Financial statements — Paper 2 — A Level Business (for first examination in 2016) 9609 topical questions

Question 1

Clean and Tidy (CT) CT is an employee-owned business that specialises in cleaning homes. The homes are cleaned during the day whilst the ho…

Accepted Answer

2(a)(i) Define the term ‘profit margin’ (line 5). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content Measure of the profitability (not profit) of a business. Calculated by finding the profit for the year as a percentage of revenue. Proportion of revenue that is profit for the year. 2(a)(ii) Briefly explain the term ‘above the line promotion’ (line 12). 3 Award one mark for each point of explanation: C Example or some other way of showing good 1 mark understanding B Through a media 1 mark A Communication/advertising/creating awareness to 1 mark consumers/customers Content Above The Line promotion is the use of media to promote a business and reach out to the target consumers. These include conventional media, television and radio advertising, print as well as internet. This is communication that is targeted to a wider spread of audience, and is not specific to individual consumers. 2(b)(i) Refer to Table 2. Calculate the price elasticity of demand for a 3 change in price from $8 to $6 per hour. Mark Rationale 3 marks Correct answer with or without working 2 marks Attempt with correct use of figures 1 mark Formula 0 marks No creditable content Formula: % Change in QD % Change in P % change in QD 5/50*100 = 10% % change in P 2/8*100 = 25% Answer = (–)0.4 Note: Minus sign not required. Common incorrect answers Answer Mark Rationale 25% 2 Formula wrong way round = 2.5 10% 10% 2 Obvious (implied) knowledge of formula but no attempt to calculate 25% answer (or the attempt is wrong) 10% 2 As above = Inelastic 25% 5 1 Candidate missed the % out of the = 2.5 formula (twice) 2 10% and/or 25% 1 No formula or attempt to put % changes in a formula Inelastic 1 Some understanding but no calculation Change in QD 0 Formula is wrong – no % Change in P 2.5 0 No working 2(b)(ii) Explain one way in which CT could make use of price elasticity of 4 demand calculations. Level Knowledge and Application Marks 2b Explanation of a way PED could be used in 3 (APPAPP) context 2a (APP) Identification of a way PED could be used in 2 context 1a (K) Shows understanding of the use of PED 1 0 No creditable content 0 Correct use of an incorrect answer to 1(b)(i) should be fully rewarded (own figure rule –OFR). No credit for knowledge of PED or formula – already awarded in previous question. Content Answers could include: • Can see that cleaning services are price inelastic (OFR). • CT should not reduce their price – they should increase their price back to the original level (or increase it further). • Price is obviously not the most important factor when customers purchase cleaning services. • PED can be used to calculate revenue based on price changes. 2(c) Analyse one advantage and one disadvantage to CT of being an 8 employee-owned business. Knowledge and Level Marks Analysis (4 marks) Marks Application (4 marks) Good analysis of one (or more) advantage(s) AND one (or more) 4 Shows disadvantage(s) of being understanding an employee-owned of employee business in context 2 3–4 owned Good analysis of one (or businesses in more) advantage(s) OR context one (or more) 3 disadvantage(s) of being an employee-owned business in context Limited analysis of one (or more) advantage(s) AND one (or more) 2 disadvantage(s) of being Shows an employee-owned knowledge of business 1 employee 1–2 Limited analysis of one (or owned more) advantage(s) OR businesses one (or more) 1 disadvantage(s) of being an employee-owned business Answers could include: Context: • equal ownership • different skills in cleaning • each owner may have different personal contacts – cleaning homes • each owner may have different business contacts to expand into the industrial market. Advantages: • working together to solve problems • economies of scale • motivation from being owners/sharing profits. Disadvantages: • disagreements – who is in control? • if there is a manager do they have authority • do the workers have the management skills? • could be a lack of capital investment • could lead to slow decision making. 2(d) Discuss how CT's marketing mix might need to change to target 11 customers in the industrial market. Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified evaluation that follows on from a balanced argument of 7 change(s) to the marketing mix in context Evaluation that follows on from a balanced argument of change(s) to 6 the marketing mix in context A balanced argument based on change(s) to the 5 marketing mix in context Shows understanding Argument based on of the marketing mix in 3–4 change(s) to the marketing 3–4 context mix in context Limited analysis of how Shows knowledge of the marketing mix might 1–2 1–2 the marketing mix change/be changed No creditable content Content: Answers could include: • Product – the businesses will expect evening/night-time cleaning – will CT have employees who are willing to do this? Will they expect higher remuneration for anti-social hours? However the essence the service on offer is the same. • Price – need to find out how sensitive the industrial market is to price? Likely to be more price elastic due to being a cost of business. Therefore CT may find themselves in a more competitive market and need to charge lower prices/have lower margin. • May need to move towards below the line promotion – above the line likely to be expensive to target industrial market (except trade magazines). May need to employ sales people to target businesses directly. • Industrial customers are unlikely to come to them (i.e. phone or book on internet) so CT will need to be more proactive in finding customers.

Question 2

Security Alarms (SA) SA was set up 20 years ago as a partnership. It had one shop that sold car alarms. It had an objective to become the m…

Accepted Answer

2(a)(i) Define the term ‘revenue’ (line 14). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Revenue is the money that flows into a business from selling its goods/services to consumer. Revenue is calculated by selling price * quantity. Exemplar Marks Rationale A reasonable definition of Price × Quantity 2 revenue Money from sales 2 A correct definition Income from business activities 2 A correct definition Revenue is sales 1 A partial definition The number of products a A partial definition 1 business sells Revenue is found at the top of Not a definition 0 the Income Statement Sales – total costs 0 Confusion with profit 2(a)(ii) Briefly explain the term ‘consumer markets’ (line 4) 3 Award one mark for each point of explanation: Example or some other way of showing good C understanding, i.e. rather than buying for business or 1 mark capital use, not business to business/industrial markets B An explanation of market(s) – sales, trade etc. 1 mark An explanation of consumers – end user, purchase for A 1 mark use (allow consumption), not to change or resale The consumer market pertains to buyers who purchase goods and services for consumption rather than resale. Examples include shops, supermarkets and retail stores. It does not involve one business selling to another business. Exemplar Marks Rationale Where the business sells to Sells, end user and an the end user for example a 3 example supermarket SA sells directly families who 3 All three elements use the alarms not shops The consumer is the person who actually uses the product, A and C – no understanding of 2 for example a child is the end market user of a toy A place where business go to sell and people go to buy 1 B only products and services The person who uses the 1 A only product or service Sold directly to the consumers 1 B only Misunderstanding with a Someone who buys a product, 0 customer – example is such as an alarm irrelevant 2(b)(i) Refer to Table 2. Calculate the forecast margin of safety for the new 3 service. Marks Rationale Correct calculation of the forecast margin of safety (with or 3 without working, units or %) 2 Correct formula and correct calculation of expected sales 1 Correct formula or correct calculation expected sales 0 No creditable content MOS = Expected Sales - break-even sales ES are (2.5 mn/500) = 5000 MOS = 5000-3000 MOS = 2000 subscriptions (accept 2000) Can also be expressed as a percentage of expected sales 2000 ×100 = 40% 5000 Correct answer – 2000 subscriptions or 40% Common incorrect answers Answer Marks Rationale Calculated the revenue MoS – all the candidate needed to do was divide 3000 × $500 = $1.5 m 2 answer by price correct answer, so one step missed $1 m 0 An incorrect answer with no working $2.5 m Correct calculation of expected sales 1 500 = 5000 5000 0 An incorrect answer with no working 2(a)(ii) Explain one limitation to SA of using break-even analysis. 3 Level Knowledge and Application Marks Explanation of a limitation of using break-even 2b (APP) 3 analysis in context Identification of a limitation of using break-even 1b (KK) 2 analysis 1a (K) Knowledge of break-even analysis 1 0 No creditable content 0 Correct use of an incorrect answer to 1(b)(i) should be fully rewarded (own figure rule – OFR) Context and content is likely to come from: Limitation (KK) Possible context (APP) Based on SA have not started selling this service yet and forecasts/estimates have no experience in this industrial market Assumes a constant Likely to need to discount the price to penetrate price the industrial alarm market Assumes fixed costs As more alarms are fitted SA may need to remain constant as increase the office size etc. output rises As more alarms are fitted less efficient staff to Assumes a constant man the telephones may need to be employed variable cost per unit – diminishing returns Assumes all output is SA may produce a stock of alarms which may sold not all be sold in the first year Assumes the fixed costs SA will have some fixed costs (such as from one product can be management) which are difficult to allocate allocated accurately between the consumer and industrial markets ARA 2(c) Analyse two possible reasons why SA’s objectives have changed over 8 time. Knowledge and Level Marks Analysis (4 marks) Marks Application (4 marks) Shows understanding of Good analysis of TWO (or more) possible TWO (or more) reasons why SA’s possible reasons 4 4 objectives have changed why SA’s objectives over time have changed over time 2 Shows understanding of Good analysis of ONE possible reason ONE possible reason why SA’s objectives 3 why SA’s objectives 3 have changed over time have changed over time Shows knowledge of Limited analysis of why a business objective TWO (or more) might change possible reason why 2 a business’s objectives may change over time 1 1–2 Limited analysis of ONE possible reason why a business’s 1 objectives may change over time One reason analysed in context, max 3+3 Contextual analysis likely to come from: • Unrealistic original objective; one shop to become market leader? • Not specific enough original objective; market leader where? • Legal structure has changed to plc, so shareholders may now be part of the objective • Core business has changed – now in secondary and tertiary sector • Now producing and selling home alarms, not car alarms • Tastes may have changed • New focus on the industrial market. • The priority of objectives may have changed Exemplars: Reason (APP) Possible (AN) Legal structure has As a partnership the owners were less likely to sell changed their stake in the business if their return was not high in the short term. However as a PLC, shareholders are disconnected from the business and may well sell their shares if they do not get reasonable dividends and/or increases in share price (AN). This could lead to a further fall in share price and a loss in confidence of other shareholders (ANAN). Move to industrial It may be unrealistic to become market leader in the market industrial market and pursuing this objective may make penetrating the market more difficult (AN). This could lead to a poor launch and SA not breaking even with 23 000 customers in the first year (ANAN). 2(d) Discuss suitable market research methods that SA could use before 11 deciding whether to launch the new service. Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) Justified evaluation based on the suitability of TWO (or more) market 7 research methods in context Evaluation based on the suitability of TWO (or 6 more) market research methods in context Evaluation based on the suitability of ONE market 5 research method in context Shows understanding of Argument based on TWO TWO (or more) market (or more) market 4 4 research methods in research methods in context context Shows understanding of Argument based on ONE ONE market research 3 market research method 3 method in context in context Shows knowledge of Limited analysis of TWO TWO (or more) market 2 (or more) market 2 research methods research methods Shows knowledge of Limited analysis of ONE ONE market research 1 market research method 1 method No creditable content (0 marks) Primary and secondary can be treated as methods Context/content: Primary • Focus groups linked to their current home or business customers, advantages of focus groups (can cover profile of customers, have a dialogue, ask/respond to questions) • Surveys/questionnaires to business or home customers (advantages: more quantitative data can be analysed, large sample used; disadvantages: cost, customers may not complete, would need a large sample to be accurate of the results) • Interviews to business/home customers (advantages: 1–1 contact, can have a very detailed conversation, qualitative data can come through; disadvantages: cost, expertise to ask the correct questions, compiling the results can take time) • Surveys of the competition – do they provide this service? What is the cost? usefulness: being in line with market trends. Secondary • Reports on the market from marketing specialists • Analysis of crime statistics/reports on the area • Any newspaper articles about crime/local area • Economic/demographic information: unemployment, households, incomes • Advantages of secondary: can be easily available, most available on-line, cheaper • Disadvantages: not as accurate, may be out of date, lack of qualitative data Evaluation is likely to come from a candidate: Judging which market research methods could work best for SA and justifying this in the context for example, surveys to current customers Weighting their response, for example, why one method would be better than another is likely to lead an evaluative response.

