Business 9609/33 October/November 2020: question paper and mark scheme

Mark scheme

0 No creditable content

Mark scheme

1 Analyse the benefits to C4T of its two social objectives (lines 5–7). 10 Level Knowledge Application Analysis 3 marks 2 marks 5 marks 2 3 marks 2 marks 4–5 marks Knowledge shown of Two or more points Good use of social objectives and applied theory/reasoned one or more benefits argument to explain the likely impact of benefits 1 1–2 marks 1 mark 1–3 marks Knowledge shown of One point applied Some use of social objectives and / theory/reasoned or benefit(s) argument to explain the likely impact of benefits 0 No creditable content Note: • Reward impacts on C4T as a business not, e.g. customers, unless link is made with impact on C4T. Knowledge: • Social enterprises and social objectives • Views of government towards social enterprise • Views of consumers towards social enterprise • Can act as a USP • Reference to social objectives can be used in marketing of products • Attract employees Application: Two social objectives are to improve the environment of the city and provide jobs for the unemployed. Advantages: • Grants and other benefits from government of Country A, such as original start-up finance used. • Customers may enjoy buying from a ‘socially responsible’ business. • Links between two social objectives and customer satisfaction • Provides competitive advantage for bags, jewellery, laptop cases produced by C4T • Local artist volunteers to help with product designs 1 Analysis • Reasoned chain of argument, e.g. Ongoing government support may lead to lower costs and more feasible expansion plans in future. • Increasing social and environmental awareness may lead to good brand reputation and positive publicity, leading to more sales • Socially and environmentally aware tourists may also see buying the products as helping the local community, leading to more sales. • Attract employees who wish to be part of such an active social enterprise therefore reducing recruitment costs. Plenty of individuals willing to work for C4T. • Local artist volunteers to help with product designs which reduces costs 1 1–2 marks 1–2 marks 1–2 marks 1–3 marks Knowledge shown Some application to Some use of theory Some judgement shown in of factors the case / reasoned answer and conclusion. argument to explain the advantages and Weakly supported disadvantages or conclusion. uses.

Mark scheme

2(a) Refer to Table 1. Calculate the forecast profit margin for the reusable 3 bottles. Note: Correct units required for full marks Operating profit = operating profit / sales revenue × 100 (1 mark if no relevant calculations) Operating profit = 390 000 – 290 000 = ($)100 000 (1) 100 000 / 390 000 × 100 = 25.64% or 26% or 25.6% (3) 25.64 or 26 or 25.6 (2) OFR applies 2(b) Refer to lines 44–49. Calculate the gearing ratio assuming the extra 3 $0.5m finance for the factory extension is raised though a bank loan. Note: Correct units required for full marks Gearing ratio = non-current liabilities / capital employed × 100 OR Gearing ratio = NCL / SC × 100 (1 mark if no relevant calculation) Non-current liabilities = $3 m + $0.5 m = $3.5 m (1) Capital employed = $5 m + $0.5 m = $5.5 m (1) Gearing = 3.5 m / 5.5 m × 100 = 63.6% or 64% (3) 63.6 or 64 (2) 3.5 m / 2 m = 175% (1) Other possible answers: $3.5 m / $5 m ×100 = 70% (2) $3 m / $5 m × 100 = 60% (1) 0.7 or 0.7:1 (1) OFR applies 2(c) Refer to your results in 2(a), 2(b) and any other information. Recommend 12 whether C4T should accept the offer from the venture capitalist. Justify your recommendation. Level Knowledge Application Analysis Evaluation 2 marks 2 marks 4 marks 4 marks 2 2 marks 2 marks 3–4 marks 3–4 marks Two or more Two or more Good use of Good judgement relevant points points applied theory / shown in reasoned answer argument to explain the reasons for accepting / not accepting venture capital offer 1 1 mark 1 mark 1–2 marks 1–2 marks One relevant One point Some use of Some point applied theory / judgement reasoned shown in argument to answer explain the reasons for accepting / not accepting venture capital offer 0 No creditable content Note: • L1 of AN and EVAL if only use results or other information • OFR applies for results. Knowledge • Knowledge of venture capital and venture capitalists: individual(s) who invest typically in high risk / high reward business usually in return for an equity stake • Knowledge of factors that might be important – commitments that may need to be made to obtain venture capital finance • General comparison with bank loan finance • Other factors that might affect choice between VC and loan, e.g. interest rates • Involvement of VC would spread risk 2(c) Application • Comparison of figures from Appendix 1, Use of results, for example high gearing with bank loan finance, as increases from 60% to 63.64% • If the venture capitalist was used the gearing would drop to 54.5% (3/5.5 × 100) • Venture capitalist would be entitled to 30% of annual profits, i.e. $30 000 • Encouraging forecast profit margin of 26% • Possible loss of control over future decisions for Kris and Andy • Comparison of the $500 000 VC investment with the 30% of profits from the venture Analysis • This is a new project and quite high risk as it is a new product, and the investment is relatively significant • Involvement of VC would mean that C4T doesn’t need to increase loan finance and consequent increase in debt interest. It eliminates any extra repayments. • Lower gearing ratio leaves company less vulnerable and may be potential for future loan finance • VC may bring expertise which may help the future success of C4T and increase profits Evaluation • Balance of evidence between accepting the VC proposal or further bank borrowing • What are owners’ objectives now and for the future? Do they want to share in decision making? • Does VC have any relevant experience? • What might be the future for VC finance? • Accuracy of forecast data? • Encouraging company progress and growth to date, do they want to share future profits as venture capitalist will take 30%? 2 3 marks 3 marks 3–4 marks 4–6 marks Good knowledge Points well applied Good use of theory Some judgement shown in shown of factors to the case / reasoned the main body of the answer argument to explain and an attempt to support the advantages and conclusion. disadvantages or uses OR Well supported conclusion/recommendation focused on the case.

