Analysis of published accounts — Paper 2 · A Level Business (for first examination in 2016) 9609

1 Magical Mirrors (MM) MM manufactures a range of mirrors using flow production. MM benefits from economies of scale. Ben and Mary, the owners of MM, changed the legal structure of the business two years ago from a partnership to a private limited company. They are the only shareholders of MM and have recently increased their investment in the company. 5 There are long lead times from MM’s suppliers so MM maintains a high buffer inventory. This ensures that production can continue if there are any problems with deliveries. However, Ben is worried about the impact of high buffer inventories on MM’s finances (see Table 1). Table 1: Key financial data as at 31 May 2017 ($m) 10 Inventory 10 Trade receivables 5 Trade payables 5 Overdraft 5 MM has two major human resource problems: MM’s labour turnover has been increasing 15 and the number of people applying for jobs at MM is decreasing. MM currently pays high salaries to managers and high hourly rates to other employees. Mary has completed a survey of all MM’s employees. The survey showed the following results. • 45% of all employees stated that they had low motivation. The percentage was higher amongst employees who work in the production process. 20 • 25% of all employees stated that the development of their skills was poor. (a) (i) Define the term ‘economies of scale’ (lines 1–2). [2] (ii) Briefly explain the term ‘buffer inventory’ (line 6). [3] (b) (i) Refer to Table 1. Calculate MM’s acid test ratio. [3] (ii) Explain one way in which MM could improve its liquidity. [3] (c) Analyse one advantage and one disadvantage to Ben and Mary of changing MM from a partnership to a private limited company. [8] (d) Discuss how MM could solve its human resource problems. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘economies of scale (lines 1–2). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 A correct definition will contain: • decreasing unit/average costs • as output rises Exemplar Marks Rationale As a firm produces more the average A correct definition 2 cost falls Unit costs decrease due to an Partial 1 increase in size More output leads to a fall in costs No link to decreasing 1 average/unit costs The savings a firm gets as it grows Partial idea of increase 1 bigger in output Lower costs because the firm is No creditable content 0 established 1(a)(ii) Briefly explain the term ‘buffer inventory’ (line 6). 3 Example or some other way of showing good understanding, i.e. risky to hold too much/too little, C 1 Mark link to liquidity, types of inventory (raw materials, in progress and finished) etc. An explanation of buffer, i.e. surplus, lowest amount B 1 mark etc. An explanation of inventory, i.e. stock, supplies to A 1 mark produce, etc. This is when a business keeps surplus inventory in event of a problem with supply or an increase in demand for its products. This helps prevent the business from running out of supplies which could slow down or prevent production. Ties up working capital. Can be risky if buffer levels too high. No need to link to liquidity or risk of high levels of inventory. Exemplar Marks Rationale Raw materials that are kept in event of Understanding of a problem with supply or an increase buffer and inventory in demand for its products. For and an example. 3 example MM might have a buffer stock of mirrors in case they have an increase in customers. Stock that can be used in case there Understanding of is a sudden increase in customers. buffer and inventory The business will not want too much 3 and good buffer inventory because it ties up understanding shown. money. Surplus stock to make sure the An understanding of business does not run out 2 both inventory and buffer. The inventory a form will keep to make Tautology with sure it does not run out. 1 ‘inventory’ but an idea of buffer. 1(b)(i) Refer to Table 1, Calculate MM’s acid-test ratio. 3 Marks Rationale Correct calculation of MM’s acid-test ratio (with or without 3 working) 2 Correct formula and correct calculation of CL 1 Correct formula or correct calculation of CL 0 No creditable content CA - Inventory CL 15–10 = 5+5 5 = 10 = 0.5:1 (accept 0.5, 50% and any ratio that is equivalent, i.e. 1:2) Common incorrect answers Answer Marks Rationale 15 Correct calculation of ratio based on an =1.5 2 incorrect formula (OFR) – only one 10 mistake 15 Incorrect formula and incorrect calculation = 3 1 of CL, but figures used correctly (OFR) – 5 two mistakes 1.5 0 An incorrect answer with no working 3 0 An incorrect answer with no working 1(b)(ii) Explain one way in which MM could improve its liquidity. 3 Level Knowledge and Application Marks 2b (APP) Explanation of a way to improve liquidity in context 3 1b (KK) Identification of a way to improve liquidity 2 1a (K) Knowledge of liquidity 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 acid test or formula – already awarded in previous question Use of acid test ratio (0.5) and/or current ratio (1.5) may provide context if used correctly within a way to improve liquidity. Context and content is likely to come from: Way to improve liquidity (K) Possible context (APP) Increase cash (e.g. by holding MM holds $10 m of inventory – high less inventory, fixed assets buffer inventories etc.) MM is a manufacturer so probably has machines etc. to manufacture mirrors Has an overdraft so will need more than $5 m to have positive cash Increase current assets (e.g. Trade receivables (debtors) is $5 m increase trade MM is a manufacturer (secondary) so receivables/debtors) may gain other benefits from increasing debtor turnover/period Decrease current liabilities Trade payables is $5 m, same as trade (e.g. decrease trade payables, receivables – could be better to have overdraft, short term loans etc.) lower payables than receivables Long lead time may make reducing payables difficult Could reduce overdraft through same ways as increasing cash. Convert $5 m overdraft into longer term debt. 1(c) Analyse one advantage and one disadvantage to Ben and Mary of 8 changing MM from a partnership to a private limited company. Knowledge and Level Marks Analysis (4 marks) Marks Application (4 marks) Shows good Good analysis of one understanding of (or more) advantage(s) moving from a AND one (or more) partnership to a private 4 disadvantage(s) of 4 limited company changing from a partnership to a private limited company 2 Shows isolated Good analysis of one understanding of (or more) advantage(s) moving from a OR one (or more) partnership to a private 3 disadvantage(s) of 3 limited company changing from a partnership to a private limited company Shows knowledge of Limited analysis of one partnerships AND (or more) advantage(s) private limited AND one (or more) 2 2 companies disadvantage(s) of a private limited company 1 Shows knowledge of Limited analysis of one partnerships OR (or more) advantage(s) private limited OR one (or more) 1 1 companies disadvantage(s) of a private limited company Contextual: Possible advantages Possible context Gain limited liability Ben and Mary were in a partnership before and so had higher risk should MM fail that they would lose not only their investment but would be personally liable for the debts of MM Ben and Mary doubled their investment Gain continuity In case Ben or Mary die Gain separate legal identity In case the business gets sued Possible disadvantages Loss of control Ben and Mary have owned and run the business for such a long time (however they are the only shareholders so unlikely to be an issue) Cost of conversion Unlikely to be high but MM has poor liquidity – was this the cause? Preparation and availability Cost – link to liquidity of accounts Competitors will be able to access the accounts 1(d) Discuss how MM could solve its human resource problems. 11 Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) Justified evaluation based 7 on argument(s) in context Developed evaluation based on argument(s) in 6 context An evaluative statement based on arguments in 5 context Argument about one or 3–4 more solutions to human 3–4 resource problems at MM Limited analysis of human 1–2 1–2 resource management No creditable content (0 marks) Context/content: • Training and development, survey shows this was rated poor by 25% of all employees. This is high. Therefore MM should ensure that employees have appropriate training to develop their skills and improve their morale. This may also help with opportunities for promotion. • Team working – morale is lower for employees involved in the production process and this may link to the flow production methods. Therefore team work may improve this as employees can work together and improve their sense of involvement • Fringe benefits and perks – although MM pay well, they could look at their perks and fringe benefits such as holiday periods as this may be a reason • Empowerment and participation – doing some focus groups with employees and/or creating worker representatives may enable MM to better understand the issues and therefore resolve them. Evaluation is likely to come from a candidate: Judging which methods could work best for MM and justifying this in the context for example, training and development given the survey outcomes Weighting their response, for example, why one method would be better than another is likely to lead an evaluative response. Problem Possible solutions Example of analysis Increase wages – link to Already high. Increased costs retention Use non-monetary motivation Could increase costs – may be an Increasing labour (e.g. holidays, perks, fringe alternative to higher wages. turnover benefits etc.) Increase training/skills Increased costs – could be wasted if development staff leave Better/more advertising Increased costs – what is the cause of the fall? Demographics, word of mouth etc. Decreasing Increase wages Already high. Increased costs applications Increase training/skills Could improve word of mouth – may development attract younger applicants, but increased costs Reduce wages Decrease motivation and increase labour turnover further Change payment system (i.e. May not increase costs (could fall) and High management piece rate, retention bonus may increase retention, but may and labour costs etc.) demotivate some workers Increase capital/reduce labour Needs investment - already using flow production – could reduce quality, may further reduce motivation Improve hygiene factors Are conditions poor? If so can it be Low motivation – (poorer in production) improved without increasing costs? lower in production workers Teamwork/cell production May conflict with flow production Increase training/skill Increased costs but could improve development quality and retention Poor skills Increase capital/reduce labour Needs investment – already using flow development production – could reduce quality, may further reduce motivation Increase training/skill Increased costs but could improve development quality and retention Poorly trained/skilled Increase capital/reduce labour Needs investment – already using flow workers production – could reduce quality, may further reduce motivation

This question in 9609/21 May/June 2017

2 Quality Leather (QL) QL is a worker co-operative. It is equally owned by ten owner-workers and was set up five years ago. QL produces bags, cases and wallets made from leather material. The goods are produced in a small factory using batch production methods. In the last three years QL’s revenue and profits have increased significantly (see Table 1). Table 1: Selected financial data for the last 3 years ($000) 5 2014 2015 2016 Revenue 150 180 240 Cost of sales 60 65 80 All other expenses 15 15 20 The owner-workers elected Iqbal as the leader of the co-operative. Iqbal is a democratic 10 leader with high levels of emotional intelligence. He is good at listening to the opinions and concerns of the other owner-workers. He makes sure that all major decisions are discussed and voted on by each worker. Due to the success of QL, the owners are considering expanding by producing either high priced leather shoes or low priced leather belts. Information about these two options is 15 shown in Table 2. Table 2: Information about the two options Option A: High priced leather shoes Option B: Low priced leather belts • Total market value of $2 million • Total market value of $400 000 • Branding is more important than the • The quality of the product is more 20 quality of the product important than branding • Demand is price inelastic • Demand is price elastic • High level of competition • Medium level of competition • New production machinery would • No new production machinery would need to be purchased need to be purchased 25 • Requires new distribution channels • Could use QL’s existing distribution channels (a) (i) Define the term ‘batch production’ (line 3). [2] (ii) Briefly explain the term ‘co-operative’ (line 1). [3] (b) (i) Refer to Table 1. Calculate the gross profit margin for 2016. [3] (ii) Explain the importance of profitability to QL. [3] (c) Analyse one advantage and one disadvantage to the other owner-workers of Iqbal’s leadership style. [8] (d) Recommend which option QL should choose for expansion. Justify your choice. [11]

30 marks

Mark scheme: 2(a)(i) Define the term ‘batch production’ (line 3). 2 Knowledge and Application Mark A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 • Separate groups/set amount/limited number – do not accept batch • Go through production process together before moving on to the next Batch production is where quantities of identical goods are produced in small groups. They go through the production process at the same time. Production is then switched over to allow another batch to be produced. Example(s) not required. Exemplar Mark Rationale Batch production is where quantities of identical goods are produced 2 A correct definition together and then move on to the next process A group of products go from one Both elements stage of production to the next 2 covered together When products are made in small 1 Partial definition quantities Confusion with job Products made one a time 0 production Products made continuously and are Confusion with 0 all the same flow/mass production 2(a)(ii) Briefly explain the term ‘co-operative’ (line 1). 3 Award one mark for each point of explanation: Example or some other way of showing good understanding, i.e. bulk buying, common in agriculture, C 1 mark motivational, slow decision making, development of a point used in B etc. • Responsibilities are shared • Owners may contribute to the running of the business B 1 mark • Shared decision making • All members have one vote • Profits are shared A • Owned/financed by workers/customers/members 1 mark A co-operative is a business structure where the workers are the owners. The profits are shared with workers. Workers (owner) do not have to run the business, they will vote for Directors. In smaller co-operatives such as worker co-operatives then workers may also run the business. Exemplar Mark Rationale Members (A) own a co-operative and share the running (B) of the business. QL is a worker co-operative which 3 A, B and C mean the workers are the members (C). A co-operative can be owned by customers or workers (A) who will each have a vote (B). Because they 3 A, B and C own it, they are motivated for it to do well (C). A co-operative has shared profit (A) 2 A and B and responsibilities (B) Members (A) who join together to 2 A and C benefit from bulk buying (C) A co-operative is made up of people Three points but all who share the responsibilities of the 1 from B, so only one business (B). Each person has a vote mark. and the decision making is shared. 2(b)(i) Refer to Table 1. Calculate the gross profit margin for 2016. 3 Mark Rationale Correct calculation of gross profit margin (with or without 3 working or %) 2 Correct formula and correct calculation* of gross profit 1 Correct formula or correct calculation* of gross profit 0 No creditable content Formula can be implied through the correct use of figures *working required or explicit identification Gross profit × 100 Revenue = 240 – 80 = 160 160 = × 100 = 66.67% (accept 66.7% and 67%) 240 • Allow an answer of 66% or 66.6% or 66.66% as a TWO mark answer with or without working as the candidate has made one mistake in not rounding correctly. • Also allow an answer of 0.67 as a TWO mark answer with or without working as the candidate has made one mistake by not calculating a percentage Allow full marks for a correct answer with or without working or % 67% or 66.7% or 66.67% Common incorrect answers Answer Mark Rationale GP=160 1 Explicit identification of gross profit We have to assume this is an answer to the question and with no working, $160 0 this is incorrect and therefore no marks Correct formula (implied) and correct (explicit) calculation of gross profit but 66% 2 the calculation of the GP margin is incorrect (with or without working) 0.67 2 Allow with or without working 240 – 80 – 20 = 140 Formula mixed up with net profit margin, so wrong formula, but correct 2 140 calculations based on this wrong × 100 = 58.33% formula 240 58.33% 0 A wrong answer with no working 90 Formula is correct (implied) but 2014 × 100 = 60% 2 figures have been used correctly OFR 150 115 Formula is correct (implied) but 2015 × 100 = 63.89% 2 figures have been used correctly OFR 180 2(b)(ii) Explain the importance of profitability to QL. 3 Level Knowledge and Application Mark Explanation an importance of profitability in 2 (APP) 3 context 1b (KK) Explain an importance of profitability 2 1a (K) Identify an importance of profitability 1 0 No creditable content 0 Profitability is the margin between cost per unit and selling price (or the margin between total revenue and total cost). This is in contrast to profit which is the amount (i.e. not margin) made. Candidates do not need to show their knowledge of either profit or profitability. They need to explain an IMPORTANCE of profitability. Context and content is likely to come from: • Profits pay owner/workers income, so profitability is essential • As QL expands into Option A or Option B it will need to maintain profitability Importance (K) Possible context (APP) In QL the gross profitability is improving (60% in 2014, 63.89% in 2015 and The achieve the objectives of 66.67% in 2016 OFR) the business Net profit has also been improving (50% in 2014, 55.56% in 2015 and 58.33% in 2016) QL has made a profit in each of the last To avoid business failure three years To fund business QL needs the profits/profitability to fund growth/expansion the expansion into Option A or Option B Owners are the ten owner-workers who To reward owners make up the co-operative – without pay they are likely to sell the business The owner/workers will derive their To make a profit income form QL To assess business QL could benchmark themselves against performance similar bag producing business 2(c) Analyse one advantage and one disadvantage to the other owner- 8 workers of Iqbal’s leadership style. Level Knowledge and application Analysis Good analysis of one advantage and one disadvantage of 4 democratic leadership Shows understanding of in context 2 democratic leadership in 3–4 Good analysis of one context advantage or one disadvantage of 3 democratic leadership in context Limited analysis of one advantage and one 2 disadvantage of leadership style Shows knowledge of 1 1–2 leadership styles Limited analysis of one advantage or one 1 disadvantage of leadership styles 0 No creditable content Leadership styles outlined in the specification are: Autocratic, democratic, laissez-faire, Theory X and Theory Y (McGregor) Annotate advantages in the left hand margin and disadvantages in the right hand margin Content (K) is likely to come from: Advantages: • More ideas taken into account • Better communication • Improved motivation • Shared objectives/vision • Reduced employee turnover Disadvantages: • Decisions may be discussed but the leader still makes the decisions – could demotivate • Time wasted in discussion • Employees may not have the ‘full picture’ Examples of features of Examples of Examples of possible democratic application/context analysis leadership Better decisions → The other nine revenue to continue to More ideas – owner/workers can add increase → profits for the advantage their ideas owner/workers to continue to increase Lower cost of production More efficient production → less cost of sales → Better motivation of bags, cases and higher gross profit → – advantage wallets more return for the owner workers Increased cost of Wasted time in Less time for production production → higher cost discussion – of bags, cases and of sales → lower gross disadvantage wallets profit → less return for the owner workers Choose wrong option → Other owner/workers Expansion does not Poor decision may not understand the increase value of QL → making data about the two profits for the options for expansion. owner/workers reduce ARA 2(d) Recommend which option QL should choose for expansion. Justify 11 your choice. Knowledge and Analysis and Evaluation Mark Mark Application (4 marks) (7 marks) A justified recommendation for QL on which option it should choose for expansion 7 based on the given argument(s) of Option A and Option B A developed recommendation for QL on which option it should choose for expansion 6 based on the given argument(s) of Option A and Option B An evaluative statement/recommendatio n based on the given 5 argument(s) of Option A and Option B Shows understanding of Argument(s) based on Option A and Option B for 4 Option A and Option B for 4 expansion expansion Shows understanding of Argument(s) based on Option A or Option B for 3 Option A or Option B for 3 expansion expansion Limited analysis of Option A and Option B for 2 expansion Shows knowledge of 1–2 expansion Limited analysis of Option A or Option B for 1 expansion To access evaluation candidates must have shown understanding of Option A and Option B with two pieces of argument (ANAN) Context/content: High priced leather shoes • Larger market value • Branding is important and QL has an established brand • High prices could be charged due to price inelasticity • Competition is high, but brand could overcome this • Cost of new machinery • New distribution channels; do QL have any experience of this – cost? Low priced leather belts • Lower market value • Quality is important and QL have experience in leather market • Could use price competition due to price elastic response • Lower level of competition • Could be made on current machinery if there is capacity • Can use current distribution channels – cheaper option? An example of how an answer could develop and how it should be annotated. ANAN K APP AN EVAL (one sided) Overall QL is more likely to be interested in having a small share of a large Option A would Which is likely to market, so allow QL to lead to a more should choose expand into a successful A bigger market Option A. (EVAL market with a expansion and may lead to more – statement) value of $2m. more profit for sales for QL. This is bigger the (AN) However it than the market owner/workers. depends upon for Option B. (ANAN – Option how high the (APP) A) level of competition is Expansion is and how much when a business QL would need grows, for to spend on the example by marketing to selling a new establish product range.. themselves in the (K) shoe market. (EVAL – Which is likely to developed) lead to a higher However Option Less competition chance of As long as the B only has a is likely to mean success in the potential revenue medium level of that QL will find it Low priced outweighs the competition as easier to leather belt costs of Option A opposed to a establish their market and more then the larger high level for brand in the sales and profit market will allow Option A. (APP) market. (AN) over time. (ANAN much more – Option B) growth than Option B and is therefore the better option. (EVAL – justified)

This question in 9609/22 May/June 2017

2 Budding Gardens (BG) BG is a partnership owned and managed by Barry and Michael. BG is in the tertiary sector. BG is a landscape gardening business. Its revenue comes from two main services that it provides to customers: 1 Landscaping – BG redesigns customers’ gardens, for example by adding new features such as water fountains or seating areas 5 2 Basic gardening services such as digging and grass cutting. Barry and Michael work well together. Barry deals with marketing and agrees contracts and prices with customers. He also manages the finances. Michael focuses on the technical side of the business such as garden design. He also has responsibility for the four full-time employees. 10 Michael has come to Barry with a problem. One of the large lawnmowers used to cut grass has broken down and needs replacing. The cost of the new lawnmower machine will be $10 000. Michael has asked Barry if there is finance available for capital expenditure. Barry needs to determine the best source of finance to use for the new lawnmower. BG has a low level of working capital. 15 Barry has been looking at the latest financial accounts (see Table 3). Table 3: Extract from the income statement for the year ended 31 May 2017 $000s Revenue 120 Cost of sales 90 20 Expenses 20 Profit for the year 10 One of BG’s competitors, LawnsRus, has recently been in trouble. A customer made a serious complaint about damage that an employee caused whilst mowing (cutting) her lawn. The business had to pay a large amount in compensation to the customer. Barry 25 believes that this may increase demand for BG’s services in the local market. (a) (i) Define the term ‘demand’ (line 26). [2] (ii) Briefly explain the term ‘tertiary sector’ (line 1). [3] (b) (i) Refer to Table 3. Calculate the gross profit margin. [3] (ii) Explain one way that BG could improve its profit margin. [3] (c) Analyse two possible sources of finance that BG could use for the new lawnmower. [8] (d) Discuss the advantages and disadvantages to Barry and Michael of the business being a partnership. [11]

30 marks

Mark scheme: 2(a)(i) Define the term ‘demand’ (line 26). 2 Knowledge and Application Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 A sound definition is ‘Demand is the quantity/amount that consumers are willing/able (not needs and wants) to buy at a given price (or in a particular time period)’. Demand is the ability and willingness of a consumer to pay for a given good or service at a given price. Demand falls as price rises/vice versa. Example(s) or reference to demand falling or rising is not needed for maximum marks. A diagram without further explanation should be awarded one mark. Answer Mark Reason The amount of a good consumers are Only 2 elements of the definition willing to buy 1 – for full marks would need 3 elements What consumers are willing to buy 1 Only 1 element of the definition The amount of a good consumers are 3 elements 2 willing to buy at a price 2(a)(ii) Briefly explain the term ‘tertiary sector’ (line 1). 3 Award one mark for each point of explanation: Example or some other way of showing good understanding, e.g. C Examples could include distribution, hairdressing, dentist. 1 mark Expertise/time B Relationship to other sectors (i.e. secondary, primary quaternary) 1 mark A Offer/sell/produce/provide etc. services/intangible goods 1 mark The tertiary sector is made of businesses that sell goods or services to producer or consumer markets. Business here take goods from the secondary sector and sell them. Services include law firms, accountancy firms, shops. Answer Mark Reason Provide services and sell intangible products 1 A elements only Sells services such as banking 2 A and C elements Sells services to support the products from the Elements from all – A B primary and secondary sectors such as 3 and C farmers’ markets selling vegetables 2(b)(i) Refer to Table 3. Calculate the gross profit margin. 3 Mark Rationale 3 marks Correct calculation of gross profit margin (with or without working or %) 2 marks Correct formula and correct calculation of gross profit 1 mark Correct formula or correct calculation of gross profit 0 marks No creditable content Formula can be implied through the correct use of figures. GP revenue * 100 GP = 120 – 90 = 30 GPM = 30/120 *100 = 25% Common incorrect answers Answer Mark Rationale 120 – 90 = 30 1 Correct calculation of gross profit [90 – (20+10)/120] × 100 = Gross profit incorrectly calculated but 1 60/120 × 100 = 50% formula correct (Gross profit/revenue) × 100. Correct formula and correct calculation of 2 Gross profit = 30 gross profit GP = 10 000 – 20 000 – 90 000 = Gross profit incorrectly calculated but – 100 × 100 000/120 000 = 1 formula correct 83.33% 120 000 – 90 000/120 000 = 0.25 Gross profit and method correct but ×100 2 missing from formula (30 000/120 000) × 100 = $25 000 Correct formula and correct calculation of 2 gross profit 2(b)(ii) Explain one way that BG could improve its profit margin. 3 Level Knowledge and Application Marks 2 (APP) Explanation of a way to improve the profit margin 3 1b (KK) Identification of a way to improve the profit margin 2 1a (K) Identification of a way to improve profit 1 0 No creditable content 0 Context (profit margin) and content is likely to come from: • Increase price but maintain costs/expenses • Decrease costs and maintain price Identification Explanation Possible context Decrease costs and Both costs and price This is clearly linked to the increase price (APP) referred to context of a profit MARGIN so 3 marks Increase price (KK) Only price, nothing Related to profit margin but about costs only identifies price so 2 marks. Increase revenue (K) This relates to profit 1 mark as not related to profit only. margin 2(c) Analyse two possible sources of finance that BG could use for the new 8 lawnmower. Level Knowledge and Marks Analysis Marks Application (4 marks) (4 marks) Shows understanding Good analysis of two (or more) of two (or more) sources of finance that BG could 4 4 sources of finance in use for the new lawnmower. context 2 Shows understanding Good analysis of one source of of one source of 3 finance that BG could use for the 3 finance in context new lawnmower. Shows knowledge of Limited analysis of two (or more) two (or more) sources 2 sources of finance 2 of finance 1 Shows knowledge of Limited analysis of one source of 1 1 one source of finance finance 0 No creditable content Any source of finance could be relevant – analysis will depend on context used: Contextual analysis likely to come from: • Cash flow, Barry is worried about working capital so how would BG be able to make the repayments? • Time span, how long would BG borrow for, interest rates tend to be higher over longer period of time. BG is a partnership, this could be risk if paid over longer term. Does Barry prefer short or medium or longer term? • Amount being borrowed. Would BG need to borrow all of the $10 000. Could Barry or Michael invest additional funds themselves to limit the borrowing? • Interest rates, BG is a partnership so could be seen as risky to lend to. But healthy profits and margins so could persuade a lender that the risk is smaller. • Future demand – Expected to increase as BG gain customers from competitors (LawnsRus) but what if the economy slows down – demand could fall in coming years especially from the revenue generated from basic services? 2(d) Discuss the advantages and disadvantages to Barry and Michael of the business 11 being a partnership. Knowledge and Application Marks Analysis and Evaluation Marks (4 marks) (7 marks) Justified evaluation based on 7 arguments in context Developed evaluation based 6 on arguments in context An evaluative statement based on arguments in 5 context Shows understanding of two or Argument of advantage(s) more features of a partnership in 4 and disadvantage(s) of 4 context partnerships in context Shows understanding of one Argument of an advantage(s) feature of a partnership in context 3 or disadvantage(s) of 3 partnerships in context Identifies two or more features of a Limited analysis of an partnership advantage(s) and 2 2 disadvantage(s) of partnerships Identifies one feature of a Limited analysis of an partnership advantage(s) or 1 1 disadvantage(s) of partnerships No creditable content Please annotate analysis of advantages in the left hand margin and disadvantages in the right hand margin. Evaluation can only be awarded if there is at least one double AN in the left and one double AN right hand margins. Context/content: Advantages: • Partners can specialise, this has worked for BG with division of tasks (Barry – finance and marketing, Michael – technical and employees). This will help BG be successful e.g., strong profits and margins • Partners run the business for themselves, not accountable to shareholders and so Michael and Barry gain the rewards from the business/retain control • BG will be a smaller business and so Michael and Barry are likely to offer personal service and good communication to customers, Michael in marketing and Barry in agreeing prices and contracts. This will help BG gain a reputation and be more successful. Disadvantages: • Unlimited liability so a risk to Michael and Barry. They could lose their possessions as well as their investment should the business fail. • Long hours of work/responsibility • Conflict – Michael and Barry may fall out over decisions and this could lead to conflict and dissolution of the partnership e.g., over the finance needed for the lawnmower • Partnership ceases if one partner dies. Evaluation is likely to come from a candidate: 1. Judging whether the advantages outweigh the disadvantages 2. Weighting their response, for example, ‘this is the main advantage because’ is likely to lead an evaluative response. Candidates must cover both advantages and disadvantages to gain higher than 3+3 marks