Question 3

Luxury Carpets (LC) LC is a large public limited company operating in country B. LC produces and sells a range of luxury carpets and other …

Accepted Answer

2(a)(i) Define the term ‘productivity’ (line 20). 2 Knowledge and Application Marks A correct definition 2 A partially correct definition 1 No creditable content 0 A correct definition should cover both of the following aspects of productivity: • A measure/ratio of the efficiency of inputs (e.g. labour, capital, time etc.) • Of a business/machine/capital/labour/outputs. • Could give formula for calculating labour or machine productivity. A correct formula would cover both aspects. 2(a)(ii) Briefly explain the term ‘public limited company’ (line 1). 3 Rationale Marks Example or some other way of showing good understanding, such as: • Limited liability • Continuity • Separate legal identity C 1 • Corporation tax must be paid (not income tax • Accounts need to be published • Run by a Board of Directors • Dividends may be paid • Legal formalities (i.e. Articles, Memorandum etc.) B Sold on the stock exchange/to general public 1 A Owned by shareholders/sells shares 1 Note: C mark cannot be awarded until both A and B marks have been awarded 2(b)(i) Refer to Table 2. Calculate the value of the growth in revenue earned 4 by LC from the hotel market segment over the last four years. Rationale Marks Correct answer (no $ required) with or without correct working 4 Good attempt at calculation 3 Reasonable attempt at calculation 2 Some attempt at calculation 1 No creditable content 0 (A) Correctly calculate revenue from hotel sector ($20m) – 1 mark (B) Attempt at calculating revenue four years ago – 1 mark (C) OFR correct attempt at calculating 25% of revenue – 1 mark Revenue is currently $50 000 000 hotel 40% so now segment is $20 000 000 It has increased by 25% in 4 years so 4 years ago total revenue was $50 000 000 × 100/125 = $40 000 000, hotels 40% so $16 000 000 Was $16 000 000 now $20 000 000, answer is $4 000 000 2(b)(ii) Explain one way LC could use the information in its income statement. 2 Level Knowledge and Application Marks 2 (APP) Explanation of one way LC could use the 2 information in context 1 Identification of one way LC could use the 1 (K) information 0 No creditable content 0 Note: The income statement already includes calculations of gross profit, operating profit, profit for the year etc. Answers may include: Use Possible context To calculate • Of different market segments (households, profitability (profit hotel, offices, restaurants) margins) • Impact of increase in revenue over last 4 years (increase of 25%) Analyse changes • Between segments • After introduction of new machine To see trends • In segments • In costs of manufacturing the carpets To compare • Over past four years whilst revenue has increased • Between segments • With other carpet manufacturing firms To measure • Revenue increase by 25% performance • Shareholder value • Of different segments To see if objectives • PLC so could link to shareholder objectives have been reached 2(c) Analyse two benefits to LC of increasing worker participation. 8 Knowledge and Level Marks Analysis Marks application Good analysis of two benefits of increasing Shows 4 worker participation in understanding of context 2 worker 3–4 participation in Good analysis of one context benefit of increasing worker 3 participation in context Limited analysis of two benefits of increasing 2 Shows worker participation knowledge of 1 1–2 worker Limited analysis of one participation benefit of increasing worker 1 participation 0 No creditable content Context: • 500 workers – case says they are unhappy about their pay and working conditions • Poor communication and feel directors do not care about them So, benefits: • Improved communication between directors and workers • Could help improve productivity alongside the capital productivity from the machinery • Could help avoid any labour turnover issues • Could help avoid any quality concerns if employees are demotivated and not feeling cared for • May help alleviate concerns with pay if workers can see conditions improving or directors are starting to listen to and respond to worker concerns. 2(d) Discuss the importance of market segmentation to LC. 11 Knowledge and Analysis and Evaluation Application Marks Marks (7 marks) (4 marks) A justified judgement of the importance of market 7 segmentation to LC based on the given arguments A developed judgement of the importance of market 6 segmentation to LC based on the given arguments An evaluative statement/judgement of the importance of market 5 segmentation to LC based on the given arguments Shows understanding of market Argument based on the use of 3–4 3–4 segmentation in market segmentation in context context Shows knowledge of Limited analysis of market 1–2 1–2 market segmentation segmentation No creditable content 0 Contextual analysis likely to come from: Why market segmentation may be important: • matching of customer needs especially given proportions of sales to business markets, need to understand what hotels want that could be different from restaurants/office for example. • Enhanced profits/revenues for business, revenue has increased by 25% over the last four years, likely as LC knows it customers and their needs well • Better opportunities for growth/more customers, each segment will be different so if more hotels opening and so on then LC can ‘tap into this’ and therefore could be reason why revenue has increased. • Target marketing communications so that LC can have the right message for the right segments e.g. in marketing to restaurants or offices. Why market segmentation may not be important: • Segmentation increases costs. LC makes carpets, this will increase the costs such as research and product development for the carpets and business customers will need different sales techniques • Larger inventory has to be maintained by LC to cover the segments • Promotion and distribution costs increase as LC will need different marketing campaigns for the different segments, for example, TV advertising for the showrooms and personal selling for the business markets.

Question 4

Veg Cans (VC) VC is a public limited company which produces canned vegetables. VC is supplied with fresh vegetables by 20 farms. VC process…

Accepted Answer

2(a)(i) Define the term ‘retained earnings’ (line 15). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content A correct definition will include: • An idea that money has been kept by a business • An idea that it is profit Exemplar Rationale Marks The money remaining in the business Both elements 2 after it subtracts its expenses No idea of profit/earnings The money kept by a business 1 element Idea of keeping within the Earnings set aside for a later day 1 business (earnings taut) The profit made by the business An idea of profit 1 The money that the business owner To vague 0 saved 2(a)(ii) Briefly explain the term ‘public limited company’ (line 1) 3 Award one mark for each point of explanation: Knowledge Marks C Example or some other way of showing good 1 understanding e.g. Published accounts, LL, etc. B To the general public/through stock exchange/ 1 A Has shareholders/can sell shares 1 Content A public limited company has shareholders who can purchase shares through the stock exchange. It also has limited liability, continuity and a separate legal identify. Exemplar Rationale Marks Owned by shareholders with limited 3 liability and bought through the stock All points met exchange A PLC is a large company that sells 2 A and B shares to the public. Has shareholders and has limited 2 A and C liability Is owned by the government, has A and C, ignore the 2 shareholders and had limited liability incorrect govt. reference Has shareholders A only 1 Owned by the government Wrong 0 Is a large company Too vague 0 2(b)(i) Calculate VC’s working capital. 2 Rationale Marks Correct answer with or without working 2 Correct use of figures/formula 1 No creditable content 0 Content Current assets – current liabilities $5m – $4m = $1m Common answers Answer Rationale Marks $1m (with or without $) Correct answer 2 $5m – $4m = $1m Correct answer 2 5 – 4 = 1 No need for $ or M 2 $5m – $4m = $6m Correct use but wrong answer 1 Current assets – current liabilities Correct formula 1 $5m + $4m = $6M Incorrect use of figures 0 4/5 × 100 = 0.1 Incorrect formula 0 $4m – $5M = –$1M Incorrect formula 0 2(b)(ii) Explain two ways in which VC could improve its working capital. 4 Level Knowledge and Application Marks 2b (APP + Explanation of two ways to improve working capital in 4 APP) context 2a (APP) Explanation of one way to improve working capital in 3 context 1b (KK) Identification of two ways to improve working capital 1 1a (K) Identification of one way to improve working capital 1 0 No creditable content 0 Content Has to refer specifically to a current asset or a current liability (less than 12 months) Increase current assets: • Increase cash/money – retain more profit, sell fixed assets, sell shares, negotiate discounts, find cheaper suppliers etc. • Increase debtors – only if they are new sales that would not have been cash sales • Increase inventory – again only if this does not have a detrimental effect on cash at the same time Decrease current liabilities: • Replace short term debt (overdraft and creditors for example) with long term debt – will not improve WC if it is paying debt off with cash Possible context (APP) • Reduction of Current liabilities from $4m • Increase in Current assets from $5m • Increase their stock of veg/cans • Decrease their trade receivables (debtors) from customers/food retailers • Increase their trade payables (creditors) from suppliers of veg/cans 2(c) Analyse two methods of selection VC could use when choosing a new manager for 8 the factory. Knowledge and Analysis Level Marks Marks Application (4 marks) (4 marks) Shows understanding of Developed analysis of how VC could use two or 2b 4 two method of selection 4 more methods of in context selection Shows understanding of Developed analysis of 2a how VC could use one 3 one method of selection 3 method of selection in context Shows knowledge of two Limited analysis of two 1b or more methods of 2 or more methods of 2 selection selection Shows knowledge of one Limited analysis of one 1a 1 1 method of selection method of selection 0 No creditable content 0 Content • CV/application forms – look for experience in the industry, advantages and disadvantaged of using CVs. All on paper. Does not bring the candidate to life and show motivation or finance skills • Interviews – ask questions that shows knowledge and how the applicant would deal with situations e.g., employee relations • Tests – e.g., role play could be used as part of the selection process. This would have good advantages for VC – can see who has the best inventory management and finance skills • Trial period (probation) before formalizing any job offer. Advantages and disadvantages of this. ARA Examples of Examples of Examples of possible analysis methods application/context Minimises the number of CV/application Identify relevant experience applicants to be interviewed to forms of inventory management those who identify skills Allows for the selection of Ask questions relating to Interviews managers who can explain employee management problems or situations Work based tests of Can select manager with the best Tests inventory management and demonstrable skills which finance skills reduces mistakes Ensures that the manager isn’t Trial period Trial as factory manager exaggerating the truth and can do his job 2(d) Evaluate the usefulness of the product life cycle to VC when making marketing 11 decisions. Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) A justified evaluation based on a developed argument of one or 7 more uses of the Product Life Cycle in context A developed evaluation based on a developed argument of one or 6 more uses of the Product Life Cycle in context A basic evaluation based on a developed argument of one or 5 more uses of the Product Life Cycle in context Shows knowledge of the Developed argument of two or product life cycle AND 4 more uses of the product life cycle 4 marketing decisions in in context context Shows knowledge of the product life cycle OR Developed argument of one use of 3 3 marketing decisions in the product life cycle in context context Shows knowledge of the Limited analysis of two or more product life cycle AND 2 2 uses of the product life cycle marketing decisions Shows knowledge of the Limited analysis of one use of the product life cycle OR 1 1 product life cycle marketing decisions No creditable content 0 Note: Full marks can be gained from only ONE use of the product life cycle; two DEV’s must still be awarded (pros and cons) 2(d) Content 11 • Can identify the varieties which may require extension strategies (i.e. develop product) • Can identify varieties which should be discontinued (in in decline) • Can identify where promotional spending should be – i.e. on varieties in growth stage • Can help to know which pricing strategies to use • Can help to know which distribution channels to use • Can help to introduce the new frozen veg into the market • Can help to manage a large portfolio of varieties/products An example of how an answer could develop and how it should be annotated. K APP AN ANAN EVAL Could The product lifecycle is identify Which could Which could very important for VC canned then be influence (Basic vegetables reformulated promotional recommendation) in their or rebranded activities Product mature/ to extend and because it means they lifecycle is decline their life spending can manage their the stages phase product lines and from birth/ maximise revenue invention (Developed Which could to death/ Can recommendation) Which may minimise decline manage a result in a the product large however it depends on reduction in range and portfolio of the quality of the product reduce canned information gathered duplication inventory products (Justified costs recommendation)

