Cambridge A Level Business (for first examination in 2016) 9609 — 2019 May/June Paper 2 · Variant 1

1 Wood’s Logs (WL) WL was set up by Robert Wood 50 years ago. It is a private limited company with all of the shares owned by the Wood family. Robert has managed the business since it began and he is well liked as the figurehead of the business. WL cuts down trees and processes them into logs. The logs are loaded onto trucks and trains for delivery to customers. All of WL’s logs are sold in industrial markets. 5 WL is a labour intensive business which has over 100 employees. Demand for logs is seasonal. WL maintains a steady rate of production but the business cannot afford to hold high levels of inventory. Table 1.1 shows a cash flow forecast for the next three months. Table 1.1: Cash flow forecast for WL Month 1 Month 2 Month 3 10 ($000) ($000) ($000) Cash Inflows Revenue 250 300 100 Total cash in 250 300 100 Cash Outflows 15 Labour 150 150 150 Inventory storage 10 5 50 Expenses 5 5 5 Total cash out 165 160 205 Opening balance 20 105 245 20 Closing balance 105 245 140 The workforce is currently demotivated. Employees receive a basic wage and a share of the profits. In the last four years, profits have been falling and the company is struggling to break even. The demand for logs is decreasing, as businesses use more recycled products. WL does not have any environmental targets and this has also reduced demand. 25 Robert is now 70 years old and wants to stop managing WL. His grandson, Brad, is keen to become the new Managing Director. Brad went to university and studied Mintzberg’s management roles. He believes that he has all the skills needed to become the next Managing Director of WL. (a) (i) Define the term ‘break even’ (line 24). [2] (ii) Explain the term ‘industrial markets’ (line 5). [3] (b) (i) Refer to Table 1.1. Calculate the new closing balance for Month 3 if the inventory storage costs for each month increase by 20%. [3] (ii) Explain one benefit for WL of holding inventory. [3] (c) Analyse two factors which may have affected the location of WL. [8] (d) Recommend which of Mintzberg’s management roles is likely to be the most important for the new Managing Director of WL. Justify your recommendation. [11]

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘break even’ (line 24). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Break-even can be defined in a number of ways: • expenditure (costs) and income (revenue) are equal • the level of sales/units where there is no profit or loss • TR = TC Exemplar Marks Rationale When a business makes enough 2 Both elements covered sales/revenue/income to cover all the costs. TC = TR 2 Both elements covered Cost of sales is equal to sales 1 No understanding of total costs revenue. (CoS only covers direct costs) The business makes no profit or loss 1 No understanding of the level of sales/units The point at which a business stops No understanding of the level of making a loss and can start to make a sales/units profit Where the business has made 0 Tautological, no understanding enough sales to have broken even. 1(a)(ii) Explain the term ‘industrial markets’ (line 5). 3 Award one mark for each point of explanation: Rationale Marks C Example or some other way of showing good understanding 1 B Understanding that it is not the end user, i.e. used to produce, not to 1 end user etc. – anything to do with manufacturing and production A Understanding of business to business 1 Content When a business sells to another business, in contrast to selling to the end user. Industrial markets usually supply components for use in the production of products and services. ARA Exemplar Marks Rationale An industrial market is when a 3 A clear understanding of all three business sells components to another elements business who then sells it to another business or the end user When a business sells to another 2 An understanding of B2B and not an business who is not the end user end user but no C mark Selling business to business 1 Point A only When you sell to someone who is not 1 Point B only the end user 1(b)(i) Refer to Table 1. Calculate the new closing balance for Month 3 if the inventory 3 storage costs for each month increase by 20%. Rationale Marks Correct answer with or without correct working or $ or 000s 3 Attempt at calculating Month 3 closing balance using correct figures 2 Formula or correct calculation of Inventory storage for any one month 1 No creditable content 0 Content Month 1 Month 2 Month 3 ($000s) ($000s) ($000s) Cash Inflows Revenue 250 300 100 Total cash in 250 300 100 Cash Outflows Labour 150 150 150 Inventory storage 12 6 60 Expenses 5 5 5 Total cash out 167 161 215 Opening balance 20 103 242 Closing balance 103 242 127 