Cambridge A Level Business (for first examination in 2016) 9609 — 2016 Oct/Nov Paper 2 · Variant 3

This document consists of 4 printed pages and 1 Insert. DC (NH/SW) 125608/1 © UCLES 2016 [Turn over * 5 1 0 9 4 7 0 2 7 2 * BUSINESS 9609/23 Paper 2 Data Response October/November 2016 1 hour 30 minutes No Additional Materials are required. READ THESE INSTRUCTIONS FIRST An answer booklet is provided inside this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet. Answer all questions. The businesses described in this paper are entirely fictitious. The number of marks is given in brackets [ ] at the end of each question or part question. Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level

2 9609/23/O/N/16 © UCLES 2016 1 Exam Success (ES) Amaya is a sole trader who owns and manages ES. Amaya was a teacher for 20 years. She decided to leave teaching and start up ES to offer individual tuition for students in their own homes. For the first year, Amaya was the only worker, tutoring students for Business qualifications. In the second year she used methods of selection to choose two teachers to join her team. This meant that ES was also able to offer individual tuition in Mathematics and Science. ES has now been trading for five years. Fig. 1 shows the revenue for ES from the first five years of trading. Fig. 1: Revenue for first five years of trading ($)  <HDU <HDU <HDU <HDU <HDU          Amaya is concerned about the fall in revenue for individual tuition in students’ own homes. She has forecasted a fall of 20% in revenue for Year 6. In response to this, Amaya has done some secondary market research using web-based sources to find out the information shown in Table 1. Table 1: Market information Households with a reliable Internet connection 75% Number of competitors providing tuition in students’ homes 6 Number of businesses selling Internet tuition courses 1 Average profit margin for tuition in students’ homes 15% Average profit margin for Internet courses 35% Based on this market research, Amaya has an idea to develop a new range of Internet courses. Each student would pay a monthly fee to ES to be able to access the courses on a website. Amaya will need to pay a business to create the website for ES but she believes that, if the Internet courses are successful, they could be sold across the whole country. 5 10 15 20

3 9609/23/O/N/16 © UCLES 2016 [Turn over (a) (i) Define the term ‘sole trader’ (line 1). [2] (ii) Briefly explain the term ‘methods of selection’ (line 4). [3] (b) (i) Refer to Fig. 1 and information on lines 10–11. Calculate the forecast revenue for Year 6. [2] (ii) Explain two ways Amaya might increase the forecast revenue. [4] (c) Analyse one advantage and one disadvantage to Amaya of using web-based sources of market research. [8] (d) Recommend whether Amaya should develop a new range of Internet courses. Justify your view. [11]

4 9609/23/O/N/16 © UCLES 2016 Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after the live examination series. Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge. 2 Yondis Phones (YP) YP is a public limited company that manufactures mobile (cell) phones. YP’s phones are sold to large retailers who then brand them as their own products. YP uses a capital intensive flow production process. Computer aided manufacturing (CAM) and mass customisation allow YP to produce different designs of phone on the same production line. YP’s managers have differing opinions about the recent success of the company. The Operations Director, Khan, is pleased with the economies of scale from which YP benefits. However Jay, the Finance Director, is worried about the liquidity position. Table 2: Liquidity indicators 2014 2015 Current assets including inventory ($000s) 1200 1500 Current assets excluding inventory ($000s) 600 500 Current liabilities ($000s) 1200 1500 Current ratio 1.0 1.0 Acid test ratio 0.5 X YP has only sold phones to national retailers, but an opportunity has arisen to sell into another market, country A. A large retailer from country A would like to make regular purchases from YP. Khan knows that YP can increase production to meet this demand by introducing a new production line. However YP would also need to gain more international business to make this new production line profitable. Faye, the Marketing Director, has no experience of international markets and is concerned about the differences between marketing to national retailers compared to retailers in other countries. (a) (i) Define the term ‘capital intensive’ (line 3). [2] (ii) Briefly explain the term ‘flow production’ (line 3). [3] (b) (i) Refer to Table 2. Calculate the value of X. [3] (ii) Briefly explain the changes in YP’s liquidity position. [3] (c) Analyse two economies of scale from which YP may benefit. [8] (d) Discuss the advantages and disadvantages to YP of selling phones to the retailer in country A. [11] 5 10 15 20