Question 5

Delivery To You (DTY) DTY is a public limited company in the tertiary sector. DTY delivers packages for businesses in country A. DTY’s main…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘tertiary sector’ (line 1). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content Made up of businesses which sell services to consumers. 1(a)(ii) Briefly explain the term ‘human resource manager’ (line 15). 3 Award one mark for each point of explanation: Knowledge Marks Example or some other way of showing good 1 understanding Explanation of manager/management 1 Explanation of human resource 1 Content Human resources are the workers/labour used within a business Management requires the planning, co-ordination, organisation, motivation etc. of these human resources 1(b)(i) Calculate the retained earnings for DTY in 2017. 2 Rationale Marks Correct answer with or without working 2 Correct use of figures/formula 1 No creditable content 0 Content 80% of profit for the year $15m – $10m = $5m (profit for the year) $5m × 80% = $4m 1(b)(ii) Explain two possible effects of DTY’s Board of Directors’ decision to 4 have a high level of retained earnings. Level Knowledge and Application Marks 2b (APP Explanation of two effects of a high level of 4 +APP) retained profit in context 2a Explanation of one effect of a high level of retained 3 (APP) profit in context Explanation of two effects of a high level of 1b (KK) 2 retained profit Explanation of one effect of a high level of retained 1a (K) 1 profit 0 No creditable content 0 Content • Shareholders may sell their shares (DTY is a PLC) reducing the share price and leading to a potential takeover of DTY • Poor image for DTY – may be seen as a sigh of weakness in the market • Shareholders may expect a bigger dividend in the future • Can afford to expand the business – retained profits will be a source of finance • DTY might avoid taking expensive external finance • Will reduce the gearing of DTY • Can be used to improve cash flow/working capital 1(c) Analyse two methods of recruitment that DTY could use for the new 8 delivery drivers. Knowledge and Level Marks Analysis (4 marks) Marks Application (4 marks) Shows understanding Good analysis of two of how DTY could use 2b 4 method of recruitment 4 two or more methods in context of recruitment Shows understanding Good analysis of one of how DTY could use 2a 3 method of recruitment 3 one method of in context recruitment Shows knowledge of Limited analysis of 1b two or more methods 2 two or more methods 2 of recruitment of recruitment Shows knowledge of Limited analysis of 1a one method of 1 one method of 1 recruitment recruitment 0 No creditable content 0 Content • Internal recruitment – unlikely to be possible because of expansion • Job advertisements – obvious places such as newspaper. Qualifications are not specialist so could be in mass media • Job centres • Specialist online job websites • Recruitment agency • Personal recommendations • Social media recruitment • Recruitment from schools • Direct recruitment – poster in window, advert on vans etc. ARA 1(d)(ii) Discuss methods of market research that DTY could use to help the directors decide which country to expand into. Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) A justified judgement of the methods of market research 7 DTY could use to decide on locations for expansion A recommendation of the methods of market research 6 DTY could use to decide on locations for expansion A balanced argument (two- sided) that evaluates methods 5 of market research in context Argument (one-sided) based on two methods of market 4 Shows understanding of research in context methods of market 3–4 research in context Argument (one-sided) based on one method of market 3 research in context Limited analysis of two 2 methods of market research Shows knowledge of 1–2 market research Limited analysis of one method 1 of market research No creditable content 0 Content Primary: • Surveys • Focus Groups • Interviews • Observation • Field Trials/Testing Secondary: • Internal source – accounts, sales figures, inventory figures etc. • External sources – competitors, government, census data, internet ARA

Question 6

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. …

Accepted Answer

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

Question 7

kilometres of the FF premises. Most customers receive their order within 24 hours of placing it, apart from during busy times of the year. …

Question 8

Hannah’s Handbags (HH) Hannah started HH six years ago. HH operates in a niche market providing unique bags. The bags are made using job pr…

Accepted Answer

2(a)(i) Define the term ‘income statement’ (line 8). 2 Knowledge and Application Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 A financial statement that reports the revenue, cost of sales, gross profit, operating profit etc. For full marks there should be some reference to revenue, cost of sales and profit. 2(a)(ii) Explain the term ‘viral marketing’ (line 20). 3 Knowledge and Application Marks Good explanation 2–3 Partial explanation/understanding 1 No creditable content 0 Promoting a product using social networks. The name refers to how consumers spread information about a product to other people in their social networks. The basis of viral marketing is in the spread of information by word-of-mouth, nowadays mostly using internet-based applications such as email, social networking sites, web forums etc. Relatively low cost. 2(b)(i) Refer to table 2.1. Calculate the gross profit margin. 3 Correct answer. (3 marks) Right method but mistakes. (2 marks) Attempt (e.g. formula or identifies data). (1 mark) Answer = 392 000 / 980 000 X 100 = 40% 392 000/980 000 = 0.4 (2) 980 000 – 588 000 = 392 000 (1) Revenue – cost of sales / revenue × 100 (1) 2(b)(ii) Explain one reason why HH needs accurate cost data. 3 Level Knowledge and Application Marks APAP Explains a benefit of accurate cost data to HH 3 AP Identifies a benefit of accurate cost data to HH 2 K Identifies a benefit of accurate cost data 1 0 No creditable content 0 Context and content is likely to come from: • Set a price that provides a profit • Set objectives • Effective management of the business Context may include: • Provide partners with financial information • Expensive product so need an accurate budget • Inform expansion of the business / set up website • Inform finance / budget for viral marketing campaign • Ensure business can pay suppliers for expensive materials • Ensure business can pay wages of production workers • High (40%) gross profit margin 2(c) Analyse one advantage and one disadvantage to HH of using job production. 8 Knowledge and Analysis Level Marks Marks Application (4 marks) (4 marks) Shows understanding of Developed analysis of one one advantage and one advantage and one 4 4 disadvantage of using disadvantage of using job job production in context production in context 2 Shows understanding of Developed analysis of one one advantage or one advantage and one 3 3 disadvantage of using disadvantage of using job job production in context production Shows knowledge of one Limited analysis of one advantage and one advantage and one 2 2 disadvantage of using disadvantage of using job job production production 1 Shows knowledge of one Limited analysis of one advantage or one advantage or one 1 1 disadvantage of using disadvantage of using job job production production No creditable content 0 Contextual advantages likely to come from: • Luxury nature of the handbags • Custom made designs – unique and made to customer specifications • Flexible and possible to make changes during production if customer requires • Hannah and Kwom can easily supervise and inspect the work • Employee satisfaction – only 4 employees who can work as a team • High gross profit margin of 40% • The impact on HH reputation and brand as able to produce high quality products • Success of the method in encouraging HH to expand Contextual disadvantages likely to come from: • High unit costs compared to other production methods which might not be suitable for the new online range of bags • Need highly skilled labour especially as a premium / high quality product • Can take a long time to produce – 6 weeks, batch or flow would be quicker and more suitable for the new range 2(d) Evaluate the likely success of the marketing mix for the new product. 11 Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) Justified judgement of the 7 marketing mix in context Developed evaluation of the 6 marketing mix in context Evaluation of the marketing 5 mix in context Shows understanding of Developed analysis of more more than one element of than one element of the 4 4 the marketing mix in marketing mix in context context Shows understanding of Developed analysis of one one element of the 3 element of the marketing mix 3 marketing mix in context in context Shows understanding of Limited analysis of more than more than one element of 2 one element of the marketing 2 the marketing mix mix Shows understanding of Limited analysis of one one element of the 1 element of the marketing mix 1 marketing mix No creditable content 0 Context/content: • Applies elements of the 4Ps • Price - likely to be lower than current range as targeting a potentially larger online market and not custom made. Launch of a new product so possibly penetration pricing. • Product - which designs to choose? Will materials be of same quality as custom made? Flow or batch production more suitable for new range so staff training in new processes required. Likely to need new premises as a building in the garden is not likely to be suitable for mass production. • Promotion - via a viral marketing campaign, likely to be expensive as business intends to use a marketing agency. How effective and what budget? • Place - online distribution but what about selling to shops as well? It could be another way of promoting as well as distributing.

