Business Studies 0450/23 October/November 2024: question paper and mark scheme

Mark scheme

1(a) Explain two ways the slump in country P’s economy may be affecting 8 SA. Award 1 mark for each suitable way (max 2). Award a maximum of 3 additional marks for each explanation of the way the slump in country P’s economy may be affecting the business – one of which must be applied to this context. Suitable ways might include: • Reduced demand/sale of products – due to reduced incomes of households – as a result of high levels of unemployment • Prices may have to fall – lower profit margins – because business may be forced to keep prices low to maintain sales • Limited/slows down output – because some of the business’ suppliers fail to survive • Lack of business confidence to invest – more difficult to persuade banks to lend – sales may have been low for a considerable time leading to low/no profit / business not able to repay loan • May need to find new markets in other countries – to maintain sales For example: Demand for SA’s products is likely to have fallen and be at a low level (1) leading to low sales and possibly low or no profit (1). This is due to high levels of unemployment in the economy (1) leading to reduced incomes for households to be able to spend on clothes. (app) Application could include: sustainable cotton; clothes; trading for 30 years; uses batch production; 500 production employees; JIT inventory control; high- quality clothes; brand image for protecting the environment; forecast to move into the growth phase of the business cycle in 2025; low labour turnover; experienced skilled workers. 1(b) Consider each of the following three business objectives for SA. Which 12 objective is likely to be the most important for SA? Justify your answer. • To increase profit • To increase market share • To survive 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 objectives. Well-justified conclusion. Candidates discussing all three objectives in detail, in context and with a well-justified conclusion, including why the alternative objectives 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 objective. Judgement with some justification/some evaluation of choices made. Candidates discussing two or more objectives 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 of 1–4 relevant business concepts. Limited ability to discuss the objectives with little/no explanation. Simple judgement with limited justification/limited evaluation of choices made. Candidates outlining all three objectives in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: To increase profit • To possibly pay increased dividends to shareholders – less likely to sell the shares so keeps share price stable – less likely to be taken over • Can provide a source of finance for the public limited company – reduces the need to take out a bank loan if SA want to invest – may mean lower expenses as interest payments not paid • Managers may try to reduce costs by buying raw materials that are not made of sustainable cotton to increase profits – possibly lead to lower quality products – reduce customer satisfaction and sales • Managers may increase costs in the short- term by increased advertising of high-quality clothes – if successful may increase revenue and possibly profits To increase • Focus on increasing competitiveness to attract market share increased number of customers who are interested in buying from a company that has a brand image for protecting the environment – may need to lower prices to achieve this – leading to lower profits • May lead to higher costs by selling new range of clothes in their own shops – to attract an increased number of customers to increase revenue To survive • Focus on needing to keep costs down – to ensure revenue covers costs - and not make a loss in each of the clothes shops • Ensure employees can regularly be paid – keeps 500 production employees working for SA 1(b) Conclusion Justification could include: • To increase profit is most important to SA as the shareholders may expect a dividend paid each year or they may sell their shares and then SA could be in danger of being taken over by other clothing manufacturers. Increasing market share is less important as sales can grow without an increase in market share if the market as a whole is growing. The economy is expected to come out of the slump in 2025 so being able to survive is becoming less important in the future. • To increase market share is most important as it should mean that SA has increased sales of sustainable clothing in their shops. • To survive is most important to SA as the economy is still in a slump and if it doesn’t concentrate on trying to survive then the other objectives cannot be met.