Closing balance = Opening balance + Cash in – Cash out 1(b)(i) Correct answer: $127 000 (accept 127 as the ‘000 is in the column header) Exemplar Mark Rationale 127 (127,000) 3 Does not require the ‘000 of the $ sign 50 × 20% = 60; cash out for mth 2 Calculated one month, closing 3 = 215 closing balance = 124 balance is incorrect as other two months ignored 12 Or 6 OR 60 (with working) 1 Calculated at least one correct new inventory Closing balance = opening 1 Correct formula balance + cash in – cash 1(b)(ii) Explain one benefit for WL of holding inventory 3 Level Knowledge and Application Marks 2b (APP APP) Explanation of a benefit of holding inventory in context 3 2a (APP) Identification of a benefit of holding inventory in context 2 1 (K) Identification of one benefit of holding inventory 1 0 No creditable content 0 Content • To meet changing demand – seasonal demand • To meet unexpected demand – primary business, trees take time to grow – unexpected demand can only be met by holding stock • Respond to customer needs – Industrial market – importance of customer service, repeat customers etc. • To be able to maintain a steady level of production ARA Identification of a benefit Identification of a benefit in Explanation of a benefit (1 mark) context (2 marks) in context (3 marks) To meet changing demand As demand is seasonal So there is always stock ready for sale To meet unexpected As it takes time to cut down So potential sales/revenue demand trees/for them to grow /profit are not lost To have a steady rate of As it is a labour intensive To ensure their 100 production business employees have constant work 1(c) Analyse two factors which may have affected the location of WL. 8 Level Knowledge and Marks Analysis (4 marks) Marks Application (4 marks) 2b Shows understanding of 4 Good analysis of two (or 4 two (or more) factors which more) factors which may may have affected location have affected location of of WL WL 2a Shows understanding of 3 Good analysis of one factor 3 one factor which may have which may have affected affected location of WL location of WL 1b Shows knowledge of two 2 Limited analysis of two (or 2 (or more) factors which may more) location factors affect location 1a Shows knowledge of one 1 Limited analysis of one 1 factor which may affect location factor location No creditable content 0 Content • Geographic – Likely to need a relatively rural area to grow trees and process them. However, cannot be too rural as there is a need for a workforce (labour intensive). • Demographic – WL is a labour intensive business – will need to be close enough to a populated area to provide the workforce. Alternatively, may need to offer accommodation. • Legal – There are likely to be legal restrictions on how many and what type of trees can be felled. May have needed to locate in a country where the laws are more relaxed. • Political – Environmental concerns/leanings of the political party in charge (e.g. Green party) • Resources – Need to be near trees/raw materials for production • Infrastructure – Need to be near a road and rail network for deliveries. • Marketing – there may be types of wood/areas where certain trees grow which have a higher value than others. 1(c) ARA Example of a Examples of Examples of possible analysis factor (K) application/context (APP) (AN + DEV) Location/ As they need to be on/ near So they can have easy access resources woodland (AN) to reduce overheads (DEV) Infrastructure Need t be close to rail/road To ensure easy access for network deliveries (AN) to reduce delivery costs (DEV) Demographic As WL is a labour intensive Need to have a populated area business to provide workforce (AN) to meet staffing levels (DEV) 1(d) Recommend which of Mintzberg’s management roles is likely to be the most 11 important for the new Managing Director of WL. Justify your recommendation. Knowledge and Application Marks Analysis and Evaluation Marks (4 marks) (7 marks) Justified recommendation based 7 on argument in context Developed recommendation 6 based on argument in context An evaluative 5 statement/recommendation based on argument in context Shows understanding of two or 4 Two or more arguments based 4 more uses of Mintzberg’s on the importance of management role(s) in context Mintzsberg’s management role(s) in context Shows understanding of one 3 One argument based on the 3 use of Mintzberg’s management importance of Mintzsberg’s role(s) in context management role(s) in context Shows knowledge of Mintzbergs 2 Limited analysis of two or more 2 management theory AND one of Mintzberg’s management management role OR two role(s) management roles Shows knowledge of Mintzbergs 1 Limited analysis of Mintzberg’s 1 management theory OR one management theory/ one management role