Business 9609/32 February/March 2023: question paper and mark scheme

Mark scheme

1 Analyse how two legal changes planned by the new government will impact FWB. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two • Application of two Limited analysis relevant points is relevant points to a • Limited analysis that identifies connections used to answer the business context. between causes, impacts and/or consequences of question. • Application of one two points. • Knowledge of one relevant point to a • Limited analysis that identifies connections relevant point is business context. between causes, impacts and/or consequences of used to answer the one point. question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Note: • If more than two changes are referred to, reward the best two. • Accept any legal change that relates to the case context. All annotation ( ) should be in the left margin. 1 Responses may include: AO1 Knowledge and understanding Definition of the legal environment (max K1) might include: • The legal environment acts as both a constraint and an enabler for FWB’s activities. • Legal environment is the set of rules set by government that regulates business activity. Knowledge of impact of legal changes might include (max K2): • Increased running costs • Increased capital costs • Greater difficulty in dismissing employees • Restrictions on recruitment processes • Changes to employment practices • Changes to operations • Controls on marketing • Changes to product • Changes to health and safety AO2 Application Limited application, applies knowledge to FWB once. Developed application, + applies knowledge to FWB twice. Max one for application for the first legal change and max one for application for the second legal change. • Minimum wage paid is currently paid to employees. This could increase. • Extensive training in health and safety and food hygiene already provided – review to ensure meets new standards. • Government plans regarding plastic waste – impact on food and drink packaging. • Zero hours contracts used by FWB could be banned. 1 AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis OR offers a two-sided analysis • increased costs - an increase in the minimum wage increases labour costs may reduce profit margins resulting in reduced profit • greater difficulty in dismissing employees - legal rights of employees may constrain the decision making of managers making it more difficult to remove unproductive employees thus reducing the efficiency of FWB and increasing costs • changes to product - reducing plastic waste may mean FWB need to change product that drinks are served in and therefore an increase in costs which may require FWB to increase in food prices • changes to operations - controls on CO2 emissions may increase costs as FWB may need to invest in new vans • changes to employment practices - increased training will increase costs of FWB and reduce profit but could increase employee motivation and increase productivity (two-sided analysis) • changes to employment practices - further training can improve the quality of employees and make FWB more efficient . Improves customer service and avoids complaints from customers resulting in increased sales . Accept all valid responses.

Mark scheme

2 Analyse two benefits to FWB of delegating more decision-making to van managers. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two • Application of two Limited analysis relevant points is relevant points to a • Limited analysis that identifies connections used to answer the business context. between causes, impacts and/or consequences of question. • Application of one two points. • Knowledge of one relevant point to a • Limited analysis that identifies connections relevant point is business context. between causes, impacts and/or consequences of used to answer the one point. question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Note: • Only reward benefits to FWB. • If more than two benefits are referred to, reward the best two. All annotation ( ) should be in the left margin. 2 Responses may include: AO1 Knowledge and understanding Definition of delegation (max K1) might include: • Delegation is passing down of authority to perform tasks/take decisions. Knowledge of benefits might include (max K2): • Delegation can improve motivation of managers. • Decision making may be more responsive to local needs. • Lower labour turnover. • Reduce recruitment costs. • Better marketing decisions. • Quicker local decision making. AO2 Application Max one for application to the first benefit of delegation and max one for application to the second benefit of delegation. • Good managers have left FWB. • Distinct demographic and cultural differences in regions. • Different economic conditions in regions. • Managers have no decision-making power over marketing. AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. • Delegation may motivate employees and result in an increase in productivity or work effort reducing unit costs and therefore increase profit. • Motivated employees may provide improved customer service which will increase sales and therefore profit. 2 • Decision making at a local level may make FWB more responsive to local customer needs thus increasing customer satisfaction and increasing sales • Fulfilling manager demands will help retain managers and therefore reduce recruitment costs . • Replacing experienced managers who leave due to dissatisfaction may be difficult . Accept all valid responses.