Question 9

Energy Solutions (ES) ES is a public limited company in country X. The business was set up in 1980. For 25 years most of ES’s revenue came …

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘revenue’ (line 2). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content A correct definition should include the following elements (allow one mark for each element): • Revenue is the money received (by a business) • for selling its products and services. Alternatively, a candidate can gain BOTH marks for a correct formula: • Price × quantity sold (2) Exemplar Mark Rationale Revenue is the money a firm gets 2 Both elements from sales Price × Quantity 2 Valid formula The income of a firm 1 First element only Revenue is the profit of a firm 0 Incorrect 1(a)(ii) Explain the term ‘unit costs’ (line 6). 3 Award one mark for each point of explanation: Rationale Marks C Example or some other way of showing good 1 understanding – only if both A and B marks have been gained B An understanding of unit – must be an idea of a 1 single product/good A An understanding of costs – must be an idea that a 1 cost is something paid by a business or incurred from production 1(a)(ii) Content Exemplar Marks Rationale The amount that a business must pay 3 All three marks out (A) to produce a single item (B). For example, this may be what ES has to pay out to produce a single unit of energy. How much a business pays (A) to 2 Both A and B marks make a single produce (B). Total costs/output. 2 Both A and B marks Costs are incurred by a business by 1 A mark only production. The total costs, which include fixed 1 Clear understanding of and variable costs of products divided a single unit, but no by the number of products (B). explanation of what a cost is. What it costs for a unit (B). 1 ‘…a unit’ is enough for the B mark. The cost of one (B) unit of a good. An 1 A clear idea of a single example would be the cost of one can unit. However, of cola. example mark cannot be given without A and B marks awarded. The cost of units. 0 Neither unit or cost is explained. 1(b)(i) Refer to Table 1.1. Calculate the difference in dollars received by each 3 director and each manager from the profit-sharing scheme. Rationale Marks Correct answer with or without correct working or $ 3 Correct calculation of Directors share and Managers share 2 Correct calculation of Directors share or Managers share 1 No creditable content 0 Content • Directors share of the profit = 0.25% = 0.25% of $12 m = $30 000 ($0.03 m) • Managers share of the profit = 0.1% = 0.1% of $12 m = $12 000 ($0.012 m) • $30 000 – $12 000 = $18 000 Answer = $18 000 ($0.018 m) OFR – award for the answer if there is clear working shown for the two earlier numbers (even if both of these numbers are wrong) Common answers Answer Mark Rationale 18 000 3 Correct answer – does not need $ $12 m 1 Candidate has inverted the profit- 0.25 = $48 m sharing formula for both Directors and Managers, which are not creditable. $12 m However, the candidate then 0.1 = $120 m completes the last stage correctly and based on their own figure (OFR) $48 m + $120 m = should be awarded one mark. $168 m *OFR means the use of the own figure rule – this aims to reward a candidate for the stages of a calculation that are correct, even if an earlier stage or figure used is incorrect. An early mistake, for example, would create all following calculations to have wrong answers, but these are still rewardable (if correct when using a candidate’s own figures) Therefore the candidate cannot gain marks for the stage that was incorrect, but can gain all the subsequent marks. 1(b)(ii) Explain one disadvantage to ES of using a profit-sharing scheme. 3 Level Knowledge and Application Marks 2b (APP) Explanation of one disadvantage to ES of a profit- 3 sharing scheme in context 2a (K+K) Explanation of one disadvantage to a business of 2 a profit-sharing scheme 1a (K) Identification of one disadvantage to a business of 1 a profit-sharing scheme 0 No creditable content 0 Content • ES might not have enough retained profit to invest in the new licenses for fracking. • ES shareholders might sell their shares because of low dividends leading to the company being taken over. • Increases the costs of the business and therefore could make ES less competitive (many competitors in the market). • May cause employer/employee issues because of the different shares gained (use of previous answers – OFR). Example of how responses should be marked Identification of a Explanation Possible context disadvantage The owners get less Which may lead to Because ES is a public profit them selling their limited company shares There is less retained Which may lead to Which might stop their profit for ES lower growth for ES expansion into future fracking sites 1(c) Analyse one internal source of finance and one external source of 8 finance that ES could use to purchase a fracking license. Level Knowledge and Marks Analysis Marks Application (4 marks) (4 marks) 2b Shows understanding 4 Good analysis of one 4 of one internal and one internal and one external source of external source of finance in context finance in context 2a Shows understanding 3 Good analysis of one 3 of one internal or one internal or one external source of external source of finance in context finance in context 1b Shows knowledge of 2 Limited analysis of 2 one internal and one one internal and one external source of external source of finance finance 1a Shows knowledge of 1 Limited analysis of 1 one internal or one one internal or one external source of external source of finance finance 0 No creditable content 0 Content Internal • Retained earnings – ES made $12m profit in 2018, so likely to have some retained earnings to use as a source of finance • Sale of assets – ES owns some old coalmines – could these be sold to raise finance for the licenses. External • Selling shares – plc so able to raise funds in this way – profitable and may be able to sell on the basis of publicity that profits will increase • Government grants – government of country X is very supportive of fracking, so may be willing to give a grant to ES • Bank loans – profitable business, promising future returns Allow a rights issue (to current shareholders) as an internal source of finance. However, simply selling shares (with no explicit reference to selling to current shareholders) is an external source of finance. 1(c) Example of an Examples of Examples of possible internal source of application/context analysis (AN + DEV) finance (K) (APP) Retained profit (K) ES had $12m retained Does not need to be profit in 2019 (APP) repaid (AN) but there is an opportunity cost (DEV) Example of an Examples of Examples of possible external source of application/context analysis (AN + DEV) finance (K) (APP) Sell shares (K) ES is a Public Limited So, by selling shares Company (APP) this can release cash to finance the purchase of the fracking license (AN), however, this may lead to a loss of control by the current owners (DEV) 1(d) Evaluate how two external stakeholders of ES might be affected by the 11 company continuing to use the fracking process. Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified evaluation based 7 on arguments in context Developed evaluation 6 based on arguments in context An evaluative statement 5 based on arguments in context Shows understanding of 4 Arguments based on the 4 two external stakeholders effect on two external in context stakeholders in context Shows understanding of 3 Arguments based on the 3 one external stakeholder effect on one external in context stakeholder in context 2 Limited analysis of the 2 Shows knowledge of two effect on two external external stakeholders stakeholders 1 Limited analysis of the 1 Shows knowledge of one effect on one external external stakeholder stakeholder No creditable content 0 1(d) Content • Local community/society – devaluation of houses, earthquakes, pollution • Activists/environmentalists/pressure groups – damage to the natural environment, pollution etc. • Potential investors – attracted to future profit but could be put off by bad publicity (not current shareholders) • Potential employees – Growth in jobs • Customers – cheaper energy, cost of living • Suppliers – increased demand because of ES growing • Lenders – risk of bad publicity or government changing mind at a later date • Government – increase energy self-sufficiency, increased tax revenue, economic growth • Competitors – May lead them to having to purchase a fracking license and increasing costs to compete Analysis should be focussed on the effect on each stakeholder (not the business). Evaluation is most likely to be demonstrated by: • The relative level of effect on each stakeholder • Which stakeholder is likely to be most affected • Whether the effect on each stakeholder is likely to be all bad or all good • How external stakeholder’s effects might be mitigated 1(d) Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Government Gain money Allows the Which may The local (K). from selling government increase community the licenses to invest in the welfare are likely to (APP). infrastructure of the be most (AN). citizens of affected country X (EVAL) (DEV). because they also have to suffer from earthquakes whereas the Local Who live This means Which government community near a their houses might will get the (K). fracking site are worth less mean they money from may see a (AN) get less the licenses reduction in money if no matter the price of they sell what their home their home (EVAL). (APP). (DEV). However, this depends on whether the people keep voting for the government (EVAL). 1(d) K APP AN DEV EVAL Customers May get Which And have The (K). cheaper means the more money customers energy customers to spend on are likely to through ES have to pay household only benefit growing less for their goods from ES (APP). energy (AN). (DEV). continuing to use the Competitors May find Which And may fracking (K) more increases reduce their process competition their costs profit (DEV). (EVAL) for fracking (AN). because licenses increased (APP). competition may lead to even lower prices (EVAL). However, this depends on whether ES and their competitors reduce their prices (EVAL).

Question 10

Belted Up (BU) Belted Up (BU) is a manufacturer of hand-made leather belts for clothing. The business makes a range of sizes and colours of…

Accepted Answer

2(a)(i) Define the term ‘liquidity’ (line 15). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 The ability (cash) for a business to pay its short-term debts / the ease with which assets can be turned into cash (or are cash) to use immediately. A correct definition should include the following elements: • Assets that can be turned into cash • To use immediately if needed or to pay short-term debts Exemplar Rationale Marks Liquidity means current Both elements 2 assets that can be quickly sold for cash The ability to sell assets for No mention of immediacy 1 cash Liquidity means an asset that Tautology 0 is liquid ARA 2(a)(ii) Explain the term ‘internal growth’ (line 13). 3 Award one mark for each point of explanation: Rationale Marks C Example or some other way of showing good 1 understanding B Understanding of the concept of internal 1 A Knowledge of growth 1 When a business increases in size, by reinvesting money to increase output, for example using retained profit to buy new assets. Often referred to as organic or natural growth. Could come from developing new products, increasing efficiency, successful marketing, diversification, process change etc. Exemplar Rationale Marks When a business increases A+B+C 3 in size (A) using its own resources (B) generated from increased efficiency (C) When a business expands A and B 2 (A) by reinvesting profits (B) Opening new branches (A + Expansion and internal both B) implied When a business expands A point only 1 (A) When a business grows Tautology 0 internally ARA 2(b)(i) Refer to Table 2.1 and any other relevant information. Calculate the 2 total revenue from selling the Classic belt in 2020. Rationale Marks Correct answer with or without correct working or $ 2 Formula or correct calculation of the revenue for one belt 1 No creditable content 0 Output = 265 000 Price = $11 Formula: Output × price = revenue (1) or 10 000 + 60 000 + 40 000 + 15 000 + 80 000 + 60 000 = 265 000 belts (1) 265 000 × $11 = $2 915 000 ($2.915m) Total revenue = $2.915m (2) 2915 (1) (without $ and million) 2(b)(ii) Explain one advantage and one disadvantage to BU of selling a range 4 of sizes and colours of the Classic belt. Level Knowledge and Application Marks 2b Explanation of one advantage and one 4 (APP+A disadvantage to BU of selling a range of sizes PP) and colours for the classic belt. 2a (APP) Explanation of one advantage or one 3 disadvantage to BU of selling a range of sizes and colours for the classic belt. 1b (K+K) Identification of one advantage and one 2 disadvantage of selling a range of products 1a (K) Identification of one advantage or one 1 disadvantage of selling a range of products 0 No creditable content 0 Advantages may include: • To increase sales revenue – each size and colour has a relatively large number of sales • To suit/attract a larger number of market segments • To target a mass market Disadvantages may include: • High levels of inventory • Increased training for workers • Different levels of demand Context could include: • Reference to data in table 2.1 • Batch production • Non-perishable product ARA 2(c) Analyse two disadvantages to BU of the proposed process innovation. 8 Knowledge and Level Application Marks Analysis (4 marks) Marks (4 marks) 2b Shows 4 Good analysis of 4 understanding of two disadvantages two elements of of process process innovation innovation in in context context 2a Shows 3 Good analysis of 3 understanding of one disadvantage of one element of process innovation process innovation in context in context 1b Shows knowledge 2 Limited analysis of 2 of two elements of two disadvantages process innovation of process innovation 1a Shows knowledge 1 Limited analysis of 1 of one element of one disadvantage of process innovation process innovation 0 No creditable content Knowledge may include: • Putting a new approach into action • About adding value • Improving/developing existing goods, services or processes • Need to understand customer needs • Developing imaginative solutions • Can be expensive Analysis may include: • May require retraining of the 70 workers in the factory – additional costs for BU • Will require the purchase of machinery for mass production – does BU have the finance available? • May lose their reputation of being hand-made • Could lead to redundancy of the 70 factory workers • No guarantee that the new belt will be successful, so the investment in the new process may be wasted ARA 2(d) Evaluate the usefulness of Mintzberg’s roles of management for BU 11 when recruiting a new factory manager. Analysis and Knowledge and Marks Evaluation Marks Application (4 marks) (7 marks) Justified evaluation 7 based on argument in context Developed evaluation 6 based on argument in context An evaluative statement 5 based on argument in context Shows understanding of 3–4 Argument based on the 3–4 Mintzberg’s management usefulness of roles in context Mintzberg’s management roles in context Shows knowledge of 1–2 Limited analysis of the 1–2 Mintzberg’s management use of Mintzberg’s roles management roles No creditable content Knowledge may include: Interpersonal roles • Figurehead • Leader • Liaison Informational roles • Monitor • Disseminator • Spokesperson Decisional roles • Entrepreneur • Disturbance Handler • Resource Allocator • Negotiator 2(d) Application and Analysis may include Mintzberg’s roles are useful because: • Figurehead – Factory manager must inspire the 70 workers and 8 supervisors • Leader – Factory manager must lead the 70 workers and 8 supervisors • Liaison – To meet regularly with the worker representatives • Monitor – New process for the mass-produced belts and the inventory in the warehouse • Disseminator – 70 workers and supervisors – need to get information to them quickly and efficiently, especially with the new process • Spokesperson – May need to represent the company to other stakeholders • Entrepreneur – may need to innovate the processes of production further • Disturbance Handler – New process may lead to conflict with the 70 workers, 8 supervisors and worker representatives. • Resource Allocator – Inventory management of the warehouse • Negotiator – May need to negotiate with customers (businesses) as well as the workforce Evaluation may include: • Manager has authority and status so interpersonal skills necessary to earn respect • Managers have to communicate to various stakeholders so important to have informational ability • Managers have to make decisions, adapt to situations, allocate resources • Managers ensure operations run efficiently BU can use this in recruitment, job description and interviews to ensure it employs someone who will have the correct impact on the business ARA

