Business 9609/33 May/June 2020: question paper and mark scheme

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0 No creditable content

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1 Analyse the advantages and disadvantages to PAC of country X’s 10 exchange rate appreciating against other currencies (lines 12-17). Knowledge Application Analysis Level 3 marks 2 marks 5 marks 3 marks 2 marks 4–5 marks Good knowledge Points well Good use of shown of applied to the theory/reasoned argument 2 advantages/ case to explain the likely impact disadvantages advantages/disadvantages impacts of them 1–2 marks 1 mark 1–3 marks Knowledge shown of Some Some use of advantages/ application to theory/reasoned argument 1 disadvantages the case to explain the likely impact impacts of them of advantages/disadvantages 0 No creditable content Note to Examiners: Credit impacts on PAC as a business, not e.g. customers unless link is made with PAC. Answers could include: Knowledge: • Appreciating exchange rate – a country’s currency value increasing in terms of other currencies • Explanation of terms, for example appreciation and references to external value/trade • Stronger currency means imports are cheaper and exports more expensive, including ‘invisible’ exports such as tourism Credit understanding that government may try to use policies that have an impact on exchange rates Application • Advantages – imports cheaper (pizza vans) • Disadvantages – PAC cannot benefit from country X being seen as a ‘low cost’ country as more expensive for tourists now, impact on sales Analysis • Reasoned chain of argument, e.g. If country X is not seen as a ‘low cost’ country then may lead to fewer tourists, less potential revenue and profit • Impact of decrease in import prices, e.g. imported equipment (pizza vans?) ability to plan and not under-estimate costs / finance needed • If country X is comparatively more expensive for tourists than other countries in the same region, even more likely to lose tourism business

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2(a) Refer to Appendix 1 and any other information. Calculate the: 2(a)(i) return on capital employed for PAC in 2019. 3 ROCE = Operating profit/capital employed × 100 (1 mark) 2019 5.2 – (1.3 + 1.5 + 0.7 + 1.1)/10 = 0.6/10 × 100 = 6% (3 marks) Wrong figure, e.g. wrong year 2020 5.3 – (1.5 + 1.7 + 0.8 + 1.1)/10 = 0.2/10 × 100 = 2% (2 marks) % sign required. 2(a)(ii) Forecast the gearing ratio in 2020 assuming the four pizza vans are 3 purchased using a bank loan. Gearing = non-current (long term) liabilities/capital employed × 100 (1 mark) 2020 4.8m + 0.2m (4 × 50,000)/10m + 0.2m = 5m/10.2m = 49% (3 marks) No % sign or incorrect decimal position max 2 marks. 2(b) Refer to your answers to 2(a) and any other information. Discuss whether 12 PAC is right to finance the pizza van project using a bank loan. Knowledge Application Analysis Evaluation Level 2 marks 2 marks 4 marks 4 marks 2 marks 2 marks 3–4 marks 3–4 marks Good Points well Good use of Good knowledge applied to the theory/reasoned judgement shown of case argument to shown in 2 factors explain the answer and reasons for using conclusion. different sources of finance. 1 mark 1 mark 1–2 marks 1–2 marks Knowledge Some Some use of Some shown of application to theory/reasoned judgement factors the case argument to shown in 1 explain the answer and reasons for using conclusion. different sources of finance. 0 No creditable content Note to Examiners: if only use results of 2(a) or similar information, max L1 A and E. OFR applies for results of 2(a). Answers could include: Knowledge • Knowledge of different sources of finance – bank loan, leasing, retained profit (if any?), additional finance from family? • Knowledge of importance of gearing / reliance on bank loans • General reasons for favouring particular sources of finance • Depreciation of vehicles is usually fast Application • Comparison of figures from Appendix 1, use of results • Profit margins 2019 – 0.6/5.2 × 100 = 11.54% 2020 0.2/5.3 × 100 = 3.77% • Gross profit margins so 2019 75% and 2020 71.7% • Gio’s concerns – would another bank loan and repayments put further pressure on falling profit margins? • Gearing would be nearly 50% (highly geared) 2(b) Analysis • Impact on shareholders/family • Financial implications, repayments versus alternatives, e.g. leasing • Other factors developed, e.g. cost of depreciation of vans versus length of borrowing period • If pizza van project has potential to improve falling margins then maybe worth the risk of taking on extra borrowing Evaluation • Balance of evidence – best source? • Is leasing an option? • Accuracy of forecast data? • Liquidity of PAC? • What might happen without the pizza van investment?

