Business 9609/13 May/June 2021: question paper and mark scheme

Mark scheme

1(a) Define the term ‘stakeholders’. 2 • individual or group with an interest in / relationship to a business. (1) • anyone who might be affected by / benefit from the activities / make decisions of a business. (1) • e.g. managers, employees, suppliers, lenders, government, internal, external. (1) Sound definition 2 of the factors listed above. (2 marks) Partial definition 1 of the factors listed above. (1 mark) No creditable content. (0 marks) 1(b) Explain two responsibilities of a stakeholder group. 3 Answers could include: • employees: to work according to their contract of employment; to co-operate with management; be honest and diligent; obey codes of conduct. • managers: to make decisions in the best interests of the business; honesty, ethics, social responsibility. • employees and managers: protect company information from competitors. • customers: to be honest in their dealings with the business e.g. not steal; not to exploit a business by unfair claims; pay for goods on time. • suppliers: supply goods/materials of the desired quality; deliver on time; charge a reasonable price. • lenders of finance: to supply finance on the terms agreed; to allow repayment in the time agreed. • government: intervene on behalf of other stakeholders; pollution, consumer protection, employee interests; support via grants/subsidies. • Accept any other valid response. Sound explanation of two responsibilities. (3 marks) Sound explanation of one responsibility or partial explanation of two responsibilities. (2 marks) Partial explanation of one responsibility or list of two responsibilities. (1 mark) No creditable content. (0 marks)

Mark scheme

2(a) Define the term ‘economies of scale’. 2 • reduction in costs of production/operations. (1) • due to increase in size/scale of production / output. (1) • correct diagram showing economies of scale. (2) Sound definition 2 of the factors listed above. (2 marks) Partial definition 1 of the factors listed above. (1 mark) No creditable content. (0 marks) 2(b) Explain two possible causes of diseconomies of scale. 3 Answers could include: • Communication diseconomies: increased output leading to an increase in the workforce, making it more difficult to communicate directly with employees. Less direct methods of communication might need to be used which might be less effective. Feedback from employees/departments is likely to be more difficult to obtain. • Co-ordination diseconomies: more people, more departments and possibly more functions within a business make the monitoring and managing of individual performances or processes more difficult to achieve, making co-ordination of activities more difficult. Timing of activities – it might become more difficult to ensure that activities are completed at the same/required time. The values of the business might not be employed to the same extent in each section of the business e.g. ethical values, environmental values. • Control diseconomies: employees can feel more alienated in a larger organisation and the quality standard might fall. More output can make it more difficult to check each item for quality. It is more difficult to control several departments on numerous sites than to monitor and control the functions within a smaller business. • Accept any other valid response. Sound explanation of two possible causes of diseconomies of scale. (3 marks) Sound explanation of one possible cause of diseconomies of scale or partial explanation of two causes. (2 marks) Partial explanation of one possible cause of diseconomies of scale or list of two. (1 mark) No creditable content. (0 marks)

Mark scheme

3(a) Explain why cost-based pricing might be an effective pricing strategy 5 for a small business. Answers could include: • Cost-based pricing is determined by the costs of production of a product/service. • Cost plus pricing - the full costs of a product are calculated and a margin is added to achieve the desired profit level. • Contribution cost pricing – in a small business, it is likely that the fixed costs per product are known due to the small scale of the business, making it easier to include a proportion of them in the price of each item produced. • A small business needs to ensure that all the costs of production are covered by the price charged to its customers. • The fixed costs together with all variable costs will be included and a percentage added to give a profit. • This can ensure that the business recovers all costs when goods are sold. • The amount of profit added on to the costs of the business can be adjusted to make sure that the business is able to compete on price with its competitors. • Accept any other valid response. Effective explanation of why cost-based pricing might be an effective pricing strategy for a small business. (4–5 marks) Limited explanation of why cost-based pricing might be an effective pricing strategy for a business. (2–3 marks) Explanation of cost-based pricing. (1 mark) No creditable content. (0 marks)