® IGCSE is the registered trademark of Cambridge International Examinations. This document consists of 12 printed pages. © UCLES 2016 [Turn over Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level BUSINESS 9609/23 Paper 2 (Data Response) October/November 2016 MARK SCHEME Maximum Mark: 60 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the October/November 2016 series for most Cambridge IGCSE®, Cambridge International A and AS Level components and some Cambridge O Level components.

Page 2 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2016 9609 23 © UCLES 2016 Question Mark 1 (a) (i) Define the term 'sole trader' (line 1). Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Must be distinct from other ownership types Content A business in which one person provides the finance and in return has the full control of the business and keeps all the profits. A sole trader has all of the risk/unlimited liability. A sole trader pays income tax. Exemplar Mark Rationale One owner who has unlimited liability 2 One owner who pays income tax on profits 2 A single owner who provides all the finance 1 Could be a Ltd One owner 1 Could be Ltd 2

Page 3 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2016 9609 23 © UCLES 2016 Question Mark (ii) Briefly explain the term 'methods of selection’ (line 4). Award one mark for each point of explanation: Example or some other way of showing good understanding, e.g. application forms, CVs etc... 1 mark Explanation of process/practices/ways etc… 1 mark Understanding that these are ways of choosing, distinguishing between, hiring, suitability of potential employees etc…. 1 mark Content Ways in which a business can choose the right employee for a job. Application forms and CVs. Online screening and shortlisting. Interviews. Psychometric testing. Ability and aptitude tests. Personality profiling. Presentations. Group exercises. Allow job description and person specification 3 (b) (i) Refer to Fig. 1 and other information on lines 10–11. Calculate the forecast revenue for Year 6. Mark Rationale 2 marks Correct answer with or without correct working (ignore $ sign) 1 mark Correct formula* OR correctly calculated percentage fall 0 marks No creditable content *Formula can be implied from use of figures Sales revenue in Year 5 = $25 000 Year 6 predicted fall of 20% 20% of $25 000 = $5000 (1) $25 000 – $5000 = $20 000 (1) OFR Therefore answer = $20 000 (2) 2

Page 4 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2016 9609 23 © UCLES 2016 Question Mark (ii) Explain two ways Amaya might increase the forecast revenue. Level Knowledge and Application Marks 2b (APP +APP) Explanation of two ways in context 4 2a (APP) Explanation of a way in context 3 2 (KK) Identification of two ways 2 1 (K) Identification of a way 1 0 No creditable content 0 NB use of the answer to Q1(b)(i) is not required for context, but is an obvious way to contextualise an answer. Correct use of an incorrect answer to 1(b)(i) should be fully rewarded (own figure rule –OFR) Content • Develop new subjects to offer so that she can target a larger market • Offer individual tuition to a larger market, perhaps beyond her home town • Employ more tutors to allow her to offer more individual tuition in the subjects that she already offers • Reduce the price (assuming it is price elastic) • Increase the price (assuming it is price inelastic) • Promote ES, local newspaper, recommendations, posters etc. • Increase the distribution outlets, i.e. sell through local schools/colleges 3