management role No creditable content 0 1(d) Content • Interpersonal – is related to anything a manager does which relates to relationships with staff (use examples from below) • Informational – is related to providing information • Decisional – is related to making decisions • Figurehead – Robert has been the MD for 50 years and is well liked as the figurehead. New MD will have to replace him but may be unknown. • Leader/to lead – Over 100 employees – labour intensive – important to lead well to maintain/improve efficiency • Liaison/ to liaise – Workforce is demotivated, new MD will need to liaise with them • Monitor/to monitor/receiver – Demand and profit is falling – therefore the need to monitor this to avoid any more loss is important. • Disseminator/to disseminate – Over 100 workers – need to get information to them quickly and efficiently, especially with poor motivation • Spokesperson – May need to represent the company to governments, environmentalist and the workforce • Entrepreneur – demand/profits have been falling – need to diversify, find an environmental solution. Need to take risks and bring business back into profit. • Disturbance Handler/to handle disturbances – demotivated work force, may start industrial action. Seasonal business – a poor winter may disturb both supply and demand. • Resource Allocator/to allocate resources – Inventory management I important – storage costs – also trees cannot be easily replaced, or replaced I the short term – need to efficiently manage resources. • Negotiator/to negotiate – May need to negotiate with customers (businesses) as well as the demotivated workforce. ARA An example of how an answer could develop and how it should be annotated. K APP AN DEV EVAL The new MD Robert was a A good To improve The entrepreneur role needs to be a good figurehead the morale of is the most important figurehead figurehead will have the the as without new ideas because he trust and demotivated the business will not was well loyalty of the workforce have enough demand liked for over workforce 50 years And this is the most immediate concern for Entrepreneur to diversify Which will To increase WL as demand is find new profits/ falling ways to revenue However this depends boost upon the MD being demand able to have some interpersonal skills

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2 Planet Internet (PI) PI is a public limited company. It is an internet service provider. The business provides fast internet connections to households within country X. Customers pay an average of $10 per month for the service. More than 80% of the households in the country can access PI’s services. The business offers new customers 3 free months of internet service, if they sign a contract 5 for a minimum of 12 months. Very few of PI’s customers switch to a competitor’s service after the minimum 12 month contract has finished. The internet service market is very competitive. PI has an objective to become the largest internet service provider in country X. The Marketing Director, Alisha, believes that if PI is going to achieve its objective then the company needs new customers. She thinks that the 10 key to gaining more new customers is to focus on promotion. Alisha has prepared some secondary market research comparing PI with its main competitors in country X (See Table 2.1). Some of the directors are disappointed with the financial performance of PI compared to its competitors. Table 2.1: Research about the internet service providers in country X, 2018 15 Planet Internet Totally Broadband W Solutions (PI) (TB) (WS) Market share 31% 32% 15% Value of market share $12.4bn $12.8bn $6bn Gross profit margin 74% 70% 70% 20 Net profit margin 8% 12% 16% Working capital ($45 000) $300 000 $0 Current ratio 0.9:1 3:1 1:1 (a) (i) Define the term ‘objective’ (line 8). [2] (ii) Explain the term ‘secondary market research’ (line 12). [3] (b) (i) Refer to Table 2.1. Calculate the total value of the internet service market in country X. [3] (ii) Explain one suitable way, other than market share, to measure the size of PI. [3] (c) Analyse one above the line promotional method and one below the line promotional method which PI could use to gain new customers. [8] (d) Refer to Table 2.1. Evaluate the financial performance of PI compared to its competitors. [11]

