Cambridge A Level Business (for first examination in 2016) 9609 — 2019 Oct/Nov Paper 2 · Variant 3

1 Better Bicycles Ltd (BB) BB is a family-owned small business. The firm manufactures bicycles which are supplied to independent retailers. Recently, Lia, the Sales Director, has reported a 20% fall in monthly sales. She has asked the other directors for ideas to increase revenue. The Managing Director, Moneeb, has suggested that BB should open its own retail shop. Moneeb believes that BB has poor inventory management. BB currently uses buffer inventory 5 control methods. There has been a build-up of inventory that is using warehouse space that could be converted to a shop at a cost of $180 000. He estimates additional yearly costs of operating the shop of $40 000. Moneeb has provided the following information in Table 1.1. Table 1.1: Financial data for selling bicycles through BB’s proposed shop 10 Unit price Cost of sales per unit Forecast additional annual sales $300 $120 1250 units John, the Operations Manager, thinks it would be a mistake to open a shop as they have no experience in the retail sector. He thinks that sales could be increased through the 15 existing channel of distribution. John believes that the salaried staff in the sales department are not motivated to find new independent bicycle retailers, as they rely on customers who have bought from BB for many years. Lia thinks that BB should produce a new design of foldable bicycle which would be lightweight and portable. Secondary research shows that this is a growth market with 20 customers prepared to pay a premium price for a well-designed foldable bicycle. Lia estimates that an investment of $225 000 would be required but the gross profit margin is forecast at 50% with additional annual revenue of $500 000. Moneeb and Lia have been asked to present their proposals for increasing BB’s revenue to the other directors, who will then make a decision. 25 (a) (i) Define the term ‘secondary research’ (line 20). [2] (ii) Explain the ‘buffer inventory control method’ of managing inventory (lines 5–6). [3] (b) (i) Refer to Table 1.1. Calculate the forecast gross profit margin on the retail sale of bicycles. [3] (ii) Explain one function of John’s role as an operations manager. [3] (c) Analyse two methods which could be used to improve the motivation of BB’s sales staff. [8] (d) Recommend which proposal for increasing revenue the Directors of BB should choose. Justify your recommendation. [11]

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘secondary research’ (line 20). 2 Knowledge and Application Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content: Existing data (1) which has already been gathered and organised for another purpose(1) No examples to be credited ARA Exemplar Mark Rationale Using existing data (1) 2 Two separate Collected for another purpose/reason (1) defined points already gathered (1) for another purpose 2 Two separate (1) defined points Gathered by another business 1 One element only Using existing data 1 One element only Second hand research/data 0 Tautological 1(a)(ii) Explain the ‘buffer inventory control method’ of managing inventory 3 (lines 5–6). Knowledge and Application Marks C * E.g. or some other way of showing good 1 understanding; variations in supply, demand and/or production B For unanticipated/unexpected/unplanned situations 1 A Excess stock/safety margin of stock kept 1 No creditable content 0 * use cannot be credited without explanation of the term (A and B) Content: Keeping safety stock, (A) extra stock that is maintained to reduce the risk of a shortfall in components (B) due to uncertainties in supply and demand. (C) Exemplar Mark Rationale a level of excess stock that is 3 A,B and C visible maintained (A) to reduce the risk of a shortfall in components (B) due to uncertainties in supply and demand (C) Safety margin of stock held (A) 3 A,B and C visible when there is uncertainty in demand, supply, or manufacturing output (B) to ensure that the firm can produce enough product for orders (C) Safety margin of stock held (A) 2 A and B only –No when there is uncertainty in demand, example or supply, or manufacturing output (B) understanding a level of extra stock that is maintained 1 A only (A) Stock you don’t need to use 0 Too vague 1(b)(i) Refer to Table 1.1. Calculate the forecast gross profit margin on the 3 retail sale of bicycles. Rationale Marks Correct answer 3 Formula and data used correctly (based on OFR) 2 Attempt (e.g. formula or identifies data) or correctly 1 calculated gross profit ($180) No creditable content 0 e.g. ( Revenue − cost of goods sold ) formula: × 100 (1 mark) Revenue $300 – $120 = $180 $180 (× 100 (2 marks) 300 = 60% (with or without working and % (3 marks) Exemplar answers Answer Mark Rationale 60 (%) 3 Correct answer 0.6 2 1 ,mistake – no × 100 (180/300)*100 2 Correct use of figures (rev-COGS)/rev × 100 1 Formula Gross profit/revenue × 100 1 Correct formula 1(b)(ii) Explain one function of John’s role as an operations manager. 