Mark scheme

4(a) Define the term ‘labour turnover’. 2 • The rate at which employees leave a business (2) • Correct formula Number of employees leaving (in a year) × 100 (2) Number of employees in the business (in a year) • Employees leaving the business. (1) • In a given time period. (1) • Through dismissal, resignation, redundancy, new employment. (1) Sound definition will be either the first bullet point or the formula or 2 of the other 3 bullet points. (2 marks) Partial definition 1 of bullet points 3, 4 or 5. (1 mark) No creditable content. (0 marks) 4(b) Explain two ways in which the recruitment and selection process of a 3 business could help to improve labour turnover. Answers could include: • be sure that the job description accurately describes the tasks and responsibilities of the job to recruit the most suitable people. • be sure that the person specification is focused on the qualities and qualifications required when recruiting staff. • Investigate/analyse previous employees’ reasons for leaving. • use an appropriate medium for advertising any posts e.g. social media, recruitment sites or agencies, local newspapers, depending on the role. • check that applicants have the relevant essential and desirable qualities. If not, then reject the application. • use an appropriate selection technique or a combination of methods e.g. an aptitude test followed by an interview. It is possible that using only one technique might not give the most reliable results. For example, some people are able to interview well but might not perform as well in an aptitude test. • the more thorough/appropriate the recruitment and selection process is, the more likely it is that the best candidate is selected. If the person is right for the job, it is less likely that they will leave, therefore labour turnover will improve. • Accept any other valid response. Sound explanation of two ways. (3 marks) Sound explanation of one way or partial explanation of two ways. (2 marks) Partial explanation of one way or list of two ways. (1 mark) No creditable content. (0 marks)

Mark scheme

5(a) Analyse the possible disadvantages to a business of changing from 8 batch production to flow production. Level Description Marks 4 Good analysis of the possible disadvantages to a 7–8 business of changing from batch to flow production. 3 Limited analysis of the possible disadvantages to a 5–6 business of changing from batch to flow production. 2 Application of the possible disadvantages to a 3–4 business of changing from batch to flow production. 1 Knowledge and understanding of batch/ flow 1–2 production. 0 No creditable content. 0 Answers could include: Knowledge and Understanding 2 marks • Clear understanding of batch production. • Clear understanding of flow production. Application 2 marks • Reference to change from batch to flow production. Analysis 4 marks • Batch: the production of a limited number of identical products. Each stage of production is completed before the next stage commences. • Flow: the production of identical products in a continuous flow. Disadvantages can include: • The high cost of setting up a flow production method. More equipment might be involved that adds to the costs of production in the short-term. • Fewer employees might be needed, causing some redundancies, leading to demotivated workforce. • High levels of output usually required to make flow production a profitable option. Is demand of the business high enough to justify the change? • If there is a fall in demand it is more difficult to switch to the production of different products because flow production usually has dedicated equipment for the production on one product. • If the business produces a wide variety of products, batch production might be more efficient. Non-productive time would occur while the flow production equipment was being switched to the production of a different product. • Accept any other valid response. 5(b) Discuss the benefits to a clothing business of holding buffer inventory 12 rather than using a Just in Time (JIT) inventory system. Level The Description Marks 4 Effective evaluation of the benefits to a clothing 9–12 business of holding buffer inventory rather than using a Just in Time (JIT) inventory system. 3 Limited evaluation of the benefits to a business of 7–8 holding buffer inventory and/or using a Just in Time (JIT) inventory system. 2 Analysis and application of the benefits of holding 3–6 buffer inventory and/or using a Just in Time (JIT) inventory system. 1 Knowledge and understanding of buffer 1–2 inventory/JIT inventory system. 0 No creditable content 0 Answers could include: Knowledge and Understanding 2 marks • Clear understanding of buffer inventory. • Clear understanding of JIT inventory system. Application 2 marks • Reference to the use of inventory systems such as buffer and JIT. Analysis 2 mark • Buffer – the minimum amount of inventory held to ensure that production can continue uninterrupted if delivery of inventory is delayed or to ensure that a variation in demand can be met. • JIT – the management of inventory that ensures that new inventory arrives just at the time when it is required and not before. It removes the need for inventory to be held in storage until it is required. • When holding buffer inventory, the business is able to continue to operate even if there is a delay in delivery from suppliers. • The cost of holding the additional inventory might be worthwhile in order to ensure that customer demand can be satisfied. • With JIT, equipment and employees would be idle if inventory failed to arrive on time. Holding buffer inventory avoids that problem. • Using buffer inventory also means that larger orders can be placed to gain bulk buying benefits. 5(b) • JIT saves on storage and associated costs but there is always a danger that, if a delivery is delayed, the operation of the business stops and customer demand will not be met. Lost sales and lost reputation can result from a failure to meet orders. Evaluation 6 marks • A candidate should make a judgement on the benefits to a clothing business of holding buffer inventory rather than using a Just in Time (JIT) inventory system. • These judgements may be made at any point as well as in a concluding section. • The context is a clothing business. • The inventory management system used by the business depends on the reliability of suppliers to deliver at the time required and at a reasonable price. • If the business experiences sudden increases in demand, then the buffer inventory system gives more security to meet that demand. • On the other hand clothes will go out of fashion very quickly so buffer stock may be unsold or have to be heavily discounted to get rid of it. • Accept any other valid response.