This question in 9609/23 May/June 2017

1 Occasion Cards (OC) OC is a private limited company that sells greeting cards designed using mass customisation. Customers order their cards on the Internet and can add their own design and personal message to each card. OC allows customers to download a simple Computer Aided Design (CAD) system that customers use on their home computers. OC is owned by four sisters who are also the directors of the company. OC’s employees 5 benefit from the business being owned by a family. However, family ownership has limited the capital available for expansion. OC has increased its sales over the past few years using the Internet. Social media and viral marketing have been the basis for most of OC’s promotion. This has worked well, but the directors are aware that future sales growth may require a different approach and 10 an increase in capital. The current owners have decided to change the legal structure of OC to a public limited company. In preparation for this change, the directors have prepared some accounting information for OC (see Table 1). Table 1: Accounting information for OC 15 2015 2016 ($m) ($m) Revenue 20 25 Profit margin 10% 15% Non-current assets 10 10 20 Current assets 4 3 Non-current liabilities 2 4 Current liabilities 4 4 (a) (i) Define the term ‘Computer Aided Design’ (line 4). [2] (ii) Briefly explain the term ‘mass customisation’ (lines 1–2). [3] (b) (i) Refer to Table 1. Calculate the current ratio for 2016. [3] (ii) Explain one way in which the information in Table 1 might be useful to a potential investor. [3] (c) Analyse one advantage and one disadvantage to OC of using the Internet to promote the business. [8] (d) Evaluate the owners’ decision to change the legal structure of OC to a public limited company. [11]

30 marks

Mark scheme: Question Answer Marks 1 Occasion Cards (OC) 1(a)(i) Define the term ‘Computer Aided Design’. 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: • Some idea of ‘computer aided’, i.e. – A process done by IT/software/computer-programmes/electronically/virtually/technology (allow automated) – do not allow ‘computer’ on its own as this is a tautology • i.e. some idea of the ‘design’ element, i.e. – To create, analyse, draw, modify, optimise, 2D/3D models, customise, plan etc. – do not allow ‘design’ on its own as this is a tautology. Exemplar Marks Rationale To use IT to create models 2 Both elements simply defined Where software is used to create 2 Both elements and ‘create designs designs’ is good enough To design 2D drawings 1 2D gives an idea of ‘design’ even though the word design has also been used. Where computers are used to make 0 Neither elements defined designs for the business to use 1(a)(ii) Briefly explain the term ‘mass customisation’. 3 Award one mark for each point of explanation: C Example or some other way of showing good understanding, 1 mark i.e. can involve the use of IT, low cost solution to making etc. B Understanding of ‘mass’, i.e. understanding of the use of 1 mark production lines/flow production/assembly line etc. A Understanding of customisation, i.e. the use of techniques to 1 mark create differentiated products, unique products, to customer orders etc. • Using production lines to make a variation in products. Using mass production techniques to produce differentiated products. • Can add value to a product by adding differences and customisation. • Make products unique to each customer but with low cost. Note: the C mark is dependent on gaining both A and B marks first because otherwise a wrong understanding of mass customisation (e.g. mass production) could gain the majority of the marks. Exemplar Marks Rationale Using a production line (B) to make 3 All three elements differentiated products (A) often using machinery (C) Where a business makes products 3 All three elements which have are based on the individual customer requirements (A) but have been made on a production line (B). This keeps the cost low for the business (C). Where lots of different types of 2 A and B mark products (A) are made using flow production (B). Making customised products for the 1 A mark only – do not allow customers which can be low cost. the C mark unless both A and B have been awarded (See Note:) Making lots of products on a 1 B mark only – obvious production line which keeps the costs confusion with mass of the business low and means that production (See Note:) the business can produce lots of products to sell. 1(b)(i) Refer to Table 1. Calculate the current ratio for 2016. 3 Mark Rationale 3 marks Correct calculation of the current ratio (ignore any use of $, % etc.) with or without correct working 2 marks Correct formula (can be implied by the use of figures) and correct identification of both figures (CA and CL) 1 mark Correct formula or correct identification of both figures (CA and CL) 0 marks No creditable content Formula: Current assets Current liabilities Identification of correct figures: Current assets = $3m Current liabilities = $4m $3m $4m = 0.75:1 or 0.75 or 3/4 Common answers Answer Marks Rationale $3m 3 Although the candidate has not got the $4m × 100 = 75% correct answer it can clearly be seen by the working that they would have got the correct answer but have gone one stage too far. 75% (no working) 0 Without working there is no way to know where this figure came from $4m 2 Formula is wrong (inverted) but correct $3m = 1.33 identification of figures and then a correct calculation based on their own figures (OFR) 1.33 (no working) 0 Without working there is no way to know where this figure came from Current liabilities = 4 1 Correct identification of both figures Current assets = 3 Current assets 1 1 mark for formula Current liabilities 1(b)(ii) Explain one way in which the information in Table 1 might be useful to a 3 potential investor. Level Knowledge and Application Marks 2b Explanation of the use of the accounting 3 APP + APP information in Table 1 to a potential investor 2a Identification of the use of the accounting 2 APP information in Table 1 to a potential investor 1 Identification of the use of accounting 1 K information – no context 0 No creditable content 0 Note: APP can be awarded (for 2 marks) without an explicit K first Answers could include: • Sales and profit margin have gone up – good investment • Liquidity has gone down – increased risk • Non-current liabilities have doubled – increased debt might suggest increased risk Examples of Examples of context Possible explanations identifications of a (APP) (APPAPP) use (K) To decide whether to Sales and profit margin More sales/profit may invest or not have gone up suggest that an investor will get their investment To judge the success of back quicker and make the business a profit from their investment To see if the business Liquidity has gone OC may not be able to is likely to be able to down pay back debts which repay an investment may mean that the company would not be To see if the business able to repay the is profitable investment Non-current liabilities Increased debt may have doubled mean that any investment is going The current ratio has towards paying that decreased debt off, not making more profit 1(c) Analyse one advantage and one disadvantage to OC of using the internet to 8 promote the business. Level Knowledge and Marks Analysis (4 marks) Marks Application (4 marks) 2 Shows 3–4 Good analysis of one 4 understanding of advantage AND one using the internet to disadvantage to OC of promote the using the internet to business in context promote the business in context Good analysis of one 3 advantage OR one disadvantage to OC of using the internet to promote the business in context 1 Shows knowledge of 2 Limited analysis of one 2 the use of the advantage AND one internet to promote a disadvantage of using the business internet to promote a business Shows knowledge of 1 Limited analysis of one 1 the use of the advantage OR one internet in business disadvantage of using the OR promotion internet to promote a business Limited analysis in context: Marks limited to 4 + 2 = 6 Annotate – advantages on the left and disadvantages on the right Take a very open approach to ‘promotion’ to allow for use of the website (e.g. CAD system, creation of cards etc.). Promotion is any activity that supports or encourages a business activity. 1(c) Answers could include: Advantages • Cheaper – social and viral marketing is a relatively cheap way of promotion a business and has led to good growth for OC • OC has an internet based ordering system, so internet based promotion links in and may increase sales • Customers may link/click from an advert straight to the website allowing quick/impulse purchases Disadvantages • OC may find it difficult to control social and viral promotion • It may not be effective – very difficult to predict trends in fashion/products Fast moving and constantly changing Examples of advantages: Examples of Examples of Examples of Examples of knowledge (K) application/context limited analysis good analysis (APP) (AN) (ANAN) Must be in context (i.e. APP awarded) The internet can Greater number of This may lead to Increased sales reach many potential increased sales Æ more revenue people customers who Æ more profit may buy cards from OC for special occasions Cheaper to OC is a family Keeps costs Lower costs Æ promote business with down for OC may increase limited capital capital for expansion Can use internet Using OC’s well Increases the Increased sales links to send established social number of Æ more revenue customers to media presence potential Æ more profit their website customers Can link directly to the CAD software Attracts a Greetings cards Leading to less Less competition younger can be targeted at competition for Æ higher prices audience a younger OC Æ more profit audience marginÆ increased profit 1(c) Examples of disadvantages: Examples of Examples of Examples of Examples of knowledge (K) application/context limited analysis good analysis (APP) (AN) (ANAN) Must be in context (i.e. APP awarded) The internet may Many wasted This may lead to Increased costs not be targetted views of the increased costs Æ lower profit promotion by for promotion margin Æ less people who have which is wasted profit no interest in buying greetings cards Open to hackers OC only sells Disable OCs Decreased sales greeting cards ability to make Æ lower through the sales profit/increased internet chance of loss OC does not have May not be able More chance of much capital as it to afford the website being is family owned costs of good offline Æ security decreased sales Æ lower profit/increased chance of loss No control of OC relies on Can create a bad Decreased sales internet social media and reputation Æ lower marketing viral marketing profit/increased chance of loss Greeting card industry requires a good reputation Fast As opposed to the May need to be Increased costs moving/dynamic greetings card updated regularly Æ lower profit environment market which is which may not margin Æ less well established be the case with profit (i.e. Christmas, traditional special occasions promotion etc.) 1(d) Evaluate the owners’ decision to change the legal structure of OC to a public 11 limited company. Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified evaluation based 7 on argument(s) in context Developed evaluation 6 based on argument(s) in context An evaluative statement 5 based on argument(s) in context Shows understanding of 3–4 Argument based on the 3–4 changing from a private impact(s) of changing the limited company to a public legal structure of OC to a limited company public limited company Shows knowledge of legal 1–2 Limited analysis of TWO 2 structures (or more) impacts of changing legal structure Limited analysis of ONE 1 impact of changing legal structure No creditable content Note: APP marks can be gained from the change from Ltd to PLC without any mention of the business because this is the context given to the candidates Answers could include: Benefits • OC could access more capital which may allow OC to expand further and use more traditional marketing methods • OC has started to see increased non current liabilities – by increasing the equity this may be reversed • Owners may become wealthy from selling their shares Drawbacks • OC might lose the family atmosphere, reducing the workers motivation • OC will need to publish their financial information if they become a plc which may give competitors an advantage • Owners may lose their control of OC • Owners will need to share profits 1(d) K APP AN ANAN EVAL PLCs This opens Which could Which may lead to Overall can up a new be used to more sales of becoming a sell source of expand the greeting cards and PLC may be shares finance for business profit for OC. the fastest on the OC (APP) (AN) (ANAN) way for OC stock to reach its market objective of (K) expansion (EVAL – However Which may Who may limit the statement) anyone could lead to a loss amount of shares buy the of control for they want to sell However shares the current on the stock how many because they owners (AN) market and mean shares the are now that OC does not owners make available on have much extra available will the stock capital to fund the depend upon market (APP) expansion (ANAN) how much they are willing to risk losing control of the business (EVAL – developed) If the expansion can be financed and the owners keep more than 50% of the shares then there is little risk and it is likely to have been a good decision. (EVAL – justified)

This question in 9609/22 Oct/Nov 2017

1 Swimming Pools (SP) SP is a public sector organisation. SP operates many swimming pools across country X. The main objective for SP is to provide a quality service to the local community. Each swimming pool is used by consumers from different market segments (see Table 1). Table 1: SP’s market segments Market segment Time when pool is used by this segment 5 Schools which rent the pool for Daytime swimming lessons Children for fun swimming Weekends Adults for fitness swimming Evenings SP currently uses price discrimination. Most of the swimming pools have a steady demand 10 throughout each week. One of SP’s swimming pools, The Lido, is currently making a loss. Table 2 shows the income statement for The Lido for the last 12 months. Table 2: Extract from The Lido’s income statement ($000s) Revenue 280 15 Cost of sales 210 Gross Profit 70 SP Head Office allocated costs* 40 Overhead expenses 60 Profit/(loss) for the year (30) 20 *Each of SP’s swimming pools must pay for some of the Head Office costs The Lido is based in an area with many schools that are under the control of the government. Unemployment in the area is high. The manager has reduced the price for customers who are under 18 years old or do not have a job. (a) (i) Define the term ‘market segment’ (line 3). [2] (ii) Briefly explain the term ‘public sector organisation’ (line 1). [3] (b) (i) Calculate the gross profit margin (%) for The Lido. [3] (ii) Explain how one stakeholder of SP might be affected by The Lido making a loss. [3] (c) Analyse one advantage and one disadvantage to SP of using price discrimination. [8] (d) Recommend whether SP should close The Lido. Justify your answer. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘market segment’ (line 3). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content • Part of a market • Made up of groups of customers who share similar characteristics, interests, etc. Exemplar Marks Rationale Sub-group of a whole market (1)for Identifies that it is part of a consumers with similar 2 market aimed at specific characteristics such as age(1) customers Again Identifies that it is part of a market but no A group or portion of a whole market 1 reference to target group of customers It is the whole market 0 Incorrect definition 1(a)(ii) Briefly explain the term ‘public sector organisation’ (line 1). 3 Award one mark for each point of explanation: Knowledge Marks Example or some other way of showing good understanding C e.g. Product that might not be adequately provided by the 1 private sector/profit not an objective. To provide a service to the local community/ social B 1 objectives A Owned/controlled by the state/government 1 Note: Must have an answer from section A or B Content A business owned and controlled by the government to provide services and products that might not be adequately provided by the private sector. Exemplar Marks Rationale Owned and controlled by the state All 3 elements included – A + (1) to provide a social benefit (1) 3 B + C profit not an objective (1) Owned by the government (1) e.g. 2 Only 2 elements A + C fire service (1) Not run with the aim of making a profit (1) but aim to a service to 2 Only 2 elements B + C the community (1) State owned enterprise (1) 1 Only 1 element A Too vague – private sector Organization funded by the 0 organizations may be funded government by the government 1(b)(i) Calculate the gross profit margin (%) for The Lido. 3 Rationale Marks Correct answer with or without correct working 3 Identifies correct data 2 Formulae* 1 No creditable content 0 *Could be implicit from the figures Content (GP / Revenue) × 100 (70 / 280) × 100 = 25% accept 25 Exemplar Marks Rationale 25% 3 Correct answer (70 / 280) × 100 3 Correct numerical answer = $25 (70 / 280) × 100 Not converted to a % but correct formula and 2 = 2500 data Correct formula but cost of sales used instead of (70 / 210) × 100 2 TR. OFR rule applies so 1 mark for correct = 33.3% formula and 1 mark for (OFR) answer 1 mark for formula but used profit rather than GP. OFR does not apply here, as the answer (30 / 280) × 100 1 should have a decimal point after 10 i.e. = 1007140 10.07140. If the decimal point in the correct position then 2 marks 1(b)(ii) Explain how one stakeholder of SP might be affected by the Lido making 3 a loss. Level Knowledge and Application Marks 2b (APP Explanation of an effect on a stakeholder in context 3 + APP) 2a (APP) Identification of an effect on a stakeholder in context 2 1 (K) Identification of an effect on a stakeholder 1 0 No creditable content 0 Content: • Government/owners: more government spending needed – opportunity cost of spending • Customers: prices may increase, may have to travel to further swimming pool • Local community: poor service, travel to other pools • Workers: may be made redundant, lower wages Reference to owners not having dividends, etc. are unlikely to be in context. Closure is not an impact unless it is taken through to show how the stakeholder would be impacted, i.e. The Lido may close leading to an increase in the funds available for the government to spend. ARA 1(c) Analyse one advantage and one disadvantage to SP of using price 8 discrimination. Knowledge tation marks) tation Level Applicationand Marks Anno- Analysis (4 Anno- Marks (4 marks) Good analysis of Shows one advantage understanding APP+ and one DEV+ 2b of price 4 4 APP disadvantage to DEV discrimination SP of using price in context discrimination Good analysis of Shows one advantage or understanding one disadvantage 2a of pricing 3 APP 3 DEV to SP of using methods in price context discrimination Limited analysis of Shows one advantage knowledge of and one AN+ 1b 2 K+K 2 price disadvantage of AN discrimination using price discrimination Limited analysis of Shows one advantage or knowledge of 1a 1 K one disadvantage 1 AN pricing of using price methods discrimination No creditable 0 content Content Advantages: • Increase number of customers – particularly important for a publically owned business • Gives access to the swimming pool to more people, not dependent on income • Can be used to increase demand during off peak times • Can be used to decrease demand at peak times. Disadvantages: • Reduce income – may be contributing to the loss made by The Lido • May be seen as a poor quality service • May be seen as unfair against people who pay full price • May lead to excess demand at off peak times and low demand at peak time 1(d) Recommend whether SP should close The Lido. Justify your answer. 11 Knowledge and Analysis and Anno- Anno- Application Evaluation tation tation Marks Marks (4 marks) (7 marks) A justified recommend- ation based on 7 a developed two sided argument A developed recommend- ation based on 6 a developed two sided argument A basic recommend- ation based on 5 EVAL a developed two sided argument Developed argument based APP + on closure of 4 APP the Lido and Shows understanding of keeping the Lido factors affecting open business performance 3-4 of The Lido or the Developed impact of closing/ argument based staying open in context on either APP 3 closure of the Lido or keeping the Lido open Limited analysis of closing a Shows knowledge of 1-2 K + K business and 2 business performance keeping a business open Limited analysis of closing a K business or 1 keeping a business open No creditable content 0 1(d) Content Arguments for closure: • The Lido will be subsidised by other swimming pools/the Government – is this a good use of taxpayers’ money? • Would a different facility be better – one that could make a profit or cover its own costs? • Is the local area the best for a swimming pool – would government money be better spent on creating jobs? Arguments against closure: • Publically owned so profit is not the objective of the business – does it matter if The Lido makes a loss? • The Lido only makes a loss when the allocation of Head Office costs are included – is this a fair allocation? • The local community has high unemployment – closure is likely to affect these the most • There are many schools in the local area – the closure would reduce the ability for these to teach swimming. • The Lido benefits local fitness/combats obesity

This question in 9609/21 Oct/Nov 2018

1 Clothing Line (CL) Thamir is an entrepreneur who built up an international retail business. He is now a multi-millionaire who provides venture capital. Thamir is currently deciding whether to purchase 50% of the shares in Clothing Line (CL) which is a private limited company. CL is an online clothing retailer which has been operating for five years. The owners cannot finance further internal growth and have 5 invited Thamir to invest in the business. CL purchases clothing from a number of suppliers. CL places orders for items of clothing each month. The clothes are then delivered to a large warehouse where employees sort and package individual items ready for sending to customers when they are ordered. CL has published its latest accounts and Thamir has obtained a copy of them. A summary 10 is shown in Fig. 1. Fig 1: Summary of CL’s published accounts on 31 December 2017 ($000s) Income statement Statement of financial position Revenue 500 Non-current assets 760 Gross profit 150 Current assets 200 15 Profit for the year 50 Current liabilities 40 Non-current liabilities 500 Equity and reserves 420 CL has a very popular website where customers order their clothes. Products that are ordered by 18:00 each day are guaranteed to be delivered to customers the next day. 20 This means that CL must hold high levels of buffer inventory. Thamir is concerned that the business is holding too much inventory which may lose value over time. He has told the current owners of CL that he will only invest in the company if they introduce a just-in-time (JIT) system of inventory management. (a) (i) Define the term ‘venture capital’ (line 2). [2] (ii) Briefly explain the term ‘internal growth’ (line 5). [3] (b) (i) Refer to Fig. 1. Calculate the current ratio as at 31 December 2017. [2] (ii) Analyse two limitations to Thamir of using published accounts to decide whether to invest in CL. [8] (c) Explain two qualities that Thamir is likely to need as a successful entrepreneur. [4] (d) Discuss which stakeholders of CL are likely to be most affected by the introduction of just-in- time (JIT) inventory management. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘venture capital’. 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content One mark for an understanding that this is a source of finance (from the business perspective) or an investment (from the entrepreneurs perspective) • Source of finance/investment/equity/funds One mark for an understanding that this is risky, or for a risky purpose – do not allow ‘risk’ on its own as all investments have risk • Provided for high risk/risky/riskier/new businesses/high growth/innovations Exemplar Marks Rationale A source of finance provided to 2 Both elements high risk businesses. Investment into a new 2 Both elements business The equity into a high growth 2 Both elements business A risky source of finance 2 ‘Risky’ is just enough for high risk – don’t accept risk on its own An investment with some risk 1 Investment is worth a mark, but ‘some risk’ is true of all investments High risk capital 1 ‘Capital’ is a repeat of the question The money provided to a 1 ‘starts up’ is good enough business when it starts up (new business), but ‘money provided’ is not enough (source of finance) The capital provided for a 0 A tautology venture 1(a)(ii) Briefly explain the term ‘internal growth’. 3 Award one mark for each point of explanation: Knowledge Marks C Example (an example needs to be specific – not the 1 same as items in the A mark) or some other way of showing good understanding, for example AKA organic growth or less risky than external growth, higher cost, higher profitability etc. B Explanation of internal (in terms of growth), – using own 1 funds, reinvesting etc. or in terms of NOT merging/taking over another business (do not allow not external) A Explanation of growth – expansion, getting bigger, opening 1 more stores/factories/outlets etc. Content When a business expands its own operations using internal sources of finance. Known as organic growth. Exemplar Marks Rationale Organic growth by using the 3 ‘Organic growth’ – C mark businesses profits to open ‘using businesses own profits’ more shops. – B mark ‘to open more shops’ – A mark Expansion by reinvesting 2 Expansion is A mark profits as opposed to a Reinvesting is B mark merger. ‘As opposed to merger’ is also the B mark Growth by using the 2 B and C mark – do not award businesses own funds. It is ‘growth’ as the A mark also known as organic growth. because it is part of the term/in the question. Expansion by opening more 1 This is only about growth – A stores or selling more mark, but many times which products. This growth will lead only gives one mark to more sales and the business being able to grow even more in the future. Growth by using internal funds 0 Tautology 1(b)(i) Refer to Table 1. Calculate the current ratio as at 31 December 2017. 2 Rationale Marks Correct answer with or without correct working 2 Formulae or identification of correct figures 1 No creditable content 0 Content CA CL 200 40 = 5:1 (accept 5) Answer Rationale Marks 5 (no working) A correct answer 2 CL/CA Formula is wrong way round but 1 = 40/200 correct figures have been identified = 1:5 1:5 (no working) No formula or correct identification of 0 correct figures. 40/200 = 0.2 Correct figures have been identified 1 0.2 (no working) No formula or correct identification of 0 correct figures. 1(b)(ii) Analyse two limitations to Thamir of using published accounts to 8 decide whether to invest in CL. Level Knowledge and Marks Analysis Marks Application (4 marks) (4 marks) 2 Shows 4 Developed analysis 4 understanding of to Thamir of two two limitations of limitations of using CL’s published CL’s published accounts accounts Shows 3 Developed analysis 3 understanding of to Thamir of one one limitation of limitation of using CL’s published CL’s published accounts accounts 1 Shows knowledge of 2 Limited analysis of 2 two limitations of two limitations of published accounts using published accounts Shows knowledge of 1 Limited analysis of 1 one limitation of one limitation of published accounts using published accounts 0 No creditable content OFR Do not accept answers which state that the published accounts could be ‘wrong’ without a valid reason why they might be wrong. Analysis must be about the limitations to Thamir (as a potential owner/investor) to achieve level 2. Non-contextual answers can only gain 2 + 2 = 4 marks 1(b)(ii) Content • Historical – Published accounts are backward looking and will not tell Thamir much about the current state of the business for his investment. Is the business worth the same now as it was when the accounts were published. Also these accounts are from 31/12/17 – so half a year out of date. • Need something to compare the accounts with – this is only one year, so there is nothing to compare with for Thamir to know if CL is improving or not. • Need other businesses within industry to compare – no other businesses in the clothing industry to compare CL’s accounts with. • Non-financial assets are not included, e.g. human resources, management. May not give the full picture to Thamir. Only includes quantitative values • Income statement only shows totals for the year • Statement of financial position only a snapshot of a business at one point in time • Market is dynamic and changes will not be reflected in the historical account Accept reference to what is missing from the given accounts (fig 1) as contextual (even though the data might appear in the published accounts), e.g. no inventory shown Examples of Examples of Examples of Examples of knowledge of application/context possible developed a limitation of limited analysis in using analysis context published accounts Can be window CL may have This could Which may dressed (K) postponed payment make the lead Thamir to of bills until after current assets pay more for 31st December appear to be 50% of the (APP) worth more business (DEV) (AN) May not reflect Which may make a risky and may lead changes (K) Thamir’s 50% investment to him losing investment in (AN) his money shares (APP) (DEV) May not show The $760 000 value The business Which may customer of the non-current may be worth lead Thamir to loyalty (K) assets may not more than not invest in the include the Thamir thinks it business. customer loyalty is (AN) (DEV) (APP) 1(c) Explain two qualities that Thamir is likely to need as a successful 4 entrepreneur. Level Knowledge and Application Marks Annotations 2 Explanation of two characteristics in 4 APP + APP context Explanation of one characteristic in 3 APP context 1 Explanation of two characteristics 2 K + K Explanation of one characteristic 1 K 0 No creditable content 0 Content • Risk taker • Leadership skills • Energy and enthusiasm • Self-belief and confidence • Persistence and drive • Ability to work under pressure • Creativity and imagination • Multi-skilled • Dynamic ARA Knowledge of entrepreneurial Possible context (APP) quality needed for success (K) Risk taker To invest venture capital Leadership skills To become a 50% owner/manager in CL Energy and enthusiasm To take on managerial roles such as advice on JIT Drive Because he was driven to build up an international retail business 1(d) Discuss which stakeholders of CL are likely to be most affected by the 11 introduction of Just in Time (JIT) inventory management. Knowledge and Analysis and Application Evaluation (4 marks) Marks (7 marks) Marks Annotation Annotation A justified 7 EVAL judgement based + on a developed EVAL argument of at + least two EVAL stakeholders A developed 6 EVAL judgement based + on a developed EVAL argument of at least two stakeholders A basic 5 EVAL judgement based on a developed argument of at least two stakeholders Shows 3–4 APP + Argument based 4 DEV + understanding of APP on the impact on DEV two stakeholders two stakeholders in context of CL of just in time in context Shows APP Argument based 3 DEV understanding of on the impact on one stakeholder one stakeholder in context of CL of just in time in context 1(d) Knowledge and Analysis and Application Evaluation (4 marks) Marks (7 marks) Marks Annotation Annotation Shows knowledge 1–2 K + K Limited analysis 2 AN + of two on two AN stakeholders stakeholders of CL of the introduction of just in time Shows knowledge K Limited analysis 1 AN of one on one of CL stakeholder stakeholder of the introduction of just in time No creditable content 0 Content • Suppliers – at the moment the suppliers deliver once a month but just in time will require more regular deliveries (perhaps daily). This is likely to increase the costs of the supplier which they may or may not pass on to CL. Will CL need to change to closer suppliers? Current owners – could require significant investment. May also be savings to be made on the large warehouse that may not be needed any more. • Employees – May be made redundant if they work in the warehouse – alternatively their job may change to distribution rather than warehouse. • Customers – used to next day delivery, but this may not be possible if clothes have to be ordered from suppliers after they have been ordered by the customer. • Thamir – Condition of him investing in CL 1(d) ARA An example of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Suppliers only deliver JIT might Which could Overall the inventory to mean that decrease the supplier will CL once a the suppliers suppliers be more month and would need profit. affected by will need to to deliver the increase goods every introduction this. day of JIT than increasing the customer their costs. (EVAL). Customers Expect their With JIT this Which could Because the deliveries may no make the supplier may the next day longer be customer not have if ordered by possible and have to enough 18.00. the customer order from other may have to elsewhere. customers to wait longer. stop supplying CL, whereas the customer is likely to have greater choice of where to buy clothes from. (EVAL EVAL). However this depends on how much extra time the customer will have to wait for delivery (EVAL EVAL EVAL).