Question 11

Snappy Box (SB) SB is owned by Ralph who is a sole trader. The business prints photographs. Ralph has one shop on the main street of city D…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘fixed cost’ (line 19). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Indicative content AO1 Knowledge and understanding A cost that does not change – as output changes. Exemplar Marks Rationale Does not vary when the business 2 Both elements produces more covered It stays the same no matter how much 2 Both elements is produced covered Fixed costs do not change over time 1 One element – the point about fixed costs is that they do not change as output changes, not time They do not vary 1 One element Not linked to sales 1 One element – no idea of not changing but has the link to output Costs which are fixed 0 Do not reward ‘fixed’ as it is a tautology 1(a)(ii) Explain the term ‘profit margin’ (line 11). 3 Award one mark for each point of explanation: Rationale Marks C Application of a profit margin to a business through 1 an example or some other way of showing good understanding – i.e. a use of profit margins, or two different profit margins – gross, net, operating, etc. B Understanding of the concept of a profit margin (in 1 terms of a percentage or proportion) – assume knowledge of profit. A Understanding of profit. 1 Indicative content AO1 Knowledge and understanding • Profit – the difference between total revenue and total cost. • Profit margin – a profit margin is the difference between the revenue and costs / revenue minus costs expressed as a proportion of revenue / divided by revenue. A correct profit margin formula should be awarded the A and B marks. If the candidate gains the B mark, then it is assumed that they will also gain the A mark. AO2 Application Application of a profit margin, such as: • A use of a profit margin, e.g. used to determine/compare performance. • The comparison of two different profit margins. • A potential user of a profit margin, e.g. used by shareholders to see if they should invest, used by managers to make business decisions, etc. 1(a)(ii) Exemplar Mark Rationale Net profit/revenue x 100. It can be 3 A, B and C. If there used to compare business is knowledge of a performance profit margin, then assume the A mark It is the proportion of revenue that is 3 A, B and C profit. A 15% profit margin means that for every $1 of revenue, the business makes $0.15 profit Gross profit 2 A formula gains the (× 100) A and B marks. Revenue Could be expressed as a ratio, not percentage The proportion of revenue that is profit 2 Although there is not an explicit understanding of profit, if a candidate gains the B mark, then they also gain the A mark It is the difference between costs and 1 Understanding of revenue profit, but not the margin It is how much profit a business 0 No understanding of makes profit or the margin ARA 1(b)(i) Use Ralph’s estimate of the price elasticity of demand (line 10) to 3 calculate the percentage change in demand for printed photographs if the price is reduced by 10%. Rationale Marks Correct answer with or without correct working or % 3 Attempt made with correct use of figures 2 Formula 1 No creditable content 0 The formula can be assumed through an attempt using correct figures. Content % change in demand PED = OR % change in demand = PED × % change % change in price in price (1 mark) % change in demand –4 = OR % change in demand = –4 × –10% −10% (2 marks) –4 × –10% = (+) 40% (3 marks) OFR if an error is made earlier in the process. Common incorrect answers 1(b)(i) Answer Mark Rationale 40 (no working) 3 A correct answer. % sign is not required –10% × 4 2 The answer should not be negative, Change in demand = but this arises from only one error in –40% the use of figures. First mark for implied use of the formula. An error in the use of figures (4 instead of –4) and an OFR mark for the incorrect answer –40% (no working) 0 This is a wrong answer and with no working it cannot be rewarded −10% 2 A common mistake. The candidate = –4 has inverted the formula. There is an Demand attempt made with the correct figures, so 2 marks Change in demand = 2.5% 2.5% (no working) 0 If the candidate gives a wrong answer with no working to back it up, then award no marks $100 000 (no 0 An incorrect answer with no working working) to show how it was obtained OFR 1(b)(ii) Explain one way in which Ralph could use price elasticity of demand 3 when making pricing decisions. Level Knowledge and Application Marks 2b Explanation of one use of PED when making 3 (APP+AP pricing decisions in context P) 2a (APP) Identification of one use of PED when making 2 pricing decisions in context 1a (K) Identification of one use of PED 1 0 No creditable content 0 Do not reward knowledge of PED as it has been rewarded in the previous question. This question is about a use of PED. Also do not reward making pricing decisions, as this is in the question – there must be more (i.e. reducing price). Indicative content AO1 Knowledge and understanding Ways of using price elasticity of demand may include: • To know whether to increase or decrease the price to gain higher revenue. • To know whether to offer price discounts/promotions to gain more sales. • To understand if a business could survive/be profitable – could link to the break-even point. • To decide a pricing strategy. AO2 Application • Elasticity of -4 – an elastic response to price. • If Ralph decreases the price of photography printing by 10%, he may gain an increase in sales of 40% (OFR) – which means he makes more money/profit. • If Ralph increases the price by 10%, sales may fall by 40% (OFR) – which means he makes less money/profit. • Customers come into the SB shop – which means his estimate is likely to be more accurate. • Ralph’s main competition is online – which can change often, making his estimate less useful. Application (APP) is likely to come from the context, with developed application (APP+APP) from further use of that context. 1(b)(ii) Example of how responses should be marked. Identification of a Application Developed way (APP – 2 marks) application (K – 1 mark) (APP+APP – 3 marks) To see if he should In this case it has an which shows an elastic increase or decrease elasticity of -4 response the price To estimate the effect For a 10% fall, QD will which will make Ralph of a price drop change by 40% more money ARA 1(c) Analyse one advantage and one disadvantage to Ralph of introducing 8 job production. Level Knowledge and Marks Analysis (4 marks) Marks Application (4 marks) 2b Applies context to 4 Good analysis of 4 understanding of one advantage and one advantage and one disadvantage one disadvantage of introducing job of job production production in context 2a Applies context to 3 Good analysis of 3 understanding of one advantage or one advantage or one disadvantage one disadvantage of introducing job of job production production in context 1b Shows knowledge 2 Limited analysis of 2 of one advantage one advantage and and one one disadvantage disadvantage of job of introducing job production production 1a Shows knowledge 1 Limited analysis of 1 of one advantage one advantage or or one one disadvantage disadvantage of job of introducing job production production 0 No creditable content Annotate marks for the advantage in the left-hand margin and marks for the disadvantage in the right-hand margin. Indicative content AO1 Knowledge and understanding Knowledge of advantages may include: • high-quality • meets customer’s specific needs • greater job satisfaction • makes a unique product Knowledge of disadvantages may include: • high unit cost of production • labour/time intensive process • may require new equipment/training • may require job redesign 1(c) AO2 Application • SB currently uses batch production but based on individual customer photographs. • SB currently has a low-profit margin. • Idea to introduce framed individual photographs made by job production. • Frames can be made for any sized photograph or picture. • Variety of customer chosen materials. • Requires specialised equipment. • Equipment would cost $10 000. • Industry is more competitive (online competitors). • Reference to PED (OFR to Qbi). • Current process is capital intensive. AO3 Analysis Advantages may include: • high quality: may be particularly important in framing and to compete against lower priced competitors • meets customer’s specific needs: important because each frame will be different, and Ralph will be framing many sizes of photograph/picture • greater job satisfaction: Ralph is a sole trader and may desire a more challenging job • makes a unique product: may provide Ralph with a USP over other online competitors Disadvantages may include: • high unit cost of production: may make Ralph’s frames too expensive to compete with the flow-produced frames – may require Ralph to enter into a lease agreement • labour/time intensive process: may take a great deal of Ralph’s time (AN) – will he be able to produce at a rate that will be profitable? (DEV) • may require new equipment/training: requires the purchase/lease of new equipment • may require job redesign: may require Ralph to sell his photograph printing equipment – loss of current revenue 1(c) Examples of how an answer could develop and how it should be annotated. K APP AN DEV An advantage photo frames to This means that which could lead may be that fit any sized he can have a to more profit Ralph could photo (APP) higher profit and income for make unique (K) margin (AN) Ralph (DEV) A disadvantage because each This means that and he might will be the high frame will be Ralph will need lose customers, cost of tailor-made to charge a high decreasing his producing each using the price (AN) sales revenue frame (K) customer (DEV) chosen materials (APP) ARA 1(d) Recommend whether Ralph should use leasing or should sell his 11 photograph printing machine as a source of finance for the equipment to make frames. Justify your recommendation. Knowledge and Marks Analysis and Marks Application (4 marks) Evaluation (7 marks) Justified 7 recommendation based on argument in context Developed 6 recommendation based on argument in context An evaluative statement/ 5 recommendation based on argument in context Applies context to 4 Argument based on the 4 understanding of leasing use of leasing in context and applies context to and argument based on understanding of sale of sale of assets in context assets Applies context to 3 Argument based on the 3 understanding of leasing use of leasing in context or applies context to or argument based on understanding of sale of sale of assets in context assets Shows knowledge of 2 Limited analysis of 2 leasing and knowledge leasing and limited of sale of assets as a analysis of sale of assets source of finance Shows knowledge of 1 Limited analysis of 1 leasing or knowledge of leasing or limited sale of assets as a analysis of sale of assets source of finance No creditable content Annotate marks for the leasing in the left-hand margin and marks for the sale of assets in the right-hand margin. 1(d) Indicative content AO1 Knowledge and understanding Knowledge of the two required sources of finance, including: • Leasing is a way of financing the acquisition of assets without actually having to buy it. Leasing involves a finance company purchasing the asset for the business and the business pays a regular (monthly/yearly) fee for use of the asset. Leasing is similar to renting and usually the asset is not ever owned by the business. An external source of finance. • Sale of assets is when a business sells off its assets and the cash generated is used as a source of finance for the business. An internal source of finance. AO2 Application Application of leasing may include: • specialised equipment to frame individual photographs – may require maintenance which will be covered in a lease agreement • Ralph may still be able to continue printing photographs • five-year lease • $400 per month • $400 × 12 months = $4800 per year • $4800 × 5 years = $24 000 in total Application of sale of assets may include: • Sell photograph printing machine for at least $10 000 – based on an estimate of what he can sell it for. • Ralph will be unable to continue his current business of printing photographs. • Ralph would have full ownership of the specialised equipment, with no additional costs of ownership. • Ralph may need to pay for maintenance/breakdown of machine – whole business will be based on this. AO3 Analysis Analysis of leasing may include: • No upfront cost – but a monthly cost of $400 – may be particularly useful while Ralph is building up the business. • Fixed cost for five years – but it would work out significantly more expensive than outright purchase – $400 × 60 months = $24 000, compared to $10 000. • Maintenance and breakdown would be covered for the five-year term of the lease – reduces uncertainty for Ralph. • Ralph would be able to upgrade after five years – to better equipment which may allow him to increase his profit margin. 1(d) Analysis of sale of asset may include: • Cheaper ($10 000) than leasing ($24 000) – increases the overall profit of the business. • No longer able to provide photography printing – loss of current sales – far riskier. • Ralph would be responsible for maintenance and breakdown costs – may lead to unexpected costs and have an impact on profit. • Ralph may be unable to find a buyer for his photography printing machine, especially since the market has moved online – may mean this is an unsuitable source of finance. AO4 Evaluation • A recommendation about whether Ralph should choose leasing or sell his photography machine as a source of finance for the equipment to make the frames. • A judgement over the relative suitability of the chosen sources of finance. • Elements that the recommendation/judgement could depend upon, including the selling price of the photograph printing machine, the terms of the lease, the forecast demand for the frames, the forecast demand for printed photographs, the competition in the framing market, etc. • Weighing up of the impacts on Ralph of the recommended source(s) of finance. Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Leasing In this case That is a Because it Ralph should involves Ralph greater would be choose to sell his paying a would pay cost to $14 000 printing machine monthly fee $400 per Ralph than more, (EVAL) because (K) month for purchasing reducing the level of five years outright Ralph’s competition in his (APP) (AN) profit current market is (DEV) already increasing. There Selling the Which This is a However, it may be no photograph means much is $14 000 market for his printing Ralph can’t bigger risk cheaper so printing machine machine continue for Ralph he is able if he waits would his current than to make a (EVAL). It really mean he printing leasing bigger depends on how no longer business (AN) profit confident Ralph has it (K) (APP) (DEV) is about the likely success of the new business venture (EVAL) ARA

