB could use for its 12 best-selling product. Which strategy should BB use? Justify your answer. • Adding new features • Start selling in toy shops • Television advertising campaign Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of two or more strategies. Well–justified recommendation. Candidates discussing all three strategies, in context and with a well–justified recommendation, including why the alternative strategies were rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of at least one strategy. Judgement with some justification/some evaluation of choice made. Candidates discussing two or more strategies in detail and applying these 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 strategies with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining the three strategies in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: Adding new • Bike will have additional features – such as features more gears – making it easier to ride and therefore attractive to a wider range of customers • Bikes may be better than competitors’ bikes – encouraging customers to buy BB’s bikes instead of competitors’ bikes • May encourage existing customers to get rid of their old bike and buy a bike with the new features – as they will want the most up-to- date version to show their friends – increasing revenue • Takes time and cost to develop the new features of the product Start selling in toy • A different target market will see the shops children’s bike in toy shops and may be attracted to buy it as usually sold through specialist bike shop so will not usually be seen by these other customers – increasing sales • May be more toy shops in country X than specialist bike shops – making the bike more accessible to potential customers – greater number of shops where can buy/see the bike so more likely to buy the bike • Potential customers go into toy shops to buy other products such as a scooter – see the bike whilst in the toy shop and may be attracted to buy one • Also selling competitors’ products so may be more competition 2(b) Television • A wider range of people will see the advertising advertisement and will become aware of the campaign bike – leading to higher sales • TV adverts can be attractive and persuasive – using moving images and colour to attract children or their parents to purchase a bike – can reinforce the brand image and attract customers • The TV advert can be put on between programmes that are watched by children – so they are seen by target customers – increasing the effectiveness of the marketing budget • High cost of television advertising Recommendation Justification might include: • Bikes with new features will attract existing customers to upgrade their bike leading to increased sales. These customers are already familiar with the BB brand and will want the latest version of the bike. Selling through toy shops will be less effective as customers may not go to toy shops to buy a bike, preferring instead to go to a specialist shop where they can get advice. A TV campaign may not be effective if customers do not watch television. • Starting to sell through toy shops should be used as it will enable BB to reach a wider market of potential customers including children and their parents and therefore, they may be more likely to buy a BB bike if they are now aware of the product. • A new TV campaign should be used as it will make many more people aware of the children’s bike and parents might be attracted to buy one leading to increased revenue.

Mark scheme

3(a) Explain one way each of the following stakeholder groups might be 8 affected by a business becoming a multinational company. Award 1 mark for how each stakeholder group will be affected (max 2 marks for each stakeholder group). Award a maximum of 1 additional mark for each explanation of how the stakeholder group will be affected. There are no application marks available for this question. Effects on shareholders might include: • Value of assets of company increases – as increased profit can be reinvested • Increased dividends – profit increases from avoiding barriers to trade • Lower dividends – if need to fund expansion into other countries • Increased share price/value of shares increases – as becomes a more well-known business due to market share increasing • Easier to sell shares – as the company is known globally with higher revenue/profit/better image Effects on employees might include: • May lose jobs – as business moves to produce in a country with lower labour/production costs • May gain promotion – from business expanding into different markets / business can access a larger target market and additional jobs may be required • May have a more secure job – as business remains competitive if competitor companies are also expanding abroad • Higher wages paid – as business is more successful and can afford to increase wage rates Effects on suppliers: • May have increased sales – as output of multinational increases • May lose sales – as multinational may purchase from cheaper suppliers in other countries Effects on government: • Higher tax revenue if higher profit repatriated • May lose tax revenue if multinational locates head office in another country For example: Employees may lose their jobs (1) as the business becomes a multinational company and moves its production to another country to lower labour/production costs (1). 3(b) Using Appendix 2 and other information, consider the two countries BB 12 could choose to locate its first new factory. Which country should BB choose? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of both countries. Well-justified recommendation. Candidates discussing both countries in detail, in context and with a well-justified recommendation, including why the alternative country is rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of at least one country. Judgement with some justification/some evaluation of choices made. Candidates discussing at least one country 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 1–4 of relevant business concepts. Limited ability to discuss the countries with little/no explanation. Simple judgement with limited justification/limited evaluation of choices made. Candidates outlining both countries in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: Benefits Drawbacks Country A • Gross profit per bike • Has many is $225 more than competitors so Country B demand may be • Highest selling price lower – may have per bike at $1000 – to reduce selling possibly highest price to attract revenue if demand customers – remains high possibly reducing 70% of raw revenue materials are • May have to spend available in more on marketing country A which to enter the new may make it easier market abroad – and quicker to increasing costs – receive supplies – possibly reducing less need to import profit • Only 30% of the • Higher wage costs raw materials need to produce each to be imported – so bicycle at three depreciation in times the cost of exchange rate may Country B – leading have smaller effect to higher wage on costs costs overall • Gross profit margin • Harder to recruit is 35% which is new workers as higher than country unemployment is B at 31.25% low – may have to offer more fringe benefits to attract employees from their many competitors • 30% of raw materials need to be imported – if depreciation in the exchange rate of country A then may make the cost of these raw materials more expensive 3(b) Benefits Drawbacks Country B • Half the raw • Only 40% of raw material cost per materials are bicycle at $175 in available in country A – makes country B so a it easier to charge large proportion of the lowest price of other raw materials $400 per bicycle may need to be • High imported/transporte unemployment d a long way – makes it easier to increasing delivery recruit new costs and delivery employees – more time likely to remain with • Lower difference BB as few between price of alternative $400 and costs of employment $275 = $125, opportunities in whereas it is $350 country B – in country A lowering • Few competitors recruitment may indicate that costs/training costs demand for in the future bicycles in country • Lowest wage costs B is low – BB needs at $100 per to spend on market bicycle – reducing research to be sure total labour costs there is a market in • Low price at $400 country B – per bicycle may investment could be attract many wasted if there is customers – not sufficient possibly increasing demand to make revenue the expansion successful Recommendation Justification might include: • BB should choose country A as it can charge the highest price of $1000 per bicycle which may lead to higher revenue and with a higher difference of $350 per bicycle between price and variable costs it gives the highest gross profit per bicycle sold. Whereas country B has to have 60% of raw materials imported and if there is a depreciation in the exchange rate then this could be very expensive in the future. • BB should choose country B as it has the lowest wage cost per bicycle, and it will be easy to recruit new employees as there is high unemployment there.