Mark scheme

6 Discuss the view that product differentiation is the only way for a 20 business to ensure success in a highly competitive technology industry. Level Description Marks Effective evaluation of the view that product differentiation is the only way for a business to 5 17–20 ensure success in a highly competitive technology industry. Limited evaluation of the view that product 4 differentiation is a way for a business to ensure 15–16 success in a highly competitive industry. Good analysis of the view that product differentiation 3 11–14 is a way for a business to ensure success. Limited analysis, with application, of the view that 2 product differentiation is a way for a business to 5–10 ensure success. Knowledge and understanding of product 1 1–4 differentiation / business success. 0 No creditable content. 0 Answers might include: Knowledge and understanding 4 marks • Clear understanding of product differentiation. • Clear understanding of business success. Application 4 marks • Reference to product differentiation leading to success. • Reference to a highly competitive technology industry. Analysis 6 marks • Product differentiation: makes a product stand out from those of the competitors; making the product unique or distinctive. • In a highly competitive market, there are likely to be many products competing for sales. Customers need to be offered something different to attract them. • Product differentiation may take the form of a distinctive USP. • Product differentiation may lead to brand leadership, larger customer base and customer loyalty. • In the technology industry the differentiation is often additional features and functionality as well as overall design appeal of the product, e.g. high-spec cameras on phones or tablets. 6 Evaluation 6 marks • A candidate may make a judgement as to the extent to which product differentiation is the only way for a business to ensure success in a highly competitive technology industry. • These judgements may be made at any point as well as in a concluding part. • The context is the highly competitive technology industry. • Product differentiation does not always have to be in the physical product itself. The product/business can stand out through other means. • The differentiation might be achieved through an effective marketing campaign that makes the customers see this business’s product as the ‘must have’ product. • The customer service offered to consumers if they experience a problem can also differentiate one business from another. Poor customer service is often quoted as the reason why customers refuse to deal with a specific business. • There are other ways to compete e.g. on price but in the technology market it is likely that the distinctive features offered by a particular product, that the competitors do not have, will make them stand out in the market and enable them to charge a high price. • However, it is of no use having outstanding features and functionality if the product is not reliable. The new features need to be tried and tested before being sold to customers. • Accept any other valid response.

