Sources of finance — Paper 2 · A Level Business (for first examination in 2016) 9609

1 Gourmet Ices (GI) GI is a partnership owned by Tom and Amy Smith. The business makes and sells high- quality ice cream. At present the ice cream is only sold through businesses near to GI, but the owners would like to expand the business and sell ice cream throughout the country. The ice cream is handmade in small batches. GI employs five skilled workers who make the ice cream. Labour costs account for over half of the direct costs of the business. Tom 5 believes that it will be necessary to use Computer Aided Manufacturing (CAM) to increase production and decrease costs so that GI can sell throughout the country (see Table 1). However, Amy is worried that the quality of the ice cream may decrease. Table 1: Estimated production costs and revenue data Without CAM With CAM 10 Variable costs (per unit) $1.50 $1.00 Total fixed costs each month $5000 $15 000 Revenue (per unit) $2.50 $2.50 Estimated output each month 7500 units 25 000 units Tom and Amy would need to raise $50 000 of additional finance to expand GI. They have 15 researched crowd funding and venture capital as possible sources of finance. Tom and Amy have decided that they would prefer to use venture capital. They are considering two offers from venture capitalists. Offer 1: Amit The offer is for $50 000 and Amit would want 51% ownership of the business. Amit owns 20 a nationwide supermarket chain and would be willing to stock the ice cream in all of the supermarkets if his offer is accepted. He also has a lot of marketing experience. Offer 2: Rebecca The offer is for $50 000 and Rebecca would want 30% ownership of the business. Rebecca owns a clothes manufacturing factory and she has knowledge of using CAM. She is very 25 experienced with operations and project management and she believes that she can further reduce the costs of the business and increase the profit margin. (a) (i) Define the term ‘partnership’ (line 1). [2] (ii) Briefly explain the term ‘crowd funding’ (line 16). [3] (b) (i) Refer to Table 1. Calculate the break-even level of production with CAM. [3] (ii) Explain one benefit to GI of using break-even analysis. [3] (c) Analyse two possible disadvantages to GI of introducing CAM to produce ice cream. [8] (d) Recommend which one of the two venture capital offers Tom and Amy should accept. Justify your answer. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘partnership’ (line 1). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Note: A correct definition must distinguish between a partnership and any other form of business ownership. Content A business formed by two or more people with shared responsibilities and shared capital investment. Unlimited liability, no continuity. Often partnerships will have a partnership agreement to separate out investment and responsibilities. Exemplar Mark Rationale A partnership has two or more owners 2 A correct definition with unlimited liability. An unincorporated business with more 2 A correct definition than one owner. A business formed by two or more 1 This could be people with shared responsibilities confused with a and shared capital investment private limited company An unincorporated business with 1 This could be unlimited liability and no continuity. confused with a sole trader 1(a)(ii) Briefly explain the term ‘crowd funding’ (line 16). 3 Award one mark for each point of explanation: C Example of some other way of showing good 1 mark understanding, i.e. rewards, returns etc. B Each contributing a (relatively small) amount or from 1 mark each individual A Large number of people 1 mark Note: No credit for stating that crowd funding is a source of finance, as this is stated in the data. Content Crowd funding is the practice of funding a project or venture by raising monetary contributions from a large number of people, typically via the internet. Typically made up of the business who is looking for funding, the people who may wish to fund the business and an intermediary organisation/agent who link the two together. There are different types of crowd funding, such as debt crowd funding and equity crowd funding where the rewards may be advance products or services, visits to the factor, interest or shares/equity in the business. 1(b)(i) Refer to Table 1. Calculate the break-even level of production with 3 CAM. Mark Rationale 3 marks Correct calculation of break-even level of production with CAM (with or without working) 2 marks Attempt with correct use of figures 1 mark Correct formula 0 marks No creditable content Content FC Formula: or TR=TC (1) Contribution (1) Contribution = $2.50 – $1.00 = $1.50 (1) 15 000 = 10 000 (1) 1.50 Answer = 10 000 (3) Correct answer with no working should be awarded 3 marks. OFR 1(b)(ii) Explain one benefit to GI of using break-even analysis 3 Level Knowledge and Application Marks 2b Explanation of a benefit of using break-even 3 (APP analysis in context +APP) 2a Identification of a benefit of using break-even 2 (APP) analysis in context 1 (K) Shows understanding of the use of break-even 1 analysis 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 BE or formula – already awarded in previous question. Content Answers may include: • decisions over how many to make/sell • to plan production • to monitor costs • to model pricing options • to target/forecast a profit level • to target/forecast a margin of safety. Context may include: • BE is higher with CAM • probably due to extra machinery • however output is significantly higher • as is the profit margin • batch production • expansion throughout country • quality ice cream – not about quantity. 1(c) Analyse two possible disadvantages to GI of introducing CAM to 8 produce ice cream. Knowledge and Analysis Level Marks Marks Application (4 marks) (4 marks) Good analysis of two (or more) disadvantages of 4 4 introducing/using CAM in Shows context understanding 2 of CAM in Good analysis of one context disadvantage of 3 3 introducing/using CAM in context Limited analysis of two (or more) disadvantages of 2 Shows introducing/using CAM 1 knowledge of 1–2 Limited analysis of one CAM disadvantage of 1 introducing/using CAM 0 No creditable content A non-contextual answer can only be awarded a maximum of 2 + 2 = 4 Content Answers could include: • Possible loss of quality in the production of the ice cream – could lead to poor customer satisfaction (GI makes and sells high quality ice cream). • Possible loss of perceived quality as the business loses it's 'handmade' badge. • Cost of introducing the technology ($10 000 extra FC costs per month). • Damage to the relationship with the five skilled workers. • Loss of skills (GI employs five skilled workers). • Reliability of the machinery (GI do not have the money to repair it – as seen in their need to raise $50 000 form venture capitalists). • Need for training/retraining as the employees are already trained in handmaking ice-cream. ARA 1(d) Recommend which of the two venture capital offers Tom and Amy 11 should accept. Justify your answer. Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) A justified recommendation, for Tom and Amy, which venture 7 capital offer they should accept based on a balanced argument. A recommendation, for Tom and Amy, which venture capital offer they 6 should accept based on a balanced argument. A balanced argument based on one or both 5 venture capital offers with evaluative comments Shows understanding 3–4 Two sided argument(s) of one or both venture based on one or both 4 capital offers venture capital offers One sided argument based on one venture 3 capital offer Shows knowledge of Limited analysis of venture 1–2 1–2 venture capital capital Justification can come from looking at the advantages and/or disadvantages of BOTH offers, or from the advantages and disadvantages of the recommended offer. Answers could include: Offer 1 • Loss of control – 51% equity given away – are Tom and Amy willing to give up so much? • Ease of distribution – should allow easier national expansion • Marketing knowledge and expertise – again should allow easier expansion Offer 2 • Lower equity stake required – Tom and Amy would keep overall control of the business • Use of CAM will reduce costs of expansion – may further lower BE point and increase profit margin • Experience of Rebecca in project management and ops man – very important for expansion. ARA