Question 12

Cartoon Costumes (CC) Ava is an entrepreneur. After leaving school she set up CC as a private limited company and she owns 100% of the shar…

Accepted Answer

2(a)(i) Define the term ‘inventory’ (line 7). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 A correct definition should include the following elements: • Stock/raw materials/work in progress/finished goods/current asset • An idea of the function, e.g. to be able to produce, to be able to meet customer demand etc. Exemplar Rationale Marks The raw materials needed to Both elements 2 produce a product. The store of finished products Both elements 2 used to sell to customers Inventory is another word for One element 1 stock Inventory is stock and can be One element repeated 1 made up of raw materials, work in progress or finished products Inventory is used to grow the No elements and copied from 0 business data 2(a)(ii) Explain the term ‘entrepreneur’ (line 1). 3 Award one mark for each point of explanation: Rationale Marks Three characteristics of an entrepreneur 1 Two characteristics of an entrepreneur 1 One characteristic of an entrepreneur 1 Content Allow any reasonable characteristic of an entrepreneur, for example: • risk taking • innovative • multi-skilled • leader • resilience/able to bounce back • sets up a business • passion • self-confidence • ambition • hardworking • persuasive • aiming for profit (do not allow ‘get rich – too vague) • makes decisions • one of the factors of production (entrepreneurship) • organises the factors of production • organises/raises/provides finance • an example of an entrepreneur (do not allow Ava) Only reward each characteristic once. ARA 2(a)(ii) Answer Rationale Marks An entrepreneur is a risk- Three characteristics 3 taker (1) who tries to make a profit (1) by organising the factors of production (1). Someone who makes Three characteristics 3 decisions (1) about factors of production (1) to make a profit (1). An entrepreneur works hard Two characteristics 2 (1) and has confidence (1). Someone who organises the Only one mark for ‘organising’ 1 land that a business needs the factors of production – do (1). They also organise the not keep rewarding the same number of workers a business characteristics needs and they also organise the capital that a business may need. Entrepreneurship is one of the NAQ 0 factors of production. 2(b)(i) Refer to Table 2.1. Calculate the change in CC’s working capital 3 between 2021 and 2022. Rationale Marks Correct answer with or without correct working or $. 3 Correct calculation of both working capital figures (2021 and 2 2022). Formula or correct calculation of one working capital figure 1 (2021 or 2022). No creditable content. 0 Note: OFR only applies for a mathematical error – candidate must have attempted to calculate working capital to award OFR 2(b)(i) Content Current assets – current liabilities 2021: 50 – 45 = 5 (1) 2022: 60 – 40 = 20 (1) Increase of $15 000 (1) Answer = $15 000 (3) allow 15. Also allow 300% as a correct answer. Common incorrect answers Answer Rationale Marks 300% (no working) Correct answer based on the 3 % 15 (no working) Correct answer 3 20 Do not allow ‘random’ use of 0 5 (no working) these numbers – there must be working to show they were calculated. 2(b)(ii) Explain the distinction between revenue expenditure and capital 3 expenditure for CC. Level Knowledge and Application Marks 2 Explanation of revenue expenditure and capital 3 (APP) expenditure in context 1b Knowledge of capital and revenue expenditure. 2 (K+K) 1a Knowledge of capital or revenue expenditure. 1 (K) 0 No creditable content 0 Note: context is only required once to award APP but must be based on K of both capital and revenue expenditure. Content Capital expenditure is spending on non-current assets like property, plant and equipment. Revenue expenditure is spending on short-term expenses used in the current period or typically within one year. Contextual examples include: Capital expenditure: • Large sewing machine • Non-current assets value of $8000 Revenue expenditure: • Brightly coloured materials • Rent on new shop • Wages for the new employee ARA Example of how a response may develop and should be marked: Identification of a Explanation Possible context distinction (K+K – 2 marks) (APP – 3 marks) (K –1 mark) Revenue Capital expenditure is So, the rent on the expenditure is for for long-term non- shop is revenue short-term current assets. expenditure and the expenses. large sewing machine is capital expenditure. 2(c) Analyse one possible advantage and one possible disadvantage to CC 8 of using crowdfunding to finance growth. Knowledge and Leve Analysis Application Marks Marks l (4 marks) (4 marks) Shows Good analysis of understanding of one advantage one advantage APP and one DEV 2b and one 4 + disadvantage of 4 + disadvantage of funding to APP crowd crowd funding in finance growth in DEV context context Shows Good analysis of understanding of one advantage or one advantage or one disadvantage 2a 3 3 one disadvantage APP of crowd funding DEV of crowd funding to finance growth in context in context Shows Limited analysis knowledge of one of one advantage K AN advantage and and one 1b 2 + 2 + one disadvantage K disadvantage of AN of crowd funding crowd funding to finance growth Shows Limited analysis knowledge of one of one advantage advantage or one or one 1a 1 K 1 AN disadvantage of disadvantage of crowd funding crowd funding to finance growth 0 No creditable content Note: advantage/disadvantage must be for CC, not investors, customers, etc. 2(c) Indicative content AO1 Knowledge and understanding Knowledge of advantage may include: • A speedy/easy way to raise finance. • No upfront fees for the business. • May not need to be repaid. • May be a way of advertising the business. • Feedback from potential customers. • It is a good way to test market the product/business idea. • Ideas that may not appeal to conventional investors can often get financed more easily. Investors often become loyal customers. Knowledge of disadvantages may include: • It can include more complex issues when gaining finance. • Not all crowdfunding projects reach their goal. • Marketing/operational costs of setting up on a crowdfunding platform. • If the funding target is not reached, money is usually returned to investors. • Risk to reputation of a failed project. • The idea may be copied • The cost of giving rewards/discounts may make it unprofitable. • Difficulties of having a large number of potential investors. AO2 Application • Ava owns 100% of the shares of CC. • Ava is planning to use the crowdfunding to purchase inventory to grow. • Sales of children’s costumes (outfits). • Costumes are sold through e-commerce. • Costumes based on popular TV and movie characters (allow relevant examples). • Costumes are made from brightly coloured materials which CC buys in bulk. • CC owns a large sewing machine. • CC has completed two full years of trading (in third year). • Use of Table 2.1. • CC used to be operated from Ava’s house, now in a rented shop in a shopping centre. • CC is recruiting a salesperson. • CC is private limited company (so limited in finance options) 2(c) AO3 Analysis Analysis of the advantages may include: • Marketing benefits – potential customers may see CC’s crowdfunding campaign and choose to purchase her outfits. • A way of gaining finance without interest – lower cost OR a way of reducing the interest payable. • Can be a quick way of gaining finance – the quicker CC opens a shop the more sales. • Crowdfunding can provide CC with feedback on the business and products. • May provide more finance than CC requires now, giving more opportunities for growth in the future. • Investors are likely to become customers (and vice versa), may increase CC’s customer base. Analysis of the disadvantages may include: • Ava may lose equity in CC, may reduce her motivation and she might (eventually) lose control of the business. • Ava may have to give a dividend to the new owners, which may reduce any future profits available for reinvestment and growth in the future. • Ava may have to pay a penalty if the funding is not repaid or lose ownership of an asset (assuming loan crowd funding). • If the target amount is not reached, CC will not gain any money and have wasted time and effort on this. • Risk of competitors seeing what Ava’s plans are for CC. • Time and money required to set up the crowdfunding project – takes Ava away from design and sales. ARA 2(d) Refer to Table 2.2 and other information. Recommend which person 11 Ava should employ. Justify your recommendation. Marks Knowledge and Analysis and Application (4 Marks Evaluation marks) (7 marks) Annotation Annotation Justified evaluation 7 based on EVAL arguments in + EVAL context + EVAL Developed 6 + evaluation based on arguments in EVAL EVAL context An evaluative 5 statement based on arguments in EVAL context Shows 4 Arguments based 4 understanding of APP on two factor DEV two factors + affecting employee + affecting employee APP selection in context DEV selection in context Shows 3 Argument based 3 understanding of on one factor one factor affecting affecting employee APP DEV employee in selection in context context Knowledge of two 2 Limited analysis of 2 K AN factors affecting two factors + + employee K affecting employee AN selection selection Shows knowledge 1 Limited analysis of 1 of one factor one factor affecting K AN affecting employee employee selection selection No creditable content 0 2(d) Knowledge may include: • Selection • Selection criteria Application may include: • Details in Table 2.2 • Sells ‘dress up’ outfits for children • Based on popular TV and film characters • Shop in a shopping centre • Salesperson job. Analysis may include: Liu • Younger (18) – – may be closer to age of consumers (children dress up). • Some experience but less than Ahura – only part time probably while doing A-Levels. Food retail, still retail, but not in this industry. • A-Levels, especially in Business which may be useful. However how useful are academic qualifications to working in a shop. • Good customer service skills – useful for shop work. • Likes working with people but this is a role working on own – may not be suitable. • Likely to be short-term as she wants to go to university and own her own business. May train and then she leaves. Ahura • Older (47) – may be closer to age of customers (parents). • Far more experience and specifically in a clothing shop. Acting experience may also help in ‘dress up’ clothing sales. However, unemployment may have reduced his skills – but also may work for lower wages. • University degree, but likely to be irrelevant. • Highly motivated which is likely to be important when selling in the shop. Only person in shop so likely to need admin skills and works well on his own. All necessary in this position. • Lacks career ambitions but does this suggest no drive. Likely to stay in job, but if it does not work out, might be difficult to get dismiss. Evaluation may include: • A recommendation over which person Ava should employ, Liu or Ahura. • A judgement/evaluation over the suitability of each candidate. • Evaluation of the relative benefits/costs of each. • Elements that the evaluation/judgement might depend upon – length of job, wage of job, Ava’s personal feelings, geographical location, etc. ARA 2(d) Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Based on Liu has less This means which Overall, Liu experience experience that Ahura is means Ava would make than Ahura less likely to can more the better since she need quickly start employee as only worked training in making new she is likely for two how to work costumes. to be more years in a in a clothes/ independent. shop. costume shop Ahura may also struggle However, Liu has a This could Meaning because she based on more mean she Ava can has been their relevant needs less concentrate unemployed qualifications degree in training than on what she for five years Business Ahura, is best at and may and DT. especially in and have the financial increase the forgotten aspects of revenue how a shop the shop. potential of should be the shop. run. However, this depends on when Liu decides to go to university as she may only choose to work for Ava for a very short time.