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3 PAC requires a marketing strategy for its new ‘healthy life’ menu. 16 Evaluate the importance of social media and other online methods of promotion to this strategy. Knowledge Application Analysis Evaluation Level 2 marks 2 marks 6 marks 6 marks 2 marks 2 marks 4–6 marks 4–6 marks Good Points well Good use of Good judgement knowledge applied to theory/reasoned shown in 2 shown the case argument to answer and explain the likely conclusion importance 1 mark 1 mark 1–3 marks 1–3 marks Knowledge Some Some use of Some shown application theory/reasoned judgement 1 to the case argument to shown in explain likely answer and importance conclusion 0 No creditable content Answers could include: Knowledge • Social media (ecommerce) and other internet-based methods of marketing, e.g. website • Links with gaining new customers and retaining loyal ones - customer relationship marketing (CRM) • Marketing strategy, including budget, objectives, integrated marketing mix • Use of social media / apps for ordering / place element Application • PAC are involved in very competitive fast food industry / need to keep up with competitors’ use of social media and keep customers loyal (CRM) • Need to communicate new ‘healthy menu’ options to existing and new customers / offer launch promotions • Are pizzas reaching lifecycle maturity? • References to cost of web-based promotion versus traditional • References to reasons why customers (local and tourists) may find web- based promotion and communication easy • Specific ‘build a pizza’ App ideas • Alice is an ICT graduate so has the necessary skills • Target market is young professionals and they are likely to use social media 3 Analysis • Development of why social media may be important or not – will it attract more customers? How might this improve competitiveness? • How will the use of social media affect different aspects of marketing strategy, not just marketing mix? • Possible impacts on company image and reputation Evaluation • Future use and the need to keep up with new developments/technoloy • Importance of maintaining and updating the marketing strategy • Judgement as to how important social media may be – what else may be more important? • Possible groups of customers who may be missed by concentration on social media, what percentage are the ‘social media generation’? • Might social media also have disadvantages in this case?

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4(a) Refer to Appendix 2. Calculate the forecast net present value (NPV) of the 4 proposed pizza van project over four years. Correct answer (000s) 200 – (65.10 + 60.20 + 63.20 + 59.20) = NPV = 47.70 ($000) (4 marks) 1 error e.g. not taking off purchase price or working it out for 1 van (3 marks) 2 errors e.g. one van and not taking off purchase price (2 marks) Attempt e.g. some use of discount factors (1 mark) 4(b) Refer to Appendix 3. Calculate the total contribution of one pizza van for 4 2021. Correct answer $7 – $2.50 = $4.50 per customer X 6000 forecasted = $27 000 (4 marks) 1 error e.g. staff and van running costs deducted 27 000 – $15 500 = $11 500 (3 marks) Some attempt or correct formula 1–2 marks e.g. Average spend per customer – average cost of raw materials per customer Contribution = (selling price – variable cost) per unit 4(c) Refer to your answers to 4(a) and 4(b) and any other information. Discuss 12 whether the pizza van project is likely to improve profitability for PAC. Knowledge Application Analysis Evaluation Level 2 marks 2 marks 4 marks 4 marks 2 marks 2 marks 3–4 marks 3–4 marks Good Points well Good use of Good knowledge applied to the theory/reasoned judgement shown of case argument to shown in 2 factors explain why the answer and project may/may conclusion. not improve profitability 1 mark 1 mark 1–2 marks 1–2 marks Knowledge Some Some use of Some shown of application to theory/reasoned judgement factors the case argument to shown in 1 explain why the answer and project may/may conclusion. not improve profitability No creditable content Note to Examiners: if only use results of 4(a)/(b) or similar information, max L1 A and E. OFR applies for results of 4(a)/(b). Answers could include: Knowledge • Meaning of profitability - ability to turn revenue into profit • Meaning of sales forecasting • Meaning of net present value • Meaning of total contribution and importance in profit calculations Application • Reference to and application of results • Reference to Gio’s forecasting – does he have the skills? • Reference to other points from the text, including Appendix 1 financial information Analysis • Incomes are rising so may suggest demand should rise, but promotion will be needed • Analysis of reasons why sales forecasting may/not be accurate • Development of reference to results / comparison of figures with Appendix 1 and comment 4(c) Evaluation • Improve profitability or not? • Short/long term? • To what extent might sales forecasts prove inaccurate? Why?

