Cambridge A Level Business (for first examination in 2016) 9609 — 2018 May/June Paper 2 · Variant 3

1 Delivery To You (DTY) DTY is a public limited company in the tertiary sector. DTY delivers packages for businesses in country A. DTY’s main customers are large online retail businesses. These businesses pay DTY to deliver products to customers who have purchased them online. DTY has recently published its income statement for 2017 (see Table 1). Table 1: Extract from DTY’s income statement for 2017 5 $m Revenue 45 Cost of sales 30 Gross profit 15 Expenses, interest and tax 10 10 The Board of Directors decided that retained earnings should be at a high level of 80% of profit for the year. The Board of Directors is keen to expand the business by delivering packages within a new country. This planned expansion will require 10 delivery drivers. To aid the recruitment process, the human resource manager has created a person specification (see Table 2). 15 Table 2: Person specification for a delivery driver Characteristic Essential Desirable Qualifications Driving licence A-Level or high school standard Physical Good eyesight None 20 Fit enough to lift heavy packages Experience None Experience of dealing with customers/consumers Personal qualities Confident Friendly 25 Good communicator There are a number of factors that will determine the country chosen for the expansion. The Board of Directors has asked the marketing manager to carry out some primary and secondary market research so that it is able to make a good decision. (a) (i) Define the term ‘tertiary sector’ (line 1). [2] (ii) Briefly explain the term ‘human resource manager’ (line 15). [3] (b) (i) Calculate the retained earnings for DTY in 2017. [2] (ii) Explain two possible effects of DTY’s Board of Directors’ decision to have a high level of retained earnings. [4] (c) Analyse two methods of recruitment that DTY could use for the new delivery drivers. [8] (d) Discuss methods of market research that DTY could use to help the directors decide which country to expand into. [11]

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘tertiary sector’ (line 1). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content Made up of businesses which sell services to consumers. 1(a)(ii) Briefly explain the term ‘human resource manager’ (line 15). 3 Award one mark for each point of explanation: Knowledge Marks Example or some other way of showing good 1 understanding Explanation of manager/management 1 Explanation of human resource 1 Content Human resources are the workers/labour used within a business Management requires the planning, co-ordination, organisation, motivation etc. of these human resources 1(b)(i) Calculate the retained earnings for DTY in 2017. 2 Rationale Marks Correct answer with or without working 2 Correct use of figures/formula 1 No creditable content 0 Content 80% of profit for the year $15m – $10m = $5m (profit for the year) $5m × 80% = $4m 1(b)(ii) Explain two possible effects of DTY’s Board of Directors’ decision to 4 have a high level of retained earnings. Level Knowledge and Application Marks 2b (APP Explanation of two effects of a high level of 4 +APP) retained profit in context 2a Explanation of one effect of a high level of retained 3 (APP) profit in context Explanation of two effects of a high level of 1b (KK) 2 retained profit Explanation of one effect of a high level of retained 1a (K) 1 profit 0 No creditable content 0 Content • Shareholders may sell their shares (DTY is a PLC) reducing the share price and leading to a potential takeover of DTY • Poor image for DTY – may be seen as a sigh of weakness in the market • Shareholders may expect a bigger dividend in the future • Can afford to expand the business – retained profits will be a source of finance • DTY might avoid taking expensive external finance • Will reduce the gearing of DTY • Can be used to improve cash flow/working capital 1(c) Analyse two methods of recruitment that DTY could use for the new 8 delivery drivers. Knowledge and Level Marks Analysis (4 marks) Marks Application (4 marks) Shows understanding Good analysis of two of how DTY could use 2b 4 method of recruitment 4 two or more methods in context of recruitment Shows understanding Good analysis of one of how DTY could use 2a 3 method of recruitment 3 one method of in context recruitment Shows knowledge of Limited analysis of 1b two or more methods 2 two or more methods 2 of recruitment of recruitment Shows knowledge of Limited analysis of 1a one method of 1 one method of 1 recruitment recruitment 0 No creditable content 0 Content • Internal recruitment – unlikely to be possible because of expansion • Job advertisements – obvious places such as newspaper. Qualifications are not specialist so could be in mass media • Job centres • Specialist online job websites • Recruitment agency • Personal recommendations • Social media recruitment • Recruitment from schools • Direct recruitment – poster in window, advert on vans etc. ARA 1(d)(ii) Discuss methods of market research that DTY could use to help the directors decide which country to expand into. Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) A justified judgement of the methods of market research 7 DTY could use to decide on locations for expansion A recommendation of the methods of market research 6 DTY could use to decide on locations for expansion A balanced argument (two- sided) that evaluates methods 5 of market research in context Argument (one-sided) based on two methods of market 4 Shows understanding of research in context methods of market 3–4 research in context Argument (one-sided) based on one method of market 3 research in context Limited analysis of two 2 methods of market research Shows knowledge of 1–2 market research Limited analysis of one method 1 of market research No creditable content 0 Content Primary: • Surveys • Focus Groups • Interviews • Observation • Field Trials/Testing Secondary: • Internal source – accounts, sales figures, inventory figures etc. • External sources – competitors, government, census data, internet ARA