3 Level Knowledge and Application Marks 2 Explanation of an Operations management 3 APP function in context 1b Explanation of a management function 2 K+K 1a Identification of a management function 1 K 0 No creditable content 0 Content • May mention one of Mintzberg’s functions of management (Figurehead, Leader, Liaison Monitor, Disseminator, Spokesperson, Entrepreneur, Disturbance Handler, Resource Allocator, Negotiator) but for context mark must refer to operations. • Operations manager functions such as producing the right amount of a good or service, at the right time, of the right quality and at the right cost to meet customer requirements. ARA Example of how responses should be marked Identification of a Explanation of a Explanation of a function (1 mark) function (+1 mark) function in context (+1 mark) Any one of Mintzbergs motivating the Such as the salaried functions e.g. leader employees sales staff Ensuring stock control To ensure adequate By regulating the / inventory levels levels for production / buffer stock efficiently not too much 1(c) Analyse two methods which could be used to improve the motivation 8 of BB’s sales staff Knowledge and Level Application Marks Analysis (4 marks) Marks (4 marks) Shows understanding Developed analysis of of two motivation two motivational 2b methods could be 4 methods that BB could 4 used for BB’s sales use to motivate its sales staff staff Shows understanding Developed analysis of of one motivation one motivational 2a method could be 3 method that BB could 3 used for BB’s sales use to motivate its sales staff staff Limited analysis of two Shows knowledge of motivational methods 1b two motivation 2 2 that BB could use to methods motivate its sales staff Limited analysis of one Shows knowledge of motivational method 1a one motivation 1 1 that BB could use to method motivate its sales staff 0 No creditable content 0 ARA May mention financial and/non-financial motivators. Content: • Salaried employees so could change to include commission payments • Set sales target with a bonus for meeting target • Offer a profit-sharing scheme • Re-train as sales staff rely on repeat custom so training in attracting new customers • Encourage participation in identifying new outlets especially if go ahead with the new design • Fringe benefits such as a company car to go and meet new customers • Provide more promotion opportunities • May refer to needs such as self-actualisation 1(c) K APP* AN DEV Targets & For the new Which would But may lead to bonus foldable bike/ provide financial mis-selling/ To find new incentives hard sales (ind) bike tactics retailers Commission Based on how Which would And force staff many bikes sold reduce the to look for new safety of a customers salary Retraining To upskill So employees And building a selling skills to would be more wider customer new bike confident base retailers approaching new customers Fringe benefits Provide But may be And reduce company cars expensive 50% gross profit to approach margins new bike retailers *For app, ‘customer’ is too vague, needs reference to ‘bike retailers’ 1(d) Recommend which proposal for increasing revenue the Directors of 11 BB should choose. Justify your recommendation. Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) Justified recommendation 7 based on arguments in context Developed recommendation 6 based on arguments in context An evaluative statement/ recommendation based on 5 arguments in context Understanding of two Argument based on two factors in decision 4 factors of decision making in 4 making in context context Understanding of one Argument based on one factor factor in decision 3 3 of decision making in context making in context Knowledge of two limited analysis of two factors factors of decision 2 2 of decision making by firms making by firms Knowledge of one limited analysis of one factor factor of decision 1 1 of decision making by firms making by firms 1(d) Context must be explicit not just implied based on the 3 proposals – new product/market, stock management and/or motivation of sales employees Context/content: • Moneeb – Change inventory control to JIT, retail sales, improved gross profit margin, utilise spare capacity. Is the location suitable for retail? How easy to re-organise stock system? Implied criticism of stock manager. Requires investment. • Lia – new design of foldable bike/bicycle/cycle, growing niche market, premium prices could lead to higher profit. Risky as not known in that market. Will require marketing campaign – extra costs. Needs more research. Requires investment. • Allow candidates to use Johns contribution as a proposal K APP AN DEV EVAL gross 50% for More Opportunity Should choose profit the folding stock – cost of stock folding bikes margin bike already held (Re- because area of high purpose of expertise and has inventory existing stock) existing sales channels, may not Marketing B2B only – Risky as Have to have enough knowledge no have to complete capital to invest in knowledge start against new shop of from established consumer nothing companies. sales

