Business 9609/32 February/March 2024: question paper and mark scheme

Mark scheme

1 Analyse two benefits to CD resulting from internal economies of scale. 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 between used to answer the business context. causes, impacts and/or consequences of two question. • Application of one points. • Knowledge of one relevant point to a • Limited analysis that identifies connections between relevant point is used business context. causes, impacts and/or consequences of one point. to answer the question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Note: • Only reward benefits. • If more than two benefits are referred to, reward the best two. All annotation ( ) should be in the left margin. 1 Indicative content Responses may include: AO1 Knowledge and understanding Definition of internal economies of scale (max K1 mark) • Internal economies of scale result from the increase in scale of operations of the business. • Internal economies of scale include: marketing, purchasing, technical, financial and managerial. Knowledge of benefits of internal economies of scale to CD Benefits include: • Reduced unit costs. • Increased productivity due to greater technical economies. • Being able to recruit higher quality managers. • Lower costs for finance. AO2 Application Max one for application for the first element and max one for application for the second element. • Household cleaning product market is competitive. • Competition from MNCs (likely to have low unit costs). • Competition from smaller businesses in the environmental market segment (CD can gain price advantage). • Substantial marketing budget (keep unit marketing costs low). • Increased costs of chemicals and other materials due to inflation. • Shareholder pressure for higher returns (link to profit margins). 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. • Reduced unit costs enable a reduction in price making CD more competitive and increasing sales . • Lower unit costs could give CD a higher profit margin and therefore increase profits with which to satisfy shareholder desire for higher returns . • Lower unit costs could offset the increasing cost pressures that CD faces and reduce the need to increase prices to customers . Accept all valid responses.

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2 Analyse two advantages to CD of changing to a geographical organisational structure. 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 between used to answer the business context. causes, impacts and/or consequences of two question. • Application of one points. • Knowledge of one relevant point to a • Limited analysis that identifies connections between relevant point is used business context. causes, impacts and/or consequences of one point. to answer the question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Note: • Only reward advantages. • If more than two advantages are referred to, reward the best two. 2 Indicative content Responses may include: AO1 Knowledge and understanding Definition of organisational structure / geographical organisational structure (max K1 mark) • The internal, formal framework of a business that shows the way in which management is linked together, and how authority is passed through the organisation. • Structure based on geographical area in which each division is self-contained with its own functional areas. Benefits of a geographical structure: • Better customer service. • More responsive to changing local needs. • Measure the performance and profitability of each division separately. • Greater focus on specific market segments. • Improved customer communication. • Quicker decisions. • Reduce costs of production • Competition between geographic units • Preparation of managers in geographic units for promotion AO2 Application Max one for application for the first element and max one for application for the second element. • CD’s expansion to country C in 2022 is not yet profitable. • Plans to open factories in two new countries. • Current plans to export to three new countries. • Ambitious plans for further international expansion. • Comment on current hierarchical functional structure. 2 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. • Different international markets may have differing needs in terms of the product, pricing and promotion. A geographical structure can respond more effectively to those needs and thus increase sales . • Facilitates the establishment of companies’ business units at different local as well as regional levels. This enables regional managers to better understand local needs, preferences, and tastes . As such, they can make relevant products and better satisfy customers and thus increase sales . • A geographical structure can promote improved communication between the local customers and local divisions of the business. Such local divisions can better interact with local customers and create value for the business resulting in an increase in profitability . • Enables local managers to make prompt decisions without the consent of the central management. Quick decision- making enables CD to serve the right customers at the right time resulting in increased sales . • May enable CD to better estimate the demand of the local customers and as such it helps to reduce the cost of overproduction and wastage of raw materials leading to an increase in profits . Accept all valid responses.