Mark scheme

3(a) Assume FWB increases spending on promotion by 20% and the promotional elasticity of demand is 0.8. Calculate 1 the percentage change in FWB’s revenue. Indicative content 0.8 × 20 = 16% (1) Award one mark for 16 3(b) Refer to lines 30-32. Calculate the estimated price elasticity of demand if FWB increases the price of coffee from 3 $2.00 to $2.30. Responses may include: PED = Percentage change in Qd / Percentage change in price (1 if no relevant calculation) Percentage change in Qd = -10 / 180 × 100 = -5.56% (1) Percentage change in price = 0.3 / 2.00 × 100 = 15% (1) PED = -5.56 / 15 = -0.37 OR -0.4 (3) - Award 2 marks for 0.37 OR 0.4 OFR 3(c) Evaluate the usefulness of the concept of elasticity of demand to FWB when deciding on a new marketing mix. 12 Level AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation and understanding 2 marks 2 marks 6 marks 2 marks 3 5–6 marks Developed evaluation in context • A developed judgement/conclusion is made in the business context. • Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed Developed Developed Developed evaluation knowledge of application of analysis • A developed judgement/conclusion relevant key term(s) relevant point(s) to that identifies is made. and/or factor(s) is the business connections • Developed evaluative comments used to answer the context. between causes, which balance some key question. impacts and/or arguments. consequences. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key of relevant point(s) that identifies • A judgement/conclusion is made term(s) and/or to the business connections with limited supporting factor(s) is used to context. between causes, comment/evidence. answer the question. impacts and/or • An attempt is made to balance the consequences. arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 3(c) Responses may include: AO1 Knowledge and understanding Limited knowledge will be demonstrated through knowledge of the concept of elasticity of demand or knowledge of the marketing mix. Developed knowledge + will be demonstrated through knowledge of the concept of elasticity of demand and knowledge of the marketing mix. Knowledge of elasticity of demand • Understanding of different elasticity concepts: – promotional elasticity measures responsiveness of demand to changes in promotional spending – price elasticity measures responsiveness of demand to a change in price – cross price elasticity measures the responsiveness of demand to a change in price of another product – income elasticity measures the responsiveness of demand to a change in income. • Understanding of inelastic – not responsive and elastic – responsive to change in price / promotion / income. Knowledge of marketing mix • Marketing mix is part of marketing strategy to achieve marketing objectives within a budget. • Marketing mix consists of price, place, promotion and product AO2 Application Limited application, applies knowledge to FWB once. Developed application, + applies knowledge to FWB twice. • Estimated PED is –0.37. This is price inelastic. 15% increase in price will result in 5.6% decrease in Qd • OFR. For example if –2.7 then price elastic. • Daily revenue from coffee sales per van would change from $360 (180 × 2) to $391 (170 × 2.3). An increase of 8.6%. • Estimated promotional elasticity of demand is 0.8. Demand is promotion inelastic i.e. not responsive. • 20% increase in spending (an extra $40 000) would in theory result in increase in revenue of 16% (0.16 × 40.5m = $6.48m). • Objective to increase revenue by 15% • Levels of income and unemployment vary. This will impact elasticity measures. • Variety of customers. 3(c) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. • Knowledge of PED is useful to FWB making decisions about pricing. For example, low PED would indicate that an increase in price would increase revenue and therefore increase profit . • Increasing price will reduce quantity of coffee demanded and therefore may reduce sales of complementary products such as snacks therefore decreasing revenue overall . • Increase in price of coffee may result in customers purchasing drinks elsewhere which will reduce FWB’s market share AO4 Evaluation Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment. Developed evaluation – supported judgement and/or reasonable evaluative comment. Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. • In marketing plan, FWB will also consider other factors e.g. changing snacks, improvements to quality of food. These changes to the marketing mix can increase sales and impact profit. • A judgement about the usefulness of elasticity to marketing mix decisions. • A judgement about the most important factor influencing marketing mix decisions. • A judgement about the limitations of elasticity calculations. – Measurement of elasticity is difficult and likely to be inaccurate due to large range of factors that will affect outcomes, particularly competitor decisions. Other things don’t remain equal in markets. • Factors that the judgement could depend on including: – The degree of competitive rivalry in the market – Other elements of marketing plan are important e.g. integrated marketing mix to ensure consistency in message communicated to potential customers and therefore attract sales. Accept all valid responses.