Page 5 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2016 9609 23 © UCLES 2016 Question Mark (c) Analyse one advantage and one disadvantage to Amaya of using web-based sources of market research. Level Knowledge and Application (4 marks) Marks Analysis (4 marks) Marks 2 Understanding of one web-based source of market research 3–4 Good analysis of an advantage AND a disadvantage of web- based market research in context 4 Good analysis of an advantage OR a disadvantage of web- based market research in context 3 1 Shows knowledge of market research 1–2 Limited analysis of an advantage AND a disadvantage of market research 2 Limited analysis of an advantage OR a disadvantage of market research 1 0 No creditable content Content Advantages • Web-based market research is likely to be quicker than other forms of research which is important because ES needs a speedy response to the falling revenue • Web-based market research is likely to be cheaper (or free) than other forms of research which is important because ES is a small business • Web-based market research may be more up-to date than other forms of secondary market research, particularly important because this is a technologically changing marketplace • Web-based may be more appropriate because it is a web-based product that ES is considering Disadvantages • Web-based market research may not have the validity of other forms of market research • Unlike primary (or paid for) market research, web-based may not be specific to what ES needs to know • Is this information sufficient to base such an important business decision upon, should Amaya back it up with other secondary, or some primary research? 8

Page 6 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2016 9609 23 © UCLES 2016 Question Mark (d) Recommend whether Amaya should develop a new range of internet courses. Justify your view. Knowledge and Application (4 marks) Marks Analysis and Evaluation (7 marks) Marks A justified recommendation based on a balanced argument 7 A recommendation based on a balanced argument 6 A balanced argument (two-sided) that evaluates the development of a new range of internet courses 5 Shows understanding of the proposal in the context of the business 3–4 Argument (one-sided) based on the development of a new range of internet courses 3–4 Shows understanding of factors affecting business success 1–2 Limited analysis of two or more factors 2 Limited analysis of one factor 1 No creditable content Content Arguments that Amaya should • Online market has less competitors than individual tutoring and therefore ES may find it easier to launch and may be able to dominate the market • Profit margin for online tutoring courses is 20% higher than individual tutoring services • 75% of households have internet access which suggests that there may be a market for online tutoring courses (as does the one competitor in the market already) • The chance to develop ES beyond Amayas home town • A regular monthly income with few ongoing costs after development of the courses • Use of the online courses may lead to students choosing to purchase individual tutoring as well Arguments that Amaya should not • Amaya is likely to face more competition than just the businesses in her home town. There may be national and international competitors. • The website may represent a large start-up cost, as will the development of the internet courses. Does Amaya have the money, especially with falling revenues? • Will Amaya have the skills to maintain the website, or will she need to recruit a new employee? • How secure will the internet courses be – could they easily be hacked/copied/downloaded for free? 11

Page 7 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2016 9609 23 © UCLES 2016 Question Mark 2 (a) (i) Define the term 'capital intensive' (line 3). Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content • Using machinery/assets etc. • Difference between capital and labour 2 (ii) Briefly explain the term 'flow production' (line 3). Award one mark for each point of explanation: Example or some other way of showing good understanding, i.e. 1 mark Understanding of ‘production’ 1 mark Understanding of ‘flow’, i.e. continuous, in a line etc. 1 mark Note: a joint venture is not a merger Content making items in a continually moving process, for example on a production line. Jobs are likely to be broken down into small activities and may include a large amount of automation. 3

Page 8 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2016 9609 23 © UCLES 2016 Question Mark (b) (i) Refer to Table 2. Calculate the value of X. Mark Rationale 3 marks Correct answer with or without working (no % sign required) 2 marks Correct formula* AND correct calculation of CA-inventory 1 mark Correct formula OR correct calculation of CA-inventory 0 marks No creditable content *The formula can be implied form the correct use of the figures (i.e. $500/$1500) Acid test formula: − Current assets inventory Current liabilities (1) Current assets (excluding inventory) = $500 (1) Current liabilities = $1500 = $500 0.33 $1500 Allow 33% or 33.33%, or 0.3 a third or 0.33:1 for full marks 3