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3(a) Refer to Table 1.1. For 2024, calculate the price earnings ratio. 1 Indicative content PE Ratio = Market price per share / earnings per share = 4.00 / 0.6 = 6.67 (1 mark) Accept 6.7, 6.66 3(b) Refer to Table 1.1. For 2024, calculate the return on capital employed. 3 Indicative content Responses may include: ROCE = Profit from operations / Capital employed × 100 and / or capital employed = issued shares + reserves + non-current liabilities (1 mark if no relevant calculation) CE = 3 +13.5 + 16 = 32.5m (1) ROCE = 2.6 / 32.5 × 100 (2) ROCE = 8% (3) Accept 8 (3) Other answers and marks: ROCE for 2023 2.5 / 30.8 × 100 = 8.12% (2) One element of CE not included (2). 2.6 / 16.5 × 100 = 15.76% 2.6 / 29.5 × 100 = 8.81% 2.6 / 19 × 100 = 13.68% OFR 3(c) Evaluate the usefulness of the data in Table 1.1 to potential shareholders when considering whether to buy shares 12 in CD. 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 analysis Developed evaluation knowledge of application of that identifies • A developed judgement/conclusion relevant key term(s) relevant point(s) to connections between is made. and/or factor(s) is the business context. causes, impacts • Developed evaluative comments used to answer the and/or which balance some key question. consequences. arguments. 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) to that identifies • A judgement/conclusion is made term(s) and/or the business context. connections between with limited supporting factor(s) is used to causes, impacts comment/evidence. answer the question. 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. All annotation ( ) should be in the left margin. 3(c) Indicative content Responses may include: AO1 Knowledge and understanding • Shareholder is an investor in the business seeking a return in the form of dividends and/or share price increase. • Understanding of relevant factors to shareholders including: – Change in revenue – impact of increasing revenue on share price. – Profitability – impacts dividends and share value. – Dividend yield – the return to shareholders relative to share price. – Changes in share price – link to capital gain to shareholder. – Gearing ratio – links to risk of investment. – PE ratio – reflects confidence of shareholders in future prospects of the business. – Current ratio – solvency. AO2 Application Limited application, applies knowledge to CD once. Developed application, + applies knowledge to CD twice. • Increase in revenue of $2.7m. • Reduced operating profit margin – now 12.2%. • Reduced return on capital employed from 8.1% to 8%. • Reduction in dividend yield. • Increase in share price by 2.56%. • Plans for expansion. • Gearing 49.23% close to being highly geared. • Current ratio has improved from 0.6 to 0.8 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. • Share price is increasing which will encourage potential shareholders to purchase shares in the expectation of a capital gain in the future . 3(c) • Increasing profit may result in higher dividends in the future and therefore support decision to buy more shares . • Dividend yield has decreased meaning that the return for shareholders is lower than in 2023. This suggests that potential shareholders would be less likely to purchase shares . • Expansion plans are ambitious which might result in higher profits in the future and therefore increase returns to shareholders . • Increased gearing could result in shareholders enjoying greater share of the benefits of future growth . • Increased gearing can also mean lower dividend payout to shareholders in the short term as there are increased interest payments which then lower the profit for the year so there is less left for the shareholders . 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. • Limited nature of the data in Table 1.1 – Data only available for 2024 and 2023 making it difficult for shareholders to identify longer terms trends on which to base their decision. – Need to compare with other businesses in the industry. – Changes may reflect changes in the economy rather than successful decision making of CD. • Depends on whether shareholders are focused on the short term or the long-term gains. • Given the cost push inflation in the economy the performance of CD might be considered to be good – this may explain why the share price has increased. • Depends on attitude toward risk as the business is relatively highly geared and the plans for expansion are costly and may fail. • Most important data in Table 1.1 – Shareholders most concerned by capital gains from increasing share price and dividend returns. • Qualitative factors also important such as: – CD’s plans for future expansion will impact risk and reward of shareholder investment. • Quantitative data is objective data on which to base investment decision. Accept all valid responses.