Mark scheme

3 C4T plans to launch souvenir reusable bottles made from recycled 16 plastic. Evaluate the importance of C4T’s brand image for the success of this launch. 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 or more Good use of Good judgement points made points applied theory / shown in reasoned answer argument to explain the likely importance 1 1 mark 1 mark 1–3 marks 1–3 marks One point made One point Some use of Some applied theory / judgement reasoned shown in argument to answer explain likely importance 0 No creditable content Knowledge • Understanding of branding as part of promotion in launch marketing strategy, link with product and consumer perception • Links with customer relationship marketing • Marketing strategy, including budget, objectives, integrated marketing mix • Use of ecommerce and website, social media Application • C4T are involved in a very new market, hence marketing is vital. • Nature of brand, social enterprise objectives link • Consumer perception – low-quality? Green? • Target market? Link with existing product range • References to other parts of C4T marketing strategy • Premium magazines • Target market of C4T: ‘socially responsible’ consumers • Bottles to be sold to tourists: C4T slogan and flag • Promotion could be used at airports and hotels Analysis • Development of why branding may be important in launch or not – will it attract more customers? • Branding will help differentiate the reusable bottle from competitor offering making it more competitive in the market and possibly giving control over pricing 3 • How might the use of social media communicate C4T brand message effectively, impact on sales • Possible impacts on company image and reputation • Promotion within the launch could be used at airports and hotels as the product is aimed at tourists • Place: distribution through retailers at airports and hotels to attract tourists • B2B likely to be important and this would require C4T to use sales team to contact businesses such as airports and hotels Evaluation • Future use of brand image and the need to keep up with new developments • Judgement as to how important branding may be – what else may be more important? • Success may depend, to some extent, on Country A’s tourist potential. • Will people need to be convinced of disadvantages of ‘throw away’ plastic bottles? Could social media play a role? 3 7–10 marks Good judgement throughout with well supported conclusion/ recommendations focused on the case