Page 9 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2016 9609 23 © UCLES 2016 Question Mark (ii) Briefly explain the changes in YP's liquidity position. Level Knowledge and Application Marks 2b (APPAPP) Explanation of a change in YP’s liquidity position 3 2a (APP) Identification of a change in YP’s liquidity position 2 1 (K) Knowledge of liquidity 1 0 No creditable content 0 Acid test has decreased from 0.5 to 0.33 – this is the context NOT the explanation of the change – OFR applies to whatever the candidate has calculated in Q2bi Content • YP may not be able to pay short term debts IF inventory has less value than accounted for • In 2014 YP held $600 000 of inventory but in 2015 it is holding $1m of inventory – this may affect their ability to pay short term debts if the inventory has less value than accounted for • The liquidity position has not changed because the current ratio is still 1:1, so YP has the same ability to meet its short term debts. OFR 3

Page 10 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2016 9609 23 © UCLES 2016 Question Mark (c) Analyse two economies of scale from which YP may benefit. Level Knowledge and Application (4 marks) Marks Analysis (4 marks) Marks 2b Shows understanding of two or more EoS in context 4 Good analysis of two or more EoS in context 4 2a Shows understanding of one EoS in context 3 Good analysis of one Eos in context 3 1b Shows knowledge of two or more EoS 2 Limited analysis of two or more EoS 2 1a Shows knowledge of one EoS 1 Limited analysis of one EoS 1 0 No creditable content EoS must be linked to reduction in (unit) costs Content Purchasing economies • YP obviously hold a lot of stock and it is reasonable to suggest that they benefit from bulk buying components leading to lower unit costs but may lead to holding obsolete stock. Technical economies • YP is large enough to benefit from a capital intensive, flow production line (and CAM) so that they can produce at a lower unit cost compared to a business that cannot justify a flow production line • YP can afford technology to implement mass customisation leading to more variation in products and therefore a wider product range to sell to retailers. Financial economies • No evidence in case, but it can be assumed that YP may gain some financial economies of scale if they require finance for the new production line. More chance of gaining the finance for this and perhaps a lower interest rate therefore lower costs. Marketing economies • No evidence in case, but it can be assumed that YP may gain some marketing economies when expanding internationally. This is an industrial market, so any reference to marketing to consumers is unlikely to be in context. 8

Page 11 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2016 9609 23 © UCLES 2016 Question Mark Managerial economies • Examples in the case of specialised Operations, Finance and Marketing managers. Increased efficiency/knowledge in these roles may lead to cost savings and better quality of work. External economies (d) Discuss the advantages and disadvantages to YP of selling phones to the retailer in country A. Knowledge and Application (4 marks) Marks Analysis and Evaluation (7 marks) Marks Overall justified judgement based on a two sided argument in context 7 Overall judgement based on a two sided argument in context 6 Evaluative statement(s) based on a two sided argument in context 5 Shows understanding of the features of an international market in the context of the business 3–4 Argument (one sided) based advantages(s) AND/OR disadvantage(s) in context 3–4 Shows knowledge an international market 1–2 Limited analysis of an advantage AND a disadvantage 2 Limited analysis of an advantage OR a disadvantage 1 No creditable content Examiner’s Note: This question is about the possible features of another (international) market and the consequent advantages/disadvantages for YP. Candidates are NOT expected to know about international marketing strategies. 11

Page 12 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2016 9609 23 © UCLES 2016 Question Mark Content: Advantages • New markets could lead to increased sales and increased profits for YP • The international retailer could allow YP to spread the risk of their current operations. The business may be less susceptible to changes in the domestic market and domestic competitors • May lead to increasing economies of scale lowering unit costs • International retailer is willing to make regular purchases – security of revenue. • Opportunity for future growth. Disadvantages • YP would have to invest in a new production line which may mean a large capital injection and/or new sources of finance • There may be different legal requirements and standards for phones in international markets – YP may have to change their production methods and their products to be successful in these markets – would the retailer bear some responsibility for this? • Marketing in international markets may be difficult due to social, cultural and communication barriers – YP is in an industrial market so any marketing must be in this context. Although retailer is likely to bear responsibility for this. • YP would be more susceptible to worldwide economic changes. • Faye has no experience of international marketing or dealing with international retailers – will YP have to hire a new international Marketing Manager or face the costs of training Faye.