Business 9609/31 May/June 2021: question paper and mark scheme

Mark scheme

0 No creditable content

Mark scheme

1 Analyse the advantages to PGC of using enterprise resource planning 10 (ERP). Level Knowledge Application Analysis 3 marks 2 marks 5 marks 2 3 marks 2 marks 3–5 marks Knowledge of ERP Two points applied Good use of theory and two benefits to PGC and/or reasoned argument to answer question 1 1–2 marks 1 mark 1–2 marks Knowledge of ERP One point applied Some use of and benefit (2) to PGC theory and/or Knowledge of ERP reasoned argument (1) to answer question 0 No creditable content Knowledge • ERP is using dedicated software to integrate orders, materials, labour and distribution to minimise cost, reduce inventory levels and waste • ERP enables customer orders to match raw material supplies to enable JIT • ERP can improve a business’ efficiency in relation to: inventory control, costing and pricing, capacity utilisation, responses to change, management information • Benefits of ERP - Helps with inventory control. - Reduces cost of ordering and holding inventory. - Links information between departments – management information. - Choosing best suppliers and most cost-effective suppliers and supporting JIT manufacturing. - Allocating jobs to appropriate production employees. - Forecasting demand. - Improved efficiency in terms of costing and pricing. - Improved efficiency in terms of capacity utilisation. 1 Application • Supplies of coffee beans, roasting, packaging ground coffee. • Customers are 600 small retail outlets. • Too much inventory is being held. • Customers expect fast delivery. • Coffee is wasted by being stored too long. • New roasters. • Possible expansion plans include cafes, selling tea. • Expansion plans rely on reducing costs. • Link to mission statement ‘Quality coffee for everyone when they want it’. • Selling price per tonne drops from $20 to $10 once ground coffee is 7 months old and to $0 after 12 months. Analysis • ERP enables customer orders to match raw material supplies to enable JIT. This will reduce PGC costs of storage and reduction in value of ground coffee due to ageing. • Enables PGC’s orders to be delivered quickly, providing better customer service and meeting customer expectations of fast delivery. This will help retain customers • Might enable quick decisions on marginally priced orders increasing profitable sales • Reduces cost of ordering and holding inventory, this will increase profit • All departments can access same information so reduces communication problems that could lead to customer dissatisfaction. • Reduces waste due to deterioration in overlong storage thus improving efficiency • Enables rapid response to change and customised pricing improving customer service • Can be adapted to enable/facilitate expansion or new products • Increases competitive advantage, this may help reverse decline in PGC’s market share 1 1–2 marks 1–2 marks 1–3 marks 1–3 marks Some Some application Limited use of Limited attempt to show understanding to PGC reasoned judgment either within the shown argument or use answer of theory to OR support points A weakly supported made conclusion / recommendation with some focus on PGC