Question 13

Pop-up Movies (PM) PM is a private limited company that was set up five years ago. PM shows movies outdoors at night. The movies are projec…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘revenue’ (line 10). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 A correct definition should include the following elements: • the income received by a business • for selling products and services. Exemplar Rationale Marks Selling price  quantity sold Both elements 2 The money received by a Both elements 2 business from selling goods. Income from sales. Both elements 2 Total value of all sales Both elements 2 Money earned due to the One element 1 payment of price from the customer The cash received by a One element 1 business. What a business has to pay Confusion with costs 0 to produce goods and services. 1(a)(ii) Explain the term ‘above the line promotion’ (line 6). 3 Award one mark for each point of explanation: C Example or some other way of showing good 1 mark understanding B Through a media/paid for 1 mark A Communication/advertising/creating awareness to 1 mark consumers/customers Note: Do not award C mark unless A and B marks have been awarded. Content Above the line promotion is the use of media to promote a business and reach out to the target consumers. These include conventional media, television and radio advertising, print as well as internet. This is communication that is targeted to a wider spread of audience and is not specific to individual consumers. Exemplar Rationale Marks Above the line promotion is All three elements. 3 where a business advertises (A) using media (B) such as television (C). When a business pays All three elements. 3 another business (B) to communicate (A) about its services, for example when Coke pays a radio station to play an advert (C). Tv advertising A and B 2 ATL promotion is a form of A only – do not award the C 1 communication (A) between mark unless B has been the business and the awarded. consumer, for example a billboard. Above the line promotion is Confusion with promotion in 0 when an employee is employment. promoted from within the business. 1(b)(i) Refer to Table 1.1. Calculate the break-even number of customers for 3 Venue B. Rationale Marks Correct answer with or without correct working or units 3 Correct calculation of contribution 2 Formula 1 No creditable content 0 Content Fixed Costs = $14 Price – VC per unit (contribution) $2000 = 142.9 $14 Answer = 143 customers (3) allow 142.88, 142.9 OFR Common incorrect answers Answer Mark Rationale 143 3 Correct answer 2000/14 = 142 2 Incorrect final answer BE = fixed cost/contribution 1 Formula only 142 (no working) 0 1(b)(ii) Explain one way in which PM could use break-even data. 3 Level Knowledge and Application Marks 2b Explanation of one way a business can use break 3 (APP) even data in context 2a Explanation of one way a business can use break 2 (K+K) even data 1 Identification of way a business can use break 1 (K) even data 0 No creditable content 0 Note: OFR from answer to Q1(b)(i) Content • Shows how many customers are needed at each venue (venue B = 143 OFR) so that PM can start making a profit from each venue. • Helps PM to see which venues are likely to be most profitable (venue B is most profitable). • Shows PM the likely margin of safety for future venues (venue B MOS = 457 OFR). • PM can model different prices for different venues and make sure a minimum level of profit is gained. ARA Exemplar Mark Rationale Helps in business decision 3 All three elements seen making (k) to see which shows and movies (app) are most popular (kk) Calculates (Shows) the 2 No application income/revenue needed to make a profit (k) to check the financial health of the business (kk) Reach a point where they 1 Minimum requirements for don’t lose money break even 1(c) Analyse two advantages to PM of training the team of customer 8 service workers. Knowledge and Analysis Level Marks Marks Application (4 marks) (4 marks) 2b Shows 4 Developed 4 understanding analysis of two APP DEV of two advantages of + + advantages of training in training in context APP DEV context 2a Shows 3 Developed 3 understanding analysis of one of one advantage of APP advantagetraining in of DEV training in context context 1b Shows 2 Limited 2 knowledge of K analysis of two AN two + advantages of + advantages of K training AN training 1a Shows 1 Limited 1 knowledge one analysis of one K AN advantage of advantage of training training 0 No creditable content Content: Training is the action of improving an employee’s knowledge and/or skills. Indicative content AO1 Knowledge and understanding Knowledge of training may include: • Increase productivity • Improve customer service • Motivate the workers • reduce customer complaints • reduce damages • Improve communication 1(c) AO2 Application Application may include: • show customers to their seats – workers will need to know the seating configuration, where each seat is. • sell food and drink – PM sells soft drinks, popcorn and other snacks • assist with parking for those customers who bring a car (valet parking) • workers may need training on driving customer cars, customer service training etc. AO3 Analysis Analysis may include: • Increased productivity – (increase the sales of food and drink, park customer cars quicker/more efficiently) – may increase revenue. • Increase customer satisfaction – repeat purchases etc. • increase employee satisfaction – decrease staff turnover. • Reduce customer complaints – decrease costs/increase customer retention. • Reduce damages – decrease costs. • Improve communication – decrease speed of set up and take down (of screen and seating). ARA Examples of how an answer could develop and how it should be annotated. K APP AN DEV Can be more When selling Avoids people So they will be efficient food and drink waiting for a long more satisfied time Can motivate In charge of Will offer an And increase workers valet parking excellent service the brand reputation 1(d) Evaluate the economies of scale that PM might gain from booking 11 larger venues. Knowledge and Analysis and Application (4 Marks Evaluation Marks marks) (7 marks) Annotation Annotation + Justified evaluation EVAL based on arguments 7 + EVAL in context EVAL Developed + evaluation based on 6 EVAL arguments in context EVAL An evaluative statement based on 5 EVAL arguments in context Shows + Arguments based on + understanding of two 4 two economies of 4 economies of scale APP DEV APP scale in context DEV in context Shows Argument based on understanding of 3 one economy of 3 one economy of APP DEV scale in context scale in context K Limited analysis of + Knowledge of two 2 + two economies of 2 AN economies of scale K AN scale Shows knowledge of Limited analysis of one economy of 1 K one economy of 1 AN scale scale No creditable content 0 1(d) Indicative content: AO1 knowledge and understanding Knowledge of economies of scale may include: • Internal economies of scale: – purchasing, – marketing, – financial, – technical, – managerial/specialist, – risk-bearing. • External economies of scale: – concentration, – infrastructure. Note: describing an EoS is allowable as Knowledge AO2 Application Application may include: • Moving to larger venues – more seats • Films projected on to big screen. • Temporary contracts for 20 employees at each venue – may need more workers. • Transportation of consumables (food and drink). • Set up and take down of the screen (a day for each). • Six weeks above the line promotion before each venue. AO3 Analysis Analysis may include: • Purchasing – able to bulk buy consumables for a venue which may reduce unit cost of these items – increase profitability (assuming same price) or decreased price – increased sales/competitiveness. • Marketing – ATL promotion can be spread over larger venue – reduce average costs – profitability – however will the length and amount of promotion need to be increased for ten times the length of time at a venue? • Financial – limited context – increased venue may lead to a larger business and therefore lower average finance costs. • Technical – may be able to afford a better projector or screen – reducing average costs. May be able to afford more recent films? • Managerial/specialist – can employ workers for a longer time period – training spread over more customers, can afford to employ better salespeople (food and drink), valet parkers, better customer service. • Risk-bearing – costs spread over a larger number of customers – however spread over less venues – the wrong venue might increase risk. AO4 Evaluation Evaluation may include: • A judgement over the economies of scale. • Evaluation of the relative impact of different economies of scale. • Elements that the evaluation/judgement might depend upon – local competitors, the chosen venue(s), workers available in the area, length of time needed to market before longer event, availability of larger venues, demand etc. 1(d) ARA Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL internal Purchasing Reduces Increases The bulk unit cost of profit economies of products for item margins scale will be the food mostly stand beneficial for PM Risk As allocated Increases However Likely to bearing fixed costs margin of can reduce increase remain safety over atmosphere overall profits static at 143 BE if larger However $2000 point venues are depends upon empty whether marketing is successful and the film choice is suitable for the audience

Question 14

Plasshape (PS) PS manufactures plastic packaging for industrial markets (B2B). Its customers include food manufacturers and cosmetics firms…