Mark scheme

2(a) Explain two reasons why SA wants to keep labour turnover low. 8 Award one mark for each reason (max 2). Award a maximum of 3 additional marks for each explanation of the reason why SA wants to keep labour turnover low – one of which must be applied to this context. Reasons might include: • So recruitment costs will not be increased – no need to pay to advertise a vacancy • Time is saved recruiting new employees – no time is spent interviewing applicants – so managers have more time to focus on other issues • Training costs will be kept lower – as employees will already be trained • Keeps production at higher levels / less likely to disrupt output – as employees do not leave so production is not interrupted by employees leaving – orders can be filled without delays/meet demand • Has employees already trained if sales increase – can quickly produce increased output from existing employees – higher sales if can be amongst the first businesses to increase output if demand increases For example: Recruitment costs will not increase if labour turnover is kept low (1) so there is no need to pay to advertise a vacancy (1) to replace one of the 500 production employees (app) lowering cash outflows (1). Application could include: sustainable cotton; clothes; trading for 30 years; uses batch production; 500 production employees; JIT inventory control; high- quality products; forecast to move into the growth phase of the business cycle in 2025; experienced skilled workers. 2(b) Consider the benefits to SA of having part-time and full-time employees 12 in its factory. Should SA only have part-time employees in the future? 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 the two types of employees. Well-justified conclusion. Candidates discussing the two types in detail, in context and with a well-justified conclusion, including why one alternative 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 type of employees. Judgement with some justification/some evaluation of choice made. Candidates discussing the two types 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 of 1–4 relevant business concepts. Limited ability to discuss the alternatives with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining the two types in context should be rewarded with the top marks in the band. 0 No Creditable Response 0 2(b) Relevant points might include: Part-time employees • Able to work more flexible hours – increases motivation of the 500 part-time employees – can fit in around family requirements and attract people to work for SA • Easier to increase the employee hours during busy times making more clothes when required – allows for SA to increase output when demand increases • May be easier to recruit part-time employees – because hours may be more flexible • May reduce labour costs compared to employing full-time employees – as may only increase the hours worked when needed at busy times in the clothes manufacturing business • May be willing to accept a lower wage rate if hours fit in with other commitments – such as childcare or study – reducing costs for SA • May possibly be more productive than full- time employees as work fewer hours and so less tired • May not need to take time off for medical appointments – so less disruptive to production Full-time employees • May be more likely to be trained and seek training – increases productivity of employees as make clothing products at a faster rate • More likely to see the job as long-term rather than temporary/lower recruitment costs – so more likely to help keep labour turnover low • May be more loyal to the clothing business – leads to more motivated workers increases efficiency • May be more likely to be suitable for promotion as more quickly gain skills and experience if SA expands in the future – may allow promotion for some of the 500 production employees and reduces recruitment costs • Easier to communicate with full-time employees than part-time employees – as in work for more hours a day / days a week • May be quicker to recruit one full-time employee than two part-time employees 2(b) Conclusion Justification might include: • Yes, SA should only employ part-time workers because the economy may be in a slump until 2025 and there may not be a high demand for SA’s clothing products so part-time employees might be cheaper in terms of wage costs than full-time employees. They may be willing to work increased hours at busy times in the future therefore saving SA the costs of having to always pay full-time wages. Full-time employees will need to be paid even if there is insufficient demand to keep them working all the hours in the factory. • No, SA should employ some full-time workers as they will gain more skills and may be suitable to take on more responsibility when the economy starts to grow again as forecast for 2025. This may be more difficult to do in the future with only part-time employees.

Mark scheme

3(a) Explain four roles of packaging for a business. 8 Award 1 mark for each suitable role (max 4). Award 1 additional mark for each explanation of the role. There are no marks for application in this question. Roles might include: • Protect the product – so that it doesn’t get damaged in transit • Promote the brand image – so the product is easily identifiable from other brands • Provides information about the product – such as what materials have been used to make the product • Easy to transport the product – so the packaging shouldn’t be more bulky than necessary • Easy to open the packaging – so customers can quickly open and use the product • Eye-catching – to attract potential customers to the product • Suitable size for the products to fit in – packaging that is very large can take up additional warehouse space and storage needs to be cost effective For example: To protect the product (1) so that it doesn’t get damaged whilst being transported to shops or customers (1). 3(b) Consider the advantages and disadvantages of the following two 12 methods SA could use to achieve quality production. Which method should SA 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 methods. Well-justified recommendation. Candidates discussing both methods in detail, in context and with a well-justified recommendation, including why the alternative method 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 method. Judgement with some justification/some evaluation of choice made. Candidates discussing both 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 of 1–4 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 both methods 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 Quality control • Products checked at • It raises costs as the end of the inspectors need to production line tries be employed to eliminate faults • Identifies faulty and errors before products at the end the customer of the batch receives the production sustainable cotton process but does clothes not identify where • Less training is the fault has required for the 500 occurred production • If do not identify the workers as fault, then it does inspectors check the not eliminate the quality of the clothes faulty process before they leave the • High costs if clothes factory, and need to be scrapped employees do not need to be trained to check their own work Quality • Products checked at • Can be expensive to assurance every stage of the train employees to production process check the quality of to try to eliminate their own work faults or errors at • The reliability of each stage of employees is production before important, and they passing to the next need to be stage reducing committed to their faults at the end - work or quality therefore, there are assurance will not fewer customer be effective complaints about • Takes longer to faulty clothes produce high- • Reduced costs if quality clothes as fewer items of each worker needs clothing are to do their own check scrapped for faults • Can make workers feel trusted and may improve motivation 3(b) Recommendation Justification may include: • As they use batch production quality control may be more suitable as inspectors may just carry out a simple check at the end of the production line. Therefore, the 500 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. • Quality assurance is best because each stage of production will 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 for SA’s high-quality products. It will ensure faults do not need to be repaired, reducing the cost of faulty cotton products being scrapped.