Mark scheme

2(a)(i) Refer to Table 1 and other information provided. Calculate, using net 4 realisable value, the: (i) value of packed ground coffee inventory at 30 April 2021 NRV = saleable value of inventory – cost of selling it (1 mark if no relevant calculation) NRV of ground coffee 0–6 months = 2 × 20 – 0.5 = 39 500 (1) NRV of ground coffee 7–12 months = 1 × 10 – 0.5 = 9 500 (1) NRV of ground coffee over 12 months old = 0 (1) NRV Total ground coffee 0–12 months = $49 000 (4) Other answers: Includes coffee beans $129 000 (3) No subtraction of cost of selling inventory $50 000 (3) Includes coffee beans and no subtraction of cost of selling inventory $130 000 (2) OFR 2(a)(ii) (ii) value of packed ground coffee as a percentage of current assets. 2 OFR from 2(a)(i) applies Current assets = 150 000 49 000 / 150 000 × 100 (1) = 32.7% OR 33% (2) 2(b) Evaluate the difficulties for PGC of correctly valuing its inventory. 12 Level Knowledge Application Analysis Evaluation 2 marks 2 marks 3–4 marks 3–4 marks 2 2 marks 2 marks 3–4 marks 3–4 marks Two or more Two points Good use of Good relevant applied to theory and/or judgment points PGC reasoned shown argument to answer question 1 1 mark 1 mark 1–2 marks 1–2 marks One relevant One point Some use of Some point made applied to theory and/or judgment PGC reasoned shown argument to answer question 0 No creditable content OFR from 2(a) applies. Knowledge • Definition of inventory: Unsold goods, raw materials, work in progress. • Inventory is a current asset. • Methods of valuing inventory: - Net Realisable Value = the amount the existing inventory can be sold for – cost of selling it. - Valued at original cost. - FIFO inventory valuation – assumes oldest inventory is sold first. - LIFO – assumes newest inventory is sold first [candidates are not expected to know FIFO or LIFO] - Inventory valuation is normally made at the lower of historical cost and net realisable value. - Accountants will apply rule of prudence when constructing the accounts • Role of inventory in statement of financial position. And the income statement. • Effect on accounting information of different valuation methods. • Effect on calculation of depreciation. • Stakeholder interest in correctly valued inventory. Application • Inventory includes coffee beans, packaged ground coffee of different ages. • 600 small retail customers – orders vary in frequency and size. • Use of NRV calculated in 2(a) • New inventory manager and accountant’s view 2(b) Analysis • Price of coffee beans and ground coffee is volatile due to supply issues e.g. weather and disease. Therefore, the value of coffee inventory will also be variable and volatile. So it is difficult to measure the saleable value of coffee as market conditions change or are hard to assess. • Coffee deteriorates and therefore the value changes over time making an accurate value difficult to determine. • Deterioration of coffee and therefore its value depends on the conditions in which it is kept such as humidity and temperature. • Value measured at one time, may not be representative of other times. • Some inventory may never be sold or used thus its measured value may be inaccurate. • Difficulty in assigning cost of selling inventory and therefore difficult to calculate NRV. Evaluation • Ranking difficulties in order • Most important difficulty in valuing inventory of coffee • Pressure to make profit figures as high as possible or tax payable as low as possible could result in mis valuation. (Window dressing). Inventory valuation has a major impact on reported profit levels. • Incorrect valuation could lead to lower or higher profits being shown. Each of these has disadvantages. • Legal or regulatory requirement to value inventory correctly in accounts 2 3 marks 3 marks 3–4 marks 4–6 marks Good Good application Good use of Some judgment shown in understanding to PGC reasoned the main body of the answer shown argument or use and an attempt to support of theory to conclusion / explain points recommendation, focused made to explain on PGC points made OR Effective and well supported conclusion / recommendation focused on PGC

Mark scheme

3 Recommend a coordinated marketing mix for the new barista courses. 16 Level Knowledge Application Analysis Evaluation 2 marks 2 marks 6 marks 6 marks 2 2 marks 2 marks 4–6 marks 4–6 marks Two or more Two points Good use of Good relevant applied to theory and/or judgment points PGC reasoned shown argument to answer question 1 1 mark 1 mark 1–3 marks 1–3 marks One relevant One point Some use of Some point made applied to theory and/or judgment PGC reasoned shown argument to answer question 0 No creditable content 3 Knowledge • The place of the marketing mix in a marketing plan. Marketing objectives, marketing budget and marketing strategy. - Elements of marketing mix: – Price, Place, Promotion, Product. - The 4 C’s of marketing – Consumer wants and needs, Cost, Convenience, and Communication • Understanding of different techniques within the marketing mix such as different forms of promotion and pricing • Concept of a coordinated marketing mix. • The need for marketing objectives to be clear. • Development of marketing strategies focused on achieving objectives. • Market research to understand the market. Application • Marketing will be business to business (B2B). - Target market is cafes and restaurants – qualifications for business delegates. This may be different to the 600 retail outlets currently served. • PGC may also try to appeal to individuals seeking to gain a qualification as a Barista • One day training courses. • Industry recognised formal qualifications. • PGC have trainers and facilities ready to deliver courses. • Possible new product for diversification. • Implied objective of profit. • Peter suggests that ‘we just have to find ways to communicate with this target market’ Analysis Chains of reasoning highlighting likely elements of marketing strategy: • Objectives set and different target market will determine methods used in the plan. • Suggested elements of marketing mix linked to objectives and different target markets. • Suggested elements of marketing mix coordinated together in relation to target markets. • Price might be varied by number of trainees being sent on a course by a business. This would boost sales. • Relation of marketing this new product to marketing other PGC products. Explanation of why marketing to cafes and restaurants might change from marketing to retail outlets, e.g. advertising in appropriate trade press and attending trade fairs/exhibitions. • Suggested methods given a time scale and linked to objectives. • Cost of suggested methods linked to possible resources available and potential income. 3 • Salespeople may be important for building trust and motivating businesses to put employees on courses. • B2B marketers must persuade decision makers of a company therefore information must be concise and clear. Evaluation • Identification of most important element of marketing strategy and justification. - Businesses less likely to be influenced by persuasive advertising. More interested in information. - Need for market research prior to the marketing strategy as this is a new market. • Supported recommendation of a coordinated marketing mix. • Indication of how successful the suggested mix might be. • Success may depend on budget available and other factors, e.g. competition, macro-economic factors. 3 7–10 marks Good judgment shown throughout with well supported conclusion / recommendation, focused on PGC