Accepted Answer

Question Answer Marks 1(a)(i) Identify one non-financial motivator. 1 Indicative content: Identification of an element may include: • Job rotation / enlargement / enrichment • Job redesign • Training and development • Promotion, status and empowerment • Teamworking • Quality circles Accept all valid responses. 1(a)(ii) Explain the term piece rate. 3 AO1 Knowledge and understanding – 1 mark AO2 Application – 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 piece rate may include: • Payment for each item produced • Ensures employees paid for the amount of work they do • Payment by results No further marks can be gained without knowledge and understanding. AO2 Application Limited application • applies knowledge of piece rate to a product OR business. OR • Example or some other way of showing good understanding of piece rate. Developed application + • applies knowledge of piece rate to a product AND a business. AND • Example or some other way of showing good understanding of piece rate. Application can be made to PS or any other scenario / context / business / product. Accept all valid responses. 1(a)(ii) Exemplar and annotations Mark Rationale Based on how many units produced used when 3 An answer which starts with the knowledge and then output can be measured and it can then be a applies it to a type of output and develops the point in financial motivator. . a business context. Paid per unit produced for example if the employee 3 Again, knowledge first, followed by application to a receives $5 per unit, produces 20 units in a day, they business scenario, with a developed example. will be paid $100 for the day. . Paid per item manufactured , in country V 2 Clear knowledge. Application to an example of a employees paid according to the amount of plastic business from the case study. packaging produced . Pay depends on their units of output . 1 Not a perfect definition, but enough to award the knowledge mark. No attempt to apply. Paying and rewarding for hours they complete 0 This is a time-based payment. Payment for the numbers sold 0 This is commission not piece-rate. 1(b)(i) Refer to Table 1.1 and other information. Calculate the change in forecast profit if the new product is launched. 3 Profit with new product – profit without new product OR [(TR-TC new) – (TR-TC old)] (1) Profit before new product = 40 – (26 + 6) = $8m Profit after new product introduced: Revenue = 40 + 30% = 52 (1) Direct costs + indirect costs = 32 + 6 + 1 = 39 (1) 52 – 39 = $13 m (1) Change in profit = 13 – 8 (2) = $5 m (accept 5) (3) Note: may calculate the percentage change which is 62.5% (3) (5 / 8  100). Marks Answer Rationale 3 Correct answer Working, m and $ sign do not matter but if 5 or 62.5% answer a percentage must have % Must be three to denote the three marks. 2 Both of the following: To award two marks, there must be • Correct / implied formula [Profit with new product- • Two and a profit without new product] OR AND • One , one and one • Correct calculation of either new revenue (52) • Correct calculation of new costs (39) • Correct calculation of original profit (8) • new profit (13) OR An incorrect answer with one mistake allowing OFR for final stage. 1(b)(i) Marks Answer Rationale 1 One of the following: To award one mark, there must be: • Correct / implied formula [Profit with new product- One and two profit without new product] OR • Correct calculation of either new revenue (52) • Correct calculation of new costs (39) • Correct calculation of new profit (13) • Correct calculation of original profit (8) 0 No creditable content. To award zero marks, there must be 1(b)(ii) Explain one way PS could use cost information to improve business performance. 3 AO1 Knowledge and understanding – 1 mark AO2 Application – 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 the Limited application of one relevant point to a business question. context. 0 marks 0 marks No creditable response. No creditable response. Indicative content – Responses may include: AO1 Knowledge and understanding: Knowledge of a use of cost information to improve business performance : • Help make the investment decision / to obtain loans e.g from a bank. • Identify unnecessary expense. • Forecast profit. • To set prices. • To improve cash flow. • other factors involved e.g. cost of investment, future market conditions, whether the product will be successful No further marks can be gained without knowledge and understanding. AO2 Application Limited application , applies knowledge to PS once. Developed application + applies knowledge to PS twice OR applies once to PS AND develops answer to explain how it can help improve business performance. • The profit has increased from $8m to $13m. • Environmentally friendly. • Added value. • Expenses do not increase very much so can spread over higher number of units. Accept all valid responses. 1(b)(ii) Exemplar and annotations Mark Rationale To consider where costs can be reduced , as 3 A use explained in the specific context of PS by using the PS move to becoming more capital intensive information in the case study and develops answer to which will require capital investment . explain why it is useful. To determine the impact on profits , if PS launch 3 A financial use in this one and there is context from the the new packaging, profits forecast to increase data in Table 1.1., also how the use given is linked to the by $5 m (62.5% or OFR) issue. To determine if PS can launch the new packaging 3 Although the appears first, it cannot be awarded until as costs will impact the decision but the the has been found. However, there is obvious , so forecast revenue increase is greater than the cost you can go back and award the . increase . To compare labour costs because PS use 2 Relevant use . The context linked to this is reasonable different payment methods . , but is not developed. To help improve cashflow as cost information 1 Knowledge of a use. The rest of the answer is not applying includes fixed and variable costs it to the context so (Not Answering Question). To consider where costs can be reduced , to 1 Both are knowledge of a use but there is only 1 mark for help improve cashflow knowledge . 1(c) Analyse two elements of the marketing mix that PS should consider when launching the new packaging. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 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 relevant • Application of two relevant Limited analysis points is used to answer the points to a business • Limited analysis that identifies question. context. connections between causes, impacts • Knowledge of one relevant • Application of one relevant and / or consequences of two points. point is used to answer the point to a business context. • Limited analysis that identifies question. connections 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. Indicative content Knowledge of elements of the marketing mix (max 2 s), may include: AO1 Knowledge and understanding • Product • Price • Promotion • Place (distribution channels) 1(c) No further marks can be gained without knowledge and understanding. AO2 Application Max one application for the first element and a second , application for the second element • Product environmentally friendly • Higher cost of production • Used for packaging food • Premium product AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain. • Product is environmentally friendly – could use in marketing and may allow a premium price • Costlier to produce – likely to be higher priced than competitors • Quality is an issue particularly as product is used with food • May have an impact on sales of existing products and therefore their Marketing Accept all valid responses. Exemplars and annotations AO1 Knowledge AO2 Application AO3 Analysis One element of the marketing mix When launching the Price directly affects the demand from that PS should consider is price . environmentally friendly packaging businesses that buy the environmentally Annotations for the first impact friendly packaging therefore they could should be placed in the left-hand use penetration pricing and set the prices margin. low when they launch . Another element of the marketing For example, when a business They can give discounts or some of their mix could be promotion. buys their new environmentally other products for free, this will lead to a Annotations for the second friendly packaging above a certain higher willingness to buy their new product impact should be placed in the amount and they will be noticed in the market and right-hand margin. increase their sales 1(d) Evaluate whether PS should use the same payment method and employee development in both factories. 12 Level AO1 Knowledge and AO2 Application – AO3 Analysis – AO4 Evaluation – 6 marks understanding – 2 marks 2 marks 2 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 of Developed Developed analysis Developed evaluation relevant key term(s) application of that identifies • A developed and / or factor(s) is used to relevant point(s) to connections between judgement / conclusion is answer the question. the business causes, impacts made. context. and / or consequences. • Developed evaluative 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) that identifies • A judgement / conclusion is and / or factor(s) is used to to the business connections between made with limited supporting answer the question. context. 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 No creditable response. No creditable response. response. 1(d) Indicative content Responses may include: AO1 Knowledge and understanding - knowledge of one of the key terms (max 2 s), including: • Payment methods • Development opportunities • Depends on finances • Financial / non-financial motivators No further marks can be gained without knowledge and understanding. AO2 Application Limited application applies knowledge of payment method / employee development of PS once. Developed application + applies knowledge of payment method / employee development of PS twice. • Currently pay and opportunities different in countries • Payments different, time based v piece rates • Fewer opportunities in some countries • Use of non-financial motivators vary • Employees demanding equal treatment 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. Analysis marks can be awarded without context. • Could be expensive. • Management of change can be difficult. • Could lead to discontent with those workers who have an advantage. • Might be difficult to get arrangements that suit laws in several countries. • May not recognise local conditions. • May give firm good reputation as fair employer. • Could enable employees to move from country to country easily. • Would act as a motivator in some countries. • Whether or not trades unions are involved and the extent to which they cooperate. 1(d) 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. • A justified recommendation • Identifying that the decision will ultimately depend on a number of unknowns (e.g. extent of differences between the regulations, financial state of firm, strength of views of workforce). • Discussion of costs v benefits Accept all valid responses. Exemplars for awarding evaluation L1 (limited L2 (developed supporting L3 (developed supporting evidence with supporting evidence) evidence) context) PS should use the PS should use the same payment PS should use the same payment method and same payment method method and employee development in employee development in both factories and should and employee both factories and should use time- use time-based pay, non-financial motivators and development in both based pay, non-financial motivators and employee development in country Z as this will factories employee development increase motivation and satisfy the employees demanding equal pay and opportunities. PS shouldn’t use the PS shouldn’t use the same payment PS shouldn’t use the same payment method in both same payment method method in both countries because in countries because in one country employees might in both countries one country employees might be more be more motivated by non-financial motivators, such motivated by non-financial motivators. as in country Z, whereas in country V employees might like to know they can get higher pay by working faster.

Question	Answer	Marks	From
1	see sheet	30	9609/22 Feb/March 2017
2	see sheet	30	9609/21 May/June 2017
3	see sheet	30	9609/22 Feb/March 2018
4	see sheet	30	9609/21 May/June 2018
5	see sheet	30	9609/23 May/June 2018
6	see sheet	19	9609/21 Oct/Nov 2018
7	see sheet	30	9609/21 Oct/Nov 2019
8	see sheet	30	9609/21 May/June 2020
9	see sheet	30	9609/22 Oct/Nov 2020
10	see sheet	30	9609/23 May/June 2021
11	see sheet	30	9609/22 Oct/Nov 2021
12	see sheet	30	9609/22 Oct/Nov 2022
13	see sheet	30	9609/23 Oct/Nov 2022
14	see sheet	30	9609/21 Oct/Nov 2023

Financial statements — Paper 2 · A Level Business (for first examination in 2016) 9609

Questions16 pages

Mark scheme14 answers

Another paper, or another topic

Questions as text

Q1 · Clean and Tidy (CT) CT is an employee-owned business that specialises in cleaning homes 9609/22 Feb/March 2017

Q2 · Security Alarms (SA) SA was set up 20 years ago as a partnership 9609/21 May/June 2017

Q3 · Luxury Carpets (LC) LC is a large public limited company operating in country B 9609/22 Feb/March 2018

Q4 · Veg Cans (VC) VC is a public limited company which produces canned vegetables 9609/21 May/June 2018

Q5 · Delivery To You (DTY) DTY is a public limited company in the tertiary sector 9609/23 May/June 2018

Q6 · Katie’s Cakes (KC) KC is a partnership, owned by Katie and her son James 9609/21 Oct/Nov 2018

Q7 · Kilometres of the FF premises 9609/21 Oct/Nov 2019

Q8 · Hannah’s Handbags (HH) Hannah started HH six years ago 9609/21 May/June 2020

Q9 · Energy Solutions (ES) ES is a public limited company in country X 9609/22 Oct/Nov 2020

Q10 · Belted Up (BU) Belted Up (BU) is a manufacturer of hand-made leather belts for clothing 9609/23 May/June 2021

Q11 · Snappy Box (SB) SB is owned by Ralph who is a sole trader 9609/22 Oct/Nov 2021

Q12 · Cartoon Costumes (CC) Ava is an entrepreneur 9609/22 Oct/Nov 2022

Q13 · Pop-up Movies (PM) PM is a private limited company that was set up five years ago 9609/23 Oct/Nov 2022

Q14 · Plasshape (PS) PS manufactures plastic packaging for industrial markets (B2B) 9609/21 Oct/Nov 2023