Cambridge A Level Business (for first examination in 2016) 9609 — 2023 Oct/Nov Paper 2 · Variant 3

1 Jake’s Cakes (JC) Jake started baking cakes while at university. He baked cakes for friends’ birthdays and other celebrations. He posted pictures of his cakes on social media sites where they received very positive feedback and were widely shared. In 2021 Jake started JC, a small business, using his parents’ kitchen. JC bakes cakes and sells them online. Jake created a website where customers design and order unique 5 cakes. Jake uses digital promotion as the main method of promoting his products. JC has only used retained earnings to invest in marketing and new equipment. In 2023, Jake made a cake for a celebrity who shared JC’s social media posts with their social media followers. As a result of this an investor approached Jake. The investor offered to provide a $25 000 capital investment to help Jake grow the business. However, Jake 10 does not want to take on an equal partner. Jake is considering a different plan for growth. His parents have agreed to let him convert their garage into his commercial kitchen. He has prepared a business plan and applied for a bank loan of $15 000 to finance this growth. He has produced a cash flow forecast for the first quarter of 2024. 15 Table 1.1: JC’s cash flow forecast 2024 ($ 000) Jan Feb March Cash inflow Bank loan 15 0 0 Cash sales 2.5 2.6 5 20 Total inflow 17.5 2.6 5 Cash outflow Fixed costs 20 1.5 1.5 Variable costs 0.5 0.6 0.8 Total outflow 20.5 2.1 2.3 25 Net cash flow (3) 0.5 Opening balance 2 (1) Closing balance (1) (0.5) (a) (i) Identify one element of a business plan. [1] (ii) Explain the term variable costs. [3] (b) (i) Refer to Table 1.1. Calculate the forecast closing balance in March 2024. [3] (ii) Explain one of Jake’s human needs that may be satisfied by operating JC. [3] (c) Analyse two benefits to JC of using digital promotion. [8] (d) Evaluate whether a bank loan is the most appropriate source of finance for JC’s growth. [12]

Mark scheme: Question Answer Marks 1(a)(i) Identify one element of a business plan. 1 Identification of a business plan element may include: ( ) • executive summary • business objectives • description of the business opportunity • marketing and sales strategy • management team and personnel • operations • financial forecasts Accept all valid responses. 1(a)(ii) Explain the term variable costs. 3 AO1 Knowledge and understanding AO2 Application 1 mark 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark 1 mark Knowledge of one relevant point is used to answer Limited application of one relevant point to a business context. the question. 0 marks 0 marks No creditable response. No creditable response. Indicative content: AO1 Knowledge and understanding Knowledge of variable costs may include: • Costs that vary with output AO2 Application Limited application applies knowledge of variable costs to one of the factors: Developed application + applies knowledge of variable costs to two of the factors • Any relevant example e.g. raw materials, packaging • Increase or decrease with the production volume • Increase or decrease with the sales volume Application can be made to the source material or any other scenario/context/business/person Accept all valid responses. 1(a)(ii) Exemplar and annotations Mark Rationale Expenses that change with the level of output such as raw 3 There is developed application of raw materials for example the flour used for cakes. materials (flour) as well as clear knowledge of the concept at the start of the response. Expenses that change with the level of output such as raw 2 Knowledge first, followed by application to materials . an example Expenses which vary with output . 1 Knowledge mark. No attempt to apply. Expenses which do not stay the same 0 No link to output 1(b)(i) Refer to Table 1.1. Calculate the forecast closing balance in March 2024. 3 Indicative content: Calculation Value 3 marks Net cash flow Total cash in − Total cash out 2.7 1 mark Opening balance Closing balance (Feb) (0.5) 1 mark Closing balance Net cash flow + Opening balance 2.2 1 mark (or )3 OFR applies ONLY if calculation is explicit and correct data values used in calculation Marks 3 marks Correct answer (3) Working is not required. Must be three to denote the three marks. 2 marks EITHER To award two marks, there must be • Correct formula AND • Two and a • Correct identification of figures OR • One , one and one OR • An incorrect answer with one mistake allowing OFR for final stage. 1 mark One of the following: To award one mark, there must be: • Correct formula • One and two • Correct identification of figures in an incorrect formula 0 marks No creditable content. To award zero marks, there must be • One 1(b)(ii) Explain one of Jake’s human needs that may be satisfied by operating JC. 3 AO1 Knowledge and understanding AO2 Application 1 mark 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark 1 mark Knowledge of one relevant point is used to answer Limited application of one relevant point to a business context. the question. 