This question in 9609/22 Feb/March 2017

1 Perfect Pizza (PP) Paul is a chef. He is looking to set up a new pizza restaurant in his local town in country A. He has done some research into the pizza market in this country. Fig. 1: Percentage of total pizza market sales in country A for 2016 National chain D, 5% PP, 20% National chain C, 28% Independent restaurants, 12% National National chain B, 13% chain A, 22% Paul is considering whether he should set up his own independent pizza restaurant or enter into a franchise agreement with Perfect Pizza (PP), a national chain of pizza restaurants. 5 Paul has calculated that an independent restaurant will cost $25 000 to set up. This includes all of the furniture and signs required for the restaurant. It also includes some below the line promotion in the local area. Paul has obtained the following information about opening a PP franchise restaurant. • It would cost a total of $40 000 to set up 10 • PP would provide all furniture and signs, branded with the PP logo • Paul will have to pay a 5% royalty of his monthly revenue to PP • PP will provide national above the line promotion • PP has policies for diversity and equality that Paul can use to help with human resource management. 15 Paul will manage the kitchen. However, he will require a restaurant manager to be in charge of customer service, inventory management and to supervise the non-kitchen employees. Paul has set up a meeting with his bank manager to discuss a suitable long term source of finance that could be used for this investment. (a) (i) Define the term ‘long term source of finance’ (lines 18–19). [2] (ii) Briefly explain the term ‘diversity and equality’ (line 14). [3] (b) (i) Refer to Fig. 1. The total value of market sales in country A in 2016 was $50m. Calculate the total value of sales for the three largest businesses. [3] (ii) Explain two appropriate methods (other than market share) that could be used to measure the size of PP. [3] (c) Analyse two factors Paul should consider when selecting a restaurant manager. [8] (d) Evaluate whether Paul should enter into a franchise agreement with PP. [11]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘long term sources of finance’ (lines 18–19). 2 Knowledge and Application Mark A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 A correct definition should cover the following: • Understanding of ‘source(s) of finance’ – any reference to where money/capital/cash etc. comes from i.e. reference to a source of finance, such as a mortgage or equity (i.e. shares, debentures) • Understanding of ‘long term’ – this can be reference to any time period more than a year Exemplar Mark Rationale When a business gets money from a Both elements 2 bank for more than a year covered Finance for more than a year, e.g. Both elements 2 Mortgage covered Understanding of Money that the business gets from a source of finance but bank that does not need to be paid 1 too vague about long back quickly term An understanding of A way to get new cash into the source of finance but business that does not have to be 1 ‘long time’ is too paid back for a long time vague and partly tautological. A long term source of finance is a Tautological, showing source of finance that does not have 0 no understanding. to be paid back for a long time. 1(a)(ii) Briefly explain the term ‘diversity and equality’ (line 14). 3 Award one mark for each point of explanation: Example or some other way of showing good understanding, i.e. A development of an example used C 1 mark in B, link to motivation, link to culture, legal requirements etc. Understanding of diversity – different groups of B 1 mark employees, or an example of different groups Understanding of equality – no discrimination in the A workplace – do not just reward ‘are equal’ there must 1 mark be some understanding of treating people equally No discrimination in the workplace, for example, against different groups of employees. Can be used to develop a reputation as a good employer. Helps attracts and keep employees. Exemplar Mark Rationale Getting rid of discrimination between different groups of worker, and 3 All three elements treating them equally which is a legal requirement Treating all workers the same way no matter what differences they might have, such as men and women 3 All three elements should be paid equally if they do the same job Giving employees equal rights for different people, such as different 2 A and B mark races Equal rights for different races 1 B mark only Everybody has the same treatment 1 A mark only 1(b)(i) Refer to Figure 1. The total value of market sales in country A was 3 $50m. Calculate the total value of sales for the three largest businesses. Mark Rationale Correct calculation the total value of sales for the three largest businesses (with or without working or $ or m) 3 OR Correct calculation of all three companies value of sales ($14m, $11m and $10m) (with or without working or $ or m) Correct calculation of two of the top three companies value of 2 sales (with or without working or $ or m) Correct formula or correct calculation of % share of top three companies (70%- with or without working or %) 1 OR Correct calculation one of the top three companies value of sales (with or without working or $ or m) 0 No creditable content Total value of market sales x Percentage share of market Top 3 = 28% + 22% + 20% = 70% $50m × 70% (70/100) = $35m Common incorrect answers Answer Mark Rationale Allow an answer of 35 with or without 35 3 $ or m (no working required) 28% = $14m 2 Two correct 22% = $11m Allow this for 1 mark, even without 70 1 working. Any variation of 70 worth 1 mark 28% = $14m 22% = $11m 3 All correct but no total 20% = $10m 1(b)(ii) Explain two appropriate methods (other than market share) that could 3 be used to measure the size of PP. Level Knowledge and Application Mark 2b Knowledge and understanding of TWO methods 3 (APP+APP) to measure the size of PP Knowledge and understanding of ONE method 2a (APP) 2 to measure the size of PP Knowledge and understanding of method(s) to 1 (K) 1 measure the size of a business No creditable content 0 K marks can only be awarded ONE mark in total, no matter how many instances Context and content is likely to come from: • Number of employees, national chain with 10% of the national market is likely to have a large number of employees therefore a large business • Revenue, e.g. chain 1 has 15% of $50 m which is $5 m, this would be a large business • Capital employed Method of measurement (K) Possible context (APP) National chain with 10% of the national Number of employees market is likely to have a large number of employees therefore a large business Use of figures from Fig 1 to show Revenue/Sales turnover comparative size Reference to the likely capital/assets that Capital/assets employed a pizza business might have e.g. tables, kitchens etc. Pizza-shops/restaurants – must be Number of outlets specific to PP, not generic Number of people who eat in the pizza- Number of customers restaurants Sales volume Number of pizzas/meals sold 1(c) Analyse two factors Paul should consider when selecting a restaurant 8 manager. Level Knowledge and application Analysis Shows understanding of Good analysis of TWO TWO factors of selection 4 factors of selection in 4 in context context 2 Shows understanding of Good analysis of ONE ONE factor of selection 3 factor of selection in 3 in context context Shows understanding of Limited analysis of TWO 2 2 TWO factors of selection factors of selection 1 Shows understanding of Limited analysis of ONE 1 1 ONE factor of selection factor of selection 0 No creditable content Highlight the factors as you mark One factor analysed in context, max 3+3 Contextual analysis likely to come from: • Need to have customer service experience; marketing skills, communication etc. • Will be in charge of other employees; management skills • Will require skills in inventory management • New business so may need to be willing to work on lower salary Examples of Examples of Examples of possible factors of application/context analysis selection Any relevant restaurant management Better qualified manager qualifications, customer → improved customer Qualifications service qualifications, service → more sales → inventory management more profit etc« Diversity and equality Lives near restaurant → Local town in country A – more likely to be on time Location will need to live here or to work → better staff can relocate. management Good inventory Customer service, management → less Skills supervising employees, wastage in the restaurant inventory management. → lower costs → increased profit In other (pizza) restaurants, one of the Worked in another PP competitors, other PP restaurant → knows the restaurants. Experience procedures → less training Experience in customer needed → lower costs → service, supervising increased profit employees, inventory management. Cost 1(d) Evaluate whether Paul should enter into a franchise agreement with 11 PP. Knowledge and Analysis and Evaluation Mark Mark Application (4 marks) (7 marks) Justified evaluation based 7 on arguments in context Developed evaluation based on arguments in 6 context An evaluative statement based on arguments in 5 context Argument (two sided) based on the impact(s) of Paul entering into a 4 franchise agreement with Shows understanding of PP PP entering into a 3–4 Argument (one sided) franchise agreement based on the impact(s) of Paul entering into a 3 franchise agreement with PP Limited analysis of TWO impacts of entering into a 2 franchise agreement Shows knowledge of 1–2 franchises Limited analysis of ONE impact of entering into a 1 franchise agreement No creditable content Impacts can be positive or negative – a balanced argument will cover both positive and negative impacts. Annotate analysis and arguments FOR in the left hand margin and AGAINST in the right hand margin Context/content: Advantages • less risk to Paul as he benefits from the expertise and reputation of PP brand • Assistance from PP so Paul makes less mistakes in his business- decisions such as the policies for diversity and equality; • Access to local marketing and the PP website will help generate sales; Disadvantages • Up-front costs to purchase the franchise ($40 000); • The royalty fee of 5% may be a drain on his cash flow • Clash of ideas as Paul will have to follow the criteria set out in his franchise agreement – this may limit his freedom to make decisions. 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. An example of how an answer could develop and how it should be annotated. ANAN K APP AN EVAL (one sided) Which increases Overall Paul the costs of should enter into starting up a a franchise An independent Which increases restaurant to agreement restaurant would the costs of Paul and may because the cost $25 000 staring up a make it harder to extra sales are whereas a PP restaurant to break even or likely to cover the franchise is Paul. (AN) survive in his first extra costs. $40 000. (APP) year of trading. (EVAL – (ANAN – one statement) sided) However he should do some market research It is expensive to to see just how set up a much more the franchise. (K) However the sales would be in reputation of PP a PP franchise. National above may gain more (EVAL – the line Which is likely to sales in the first developed) promotion will be increase sales in year making it provided within the first year. more likely that If the extra sales the setup cost. (AN) he would break did not cover the (APP) even and extra costs then survive. (ANAN – he would two sided) probably be better opening the independent restaurant. (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 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

