Cambridge A Level Business (for first examination in 2016) 9609 — 2020 May/June Paper 2 · Variant 3

1 Super Heroes (SH) SH is a leisure (theme) park aimed at 10–18 year olds. It is owned by two companies, X and Y, which started SH as a joint venture. Company X owns many leisure centres and swimming pools. Company Y owns many brands based on superheroes. SH employs 200 full-time workers and an extra 50 seasonal workers during the busiest times of the year. The park has 10 large rides which take up 2 km2 of land. There are also 5 many smaller rides, restaurants, toilets and shops. The price of an entrance ticket is $11 per customer. Table 1.1 shows the costs for SH in 2019. Table 1.1: SH costs for 2019 Total fixed costs (per year) $12m Variable costs (per customer) $3 10 Total costs $42m One of the larger rides at SH is the Iron Blaster. The number of customers who use this ride has decreased each year for the last three years. This has led the management of SH to consider its options for internal growth. Option 1 – A new virtual reality (VR) ride 15 This option would involve developing the Iron Blaster into a VR ride. Most of the structure of the Iron Blaster could be used but customers would be given a VR headset to wear during the ride. The cost of developing the VR ride would be $2m. The Iron Blaster ride would be closed for a three month period during the off-peak season for the development to be carried out. No employees would be made redundant or dismissed. 20 Option 2 – A new hotel SH does not currently have a hotel. It could demolish the Iron Blaster to provide the space to build one. Many of the competitors of SH have a hotel near or within their leisure parks. Hotel customers would pay a high price for a room but have free access to the leisure park’s facilities. Market research suggests that the average hotel customer would spend 25 twice as long in the leisure park than a non-hotel customer. The cost of developing the hotel would be $15m and take a year to build. All of the employees currently working on the Iron Blaster ride would face redundancy or dismissal. (a) (i) Define the term ‘joint venture’ (line 2). [2] (ii) Explain the difference between ‘redundancy’ and ‘dismissal’ (line 28). [3] (b) (i) Refer to Table 1.1 and any other information. Calculate the total revenue from entrance tickets for SH in 2019. [4] (ii) Explain one way in which SH could increase the sales of entrance tickets. [2] (c) Analyse two factors that may have determined the location of SH. [8] (d) Recommend which one of the two options SH should choose for internal growth. Justify your recommendation. [11]

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘joint venture’ (line 2). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content A business arrangement where two or more businesses (parties) agree to pool resources for a specific task. A business entity created by two or more businesses with a common interest. 1(a)(ii) Explain the difference between ‘redundancy’ and ‘dismissal’ (line 28). 3 Award one mark for each point of explanation: Knowledge Marks Explanation of the difference between A 3 redundancy and dismissal B An understanding of redundancy (may be implied) 1 C An understanding of dismissal (may be implied) 1 Content: • Redundancy is where an employee is made to leave an organisation because their job role is no longer required. • Dismissal is where an employer ends a worker’s employment • The difference is that redundancy is about the job role not being required any more, whereas dismissal is when the employee is no longer required. (A mark, B and C implied) • Redundancy can only happen after two years’ service, whereas dismissal can occur at any point in employment. (A mark, B and C implied) ARA 1(b)(i) Refer to Table 1.1 and any other information. Calculate the total revenue 4 from entrance tickets for SH in 2019. Rationale Marks Correct answer with or without correct working or $ 4 Correct calculation of number of customers 3 Correct calculation of TVC 2 Formula 1 No creditable content 0 Note: A correct answer must (in some way) be expressed in millions (e.g. m) Answer = $110m TC − FC Quantity = VC (per unit) $42m – $12m = $30m (TVC) $30m = 10m customers $3m 10m × $11 = $110m revenue 1(b)(ii) Explain one way in which SH could increase the sales of entrance tickets. 