Mark scheme

4(a)(i) Refer to Appendix 1. Calculate: 2 earliest start time (EST) for Activity F Some attempt at identifying EST, e.g. additions of previous EST or definition (1) EST = 18 + 3 (1) EST = 21 days (2) 4(a)(ii) total float for Activity D 3 Definition – Total float is max. time an activity can be delayed without delaying the whole project (1 mark if no relevant equation or calculation) LFT – duration – EST (1) Total float = 21 – 2 – 0 (2) = 19 days (3) 4(a)(iii) free float for Activity C 3 Definition – Free float is max. time an activity can be delayed without delaying the next activity (1 mark if no relevant equation or calculation) EST next activity – duration – EST (1) Free float = 18 – 6 – 0 (2) = 12 days (3) 4(b) Assess the role of critical path analysis (CPA) in the successful 12 installation of the new coffee roasting machines. Level Knowledge Application Analysis Evaluation 2 marks 2 marks 3–4 marks 3–4 marks 2 2 marks 2 marks 3–4 marks 3–4 marks Two or more Two points Good use of Good relevant points applied to theory and/or judgment PGC reasoned shown argument to answer question 1 1 mark 1 mark 1–2 marks 1–2 marks One relevant One point Some use of Some point made applied to theory and/or judgment PGC reasoned shown argument to answer question 0 No creditable content OFR from 4 (a and b) applies. Knowledge: Definition of network analysis: this is part of project management to ensure that resources are used efficiently. Also known as critical path analysis it identifies all tasks in a project, puts them in the correct sequence and allows for the identification of the critical path. • Critical path identified so managers focus on high priority activities. • Key dates can be determined, and activities planned. • Appropriate resources can be assembled. • Progress can be monitored. • Gives workforce a guide so that finishing date can be met. • Managers are enabled to focus on high priority activities. Application • Reference to more efficient faster coffee roasters, enabling over capacity at current production levels. • Ideas for expansion (open cafes) rely on greater coffee production. • Inexperienced new production manager has provided the information for the CPA. • Impact of installation on current production. • Marketing plan timing following installation (planned for one week after). • Use of data in Appendix 1: - Minimum time of 28 days – Peter has set a deadline of one month. - Non-critical activities B, C, D, G - Critical path AEFH 4(b) Analysis • CPA enables project duration to be calculated so that key dates can be determined, and activities planned. • CPA enables start times of activities to be known so that appropriate resources can be assembled. • CPA enables latest finish times to be known so that progress can be monitored, and action taken if activities are not going to be on time. • Knowing floats enables consequences of delays to be identified and resource allocation altered to minimise disruption to schedules. • Consequences of delays can be identified, and resource allocation altered to make sure roasters are ready on time. • CPA could set (unrealistic) targets that workers in striving to meet result in errors and mistakes in installation Evaluation • Technique only as good as data – would production manager be best person for collating this information? • Difficulty of estimating activity durations – has contractor any input? • CPA costs but is small compared to cost of project. • Is CPA worthwhile for such a small simple project?