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2 Pencil Pushers (PP) Jacqueline is a sole trader who owns PP. She set up the business six months ago to manufacture pencils. The market for pencils in PP’s country is separated into the niche market of supplying pencils for schools and the mass market. When she started the business, Jacqueline decided to target the mass market. Table 3 shows Jacqueline’s initial market research into the two markets. 5 Table 3: Initial market research data Mass market Schools market • 10 producers are in the market. Each • One producer is in the market with producer has 7% – 12% market share. 100% market share. • Sold through many retailers, including • Sold directly through e-commerce. 10 online retailers. • Branding and reputation are not • Branding and reputation are very important. important. PP is establishing a good reputation as a reliable supplier of pencils to shops that sell stationery. However, as a relatively new business, PP has had to use penetration pricing 15 to build up a customer base. She sells each pack of five pencils for $1. PP holds a large inventory so that orders can be delivered quickly. PP employs four full-time production workers in one factory. The production process is capital intensive. Production data for the factory is in Table 4. Table 4: Production data for PP’s factory 20 Maximum capacity per month 75 000 pencils Monthly fixed costs $8 500 Variable costs per 100 pencils $3 PP has no trade payables but Jacqueline is concerned about the cash flow of PP. The latest cash flow forecast showed that PP might run out of cash in three months’ time. This 25 is mainly because the shops which sell PP’s pencils demand 30–60 days to pay for their orders. (a) (i) Define the term ‘capital intensive’ (line 19). [2] (ii) Briefly explain the term ‘niche market’ (lines 2–3). [3] (b) (i) Calculate how many packs of pencils PP must sell to break even each month. [4] (ii) Explain how Jacqueline could use your answer to 2(b)(i). [2] (c) Analyse two methods Jacqueline could use to improve PP’s cash flow. [8] (d) Evaluate Jacqueline’s decision to target the mass market. [11]

Mark scheme: 2(a)(i) Define the term ‘capital intensive’ (line 19). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content The use of machinery/equipment/technology rather than labour. 2(a)(ii) Briefly explain the term ‘niche market’ (line 2–3). 3 Award one mark for each point of explanation: Knowledge Marks Example or some other way of showing good 1 understanding Specific target market 1 Small segment 1 Content A small sector of the market – targeting a specific group. Can be defined by a number of different characteristics. Examples. 2(b)(i) Calculate how many packs of pencils PP must sell to break even each 4 month. Rationale Marks Correct answer with or without correct working 4 Correct calculation of contribution 3 Correct calculation of VC per pack price 2 Formulae 1 No creditable content 0 Content Fixed costs Contribution $3.00 = $0.03 (per pencil) 100 pencils $0.03 × 5 (pack) = $0.15 (per pack of 5 pencils) $1.00 – $0.15 = $0.85 (contribution) $8500 = 10 000 pencils $0.85 2(b)(ii) Explain how Jacqueline could use your answer to 2(b)(i). 2 Level Knowledge and Application Marks Explanation of a use of the answer to 1(b)(i) in 2 (APP) 2 context Explanation of a use of break-even analysis/ 1 (K) 1 calculation 0 No creditable content 0 N.B. Correct use of an incorrect answer to 1(b)(i) should be fully rewarded (own figure rule – OFR) Content • To plan for inventory • To increase production to meet BE • To manage capacity • To calculate margin of safety • To understand level of risk ARA and OFR 2(c) Analyse two methods Jacqueline could use to improve PP’s cash flow. 8 Knowledge and Analysis Level Application Marks Marks (4 marks) (4 marks) Shows understanding Good analysis of two of two methods of 2b 4 methods of improving 4 improving cash flow in cash flow in context context Shows understanding Good analysis of one of one method of 2a 3 method of improving 3 improving cash flow in cash flow in context context Limited analysis of two methods of improving 2 Shows knowledge of cash flow 1 methods to improve 1–2 cash flow Limited analysis of one method of improving 1 cash flow 0 No creditable content 0 Content • Reduce the debtor time – however will shops still trade with PP? • Take out a short-term source of finance (no debt) • Reduce inventory (PP has high inventory) – however will PP be able to fulfill orders in time? • Ask suppliers for time to pay (no creditors at present) – 30–60 days might allow PP to pay for supplies when they have been paid by customers. • Increase revenue – however likely to need short term investment in marketing • Discounts for prompt payment – however could reduce profitability • Increase price – however likely to reduce demand and revenue – depends on elasticity ARA 2(d) Evaluate Jacqueline’s decision to target the mass market. 11 Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) A justified about Jacqueline’s decision to enter the mass 7 market A judgement about Jacqueline’s decision to enter 6 the mass market A balanced argument (two- sided) that evaluates 5 Jacqueline’s decision to target the mass market Shows understanding of Argument (one-sided) based mass marketing in 3-4 on Jacqueline’s decision to 3-4 context target the mass market Shows knowledge of market Limited analysis of mass 1-2 1-2 segmentation/mass marketing marketing No creditable content 0 Content Pros of mass market Cons of mass market • More potential customers – the • More competitive – mass market for pencils may 10 producers include everyone, so demand • Lower profit margin – retailers will be higher will reduce profit margin and • Retailers provide a route to competition market • PP will need to build up brand • Retailers may provide some of and reputation (high costs – the promotion needed only established 6 months ago) • Few barriers to entry – competitive market • Potential for economies of scale

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