50 kilometres of the FF premises. Most customers receive their order within 24 hours of placing it, apart from during busy times of the year. The directors of FF are concerned that the current product has reached maturity in the product 10 life cycle. A suggestion has been made to produce low-price flower arrangements. There would be 10 different arrangements which would be made using batch production. These flower arrangements would be sold through local retailers. The Finance Director has suggested that the new venture may decrease FF’s working capital, which is currently $18 000. She has provided information from the statement of financial position 15 (see Table 2.1). Table 2.1: Information from FF’s statement of financial position $000 Inventory 11 Trade receivables 20 20 Overdraft 5 Trade payables X Half of the current workforce would be used to make the low-price flower arrangements. These employees would be paid using a time based payment method. The Human Resource Director has suggested that this may lead to poor employee motivation. 25 (a) (i) Define the term ‘overdraft’ (line 21). [2] (ii) Explain the term ‘maturity in the product life cycle’ (lines 10–11). [3] (b) (i) Refer to Table 2.1 and any other relevant information. Calculate the value of X. [2] (ii) Explain two possible disadvantages to FF of decreasing working capital. [4] (c) Analyse one advantage and one disadvantage to FF of using job production for its flower arrangements. [8] (d) Recommend non-financial motivators which FF could put in place to motivate the employees who make the low-price flower arrangements. Justify your recommendation. [11]