This question in 9609/22 Oct/Nov 2018

1 Jim’s Farm (JF) JF is a private limited company which owns a farm. It produces crops including maize and sunflower seeds. The crops are sold to manufacturers that produce cooking oils for supermarkets. Jim is worried as the price JF receives for its crops is falling. JF is only paid four times a year when the crops are ready, so cash flow is poor. Sam, Jim’s son, has recently completed a management degree at university. He is worried that 5 the farm will not reach its break-even point if the price continues to fall. He has researched ways his father could increase the value added to the crops. Sam has identified that healthy eating is a growing trend. He has created a plan for the business which considers two options, shown in Table 1.1. Sam has identified that supermarkets would buy most of the new products and he could also sell them to independent retailers. 10 Table 1.1: Options for the future of JF Option 1 Option 2 Product Healthy snacks Healthy cooking oil Market type Mass Niche Start-up capital ($000) 100 75 15 Annual expenses ($000) 50 35 Annual cost of goods sold ($000) 60 75 Forecast annual market growth 10% 15% Forecast annual sales 300 000 units 100 000 units Proposed price per unit $0.50 $2.00 20 Figs. 1.1 and 1.2 show extracts from articles about the two options. Healthy eating campaigns in schools are changing the way that young people snack and the sales of ‘healthy snacks’ made from nuts and seeds are growing. Healthy eating is rapidly becoming an important social issue and for some consumers, quality is more important than price. 25 Fig. 1.1: The rise of the healthy eating campaign Business analysts are excited about the potential profitability of premium cooking oils, which offer a healthy alternative to traditional products. High income consumers are prepared to pay high prices for healthy oils made by small independent producers. Fig. 1.2: Future demand for healthy cooking oil 30 (a) (i) Define the term ‘break-even’ (line 6). [2] (ii) Briefly explain the term ‘value added’ (line 7). [3] (b) (i) Calculate JF’s forecast gross profit margin for Option 1. [3] (ii) Explain one reason why JF might aim for a high gross profit margin. [3] (c) Recommend which option Jim should choose using the information in the case study. Justify your view. [11] (d) Analyse two suitable sources of finance JF could use for the option you have chosen in 1(c). [8]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘break-even’ (line 6) 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No credible content 0 A correct definition should cover the following: • expenditure (costs) and income (revenue) are equal • the level of sales/units where there is no profit or loss • TR = TC Exemplar Marks Rationale When a business makes enough 2 Both elements sales/revenue/income to cover all the covered costs TC = TR 2 Both elements covered Cost of sales is equal to sales 1 No understanding of revenue. total costs (CoS only covers direct costs) The business makes no profit or loss 1 No understanding of the level of sales/units The point at which a business stops 1 No understanding of making a loss and can start to make a the level of profit sales/units Where the business has made 0 Tautological, no enough sales to have broken even. understanding 1(a)(ii) Briefly explain the term ‘value added’ (line 7). 3 Award one mark for each point of explanation Knowledge Marks C Example or some other way of showing good 1 understanding – e.g. refining raw materials, adding packaging etc., at different stages of production B To a customer/leading to an increase in price 1 A The increase in worth of a product/service 1 Exemplar Marks Rationale Adding value is the process of 3 All three elements increasing the worth of a good (A) to a customer (B), such as refining a raw material (C). To increase how much a business can 3 All three elements charge for of a good (A+B) at each ‘Can charge’ stage of production (C) suggests more than just an increase in price – there is an element of value here. The difference between the cost of a 2 A and B good to produce and the price at which it is sold (A+B). Increase the worth of a good (1) at 2 A and C – ‘customer each stage of production (C) expectations’ is taken from the case study To increase the selling price of a 1 This is just about product (B) increasing price, not value To add value to a product 0 tautological 1(b)(i) Calculate JF’s forecast gross profit margin for Option 1. 3 Knowledge Marks Correct answer (with or without calculation and/or %) 3 Attempt using correct figures/formula or correct calculation of 2 gross profit ($90 000) and correct calculation of revenue ($150 000) Correct formula or correct calculation of gross profit ($90 000) 1 or correct calculation of revenue ($150 000) No credible content 0 Gross profit × 100 (1 mark) Sales revenue Sales revenue − cost of goods sold × 100 (1 mark) Revenue (output × SP) 150000 − 60000 × 100 150000 90000 × 100 150000 Answer = 60% (accept with or without %) examples overleaf 1(b)(i) Answer Rationale Marks 60 (no working) Correct answer – accept 3 without % 90000 Not made into a % (one 2 = 0.6 mistake) 150000 0.6 (no working) Wrong answer with no 0 working to support the answer 90000 Not calculated revenue – left 2 × 100 = 30% as output (one mistake) 300000 30% (no working) Wrong answer with no 0 working to support the answer $90 000 Correct calculation of gross 1 profit – allow even if there is no working $150 000 Correct calculation of revenue 1 – allow even if there is no working $90 000 and $150 000 Correct calculation of gross 2 profit and revenue 240000 Not correctly calculated GP or 1 × 100 = 80% revenue (two mistakes) 300000 40000 Added expenses to the CoGS 2 × 100 = 26.67% (1 mistake) 150000 100 + 50 + 60 = 210 Has added all costs (including 1 start-up costs), and then has 150 – 210 = -60 (net loss) the correct process (OFR). Two mistakes (using all costs − 60 and adding start-up costs) but × 100 = − 40% correct process 150 1(b)(ii) Explain one reason why JF might aim for a high gross profit margin. 3 Level Knowledge and application Marks 2a (APP) Explains one reason for aiming for a high gross 3 profit margin in context 1b Explains one reason for aiming for a high gross 2 (K+K) profit margin (no context) 1a Identifies one or more reasons for aiming for a 1 (K) high gross profit margin (no context) 0 No creditable content 0 Note: this question asks specifically about GP marking – to reward any answer that links to overall (net) profit or net profit margin, there must be a link, i.e. high GP margin may allow JF to make more NP to give to shareholders. Some reasons for aiming for a high GPM: • Shows potential investors/shareholders that the business can produce efficiently • To leave enough to pay the business expenses/indirect costs • To increase the overall (net) profit of the business Knowledge of a Explanation (K+K) Possible context reason why JF (APP) might aim for a high GPM (K) Measure of JF may need to prove it Particularly important efficiency is operating efficiently because it is a private to any potential limited company investors To cover Otherwise JF may not The expenses are expenses/indirect make any profit for the $50 000 for option 1 costs year To increase (net) Which will allow the The owners are profit for the year owners to have more shareholders (Ltd) income The (net) profit is currently $40 000 for option 1 1(c) Recommend which option Jim should choose using the information in 11 the case study. Justify your view. Knowledge and Analysis and Application Marks Evaluation Marks (4 marks) (7 marks) A justified 7 recommendation based on a developed argument of both options A developed 6 recommendation based on a developed argument of both options A basic 5 recommendation/ judgement based on a developed argument of both options Shows understanding 4 Developed argument 4 of Option 1 (healthy based on the impact on snacks) and Option 2 JF of choosing Option 1 (healthy cooking oil) (healthy snacks) and Option 2 (healthy cooking oil) Shows understanding 3 Developed argument 3 of Option 1 (healthy based on the impact on snacks) or Option 2 JF of choosing Option 1 (healthy cooking oil) (healthy snacks) or Option 2 (healthy cooking oil) Limited analysis of 2 product development Shows knowledge of 1-2 product development Limited analysis of 1 Product development No creditable content 0 1(c) Content: Option 1 (healthy snacks) • A new market opportunity for JF but no experience of marketing/selling these healthy snacks • Mass market – high sales but possibility of high competition • A growth market (10%) but less than Healthy cooking oil (15%) • Society sees this as an important issue – good publicity for JF • High price can be charged for a quality product • Can JF produce this product? • Will the supermarkets purchase from JF? • Higher start up costs ($100 000) than Healthy cooking oil ($75 000) • Higher expenses ($50 000) than healthy cooking oil ($75 000) • Lower CoGS ($60 000) than healthy cooking oil ($75,000) • Forecast sales higher (300 000) than healthy cooking oil (100 000) • Lower price ($0.50) than healthy cooking oil ($2.00) • Lower forecast revenue ($150 000) than healthy cooking oil ($200 000) • Lower GPM (60%) than healthy cooking oil (62.5%) • Lower NPM (26.7%) than healthy cooking oil (45%) • Forecast to make a loss (–$60 000) in Year 1 compared to profit of healthy cooking oil (+£15 000) Option 2 (healthy cooking oil) • Synergy with JF’s current product range • Lower start up capital required ($75 000) than Healthy snacks ($100 000) • Lower fixed costs/annual expenses ($35 000) than Healthy snacks ($50 000) • Higher forecast market growth (15%) than Healthy snacks (10%) • A development from what JF already produces – less risk • Attracts high income consumers/customers • High price can be charged ($2) than Healthy snacks ($0.50) • Could enhance JF’s image • JF already has a link to distribution through supermarkets ARA 1(d) Analyse two suitable sources of finance JF could use for the option 8 you have chosen in 1(c) Knowledge and Analysis Level application Mark Mark (4 marks) (4 marks) 2b Shows 4 Developed analysis 4 understanding of of two suitable two suitable sources of finance sources of finance in context in context 2a Shows 3 Developed analysis 3 understanding of of one suitable one suitable sources of finance source of finance in in context context 1 Shows knowledge 2 Limited analysis of 2 of two sources of two sources of finance finance Shows knowledge 1 Limited analysis of 1 of one source of one sources of finance finance 0 No creditable content 0 Answers could include: • Long term loan to pay for the fixed costs of milling/bottling etc. • Re-mortgaging/extending the mortgage on the farm • Attracting new shareholders into the farm (Note: JF is a Ltd) • Leasing/HP for additional machinery • Overdrafts for the short term variable costs • Trade credit for short term variable costs Any answer which mixes a long term solution for a short term problem should not be classed as suitable.

This question in 9609/22 Feb/March 2019

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

30 marks

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

This question in 9609/21 May/June 2019

1 Quality Fencing (QF) QF is owned by Seojun. Seojun is a sole trader who repairs and builds wooden fences. Most of his customers own houses with gardens in city X. Seojun is an entrepreneur who has an aim to be rich. He set up QF two years ago to fulfil his aim and he set himself the following objectives: • to make $1m profit within 5 years 5 • to have a 20% market share in city X within 5 years. Seojun has made some progress towards his objectives (see Table 1.1). Table 1.1: Financial and market share data for QF Year 1 Year 2 Year 3 (forecast) 10 Total revenue $120 000 $240 000 $480 000 Direct costs $70 000 $110 000 $150 000 Indirect costs $20 000 $40 000 $80 000 Market share in city X 2% 4% 8% Seojun’s target market is house owners with medium to large gardens. Most houses in city 15 X have a garden. Promotion is important to Seojun, because the market for fence building and repairs is very competitive in city X. Most customers book QF’s services by telephone, but there is a growing need for online bookings. The business is forecast to continue to grow. Seojun has decided to employ two new workers. He has written a job description (see Table 1.2). 20 Table 1.2: Job description Job title: Fence builder Required: As soon as possible Salary: Based on age Qualifications: A-Levels are desirable but not essential 25 A workman is required to build and repair fences for a growing local business called QF. Full training will be provided. Experience of building and repairing fences is essential. Must be fully physically fit and under the age of 25. (a) (i) Define the term ‘training’ (line 27). [2] (ii) Explain the term ‘entrepreneur’ (line 3). [3] (b) (i) Refer to Table 1.1. Calculate the percentage change in profit from Year 1 to Year 2. [4] (ii) Explain one difficulty in measuring the market share of QF. [2] (c) Analyse two problems with the job description created by Seojun in Table 1.2. [8] (d) Recommend suitable promotion methods which would help Seojun to achieve his objectives. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘training’ (line 27). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Note: this is a definition question so there are no marks for examples of training, i.e. on-the-job, off-the-job and induction. Content A correct definition should include the following elements: • The teaching/development of skills/knowledge (1) • To perform a task, become more efficient, increase productivity, meet organisation/departmental/job objectives, etc. (1) Exemplar Marks Rationale Training involves developing skills so 2 Both elements covered that workers can do their job more efficiently Making an employee better at doing 1 ‘Better at doing their job’ their job is enough for one mark Helping an employee to develop skills 1 ‘Developing skills’ is enough for one mark The person who is employed by an 0 NAQ – describing a organisation to do a job who needs trainee experience before they can do their job Training can be on the job or off the 0 No marks for an example job as this is a definition question 1(a)(ii) Briefly explain the term ‘entrepreneur’ (line 3). 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 • An example of an entrepreneur (do not allow Seojun) Only reward each characteristic once. 1(a)(ii) ARA Answer Marks Rationale An entrepreneur is a risk-taker (1) who 3 Three characteristics tries to make a profit (1) by organising the factors of production (1) Someone who makes decisions (1) 3 Three characteristics about factors of production (1) to make a profit (1) An entrepreneur works hard (1) and has 2 Two characteristics confidence (1) Someone who organises the land that a 1 Only one mark for business needs (1). They also organise ‘organising’ the factors the amount of workers a business needs of production – do not and they also organise the capital that a keep rewarding the business may need same characteristics An entrepreneurship is one of the factors 0 NAQ of production 1(b)(i) Refer to Table 1.1. Calculate the percentage change in profit from Year 1 4 to Year 2. Rationale Marks Correct answer with or without correct working or % 4 Correct calculation of the change in profit 3 Correct calculation of Year 1 and Year 2 profit 2 Formula or correct calculation of Year 1 or Year 2 profit 1 No creditable content 0 Content Profit = TR – TC Year 1 profit = 120 000 – (70 000 + 20 000) = 30 000 Year 2 profit = 240 000 – (110 000 + 40 000) = 90 000 Change in profit = 60 000 60000 % change = × 100 = 200% (increase) 30000 Correct answer – 200% 1(b)(i) OFR* Common incorrect answers Answer Marks Rationale 200 (no working) 4 Candidate does not need to include the % sign 60000 3 Correct calculation of the change in = 2 profit (60 000) but not calculated the 30000 percentage change 2 (no working) 0 An incorrect answer with no working to understand where the answer comes from 60000 3 Correct calculation of the change in × 100 = 67% profit (60 000) but incorrectly calculated 90000 the percentage change 60 000 (no working) 3 Correct calculation of the change in profit 30 000 (no working) 1 Correct calculation of Year 1 profit 90 000 (no working) 1 Correct calculation of Year 2 profit 90000 2 Correctly identified the two profit figures, × 100 = 300% but no attempt to find the difference 30000 *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 difficulty in measuring the market share of QF. 2 Level Knowledge and Application Marks 2 Explanation of a difficulty with measuring market share 2 (APP) in context 1 (K) Identification of a difficulty with measuring market share 1 0 No creditable content 0 Content • How is the market share measured? Number of fences? Revenue? • Where are the boundaries of City X? • How much fence building and repair is in the informal market – does this affect the market share? • Where has the research come from – Seojun has only been in the market for two years, so can he be sure of the data? • The market may be out of date – it is a very competitive market • Which products are involved – is it just wooden fences, all fences or any maintenance work? ARA Example of how responses should be marked Identification of a Explanation of a difficulty in context (3 marks) difficulty (1 mark) How is it measured (K) By number of fences or time that it takes (APP) How has the data been Seojun has only been in the market for two years, gathered (K) so may not have enough experience to know (APP) The market might have Very competitive market (APP) changed (K) 1(c) Analyse two problems with the job description created by Seojun in 8 Table 1.2. Knowledge and Level Application Marks Analysis (4 marks) Marks (4 marks) 2b Shows 4 Good analysis of an 4 understanding of effect on the business two characteristics of two problems with of a job description the job description in context 2a Shows 3 Good analysis of an 3 understanding of effect on the business one characteristics of one problem with of a job description the job description in context 1b Shows knowledge of 2 Limited analysis of 2 two characteristics two problems of a job of a job description description 1a Shows knowledge of 1 Limited analysis of 1 one characteristic of one problem of a job a job description description 0 No creditable content 0 Content A job description describes the tasks, or functions, and responsibilities of a role within an organisation. Problems: • ‘As soon as possible’ – with no date on the description, some potential workers may think this is out of date and not apply • Salary should not be based on age – this suggests age discrimination. May be illegal and the business could face sanctions. May only attract older workers (for the perceived higher wage) • Why would this role need A-Levels? This is likely to put off potentially good workers because they do not have the qualifications. In some countries A-Levels are uncommon, so this might be a very unlikely qualification. This is unlikely to get a good range of applicants • Qualifications should appear on the person specification rather than the job description – may confuse potential applicants • ‘Workman’ – this is sexist and may lead to sanctions on the business. Also, may miss out on good female applicants • ‘Local business’ – local to where – with no address applicants may assume it is local to them, wherever they are • Experience is essential, but full training will be given – too ambiguous – if full training is given why is experience needed? – Experience should appear on the person specification − How many applicants is QF likely to receive if Seojun requires experience of both building and repairing? 1(c) ARA Example of an Examples of Examples of possible aspect of a job application/context analysis (AN + DEV) description (K) (APP) A job description In this case experience This might mean that Seojun contains the of building and might not get any people experience repairing fences is applying (AN) which may needed (K) essential (APP). mean QF cannot grow in the future (DEV) 1(d) Recommend suitable promotion methods which would help Seojun to 11 achieve his objectives. Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified recommendation 7 based on argument in context Developed recommendation 6 based on argument in context An evaluative 5 statement/recommendation based on argument in context Shows understanding 4 Argument based on two 4 of two (or more) promotion methods in context promotion methods in context Shows understanding 3 Argument based on one 3 of one promotion promotion method in context method in context Shows knowledge of 2 Limited analysis of two 2 two promotion promotion methods methods Shows knowledge of 1 Limited analysis of one 1 one promotion method promotion method Note: If the candidate has attempted to analyse more than two promotion methods, then annotate the one that gain the most marks for the candidate. Content • Posters – cost effective and could be effective in the local area • Local TV/radio/newspaper – reach a large local audience – mass market product (many people may have access to a garden) • Other forms of local advertising – buses, roadside, etc. 1(d) • Garden centres/alongside complementary products • Direct promotion – door to door sales, especially if a ‘bad’ fence is spotted • Word of mouth – likely to be essential in this industry, but difficult to control • Internet – many recommendation websites – social media promotion – can be cheap and targeted, but do many people hire services this way? Allow the benefit of internet promotion allowing more online bookings. • Promotional pricing is a valid method – but only if it is specifically linked to promotion, e.g. BOGOF. Do not reward pricing strategies/changes on their own Note: Allow above-the-line and below-the-line as promotion methods. Also allow two different types of advertising (i.e. newspaper and TV) as different methods of promotion. ARA An example of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Internet There is a By Which can Overall growing promoting mead to newspaper need for using the increased advertising is online internet, revenue for most likely to bookings Seojun can QF target Seojun’s drive current target customers customers to book (EVAL) because online he can advertise his Newspaper He can This would Which reduces telephone advertising target be an the costs for number and that higher efficient way QF is how most income to target his customers book people in customers (EVAL), City X who however if he are more really wants to likely to develop his own online bookings houses then the internet with may be best gardens (EVAL) Note: fully reward candidates who do not make a choice between their chosen methods – it is just as acceptable to recommend more than one method.

This question in 9609/22 Oct/Nov 2019

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

30 marks

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

This question in 9609/23 Oct/Nov 2019

2 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 production. As demand grew for the bags, Hannah took on a partner, her brother Kwom. They both agreed to keep the name ‘Hannah’s Handbags’ as it is an established, reputable and widely recognised brand. HH operates from a small workshop and showroom. Customers are encouraged to visit the 5 showroom to discuss design and materials with either Hannah or Kwom. HH employs four highly skilled specialist production staff. Table 2.1 shows an extract from the latest income statement. Table 2.1: Extract of financial data for HH (year ended 30 October 2019) $000 10 Revenue 980 Cost of sales 588 Expenses 245 A new product Hannah and Kwom would like to expand the business by producing a limited number 15 of batch produced bags to sell online. Hannah has noticed other bag producers do this successfully. The new market has many more competitors, with 15 large businesses and many small ones. The bags would have to be priced competitively. Kwom estimates that this new venture would require additional finance of $350 000. HH would also require a specialist IT provider to set up a website and a marketing agency to run a viral marketing 20 campaign. (a) (i) Define the term ‘income statement’ (line 8). [2] (ii) Explain the term ‘viral marketing’ (line 20). [3] (b) (i) Refer to Table 2.1. Calculate the gross profit margin. [3] (ii) Explain one reason why HH needs accurate cost data. [3] (c) Analyse one advantage and one disadvantage to HH of using job production. [8] (d) Evaluate the likely success of the marketing mix for the new product. [11]

30 marks

Mark scheme: 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.