Mark scheme

4(a) Refer to lines 47-49 and Table 1.1. Calculate the accounting rate of return (ARR). 4 Notes Answer Mark Correct answer 50 000 / 325 000 × 100 = 15.38% OR 15.4% OR 4 15% Calculation of average profit and average $50 000 and $325 000 3 investment Divided average profit by capital cost 50 000 / 650 000 × 100 = 7.69% Capital cost not subtracted 180 000 / 325 000 × 100 = 55.38% Divided profit by average investment 250 000 / 325 000 × 100 = 76.92% Calculation of average profit 250 000 / 5 = $50 000 2 Calculation of profit and average investment $250 000 and $325 000 Annual cost savings / capital cost 180 000 / 650 000 × 100 = 27.7% Profit / capital cost 250 000 / 650 000 × 100 = 38.46% Calculation of profit 900 000 – 650 000 = $250 000 1 OR OR Calculation of average investment 650 000 / 2 = $325 000 OR OR Equation for ARR ARR = Annual profit / Average investment × 100 Notes: Award four marks for 15.38 OR 15.4 OR 15 $ sign not needed in answers. 000s not needed (as header in table is 000s) 4(b) Evaluate whether FWB should invest in enterprise resource planning (ERP). 12 Level AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation and understanding 2 marks 2 marks 6 marks 2 marks 3 5–6 marks Developed evaluation in context • A developed judgement/conclusion is made in the business context. • Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed Developed Developed Developed evaluation knowledge of application of analysis • A developed judgement/conclusion relevant key term(s) relevant point(s) to that identifies is made. and/or factor(s) is the business connections • Developed evaluative comments used to answer the context. between causes, which balance some key question. impacts and/or arguments. consequences. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key of relevant point(s) that identifies • A judgement/conclusion is made term(s) and/or to the business connections with limited supporting factor(s) is used to context. between causes, comment/evidence. answer the question. impacts and/or • An attempt is made to balance the consequences. arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 4(b) Responses may include: AO1 Knowledge and understanding Limited knowledge will be demonstrated through knowledge of a factor in investment decision or knowledge of ERP / ERP impacts. Developed knowledge + + will be demonstrated through knowledge of a factor in the investment decision and knowledge of ERP / ERP impacts or knowledge of ERP and ERP impacts. Knowledge of ERP and its impacts: Definition of ERP: the use of a computer application to plan the purchase and use of resources in an organisation to improve efficiency. Part of supply chain management. • Helps with inventory control. • Reduces costs of operations. • Links information between departments. • Choosing best suppliers and most cost-effective suppliers and supporting JIT manufacturing. • Allocating jobs to appropriate production employees. Knowledge of other factors in decision • Cost. • Availability of finance. • Impact on employees. • ARR and Payback results. AO2 Application Limited application, applies knowledge to FWB once. Developed application, + applies knowledge to FWB twice. • Payback of 3 years and 9 months – within 5 years before replacement. • Return of $250 000 over 5-year period. • ARR of 15.38% above ROCE for the business (4.2%). • Profit of $2.1465m last year (40.5m × 5.3%) • Gearing is 45% – quite high. • Cost of ERP $650 000 4(b) • Data is supplied by the ERP company. • Coordination of multiple suppliers. • Reducing waste of discarded food and coffee beans. • FWB has had problem of stock-outs. • Coffee beans are perishable AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. • ERP is costly and the relatively high gearing of FWB increases risk of further borrowing causing cash flow problems for FWB if increased net cost savings take time to be realised. • Employee training to deal with computer systems will result in increased cost (but should be included in the net cost savings data). • ERP provides more effective sharing of information between departments which can lead to a more integrated approach which may increase efficiency and therefore increase profits . • Introducing ERP may cause disruption to operations in the short-term reducing output whilst it is installed • ERP will help FWB fulfil customer orders more quickly resulting in customer satisfaction and therefore an increase in sales • ERP may result in a reduction in the number of employees engaged in stock control which will reduce operating costs but this will also result in redundancy payments being made AO4 Evaluation Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment Developed evaluation – supported judgement and/or reasonable evaluative comment Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. • A judgement about whether to invest in ERP. • Elements that the evaluation/judgement might depend on: – Cost savings are estimates made by the ERP specialist. Can these figures be trusted as specialist will wish to sell to FWB? – If ERP is used to reduce inventory holding costs, then success greatly depends on the reliability of suppliers of coffee beans to deliver on time. 4(b) • Other factors to consider e.g. – NPV as this considers time value of money. – Depends on availability of finance linked to relatively high gearing and interest rate. – How long will it take to implement the ERP system? – Will specialist IT employees be required and how expensive is that? – Opportunity cost of this project. Legal changes planned by the government may require significant capital investment if FWB has to replace its vans. • Weighing up of the factors and their relative influence on FWB’s decision whether to invest in ERP Accept all valid responses.