2 Level Knowledge and Application Marks 2 Explanation of a way to increase sales of 2 (APP) entrance tickets in context 1 (K) Explanation of a way to increase sales/revenue 1 0 No creditable content 0 Note: This question is specifically about ‘entrance tickets’. Answers which focus on increasing revenue by other means (e.g. restaurants, fast-track etc.) are unlikely to be contextual. The hotel option gives customers FREE entrance tickets so is unlikely to be contextual. Content: • Develop the rides e.g. the VR ride • Decrease the price – may be elastic because of competition • Selling through different distribution channels e.g. advance tickets, online tickets etc. • Promotion – any method in context ARA 1(c) Analyse two factors that may have determined the location of SH. 8 Knowledge and Analysis (4 marks) Level Marks Marks Application (4 marks) Shows understanding Good analysis of two (or of two (or more) more) factors which may 2b factors which may 4 determine location in 4 determine location in context context Shows understanding Good analysis of one of one factor that may factor that may 2a 3 3 determine location in determine location in context context Shows knowledge of Limited analysis of two two (or more) factors (or more) factors which 1b 2 2 which may determine may determine location location Shows knowledge of Limited analysis of one 1a one factor that may 1 factor that may 1 determine location determine location 0 No creditable content Content: • Access to employees – SH employs 200 f/t workers and 50 seasonal • Access to suppliers – restaurants, shops, builders etc. • Space – large rides (2 km2 of land), car park etc. • Access to customers – 10m customers a year • Access to raw materials – water rides etc. • Infrastructure – ease of access for visitors ARA 1(d) Recommend which one of the two options SH should choose for internal 11 growth. Justify your recommendation. Knowledge and Application Analysis and Evaluation Marks Marks (4 marks) (7 marks) Justified evaluation based 7 on arguments in context Developed evaluation based on arguments in 6 context An evaluative statement based on arguments in 5 context Shows understanding of the Arguments based on the two options for internal 3–4 two options for internal 3–4 growth growth Shows knowledge of internal Limited analysis of internal 1–2 1–2 growth growth No creditable content Content: Option 1: A new Virtual Reality (VR) ride • May improve the popularity of the theme park • New modern technology (VR) is likely to appeal to the target market (10– 18 year olds) • Significantly lower cost than hotel ($2m compared to $15m) • Less time closed (3 months compared to a year) • Can be completed in off-peak time • No redundancy payments or risk of unfair dismissal Option 2: A hotel • Keep up with competitors • New revenue source – high price rooms • More opportunity to spend longer time in park – restaurants, shops etc. • May be an opportunity to get rid of poorly performing employees (are they the reason why customers have decreased on the Iron Blaster ride?) ARA

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2 Flight Food (FF) FF is a large secondary sector business that supplies airlines with in-flight meals. Meals are manufactured using batch production. A different variety of meal is made each hour with a five minute changeover time between batches. FF makes use of Just in Time (JIT) to manage inventory wherever possible. Trucks arrive each hour and deliver the materials needed for production. 5 The market for airline meals is very competitive. FF uses market segmentation when deciding which meals are most likely to appeal to different airlines. FF must adapt to changes in tastes and the demands of each airline. FF is a labour intensive business. The workers are employed with short-term (six month) employment contracts. They are only offered new contracts if they meet their production 10 targets. Table 2.1 shows some production data for FF’s two work teams. Table 2.1: Worker data for FF Team A Team B Number of workers 100 50 Productivity 300 meals 240 meals 15 (per worker per day) The Board of Directors of FF is considering changing the manufacturing process to flow production. This would require purchasing Computer Aided Manufacturing (CAM) equipment and using a capital intensive production process. Production targets would no longer be used for employees because the machinery would be set at a specific production 20 rate. Sabrina, the Operations Director, has put forward the following advantages for moving to flow production: • more products made each hour • lower employment costs 25 • improved quality. Ben, the Human Resource Director, is worried about the change from a labour intensive process to a capital intensive process. (a) (i) Define the term ‘secondary sector’ (line 1). [2] (ii) Explain the term ‘market segmentation’ (line 6). [3] (b) (i) Refer to Table 2.1. Calculate the total number of meals per day produced by both teams. [2] (ii) Explain two ways in which FF may be affected by the lower productivity of employees working in Team B. [4] (c) Analyse two possible disadvantages for FF of using Just in Time (JIT) to manage inventory. [8] (d) Evaluate the possible effects on FF of a change from a labour intensive process to a capital intensive process. [11]