Mark scheme

5 Evaluate the importance of workforce planning to the success of PGC’s 16 proposed new cafes. Level Knowledge Application Analysis Evaluation 2 marks 2 marks 6 marks 6 marks 2 2 marks 2 marks 4–6 marks 4–6 marks Two or more Two points Good use of Good relevant points applied to theory and/or judgment PGC reasoned shown argument to answer question 1 1 mark 1 mark 1–3 marks 1–3 marks One relevant One point Some use of Some point made applied to theory and/or judgment PGC reasoned shown argument to answer question 0 No creditable content Note: Workforce planning must be linked to café not other expansion plans Knowledge • Explanation of workforce planning – comparison of current staffing levels and skills with future requirements • Identification of numbers, skills and experience required for different tasks/roles. • Timescales for recruitment and selection of appropriate employees. • Use of different types of contracts to make business flexible and save labour costs, part-time, short-term, zero hours. • Identify training needs of employees to meet future requirements Application • Different roles for sales staff managing/selling coffee and cakes in cafes. - Baristas - Waiting staff - Kitchen employees to make cakes - Supervisors and management - ‘new set of skills’ (line 83) and Force Field Analysis • Expansion plans will involve doubling the number of employees. • WP to overcome the force against change given a relatively high weighting of 3 • Organisational restructure required as a restraining force requiring a WP • Reference to decision tree analysis, investment appraisal as these include information on employment costings. 5 Analysis • WP ensures right number of employees with the right skills in the right place at the right time to deliver the services sold. • Necessity of recruiting and selecting more employees with appropriate skills for the new tasks. • Setting up cafes requires significantly different roles to be identified. • Comparison of forecast requirements with current employee numbers and skills will enable recruitment and selection plans to be drawn up with a timescale. • Training needs for existing employees can be determined and resources allocated to enable training. • Workforce planning enables contribution to overall corporate budgets. Evaluation • Assessment of level of importance • Comparison of importance in relation to a timescale linked to production and marketing plans. • What if? E.g. no workforce planning is done and the impact of this on success of plans. • Success relies on accurate forecasts – demand, number of jobs, success in recruiting, cost estimates, etc. • Forecasts derived from marketing forecasts – require good communications with marketing department. • Do PGC managers have ability to carry out workforce planning? Questions 6 and 7 use this marking grid: Level Knowledge Application Analysis Evaluation 3 marks 3 marks 4 marks 10 marks

Mark scheme

6 Evaluate the importance of PEST analysis to the directors as they 20 consider whether PGC should supply tea. Knowledge • Explanation of PEST as a technique of strategic analysis • Understanding of role of other strategic analysis techniques such as - Porter’s Five Forces - SWOT - Core competencies • Knowledge of business vision/mission statements and objectives • Role of strategic analysis in strategic management and planning • Strategic Choice techniques that would be used in making decision - Decision tree, investment appraisal, Force Field Analysis Application • SWOT, Porter’s 5 Forces analysis carried out and/or core competencies used: - Core competency – marketing hot drink ingredients (Strength in SWOT). - Porter – lower degree of rivalry in market for supplying tea. • Link to mission statement. • Use of PEST information in Table 3. - Possible tax on coffee. - Stable wholesale price of tea. - Rising cost of coffee beans. - Higher mark-up on tea. - Tea healthier than coffee. - Younger consumers increasingly prefer tea. • Supplying tea to existing customer types. • Reference to the first option (opening cafes). • Reference to role of ERP. • Lack of set objectives. Analysis • Consideration of why techniques lead to the recommendation or not. • Consideration of why the analysis might reject café alternative option. • Anticipating changes to the external environment will enable PGC to take decisions to reduce risk and take advantage of opportunities. • Analysis of how other forms of strategic analysis might guide strategic decisions: - Identification of weaknesses that need to be addressed when making decisions or alternative sought, e.g. financing. • SA will help reduce the risk of decisions taken by PGC as it will help PGC build on their core competencies and strengths and highlight weaknesses that need to be resolved. • SA takes time to do in terms of management focus, reducing time available for other tasks. 6 • Porter’s Five Forces: Power of buyers, suppliers, threat of substitutes, barriers to entry and competitive rivalry helps PGC make decisions about markets to enter and reduces risk by considering factors that affect success. • Relation of strategic analysis to other areas of strategic management. • Analysis of role of SC techniques in making the decision Evaluation • Elements that the evaluation/judgement might depend on such as: - PEST needs to be reviewed regularly. - PGC operates in a dynamic environment so analysis may quickly become outdated. - Subjective nature of PEST analysis. - An assessment of the importance of timing and a timescale in carrying out analysis. - Subjective interpretation of the models – one manager’s opinion of PEST may be very different to another’s. - Internal factors will influence likelihood of success e.g. resistance to change, availability of finance, flexibility of employees. - Strategic analysis is only as good as the information gathering process and ability of the analyst allow. - Good analysis is not a guarantee of successful decision making. - Essential to have objective(s) for successful use of techniques. - Critical comments on the techniques. • Evaluation of other factors that influence options such as: - Comments that PEST on its own is not enough to fully support a decision. - Attitude of directors - Attitude to risk - Need for SC techniques in making the decision • Justification of most useful technique(s) with supporting argument. - Ranking the usefulness of the techniques in relation to PGC’s plans. • Weighing up importance of other stages in strategic management especially objectives and choice techniques in relation to strategic analysis. • Successful analysis requires to be set in the framework of strategic management/planning.