30 marks

This question in 9609/21 Oct/Nov 2019

2 Candy Planet (CP) CP is a public limited company which sells candy (sweets) to its national market and international markets. CP has benefitted from internal growth over the past eight years and has a good working capital position. The total market sizes are shown in Table 2.1. Table 2.1: Market data for candy 5 2017 2018 National market $550m $550m International market $60bn $61.5bn CP is a capital intensive business but it does employ 40 workers to operate and maintain the machines. These employees have part-time contracts. The candy is made using flow 10 production. Each variety of candy is made on a separate production line. Some of the machinery is over 25 years old. CP has 20 separate production lines in its factory and there are diseconomies of scale. The Operations Director of CP has proposed that the company changes from having many production lines to a single production line using process innovation. The business has 15 carried out research into new machinery that would allow for mass customisation and an increase in the number of products produced each month. This would mean CP could have just one production line which would make every type of candy which CP sells. CP could also increase its product portfolio. The new machinery would cost $75m and its installation would require CP to stop production 20 for six months. Most of the current workforce would face redundancy. The Finance Director has concerns about how CP could finance this new machinery. CP does not have any retained earnings which it could use and the business has already been told that a bank loan is not possible. (a) (i) Define the term ‘internal growth’ (line 2). [2] (ii) Explain the term ‘capital intensive’ (line 9). [3] (b) (i) Refer to Table 2.1. Calculate the percentage market growth in the international market for candy. [2] (ii) Explain two ways in which CP’s marketing may differ between its national market and international markets. [4] (c) Analyse one internal source of finance and one external source of finance which CP could use for the new machinery. [8] (d) Evaluate the likely benefits for CP of the proposed process innovation. [11]

