Cambridge A Level Business (for first examination in 2016) 9609 — 2018 Oct/Nov Paper 2 · Variant 1

1 Swimming Pools (SP) SP is a public sector organisation. SP operates many swimming pools across country X. The main objective for SP is to provide a quality service to the local community. Each swimming pool is used by consumers from different market segments (see Table 1). Table 1: SP’s market segments Market segment Time when pool is used by this segment 5 Schools which rent the pool for Daytime swimming lessons Children for fun swimming Weekends Adults for fitness swimming Evenings SP currently uses price discrimination. Most of the swimming pools have a steady demand 10 throughout each week. One of SP’s swimming pools, The Lido, is currently making a loss. Table 2 shows the income statement for The Lido for the last 12 months. Table 2: Extract from The Lido’s income statement ($000s) Revenue 280 15 Cost of sales 210 Gross Profit 70 SP Head Office allocated costs* 40 Overhead expenses 60 Profit/(loss) for the year (30) 20 *Each of SP’s swimming pools must pay for some of the Head Office costs The Lido is based in an area with many schools that are under the control of the government. Unemployment in the area is high. The manager has reduced the price for customers who are under 18 years old or do not have a job. (a) (i) Define the term ‘market segment’ (line 3). [2] (ii) Briefly explain the term ‘public sector organisation’ (line 1). [3] (b) (i) Calculate the gross profit margin (%) for The Lido. [3] (ii) Explain how one stakeholder of SP might be affected by The Lido making a loss. [3] (c) Analyse one advantage and one disadvantage to SP of using price discrimination. [8] (d) Recommend whether SP should close The Lido. Justify your answer. [11]

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘market segment’ (line 3). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content • Part of a market • Made up of groups of customers who share similar characteristics, interests, etc. Exemplar Marks Rationale Sub-group of a whole market (1)for Identifies that it is part of a consumers with similar 2 market aimed at specific characteristics such as age(1) customers Again Identifies that it is part of a market but no A group or portion of a whole market 1 reference to target group of customers It is the whole market 0 Incorrect definition 1(a)(ii) Briefly explain the term ‘public sector organisation’ (line 1). 3 Award one mark for each point of explanation: Knowledge Marks Example or some other way of showing good understanding C e.g. Product that might not be adequately provided by the 1 private sector/profit not an objective. To provide a service to the local community/ social B 1 objectives A Owned/controlled by the state/government 1 Note: Must have an answer from section A or B Content A business owned and controlled by the government to provide services and products that might not be adequately provided by the private sector. Exemplar Marks Rationale Owned and controlled by the state All 3 elements included – A + (1) to provide a social benefit (1) 3 B + C profit not an objective (1) Owned by the government (1) e.g. 2 Only 2 elements A + C fire service (1) Not run with the aim of making a profit (1) but aim to a service to 2 Only 2 elements B + C the community (1) State owned enterprise (1) 1 Only 1 element A Too vague – private sector Organization funded by the 0 organizations may be funded government by the government 1(b)(i) Calculate the gross profit margin (%) for The Lido. 3 Rationale Marks Correct answer with or without correct working 3 Identifies correct data 2 Formulae* 1 No creditable content 0 *Could be implicit from the figures Content (GP / Revenue) × 100 (70 / 280) × 100 = 25% accept 25 Exemplar Marks Rationale 25% 3 Correct answer (70 / 280) × 100 3 Correct numerical answer = $25 (70 / 280) × 100 Not converted to a % but correct formula and 2 = 2500 data Correct formula but cost of sales used instead of (70 / 210) × 100 2 TR. OFR rule applies so 1 mark for correct = 33.3% formula and 1 mark for (OFR) answer 1 mark for formula but used profit rather than GP. OFR does not apply here, as the answer (30 / 280) × 100 1 should have a decimal point after 10 i.e. = 1007140 10.07140. If the decimal point in the correct position then 2 marks 1(b)(ii) Explain how one stakeholder of SP might be affected by the Lido making 3 a loss. Level Knowledge and Application Marks 2b (APP Explanation of an effect on a stakeholder in context 3 + APP) 2a (APP) Identification of an effect on a stakeholder in context 2 1 (K) Identification of an effect on a stakeholder 1 0 No creditable content 0 Content: • Government/owners: more government spending needed – opportunity cost of spending • Customers: prices may increase, may have to travel to further swimming pool • Local community: poor service, travel to other pools • Workers: may be made redundant, lower wages Reference to owners not having dividends, etc. are unlikely to be in context. Closure is not an impact unless it is taken through to show how the stakeholder would be impacted, i.e. The Lido may close leading to an increase in the funds available for the government to spend. ARA 1(c) Analyse one advantage and one disadvantage to SP of using price 8 discrimination. Knowledge tation marks) tation Level Applicationand Marks Anno- Analysis (4 Anno- Marks (4 marks) Good analysis of Shows one advantage understanding APP+ and one DEV+ 2b of price 4 4 APP disadvantage to DEV discrimination SP of using price in context discrimination Good analysis of Shows one advantage or understanding one disadvantage 2a of pricing 3 APP 3 DEV to SP of using methods in price context discrimination Limited analysis of Shows one advantage knowledge of and one AN+ 1b 2 K+K 2 price disadvantage of AN discrimination using price discrimination Limited analysis of Shows one advantage or knowledge of 1a 1 K one disadvantage 1 AN pricing of using price methods discrimination No creditable 0 content Content Advantages: • Increase number of customers – particularly important for a publically owned business • Gives access to the swimming pool to more people, not dependent on income • Can be used to increase demand during off peak times • Can be used to decrease demand at peak times. Disadvantages: • Reduce income – may be contributing to the loss made by The Lido • May be seen as a poor quality service • May be seen as unfair against people who pay full price • May lead to excess demand at off peak times and low demand at peak time 1(d) Recommend whether SP should close The Lido. Justify your answer. 11 Knowledge and Analysis and Anno- Anno- Application Evaluation tation tation Marks Marks (4 marks) (7 marks) A justified recommend- ation based on 7 a developed two sided argument A developed recommend- ation based on 6 a developed two sided argument A basic recommend- ation based on 5 EVAL a developed two sided argument Developed argument based APP + on closure of 4 APP the Lido and Shows understanding of keeping the Lido factors affecting open business performance 3-4 of The Lido or the Developed impact of closing/ argument based staying open in context on either APP 3 closure of the Lido or keeping the Lido open Limited analysis of closing a Shows knowledge of 1-2 K + K business and 2 business performance keeping a business open Limited analysis of closing a K business or 1 keeping a business open No creditable content 0 1(d) Content Arguments for closure: • The Lido will be subsidised by other swimming pools/the Government – is this a good use of taxpayers’ money? • Would a different facility be better – one that could make a profit or cover its own costs? • Is the local area the best for a swimming pool – would government money be better spent on creating jobs? Arguments against closure: • Publically owned so profit is not the objective of the business – does it matter if The Lido makes a loss? • The Lido only makes a loss when the allocation of Head Office costs are included – is this a fair allocation? • The local community has high unemployment – closure is likely to affect these the most • There are many schools in the local area – the closure would reduce the ability for these to teach swimming. • The Lido benefits local fitness/combats obesity