Mark scheme: 2(a)(i) Define the term ‘secondary sector’ (line 1). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content: Businesses that manufacture raw materials (or assemble components) into finished goods 2(a)(ii) Explain the term ‘market segmentation’ (line 6). 3 Award one mark for each point of explanation: Knowledge Marks Example or some other way of showing good 1 understanding Understanding of segmentation 1 Understanding of a market 1 Content Dividing the total population that might demand a product or service into smaller sections where people share certain characteristics. For example, a soft drinks manufacturer might segment their market by age groups. ARA 2(b)(i) Refer to Table 2.1. Calculate the total number of meals per day produced 2 by both teams. Rationale Marks Correct answer with or without correct working 2 Correct calculation of total day shift meals or total night 1 shift meals No creditable content 0 Answer = 42 000 meals 1000 workers X 30 meals = 30 000 meals (day) 500 workers X 24 meals = 12 000 meals (night) OFR 2(b)(ii) Explain two ways in which FF may be affected by the lower productivity 4 of employees working in Team B. Level Knowledge and Application Marks 2b (APP Explanation of two effects of low productivity in 4 +APP) context 2a Explanation of one effect of low productivity in 3 (APP) context 1b (K+K) Identification of two effects of low productivity 2 1a (K) Identification of one effect of low productivity 1 0 No creditable content 0 Content: • FF may have reduced revenue from having less meals to sell to airlines. • FF may have higher costs than the competition – very competitive market. • FF may not be able to afford the capital for mass production. • Low productivity may make the decision to move to mass production more appealing. • May lead to dismissing some of the 500 night-shift workers. • May lead to tougher targets for the workers. ARA 2(c) Analyse two possible disadvantages for FF of using Just in Time (JIT) to 8 manage inventory. Knowledge and Analysis (4 marks) Level Marks Marks Application (4 marks) Shows understanding Good analysis of two of just in time inventory disadvantages of Just in 2b 4 4 control in context Time inventory control in context Shows understanding Good analysis of one of inventory control in disadvantage of Just in 2a 3 3 context Time inventory control in context Shows knowledge of Limited analysis of two 1b Just in Time inventory 2 disadvantages of Just in 2 control Time inventory control Shows knowledge of Limited analysis of one 1a inventory control 1 disadvantage of Just in 1 Time inventory control 0 No creditable content Content: • Risk of running out of stock • More planning needed • Must have good relationship with supplier • No backup inventory in case of a supply chain problem • Poor quality products may lead to major disruption • No spare finished stock just in case ARA 2(d) Evaluate the possible effects on FF of a change from a labour intensive 11 process to a capital intensive process. Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) Justified evaluation based on 7 argument in context Developed evaluation based on 6 argument in context An evaluative statement based on 5 argument in context Shows understanding of Argument based on effects on staff morale and welfare staff morale and welfare of a in context 3–4 move from a labour intensive 3–4 process to a capital intensive process Shows knowledge of Limited analysis of effect(s) on 1–2 1–2 staff morale and welfare staff morale and welfare No creditable content Content: • Staff morale is the job satisfaction, outlook, and feelings of well-being an employee has within a workplace setting. • Staff welfare is about keeping workers healthy and safe. • Some workers may be made redundant – this is likely to affect the morale of the workers still employed by FF. • A move to capital intensive may lead to a less satisfying job for the employees of FF – less variety of meals, etc. • Employees may lose the 5 minute changeover time – may have H&S implications – working longer hours, more intensive etc. • Employees may see that there is even less job security (already low with 6-month contracts). • The loss of production targets may improve staff morale because there is less pressure to produce. • The speed of production will be set by the machinery which may put workers under undue pressure, or to produce at an unrealistic rate. ARA