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2 U-LEARN (UL) Nadia graduated, last year, with a degree in business management. Nadia is friendly and creative with lots of ideas. Whilst at university, she set up her own business providing online tutoring services. Her friend, Emma, helped Nadia with the accounts and planning of tasks. The business is so successful that Nadia has decided to expand the business and operate it as a social enterprise. As a sole trader she is aware of the need to raise finance 5 for her business and intends to mainly use crowd funding. She estimates that expansion costs will be $50 000. Nadia carried out some primary research by sending a questionnaire to 1000 A Level students. She used the results to prepare the following forecasts to support her appeal for crowd funding. See Tables 2.1 and 2.2. Table 2.1: Forecast sales 2020 10 Tutoring Package Price ($) Quantity of sales Single session 25 225 Short course 200 175 Full course 275 125 Table 2.2: Forecast costs 2020 ($000) 15 Total direct costs 30 Total indirect costs 15 Nadia keeps costs low by employing first year university students as tutors. She pays each tutor $10 an hour. Tutors work from their own homes. Other employees include Ali, an information technology specialist, and Sorrel, a marketing expert. Ali and Sorrel are both 20 part-time employees as Nadia cannot afford to employ full-time specialists. As this is an Internet-based business, Nadia expects Sorrel to carry out an Internet-based marketing campaign. Ali provides technical support. Nadia feels that she is good at listening to employees and has an understanding of their concerns. She wants to inspire her young employees to feel a part of the business. 25 However, she is concerned that the management functions she has to perform might be too much for one person. She also thinks that her laissez-faire leadership style may not be appropriate for this type of business. At university, she often worked in a group with Emma. She noticed that Emma is good at organising tasks and directing others. Emma would take charge of the group and make all 30 the decisions. Nadia would like to work with Emma but Emma does not want to be just an employee. (a) (i) Define the term ‘social enterprise’ (line 5). [2] (ii) Explain the term ‘crowd funding’ (line 6). [3] (b) (i) Refer to Tables 2.1 and 2.2. Calculate the forecast profit for 2020. [3] (ii) Explain one way in which Nadia can use the Internet for her marketing campaign. [3] (c) Analyse two ways in which emotional intelligence may help Nadia be an effective leader. [8]

Mark scheme: 2(a)(i) Define the term ‘social enterprise’ (line 5). 2 Knowledge and Application Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content • A business that uses profit (1) for the benefit of the community (1) • ARA Exemplar Mark Rationale Profits are used for the 2 Two points made community/beneficiary and not just for shareholder dividends Profit is not the main aim, main aim is to 2 Two points made benefit society/beneficiary Triple bottom line: social, environmental 1 Only one element; not and financial explicit The business does not make profits 0 incorrect 2(a)(ii) Explain the term ‘’crowd funding’ (line 6). 3 Award one mark for each point of explanation Rationale Marks C E.g. or some other way of showing good 3 understanding; Often using the internet ; may be incentives; Many small investors B Each investor contributes a small amount 2 A Source of finance/investment 1 No creditable content 0 B and C does not require the A mark to be present Answers could include: Raising money for a project or venture, (A) from a large number of people, who each contribute a relatively small amount, (B) typically via the Internet. (C) Mark Rationale A source of finance, where many small 3 All three elements investors each contribute a small covered amount for benefits such as being able to buy the first production run A source of finance where many small 2 Point A and B investors each contribute a small amount for benefits Many small investors 1 Point C only 2(b)(i) Refer to Tables 2.1 and 2.2. Calculate Nadia’s forecast profit for 2020. 3 Rationale Marks Correct answer 3 Correctly calculates total revenue 2 Attempt (e.g. formula or identifies data) 1 0 e.g. Revenue – (total costs) = profit (1 mark) Revenue – (direct costs) = profit Revenue = (225 × $25) + (175 x $200) × (125 × $275) = $75 000 (2 marks) $75 000 – ($30 000 + $15 000) = $30 000 (profit for the year) (3 marks) $75 000 – $30 000 = $45 000 (gross profit) Accept either gross profit or Profit for the year figures Common incorrect answers Answer Mark Rationale 30 000 or 30 3 Dollar sign and ‘000 not required 45 000 or 45 3 Dollar sign and ‘000 not required 75 000 or 75 2 Dollar sign, ‘000 and working not required (as a recognisable figure) 2(b)(ii) Explain one way in which Nadia can use the internet for her marketing 3 campaign. Level Knowledge and Application Marks 2 Explanation of an internet based marketing method 3 (APP) in context 1b Explanation of an internet based marketing method 2 (K × K) 1a Identification of an internet based marketing method 1 (K) 0 No creditable content 0 Context and content is likely to come from: • Ads on internet sites – internet based business, above the line – expensive, can they afford this given low profits • Below the line – target students or parents? Contact schools/colleges? • Social media, viral marketing. Example of how responses should be marked Identification of Explanation of an Explanation of an one method of internet based internet based internet marketing marketing method marketing method in context