Mark scheme

4(a) Explain two advantages and two disadvantages of SA using just-in-time 8 (JIT) inventory control. Award 1 mark for each relevant advantage/disadvantage (max 4). Award a maximum of 1 additional mark for each explanation of the advantage/disadvantage which must be applied to this context. Relevant advantages might include: • Reduces cost of holding inventory – as fewer sustainable cotton raw materials will need to be stored • Warehouse space is not needed – to store the part-finished clothes • Helps improve cash flow – for the business that has been trading for 30 years • Less likely to have inventory that goes out of date/fashion Relevant disadvantages might include: • May not be able to meet an unexpected increase in demand – as the economy comes out of the slump and goes into the growth stage of the business cycle in 2025 • There may be late deliveries of raw materials – and the batch production process will be delayed • Relies on a good relationship with suppliers – to maintain the brand image of protecting the environment • Cannot benefit from economies of scale • Less room for mistakes in the production process For example: Reduces the cost of holding inventory (1) as fewer sustainable cotton raw materials will be required to be stored ready for the production process (app). Application could include: sustainable cotton; clothes; trading for 30 years; high- quality products; uses batch production; 500 production employees; has its own shops; brand image for protecting the environment; forecast to move into the growth phase of the business cycle in 2025; low labour turnover; experienced skilled workers. 4(b) Consider the two extracts from SA’s income statements in Appendix 3. 12 Do you think SA’s financial performance will have improved by the end of 2024? Justify your answer using appropriate calculations. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both years. Well-justified conclusion. Candidates discussing both years in detail, in context and with a well-justified conclusion, including whether the financial position will have improved, 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 year. Judgement with some justification/some evaluation of choice made. Candidates discussing both years 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 of 1–4 relevant business concepts. Limited ability to discuss the years with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining both years 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 calculations • Revenue is forecast to increase by and statements $10m/50% from $20m to $30m in 2024 • Cost of sales is forecast to increase by $5m/100% from $5m to $10m in 2024 • Expenses are forecast to increase by $4m/40% from $10m to $14m in 2024 • Profit is forecast to increase by $1m/20% from $5m to $6m in 2024 • The economy is forecast to go into a growth phase of the business cycle in 2025 and sales should continue to increase • SA has all 500 production workers who can produce more cotton products so that forecast revenue is achievable Level 2 calculations • Gross profit margin is 75% in 2023 and discussion • Gross profit margin is forecast to be 67% (66.6%) for 2024 • Profit margin is 25% in 2023 • Profit margin is forecast to be 20% for 2024 • Gross profit margin is forecast to have fallen by 8% in 2024 • Profit margin is forecast to have fallen by 5% for 2024 • If the 500 production employees are not willing to increase their hours back up to full- time work, then the forecast increase in production may not be achieved and the revenue may be lower than the $30m forecast in the income statement • The 2024 income statement is only a forecast, and these figures may not be achieved especially as the economy will still be in a slump 4(b) Conclusion Justification might include: • Yes, SA’s financial performance will have improved by the end of 2024 because revenue and profit are both forecast to increase. The forecast revenue is an increase of 50% to $30m and profit is set to increase by 20% to $6m. The economy is expected to move out of the slump so revenue should continue to increase into 2025 continuing to improve the revenue and profits of SA. • No, SA’s financial performance is not likely to improve by the end of 2024 as both the gross profit margin and profit margin are expected to fall. Gross profit margin is forecast to have fallen by 8% and profit margin by 5%. This is because although revenue has increased from $20m to $30m the cost of sales and expenses have increased by a larger percentage. This suggests that SA is not keeping its costs under control and therefore its financial performance is forecast to get worse in 2024 even if its revenue and profits increase.