This question in 9609/21 May/June 2020

1 UPlane Components (UC) UC is a private limited company providing engine parts for commercial aircraft. It uses batch production in factory A and flow production in factory B. As part of UC’s commitment to corporate social responsibility (CSR), it provides a training scheme for the long-term unemployed, based in factory A. UC’s products are sold to aircraft engine manufacturers. Demand for aircraft engines has 5 increased by 45% over recent years. The aircraft engine manufacturers want inventory just when needed and are demanding a reduction in prices. In 2017, UC opened factory B which is 5 km away from factory A. Factory B has a high level of automation, resulting in low unit costs for the parts produced there. Production is capital intensive. UC has a plan to automate factory A. The production workers are not happy 10 about this proposal and have asked for more details. The workers’ representatives have asked for a meeting with the human resource manager. In December 2019 a fault was discovered in one of the engine components supplied by UC and produced in factory A. UC had to recall 2000 parts at a cost of $200 000. This has had an impact on part of its triple bottom line and UC is unlikely to meet its targets. Table 1.1 15 shows some financial data for UC. Table 1.1: Financial data for UC Year ending 30 November 2019 Year ending 30 November 2020 ($m) ($m forecast) Revenue 5.8 6.4 20 Cost of sales 2.3 3.4 Expenses 1.3 1.6 Cost of recall - 0.2 Amjit, the human resource manager, believes that the fault was caused by the negligence of Jack, one of the production supervisors. Jack claims that he was made to work overtime 25 to try and meet production targets. This caused him to become tired and make a mistake in one batch of parts. Amjit wants to dismiss Jack. (a) (i) Define the term ‘corporate social responsibility (CSR)’ (line 3). [2] (ii) Explain the term ‘triple bottom line’ (line 15). [3] (b) (i) Refer to Table 1.1. Calculate the forecast profit margin for the year ending 30 November 2020. [3] (ii) Explain one likely effect on UC of a decrease in profit. [3] (c) Analyse two likely effects on the other employees if Jack is dismissed. [8] (d) Recommend whether UC should automate factory A. Justify your recommendation. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘corporate social responsibility (CSR)’ (line 3) . 2 Knowledge and Application Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Answers could include: When a company aims to act ethically and responsibly to ensure that the public perceives it positively and may help to attract new customers. A correct definition should include the following elements (allow one mark for each element): • Acts ethically / in the interests of society / the environment • Helps attract new customers / considers impact on stakeholders / business objective beyond legal obligations Exemplar Mark Rationale Businesses act ethically and consider 2 Both elements – the impact of their actions on customers ethically and impact on a stakeholder (customers) Where a business considers the impact 1 One element only on the environment CSR is a business objective 0 Not defined 1(a)(ii) Explain the term ‘triple bottom line’ (line 15). 3 Rationale Marks C An explanation of all three elements of a triple bottom 1 line to include, e.g. an example or some other way of showing a good understanding B An understanding of all three elements of a triple 1 bottom line A An understanding of two elements of a triple bottom line 1 Answers could include: The 3Ps of people, planet and profit. Broader measure than the financial bottom line to include a measure of businesses social responsibility, economic value, and environmental impact. Exemplar Mark Rationale It is to maximise profits for 3 All 3 elements + shareholders, taking care of the example ‘maximising environment and benefitting the profits for community shareholders’ The triple bottom line includes social, 2 All 3 elements but no environmental and economic objectives expansion Triple bottom line puts the planet before 1 Only 2 elements profit The triple bottom line refers to the base 0 NAQ – no explanation objectives of a business or evidence of understanding 1(b)(i) Refer to Table 1.1. Calculate the forecast profit margin for the year 3 ending 30 November 2020. Rationale Marks Correct answer with or without correct working or % 3 Formula and correct calculation of profit 2 Formula or correct calculation of profit for end of Nov 2020 1 No creditable content 0 e.g. Profit margin = (profit / total revenue) x 100 (1) Profit for end of Nov 2020 = 6.4m – (3.4m + 1.6m + 200 000) = $1.2m (1) $1.2m / $6.4m = 0.1875 (2) ($1.2m/$6.4m) x 100= 18.75% (3) Accept any answer between 18.7% and 19% (3) % not required for full marks OFR* 1(b)(i) Common incorrect/correct answers Answer Mark Rationale 18.75 3 Correct answer – does not need % 18.8% 3 Correctly rounded answer (1 dec place) 19% 3 Correctly rounded answer (0 dec places) 0.1875 2 Incomplete calculation – did not x100 [3 – (1.6 – 0.2)] / 6.4 x 2 Method is correct except (1.6 – 0.2) 100 = 25% should be (1.6 + 0.2), a mistake in the sign. This is an example of *OFR below 25% (no working) 0 No calculation and wrong answer Profit margin = 1 Formula only (profit/total revenue) x 100 $1.2m 1 Correct calculation of profit *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 likely effect on UC of a decrease in profit. 3 Level Knowledge and Application Marks APP Explanation of an effect of a decrease in profit 3 on UC K+K Explanation of an effect of a decrease in profit 2 K Identification of an effect of a decrease in profit 1 0 No creditable content 0 Context and content is likely to come from: Possible effects may include: • May affect surplus for reinvestment in the apprenticeship scheme • May affect demand if business confidence in UC falls • May delay plans for factory A • May cause employees to worry which could lead to demotivation Identification of Explanation Possible context an effect (K+K - 2 marks) (APP - 3 marks) (K - 1 mark) May have to to avoid getting into so may cut its training decrease costs debt scheme for the long-term unemployed They have less which could affect such as the automation of to invest in the expansion plans factory A business 1(c) Analyse two likely effects on the other employees if Jack is dismissed. 8 Level Knowledge and Marks Analysis Marks Application (4 marks) (4 marks) 2 Shows 4 Developed analysis of 4 understanding of two two effects, on other effects, on other employees, of employees, of dismissal in context dismissal in context Shows 3 Developed analysis of 3 understanding of one one effect, on other effect, on other employees, of employees, of dismissal in context dismissal in context 1 Shows knowledge of 2 Limited analysis of 2 two effects of two effects of dismissal dismissal Shows knowledge of 1 Limited analysis of 1 one effect of one effect of dismissal dismissal 0 No creditable content Dismissal is when an employee is asked to leave the workplace for misconduct or for disobeying company rules and policies. Context could come from • Jack’s negligence causing faulty part – Is the dismissal fair? • Because of the recall cost, there will be a reduction in profit - some employees may be asked to leave • Accelerate the automation of factory A – less need for production supervisors or other workers • Effect on motivation to work overtime • Uncertainty/distrust of management 1(c) Example Examples of Examples of possible analysis of an application/context (AN + DEV) effect (K) (APP) Other as they may have to hence this increased workload employees cover Jack’s supervisor could cause them to become may have role tired, (AN) make more mistakes an and fear dismissal (DEV) increased workload It could Jack’s mistake, which with more consistent production lead to the lead to his dismissal, (due to automation) there will be firm could accelerate plans less need for production becoming to automate factory A supervisors (AN) or other more workers. They may find it hard to capital get another job as those workers intensive were previously long-term unemployed (DEV) 1(d) Recommend whether UC should automate factory A. Justify your 11 recommendation. Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified recommendation 7 based on arguments in context Developed recommendation 6 based on arguments in context A recommendation based 5 on arguments in context Shows understanding of 4 Arguments (two-sided) 4 two aspects of based on the advantages automation in context and disadvantages of automation in context Shows understanding of 3 Argument (one-sided) based 3 one aspect of on the advantages or automation in context disadvantages of automation in context Shows knowledge of two 2 Limited analysis of 2 aspects of automation advantages and disadvantages of automation Shows knowledge of 1 Limited analysis of 1 one aspect of advantages or automation disadvantages of automation No creditable content 0 Context/content: • Faulty part made in factory A which uses batch production • Costs of recall may delay change • Effect on employees especially skilled workers • Effects on apprenticeship scheme • Will they be able to meet their social enterprise objectives? • Lower unit costs in factory B • Cost of investment may mean less to invest in employee training • Why the need to reduce unit costs? Social enterprise is already making a good profit, even after recall • Could reduce price, asked by customers, through efficiency savings 1(d) Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Automated The This should Therefore UC To some machinery company mean that could re-invest extent is more will be the average the extra profits automation consistent able to unit cost will into the could be produce fall company, as a damaging to engine source of UC because parts finance, and of high start- more help it achieve up costs quickly its CSR (EVAL) objective. However, I would UC should The cost This could Consequently, recommend not of sales mean that as UC is a that UC automate are UC’s private should as it would already profitability company it automate have high forecast will cannot sell Factory A set-up costs to rise by decrease shares to the (EVAL) as it $1.1m in public to cover will have a 2020 these costs so higher level of they may face consistent a cash-flow output leading problem and to lower their liquidity average costs may not be and higher sustainable. profits in the long-run (EVAL)

This question in 9609/21 Oct/Nov 2020

2 Electric Cars (EC) EC is a public limited company producing electric cars. Market research suggests that electric cars are in the early stage of the product life cycle. The demand for electric cars is likely to increase substantially in the next 10 years. EC is based in country X, where it is one of three electric car manufacturers. However, other manufacturers could start to produce electric cars if the forecast market growth is correct. 5 EC’s promotion has only been aimed at high income groups. The government of country X recently announced that it will support the use of electric cars. This will help EC to achieve its objective to increase sales volume by 50% over the next two years. One year ago, EC invested $10m in new production facilities. The investment was funded by a long-term bank loan. Interest payments on the bank loan have reduced EC’s profit 10 margin from 9% to 4%. EC will need to cut unit costs through increased efficiency. EC initially launched its cars using a price skimming strategy but sales growth has been slow. If EC can achieve a 50% growth in sales over the next two years, it will be in a strong financial position. This means it will be able to spend more on the development of a larger product portfolio of electric cars. 15 Jancie, the Finance Director, has produced forecasts for EC’s financial data over the next two years, as shown in Table 2.1. Table 2.1: Extract from EC’s forecast financial data 2020 ($m) 2021 ($m) Inventories 30 50 20 Cash 10 20 Trade receivables 10 20 Trade payables 25 30 Current ratio 2 X (a) (i) Define the term ‘efficiency’ (line 11). [2] (ii) Explain the term ‘product life cycle’ (line 2). [3] (b) (i) Refer to Table 2.1. Calculate the value of X. [3] (ii) Explain one reason why EC’s liquidity is forecast to change. [3] (c) Analyse two reasons why clear business objectives are important for EC. [8] (d) Recommend changes EC could make to its marketing mix to achieve its growth objective (line 13). Justify your recommendation. [11]

30 marks

Mark scheme: 2(a)(i) Define the term ‘efficiency’ (line 11). 2 Knowledge and Application Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 A peak level of performance that uses the least amount of inputs to achieve the highest amount of output/measure of productivity. Efficiency requires reducing the number of unnecessary resources used to produce a given output including personal time and energy / produce goods at the lowest average cost. A correct definition should include the following elements (allow one mark for each element): • Measures inputs relative to outputs • Average/lowest cost of production / over a period of time / highest ratio of production Exemplar Mark Rationale Efficiency is the amount of output 2 Has inputs relative to produced, in a given period of time, per outputs over a period number of employees working. of time – so both elements Efficiency can be measured by how 2 Both elements much is completed, per worker, in a time period The term efficiency refers to the level of 1 Only 1 element output in comparison with hours of labour Efficiency refers to how much a firm can 0 Too vague produce 2(a)(ii) Explain the term ‘product life cycle’ (line 2). 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 another stage of the PLC 1 A Understanding that a product goes through stages from 1 launch to decline The stages a product passes through from launch, growth and maturity to decline. Exemplar Mark Rationale The product life cycle has four steps 3 All 3 categories which are introduction, growth, maturity covered. and finally decline (A+B). It shows where a product is and the process when launching the product, over a period of time in the market (C) The product life cycle is the process the 2 Evidence of product goes through after it is released understanding the on the market. It then goes through stages but no further growth, maturity and decline (A+B) development. The product life cycle refers to the point 1 Only launch and at which a product enters the market to decline referred to in the point it dies (A) this answer. Product life cycle includes every 0 Too vague, no element of development a product goes understanding shown. through when it is being sold to the public. 2(b)(i) Refer to table 2.1. Calculate the value of X. 3 Rationale Marks Correct answer with or without correct working (can be 3 accepted as a ratio or not) Correct formula and correct calculation of current assets 2 Correct formula or correct calculation of current assets 1 No creditable content 0 Formula: Current ratio = current assets/current liabilities (1) Current assets = 50 + 20 + 20 = 90 (must show working) (1) 90 / 30 = 3 Answer = 3 or 3:1 (3) Common incorrect answers Answer Mark Rationale 3:1 3 Correct answer in ratio format 30/90 = 0.33 2 Inverted formula, but correct calculation of current assets 0.33 (no working) 0 Incorrect answers with no working cannot be rewarded 50+20+20 = 90 1 Correct calculation of current assets 90 0 Incorrect answers with no working cannot be rewarded CA/CL 2 Formula is correct, CA miscalculated – CA = 50+20 = 70 however based on own figure (OFR) the CL = 30 end result is correct. Applied the formula 70/30 = 2.33 but with one mistake calculating CA CA/CL 1 Formula is correct, but CA and CL CA = 50+20 = 70 miscalculated – two mistakes CL = 20+30 = 50 70/50 = 1.4 70/50 = 1.4 0 No identification of where the figures came from, so no credit can be given (working does not back up the incorrect answer). 2(b)(ii) Explain one reason why EC’s liquidity is forecast to change. 3 Level Knowledge and Application Marks APP Explanation of a reason why liquidity could 3 change in context K+K Explanation of a reason why liquidity could 2 change K Identification of a reason why liquidity could 1 change 0 No creditable content 0 If the answer to Q2bi is used, then OFR – so an incorrect answer given in Q2bi can be used correctly here and given full credit. Context and content is likely to come from: • 50% increase in ratio (OFR) • All current assets forecast to increase substantially e.g. cash forecast to double • Current liabilities only forecast to increase by 20% • Forecasts so may be inaccurate • Uncertainty about growth in sales Identification of Explanation Possible context a reason (K+K - 2 marks) (APP - 3 marks) (K - 1 mark) Demand which increases sales demand for electric cars is increases and trade receivables forecast to substantially increase over the next 10 years Current assets which increases all current assets forecast increase inflows to increase at a greater rate than current liabilities Current assets more than current this can be seen by the increase liabilities increase in the current ratio to 3 Current liabilities _ _ change 2(c) Analyse two reasons why clear business objectives are important for 8 EC. Level Knowledge and Marks Analysis Marks Application (4 marks) (4 marks) 2 Shows 4 Developed analysis of 4 understanding of two reasons why two reasons for business objectives are clear business important in context objectives in context Shows 3 Developed analysis of 3 understanding of one reason why one reason for clear business objectives are business objectives important in context in context 1 Shows knowledge of 2 Limited analysis of two 2 two reasons for reasons why business business objectives objectives are important Shows knowledge of 1 Limited analysis of one 1 one reason for reason why business business objectives objectives are important 0 No creditable content Context/content may come from: • Help achieve growth / expansion / maximising profit • Directing employees • To inform and develop business planning e.g. long-term objective is to increase sales by 50% over the next two years and pay a dividend in three years’ time • Can identify where changes need to be made e.g. medium-term EC will need to cut unit costs through increased efficiency • Can determine business priorities e.g. Immediate term objective is to survive 2(c) Examples of Examples of Examples of possible a reason for application/context analysis (AN + DEV) clear (APP) business objectives (K) It is important Therefore, it is important With this clear objective it is to have clear to EC to have objectives a guide for the whole business such as an increase in company to work towards objectives to sales volume of 50% over (AN) If EC meets this take the next two years to take objective it should have an advantage of advantage of this increased market share and an increase in increase in demand a more secure future (DEV) demand Objectives This is important for EC Therefore a clear objective should because 1 year ago it to cut unit costs through influence a invested $10m in new increased efficiency (AN) business to production facilities should mean that EC’s maximise production employees are profits motivated, by clear direction, to improve productivity and reduce average costs (DEV) 2(d) Recommend changes EC could make to its marketing mix to achieve 11 its growth objective (line 13). Justify your recommendation. Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified recommendation 7 based on arguments in context Developed 6 recommendation based on arguments in context A recommendation based 5 on arguments in context Shows understanding of 4 Arguments based on two 4 two changes to the changes EC could make to marketing mix in context its marketing mix to achieve its growth objective in context Shows understanding of 3 Arguments based on one 3 one change to the change EC could make to marking mix in context its marketing mix to achieve its growth objective in context Shows knowledge of 2 Limited analysis of two 2 two changes to the changes to a marketing marketing mix mix Shows knowledge of 1 Limited analysis of change 1 one change to the to a marketing mix marketing mix No creditable content 0 The marketing mix can be either: • The 4 P’s – product, price, promotion, place (distribution channels) • The 4 C’s - Customer solution, Cost to customer, Communication with customer, Convenience to customer Context/content: Changes in: • Promotion Applies marketing methods to the growth stage of the product life cycle – Increased marketing budget to advertise widely; build a customer base; most likely above-the-line promotion; Move from niche marketing to mass marketing – Demand forecast to increase over the next 10 years Currently target high income groups could change to target other groups e.g. EC wants to enlarge product portfolio (product/customer cost/price discrimination) • Price Currently use price skimming, could change e.g. Price penetration; EC objective to increase sales by 50% (could link to price/promotion/place) • Product Use most advanced technology in cars to ensure quality and reliable car e.g. improve battery life/range (customer solution), increase number of charging stations (customer convenience) • Place Distribution channel likely through dealers Direct selling e.g. internet website, showrooms Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL One This is but sales With sales To some change EC because growth was growth extent price could make EC first slow forecast to penetration is is to use launched grow over the an important price its cars next 10 years, change to penetration using price make as it price penetration could make skimming could help EC the cars more take affordable for advantage of its customers this increase (EVAL) but the in demand change I would and achieve recommend its objective of the most is a 50% promotion to a increase in wider market sales volumes (EVAL). Price penetration is Promote Currently If EC and establish important but it electric cars EC effectively the company is crucial that it to all promotes promotes to as a brand is supported income to high other leader in this by an effective groups income groups it market, so the communication groups will widen company can strategy its market achieve through financial promotion security and changes reinvest profits (EVAL) in developing a larger product portfolio of electric cars

This question in 9609/21 Oct/Nov 2020

2 Free Burgers (FB) FB is a private limited company that produces premium meat‑free burgers. FB has two shareholders, Bill and Sanjay. They each own 50% of the shares. FB’s burgers are produced in a factory using batch production. FB employs semi‑skilled workers in the factory and promotes its burgers as being ‘hand‑made’. FB has been operating in country Q for three years. The demand for premium meat‑free burgers 5 in country Q has increased significantly in this period. An extract from FB’s financial data over this time period is shown in Table 2.1. Table 2.1: Financial data for FB 2018 2019 2020 Gross profit ($m) 0.6 3 12 10 Revenue ($m) 1.8 7.2 25 Gross profit margin 33.33% 41.67% X% The brand awareness and market share of FB has also been increasing. Bill thinks this is because of effective advertising, good customer retention and an effective price strategy. However, FB’s current factory is not modern enough to keep up with this increase in demand. 15 Bill and Sanjay want to change from batch production to flow production to modernise the factory. However, this will require an external source of finance. Bill has suggested two possible sources of finance to fund this change. Source 1 – venture capital A venture capitalist has offered to buy 10% of FB for $1m. She wants to be part of the 20 decision‑making at FB. She has experience of helping businesses to grow within country Q. Source 2 – a bank loan A bank has offered to loan FB $1m at a high interest rate. The bank manager is worried that the demand for meat‑free burgers may decline in the future and would require the loan to be paid back within one year. 25 (a) (i) Define the term ‘private limited company’ (line 1). [2] (ii) Explain the term ‘shareholders’ (line 2). [3] (b) (i) Refer to Table 2.1. Calculate the gross profit margin for 2020. [3] (ii) Explain one possible reason for the change in FB’s gross profit margin. [3] (c) Analyse one advantage and one disadvantage to FB of changing from batch production to flow production. [8] (d) Recommend which source of finance FB should choose to fund the change of production method. Justify your recommendation. [11]

30 marks

Mark scheme: 2(a)(i) Define the term ‘private limited company’ (line 1). 2 Knowledge Marks A full definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Note: a correct definition should not confuse a private limited company with any other form of legal ownership. A full definition should cover the following elements: • owners have limited liability • cannot sell shares on the stock market. Content: A business with limited liability and shares cannot be sold on the stock market (2) An incorporated business and shares can only be offered to specified people (2) A business with limited liability (1) Can only offer shares to specified people (1) An incorporated business (1) Do not credit ‘A company with private owners’ as TV. 2(a)(ii) Explain the term ‘shareholders’ (line 2). 3 Award one mark for each point of explanation Knowledge Marks Example or some other way of showing good 1 understanding, e.g. a benefit of being a shareholder; dividends, invite to AGM etc. Some understanding that it is ownership of part of a 1 company Understanding of ownership of a business (buys, 1 purchases, invests etc.) Content: Owner (1) of a part of a business (1) and receives dividends (1) A person or company that owns (1) at least one part of a business (1) and benefit from a rise in the value of a company (1) The owner (1) of a part of a business (1) Owns the business (1) Other appropriate responses should also be credited. Do not accept share in a company. 2(b)(i) Refer to table 2.1. Calculate the gross profit margin for 2020. 3 Rationale Marks Correct calculation (with or without working or %) 3 Correct use of figures 2 Correct formula 1 No credible content 0 Note: formula can be implied form correct use of figures Gross profit Gross profit margin = × 100 Revenue $12000000 Gross profit margin = × 100 = 48% $25000000 Do not accept an incorrect answer e.g. 0.48 without working. 2(b)(ii) Explain one possible reason for the change in FB’s Gross Profit 3 Margin. Level Knowledge and Application Marks 2 Explanation of one reason for a change in gross 3 (APP + profit margin in context APP) 1b Explanation of one reason for a change in gross 2 (APP) profit in context 1a Identification of one reason for a change in gross 1 (K) profit 0 No creditable content 0 Knowledge: A change in gross profit margin is likely to come from: • A decrease in costs – whilst maintaining (or increasing revenue) revenue • An increase in revenue – whilst maintaining (or decreasing costs) Context is likely to come from: • GPM is increasing from 33.33% to 41.67% to 48% (OFR from Q2bi) • Revenue has increased from $1.8m to $7.2m to $25m • Brand awareness has increased • Market share has increased • Demand for premium meat-free burgers has increased in country Q • FB uses semi-skilled workers • FB uses batch production Exemplars: Revenue has increased (K) from $1.8m in 2018 to $25m in 2020 (App) but costs have not risen by as much as revenue (App) FB is selling more (K) because the market share has increased (App) and gained economies of scale (App) Other appropriate responses should also be credited. 2(c) Analyse one advantage and one disadvantage to FB of changing from 8 batch production to flow production. Level Knowledge and Marks Analysis Marks application 2 Shows 4 Developed analysis 4 understanding of one advantage of both batch and one and flow disadvantage of production in changing from context batch to flow production in context Shows 3 Developed analysis 3 understanding of one advantage of batch or flow or one production in disadvantage of context changing from batch to flow production in context 1 Shows 2 Limited analysis of 2 knowledge of one advantage and both batch and one disadvantage flow production of changing from batch to flow production Shows 1 Limited analysis of 1 knowledge of one advantage or batch or flow one disadvantage production of changing from batch to flow production 0 No creditable content 0 Note: annotate advantages in left-hand margin and disadvantages in right- hand margin. Knowledge: • Batch production • Flow production 2(c) Application: • Premium meat-free burgers • Semi-skilled workers • Burgers are promoted as ‘hand-made’ • Demand for premium meat-free burgers increasing • FB’s brand awareness and market share has been increasing • Good customer retention • Factory not modern enough to keep up with demand • Need for an external source of finance Analysis: Advantages may include: • Faster production • Uniformity of production • Increased quality (fit for purpose) • Economies of scale • Lower labour costs Disadvantages may include: • Decreased perceived quality (less premium) • Reduced employee motivation • Initial capital cost • Possible decreasing demand in the future Other appropriate responses should also be credited. 2(d) Recommend which source of finance FB should choose to fund the 11 change of production method. Justify your recommendation. Knowledge and Marks Analysis and Marks Application (4 marks) Evaluation (7 marks) A justified 7 recommendation for FB’s chosen source of finance in context A recommendation for 6 FB’s chosen source of finance in context An evaluation 5 statement of one source of finance in context Understanding of 4 Two-sided argument 4 venture capital and a based on the use of bank loan in context venture capital or a bank loan in context Understanding of 3 One-sided argument 3 venture capital or based on the use of understanding of a venture capital or a bank loan in context bank loan in context Knowledge of two 2 Limited analysis two 2 sources of finance sources of finance Knowledge of one 1 Limited analysis of one 1 source of finance source of finance No creditable content 0 Note: annotate one-side of the argument in the left-hand margin and the other side in the right-hand margin. Knowledge: Internal sources of finance: • retained earnings, sale of unwanted assets, sale and leaseback of non-current assets, working capital. External sources of finance: • share capital, new partners, venture capital, overdrafts, leasing, hire purchase, bank loans, mortgages, debentures, micro-finance, crowd funding and government grants. 2(d) Application: Source 1 (venture capital): • 10% ownership of FB for $1m – values the business at $10m. • She wants to be part of the decision-making at FB. • Experience of growing business in country Q. Source 2 (bank loan): • High interest rate. • Bank manager worried that demand may decline in the future. • Needs to be repaid within a year. Analysis: Source 1 (venture capital): • Lower profit/dividend for Bill and Sanjay – however revenue and GPM is growing. • VC may disagree with Bill and Sanjay – however her experience may be beneficial. • VC knows how to grow a business – however she may not have any knowledge of the specific market. Source 2 (bank loan): • Increased business costs (interest) – however no loss of ownership. • Speed of repayment may affect business operations/growth – however reduces the interest to be paid. • May increase risk of business – however no impact on Bill and Sanjay’s decision making. Evaluation: • A judgement/recommendation over which source should be chosen • Evaluation of the most important factors in the decision. • Evaluation of what other information the decision may depend upon; market expectations, external influences etc. Other appropriate responses should be credited.