Mark scheme

4(a) Explain two reasons why BB might want to sell its products in new 8 markets in other countries. Award 1 mark for each reason (max 2). Award a maximum of 3 additional marks for each explanation of the reason why BB might want to enter new markets in other countries – one of which must be applied to this context. Relevant reasons might include: • Much greater growth potential than existing market – populations may be increasing and incomes rising – enabling more people to afford BB’s products • Home market has slow growth – so future growth in sales is limited – new markets provide opportunities for growth not available in the existing market • May encourage more production to be located in other countries as well as sales – provides more information on these markets to lead to better understanding of these customers • New developments in marketing may make it easier to reach consumers in foreign markets • To increase sales of BB’s products – increases revenue and possibly profit if distribution costs are not too high • Spreads risk – less dependent on one market for its sales For example: There may be much greater growth potential than existing market (1) because population and incomes may be rising (1) which enables more people to afford BB’s bikes (app) so sales and revenue will increase (1). Application could include: new factory; bikes; flow production; wants to become a multinational company; bike manufacturer; exports 30%; target market of adults and young children; bike components e.g. gears; 100 production workers; paid $10 per hour; sells through specialist bicycle shops; sales have not grown for 3 years. 4(b) Using Appendix 3 and other information, consider BB’s financial 12 performance compared to its main competitor. Do you think BB’s financial performance is better than its competitor? Justify your answer using appropriate calculations. Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion whether BB or its competitor has the better financial performance. Well-justified conclusion. Candidates discussing in detail whether or not BB has a better financial performance than its competitor, in context and with a well-justified conclusion should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of whether BB or its competitor has a good financial performance. Judgement with some justification/some evaluation of choice made. Candidates discussing in detail whether BB and its competitor has a good financial performance and applying it to the case with a well justified conclusion 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 financial performance of BB and its competitor with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining the financial performance of BB and its competitor in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: Level 1 • The return on capital employed is twice as high as its competitor at 30% • BB has taken out a bank loan for $10m which is $50m lower than the competitor • Gross profit is only half the amount of the competitor’s at $60m • BB has $80m less revenue than its competitor at $120m for the year • The acid test ratio is higher at 1.3 • Revenue is lower at $120m for BB and sales have not been increasing for its bestselling children‘s bicycle • Profit is a lot lower than its competitor’s profit statements Level 2 • The return on capital employed is higher for BB statements at 30% and indicates that BB gains $30 return for every $100 dollars invested in BB but the competitor only returns $15 for every $100 invested so BB is more efficient in its use of capital • The acid test ratio of 0.67 for BB’s competitor shows that after inventories have been removed from current assets it cannot pay all its current liabilities when they fall due for payment. This may make it difficult for the competitor to keep trading if it cannot pay its current liabilities without relying on cash inflows from the sale of inventories • The acid test ratio for BB is good at 1.3 and indicates that BB can repay its current liabilities by 1.3 times – so liquidity is good. However, this may suggest that current assets could be put to better use in the business to increase revenue • The gross profit margin for BB’s competitor is 60% • The gross profit margin for BB is 50% • The profit margin for BB’s competitor is 20% • The profit margin for BB is 5% 4(b) Conclusion • BB’s financial performance is better than its competitor as the acid test ratio of 1.3 indicates that BB has better liquidity than its competitor with only an acid test ratio of 0.67. BB may be able to pay any current liabilities more easily. BB is at less risk of insolvency than its competitor and has $50m fewer loans to repay than its competitor. The competitor may have higher gross profit margin and higher profit margin, but these do not lead to a higher ROCE. • BB’s competitor has a better financial performance as the gross profit margin is higher by 10% and the profit margin is also higher by 15%.