Mark scheme

4(a)(i) Refer to Table 2. Calculate the: 5 forecast total contribution from the proposed special order of laptop cases Note: Correct units required for full marks Total contribution = Contribution per unit × total sold (1 if no relevant calculations) OR Contribution per unit = selling price – variable cost (1 if no relevant calculations) Variable cost per unit = 18 000/9000 + 13 500/9000 = 2 +1.50 = 3.50 (1) Contribution per unit = 5 – 3.50 = 1.50 (2) Total contribution = $1.50 × 5000 (3) = $7500 (5) 7500 (4) Alternative approach: Total revenue – total variable costs = total contribution (1 if no relevant calculation) Revenue = 5 × 5000 = ($)25 000 (1) Total variable costs = 5000(2 + 1.5) = ($)17 500 (1) Total contribution = 25 000 – 17 500 (3) = $7500 (5) OFR applies 4(a)(ii) forecast 2021 capacity utilisation for laptop cases, without the special 3 order. Note: Correct units required for full marks Capacity utilisation (%) = current output / max output × 100 (1 mark if no calculation) Capacity utilisation without special order is 9000/12 000 × 100 (1) = 75% (3) = 75 (2) New with special order 9000 + 5000 / 12 000 = 116.67% over full capacity (1) OFR applies 4(b) Refer to your results from 4(a) and any other information. Recommend 12 whether C4T should accept the special order. Justify your recommendation. Level Knowledge Application Analysis Evaluation 2 marks 2 marks 4 marks 4 marks 2 2 marks 2 marks 3–4 marks 3–4 marks Two points Two points Good use of Good judgement applied theory / shown in reasoned answer and argument to conclusion. explain why the order should / should not be accepted 1 1 mark 1 mark 1–2 marks 1–2 marks One point made One point Some use of Some applied theory / judgement reasoned shown in argument to answer and explain why the conclusion. order should/should not be accepted No creditable content Note: L1 of AN and EVAL if only use results or other information. Knowledge • Meaning of ‘special order’ in general, i.e. ‘one-off’ factors in making the decision: • Available capacity / capacity utilisation • Unit and total contribution to fixed costs • Impact on profit • Possibility of future orders • Impact on production of other products Application • Reference to and application of results • Contribution is $7500 • Additional revenue of $25 000 • Current spare capacity 3000 • Capacity utilisation 75% • Capacity utilisation with special order will be 116.67%, so over full capacity • Reference to nature of special order and other impacts, such as building a relationship with another company • Reference to other points from the text, including ‘social enterprise’ objectives • Reference to need to use resources from other departments as 116.67% capacity utilisation, but employees specialise in own departments. 4(b) Analysis Analysis of reasons why order should / should not be accepted: • Special order will add to profit, but could more have been added if products were sold at usual selling price of $7 (an additional $2 per unit) • Impact on existing customers. As order will take C4T overcapacity then may be unable to meet existing customer needs resulting in dissatisfied customers and therefore loss of future sales • Special order may lead to future orders which will increase sales and profit • Impact of need for high productivity levels different contracts needed in new factory • C4T may be able to reorganise workforce and production to meet the new order and other forecast orders, e.g. by working overtime or getting in temporary staff to increase capacity. Evaluation • Recommendation with supporting argument • $7500 contribution will only add to profit if other forecast orders can also be met • Short/long term impact on C4T? • To what extent might special order lead to more sales in future?

Mark scheme

5 Evaluate the importance of workforce planning to C4T’s future success. 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 or more Good use of Good judgement points made points applied theory / shown in reasoned answer and argument to conclusion explain the likely importance 1 1 mark 1 mark 1–3 marks 1–3 marks One point made One point Some use of Some applied theory / judgement reasoned shown in argument to answer and explain likely conclusion importance 0 No creditable content Note: • Importance must be to C4T. • If comment made on impact on employees, then this should be linked to what it may mean for the business. Knowledge • Definition and importance of workforce planning, e.g. looking at future business needs to identify workforce skills and needs. Provides a plan for recruitment needs. • Helps determine types of employee contracts required based on workforce needs • Link between employee performance and workforce planning • Link between workforce planning and employee training • Planning where and how employees are to be used Application • C4T workers may well be in ‘first job’ • Nature of work may be relatively low skilled, but opportunities in design and/or ideas? • Organic nature of business growth has led to lack of planning • Reference to quality issues from the case – reject products, wasted resources • Training is important for the young workers in this social enterprise • Need for more flexibility in both old and extended factory • Reference to new factory – maybe more automation, different skills required, need for high productivity levels • Likely to be labour intensive operations • Special order requires reorganising production workers 5 Analysis • Identification of workforce needs in terms of numbers and skills will help C4T operations be efficient and ensure that there is no shortage of workers with the right skills which would otherwise disrupt production and lead to delays. • New extension will require more workers, possibly with different skills, so C4T needs to plan for this change to avoid disruption • Possible workforce planning approaches can be developed, e.g. the mix of flexible versus permanent contracts required and how this might reduce costs. • Need for high productivity levels means that different contracts which offer greater flexibility needed in new factory. Evaluation • Essential to organise workforce better to improve future performance in terms of operations • Workforce planning can only be effective if linked in closely with the firm’s long-term objectives • Without a workforce plan C4T may fail to meet customer demands • Meaning of performance in this social enterprise context: • C4T objectives will be important, e.g. employ as many people as possible or maximise productivity Questions 6 and 7 use the following marking grid. Level Knowledge Application Analysis Evaluation 3 marks 3 marks 4 marks 10 marks