0 marks 0 marks No creditable response. No creditable response. Indicative content: AO1 Knowledge and understanding Knowledge of a factor that may satisy a human need • Social connections • Challenge • Significance • Certainty • Maslow’s hierarchy of needs AO2 Application Limited application , applies knowledge of one factor that satisfies Jakes needs once. Developed application + applies knowledge of one factor that satisfies Jakes needs twice. • via followers on social media • unique cakes • creating customer designed unique cakes/orders • sole business owner/sole trader/owns 100% of business • of praise from local celebrity (sharing JC social media posts • garage conversion plan • he is an entrepreneur 1(b)(ii) Exemplar and annotations Mark Rationale Social connections via followers on social media 3 Knowledge plus two specific elements from increases pride in bakery the case study The challenge of creating customer designed unique 2 A challenge is a human need with specific cakes/orders reference to the case material once Esteem needs 1 One of Maslow’s Needs identified only Hygiene factors 0 Incorrect theory Accept all valid responses. 1(c) Analyse two benefits to JC of using digital promotion. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 2 marks 4 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two • Application of two Limited analysis relevant points is used relevant points to a • Limited analysis that identifies connections to answer the question. business context. between causes, impacts and/or consequences • Knowledge of one • Application of one of two points. relevant point is used to relevant point to a • Limited analysis that identifies connections answer the question. business context. between causes, impacts and/or consequences of one point. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. 1(c) Indicative content AO1 Knowledge and understanding • Digital promotion: the use of advertising, sales promotion, personal selling, direct mail, trade fairs, sponsorship and public relations online • Methods of digital promotion (without reference to JC) e.g. Twitter, hashtags, Facebook, YouTube Knowledge of the benefits of using digital promotion (max 2 ), may include: • wide customer reach • inform consumers and persuade them to buy. • promotional objectives: − increased sales/awareness; − demonstrating abilities/showcasing products • creating or reinforcing a brand image • correcting misleading reports • cheaper than non-digital promotion 1(c) AO2 Application Max one for application to each benefit of using digital promotion. • Jakes uses social media as a source of digital promotion • Use of website to enable customers to design and order cakes • Celebrity share of JC social media posts • Attracting potential investor with $25 000 capital offer AO3 Analysis Limited analysis candidate shows one link in the chain of analysis. Developed analysis candidate shows two or more links in the chain of analysis or a two-sided analysis. • (Costs) low cost and does not require the use of external agencies who may charge a fee – reduces overheads • (Viral marketing) ease to attract the target audience – brand can grow quickly and reach new markets • (Message and image) taken and uploaded regularly without the need to use marketing agencies–increases personal interaction and brand loyalty • (Allows for feedback and direct contact) improve customer loyalty – increases chance of return custom/sales Accept all valid responses. Exemplar and annotations AO1 Knowledge AO2 Application AO3 Analysis Wide customer reach online From cake pictures on social media Attracts target audience and increases number of orders . Reinforcing brand image Of customer designed cakes Which increase the number of social media shares increases profit margins . 1(d) Evaluate whether a bank loan is the most appropriate source of finance for JC’s growth. 12 Level AO1 Knowledge and AO2 Application AO3 Analysis AO4 Evaluation understanding 2 marks 2 marks 2 marks 6 marks 3 5–6 marks Developed evaluation in context • A developed judgement/conclusion is made in the business context. • Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed knowledge Developed Developed analysis Developed evaluation of relevant key term(s) application of that identifies • A developed and/or factor(s) is used relevant point(s) to the connections between judgement/conclusion is made. to answer the question. business context. causes, impacts and/or • Developed evaluative consequences. comments which balance some key arguments. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key term(s) of relevant point(s) to that identifies • A judgement/conclusion is and/or factor(s) is used the business context. connections between made with limited supporting to answer the question. causes, impacts and/or comment/evidence. consequences. • An attempt is made to balance the arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. No creditable response. 1(d) Indicative content AO1 Knowledge and understanding Knowledge of Bank loans (max 2 s) • set amount • fixed period of time • fixed interest rate • requires good credit/reputation Knowledge of other internal and external sources of finance; (max 2 s) • retained earnings • owners investment • mortgage • hire purchase • overdraft • partner AO2 Application Limited application applies knowledge of appropriateness of sources of finance to DC once. Developed application + applies knowledge of appropriateness of sources of finance twice. • retention of 100% stake, not a 50% stake • $25 000 investment offered requires a 50% sale of JC • capital investment to rent business premises/a kitchen, employ staff and invest in promotion • current gearing ratio of 0 1(d) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Bank loan as an appropriate source of finance • retains full control – is able to make investment decisions in his own long