Mark scheme

5 Evaluate the usefulness of FWB’s accounting ratio analysis to its directors when making business decisions. 12 Level AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation and understanding 2 marks 2 marks 6 marks 2 marks 3 5–6 marks Developed evaluation in context • A developed judgement/conclusion is made in the business context. • Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed Developed Developed Developed evaluation knowledge of application of analysis • A developed judgement/conclusion relevant key term(s) relevant point(s) to that identifies is made. and/or factor(s) is the business connections • Developed evaluative comments used to answer the context. between causes, which balance some key question. impacts and/or arguments. consequences. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key of relevant point(s) that identifies • A judgement/conclusion is made term(s) and/or to the business connections with limited supporting factor(s) is used to context. between causes, comment/evidence. answer the question. impacts and/or • An attempt is made to balance the consequences. arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 5 Responses may include: AO1 Knowledge and understanding Limited knowledge will be demonstrated through knowledge of accounting ratio analysis. Developed knowledge + + will be demonstrated through knowledge of accounting ratio analysis and knowledge of link to decisions. Knowledge of ratio analysis and what different ratios show: • Ratios used to assess business performance / efficiency /liquidity / shareholder. • Gearing – dependence on debt finance. • Inventory turnover – measure of financial efficiency. Higher the number the more efficient the business. • Liquidity ratios – ability to meet short term debt. • Profitability ratios – ability to generate profit from sales/assets. Knowledge of links to decision making • Help with decisions regarding budgets/shareholder dividends/ borrowing. • Gearing – dependence on debt finance and decisions about source of long-term finance • Inventory turnover – measure of financial efficiency and decisions about stock. • Liquidity ratios – ability to meet short term debt and decisions about short term finance. • Profitability ratios – ability to generate profit from sales/assets and decisions about pricing and controlling costs. AO2 Application Limited application, applies knowledge to FWB once. Developed application, + applies knowledge to FWB twice. • Need for finance for investment in ERP will impact gearing. • Gearing is not high though it is close to 50%. • Gearing has increased by 10% points in past year. • ROCE has decreased by 0.7% points. • Trade payables turnover has increased by 5 days. • Expansion to international markets will require finance. • Appropriate interpretation of ratios in Table 2 – current ratio shows FWB has sufficient short-term assets to cover short term debt – profit margin of 5.3%. $5 profit for every $100 of revenue. Suggests FWB made $2.1465m profit last year – inventory turnover of 12 indicates that FWB holds inventory for 30.4 days. Could link to ERP investment. – trade payables turnover in days of 34.2 good for cashflow as likely to be much higher than trade receivables. 5 AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. • Gearing helps make decisions about finance. High gearing indicates increased level of risk to FWB of being unable to service debt interest and therefore influencing decision of whether to take on debt finance or equity finance for expansion. • Gearing will impact decisions about how to finance investment, such as in ERP, and can be used to support application for finance as FWB has gearing below 50% so managers may consider further borrowing to be relatively low risk . • Inventory turnover has decreased. This is useful to managers as it indicate that there is a risk of a deterioration in FWB’s product quality. Therefore, managers might introduce JIT stock control to rectify the problem and improve customer satisfaction. • Profitability ratios can highlight where managers need to act; as profitability is decreasing, managers may focus on decisions to control costs in order to increase returns and therefore improve business performance and satisfy shareholders . • Quantitative nature of ratio analysis will make decisions more objective and increase the quality of decision making which will help improve FWB’s performance . • Data may make managers more cautious about undertaking future investment given the relatively high gearing. AO4 Evaluation Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment Developed evaluation – supported judgement and/or reasonable evaluative comment Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. • The data in Table 1.2 suggests a decline in performance on most ratio measures and therefore provides warning sign to managers that they need to find out what is behind the trends and therefore what decisions need to be made for 2024 and beyond. • One ratio by itself is not very useful – current ratio not sufficient by itself, managers need to see acid test. • Which ratio is most significant and therefore which is most important to improve. 5 • Inter-firm comparisons may be necessary to make judgements about performance of FWB. • Only a quantitative technique. Managers increasingly consider qualitative factors when making decisions. • Ratios alone do not necessarily indicate the true cause of business problems. • Decisions also depend on other factors e.g. external environment – forecast increase interest rates will impact decision to increase borrowing. • Ratio analysis may not be useful as there may be disagreement about interpretation of ratios / competition for resources/ bias in departmental perspective / window dressing. • Too much emphasis may be placed on ratios at expense of more qualitative factors. Accept all valid responses.