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2 Katie’s Cakes (KC) KC is a partnership, owned by Katie and her son James. KC makes birthday cakes. Each cake is made using job production. A customer will tell KC what filling they want and how to decorate the cake. There are three possible fillings for each cake. The proportion of annual revenue made from cakes with each filling is shown in Fig. 1. Fig. 1: Proportion of revenue generated from each cake filling – Annual revenue = $1m 5 Cream 37% Chocolate 53% Jam Katie and James are considering stopping selling cakes with a jam filling. However they are concerned about reducing the product portfolio of the business. Katie is highly skilled and she does all of the cake production and decoration. James manages contact with customers and the business’s finances. Demand has increased steadily in the past few months and KC now needs to recruit a new employee. 10 James has created a job description to help the recruitment process (see Fig. 2). Fig. 2: Job description Job title: Assistant cake decorator The role requires someone who knows how to produce and decorate cakes. The employee should be young and have a driving licence. They should also be creative. 15 The employee will be required to work from 8am to 6pm each day. Full training will be given. The rate of pay will be based on the level of experience of the employee. (a) (i) Define the term ‘demand’ (line 9). [2] (ii) Briefly explain the term ‘partnership’ (line 1). [3] (b) (i) Calculate the revenue earned from cakes with a jam filling. [3] (ii) Explain one possible impact on KC of reducing the product portfolio of the business. [3] (c) Analyse one advantage and one disadvantage to KC of using job production. [8]