Ads on internet Above the line method As this is an internet sites based business Social media Viral marketing As A-Level students often use social media 2(c) Analyse two ways in which emotional intelligence may help Nadia be 8 an effective leader. Knowledge and Level Application (4 Marks Analysis (4 marks) Marks marks) Understanding of Developed analysis of two two elements of ways a leader can use 2b emotional 4 emotional intelligence in 4 intelligence in context context Understanding of Developed analysis of one one element of way a leader can use 2a emotional 3 emotional intelligence in 3 intelligence in context context Shows Limited analysis of two knowledge of two ways a leader can use 1b elements of 2 emotional intelligence 2 emotional intelligence Shows Limited analysis of one way knowledge of one a leader can use emotional 1a element of 1 intelligence 1 emotional intelligence 0 No creditable content 0 Knowledge – Emotional Intelligence (EI) • recognising and managing your emotions and those of others. • Goleman’s four competencies of emotional intelligence: − self-awareness, − self-management, − social awareness, and − social skills. Application and analysis– linked to one aspect of knowledge • Nadia’s leadership of a start-up internet business employing a young staff – lack of experience. • All staff are part-time so important to manage well, keep happy and ensure good customer relations. • Staff unlikely to have many opportunities to meet as working from home which can be alienating and a leader should recognise this and take action to help develop a team spirit/engage employees. 2(c) 1 K APP AN DEV Self- Has identified Which may not So can adapt to a awareness laissez faire be suitable for a more suitable management growing method style business Awareness Tutors are may not feel a Which could lead to of employee remote workers connection with poor tutor needs and the business engagement 1. Self–Awareness without any obstruction. She will be able to recognise emotions as they arise in response to an action or situation. As a result, she will be in a better position to address problems/future complications. 2. Self–Management Will help Nadia stay in control so that she is unlikely to make hasty decisions or let her anger take over her behavior. This will help her to maintain respect from her employees. 3. Social Awareness Nadia should be aware of the emotions of others and able to pick up on what is going on around her. She should be able to sympathise with others and give helpful feedback. This is a critical skill for leaders, who work closely to inspire and motivate a team. If the leader is unable to empathise with their employees, she will find it difficult to obtain respect or loyalty. 4. Social skills Nadia should be able to clearly convey directions and know what to say in order to inspire and motivate others. An important skill for leaders, communication can be a deciding factor in whether the team listens or not. She should be able to handle any disagreements that arise between employees, customers, and other parties. In conjunction with the above skills, leaders can use their emotional intelligence to develop a more effective workplace. 2(d) Evaluate whether Nadia should form a business partnership with 11 Emma Knowledge and Analysis and Evaluation Application Marks Marks (7 marks) (4 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 4 of two characteristics 4 of legal ownership in context Arguments based on changing legal ownership in context Shows understanding 3 of one characteristic 3 of legal ownership in context Shows knowledge of 2 two characteristics of 2 legal ownership limited analysis of changing legal ownership Shows knowledge of 1 one characteristic of 1 legal ownership 2(d) Context must be explicit not just implied and based on the leadership styles, structure of the firm and changing from sole trader to partnership Context/content: • Leadership styles may clash – autocratic v laissez-faire/Loss of control/Conflict may arise • Nadia will have to share profits (forecast only $30k/45k profit) • Emma may not want to form a business partnership with Nadia. She may have a job she is happy with or she may have her own business • Emma could contribute additional capital but does she have enough resources to ‘buy-in’? • Emma’s skills and expertise could complement Nadia’s / Decision making shared • Shared risks • Help Nadia to expand the business • Running a business is not the same as leading a group project – Emma may not be as skilled in business K APP AN DEV EVAL Sole trader Emma And an Which may Nadia should form makes all often autocratic affect a business business takes leadership employee partnership as she decisions charge style could retention has identified her disenfranchise and leadership style is casual recruitment not appropriate employees (EVAL) Partnership Nadia So Emma Which And Emma could profits are will have may want to could take take control of shared to share charge more the focus employee and task profits away from management (forecast the social (EVAL EVAL) only enterprise. Leaving Nadia free $30/45k to concentrate on profit) other aspects such as marketing and growth.

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