30 marks

Mark scheme: 2(a)(i) Define the term ‘internal growth’ (line 2). 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: • Definition of growth – expansion, getting bigger, opening more stores/factories/outlets, etc. (1) • Definition of internal (in terms of growth) – using own funds/resources, reinvesting, etc. or in terms of NOT merging/taking over another business (do not allow not external) Content Internal growth comes from an increase in sales from re-investment in the business (1) as opposed to mergers and takeovers (1). Exemplar Marks Rationale Expansion by reinvesting profits as 2 Both elements opposed to a merger Growth by using the businesses own 1 One element only – do funds. It is also known as organic growth not reward ‘organic growth’ as it does not define the term Getting bigger but not external 1 One element only – do not allow ‘not external’ Growth by using internal funds 0 Tautology 2(a)(ii) Briefly explain the term ‘capital intensive (line 9). 3 Award one mark for each point of explanation: Rationale Marks C Example or some other way of showing further/good 1 understanding, e.g. Car manufacturing, Transport (airports, railways), could be more efficient than labour intensive, could demotivate, increased costs B As opposed to labour/workers, etc. 1 A Use of machinery, technology plant & machinery, IT systems, 1 buildings, vehicles, offices, equipment, etc. Note: C mark MUST only be awarded once A and B have been awarded. Content Operations carried out mainly with the investment in machinery or other items that are purchased with cash and man-made as opposed to the use of labour. ARA Answer Mark Rationale Machinery (A) not labour (B) which allows a 3 All three elements – business to operate 24 hours a day (C) allow any point which shows further/good understanding for the C mark A good example of capital intensive is the 3 All three elements – the car industry (C) because it uses robots (A) order of the points does to make cars rather than people (B) not matter Capital intensive is the opposite of labour 2 A and B – no intensive (B). This means that the business further/good has chosen to invest in technology (A) understanding rather than people Where large amounts of capital have been 1 Use of the word ‘capital’ used as opposed to labour (B) is a tautology – however B can still be awarded Production where large amounts of money 1 A only – C cannot be need to be invested in machinery (A). This awarded without B would allow the business to operate 24 hours a day and be more productive When a business uses capital intensively 0 Tautology 2(b)(i) Refer to Table 2.1. Calculate the percentage market growth in the 2 international market for candy. Rationale Marks Correct answer with or without correct working (no % sign 2 required) Formula or correct calculation of change in market size (i.e. 1 1.5 bn) No creditable content 0 Content Change in market size × 100 Original market size $61.5 bn – $60 bn = 1.5 bn $1.5 bn × 100 $60 bn = 2.5% 2(b)(i) Common incorrect answers Answer Marks Rationale 2.5 2 Correct answer – no % sign required 61.5 1 Worked out as a ratio × 100 = 102.5 60 1.5 (no working) 1 Correct calculation of the change in market size – no $ sign needed 1.5 1 Candidate has used the wrong base figure 61.5 × 100 = 2.4% – one error (OFR) 60 1 Figures used the wrong way round in 61.5 × 100 = 97.56 formula – one error (OFR) 100 – 97.56 = 2.44% 1.5 1 Not turned into a percentage – one error = 0.025 60 0.025 (no working) 0 Without working this is a meaningless number – do not reward Year 2 1 A mistake in the formula, but correct use of × 100 numbers Year 1 = 102.5% 2(b)(ii) Explain two ways in which CP’s marketing may differ between its national market and international markets. Level Knowledge and Application Marks 2b Explanation of two ways in which CP’s marketing 4 (APP + may differ between national and international APP) markets 2a Explanation of one way in which CP’s marketing 3 (APP) may differ between national and international markets 1b Identification of two differences between marketing 2 (K+K) for national and international markets 1a (K) Identification of one difference between marketing 1 for national and international markets 0 No creditable content 0 Content Product • Different products to meet different tastes/fashions in other countries • Legal requirements for ingredients in different countries Price • Different elasticities – in some countries candy may be a luxury, whilst in others it might be a normal good (or even an inferior good when compared to chocolate, etc.) • Different pricing strategies based on PLC in that country (i.e. recently launched a new candy range) Promotion • Language/cultural issues in different countries • Below the line may be difficult in international markets (i.e. distance form CP) • Above the line may be very expensive across international markets, especially for what is probably a low margin product Place • Possible to sell directly in national market (although unlikely) but unlikely in international markets unless through internet • Need to use retailers in international markets – may also need to use other forms of distribution. • Candy may be sold in different places in different countries (i.e. petrol stations, supermarkets, candy shops) 2(b)(ii) ARA Example of how responses should be marked Identification of a way (K) Explanation of a way in context (APP) The packaging might need to be So that the ingredients are translated into different (K) different languages (APP) The product may need to So that different flavours can be used in change (K) different countries (APP) Note: using the words ‘candy’ or ‘sweets’ is not enough for APP – however words such as ‘flavour’ and ‘ingredients’ and ‘taste’ do show contextual understanding and can be awarded with APP 2(c) Analyse one internal source of finance and one external source of finance 8 which CP could use for the new machinery. Level Knowledge and Marks Analysis (4 