term best interest • keeps all future profits for own benefit – no risk of externals hindering future expansion • liable for interest and loan repayments – may reduce cashflow which is already poor and will require an alternative short term SoF such as an overdraft or owners investment Investor as an appropriate source of finance • loss of complete ownership – may have negative implications on Jake’s motivation levels • ability to control finances would be reduced (as he would have to gain agreement from the investor on any financial decisions) – investor may not want to invest capital on non-owned property • able to invest to improve marketing/employ staff – no financial repayment risk – all future profits can be reinvested or taken as dividends Any alternative source of finance compared with the business loan/suitability for JC to be accepted AO4 Evaluation Limited evaluation – unsupported judgement and/or a weak attempt at evaluative comment Developed evaluation – supported judgement and/or reasonable evaluative comment Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. • does JC need the investment as he was able to keep up with demand, invest in his equipment and as the closing balance is positive and growing each month? • does Jake have the necessary ability to manage the risk of an external source of finance? • the most important benefits and drawbacks of a bank loan as a source of finance • weighing up the objectives and risks of choosing a bank loan • a judgement on whether a business loan is most appropriate for JC based on the evidence 1(d) Accept all valid responses. Bank Loans means a fixed amount of money from the bank but can have high interest rates which would lead to increased costs/outflows and lower profits for the business which means he will not be able to improve his cash flow issues as shown by the negative cash flow forecast. Retained earnings can also be another type of source of finance JC can get from its profits. Which means there are no cash outflows required such as when borrowing money. This is a method that JC already used for marketing and new equipment This will allow JC to have a better cash flow but he may not have enough capital to invest into the garage conversion straight away. A bank loan is the most appropriate method as a source of finance as JC requires $15 000 so he can specifically ask for this amount from the bank to be able to reach its aim for growth. However, this also depends on whether JC is able to take a loan from the bank or not and if so whether the interest rate is affordable because if it is not affordable then the cost will increase drastically which will further affect the poor cash flow forecast negatively

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2 Custom motorcycles (CM) CM is a private limited company. It was set up by Joyce, who identified a gap in the market for specialist motorcycle components. CM’s engineers make the components using job production. The engineers are highly skilled, trained and motivated and very proud of their high-quality products which are sold using price skimming. CM was featured in a popular motorcycle magazine in autumn 2022, which has increased 5 CM’s reputation for quality unique products. This led to an increase in CM’s sales as shown in Fig. 2.1. 7.5 6.25 6 5.5 5 1.5 1 1.05 0.5 0.6 Summer 2022 Autumn 2022 Winter 2022 Spring 2023 Summer 2023 Total market sales (000 units) CM sales (000 units) Fig. 2.1: CM’s sales data 2022–2023 Lead times for CM’s products have increased from 4 weeks to 10 weeks. This has put additional pressure onto CM’s engineers, who are salaried employees. They often have to 10 work evenings and weekends. Harry, the Sales Manager, thinks demand is going to continue to increase. He wants CM to employ more skilled engineers and continue to use job production. However, Joyce wants CM to invest in new technology and change from using job production to batch production. (a) (i) Identify one non-financial motivator. [1] (ii) Explain the term demand. [3] (b) (i) Refer to Fig. 2.1. Calculate the total market growth between summer 2022 and summer 2023. [3] (ii) Explain one benefit to CM of using price skimming. [3] (c) Analyse two impacts on CM of its employees having a poor work-life balance. [8] (d) Evaluate whether CM should change its method of production. [12]

Mark scheme: 2(a)(i) Identify one non-financial motivator. 1 Identification of a non-financial motivator may include: ( ) Any non-financial motivators • job rotation/enlargement/enrichment • job redesign • training and development • promotion, status and empowerment • teamworking • quality circles Accept all valid responses. 2(a)(ii) Explain the term demand. 3 AO1 Knowledge and understanding AO2 Application 1 mark 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark 1 mark Knowledge of one relevant point is used to answer Limited application of one relevant point to a business context. the question. 0 marks 0 marks No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of demand may include: • the number of consumers willing to pay at a given price • the quantity of a product that consumers are willing/(and able) to buy at a given price (in a specific time period). 