Mark scheme

6 Evaluate whether the data in Table 3 is sufficient for the managers of 20 C4T as they make the strategic choice between option 1 and option 2. Knowledge • Meaning of strategic choice, link with strategic analysis and 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 • Understanding of SC techniques • DTA provides quantitative data on which to choose the option with the highest average profit • Force field analysis provides qualitative data on the decision Application • Option 1 is probably a product development or market development and Option 2 diversification. Accept alternative interpretation if justified • Option 1 is further ‘social enterprise’ activity, whereas Option 2 may be seen as more profit motivated. • Use of the techniques/factors for two options – Table 3 data. • Option 2 has a higher capital cost (+$300 000) • Option 1 has a higher probability of success (+15%) • Option 1 can be completed significantly quicker that Option 2 (8 months sooner) • Comparison of options using the Table 3 and the techniques. For instance, comparison of likely risks/returns • Government ban in 2022 of single-use carrier bags • Table 3 provides elements of Decision Tree Analysis and force field analysis • Reference to gearing as facto affecting choice. Currently 60%. Analysis Building chains of arguments which demonstrate the usefulness and limitations of the data / SC techniques in Table 3 and other information / strategic management techniques that would be useful • Decision Tree data: • Higher probability of success favours option 1 as it suggests there is a lower level of risk and this is supported by Ansoff (diversification v product / market development) • EMV shows the average monetary outcome for each option, as such, it focuses on profit and favours option 2 which is important to the decision as more profit may help C4T achieve its social objectives • Probability of success helps C4T assess risk. May prefer option 1 which has a higher probability of success and therefore less risk of failure. Minimising risk could help C4T ensure that is able to continue to achieve its social objectives. • As option 1 can be implemented more quickly this will help with C4T’s cash flow. This may be important as C4T’s gearing is quite high, making bank borrowing riskier. 6 • Option 1’s initial cost is lower. Therefore, it may be easier to finance and as C4T has high gearing lower initial cost is desirable. • (Lewin’s) Force Field Analysis. Commentary on significance of driving and restraining forces: • High level of competition in market for luxury case will make success more difficult (reflected in 65% probability of success). This may require C4T to spend more on marketing or set lower prices to penetrate the market. • Shortage of recyclable materials could halt production of Bag4Ever project making the project unviable. • High added value of luxury travel cases will increase profit which is desirable as it enables C4T to fulfil its social objectives • How might SWOT, PEST and other SA techniques be used to find out where the company is now? • Techniques such as Ansoff’s Matrix might help in comparing the options and making the choice as this highlights risk. Ansoff suggests that diversification is highest risk and this fits with option 2. Evaluation • Evaluation/limitations of techniques • DTA only gives quantitative data. However, primary limitation concerns the accuracy of that data. Based on estimated probabilities and predicted outcomes. Aid decision making but cannot replace either the consideration of risk or the impact of qualitative factors on a decision • Ansoff does not account for market factors such as level of competition • Opinions may vary when developing FFA as to the driving forces and restraining forces. Subjective nature of the technique. • Very new market, many ‘unknowns’ • Other information that could be useful? • Investment appraisal • External factors • Data does not provide the worst-case scenario outcome within the DTA, i.e. will a loss or profit be made if the project ‘fails’. Important to know if Kris and Andy are risk averse. • FFA doesn’t include the numerical weighting of forces. (However, weighting is subjective) • Significance of management objectives and attitudes • Long- and short-term impacts • To what extent is information sufficient?

Mark scheme

7 Evaluate the importance of a strategic business plan to the successful 20 implementation of this option. Assume option 2 is chosen. Knowledge • Purpose of a business/corporate plan: A business plan describes a company's core business activities, objectives, and how they plan to achieve their goals • Meaning of successful implementation • What are corporate objectives? • How do corporate objectives inform the business planning process? • How implementation fits into the model of strategic management • Knowledge of joint venture as a means of growth Application • Corporate objectives and business planning for C4T, current model based on social enterprise/objectives • Importance of this joint venture with design company • How might objectives and business plan need to change with the shift into a completely new market and customers – references to all parts of business planning, Marketing, Finance, Human Resources etc. – New factory to produce case – Financing the $800 000 cost – Workforce plan for new factory – Marketing to promote to high-income consumers and deal with high level of competition – Planning of exports (opportunity) – Meeting the 18-month timeframe for implementation • Comment on impact on whole company of this change – how might the new factory and products affect the existing setup? e.g. organisational restructuring Analysis • Plan identifies investment cost and enables C4T to arrange appropriate finance to avoid liquidity problems. • New factory required to produce the case therefore will need to identify location and project planning need to manage resources efficiently and avoid waste. • Joint venture requires planning to overcome cultural differences between organisations to reduce the disruptive effects of conflict. How the joint venture is to be managed will need to be established in advance of operations to reduce disruption to implementation. • New factory requires resources – capital and labour – planning necessary to ensure disruption to production is minimised and resources available as necessary. • How business plan may have to be changed and advantages and disadvantages Development and impact of Application points made. 7 Evaluation • Will there need to be a significant change in objectives and planning if Option 2 is implemented? Social versus other objectives must be decided in advance with the joint venture partner • Vital for business plan to be a ‘working document’ i.e. flexible to change in view of changing external influences • May depend on attitude of Andy and Kris and their long-term plans Other factors such as external factors that need to be considered, e.g. competition will be very important.