marks) Marks Application (4 marks) 2b Shows understanding 4 Good analysis of one 4 of one internal and internal and one one external source of external source of finance finance in context 2a Shows understanding 3 Good analysis of one 3 of one internal or one internal or one external external source of source of finance in finance in context context 1b Shows knowledge of 2 Limited analysis of one 2 one internal and one internal and one external source of external source of finance finance 1a Shows knowledge of 1 Limited analysis of one 1 one internal or one internal or one external external source of source of finance finance 0 No creditable content 0 Note: Do not accept retained earnings or bank loan as contextual. These can gain K and AN but not APP and DEV. Annotate the internal source of finance in the left-hand margin and the external source of finance in the right-hand margin. If the candidate has attempted to analyse more than one internal or external source of finance, then annotate the one that gains the most marks for the candidate. Content Internal: • Sale of unwanted assets – old machinery that is of no use • Sale and leaseback of non-current assets – unlikely to have many current assets that could be leased • Working capital – CP has a good working capital position External: • Share capital – CP is a plc so can sell shares, but will this devalue the share price? Note: only accept share capital as an EXTERNAL source unless it is explicitly stated that the shares are being issued to existing shareholders • New partners – not a partnership so not contextual • Venture capital – more likely for a newer business – VC is likely to require a high return and/or equity in the business • Overdrafts – surely too much for an overdraft • Leasing – possible advantages of maintenance and no need for initial sum but likely to be more expensive long term 2(c) • Hire purchase – as above • Mortgages – suitable for properties so unlikely to be contextual • Debentures – securing a debenture on the machinery may make a financial institution/individual more likely to lend the money • Micro-finance – likely to more suitable for new businesses/ventures • Crowd funding – likely to more suitable for new businesses/ventures • Government grants If a candidate has mis-categorised a source of finance (internal and external) then do not award any marks for that source of finance, e.g. share capital as internal ARA Example of Examples of Examples of possible analysis (AN + an internal application/context DEV) source of (APP) finance (K) Sale of CP has 20 separate By selling these machines, CP would assets (K) production lines gain the cash from the sale to be able to which would involve finance the new machinery. However, a lot of machinery to this may leave CP without any means of sell (APP) producing Candy, leading to a loss of revenue (DEV) Example Examples of Examples of possible analysis (AN + of an application/context DEV) external (APP) source of finance (K) Sell shares CP is a public So by selling shares this can release (K) Limited Company cash to finance the purchase of the (APP) machinery (AN), however this may lead to a loss of control by the current owners (DEV) Lease (K) Because CP cannot This does not require an initial large use a bank loan they amount (AN) and allows CP to pay for the might need to lease machinery each month (DEV) the machinery (APP) 2(d) Evaluate the likely benefits for CP of the proposed process innovation. 11 Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified evaluation based on 7 argument in context Developed evaluation based 6 on argument in context An evaluative statement based 5 on argument in context Shows understanding of 4 Argument based on the use of 4 two aspects process two benefits to CP of the innovation in context proposed process innovation Shows knowledge of one 3 Argument based on one 3 aspect of process benefit to CP of the proposed innovation in context process innovation Shows knowledge of two 2 Limited analysis of two 2 aspects of process benefits of process innovation innovation Shows knowledge of one 1 Limited analysis of one benefit 1 aspect of process of process innovation innovation Note: there must be knowledge of process innovation (not just innovation) to award any marks. Content Process innovation is the implementation of a new or significantly improved production method. This includes changes in how the product is made and/or the equipment used. Aspects of process innovation may include: • How the product is produced • The equipment used to produce the products • The technology used in production 2(d) Benefits may include: • Possible economies of scale from moving from 20 production lines to only one or may eliminate the current diseconomies • Expansion of CP’s product portfolio • Mass customisation – could have more varieties of their current candy – may be able to have specific candy for organisations • Can customise candy for national and international markets – especially important because of the growth in the international market • Replace the 25-year-old machinery – more efficient? • Save direct costs by making workers redundant • Increased efficiency ARA An example of how an answer could develop and how it should be annotated K APP AN DEV EVAL Changing Introducing May lead to Which may The most important how the mass being able to increase the benefit is that CP candy is customisation produce target will be able to made (K) (APP) more types of market and increase their candy (AN) number of profitability (EVAL) customers because as public (DEV) limited company the shareholders Changing Moving from May reduce Leading to will expect a the 20 production the CP being reasonable machinery lines to just 1 diseconomies able to dividend (EVAL). used (K) (APP) of scale (AN) make more However, in the profit (DEV) long term it may be more important to increase the number of customers as this is likely to lead to more profits eventually (EVAL)