2(a)(ii) AO2 Application Limited application applies knowledge of demand to one of the below Developed application + applies knowledge of demand to two of the below Can change as a result of a change in any of the following factors: • consumer incomes • prices of substitute goods and complementary goods • population size and structure • fashion and taste • advertising and promotion Can affect: • pricing • production • Examples of demand Accept all valid responses. Exemplar and annotations Mark Rationale The quantity of products customers are willing and able to buy . 3 A clear definition with two elements from That can affect pricing decisions , in response to the price of the indicative application substitutes . The quantity of products customers are willing and able to buy . 2 A clear definition with one element from Which may change due to consumer incomes . the indicative application The quantity of products customers are willing and able to buy . 1 A basic definition The quantity of products customers want to buy. 0 Too vague. Some idea of an increase however could relate to simply selling higher quantities. 2(b)(i) Refer to Fig. 2.1. Calculate the total market growth between summer 2022 and summer 2023. 3 total sales in a time period present value – past value Formula:  100 (1)  100 (1) Total sales in a time period past value 7.5 ( 7.5 − 5 )  100 (2)  100 (2) 5 5 = 150 (%) (3) = 50% (3) OFR applies Percentage sign not required Exemplar and annotations Marks Answer Rationale 3 marks Correct answer Working and tonnes do not matter. 150 OR 50 (%) Must be three to denote the three marks. Correct rounding must be applied. 2 marks Both of the following: To award two marks, there must be • Correct formula • Two and a • Correct use of figures OR OR • One , one and one An incorrect answer with one mistake allowing OFR for final stage. (eg not multiplying by 100) OR A correct answer from an inverted formula (–50% – OFR) 1 mark One of the following: To award one mark, there must be: • Correct formula • One and two • Correct identification of figures 0 marks No creditable content. To award zero marks, there must be • One 2(b)(ii) Explain one benefit to CM of using price skimming. 3 AO1 Knowledge and understanding AO2 Application 1 mark 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark 1 mark Knowledge of one relevant point is used to answer Limited application of one relevant point to a business context. the question. 0 marks 0 marks No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of a benefit of using price skimming may include: • High (selling) price • High profit margin • Maximises short run profits before competition enters the market • Creates an exclusive image • Covers high development costs 2(b)(ii) AO2 Application Limited application , applies knowledge of a benefit of price skimming to CM once. Developed application + applies knowledge of a benefit of price skimming to CM twice. • private limited company • specialist motorcycle components • specialist engineers • job production • high quality products • quality unique products Accept all valid responses. Exemplar and annotations Mark Rationale Higher selling prices as selling specialist motorcycle 3 One benefit which is related to the case parts to customers who are happy to wait 10 weeks material twice . Higher selling prices as selling specialist motorcycle 2 One benefit which is related to the case parts material Higher selling prices 1 High(er) selling price is a correct answer 0 This is generic and does not show understanding of Make more money/profit price skimming as can be achieved in many ways 2(c) Analyse two impacts on CM of its employees having a poor work-life balance. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 2 marks 4 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two • Application of two Limited analysis relevant points is used relevant points to a • Limited analysis that identifies connections to answer the question. business context. between causes, impacts and/or consequences of • Knowledge of one • Application of one two points. relevant point is used to relevant point to a • Limited analysis that identifies connections answer the question. business context. between causes, impacts and/or consequences of one point. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. 2(c) Indicative content Responses may include: AO1 Knowledge and understanding • the minimisation of work-related stress, and the establishing of a stable and sustainable way to work while maintaining health and general well-being. • maintaining a harmonious relationship between your work and personal life. • a situation in which employees are able to allocate the right amount of time and effort to work and to their personal life outside work. Knowledge of two impacts of poor work life balance (max 2 s), may include: • tired employees • lack of motivation • increased staff turnover • increased training costs • longer lead/production times • reputation of the business AO2 Application Max one for application to each impact of poor work life balance. • private limited company • specialist motorcycle components • specialist engineers • job production • high quality products • quality unique products • highly skilled, trained and motivated and very proud of their high-quality products • lead times increased from 4 to 10 weeks • additional pressure onto CM’s engineers who are salaried employees • often have to work evenings and weekends 2(c) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis candidate shows two or more links in the chain of analysis or a two-sided analysis. Analysis may include: • a lack of motivation from pressurised workforce may reduce the current output – further increase the production times • poor work-life balance may lead to mistakes – reduce the USP/reputation used to justify price skimming approach • increased staff turnover – may lead to increased production times – may reduce demand/sales Accept all valid responses. AO1 Knowledge AO2 Application AO3 Analysis Exemplar for one impact of poor work Tired employees As often work evenings This could reduce balance and weekends . motivation and increase Annotations for the first impact should the likelihood of be placed in the left-hand margin. mistakes/low productivity . Exemplar of a second impact of poor work Increased staff Of the highly skilled, Could increase recruitment balance turnover trained and motivated and training costs and Annotations for the second impact engineers . reduce profitability . should be placed in the right-hand margin. 