Mark scheme: 2(a)(i) Define the term ‘objective’ (line 8). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 The stated specific/measurable/achievable/realistic/time-based * target\s (1) * only one needed that the business wants to achieve (1) in the future *** If the student shows understanding and a purpose of the objective then 2 marks *** Exemplar Mark Rationale A specific target a business wants to 2 Both elements (minimum) achieve A specific business target 1 One element only What a business wants to achieve in 1 One element (achieve and the future achievable are different) 2(a)(ii) Explain the term ‘secondary market research’ (line 12). 3 Award one mark for each point of explanation: Rationale Marks C* Example or some other way of showing good understanding 1 B Understanding of secondary/that already exists 1 A Understanding of collection of data 1 * Has to include at least one of points A or B Secondary marketing research (book research) finds data that already exists. It has already been collected by someone else for another purpose. Sources of secondary data can come from competitors, census, sales data etc. ARA Exemplar Mark Rationale Collection of information/data that 3 A and B plus a basic example already exists e.g. off the internet Data that already exists, such as sales 2 B and C only no understanding of data collection Data that already exists 1 B only Sales data/internet 0 No A or B 2(b)(i) Refer to Table 2. Calculate the total value of the internet service market in country X. 3 Rationale Marks Correct answer with or without correct working or $ or BN 3 Incorrect attempt using correct figures 2 Calculation of rest of market share (i.e. 22%) OR 1 Implied knowledge of total market value (i.e. 31.2bn) No creditable content 0 Formula Individual market share values (added up) = total market value They know and apply the formula through the use of figures but missed 22% Content Total value of industry = 100% of market share PI = 31% TB = 32% WS = 15% Therefore other = 22% (100%–78%) 78% of the market = $31.2bn $31.2bn = 0.4bn 78% $0.4bn × 22% = $8.8bn $31.2bn + $8.8bn = $40bn Answer = $40bn (3) Answer Marks Rationale $40 bn/40bn/40 (no units or $) 3 Correct answer 0.4*22 = $8.8bn 2 One mistake (+ 31.2) 31.2/78% = 0.4bn 1 Incorrect attempt, two errors (× 22% + 31.2bn) 31.2bn (with working) 1 Implied knowledge of formula 31 + 32 + 15 = 22% (missing) 1 Worked out the missing percentage of mkt 0.4 bn 0 Wrong answer – no working 2(b)(ii) Explain one suitable way, other than market share, to measure the size of PI. 3 Level Knowledge and Application Marks 2b (APP Explanation of one suitable way to measure the size of IP 3 +APP) 2a (APP) Identification of a suitable way to measure the size of IP 2 1a (K) Identification of one way to measure the size of a business 1 0 No creditable content 0 NB Profit is not an acceptable measure of business size Content • By revenue – PI charges its customers monthly (and we can presume its competitors do too) so this would be a good way to measure the size of the business • By number of customers – The more households who choose PI to provide their internet the bigger the business, since this is the main source of revenue • By coverage – over 95% of the households in country X can access PI’s services. The more coverage the bigger the business. • By market capitalisation – PI is a public limited company so sells shares. Value of the shares (NOT the share price) can be used to suggest how big the business is. ARA Example of how responses should be marked Identification of a way Explanation of a way Explanation of a way in (1 mark) (2 marks) context (3 marks) By revenue As PI charges customers So can compare against monthly competitors By customer numbers As internet provider is their The bigger the number the largest source of business larger the business By coverage Over 95% of households The larger the number the can access PI larger the business By market capitalisation Which shows the value of Which can be compared the PLC against competitors 2(c) Analyse one above the line promotional method and one below the line promotional 8 method which PI could use to gain new customers. Level Knowledge and Marks Analysis (4 marks) Marks Application (4 marks) 2b Shows understanding of 4 Good analysis of one 4 above and below the line method of above and one promotion in context method of below the line promotion in context 2a Shows understanding of 3 Good analysis of one 3 above or below the line method of above or one promotion in context method of below the line promotion in context 1b Shows knowledge of above 2 Limited analysis of one 2 and below the line method of above and one promotion method of below the line promotion 1a Shows knowledge of above 1 Limited analysis of one 1 or below the line promotion method of above or one method of below the line promotion No creditable content 0 Content Above the line methods: • Advertising – market is the whole of country X so although advertising is expensive it may be suitable. • Television advertising • Radio advertising • Newspaper adverting • Social media advertising • ARA 2(c) Below the line methods: • Direct