Mark scheme

7(a) Analyse the benefits to an entrepreneur of using micro-finance as a 8 source of start-up capital. Level Description Marks 4 Good analysis of the benefits to an entrepreneur of 7–8 using micro-finance as a source of start-up capital. 3 Limited analysis of the benefits to an entrepreneur 5–6 of using micro-finance as a source of start-up capital. 2 Application of using micro-finance as a source of 3–4 start-up capital / needs of an entrepreneur. 1 Knowledge and understanding of micro-finance / 1–2 start-up capital / entrepreneur. 0 No creditable content. 0 Answers might include: Knowledge and Understanding 2 marks • Clear understanding of micro-finance • Clear understanding of start-up capital • Clear understanding of the role of an entrepreneur Application 2 marks • Reference to using micro-finance as a source of start-up capital • Reference to the needs of an entrepreneur Analysis 4 marks • Micro-finance: providing a small amount of money to small businesses. Often used for small-scale business start-ups. • The businesses using this type of finance are often one person or a group of people wanting to earn a living by using a skill they have, but they perhaps do not have or cannot afford the equipment needed. • An entrepreneur might need all their money to purchase the initial stock after which the business would be able to purchase from the sales made. • Not all new businesses need large amounts of finance. • Micro-finance is available and beneficial to start-ups when: – Lenders are not willing to lend to small businesses that can be seen as a higher risk of not being able to repay their loan. – There is a high rate of failure of start-ups in most countries meaning that many start-up loans are never repaid. – The person starting the business might not have a bank account and so a conventional bank would not lend to them. – The new business might be very small-scale and so a large amount of finance is not required. 7(a) • Micro-finance providers provide small amounts of finance to people in that situation. • The rate of interest is often much lower than that of the main financial institutions. • Micro-finance is usually small amounts and therefore the debt is small and the repayment likely to be easier and faster. • Accept any other valid response. 7(b) Discuss the usefulness of accounting ratios to a business considering 12 entry into new markets. Level Description Marks 4 Effective evaluation of the usefulness of accounting 9–12 ratios to a business considering entry into new markets. 3 Limited evaluation of the usefulness of accounting 7–8 ratios to a business considering entry into a market. 2 Analysis and application of the usefulness of 3–6 accounting ratios to a business. 1 Knowledge and understanding of accounting ratios. 1–2 0 No creditable content. 0 Answers might include: Knowledge and Understanding 2 marks • Clear understanding of accounting ratios Application 2 marks • Reference to the use of accounting ratios • Reference to entry into (new) markets Analysis 2 marks • Accounting ratios are calculated using the Income Statement and/or the Statement of Financial Position. • The ratios that can be calculated are liquidity ratios, profitability ratios. • The ratios can be used to identify trends over time and to assess whether the financial position of the business is strengthening or weakening in financial terms. • The usefulness of accounting ratios can depend on many factors: – The accuracy of the financial information – How similar a new market is to an existing market – The time scale for entry into the new market; a gradual entry can be less risky/cheaper than a rapid one. – The type of new market; geographical etc – Does the business have sufficient knowledge of the new consumers they are aiming at? – Ratios will not tell the business anything about consumers’ wants/needs. • Analysis of various ratios might highlight areas of the business that need improvement and may improve the chances of successful entry into a new market. 7(b) Evaluation 6 marks • A candidate should make a judgement as to the usefulness of accounting ratios to a business considering entry into new markets. • These judgements may be made at any point as well as in a concluding section. • The context is entry into new markets. • Accounting ratios are calculated using historic information. The current situation might be different, even within a short time. They are no guarantee of future success. • Accounting ratios are not a substitute for the thorough market research that would be essential to make sure that the new market is suitable for this business. What is judged to be acceptable in one place might not be acceptable e.g. in a different country. • The financial strength of the business will need to be able to support the expenditure required to achieve the proposed entry into a new market but without a thorough knowledge of the new market the ratios are of limited help. • Qualitative factors might be more important than quantitative ones e.g. there needs to be appropriate management and staff to succeed in new markets. • PEST factors should be considered. • Accept any other valid response.