This question in 9609/22 Feb/March 2021

1 Hot Bubblez (HB) Karen is a sole trader who operates a service business called Hot Bubblez (HB) from her own home. It is a laundry service in town P. Each day Karen spends the morning collecting laundry from customers’ homes. Karen then washes, dries and irons the laundry and then delivers it back to customers’ homes in the evening. She owns two washing machines, two drying machines and one iron. Each batch of washing takes approximately two hours to 5 wash, dry and iron. Karen has completed some market research about which method of laundry households use in town P (see Fig. 1.1). There are 60 000 households in town P. Use a laundry service 20% Go to a laundry shop Do laundry (launderette) at home 15% 65% Fig. 1.1: The percentage of households using each laundry method in town P Karen has 300 households that use HB’s laundry service. Karen would like to employ 10 someone to do the collections and deliveries. Karen has always relied upon customer recommendations to promote HB. However, she has not been able to gain any new customers and she thinks it is time for new promotion methods to be used. She would like to target the hotel laundry market. Table 1.1 shows some data about the local hotel market. 15 Table 1.1: Data about the local hotel market Number of hotels in town P 14 Number of hotels outside town P but within 30 miles of HB 45 Proportion of hotels which have their own laundry service 50% (a) (i) Define the term ‘service’ (line 1). [2] (ii) Explain the term ‘sole trader’ (line 1). [3] (b) (i) Refer to Fig. 1.1 and any other relevant information. Calculate HB’s share of the laundry service market. [4] (ii) Analyse two factors which could affect the scale of HB. [8] (c) Explain one appropriate method of recruitment for Karen to find a new employee to do collections and deliveries. [2] (d) Evaluate appropriate promotion methods for HB to target the hotel laundry market. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘service’ (line 1). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content An intangible product/process (1) which is offered to / paid for by customers (1). An action (1) sold by business (1). A correct definition will include the following points: • something sold by a business / bought by a customer / to satisfy needs or wants • an idea of intangibility. Exemplar Marks Rationale Something a customer buys which 2 Both elements cannot be touched. covered A process sold by a business. 2 Both elements covered An intangible product. 1 One element Something sold by a business. 1 One element A tertiary business 0 Not a definition of a service. 1(a)(ii) Explain the term ‘sole trader’ (line 1). 3 Award one mark for each point of explanation: B One mark for each of the following (up to a maximum of 1–2 two marks): marks • unlimited liability • shared legal identity with business • no continuity • no requirement to produce or make available accounts • no shares/shareholders • unincorporated • likely to be a small business • the owner keeps all the profits or bears the losses • has all the risk • has full control • makes all decisions themselves • example of a sole trader. A One individual or one person (must be a clear idea of a 1 mark single person) Exemplar Rationale Marks A sole trader is owned by one All three elements 3 person (A) who has unlimited liability (B) and does not need to publish financial accounts (B). Owned and controlled by one All three elements 3 person who bears the risk. A sole trader is owned by a A and B 2 single person (A) and does not have shareholders (B) A one person business (A) One mark only 1 A business where there is B only, which cannot be 0 unlimited liability (B), no need to awarded without the A mark. produce financial accounts, no continuity and no shareholders. Owned business. Tautology 0 ARA 1(b)(i) Refer to Fig 1.1 and any other relevant information. Calculate HB’s 4 share of the laundry service market. Rationale Marks Correct answer with or without correct working or units. 4 Attempt using some of the correct figures. 3 Formula* and identification of correct numbers 2 (i.e. 20% of 60 000). Formula* or identification of correct numbers 1 (i.e. 20% of 60 000). No creditable content. 0 Content Current share of the market Formula − × 100 Total market size Total market = 60 000 households Percentage who use a laundry service = 20% 20% of 60 000 = 12 000 households 300 households × 100 = 2.5% 12000 households Answer = 2.5% (allow 2.5) OFR 1(b)(ii) Analyse two factors which could affect the scale of HB. 8 Level Knowledge and Marks Marks Analysis (4 Application (4 marks) marks) 2b Shows 4 Good analysis of 4 understanding of two factors two factors which could which could APP affect the scale DEV affect the scale + of a business in + of a business in context context APP DEV 2a Shows 3 Good analysis of 3 understanding of one factor which one factor which could affect the could affect the scale of a scale of a business in business in context context APP DEV 1b Shows 2 Limited analysis 2 knowledge of of two factors two factors which could which could affect the scale AN affect the scale K of a business + of a business +K AN 1a Shows 1 Limited analysis 1 knowledge of of one factor one factor which which could could affect the affect the scale scale of a of a business business K AN 0 No creditable content Content Factors affecting scale are about the ability of a business to supply products, not the demand of the market. These factors are likely to involve: • Capital – the quantity and quality of the capital items in a business, such as machinery – this can include human capital. • Labour – the quantity and quality of the workforce. • Enterprise – the ability and willingness of an entrepreneur to take risks, find business opportunities. • Land – the quantity and quality of natural resources available to the business 1(b)(ii) Context may include: • Karen is a sole trader – limited availability of finance to purchase washing machines, irons etc. • Machinery – Karen only owns two washing machines, two dryers and one iron • The use of washing machine / dryer / iron – affects the batch size of washing • The use of batch production • The time HB takes to do a load of washing (two hours) • The transport used by Karen (van) and the amount of laundry she can carry • Karen as an entrepreneur • The new worker Analysis may include: • The impact this factor may have on the scale of HB • The factor may (or have the potential to) increase HB’s scale • The factor may (or have the potential to) decrease HB’s scale Development of this affect may be on HB’s revenue, costs and/or profit or another likely objective of HB, such as expansion or the industrial market. 1(c) Explain one appropriate method of recruitment for Karen to find a new 2 employee to do collections and deliveries. Level Knowledge and Application Marks 2 (APP) Explanation of an appropriate method of 2 recruitment in context 1 (K) Identification of a method of recruitment 1 0 No creditable content 0 Methods may include: • Internal recruitment (unlikely to be contextual) • External recruitment • Job advertisements • Job centre • Local online job websites • Recruitment agencies • Personal recommendations • Social media • Direct recruitment Context may include: • Requires travel around local area/town. • HB operates from Karen’s home. • Laundry market. • No other workers currently in business. • No specialist qualifications required (maybe driving licence). • Knowledge of local area • HB is a small business (sole trader). ARA 1(d) Evaluate appropriate promotion methods for HB to target the hotel 11 laundry market. Knowledge and Analysis and Application (4 Marks Evaluation Marks marks) (7 marks) Annotation Annotation Justified evaluation + + based on 7 EVAL arguments in EVAL EVAL context Developed + evaluation based 6 EVAL on arguments in EVAL context An evaluative statement based 5 on arguments in EVAL context Shows APP Arguments based DEV understanding of + + 4 on two promotion 4 two promotion methods in context APP methods in context DEV Shows Argument based understanding of 3 APP on one promotion 3 DEV one promotion method in context method in context K Limited analysis of AN Knowledge of two + + 2 two promotion 2 promotion methods K methods AN Shows knowledge Limited analysis of of one promotion 1 K one promotion 1 AN method method No creditable content 0 Content Knowledge may include: • Above the line; advertising (TV, radio, newspaper, etc.) • Below the line; direct promotion, website, leaflets, etc. • Through the line; social media, viral promotion, etc. • Informational and persuasive methods 1(d) Context may include: • Lack of finance, due to being a sole trader • Small business • Hotel/industrial market (B2B) • Data from Table 1.1 - 14 hotels in town P - 45 hotels within 30 mile of HB - 50 per cent of hotels have own laundry service (7 hotels in town P, 22/23 within 30 miles, 29/30 hotels in total) Analysis may include: • Local advertising – appropriate to target the hotel industry – e.g. hotel trade publications, possibly local radio, billboards. • Sponsorship – unlikely to be targeted enough to the hotel market. • Public relations – could be targeted towards the hotel market if the articles/reports are in hotel related publications/programmes. • Personal selling – a sensible approach that has limited cost (for a small business such as HB) and could be done by Karen visiting local hotels to sell her service. Could also be done by a salesperson hired by Karen, possibly on commission only payment. • Direct marketing – again a sensible solution that keeps it under Karen’s control. Can be done with a limited budget and Karen can target the hotels in the local area. • Sales promotion – unlikely to help HB enter the new market alone, but in combination with other informative methods may be a sensible approach to allow Karen to penetrate this new market. • Promotional price – do not reward use of price, but promotional pricing such as BOGOF, discounts sales promotions are rewardable. Evaluation may include: • A judgement over the most appropriate promotion method for HB • Evaluation of the appropriateness of different promotion methods for HB • What the choice of promotion method may depend upon ARA 1(d) Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Personal Karen could This should This might Personal selling (K) visit each allow Karen make the selling is hotel which to explain all hotels more likely to be a does not the willing to better have its own advantages use HB’s promotion laundry of her service. method than service. service and (DEV) direct mail. (APP) answer the (EVAL) managers questions. This is (AN) because Karen can Direct Karen could A relatively But it may explain the marketing send details low cost be seen as USP of HB (K) of her method junk mail and try to service to because and ignored convince the the 14 there are by the hotel to use hotels in only 14 hotels, so her service. town P. hotels. (AN) HB will not (EVAL) (APP) gain any new However, it customers. depends on (DEV) whether Karen is a good salesperson. If she is not good at selling her service, then it could be a waste of time and money. (EVAL)

This question in 9609/22 May/June 2021

2 Lakeland Oysters (LO) Lakeland Oysters (LO) is a private limited company in country G that was started by the Dar family in 2010. LO farms oysters in a lake that is owned by the business. Oysters are a type of shellfish. The business employs six people from the local town. LO has two markets for its oysters (see Table 2.1). Table 2.1: Market and financial data for LO, 2020 5 Market Description Sales Revenue Profit margin Industrial Restaurants ordering from 80 000 oysters $100 000 15% LO’s website Consumer Customers visiting the 50 000 oysters $150 000 25% farm 10 LO believes that corporate social responsibility and its triple bottom line are important. There has been a recent news article on the internet about oyster farming (see Fig. 2.1). Oyster farming can be good for the environment Oyster farming can have a beneficial impact on the water by removing harmful pollutants. Oyster farms also benefit the local community by turning lakes into pleasant 15 areas for the public. The government is considering giving grants to encourage oyster farming in country G. Fig. 2.1: Extract from a recent news article about oyster farming The directors of LO would like to expand the business by purchasing a second location. The business has two options (see Table 2.2). 20 Table 2.2: Data about a potential second location for LO Location A Location B Current use An oyster farm A fishing lake Distance from LO’s current location 100 km 5 km Potential output per year 100 000 oysters 150 000 oysters 25 Purchase price $250 000 $300 000 Start-up costs $20 000 $100 000 Operating costs $150 000 per year $200 000 per year (a) (i) Define the term ‘market’ (line 6). [2] (ii) Explain the term ‘profit margin’ (line 6). [3] (b) (i) Refer to Table 2.1. Calculate the total profit made from selling oysters in 2020. [2] (ii) Explain two possible reasons why the profit margin for the consumer market is higher than the profit margin for the industrial market. [4] (c) Analyse why two of the elements of the triple bottom line are important to LO. [8] (d) Refer to Table 2.2 and any other relevant information. Recommend which location LO should choose. Justify your recommendation. [11]

30 marks

Mark scheme: 2(a)(i) Define the term ‘market’ (line 6). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content Consumers who want a product/service / the demand for a product/service (1) from different types/groups/segments of consumers (1) who are willing/able to pay for it (1). The term ‘market’ has a number of different meanings. Any legitimate definition can be used. The most common definition (as a means of trade) is likely to include: • A system/place/facility whereby products are bought (1) and sold (1) • Where businesses and consumers (1) trade (1) However other definitions may include: Market as a group of potential customers for a product: • The customers/consumers (1) who may potentially purchase a product (1) • The businesses (1) who are competing to sell a product (1) • The group of people (1) who the business is trying to sell to (1) Market as a verb, i.e. to market a product • The combination/mix of decisions (1) that a business uses to target a group of customers (1) Exemplar Marks Rationale Where buyers and sellers come to 2 A correct definition. trade. Where you exchange goods and 2 A correct definition services The market is a group of businesses 1 An idea of the market (from the businesses point of view) but not selling/competing 2(a)(ii) Explain the term ‘profit margin’ (line 6). 3 Award one mark for each point of explanation: Rationale Marks C Example or some other way of showing good 1 understanding – i.e. a use of profit margins, or two different profit margins – gross, net, operating). B Understanding of the concept of a profit margin (in terms 1 of a profit/percentage) A Understanding of profit 1 Content A profit margin is the difference between the revenue and costs/revenue minus costs (1) expressed as a proportion of revenue/divided by revenue (1) used to determine/compare performance (1). Any profit margin is acceptable (gross, net, operating). ARA 2(a)(ii) Exemplar Mark Rationale Net profit/revenue × 100. It can be 3 A, B and C used to compare business performance. 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. Grossprofit 2 A formula gains the A ( × 100 ) and B marks. Could be Revenue expressed as a ratio, not percentage. The proportion of revenue that is 2 Although there is not an profit. explicit understanding of profit, if a candidate gains the B mark, then they also gain the A mark. It is the difference between costs 1 Understanding of profit, and revenue. but no the margin. It is how much profit a business 0 No understanding of makes. profit or the margin. 2(b)(i) Calculate the total profit made from selling oysters in 2020. 2 Rationale Marks Correct answer with or without correct working or $ 2 Correct calculation of the profit for restaurants or local 1 customers No creditable content 0 Content 15% of $100 000 = $15 000 25% of $150 000 = $37 500 Total profit = $52 500 (2) 2(b)(ii) Explain two possible reasons why the profit margin for the consumer 4 market is higher than the profit margin for the industrial market. Level Knowledge and Application Marks 2b Explanation of two possible reasons why the profit 4 (APP+ margin for the local consumer market is higher than APP) the profit margin for the industrial market 2a Explanation of one possible reason why the profit 3 (APP) margin for the local consumer market is higher than the profit margin for the industrial market 1b Identification of two possible reasons for different 2 (K+K) profit margins 1a (K) Identification of one possible reason for different 1 profit margins 0 No creditable content 0 Content may include: • Consumers may be willing to pay a higher price (K) - of $3 per oyster. (APP) - because oysters are a premium product. (APP) - because consumers are purchasing customer service as well as the oysters (visit the farm). (APP) - because they do not buy in bulk. (APP) • Consumer market may have lower costs (K) - because the consumer market may be subsidised by the larger industrial market. (APP) - because the consumer market is 50% bigger, but may only be allocated half of the fixed costs. (APP) • Industrial market may demand a lower price (K) - of $1.25 per oyster. (APP) - because the restaurant industry is very competitive (many restaurants). (APP) - because each restaurant buys in bulk. (APP) - because there are many substitute foods that the restaurant could use. (APP) - because the restaurant must re-sell the oysters for a profit. (APP) • Industrial market may have higher costs (K) - because LO have to transport the Oysters to the restaurants (APP) - because restaurants use the website, which may be an additional cost to LO (APP) ARA 2(c) Analyse why two of the elements of the triple bottom line are important 8 to LO. Level Knowledge and Marks Analysis (4 Mark Application marks) s (4 marks) 2b Shows 4 Good analysis of 4 understanding of APP two elements of DEV two elements of + the triple bottom + the triple bottom line in context line in context APP DEV 2a Shows 3 Good analysis of 3 understanding of the importance of one element of one element of the triple bottom the triple bottom line in context APP line in context DEV 1b Shows knowledge 2 Limited analysis of 2 of two elements the importance of of the triple two elements of AN bottom line K the triple bottom + + K line AN 1a Shows knowledge 1 Limited analysis of 1 of one element of the importance of the triple bottom one element of line the triple bottom K line AN 0 No creditable content 2(c) Content: Knowledge includes: • economic (financial), social and environmental targets Application and analysis may include: Economic (financial) • Dar family will require profit to be made as shareholders of LO – owners income. • Retained profit – need finance for expansion plans to purchase the new farm. • Potential grant from government for oyster farms – subsidise operations/growth. Social • Provides employment for six local workers – improve image of LO in locality. • Provides an opportunity for local customers to purchase oysters – market opportunity. • Pays local taxes – improve locality. • Provides pleasant area for the local community – increases reputation. Environmental • Oyster farming reduces pollution – improves area, quality of life for owners. • Better for the environment if lakes are managed / regenerating disused lakes – improves local area / reputation. ARA 2(d) Refer to Table 2.2 and any other relevant information. Recommend 11 which location LO should choose. Justify your recommendation. Knowledge and Analysis and Application Marks Evaluation Marks (4 marks) (7 marks) Annotation Annotation Justified 7 + + recommendation EVAL based on arguments of EVAL EVAL two factors in context Developed 6 + recommendation EVAL based on arguments of EVAL two factors in context An evaluative 5 statement/recommend ation based on EVAL arguments of two factors in context Shows 4 4 understanding of APP DEV + Argument based on + two factors two factors in context affecting location APP DEV in context Shows 3 3 understanding of Argument based on one factor APP DEV one factor in context affecting location in context Shows 2 2 K Limited analysis of two AN knowledge of two + + factors affecting factors affecting K location AN location Shows 1 1 knowledge of one Limited analysis of one K AN factor affecting factor affecting location location No creditable content 2(d) Content Knowledge may include: • Any factor that may affect the location of a business. Application may include: • LO is a private limited company (limited finance) • Consumer and industrial (restaurant) markets • The new location is to be a second location – it does not replace the original LO location • Data in Table 2.2 Analysis may include: Location A • Used to be an oyster farm – less time and cost to set up for LO • Lower purchase price – less finance needed to purchase • Lower start-up costs – LO could reduce price and/or increase profit • Lower operating costs – increased profitability. Location B • Much closer than Location A – lower costs, e.g. transportation, management, are easier • Can produce 50% more oysters than Location A – more profit in long- term? If there is the demand / additional oysters are sold at a good price • Higher operating costs, but lower variable cost of production ($1.33 per oyster compared with $1.5 at Location A) ARA 2(d) Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Previous Location A Which may Which may Location A use (K) is already mean that allow LO to is the better an oyster LO can start increase option for farm (APP) selling their profits. LO. (EVAL) oysters (DEV) more This is quickly and because keep the there is less costs low. risk (AN) involved since the costs are lower. (EVAL) However, it depends on whether LO can make immediate use of the extra capacity since Location B could actually produce much higher output and profit in the long run. (EVAL) Output (K) Location B Which Allowing the can would allow business to produce LO to expand 50% more increase faster. oysters than their sales (DEV) Location A. more than (APP) Location A. (AN)

This question in 9609/22 May/June 2021

1 Bilal’s Homes (BH) Bilal is a sole trader, who buys and sells apartments for a profit. Bilal left university two years ago and moved back to his parent’s home in city W. He lacks social skills but he has always been good at self-management, so he wanted to start his own business. Bilal bought his first apartment using money that he borrowed from his parents. He spent some time and money improving and upgrading the apartment and was able to sell it for 5 a profit. Bilal paid his parents back and then had enough capital to purchase his second apartment. Since then, Bilal has bought three more apartments. Table 1.1 shows some financial details about the last three apartments that Bilal bought and sold. Table 1.1: Financial details about the last three apartments that Bilal bought and sold Apartment Purchase price Cost of improvements Selling 10 ($) and upgrades ($) price ($) A 58 000 8 000 80 000 B 120 000 10 000 150 000 C 65 000 15 000 70 000 Bilal has done some market research and has found out that customer demand for 15 buying apartments in city W is increasing. He knows that he needs to purchase as many apartments as he can before the prices increase. However, he is limited by the capital he has in the business. Bilal has been approached by Sophie, another entrepreneur, who also buys and sells apartments. Sophie would like to enter into a business partnership with Bilal. She has 20 provided Bilal with some details from the last year about her business. Bilal can use this data to help him decide if he would like to enter into the partnership (see Table 1.2). Table 1.2: Details about Sophie and her business in 2020 Number of apartments bought and sold 6 Number of apartments that made a profit 4 25 Number of apartments that made a loss 2 Profit margin 11% Capital available at end of year $150 000 Sophie’s main competencies Social skills and social awareness (a) (i) Define the term ‘market research’ (line 15). [2] (ii) Explain the term ‘social awareness’ (line 29). [3] (b) (i) Refer to Table 1.1. Calculate the profit margin Bilal made on the last three apartments that he bought and sold. [4] (ii) Explain one way in which Bilal may add value to the apartments he buys. [2] (c) Analyse two factors which could influence the demand for buying apartments in city W. [8] (d) Recommend whether Bilal should enter into a business partnership with Sophie. Justify your recommendation. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘market research’ (line 15). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Gaining information about the potential customers for a product/service A correct definition should include the following elements: • Gaining information / finding out about • about the potential customers for a product/service. Exemplar Rationale Marks Finding out about potential Both elements 2 customers for a food Researching about One element 1 customers for a good Finding information about the One element and a tautology. 1 market Researching the market Tautology 0 ARA 1(a)(ii) Explain the term ‘social awareness’ (line 29). 3 Knowledge Marks C Example or some other way of showing good 1 understanding, e.g. one of Goleman’s competencies B Understanding of the issues/problems/have empathy 1 with A Understanding that it is do with 1 society/community/organisations/people Social awareness – an understanding of the problems that different members of society / the community / an organisation face; having empathy/understanding of the issues in a business e.g. is able to negotiate successfully. Exemplar Rationale Marks According to Goleman’s All three elements 3 competencies (C) it means understanding a society’s (A) problems (B). Having empathy with the A and B 2 issues (B) facing a community (A) Understanding a society (A) A only. There must be 1 understanding that it is to do with issues to gain the B mark. Being aware of social norms Tautology 0 ARA 1(b)(i) Refer to Table 1.1. Calculate the profit margin Bilal made on the last 4 three apartments that he bought and sold. Rationale Marks Correct answer(s) with or without correct working or units 4 Correct calculation of total revenue AND total profit(s) 3 Correct calculation of total revenue OR total profit(s) 2 Formula (can be implied from the correct use of figures) 1 No creditable content 0 Award full marks for a correct answer, with or without working or % Content Formula: Total revenue × 100 (1) Total profit Apartment A – $14 000 profit $14 000 × 100 = 17.5% $8000 Apartment B – $20 000 profit $20 000 × 100 = 13.33% $150 000 Apartment C – $10 000 loss $–10 000 × 100 = –14.29% $70 000 Total = $24 000 total profit Total revenue = $80 000 + $150 000 + $70 000 = $300 000 (1) $24 000 × 100 = 8% (4) $300 000 OFR 1(b)(ii) Explain one way in which Bilal may add value to the apartments he 2 buys. Level Knowledge and Application Marks 2 (APP) Explanation of a way in which Bilal may add- 2 value to the houses that he sells 1 (K) Identification of a way of adding value 1 0 No creditable content 0 Knowledge may include: • Difference between the price of a product and cost of inputs • Increase in value of a product/service created by a business • Created by the production process Application may include: • Renovation – Bilal might decorate, alter the layout, renew the bathroom/kitchen (allow any reasonable renovation of an apartment). • Brand name – Bilal has been doing this for two years and house buyers may see his houses as being of a high-quality • Buying at a low price • Increasing the quality of the house ARA 1(c) Analyse two factors which could influence the demand for buying 8 apartments in city W . Knowledge and Level Application Marks Analysis (4 marks) Marks (4 marks) 2b Shows 4 Good analysis of 4 understanding of two factors which two factors which could influence could influence demand in context demand in context 2a Shows 3 Good analysis of 3 understanding of one factor which one factor which could influence could influence demand in context demand in context 1b Shows knowledge 2 Limited analysis of 2 of two factors which two factors which could influence could influence demand demand 1a Shows knowledge 1 Limited analysis of 1 of one factor which one factor which could influence could influence demand demand 0 No creditable content Factors influencing demand could include: • Price expectations/substitutes/complements – the price of the apartment will influence demand because it will affect the disposable income for potential customers. • Mortgage rates – people often purchase apartments with a mortgage, so the rate at which the mortgage is repaid will affect their ability to purchase • Tastes and preferences – the area in which the apartment is located may affect the willingness of customers to purchase • Competition – the other apartments in the area for sale/rent will affect people’s willingness to purchase • Income levels • Fashion – how trendy an area is Context could come from relating to: • Property market • City e.g. to find jobs, avoid commuting • Value added from renovations • Renting versus buying ARA 1(d) Recommend whether Bilal should enter into a business partnership 11 with Sophie. Justify your recommendation. Analysis and Knowledge and Marks Evaluation Marks Application (4 marks) (7 marks) Justified 7 recommendation based on arguments in context Developed 6 recommendation based on arguments in context An evaluative 5 statement/recommendati on based on arguments in context Shows understanding of 3–4 Arguments based on 3–4 a partnership in context Bilal entering into a partnership with Bilal. Shows knowledge of a 1–2 Limited analysis of 1–2 partnership becoming a partnership No creditable content Knowledge may include: • Two or more owners of a business • Unlimited liability • Possibility of conflicts • Share decisions/skills/profits/losses Application may include: • Bilal will have to share his profit with Sophie – however Sophie’s profit margin (11%) is higher than Bilal’s at 8%. • Sophie has managed to buy and sell more houses than Bilal in the past year. • Sophie has a lower success rate (four out of six made profit) compared with Bilal (four out of five made profit, in total). • Sophie has working capital of $150 000 which may allow Bilal to take advantage of the housing boom. • Sophie has the social skills that Bilal lacks – may help to find buyers / be able to sell at higher prices / negotiate better rates with contractors – so add more value • Bilal does not like working with other people – will this put him outside of his comfort zone. 1(d) Arguments may include: • Have to share profits • Less control for Bilal • May disagree over direction of the business However: • Spreads the risks • Sophie’s skills complement Bilal’s • She can contribute capital Recommendation based on arguments ARA