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4(a) Refer to lines 36–40. Calculate the estimated change in quantity demanded if CD increases the price of its 4 detergent from $4.00 to $4.60 Indicative content PED = % change in Qd / % change in price and/or % change in Qd = PED × % change in price (1 mark) Percentage increase in price = 0.6 / 4 × 100 = 15% (1) % change in Qd = 15 × -0.6 (3) % change in Qd = –9% OR a reduction of 9000 units (4) 4(b) Evaluate the importance of new product development to CD’s future success. 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 analysis Developed evaluation knowledge of application of that identifies • A developed judgement/conclusion relevant key term(s) relevant point(s) to connections between is made. and/or factor(s) is the business context. causes, impacts • Developed evaluative comments used to answer the and/or which balance some key question. consequences. arguments. 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) to that identifies • A judgement/conclusion is made term(s) and/or the business context. connections between with limited supporting factor(s) is used to causes, impacts comment/evidence. answer the question. 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. All annotation ( ) should be in the left margin. 4(b) Indicative content Responses may include: AO1 Knowledge and understanding • New product development is the design, creation and marketing of new goods and services. • Research and development is the scientific research and technical development of new products and processes. Benefits of new product development: • Attract repeat purchase by offering a product that is new and better. • Meet customer needs more effectively. • Gain a competitive advantage over competition. • Product differentiation. • Control over pricing. • Refresh the brand. • Cost of product development. AO2 Application Limited application, applies knowledge to CD once. Developed application, + applies knowledge to CD twice. • Competitive market. • Consumer product tests showing CD products not as good for cleaning. • Environmental credentials of CD have been questioned. • Cost of R&D – increase in expenditure to 3% of revenue (that would be $639 000 in 2024). • Shareholder pressure for returns. • Reference to price inelastic demand (-0.6). 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. • Improvements in cleaning power of products will maintain consumer interest and prevent the product becoming less effective relative to products of competitors . This will result in higher sales and increased profit . • R&D can improve sustainability of CD’s cleaning products further differentiating them from MNCs and attracting customers . 4(b) • R&D can enable CD to launch new products and maintain growth in revenue which can help meet shareholder expectations for higher returns . • Improved products could make CD’s detergents more price inelastic . • R&D is costly and may therefore negatively impact CD’s cashflow and liquidity . • R&D may be classified as an operating expense and can therefore result in a decrease in profit . 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. • Without product development CD will lose its competitive edge in the market. Products need to be continually improving. • Can R&D match the results of the spending by MNCs which will be significantly more than CD can afford? • R&D is risky and may not bring improvements to products. • Is product development the most important factor to future success: – Role of marketing to support new products. – Role of marketing research as part of NPD. – Competitor decisions. Accept all valid responses.

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5 Evaluate the impact on CD of the appreciation of country K’s exchange rate. 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 analysis Developed evaluation knowledge of application of that identifies • A developed judgement/conclusion relevant key term(s) relevant point(s) to connections between is made. and/or factor(s) is the business context. causes, impacts • Developed evaluative comments used to answer the and/or which balance some key question. consequences. arguments. 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) to that identifies • A judgement/conclusion is made term(s) and/or the business context. connections between with limited supporting factor(s) is used to causes, impacts comment/evidence. answer the question. 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. All annotation ( ) should be in the left margin. 5 Indicative content Responses may include: AO1 Knowledge and understanding • Exchange rate measures the value of one currency in terms of another. • Appreciation means the value of a currency has increased in terms of another i.e. it buys more of another currency than previously. • Makes imports cheaper but exports more expensive. AO2 Application Limited application, applies knowledge to CD once. Developed application, + applies knowledge to CD twice. • Chemicals are currently produced in country K. • Chemicals could be imported more cheaply. • Increase in price of CD exports to country C. • CD’s plans for expansion. • Cost push inflation in country K – including energy costs and raw materials. • Environmental responsibility of CD. 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. • Appreciation could enable CD to import chemicals at a lower cost and thus reduce cost pressures to increase the selling price . This could prevent a reduction in sales in country K . • CD’s products will be a higher price in export markets such as country C therefore reducing sales . • Appreciation of country K’s currency will reduce the cost of CD’s plans to expand operations abroad . • Appreciation could increase the price competition from MNC products produced outside of country K , reducing the sales of CD . 5 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. • Depends how much country K’s currency appreciates and for how long. • Depends on PED. • As sustainability is important, CD may prefer to continue purchasing chemicals domestically rather than importing so appreciation won’t bring any direct benefit. • Depends whether energy costs will be reduced by the appreciation – this could happen if oil and gas are imported to country K to generate electricity. Accept all valid responses.