mail – relatively cheap way to target specific areas in country X. PI can target the areas where they have coverage, not waste money on areas without coverage. • Trade shows/roadshows – stalls at shows/markets can be used to ‘sign up’ customers – effective because the service can be personalised to customer needs – employees could be paid on commission keeping costs low • Leaflets – relatively cheap way to target specific areas in country X. PI can target the areas where they have coverage, not waste money on areas without coverage. • Point of sale information – could be placed near computer sales in appropriate shops • Social media – relatively cheap and targets people who like the internet. However, data suggests that households do not change provider, so if they already have the internet they are unlikely to swap. • Putting together a package of existing services ARA Example of a below Examples of Examples of possible the line method (K) application/context (APP) analysis (AN + DEV) Direct mail To the 95% of households they So do not waste money in cover areas without coverage (AN) where they could not fulfill orders (DEV) Trade shows Can offer 3 free months As direct contact can tailor service orders (AN) to meet customer needs (DEV) Leaflets Can highlight offers e.g. 3 Can stimulate interest (AN) months free service and meet the requirements of new customers (DEV) PoS info Placed in computer sales Allows for upselling (AN) which shops can attract new customers (DEV) Example of an Examples of Examples of possible above the line application/context (APP) analysis (AN + DEV) method (K) Advertising Can advertise internet services It might be expensive (AN)but to the whole country e.g. as the service is generic the tv/radio price per customer is low (DEV) Social media People who are interested in But research suggests few new internet deals may follow people switch providers (AN) the company so uptake may be low (DEV)nope, 2(d) Refer to Table 2.1 Evaluate the financial performance of PI compared to its 11 competitors. Knowledge and Application Marks Analysis and Evaluation Marks (4 marks) (7 marks) Justified evaluation based on 7 arguments in context Developed evaluation based on 6 arguments in context An evaluative statement based 5 on arguments in context Shows understanding of two or 4 Developed arguments based on 4 more measures of financial two or more measures of performance in context financial performance in context Shows understanding of one 3 Developed argument based on 3 measure of financial one measure of financial performance in context performance in context Shows knowledge of two or 2 Limited analysis of two more measures of financial measures of financial 2 performance performance Shows knowledge of one 1 Limited analysis of one measure 1 measure of financial of financial performance performance No creditable content 0 Note: Market share is not a correct answer as it is not a financial indicator/measure of financial performance Rationale – Cannot evaluate financial performance based off only one indicator i.e. GPM only Content • GPM of PI is higher that the competitors – suggests that PI is efficient in terms of direct costs (economies of scale) • NPM is lower than all of the other competitors – suggests that PI is inefficient in terms of indirect costs (diseconomies of scale) • Working capital is negative – suggests that PI could struggle to pay short term debts. Does it have enough cash to pay for any promotion? Will IP be able to survive the short term? Will IP need a short-term source of finance? • Current ratio shows that PI does not have enough CA to cover CL – Does it have enough cash to pay for any promotion? Will IP be able to survive the short term? • However, TB seems to be holding too many CA – is this efficient? • Web solutions has much better (twice) NPM than PI – how can this business be so much more efficient? Can PI copy any of its techniques? 2(d) ARA Routes to evaluation • Which firm is best/worst • Which set of financial data is most important • The relative importance of financial performance compared to other areas – i.e. sales performance An example of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Gross profit PI has the This means Which could PI has a good margin margin highest GPM that they mean they which is essential for a have low have more profitable business direct costs efficient production However they may still face liquidation Working Is the only Which may And not have capital one of the mean they enough This depends on three that can struggle money to whether their creditors has a to pay their spend on insist on immediate negative debts marketing payment working capital

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