This question in 9609/23 May/June 2021

1 Quality Furniture (QF) QF is a public limited company in country S. It manufactures furniture for cafés. The number of cafés in country S has increased by more than 50% over the last 5 years. This has meant that QF has been able to expand and achieve internal economies of scale. However, the growth of the café market has attracted new firms supplying café furniture and increased competition for QF. 5 An extract from QF’s income statement is shown in Table 1.1. Table 1.1: Extract from QF’s income statement for 2020 $m Revenue 300 Cost of sales 120 10 Gross profit 180 Expenses 150 Although QF has been successful so far, Javid, the Managing Director, has identified two problem areas: inventory and human resources. Inventory 15 QF’s inventory includes raw materials, work in progress and finished tables and chairs. QF buys 80% of its materials from country T and there is a long delivery lead time. This means that QF holds a high level of buffer inventory which has a high value. Human resources QF’s production employees are unhappy that they have not received any benefit from the 20 company’s expansion. Profit has doubled over the past three years but employees have not received any pay increases or bonuses. The employees have all been trained by QF and have specialist skills which had ensured that customer expectations were met. However, customers are starting to complain about a fall in the quality of the furniture, which could be the result of the low morale of the employees. Some highly trained employees have left QF 25 to work for competitor firms. (a) (i) Define the term ‘buffer inventory’ (line 18). [2] (ii) Explain the term ‘internal economies of scale’ (line 3). [3] (b) (i) Calculate QF’s profit margin for 2020. [2] (ii) Explain two ways QF could increase its profit margin. [4] (c) Analyse two disadvantages to QF of holding a high level of inventory. [8] (d) Recommend how QF’s management could improve the morale of its production employees. Justify your recommendation. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘buffer inventory’ (line 18). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Indicative content AO1 Knowledge and understanding The (minimum) level of stocks/components/supplies – a business aims to hold to ensure orders can be met/point at which business re-orders. A correct definition should include: • an understanding of inventory • an understanding of buffer. Exemplar Marks Rationale Minimum stock level 2 Both buffer and inventory defined Minimum level of inventory 1 Inventory not defined 1(a)(ii) Explain the term ‘internal economies of scale’ (line 3). 3 Award one mark for each point of explanation: C Example or some other way of showing good 1 mark understanding, i.e. can arise from bulk buying, technical/managerial efficiencies, etc. B Understanding of internal economies of scale, 1 mark e.g. Internal economies arise from the growth of the business A Understanding of economies of scale (when 1 mark unit/average costs fall as output rises) Indicative content AO1 Knowledge and understanding • Economies of scale occur when unit/average costs fall as output rises. • Internal economies arise from the growth of the business, e.g. technical economies. AO2 Application Application of an internal economy of scale to a business, such as: • An example of a type of internal economy of scale. • A description of an internal economy of scale that a business might benefit from. Exemplar Marks Rationale Average unit costs decrease (A) as a 3 A + B + C result of the increase in the scale of operations (B), e.g. purchasing economies (C) Reduction in costs per unit (A) as a 2 A + C (growth of result of trading on a large scale, e.g. business not bulk buying (C) mentioned, so no B mark) Fall in costs per unit (A) 1 A only 1(b)(i) Calculate QF’s profit margin for 2020. 2 Rationale Marks Correct answer with or without correct working 2 Formulae/attempt to calculate/calculation of profit 1 No creditable content 0 Content Gross profit – expenses, interest and tax = profit $180m – $150m = $30m (1) OR Profit / Revenue × 100 = profit margin (1) 30 / 300 × 100 Profit margin = 10% Accept 10 (2) Common incorrect answers Exemplar Marks Rationale 10 2 Correct answer – % not needed 60 1 Gross profit (180/300) × 100 = 60% 30 1 Correct profit figure but not profit margin Profit / Revenue × 100 1 Formula 30 / 300 × 100 1 Correct figures but calculation incomplete 1(b)(ii) Explain two ways QF could increase its profit margin. 4 Level Knowledge and Application Marks 2b (APP Explanation of two factors which would increase the 4 +APP) profit margin, in context 2a Explanation of one factor which would increase the 3 (APP) profit margin, in context 1 (K) Identification of two factors affecting the profit margin 2 1 (K) Identification of one factor affecting the profit margin 1 0 No creditable content 0 Content Increase quantity sold without a change in costs / price Increase price whilst maintaining sales Reduce costs without change in quantity sold / price Indicative content AO1 Knowledge and understanding Ways of increasing the profit margin: • to decrease costs • to increase revenue • increase/decrease price AO2 Application Application to QF, including: • QF’s costs – internal economies of scale achieved, so costs will reduce and improve profit margin/buy cheaper wood/decrease inventory holdings as high value, bulky so reduce overhead costs. • QF’s revenue – likely to increase due to 50% growth in cafes over last 5 years/may be difficult due to increased competition/could improve quality to reduce customer complaints and increase sales. • Increased price difficult in competitive market/may be able to decrease price due to lower costs leading to increased revenue. 1(b)(ii) Example of how responses should be marked. Identification of a way Application (K – 2 marks) (APP – 2 marks) Reduce cost of sales by opting for cheaper timber Increase revenue by increasing of its tables and chairs quality Increase revenue from 2020 it earned $300m; they should boost this potentially by increasing the price Decrease cost by buying raw by buying from a supplier in country materials from a cheaper supplier S rather than country T Reduce stock to decrease costs buffer inventory is high value and bulky so can reduce overhead costs ARA 1(c) Analyse two disadvantages to QF of holding a high level of inventory. 8 Level Knowledge and Marks Analysis Marks Application (4 marks) (4 marks) 2b Shows understanding 4 Good analysis of two 4 of two disadvantages of disadvantages of holding a high level of holding a high level of inventory inventory 2a Shows understanding 3 Good analysis of one 3 of one disadvantage of disadvantage of holding a high level of holding a high level of inventory inventory 1b Shows knowledge of 2 Limited analysis of two 2 two disadvantages of disadvantages of holding a high level of holding a high level of inventory inventory 1a Shows knowledge of 1 Limited analysis of one 1 one disadvantage of disadvantage of holding a high level of holding a high level of inventory inventory 0 No creditable content Indicative content Purpose of inventory within a business (raw materials, work in progress, finished products). . AO1 Knowledge and understanding Knowledge of a disadvantage of holding a high level of inventory, including: • cost • security required • waste/damage • storage space could be utilised for other purposes AO2 Application • Number of cafes increased by more than 50% over last five years. • QF has expanded. • Growth of market has attracted new firms. • Cost of sales = $120m (40% of revenue). • 80% of materials from country T, long delivery lead time. • High value, high level of buffer inventory. • QF wants to reduce costs. • Cost of storing may reduce ability to pay higher wages, so trained staff leaving. • PLC – effect on shareholder value. 1(c) AO3 Analysis Disadvantages may include: • costs – high costs of holding stock leading to lower profits affecting shareholders as dividends lower, and may lower share price affecting shareholder value • storage space – could be used elsewhere, e.g. expand manufacturing without needing new premises • security – high value, worth stealing so will require good security measures and expensive insurance • waste/damage – wood furniture, storing for a long period could dry out wood, make it susceptible to damage, e.g. leaks, also could go out of fashion and become obsolete • more management required – ensure stock rotation to avoid any component remaining in store for a long period where it may be damaged/not fit for purpose Examples of how an answer could develop and how it should be annotated. K APP AN DEV High storage opportunity extra outflow of this is a costs cost as money cash to pay for disadvantage as could be used fixed cost employees have for motivating complained employees about low pay, and employee dissatisfaction has reduced quality Capital is tied such as paying reduces working they may face up in stock for the training capital difficulties which would of new recruits paying day-to- have to be sold to replace day expenses those who and short term have left debts 1(d) Recommend how QF’s management could improve the morale of its 11 production employees. Justify your recommendation. Knowledge and Analysis and Application Evaluation Marks Marks (4 marks) (7 marks) Annotation Annotation A justified + + recommendation 7 based on a developed EVAL EVAL EVAL two-sided argument A developed + recommendation 6 based on a developed EVAL EVAL two-sided argument A basic recommendation 5 based on a developed EVAL two-sided argument Shows understanding Developed analysis of + + of more than one more than one 4 method of improving APP method of improving DEV APP DEV morale in context morale in context 3–4 Shows understanding Developed analysis of of one method of one method of 3 improving morale in APP improving morale in DEV context context Limited analysis of Shows knowledge of K + more than one at least two methods + 2 AN K method of improving AN of improving morale 1–2 morale Shows knowledge one Limited analysis of method of improving K one method of 1 AN morale improving morale No creditable content 1(d) Indicative content AO1 Knowledge and understanding Knowledge of methods to improve morale including: • financial – higher payments/bonus/change payment method/award shares in company • non-financial – team working, increase holidays, employee participation encouraged, management style (democratic/laissez-faire as highly skilled), job rotation, promotion opportunities/training AO2 Application Application of morale to QF’s production workers, may include: • low morale of employees leading to a fall in quality and a rise in customer complaints • skilled/highly trained labour leaving leading to high recruitment costs • profits doubled but employees seen no benefit • PLC so employee share ownership could work • highly trained and highly skilled, so more training unlikely to work • increase in competitors willing to attract highly skilled employees from QF AO3 Analysis Analysis of methods may include: • financial morale boosters, e.g. pay increases; employees have not received a pay increase in three years although profits at QF have doubled • non-financial morale boosters, e.g. increase in holidays – employees’ suggestion, promotion opportunities, job redesign, ask employees’ advice on reducing stocks/efficiencies, etc. AO4 Evaluation • A recommendation about how QF’s management could improve the morale of its production employees. • A judgement over the relative suitability of the chosen method(s). • Elements that the recommendation could depend upon, including costs v benefits, employee views, e.g. already highly skilled so more training unlikely to improve morale, competitors’ pay and conditions should be considered. • Weighing up of the impacts on QF/employees – employees complaining about pay and bonuses so increasing these more likely to improve morale. Ownership of shares gives a greater stake in the company, so QF’s objectives (e.g. growth, profits, quality) become the employees’ objectives/employees likely to want to improve quality and reduce customer complaints/increase profits/ensure loyalty so less likely to move to a competitor firm. 1(d) Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Increase can be one increase in productivity increase wages as profits pay will make will increase (wages) is have doubled them work and quality the best way over the last harder may improve to increase 3 years sales morale (eval) as the Introduce suitable for this will lead and lead to employees piece furniture to more units increased do not think rates manufacturin being profits but their pay is g as division produced quality may fair (eval – of labour can go down as justifying be used employees recommenda rush to tion), this has produce a affected the higher quality of the quantity furniture. Increased quality can increase sales and revenue to offset the increase in wages (eval – balancing costs against revenue) ARA

This question in 9609/21 Oct/Nov 2021

2 Super Candy (SC) SC is a large public limited company that sells low-sugar candy (sweets) with natural flavourings. The candy is made using flow production in SC’s four large factories in country T. SC uses psychographic market segmentation when planning its marketing mix. SC has completed some secondary market research using published accounts. The data is about one of SC’s main competitors, Organic Kandy (OK) and compares the results with 5 data about SC (see Table 2.1). OK is in the same market as SC. Table 2.1: Secondary market research about OK and SC for 2020 OK SC Revenue $60m X Market share by revenue 40% 34% 10 Different varieties of candy 12 18 Main channels of distribution Wholesalers Wholesalers Large supermarkets Small retailers Health food shops E-commerce Target market(s) Mass market People with interests in: 15 • Nature • Sports • Travel • Health There have been a number of media reports in country T about the increasing importance 20 of corporate social responsibility (CSR). A large food manufacturing business in country T recently lost many customers due to reports about its use of plastic packaging. The directors of SC are particularly concerned about this trend because of SC’s use of plastic in its packaging. The marketing department has been told to conduct some primary market research on this issue. The directors are planning to discuss making CSR a new 25 business objective for SC. (a) (i) Define the term ‘flow production’ (line 2). [2] (ii) Explain the term ‘psychographic market segmentation’ (line 3). [3] (b) (i) Refer to Table 2.1. Calculate SC’s revenue (X) for 2020. [3] (ii) Explain one possible disadvantage to SC of using secondary market research. [3] (c) Analyse two primary market research methods that SC could use. [8] (d) Evaluate the benefits to SC of having corporate social responsibility (CSR) as a business objective. [11]

30 marks

Mark scheme: 2(a)(i) Define the term ‘flow production’ (line 2). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Indicative content AO1 Knowledge and understanding • The continuous movement of products through the production process. • When one task is finished, the next task starts immediately. • The creation of a product in a series of stages on a production line. • Identical/standardised products are created on an assembly line. Exemplar Marks Rationale Continuous production for non- 2 Clear flow customised products production Continuous making of products 1 Only one element Continuous line/automated 1 No expansion of a process or standardisation ARA 2(a)(ii) Explain the term ‘psychographic market segmentation’ (line 3). 3 Award one mark for each point of explanation: Rationale Marks *Example or some other way of showing good understanding 1 Understanding of psychographic 1 Understanding of market segmentation 1 *No application without both pieces of knowledge Indicative content AO1 Knowledge and understanding Market segmentation • Selecting the most likely buyers • Select groups of consumers based on similar characteristics Psychographic • Based on their interests, activities and lifestyle choices • Qualitative method of studying consumers based on psychological characteristics and traits • Such as: beliefs, values, lifestyle, social status, opinions and activities • Beyond general demographic data such as age, gender or race AO2 Application Application of an example or some other way of showing good understanding, such as: • a business selling holidays to people based on the sports they enjoy such as golf/cycling holidays • any examples from case allowable Exemplar Marks Rationale Selecting the most likely buyers based on 3 All three elements beliefs and values instead of geographic met factors Selecting the most likely buyers based on 2 No understanding beliefs and values Breaking up/separating the market 1 No psychological ARA 2(b)(i) Refer to Table 2.1. Calculate SC’s revenue (X) for 2020. 3 *Formula can be implied through use of figures Rationale Marks Correct answer with or without correct working or $ or m 3 Calculation of total market revenue 2 Formula* 1 No creditable content 0 Content Market share × total market revenue Total market = $60m × 2.5 = $150m 34% of $150m = $51m SC’s sales revenue = $51m OFR Common incorrect answers Answer Marks Rationale 60m * 0.4 = 20.4m 1 OFR – final; mark only 60m – (60*0.34) = 39.6 0 Incorrect formula and figures 2(b)(ii) Explain one possible disadvantage to SC of using secondary market 3 research. Level Knowledge and Application Marks 2b Explanation of one possible disadvantage of 3 (APP+APP) secondary market research in context 2a (APP) Identification of one possible disadvantage of 2 secondary market research in context 1a (K) Knowledge of a disadvantage of secondary 1 market research 0 No creditable content 0 Note: some disadvantages are unlikely to be able to be contextualised – good answers will have been selective over which disadvantage to use. Indicative content AO1 Knowledge and understanding Knowledge of a possible disadvantage of using secondary market research may include: • may be out of date • may be inaccurate • may not be specific • been compiled by someone else • may be under copyright AO2 Application • May be out of date – this was data from 2019/20 (two years old) – what elements may have changed? • May be inaccurate – was the $60m a ‘normal’ revenue? Published accounts are unlikely to be inaccurate but may have been window dressed • May not be specific – unlikely to be the case in this context as this is their main competitor (market leader), so could be difficult to contextualise • Been compiled by someone else – OK’s published accounts may have been window dressed – is $60m a normal revenue figure or a promotional campaign? • May be under copyright – again unlikely to be contextual since published accounts are in the public domain 2(b)(ii) Example of how responses should be marked. Identification of a way Application Developed application (K – 1 mark) (APP – 2 marks) (APP+APP – 3 marks) Out of date Published accounts Due to window dressing May be out of date Two years old Elements may have changed ARA 2(c) Analyse two primary market research methods that SC could use. 8 Level Knowledge and Marks Analysis (4 marks) Marks Application (4 marks) 2b Shows knowledge of 4 Good analysis of two 4 two primary market primary market research methods in research methods in context context 2a Shows knowledge of 3 Good analysis of one 3 one primary market primary market research method in research method in context context 1b Shows knowledge of 2 Limited analysis of 2 two primary market two primary market research methods research methods 1a Shows knowledge of 1 Limited analysis of 1 one primary market one primary market research method research method 0 No creditable content Content Indicative content AO1 Knowledge and understanding Knowledge of primary market research methods include: • questionnaires (if q’s and surveys in one element, then should be counted as one method) • surveys • focus groups • observation • trial/test marketing AO2 Application • PLC • Low sugar candy • Natural flavourings/flavours • Flow production • Psychographic segmentation • Corporate Social responsibility • Plastic/plastic in packaging • CSR as a new business objective 2(c) AO3 Analysis • Questionnaires and surveys – depend on people being willing to answer and give honest answers • Focus groups – can ask qualitative opinions on factors and discuss potential solutions • Observation – if some customers prefer products which actively promote the reduction in plastic packaging, can focus on these; however, limited scope • Trial/test marketing – see if the sales/revenue are affected by altering factors, which is more likely to be a response than asking questions Examples of how an answer could develop and how it should be annotated. K APP AN DEV Questionnaires Target market, Via ecommerce Depends, e.g. nature and will provide quick however, on the sports results honesty of respondents Focus groups Ask specific To understand And make a questions customer opinion decision on about low whether to sugar candy change business objectives ARA 2(d) Evaluate the benefits to SC of having corporate social responsibility 11 (CSR) as a business objective. Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified evaluation based 7 on argument in context Developed evaluation 6 based on argument in context An evaluative statement 5 based on argument in context Shows understanding of 4 Argument based on two or 4 CSR as a business more benefits of CSR as a objective in context business objective in context Shows understanding of 3 Argument based on one 3 CSR in context benefit of CSR as a business objective in context Shows knowledge of CSR 2 Limited analysis of two or 2 and business objectives more benefits of CSR as a business objective Shows knowledge of CSR 1 Limited analysis of one 1 or business objectives benefit of CSR as a business objective No creditable content Content Indicative content AO1 Knowledge and understanding Knowledge of corporate social responsibility: • triple bottom line • social, environmental and profit objectives Knowledge of business objectives: • SMART • analysing, assessing and understanding where you are now and where you want to be in the future 2(d) AO2 Application Application may include: • PLC • low sugar candy • natural flavourings • flow production • psychographic segmentation • food manufacturing business lost customers • use of plastic packaging • use of Table 2.1 AO3 Analysis Analysis of benefits may include: • increased reputation – customers may choose SC because of its reputation of focusing on CSR increasing revenue from $51m – increases revenue/profits • long term cost savings – CSR may lead to long term cost savings, especially if the loss of plastic leads to a recyclable alternative – which may reduce unit costs (but may increase short term costs) • could lead to growth – SC may be able to increase their market share (currently 43%) – overtake OK as market leader • increased sales – media reports suggest this is becoming a big issue for customers – SC may align with customers’ preferences • decreased price elasticity of demand – customers may be happier to pay higher prices for candy which is more in line with their beliefs, especially parents – increases revenues • better staff retention and employment – may align with employees’ beliefs – may improve motivation and/or retention • easier access to capital – may attract investment from ethical sources due to focus on TBL – may reduce cost of investment in new packaging materials and processes AO4 Evaluation • A recommendation about whether SC should have CSR as a business objective. • A judgement over the relative benefits of CSR as a business objective. • Elements that the recommendation/judgement could depend upon, including cost, competitor actions, customer requirements and purchasing habits, market research. • Weighing up of the relative impacts on SC of CSR as a business objective for SC. 2(d) Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Triple Reducing Improves Increases CSR is very bottom line use of reputation number of beneficial plastic customers As the reduction of plastic is likely to increase profits overall Even though the cost may be high initially SMART Psycho- Customers Increases graphic may be revenues segment- happier to ation pay higher prices for candy which is more in line with their beliefs ARA

This question in 9609/23 Oct/Nov 2021

1 Rehana Recycles (RR) Rehana is very environmentally aware. One year ago, Rehana identified a business opportunity to reuse waste products and set up Rehana Recycles (RR) as a sole trader. A local company sells bottled drinks and reuses the empty glass bottles that are returned by customers. It cannot reuse any damaged bottles, so they are dumped as waste. Rehana asked this company if she could have the damaged glass bottles. The company agreed she could have 5 them at no cost. RR melts down the glass and makes unique vases and other glassware products. RR’s mission statement is ‘Make waste beautiful’. Rehana markets her products as ‘Lovely for the planet, lovely for you’. The business has a strong local brand image. Rehana has recently invested in marketing which focuses on her unique selling point of recycling waste. 10 To help satisfy demand, Rehana recently employed two local artists who are also very environmentally aware. They are skilled in making handmade glass jewellery. RR currently makes handmade products using job production. Rehana has a democratic leadership style. Rehana has produced some financial data shown in Table 1.1. Table 1.1 Financial data 15 $ $ Current assets Current liabilities Cash 2 000 Trade payables 3 000 Inventory 12 000 Overdraft 5 000 Total current assets 14 000 Total current liabilities 8 000 20 As demand has grown, Rehana needs to increase her output. Rehana has identified two ways of increasing output. She could either: • keep using job production and employ more artists to create unique glassware products using the RR brand, or • change to batch production and make a larger number of standardised glassware using the RR brand. (a) (i) Define the term ‘mission statement’ (line 7). [2] (ii) Explain the term ‘democratic leadership style’ (line 13). [3] (b) (i) Refer to Table 1.1. Calculate the acid test ratio for RR. [3] (ii) Explain one method Rehana may use to improve liquidity. [3] (c) Analyse two benefits for RR of having a unique selling point (USP). [8] (d) Evaluate whether RR should change to batch production. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘mission statement’ (line 7). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content • One mark for understanding of the concept of aims and values (mission) • One mark for understanding that it defines a company or organisation’s reason for being (statement) Exemplar Mark Rationale A statement of a company’s 2 Both elements covered. vision (1) which helps to set objectives (1). Is the goal of a company (1). 2 Clearly defined. Corporate objectives are used to achieve the mission statement (1). A kind of business target (1). 1 Vague definition. Something a business aims for 1 Vague definition but (1), in this case to ‘make waste example copied from the beautiful’. case, so do not award. The vision of the business owners 1 Vague definition. (1) A statement of a business’s 0 Tautological. mission Accept any reasonable answer 1(a)(ii) Explain the term ‘democratic leadership style’ (line 13). 3 Award one mark for each point of explanation: C Example or some other way of showing good 1 mark understanding B Understanding that it is to do with 1 mark direction/guidance/coordination etc. A Understanding of the concept of participation 1 mark C marks dependent on A and B mark being present Content All members of the business (1) take part in the decision-making process, often by voting (1). If Rehana is a democratic leader then she will ask for the local artists to help her make decisions (1). Exemplar Mark Rationale All employees’ views are 3 A, B and C considered (1) when making decisions and every employee has one vote (1). Sometimes called participative leadership (1). The leader takes other people’s 3 A, B and C views into account (1) when making decisions (1), however the leader makes the final decision (1). All members of the business take 2 A and B only part (1) in the decision-making process (1). All employees are involved (1). 1 A mark only Decisions are made by voting (1). B mark only Accept any reasonable answer 1(b)(i) Refer to table 1.1. Calculate the acid test ratio for RR. 3 *May be implied Rationale Marks Correct answer with or without correct working or $ 3 Attempt with correct figures 2 Formula*/attempt to calculate 1 No creditable content 0 Current assets − stock [1 mark – formula] Current liabilities (14000 − 12000) [1 mark – use of correct figures] 8000 Answer = 0.25:1 [3 marks – correct answer] Common incorrect answers Answer Mark Rationale 25% 3 A percentage is a ratio. 1/4 3 A fraction is close enough to a ratio. 0.25 (no working) 3 Allow as a correct answer with or without working shown. 25 (no working) 0 Do not award any marks for an incorrect answer without working. CA 1 Attempt to correctly calculate using one correct CL figure (CL). 14000 = 1.75:1 8000 2000 1 Attempt to correctly calculate using one correct 14000 figure (CA). 1(b)(i) Answer Mark Rationale 1.75:1 (no working) 0 Do not award any marks for an incorrect answer without working. CL 2 Incorrect formula (but right elements – inverted) and CA − inventory subsequent results are OFR 8000 2000 = 4:1 (400%) 8000 0 Without formula these are ‘random’ numbers 2000 = 4 1(b)(ii) Explain one method Rehana may use to improve liquidity. 3 Level Knowledge and Application Marks 2 (APP) Explanation of a method of improving liquidity, in 3 context 2a (K+K) Explanation of a method of improving liquidity 2 1a (K) Identification of a method of improving liquidity 1 0 No creditable content 0 Content Indicative content AO1 Knowledge and understanding Liquidity can be improved by: • A method of increasing current assets (cash, inventory, trade receivables etc.): – Sell fixed assets – for cash. – Take out a long-term loan – to increase cash. – Encourage prompt payment – to decrease trade receivables (debtors). – Sell inventory – to increase cash (can improve liquidity if measured using the acid test). • A method of decreasing current liabilities (overdraft, trade receivables, dividend payable etc.) – Take out a long-term loan – to pay off the overdraft. – Retain more profit – to avoid paying dividends AO2 Application • Context of RR. • Use of Table 1.1 ACCEPT ANY REASONABLE ANSWER 1(b)(ii) Exemplar Mark Rationale Rehana could sell the machine 3 Explanation of a method in that melts down bottles to context increase RR’s cash. Rehana could sell $5000 of the 3 Explanation of a factor not inventory so that the business can in context. Allow based on pay off its overdraft. acid test measure of liquidity. Rehana could take out a long- 3 Explanation of a method in term loan for $5000 to pay off the context overdraft. Take out a long-term loan to pay 2 Explanation of a method. off the overdraft. Take out a bank loan. 1 BOD that a bank loan is a long-term liability. Borrow some money. 1 Too vague – could be short-term or long-term debt. 1(c) Analyse two benefits for RR of having a unique selling point (USP). 8 Knowledge and Analysis Level Application Marks Marks (4 marks) (4 marks) 2b Shows knowledge of 4 Developed analysis 4 two benefits of of two benefits of having a USP in having a USP in context context 2a Shows knowledge of 3 Developed analysis 3 one benefit of having of one benefit of a USP in context having a USP in context 1b Shows knowledge of 2 Limited analysis of 2 two benefits of two benefits of having a USP having a USP 1a Shows knowledge of 1 Limited analysis of 1 one benefit of a USP one benefit of having a USP 0 No creditable content AO1 Knowledge and understanding Knowledge of benefits may include: • To sell more • To increase the price • Increase customer loyalty / repeat purchases • Brand recognition • To differentiate from competition • To give a focus for the marketing mix AO2 Application • RR is a sole trader / small business and is likely to have limited resources • RR makes unique vases and glassware products • RR’s mission statement ‘to make waste beautiful’. • Markets products as ‘lovely for the planet, lovely for you’. • RR has a strong local brand image. • RR’s USP is recycling waste (assumption can be made that no other competitors do this). • RR employs two local artists, who are environmentally aware. • Employees are skilled. • RR uses job production. • Table 1.1. • Demand has grown and Rehana needs to increase output. • Rehana wants to increase output by either employing more artists or changing to batch production. 1(c) AO3 Analysis • Increase customer loyalty / repeat purchases: gives RR an established customer base and revenue stream – more likely to make Rehana’s growth strategies successful. • Brand recognition: means that customers who are looking for recycled products are more likely to purchase RR’s vases – increasing Rehana’s incomes/profit. • To differentiate from competition: likely to be a competitive market and RR may need customers to recognise their recycled products so that sales increase – so that Rehana can reinvest more profit and grow the business. • To give a focus for the marketing mix: the ‘lovely for the planet, lovely for you’ marketing slogan shows a double benefit to making a purchase, meaning that Rehana may be able to charge a higher price – increasing her income/profit. Accept any reasonable answer 1(d) Evaluate whether RR should change to batch production. 11 Analysis and Knowledge and Evaluation Application (4 marks) Marks Marks (7 marks) Annotation Annotation Justified evaluation 7 based on argument in context. EVAL + EVAL + EVAL Developed evaluation 6 based on argument in context. EVAL + EVAL An evaluative 5 statement based on EVAL argument in context. Applies context to 4 Argument based on two 4 understanding pieces of knowledge of two APP piecesanalysisofaboutdevelopedRR’s DEV about job/batch + decision to change + production. APP production method. DEV Applies context to 3 Argument based on 3 understanding of one one piece of developed piece of knowledge analysis about RR’s APP DEV about job/batch decision to change production. production method. 1(d) Analysis and Knowledge and Evaluation Application (4 marks) Marks Marks (7 marks) Annotation Annotation Shows two pieces of 2 Limited analysis of two 2 knowledge about factors influencing job/batch production K job/batch production AN + + K AN Shows one piece of 1 Limited analysis of one 1 knowledge about K factor influencing AN job/batch production job/batch production No creditable content Content AO1 Knowledge and understanding Knowledge of job production may include: • On-off unique products • Produced one at a time Knowledge of batch production may include: • Production in groups, not individual or mass/flow • Whole batch passes through each stage of production at the same time • Use of machinery AO2 Application • RR is a sole trader / small business and is likely to have limited resources • RR makes unique vases and glassware products • RR’s mission statement ‘to make waste beautiful’. • Markets products as ‘lovely for the planet, lovely for you’. • RR has a strong local brand image. • RR’s USP is recycling waste (assumption can be made that no other competitors do this). • RR employs two local artists, who are environmentally aware. • Employees are skilled. • RR uses job production. • Table 1.1. • Demand has grown and Rehana needs to increase output. • Rehana wants to increase output by either employing more artists or changing to batch production. 1(d) AO3 Analysis For batch: • will meet the increase in demand boosting revenue • The only way to cost effectively increase her output • Costs of recruiting skilled artists may be too expensive Against batch: • Amount of raw materials (waste bottles) available may not be sufficient for expansion • Impact on recent marketing focusing on USP may be negative • Batch production/machinery skills of two local artists/herself may not be sufficient leading to waste • Amount of liquidity available for investment (0.25:1 acid test ratio) may be too low for investment For job: • Maintain USP of RR • Utilise skilled workers who are already employed by RR Against job: • High cost of skilled workers • High unit cost for production of handmade products • May not be able to meet demand AO4 Evaluation • A recommendation about a whether RR should introduce batch production (or not). • A judgement over the relative suitability of production methods. • Elements that the recommendation/judgement could depend upon. • Weighing up of the impacts on RR of the change. • Weighing up of the likely advantages/disadvantages of batch production. Accept any reasonable answer