Mark scheme

7 Evaluate the usefulness of strategic choice techniques to the directors 20 as they consider Peter’s proposal for PGC to open cafés. Knowledge • Explanation of methods of strategic choice – Ansoff, Force Field Analysis, Decision trees • Role of investment appraisal techniques • Quantitative v qualitative factors • Place of strategic choice in strategic management - Understanding of SWOT, PEST, Porter’s Five Forces and Boston Matrix as strategic analysis techniques prior to SC. • Role of objectives in strategic management Application • First objective is survival. • New roasters and/or ERP • Competitive market conditions • Reference to the Force Field Analysis, diversification or identified core competencies. - Driving forces 13: Restraining forces 12 • Other possible choices – e.g. sell tea. • ARR 2% Payback 4 years • Expected monetary value of $100 000. • Ansoff – diversification Analysis • Linking objective to strategic choice and management • How techniques may be used and the advantages and disadvantages. - Force field analysis encourages managers to consider different aspects of a decision. - By identifying restraining forces action can be taken to mitigate negative effects and reduce risk. - Visual summary of factors in a decision. Helps focus attention on the most important forces affecting the decision. Facilitates discussion of these points to enhance decision making. - Forces can be weighted thus improving decision making. - Subjective forces are objectified by giving them a weighting focusing attention on important issues and making it easier to compare force for and against change. 7 • Role of other techniques in decision making that consider the quantitative aspects of the choices. - Use of probabilities in decision trees therefore reducing risk for PGC of option choice. - ARR enables PGC to choose option with highest return which may be important to shareholders. • The use of techniques to analyse aspects of the options. • Consideration of why each of the applied strategic choice methods leads to the recommendation. • Consideration of other information in the case and how this might relate to the recommendation. • Relation of choice techniques to other areas of strategic management Evaluation • Assessment of likelihood of success • To what extent do the strategic choice methods results lead to Peter’s recommendation? Is this the only possible conclusion? • Will market conditions relating to cafes still apply in the future? • Is the objective of survival defined enough to generate a strategic plan? • Would more numerate objectives aid planning? • Need to consider other options – role of Directors in choice. • Elements that the evaluation/judgement might depend on: - Effective integration of analysis and choice techniques will be important. - How accurate is the information used in the strategic choice methods? Success may depend on this. - Ability of the individual(s) completing the SC techniques. - SC techniques need to be used together taking account of both quantitative and qualitative factors. - Weighting of the driving and restraining forces is subjective. Has Peter manipulated the data to support his preferred outcome? Bias and hidden agenda in formulating the analysis. Disagreements about relative importance. - Forces may be missed from the analysis. - Justification of most useful choice technique with supporting argument. • Significance of other factors that may also be important: - Impact of management objectives and attitudes. - Availability of finance (these may be included in the FFA). Are resources an issue – e.g. finance, sales staff, and capacity? - The choice must be implemented successfully – this may require a successful detailed business plan, management of change, training, new employees. - Other information that could be useful? Additional information is essential – e.g. current and forecast rates of interest.