2(d) Evaluate whether CM should change its method of production. 12 Level AO1 Knowledge and AO2 Application AO3 Analysis AO4 Evaluation understanding 2 marks 2 marks 2 marks 6 marks 3 5–6 marks Developed evaluation in context • A developed judgement/conclusion is made in the business context. • Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed knowledge Developed application Developed analysis Developed evaluation of relevant key term(s) of relevant point(s) to that identifies • A developed and/or factor(s) is used the business context. connections between judgement/conclusion is made. to answer the question. causes, impacts • Developed evaluative and/or consequences. comments which balance some key arguments. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key term(s) of relevant point(s) to that identifies • A judgement/conclusion is and/or factor(s) is used the business context. connections between made with limited supporting to answer the question. causes, impacts comment/evidence. and/or consequences. • An attempt is made to balance the arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. No creditable response. 2(d) Indicative content AO1 Knowledge and understanding Knowledge of methods of production (max 2 s), including: • job/batch/flow/mass customisation • factors of production • the nature of economic activity • the dynamic business environment • business risk and uncertainty • business growth AO2 Application Limited application applies knowledge of methods of production to CM once. Developed application + applies knowledge of methods of production to CM twice. • CM uses job production • current reputation for CM of handmade, quality products • highly skilled, trained and motivated mechanic/engineers (has to be explicit, not e.g. well trained workforce) • employees proud of high quality motorcycle products/components • Joyce wants batch and Harry wants more job production • sales have increased by 1.5x in one year • specialist products allow for price skimming • lead times for have increased from 4 weeks to 10 weeks • salaried employees often work evenings and weekends • employ more skilled engineers • invest in new technology for batch production 2(d) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Continue with job production • retain reputation – keep using price skimming – increases profit per unit • customers are happy with 10 week lead times – future demand guaranteed • job production will not allow for economies of scales – profit may be below target • increased pressure on engineers – may leave for a less stressful job – increases training/recruitment costs or lose valuable skills Invest in batch • increase rates of production – reduce production times/increased sales • reduce pressure on high skilled employees which may increase motivation • allow for economies of scale – will reduce the cost per unit – increase profit margins • may damage CM reputation/USP as no longer hand made products – may reduce demand • machine made products may not be as popular – may reduce ability to use price skimming methods – would reduce selling price and profit margin AO4 Evaluation Limited evaluation - unsupported judgement and/or a weak attempt at evaluative comment Developed evaluation – supported judgement and/or reasonable evaluative comment Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context • the feasibility and risk of investing into each option • the likely impact on profit/profit margin • weighing up of objectives and risks • the potential consequences of not investing into the future • a judgement on whether or not CM should invest in any or all of the options • an attempt to advise CM on investment decisions and the short and long term impacts on CM Accept all valid responses. 2(d) Exemplar and annotations Job production increases demand as products are made to specific customers’ needs which will allow CM to charge premium prices and gain higher profits CM is already well-known specialist motorcycle parts Batch production can also allow CM to produce a variety of motorcycles to meet more different customer choices and increase sales revenue continuing the trend already seen by CM 50% increase in sales in one year. CM should not change its production method as it is already using job production and it will allow JC to continue providing specialist motorcycles to meet the gap in the market and benefit from the increase in sales and profits However, this also depends on whether JC is able to maintain competitiveness with only specialist parts as batch may give it a chance to expand it market and reduce the 10 week lead time.

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