This question in 9609/22 Feb/March 2022

2 Motorcycle Components (MC) MC is a large public limited company that produces a range of components used by motorcycle manufacturers. MC’s mission statement is ‘to be the world leader in delivering quality motorcycle components to our customers’. The motorcycle component industry is very competitive and MC’s customers expect high quality and a short lead time. MC operates a Just in Time (JIT) inventory control system. 5 MC’s good relationships with its suppliers ensure that JIT operates efficiently. The production workers at MC are highly skilled and the business benefits from a low labour turnover. Liquidity management is very important in the motorcycle component industry. The industry average for the acid test ratio is 1. A summary of some key data for MC has been prepared 10 by the Finance Director, as shown in Table 2.1. Table 2.1: Summary financial data as at 30 April 2022 ($ million) Trade receivables 26 Cash 19 Inventory 1 15 Trade payables 30 Other current liabilities 20 The Operations Director, Jay, is proposing new capital expenditure of $4 million. Jay thinks that automation of the production process will have significant financial benefits for MC. He wishes to gain approval from the Board of Directors to implement a process innovation 20 project. Jay believes that, with good communication and the involvement of employees, he can effectively manage the project. (a) (i) Define the term ‘lead time’ (line 5). [2] (ii) Explain the term ‘mission statement’ (line 2). [3] (b) (i) Refer to Table 2.1. Calculate MC’s acid test ratio. [4] (ii) Explain one reason why the acid test ratio is useful to MC’s Finance Director. [2] (c) Analyse two benefits to MC of Just in Time (JIT) inventory control. [8] (d) Evaluate the possible impact on MC from introducing process innovation. [11]

30 marks

Mark scheme: 2(a)(i) Define the term ‘lead time’ (line 5). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 A correct definition should cover the following: The period between the start of a process and the completion of that process such as the time period between placing an order and receiving the goods. Must have both starting and finishing a process for two marks. Vague statements such as the time a process takes only 1 mark. Exemplar Rationale Marks The amount of time taken both starting and finishing an 2 between the placing an order order process and delivery The time taken to receive Time between order and 2 inventory from when it was delivery identified ordered Time between delivery and This is not lead time, this is 2 (BOD) reorder of supplies backwards The time it takes for an order Order time not identified 1 to be delivered How long it takes to get an BOD finish time 1 order The amount of stock a Wrong definitions 0 business keeps as a buffer 2(a)(ii) Explain the term ‘mission statement’ (line 2). 3 Award one mark for each point of explanation. Point Knowledge Marks C Example or some other way of showing good 1 understanding – e.g. communicates to stakeholders what the business stands for/ helps establish aims and objectives B One mark for understanding of the concept of 1 aims and values (mission) A One mark for understanding that it defines a 1 company or organisation’s reason for being (statement) No creditable content 0 Note: C mark can only be awarded if A and B marks have already been awarded Exemplar Rationale Marks A vague and general phrase Describes what it is (vague), 3 that transmits what the what it is for (transmits business is about and values) and a benefit motivates workers (motivates) A phrase that represents the All points met 3 business core objectives and motivates employees A phrase that represents the A and B only 2 business core objectives A document that tells A and B 2 stakeholders the business values A statement that motivates A only – C not awarded 1 employees The aims and objectives of a Part of a mission statement – 1 business limited understanding 2(b)(i) Refer to Table 2.1. Calculate MC’s acid test ratio. 4 Rationale Marks Correct answer (with or without formula) 4 Attempt using correct figures 3 Correct formula and calculation of current assets or current 2 liabilities OR Correct calculation of current assets and current liabilities Correct formula 1 No creditable content 0 current assets – inventory (1) current liabilities Current Assets = 26 + 19 + 1 = 46 46 – 1 = 45 Current Liabilities = 30 + 20 = 50 (2) 45 50 = 1 : 0.9 (accept 0.9) or 9:10 Common incorrect answers 45/50 3 marks This is a fraction, ratio/calculation not completed 45:50 3 marks Has not been simplified 46/50 = .92 3 marks Correct current ratio – OFR 46/50 2 marks Correct calculation of current assets and current liabilities 2(b)(ii) Explain one reason why the acid test ratio is useful to MC’s Finance 2 Director. Level Knowledge and Application Marks 2 (APP) Explanation of one use of the acid test ratio in 2 context 1 (K) Identification of one use of the acid test ratio 1 0 No creditable content 0 Content is likely to come from:  Measure of liquidity to see if it can cover short term debts without selling inventory  Check the risk of illiquidity  To gain finance/investment Context is likely to come from:  At 0.9 it is below the industry average  Any relevant data from Table 2.1  Investment of $4m Exemplar Rationale Marks 0.9:1 is less than industry Context and content 2 average and can signify liquidity problems To see if it can cover short No context 1 term debts without selling inventory Measures liquidity No context 1 Check the risk of illiquidity No context 1 Ratio calculation only No usefulness 0 ARA 2(c) Analyse two benefits to MC of Just in Time (JIT) inventory control. 8 Level Knowledge and Marks Analysis Marks application 2 Understanding of 4 Developed 4 two benefits of analysis of two JIT in context benefits of JIT in context Understanding of 3 Developed 3 one benefit of JIT analysis of one in context benefit of JIT in context 1 Knowledge of 2 Limited analysis 2 two benefits of of two benefits of JIT JIT Knowledge of 1 Limited analysis 1 one benefit of JIT of one benefit of JIT 0 No creditable content Generic benefits may include:  Reduces waste and overstocking  Improves financial efficiencies / reduces capital invested in stock  Reduces storage costs  Reduces risk of obsolescence Application may include:  Large plc with B2B model  Mission statement is ‘to be the world leader in delivering quality motorcycle components to our customers’  Motorcycle component industry is very competitive and MC’s customers expect high-quality and a short lead time  Good relationships with its suppliers ensure that JIT operates efficiently.  Liquidity management is very important  Industry average for the acid test ratio is 1  automation of the production process 2(c) Analysis of benefits may include:  Reduction in fixed costs as warehouse/storage not required to store raw materials – which improves profit  Storage space no longer needed and could be used to expand production  Decrease in labour costs as fewer people required in warehouse as no need to receive, store, then move inventory to production – increases profit  Reduction in costs should mean increased profit – which could be used towards funding expansion  Improved cash flow as only order inventory as needed to fulfil customer orders – more money for expansion ARA 2(d) Evaluate the possible impact on MC from introducing process 11 innovation. Knowledge and Marks Analysis and Marks Application (4 marks) Evaluation (7 marks) A justified judgement 7 on the importance of the impact A judgement on the 6 importance of the impact An evaluation 5 statement of the given arguments of an impact in context Understanding of two 4 Developed analysis of 4 effects of process two effects of process innovation in context (*) innovation Understanding of one 3 Developed analysis of 3 effect of process one effect of process innovation in context innovation in context Knowledge of two 2 Limited analysis of two 2 effects of process effects of process innovation innovation Knowledge of one 1 Limited analysis of one 1 effects of process effect of process innovation innovation * Two effects can come from one impact Note: Use of a process innovation (i.e. Capital expenditure is acceptable for Application without explicit reference to process innovation) Knowledge of effects/impacts of process innovation  Increases/expands competitive advantage  Develops performance by decreasing costs  Enhances quality  Makes the best use of competencies, skills and/or knowledge  Builds a culture of continuous learning 2(d) Application is likely to come from:  Large plc with B2B model  Mission statement is ‘to be the world leader in delivering quality motorcycle components to our customers’  Motorcycle component industry is very competitive and MC’s customers expect high quality and a short lead time  Good relationships with its suppliers ensure that JIT operates efficiently  Liquidity management is very important  automation of the production process Analysis likely to come from: Impact should focus on MC and could be: positive  Creates shorter lead times – which may increase orders due to high expectations  Matches high customer quality expectations – increases sales revenue  Links to mission statement (increased quality) – better dividends/marketing opportunity  Reduced costs – eases cash flow pressures/acid test  Increased market share as the industry and suppliers are competitive – better brand image negative  Image/reputational damage e.g. if redundancies happen – poor publicity  Results in redundancies – increases costs  Negative impact on morale – lower productivity  Cost of automation – reduces profits/dividends Other  Process innovation may improve efficiency however this could result in redundancies – reducing the need for some employees – may be seen as not socially responsible (damage to image, want to be world leaders) and lead to lower sales - reduced revenue and profit  Impact on employees and morale – fear of redundancies, change, could affect quality of work and conflict with the mission statement  The industry and suppliers are competitive, so process innovation will reduce cost pressures and assist MC in being price competitive, however, other firms may also introduce new processes so less of an impact on MC  Lower costs could allow MC to become more price competitive, increasing revenue (if PED is elastic), leading to higher profit and increasing share value, but other firms could retaliate and start a price war resulting in losses for MC Evaluation is likely to come from:  An evaluation of the possible impact on MC of introducing process innovation  A judgement in the outcomes of process innovation  An evaluation on the level of argument  What the judgement/evaluation may depend on: cost, reputation, customer reaction, supplier ability to deliver quantities of inventory, sources of finance, shareholder expectations 2(d) K APP AN DEV EVAL Decreases Helps ATR Which So the The impact is costs of 0.9:1 improves $4mn cap likely to be shareholder ex will be positive value approved As the Increases From $4mn Increases Which could investment into redundancies capital reputational be used by new machinery expenditure damage competitors will improve into negative lead time and automation advertising quality Which is likely more important to business customers than a reputation for laying off staff

This question in 9609/21 May/June 2022

2 Move Well (MW) MW is a business that organises the transportation of people’s possessions when they move from one house or apartment to another. One of MW’s corporate objectives is to achieve internal growth. MW has expanded rapidly from a local business to a national business. It now has locations in many major cities in country Q. Local success was built on customer recommendations. National success is a 5 result of carefully targeted advertising and effective use of social media. The growth of the business has put pressure on MW’s cash flow. MW receives payment from customers one week after the house move is completed, which is, on average, one month after the house move was booked. MW’s costs include rent, vehicle maintenance, fuel, local taxes, wages and advertising. 10 Following some successful years, there has been a large decline in MW’s sales. This is due mainly to fewer people moving home in country Q. Each city location made a loss last year. The Managing Director, John, has noticed that the housing market is growing in some other countries. He thinks there is an opportunity for a new location in country P. Table 2.1 shows the forecast costs and revenue for the new location in country P. 15 Table 2.1: Forecast costs and revenue for the new location in country P in year one ($000) Revenue 110 Direct costs 50 Indirect costs 20 20 Effie, the Operations Manager, would prefer to achieve cost savings rather than expand into another country. She thinks a lot of time is wasted due to uncoordinated information systems which are not kept up to date. MW currently keeps its customer records on paper. It also has three separate computer-based systems. Table 2.2 shows details of the computer systems. 25 Table 2.2: MW’s computer systems Computer system Process A Tracks vehicles used on each home move B Records employee pay and other HR data C Produces accounts and other management information 30 (a) (i) Define the term ‘corporate objectives’ (line 3). [2] (ii) Explain the term ‘internal growth’ (line 3). [3] (b) (i) Refer to Table 2.1. Calculate the forecast profit margin for year one. [3] (ii) Explain one method MW could use to improve its cash flow. [3] (c) Analyse two benefits to MW of introducing process innovation to update its information systems. [8] (d) Evaluate the factors that John needs to consider before opening the new location in country P.

30 marks

Mark scheme: 2(a)(i) Define the term ‘corporate objectives’ (line 3). 2 Knowledge Marks Reference to long term goals/over a period of time or 2 focus/direction or helps form strategic business plan / should be SMART Reference to goals/aims/targets 1 No credible content 0 A correct definition could cover the following: • The (long term) goals of a company • Give focus and direction to the business. Exemplar Rationale Marks The long-term goals of a Two elements covered 2 company Goals of a company giving Two elements covered 2 direction to employees Gives focus to a business A simple statement 1 Company goals An understanding but too vague 1 Aims Vague but alternative for 1 objectives 2(a)(ii) Explain the term ‘internal growth’ (line 3). 3 Award one mark for each point of explanation Point Knowledge Marks C Example or some other way of showing good 1 understanding – by means of opening new branches, shops, factories. Contrasts with external (takeovers, mergers etc.) B From within – organic 1 A Expansion of a firm/business. 1 Content: Internal/organic growth is when a business uses its own funds to reinvest in itself and increase the capital. Exemplar Rationale Marks Increase of the business scale All three elements 3 (A), from within (B), does not involve external parties such as mergers (C) Expansion of a business, from All three elements 3 within, which can be slow when compared with external growth through a merger Expansion of a business, from All three elements 3 within, which requires investment to open new branches Expansion of a business, from A and B 2 within, which can take a long time and requires investment Slow growth of a business. B only 1 Expansion of a business Identified key themes only, no 1 real understanding Increase market Not necessarily growth as e.g. 0 share/employees market share could increase because of successful promotion without growth 2(b)(i) Refer to Table 2.1. Calculate the forecast profit margin for year one. 3 Rationale Marks Correct answer (with or without formula or %) 3 Correct calculation of profit 2 Correct formula 1 No credible content 0 profit  100 sales revenue Profit = 110 – (50+20) = 40 40 110 = 36.36% allow 36, 36.3, 36.4 (3) Common answers Answer Mark Rationale 36.3% 3 Correct answer 110-70 = 40 2 Correct calculation of profit 40/110 2 Correct calculation of profit Profit/sales revenue  100 1 Correct formula Profit/sales revenue 0 Incorrect formula (no  100) 2(b)(ii) Explain one method MW could use to improve its cash flow. 3 Level Knowledge and Application Marks 2 (APP) Explanation of one method to improve cash flow in 3 context 1b (K+K) Explanation of one method to improve cash flow 2 1a (K) Identification of one method to improve cash flow 1 0 No creditable content 0 • Reducing costs – to reduce outflow • Increasing revenue – to increase inflow • Bank overdraft • Debt factoring Context is likely to come from: • The time between booking and receiving revenue • Higher costs due to inefficiency in systems • Take a deposit at the time of booking ARA Exemplar Mark Rationale Take a deposit at the time of booking a 3 Explanation in context move to increase revenue Reduce costs by finding a cheaper 2 Explanation of method supplier Get a bank overdraft 1 Identification only 2(c) Analyse two benefits to MW of introducing process innovation to update 8 its information systems. Level Knowledge and Marks Analysis Marks application Annotation 2 Understanding of 4 Developed 4 two benefits of analysis of two process benefits of DEV APP innovation in + process + context APP innovationcontext in DEV Understanding of 3 Developed 3 one benefit of analysis of one process benefit of process innovation in innovation in context APP context DEV 1 Knowledge of two 2 Limited analysis of 2 benefits of two benefits of AN process K+ process + innovation K innovation AN Knowledge of one 1 Limited analysis of 1 benefit of process one benefit of innovation process K innovation AN 0 No creditable content 0 ARA Indicative content AO1 Knowledge and understanding • Information – keep up-to-date, • Time saved • Increase cash flow • Reduce costs • Increase quality • Increase efficiency • Ease of access to information AO2 Application • Wants to achieve internal growth • Many locations in country Q • Successful business • Growth affecting cash flow 2(c) • Want to locate to other countries • Want to achieve cost savings • Current system uncoordinated • Use paper customer records • 3 different computer-based systems • Records not kept up to date • Need to improve cash flow AO3 Analysis • Information – keep up-to-date, easier to co-ordinate • Time saved – quickly find the correct information • Increase cash flow – Decrease the time between booking and receiving revenue • Reduce costs – improve profit/help fund expansion 2(d) Evaluate the factors that John needs to consider before opening the 11 new location in country P. Knowledge and Marks Analysis and Marks Application (4 Evaluation marks) (7 marks) Annotation Annotation A justified 7 judgement on the + + importance of each factor EVAL EVAL EVAL A judgement on the 6 + importance of each factor EVAL EVAL An evaluation 5 statement of the given arguments of two factors in context EVAL Understanding of + 4 Developed analysis 4 + two factors in of two or more context APP APP factors in context DEV DEV Understanding of 3 Developed analysis 3 one factor in of one factor in context APP context DEV Knowledge of two + 2 Limited analysis of 2 + factors K K two factors AN AN Knowledge of one 1 Limited analysis of 1 factor K one factor AN No creditable comment 0 Indicative content AO1 Knowledge and understanding • Language barriers, • Costs, • Opportunities, • Competition, • Available resources • Infrastructure • Communication 2(d) AO2 Application • Growth in housing demand in other countries. • Business successful in the past • Decline in sales in country Q • Fewer people moving in country Q • Each city location made a loss last year • Requires good transport infrastructure • Tracking vehicles requires a good communication system AO3 Analysis • Expensive to set up operations in another country, can MW afford it? • Might be a competitive market so hard to break into • Might be legal barriers such as licence requirements • Will require employees in the new country adding to expense • Important to consider culture of new country – will it be a good fit for MW? AO4 Evaluation • Inefficient operation – should they expand internationally if own business inefficient • Will need to spend a lot on infrastructure in another country, can they afford it if made losses last year • Inefficient systems could be a major issue when trying to coordinate internationally • But declining market in country Q • Need to research carefully before making a decision • Will take a long time to establish ARA