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5 Recommend ways in which Paulo might solve the current quality 16 problems in some PAC restaurants. Justify your recommendation. Knowledge Application Analysis Evaluation Level 2 marks 2 marks 6 marks 6 marks 2 marks 2 marks 4–6 marks 4–6 marks Good Points well Good use of Good judgement knowledge applied to theory/reasoned shown in answer 2 shown the case argument to and conclusion explain possible solutions 1 mark 1 mark 1–3 marks 1–3 marks Knowledge Some Some use of Some judgement shown application theory/reasoned shown in answer 1 to the case argument to and conclusion explain possible solutions 0 No creditable content Note to Examiners: solutions must be for PAC, if impact on employees then this should be linked to what it may mean for the business. Answers could include: Knowledge • Definition and importance of quality • Link between quality and HR/HRM • Staff turnover • Delegated powers • Link between quality and motivation • Meaning of quality in a service industry Application • PAC restaurant staff are likely to be relatively unskilled • They are working long hours / under pressure / feeling under-valued • Junior staff or those on flexible employment contracts – motivation? Link with quality • Reference to quality issues from the case – bad customer service and what this means in restaurant context • No mention of staff training in the case • Development of reasons for low motivation applied to restaurant Analysis • Possible solutions developed and why these may help to solve the problems. E.g. customer care training may improve customer service as staff aware of expectations, leading to less complaints • Different solutions may apply to different levels of staff and different situations 5 • How could food poisoning have been prevented? • Could ERP software help with staffing, take some pressure off? • TQM related solutions Evaluation • Essential to solve problems as customers may be lost / company could be sued • Long term effect of better staff motivation / lower staff turnover • Management delegation issues • Relationship with management team issues • Are some complaints inevitable in a busy restaurant context? Questions 6 and 7 use the following marking grid. Knowledge Application Analysis Evaluation Level 3 marks 3 marks 4 marks 10 marks 7–10 marks Good judgement throughout with well 3 supported conclusion/recommendations focused on the case 3 marks 3 marks 3–4 marks 4–6 marks Good Points well Good use of Some judgement shown in the main body knowledge applied to theory/reasoned of the answer and an attempt to support shown of the case argument to conclusion. 2 factors explain the OR advantages and Well supported disadvantages or conclusion/recommendation focused on uses the case. 1–2 marks 1–2 marks 1–2 marks 1–3 marks Knowledge Some Some use of Some judgement shown in answer and shown of application theory/reasoned conclusion. factors to the case argument to 1 explain the Weakly supported conclusion. advantages and disadvantages or uses.

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6 Evaluate the usefulness of the information in Appendix 4 for the directors 20 of PAC as they make the strategic choice between Option 1 and Option 2. Answers could include: Knowledge • Meaning of strategic choice, strategic analysis as strategic management techniques • SWOT and PEST, Porter’s 5 forces, Boston Matrix, core competencies, vision and mission statements, as strategic analysis techniques when preparing for choice • Ansoff, force field analysis, decision trees as SC techniques Application • Option 1 is potentially product development, whereas Option 2 market development. • Use of the techniques/factors for two options – Appendix 4 data. • Comparison of options using Appendix 4 and the techniques, e.g. comparison of likely risks/returns Analysis • How techniques may be used and the advantages and disadvantages • How might SWOT, PEST and other SA techniques be used to find out where the company is now? • Analysis of Appendix 4 in context • Why might techniques, such as e.g. Ansoff’s Matrix, help in comparing the options and making the choice Evaluation • Very dynamic nature of this restaurant / fast food market • Other information that could be useful? Limitations, e.g. of predicted probabilities? • Impact of management objectives and attitudes • Long and short term impacts

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7 Evaluate the importance to PAC of contingency planning as part of 20 strategic implementation if Option 2 is chosen. Note to Examiners: Option 2 is franchising PAC restaurants in countries Y and Z. The reference to contingency planning in the case might be in case of food poisoning caused by restaurant food. Answers could include: Knowledge • What is contingency planning? • Difference and link between contingency planning and crisis management • How CP, as part of strategic implementation, fits with strategic choice and analysis Application • Contingency planning for PAC as above – allow broad interpretations, including problems caused by unreliable franchisees, weather for agricultural produce • How might these risks be assessed? • Comment on problems controlling franchised restaurants from a distance, including lack of knowledge about local conditions • Comment on impact on whole company if serious problem happens, such as food poisoning in one restaurant, resulting in bad publicity Analysis • How contingency planning may be used and advantages and disadvantages • Predictable versus unpredictable risks • Associated financial implications • Development and impact of Ap points Evaluation • Will there need to be a significant change in planning if Option 2 is implemented? • What are the main factors that could lead to successful CP? • Costs versus benefits of CP • Other factors such as external factors that need to be considered. • Not possible to plan for all eventualities