This question in 9609/22 Oct/Nov 2019

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

30 marks

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

This question in 9609/23 Oct/Nov 2019

2 Joe’s Smoothies (JS) Joe graduated with a Business degree. He then spent a year travelling around Asia. He discovered a local drink. This was a fruit smoothie, with added nuts and seeds for protein, that many people drank instead of a meal. When he returned home to country Y he found no suppliers of this type of product. Joe is considering setting up a small café producing smoothies to supply this potential new market 5 segment. It would be called ‘Joe’s Smoothies’. This would be possible with a low level of start up capital. This is important as he has no savings. He created a business plan with estimated costs (Table 2.1) and estimated demand and average selling price (Table 2.2). This data was based on a sole trader business in one location. Looking at the data, Joe thought that the business would be low risk and had the potential for national expansion. 10 Table 2.1: Estimated cost information ($) Spring Summer Autumn Winter Capital Investment 2 000 Fixed costs 10 000 10 000 10 000 10 000 Average variable cost 2.50 2.00 2.50 3.00 15 Table 2.2: Estimated demand and average selling price (with no market research) Spring Summer Autumn Winter Demand (units sold) 1000 3500 1500 500 Average selling price $3.50 $6.00 $3.50 $2.50 Before opening Joe’s Smoothies, Joe approached a business adviser who asked him about his 20 market research. Joe had not done any. The business adviser suggested it would be a good idea to do some primary market research to collect information about his target market and potential demand. (a) (i) Define the term ‘market segment’ (lines 5–6). [2] (ii) Explain the term ‘start up capital’ (lines 6–7). [3] (b) (i) Refer to Table 2.1 and Table 2.2. Calculate the break-even level of sales for JS in the summer. [2] (ii) Explain two factors which may influence the demand for Joe’s product. [4] (c) Analyse two methods of primary market research that Joe could use. [8] (d) Discuss sources of finance Joe could use to start up his business. [11]