Mark scheme: 2(a)(i) Define the term ‘demand’ (line 9). 2 Knowledge Marks B Quantity/at a given price/over a specific period of time 2 A Willing/able to purchase 1 No creditable content 0 Content The quantity/amount of a product that consumers are willing (not needs or wants) and able to purchase, at a given price or in a particular period. A diagram of the demand curve without further explanation up to 1 mark Exemplar Marks Rationale How much of a good or service (1) customers are willing to pay 2 Both A+B for (1) Amount of the product (1) the 2 Both A+B customer is able to buy Only A here as it is not the Amount of people (0) willing to 1 amount of people but the buy a product (1) quantity of the product %change in demand This is price elasticity of %change in price 0 demand, not demand 2(a)(ii) Briefly explain the term ‘partnership’ (line 1). Award one mark for each point 3 of explanation: Knowledge Marks Example or some other way of showing good C understanding e.g. shared risk/responsibility/profits/ 3 losses/finance B Unlimited liability/lack of continuity 2 A Two or more owners 1 Content A legal agreement between two or more people to jointly own, finance and run a business. Unlimited liability unless a limited partner. Share risks, profits, losses and responsibilities. Exemplar Marks Rationale Two or more people run a business together (1) usually with 3 Good, developed explanation shared capital (1) They have unlimited liability (1) Two or more people run a Explanation ok but not business (1) and provide the 2 developed capital (1) Run by at least 2 people (1) and Again explanation ok but 2 does not have limited liability (1) limited A mark for reference to Owned by two or more people (1) ownership but the rest of the without the ability to sell shares to 1 explanation seems to confuse the public (0) this with a ltd company 2(b)(i) Calculate the revenue generated from cakes with a jam filling. 3 Rationale Marks Correct answer, with or without working 3 Attempt with correct figures 2 Identification of Jam % 1 No creditable content 0 Content Jam = 10 % of sales revenue Total sales revenue = $1 m 10 % of $1 m = $100 000 Exemplar Marks Rationale $100 000 3 Correct answer 100 – 90 = 10 (1) Identifies 10% for jam and 1 000 000 (1) identifies correct sales revenue 2 of £1m and attempts to apply 100 = 10 000 but is incorrect Jam is 10% of revenue 1 Only calculates jam% 2(b)(ii) Explain one possible impact on KC of reducing the product portfolio of 3 the business. Level Knowledge and Application Marks 2b (APP Explanation of an impact of reducing the product 3 + APP) portfolio in context Identification of an impact of reducing the product 2a (APP) 2 portfolio in context 1 (K) Knowledge of product portfolio/knowledge of an impact 1 0 No creditable content 0 Content • Greater economies of scale from bulk buying more Cream and Chocolate • Specialisation by concentrating on Cream and Chocolate • May reduce customers due to a lack of variety – may not come to shop • Loss of 10% of sales revenue – will it decrease costs much? • Customers may not be able to have what they want – goes against the job production format of the business. 2(c) Analyse one advantage and one disadvantage to KC of using job 8 production. Knowledge and Anno- Anno- Analysis (4 marks) Level Application Mark tation Mark tation (4 marks) Shows Good analysis of APP+ DEV+ understanding one APP DEV advantage of job and one production in disadvantage to KC 2b 4 4 context of using job production Shows Good analysis of understanding APP one DEV advantage or of production one disadvantage 2a methods in 3 to KC of using job 3 context production Shows Limited analysis of knowledge of one advantage and AN+ 1b job production 2 KK one disadvantage 2 AN of using job production Shows Limited analysis of knowledge of one advantage or 1a production 1 K one disadvantage 1 AN methods of using job production 0 No creditable content 2(c) Content Advantages: • Customers can have their cake personalised to their requirements – increase revenue/profits • Allows KC to charge a higher price • Higher quality cakes – increase word of mouth promotion for KC Disadvantages: • Higher cost – requires specialist skills and inventory • Loss of economies of scale • Inventory is perishable but need to keep in stock, just in case • Higher price leading to lower demand ARA 2(d) Evaluate the job description created by James. 11 Knowledge and Analysis and Anno- Anno- Application Evaluation Mark tation Mark tation (4 marks) (7 marks) A justified recommendation/judg ement based on a developed argument 7 of at least two elements of the job description in context A developed recommendation/judg ement based on a developed argument 6 of at least two elements of the job description in context A basic recommendation/judg ement based on a developed argument 5 EVAL of at least two elements of the job description in context Shows Developed argument understanding of APP + of two elements of the two elements of the 4 4 APP job description in job description context created by James Shows Developed argument understanding of of one element of the one element of the 3 APP 3 job description in job description context created by James Limited analysis of K + K two elements of a job 2 Shows knowledge description of recruitment 1-2 process/job Limited analysis of descriptions K one element of a job 1 description No creditable content 2(d) Content • Specific job title – should only target those who are interested in this job. However, is it too specific – are KC likely to find enough of a pool of people? • Some of the items belong on a person specification. • Specific skills – produce and decorate cakes and creative. • Set hours of work – again should reduce the potential recruits – is it really seven days a week? • Why does the person need to be able to produce and decorate cakes when full training will be given? • Is it legal/ethical to state that the worker should be young? Why is this important? • No mention as to why the worker needs a driving licence? • Rate of pay is very vague – will this put potential applicants off? • Does not mention production method

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