This question in 9609/21 Oct/Nov 2022

1 Friendly Fit (FF) FF is a public limited company that owns a popular social media and fitness app. The app was launched five years ago and now has over three million users worldwide. The app allows users to upload and share pictures and short films of their favourite exercises. There are many other features which have been developed as the app has gained popularity. The app can be downloaded for free and users can access basic features without paying 5 any money. However, to access all the features of the app, customers must pay a monthly fee of $10. FF also receives income from advertising revenue. Table 1.1 shows cost and revenue data for the app for the last two years. Table 1.1: FF’s costs and revenue for the app for 2021 and 2020 10 2021 2020 ($m) ($m) Revenue from monthly fees 1.6 1.4 Revenue from advertising 1.4 1.8 Total costs 2.0 2.0 15 Every month, FF carries out a survey of a sample of users to research new features which may be added to the app. The sampling process is outlined in Fig. 1.1. A stratified sample based on age. Those who respond are given one month’s free access to all the features of the app. Survey sent through the app to 50 000 current users. 15 000 users usually 20 respond to the survey each month. Fig. 1.1: FF’s sampling process (a) (i) Define the term ‘customers’ (line 6). [2] (ii) Explain the term ‘public limited company’ (line 1). [3] (b) (i) Refer to Table 1.1. Calculate FF’s profit margin for the app in 2020. [3] (ii) Explain one way in which FF could use profit margin data. [3] (c) Analyse two ways in which FF can increase the value added to its app using the operations process. [8] (d) Evaluate the limitations of FF’s sampling process. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘customers’ (line 6). 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: • an individual or business that purchases/buys products or services (goods) • from a business/firm/company/organisation/enterprise/market etc. Exemplar Rationale Marks Someone who buys a Both elements 2 product from a business. A purchaser of goods from a Both elements 2 business. A person who buys a product One element 1 Someone a business sells to One element 1 Someone who uses a Confusion with consumer 0 product 1(a)(ii) 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 understanding, this could be another element from A, as 1 long as B has been awarded. B Understanding of the specific nature of a public limited company, e.g. shares may be sold to the general 1 public/through stock exchange, accounts must be published (not just made available). A Understanding of a limited company, e.g. limited liability, continuity and a separate legal identity, has 1 shareholders/ they sell shares. Note: A and B marks must be gained before C mark can be awarded. Content A public limited company has shareholders who can purchase shares through a stock exchange. It also has limited liability, continuity and a separate legal identify. It differs from a private limited company by being able to sell shares to the general public (through a stock exchange) and in having to publish (not just make available) its accounts. Exemplar Rationale Marks A PLC has limited liability (A) and All three elements can sell shares through the stock 3 exchange (B). An example of a PLC is McDonalds (C). It is owned by shareholders (A) and A and B only 2 anyone can buy shares (B). A PLC can sell shares (A) and has A only – do not award the a separate legal identity. If an C mark unless B has been owner dies the business continues. awarded. 1 It must produce accounts each year and has unlimited liability. A PLC has unlimited liability, and Confusion with a 0 the owners must draw up a deed. partnership 1(b)(i) Refer to Table 1.1. Calculate FF’s profit margin for the app in 2020. 3 Rationale Marks Correct answer with or without correct working or % 3 Correct calculation of profit 2 Formula or correct calculation of TR 1 No creditable content 0 Content Total revenue − total costs  100 Total revenue 1.4 + 1.8 = 3.2 (TR) 3.2 – 2 = 1.2 (profit) 1.2  100 = 37.5% 3.2 Answer = 37.5% allow 38% (3) OFR Common incorrect answers Answer Mark Rationale 37.5 3 % sign not required. 1.6 + 1.4 = 3 (TR) 2 Answer given for 2021 data. With 3 – 2 = 1 (profit) working, this can be worth 2 marks for 1 the two stages. 3 x 100 = 33.3% 33.3% 0 Without working this can not be awarded marks. 1.4 + 1.8 = 3.2 1 One mark for TR – rest is incorrect 3.2 2.2 = 1.6 0.375 (with working) 2 Candidate did not create a percentage 0.375 (no working) 0 An incorrect answer with no working 1(b)(ii) Explain one way in which FF could use profit margin data. 3 Level Knowledge and Application Marks 2b Explanation of one way a business can use 3 (APP) profit margin data in context 2a Explanation of one way a business can use 2 (K+K) profit margin data 1 Identification of way a business can use 1 (K) profit margin data 0 No creditable content 0 OFR from answer to Q1(b)(i) Content Knowledge of a use of profit margin data may include: • As a way of monitoring business success - to make business decisions • Identifying areas for the business to work on - to improve the costs of the business • To attract investors – to show that it is still a good profit margin for investors. • To find external sources of finance – banks for example would want to know how profitable the business is. Application may come from the following points: • Use of Table 1.1 (including 33.3% profit margin in 2021) • FF is a public limited company • Owns a popular social media and fitness app. • App was launched five years ago. • Over three million users. • App is constantly developing features for users. • Revenue from advertising and sales/monthly fees. 1(b)(ii) ARA Exemplar Mark Rationale To compare the profit margin for 3 Knowledge and application investors (K) to see that the margin to the data. has decreased by 4.2% (APP). To attract investors (K) so that 2 Two pieces of knowledge, they know if the business is likely no context. to give them a return (K). To compare previous years (K). 1 One piece of knowledge. 1(c) Analyse two ways in which FF can increase the value added to its app 8 using the operations process. Knowledge and Analysis Level Application (4 Marks Marks (4 marks) marks) Shows Developed understanding of analysis of two APP DEV two ways ways operations 2b 4 + 4 + operations can can add value in add value in context APP DEV context Shows Developed understanding of analysis of one- one way way operations 2a 3 3 operations can APP can add value in DEV add value in context context Shows Limited analysis knowledge of K of two ways AN 1b two ways 2 + operations can 2 + operations can K add value in AN add value context Shows Limited analysis knowledge of of one-way 1a one way 1 K operations can 1 AN operations can add value add value 0 No creditable content 1(c) Indicative content AO1 Knowledge and understanding Knowledge of way(s) of adding value using the operations process may include: • Ways in which value can be added – i.e. extra features, etc. • Improve product • Process innovation • Add a feature/product/service • USP Allow anything that changes the app or service itself as this can be part of operations for a service/app. AO2 Application • Increasing the features of the app − More social media features, such as chat, selling/sharing best exercise practice, creating groups, etc. − More exercise features, such as group exercising, online classes, features for trainers to sell their services, etc. • Increasing the quality of the app − Reacting to any customer survey comments about the quality of the app − Reducing any connection issues with the app • Reducing the costs of producing the app − Costs may include, software development, wage costs, capital costs, research and development costs, market research costs (survey), marketing costs AO3 Analysis Must be an impact on the business cost(s) or price to add value. Do not allow increasing revenue/customers, etc. – there must be a change in the distance/proportion between cost and price. • An increase in price, from $10 to $12, would increase the revenue of FF (AN) – as long as the costs were kept the same (DEV). • Improving the features of the app would allow FF to charge a higher price (AN) – as long as the price increase was more than the extra costs of developing the app (DEV). • Eliminate the free access to the app, forcing the users to pay $10 (AN) – as long as some of the users do not cancel their subscription (DEV). • Labour costs could be lower if FF make some of their app designers redundant (AN) – as long as FF maintain their price (DEV). Note: developed analysis must show understanding of adding value, not just increasing revenue / decreasing costs. ARA 1(d) Evaluate the limitations of FF’s sampling process. 11 Knowledge and Analysis and Application Marks Evaluation Marks (4 marks) (7 marks) Annotation Annotation + Justified evaluation based EVAL 7 + on arguments in EVAL context EVAL Developed + evaluation based 6 on arguments in EVAL EVAL context An evaluative statement based 5 on arguments in EVAL context Shows Arguments based understanding of APP DEV on two limitations two limitations of 4 + 4 + of sampling in sampling in context APP DEV context Shows Argument based understanding of on one limitation one limitation of 3 3 APP of sampling in DEV sampling in context context Knowledge of two K Limited analysis of + limitations of 2 + two limitations of 2 AN K AN sampling sampling Shows knowledge Limited analysis of of one limitation of 1 K one limitation of 1 AN sampling sampling No creditable content 0 Note: there must be a limitation of sampling, not just market research, to award K and APP 1(d) Knowledge of limitations of sampling may include: • Chances of bias • May be unrepresentative • May have a high cost • May take time • May lead to incorrect data. Application may include: • Stratified based on age (example) • Current users only • Incentive to complete the survey • Only 30% actually completed survey • Survey was sent to only 1.67% of users • Only completed by 0.5% of total users • Allow use of Table 1.1 (including OFR from Q1bi) Analysis may include: • May not help FF to design features which will attract new users because they have only asked current users • Small sample size (AN) – is this representative of the entire customer base (DEV)? • Poor take-up of the survey – does this make the survey representative, and will the data actually give FF useful information? • Incentive may encourage positive answers which tell FF what they want to hear to encourage more ‘free’ months • Low take-up of the survey leading to increased costs (AN) – which may reduce the profitability of FF (DEV) • Might be more useful to hear from unhappy customers who are not using the app, as opposed to those who do use the app. Evaluation may include: • A judgement limitations of FF’s sampling methods • Evaluation of the relative impact of different limitations • Elements that the evaluation/judgement might depend upon – other research that might have been done, competitors actions/research, whether the sample is still representative after those who did not choose to answer, future revenue (falling at the moment if this continues may not be useful), end results of the research. ARA 1(d) Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL It may be because FF This might Which leads The biggest biased is giving a lead to to FF limitation is the month’s respondent introducing bias, because free access. s only expensive FF may make giving new poor decisions positive features about replies to which do developing the get more not attract app. free access new This is likely to to the app. customers. have a bigger effect on the costs than the free months access. However this depends on how biased the data actually is. It has a high To send 50 This may than they cost 000 users a lead to FF gain in extra survey and spending revenue. the free more to find month’s out if users access. like the features

This question in 9609/22 Oct/Nov 2022

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

30 marks

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

This question in 9609/23 Oct/Nov 2023

1 Farm Equipment (FE) FE is a public limited company based in country Z, where the primary sector accounts for 40% of all employees. Farm produce from country Z is sold to many other countries. FE manufactures a range of farm equipment such as tractors and machinery. It sells its products to large farms. Farmers have remained loyal despite the availability of lower-cost farm equipment. FE’s current market share in country Z is 8%. However, the market for 5 farm equipment in country Z is growing and FE forecasts an increase in its market share, as shown in Table 1.1. Table 1.1 The market for farm equipment in country Z Year 2023 2024 (forecast) ($m) ($m) 10 Market size 285 310 FE’s revenue 22.8 29.45 Chuzi, FE’s Managing Director, would like to develop new types of farm equipment. Chuzi recently appointed Lin, an intrapreneur tasked with developing new products. FE’s employees would like to join a trade union as they have low morale. They believe 15 that management do not consider the welfare of the workforce. The employees feel that they have a poor work-life balance. FE does not offer any training and development opportunities. The management style is autocratic. BL, a multinational farm equipment manufacturer, has recently located a factory close to FE. The management at FE is concerned about the impact of this on its human resource 20 management (HRM). (a) (i) Identify one feature of the primary sector. [1] (ii) Explain the term intrapreneur. [3] (b) (i) Refer to Table 1.1 and other information. Calculate the forecast change in FE’s market share between 2023 and 2024. [3] (ii) Explain one benefit to FE of product development. [3] (c) Analyse two roles that FE has in the development of country Z. [8] (d) Evaluate the likely impact on FE’s HRM of the new BL factory. [12]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Identify one feature of the primary sector. 1 Indicative content Any feature of the primary sector , including: • extraction/collection of natural resources/raw materials • sell raw materials to the secondary sector • a primary sector industry such as farming, fishing, mining Accept all valid responses. 1(a)(ii) Explain the term intrapreneur. 3 AO1 Knowledge and understanding AO2 Application 1 mark 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark 1 mark Knowledge of one relevant point is used Limited application of one relevant point to a business context. to answer the question. 0 marks 0 marks No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of intrapreneur , may include: • manager who leads a team • develop ideas/technologies/applications/ways of doing business • creative/innovative Note: without K cannot award any marks. AO2 Application Explanation of intrapreneur may include: • employee within a business • product development • to help improve the company/profits • to help meet the demand of consumers • creates a competitive advantage 1(a)(ii) Context applied to intrapreneur , including: • risks stay with the business • takes on an entrepreneurial role within a business • has the characteristics (of) an entrepreneur • specific examples from FE, such as Lin developing new products • specific examples from BL, such as location of the factory Guidance in awarding marks Knowledge & Knowledge of intrapreneur 1 mark understanding Explanation Develops K point 1 mark Context Applied to a business context/ business environment/generic 1 mark example Exemplars and annotations Exemplars and annotations Marks Rationale Creative employee within a business, like Lin for 3 Creative (K), employee within a business (explanation FE APP) like Lin for FE (context APP) Has the characteristics of an entrepreneur 2 Has the characteristics of an entrepreneur (context APP), developing new ways of doing business developing new ways of doing business (K) Manager leading a team 1 Only K Takes on an entrepreneurial role 0 Although there is APP, without K no marks can be awarded 1(b)(i) Refer to Table 1.1 and other information. Calculate the forecast change in FE’s market share between 2023 and 3 2024. Market share/total market  100 (1) OR revenue/market revenue  100 (1) OR FE’s forecast market share 2024 =29.45 / 310  100 (1) = 9.5% (1) FE’s market share 2023 = 8% (given in the case study so no mark for this figure) 9.5% – 8% = 1.5% (3) 1(b)(i) Marks 3 Correct answer Working and % do not matter. 1.5% (accept 1.5) 2 Formula To award two marks, there must be Market share/total market  100 • Two and a OR OR Revenue/market revenue  100 • One , one and one AND Correct figures identified 29.45 / 310 OR Inverted 310 / 29.45  100 (1 mark for implied formula)= 1052.6 (OFR mark) OR Show working for inverted formula (1) and then use this as 1052.6 – 8 = 1044.6 (OFR) 1 One of the following: To award one mark, there must be: Formula • One and two Market share/total market  100 OR Revenue/market revenue  100 OR Correct figures identified 29.45 / 310 OR Inverted 310 / 29.45 0 No creditable content. To award zero marks, there must be • One 1(b)(ii) Explain one benefit to FE of product development. 3 AO1 Knowledge and understanding AO2 Application 1 mark 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark 1 mark Knowledge of one relevant point is used to Limited application of one relevant point to a business context. answer the question. 0 marks 0 marks No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of one benefit of product development . Responses may include: • keep up with trends • stay competitive • to enter new markets • increase market share • increase sales • increase revenue/profit • improve the quality of products • increase customer satisfaction/loyalty • widen customer base • increases the range of products AO2 Application Explanation of a benefit of product development , including: • innovative product may increase demand • more accurately meet consumer demand • may attract new customers 1(b)(ii) • may be able to charge a premium price/price skimming Context applied to a benefit to FE of product development including: • market for farm equipment is increasing • major competitor entered the market • intrapreneur and project team investment • developing new machinery • sells to large farms • market size increased due to product development/use of answer to Q1(b)(i) (OFR) Accept all valid responses. Guidance in awarding marks Knowledge & understanding Knowledge of a benefit of product development 1 mark Explanation Explanation of a benefit of product development 1 mark Context Context linked to a benefit of product development 1 mark Exemplars and annotations Marks Rationale Firms can enter new markets and widen their 3 K for benefit, then APP for explaining why a benefit customer base and benefit from a growing market. and APP for context from the case study. Increases range of products to attract new 2 K for benefit, then APP for explaining why a benefit customers but there is no context To stay competitive 1 K only Market for farm equipment is increasing 0 No K demonstrated 1(c) Analyse two roles that FE has in the development of country Z. 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 • Application of two Limited analysis relevant points is relevant points to a • Limited analysis that identifies connections between used to answer the business context. causes, impacts and/or consequences of two points. question. • Application of one • Limited analysis that identifies connections between • Knowledge of one relevant point to a causes, impacts and/or consequences of one point. relevant point is business context. used to answer the question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of two roles (max 1 mark each – annotate one on the left and the other on the right) including: • creation of jobs/attract other foreign businesses • increased tax revenue • investment • encourage growth • contributes to economic development • increase exports/earn foreign currency 1(c) AO2 Application Context applied to each role, (max 1 mark for each role) including: • current market share 8% • forecast to grow to 9.5% (OFR from 1bi) • accounts for 40% employment • FE is in secondary sector • farming produce sold to other countries • secures country Z’s food supply • BL a multinational company investing in country Z • public limited company AO3 Analysis Limited analysis - candidate shows one link in the chain of analysis. Developed analysis candidate shows two or more links in the chain of analysis or a two-sided analysis. • farm equipment aids efficiency in farming • farming is an important sector in country Z • may expand and create more employment/reduce unemployment – increasing country’s businesses revenue– • could increase investment • helps develop the secondary sector • success of FM may have attracted BL to locate and invest in country Z Note: Two-sided analysis could mean negative impacts considered such as effect on smaller businesses Accept all valid responses. 1(c) Exemplars and annotations AO1 Knowledge AO2 Application AO3 Analysis Create more jobs . As forecast share of total market This helps reduce unemployment revenue to increase which will boost economic growth . Increased government tax revenue As attracting multinational companies Which increases revenue for other such as BL businesses in the country who make higher profits so pay more tax . 1(d) Evaluate the likely impact on FE’s HRM of the new BL factory. 12 Level AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation and understanding 2 marks 2 marks 6 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 Developed Developed Developed evaluation knowledge of application of analysis • A developed judgement/conclusion is relevant key term(s) relevant point(s) to that identifies made. and/or factor(s) is the business connections • Developed evaluative comments which used to answer the context. between causes, balance some key arguments. question. impacts and/or consequences. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key of relevant point(s) that identifies • A judgement/conclusion is made with term(s) and/or to the business connections limited supporting comment/evidence. factor(s) is used to context. between causes, • An attempt is made to balance the answer the question. impacts and/or arguments. consequences. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 1(d) Indicative content AO1 Knowledge and understanding Knowledge of the impact on HRM (max 2 marks), including: • recruit employees • employees leave • increase in labour turnover • pressure on wages • better opportunities • higher welfare • training and development opportunities AO2 Application Context applied to the impact on FE’s HRM (max 2 marks), including: • low morale • poor work-life balance • employees feel management do not prioritise their welfare • autocratic management style • trade unions • no training and development opportunities at FE • BL larger company • multinational companies 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. • a competitor will need local workers so could recruit from FE’s workforce • workers may join a competitor if higher wages/better conditions • FE may find increased costs (recruitment, increased wages) • pressure on managers so that they listen to employees • could delay product development if need to recruit replacement employees • lose the skills of current employees who could easily transfer to a competitor 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 judgement • identifying that the impact will ultimately depend on a number of unknowns (e.g. unemployment in country Z, BL could transfer employees from other countries) • could attract workers from other regions of country Z • discussion of negative v positive impacts • working conditions may not be better in BL • wages may be lower • BL may not want workers who want to unionise • likely success of BL in country Z unknown – risk to stability of employment • how skilled are the employees – may not need highly skilled workers Accept all valid responses. Exemplars for awarding evaluation L1 (limited supporting L2 (developed supporting L3 (developed supporting evidence evidence) evidence) with context) Depends if other companies offer Depends on whether other companies Depends on whether BL, a major higher wages, labour turnover offer higher wages, then workers leave competitor, offer higher wages, then might increase. FE and labour turnover might increase. workers leave FE, for employment with BL and labour turnover increases. There may be no impact on There may be no impact on HRM as There may be no impact on HRM as there HRM. there may not be better opportunities may not be better opportunities with other with other firms. firms and BL is new to country Z so could be risky for workers who go to BL.

This question in 9609/21 Oct/Nov 2024

2 Coffee Company Local (CCL) CCL is a family business in country Y. It manufactures and sells coffee powder, which is used to make coffee drinks. To make coffee powder CCL transforms coffee beans purchased from primary sector businesses into a fine powder. To make the powder, CCL roasts the beans, then grinds them into large pieces. Hot water is added to these large pieces, which transforms them 5 into a liquid. When this liquid is cool, it is frozen and broken into tiny pieces that form the coffee powder. The coffee powder is then put in jars. CCL uses product differentiation when selling the jars of coffee, as shown in Table 2.1. Table 2.1 CCL’s coffee products Product Description Boston matrix Forecast 10 analysis proportion of total revenue (2024) A CCL’s own brand Cash cow 29% B A national supermarket’s own label product Question mark 30% 15 C Quality product sold in a niche market Question mark 15% D Non-branded product sold to wholesalers Cash cow 26% In 2023 CCL’s total revenue was $10 million. Total revenue is forecast to increase by 10% in 2024. The owners are concerned about CCL’s long-term future, given the position of each product 20 within the Boston Matrix. The market for coffee products in country Y is forecast to grow by 25% over the next five years. CCL would like to increase the added value of its coffee products to benefit from the forecast market growth. (a) (i) Identify one strength of a family business. [1] (ii) Explain the term niche market. [3] (b) (i) Refer to Table 2.1 and other information. Calculate the forecast total revenue of product C in 2024. [3] (ii) Explain one benefit to CCL of using a budget. [3] (c) Analyse one advantage and one disadvantage to CCL of using Boston Matrix analysis. [8] (d) Evaluate the importance of operations to CCL’s added value. [12]

30 marks

Mark scheme: 2(a)(i) Identify one strength of a family business 1 Indicative content Strengths may include: • joint personal stake • united sense of purpose • trust • tend to take a long-run view • commitment • can be passed on to future generations • knowledge continuity Note: Must relate to a family business, for example, continuity on its own not enough Accept all valid responses. 2(a)(ii) Explain the term niche market 3 AO1 Knowledge and understanding AO2 Application 1 mark 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark 1 mark Knowledge of one relevant point is used to Limited application of one relevant point to a business context. answer the question. 0 marks 0 marks No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of a niche market (max 1 mark), including: • (small) segment of a large market • unique/specialised products • luxury • high quality AO2 Application Explanation of a niche market , including: • often unprofitable for large companies • profits often higher/can be sold at a premium price • few competitors • limited quantities produced • customers have similar qualities/preferences Context applied to niche market , including: • examples of niche markets • CCL sell product C in a niche market 2(a)(ii) Accept all valid responses. Guidance in awarding marks Knowledge & understanding Knowledge of a niche market 1 mark Explanation Development of the K point/characteristic of a niche market 1 mark Context Applied to a business context/business environment 1 mark Exemplars and annotations Marks Rationale Segment of a large market that sells luxury 3 K for segment of a large market, APP for explaining sells items such as the market for Rolex watches luxury good and APP for the example Small segment of a market with few 2 K for small segment of a market, APP for characteristic. No competitors context APP Small segment of a mass market 1 K only 2(b)(i) Refer to Table 2.1 and other information. Calculate the forecast total revenue of product C in 2024. 3 Total revenue x proportion of revenue (1) Total Revenue 2023 $10 million forecast to increase by 10% = $10 million + $1 million = $11 million (1) Product C = 15% proportion of revenue = $11 million/100  15 (1) = $1.65 million (3) Accept all valid responses. Marks 3 marks Correct answer Working, $ and millions (m) do not matter. $1.65 million 2 marks Formula To award two marks, there must be OR • Two and a Identifies correct figures OR AND • One , one andone Calculates increase in total revenue – $11m 1 mark One of the following: To award one mark, there must be: Formula • One and two OR Identifies correct figures OR Calculates increase in total revenue – $11m 0 marks No creditable content. To award zero marks, there must be • One 2(b)(ii) Explain one benefit to CCL of using a budget. 3 AO1 Knowledge and understanding AO2 Application 1 mark 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark 1 mark Knowledge of one relevant point is used to answer Limited application of one relevant point to a business context. the question. 0 marks 0 marks No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of a benefit of using a budget, including: • coordinates activities • translate objectives into strategy • translate strategy into tactics • provide a record of organisational activities • can improve communication • improve resource allocation • improve efficiency • provides a tool for corrective action • compare different areas of the business AO2 Application Explanation of a benefit of using budgets , including: • coordinates activities; between functional areas of the business • translate objectives into strategy; to make sure the objective is met • translate strategy into tactics; to make the strategy is implemented • provide a record of organisational activities; for later comparison 2(b)(ii) • can improve communication/coordination; by giving financial targets • improve resources allocation; by giving a quantitative target • improve efficiency; by allocating finances to different areas of the organisation • provides a tool for corrective action; when actual and budgeted are compared Context applied to a benefit to CCL of using a budget including: • two products at maturity • two products with low market share • niche market product has lowest contribution to total revenue • market forecast of 25% growth Accept all valid responses. Guidance in awarding marks Knowledge & understanding Knowledge of a benefit of using budgets 1 mark Explanation Explanation of a benefit of using budgets 1 mark Context Context linked to a benefit of using budgets 1 mark Exemplar and annotations Mar Rationale k Improve resources allocation by giving a quantitative target to 3 K for benefit, then APP for explaining why a enable CCL to benefit from the forecast market growth benefit and APP for context from the case study By allocating finances to different areas of the organisation can 2 K for benefit, then APP for explaining why a improve efficiency benefit but there is no context Improve resource allocation 1 K only Sets financial targets No K of a benefit demonstrated 2(c) Analyse one advantage and one disadvantage to CCL of using Boston matrix analysis. 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 • Application of two Limited analysis relevant points is relevant points to a • Limited analysis that identifies connections between used to answer the business context. causes, impacts and/or consequences of two points. question. • Application of one • Limited analysis that identifies connections between • Knowledge of one relevant point to a causes, impacts and/or consequences of one point. relevant point is business context. used to answer the question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of the Boston matrix (max 1 mark if no knowledge of advantage or disadvantage), including: • a method of analysing the product portfolio of a business in terms of market share and market growth Knowledge of an advantage of Boston matrix analysis (max 1 mark – annotate on left) including: • to analyse the breadth/specialisation of a business’s product portfolio • to enable business to move ? to stars • to ensure business to move stars to cash cows 2(c) • to enable business to launch new products • to enable business to avoid dogs Knowledge of a disadvantage of the Boston matrix analysis (max 1 mark- annotate on right), including: • withdrawal of dogs from the market unlikely to increase revenue • to move ? to stars will need more spending on marketing • to move stars to cash cows will also require more spending/increased costs • sudden changes in demand may not be accounted for • does not consider contribution to total revenue/profit • does not consider other factors affecting products • data can be inaccurate AO2 Application Context applied to an advantage (max 1 mark) and disadvantage (max 1 mark) of Boston matrix analysis, including: • products a and d cash cows • products b and c question marks • no stars • limited portfolio of products • forecast market growth of 25% over the next 5 years • cash cows account for 55% of total revenue AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis candidate shows two or more links in the chain of analysis or a two-sided analysis. • product development essential for competition and survival • can inform investment decisions • simple framework to use • only considers market share and market growth so won’t be a complete analysis as to why products growing/declining • help eliminate poorly performing products, saving money in the long run • helps businesses understand current and future situations • identify new opportunities to ensure future growth/success • need to consider extension strategies for products • although a product might contribute most to revenue what product will replace this if it declines? 2(c) Accept all valid responses. Exemplars and annotations AO1 Knowledge AO2 Application AO3 Analysis To enable business to move ? to stars Such as product C Which is showing high market growth . so CCL could consider ways to increase product C’s market share Simple analysis which does not take Such as Product B’s forecast Which is higher than either of the two account of other factors contribution to total revenue cash cows so low market share may not need to be a concern 2(d) Evaluate the importance of operations to CCL’s added value. 12 Level AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation and understanding 2 marks 2 marks 6 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 Developed Developed Developed evaluation knowledge of application of analysis • A developed judgement/conclusion is relevant key term(s) relevant point(s) to that identifies made. and/or factor(s) is the business connections • Developed evaluative comments used to answer the context. between causes, which balance some key arguments. question. impacts and/or consequences. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key of relevant point(s) that identifies • A judgement/conclusion is made with term(s) and/or to the business connections limited supporting comment/evidence. factor(s) is used to context. between causes, • An attempt is made to balance the answer the question. impacts and/or arguments. consequences. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 2(d) Indicative content AO1 Knowledge and understanding Knowledge of operations/added value (max 2 marks), including: • added value difference between price and costs • value added by the transformation process • produces outputs for customers • inputs used to create outputs • inputs are land, labour, capital and enterprise • outputs created in the manufacturing process • AO2 Application Context applied to CCL (max 2 marks), including: • coffee a growing market • many (5) processes involved in the transformation process • product differentiation • products in different quadrants in the Boston matrix analysis • same ingredient in differently labelled jars • taste important in coffee consumption • may contribute more to non-branded 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 of analysis. • helps to build the brand – increasing revenue/sales/profit • can add product features that customers want – attract new customers/increase customer loyalty • ensure quality – goods suitable for purpose • operate efficiently – cost effective • charge a higher price – increasing profits/value added • flexibility and innovation important – especially in a competitive/dynamic environment • protects market share and can increase it 2(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 judgement whether operations does contribute to added value. • evaluation of the relative importance of operations as compared to e.g. marketing • elements that the evaluation/judgement might depend upon: – don’t know how efficient production is – other factors such as promotion may contribute more to added value – quality of the product important – design of packaging also contributes – convenience to customers important in creating added value – branding and product differentiation may be a greater contribution – difficult to measure contribution of operations Accept all valid responses. Exemplars for awarding evaluation L1 (limited L2 (developed supporting L3 (developed supporting evidence with supporting evidence) context) evidence) Operations is very Operations is very important to CCL’s Operations is very important to CCL’s added value important to CCL’s added value as the quality of a product as the quality of a product helps determine the added value. helps determine the price that can be price that can be charged. Quality must be charged. ensured at each many processes involved in the transformation of coffee beans to ground coffee. Product differentiation Product differentiation may be more Product differentiation may be more important than may be more important than operations as good operations as good marketing is required to sell important than marketing is required to sell the products. the products, in the case of CCL each different operations. coffee product has the same ingredients.

This question in 9609/21 Oct/Nov 2024