30 marks

Mark scheme: 2(a)(i) Define the term ‘market segment’ (lines 5–6) 2 Knowledge Marks Reference to groups of potential customers with similar 2 characteristics Reference to groups of potential customers OR similar 1 characteristics No credible content 0 A correct definition could cover the following: • A group of potential customers/a division of the market • That all have similar characteristics/needs and wants Exemplar Rationale Marks A group of potential Two elements covered 2 customers who have similar needs and/or wants A part of the whole market Two elements covered 2 which has similar characteristics Customers with similar A simple statement 1 characteristics Different groups of potential An understanding but too 1 customers vague customers Too vague 0 2(a)(ii) Explain the term ‘start-up capital’ (lines 6–7) 3 Award one mark for each point of explanation Point Knowledge Marks C Example or some other way of showing good 1 understanding – to buy machinery / equipment / raw materials B Understanding of the time frame – initial, needed to 1 create a business A Understanding of capital – money used within a 1 business Note: C mark can only be awarded if A and B marks have already been awarded Exemplar Rationale Marks It is the initial investment All three elements 3 needed to fund a new business, used to buy new machinery or premises Seed money used to invest in All three elements 3 a new business venture, such as licences Money for a new business A and B 2 Seed money A and B 2 Money used in a business A only 1 such as buying raw materials. Money used in a business A only 1 Capital used to start up a Tautology 0 business No identifiable content 0 2(b)(i) Refer to Table 2.1 and Table 2.2. Calculate the break-even level of sales 2 for JS in the summer. Level Rationale Marks 2 Correct answer (with or without working and/or 2 units) 1 Correct formula/understanding of 1 breakeven/correct use of wrong figures 0 mark No credible content 0 Fixed costs Break even = Contribution per unit (selling price − variable costs 10000 Break even = = 2500 units ( 6 − 2 ) Common incorrect answers Answer Rationale Marks 2500 Correct answer (no units) 2 FC/CPU Correct formula 1 1667 No creditable content 0 2(b)(ii) Explain two factors which may influence the demand for Joe’s 4 product. Level Knowledge and Application Marks Explanation of two factors influencing demand in 4 2 (APP) context Explanation of one factor influencing demand in 3 2 (APP) context 1b (KK) Knowledge of two factors affecting demand 2 1a (K) Knowledge of one factor affecting demand 1 0 No creditable content 0 Context is likely to come from: • The weather – smoothies are more likely to be consumed in summer • The ingredients used in the smoothies – local tastes • The price – comparable to competitors/whether the drinks are affordable • The health culture – is it important? ARA 2(c) Analyse two methods of primary market research that Joe could use. 8 Level Knowledge and Marks Marks Analysis application 2 Understanding of 4 Developed analysis 4 two methods of of two appropriate primary market methods of primary research in context research in context Understanding of 3 Developed analysis 3 one method of of one appropriate primary market method of primary research in context research in context 1 Knowledge of two 2 Limited analysis of 2 methods of primary two methods of market research primary research Knowledge of one 1 Limited analysis of 1 method of primary one method of market research primary research 0 No creditable content Annotate the first method in the left hand margin and the second in the right hand margin. If more than two methods are attempted, mark the ones that would give the candidate the highest mark allocation. Note: Quantitative and qualitative are not methods of primary market research Content/context and analysis: • Field research: testing the product on potential customers • Surveys and questionnaires: can gain a wider range of potential customer opinions and feedback • Focus groups: can have justified potential customer feedback ARA Do not reward sampling as a method 2(d) Discuss sources of finance Joe could use to start up his business. 11 Knowledge and Marks Analysis and Marks Application (4 marks) Evaluation (7 marks) Justified evaluation 7 based on arguments in context Developed evaluation 6 based on arguments in context An evaluative statement 5 based on arguments in context 4 Developed argument of 4 Understanding of two two or more external sources of finance in sources of finance in context context Understanding of one 3 Developed argument of 3 source of finance in one external source of context finance in context Knowledge of two 2 Limited analysis of two 2 sources of finance sources of finance Knowledge of one 1 Limited analysis of one 1 source of finance source of finance Annotate the first source in the left hand margin and the second in the right hand margin. If more than two sources are attempted, mark the ones that would give the candidate the highest mark allocation. Contextual analysis likely to come from: • Bank overdraft as the costs are low and likely to be repaid in the short term • Bank loan as the capital investment of $2k may be too high for an overdraft • Government start-up grant as he is setting up a new business and may create jobs Evaluation is likely to come from: • Short and long term ambitions of Joe • Joe’s attitude to risk • Joe’s ability to persuade banks to lend him the start-up capital ARA

This question in 9609/22 Feb/March 2020

1 UFilters (UF) UF is a public limited company selling to an industrial market. It manufactures air conditioning units. UF produces two sizes of air conditioning units, medium and large. Most of its air conditioning units are sold for use in warehouses and computer server rooms. The units are expensive compared to competitors but UF believes its units are of a higher quality. Market research suggests that there is a growing demand for small air conditioning 5 units to be placed in offices. To produce a new size of unit would require spending $180 000 to purchase new machinery. UF relies on customer recommendations for new orders. However, some customers have been dissatisfied with the service received. UF has received several complaints, including: • engineers turning up late or not at all 10 • poor communication from UF • little choice in the size of units supplied • appointment times are not always convenient and can be difficult to change. Sylvie, the Marketing Director of UF, is concerned about the sales data (Table 1.1) as sales have fallen 10% on the previous year. 15 Table 1.1: Selected sales data for UF, 2019 Unit size Price ($) Unit sales Medium 900 3500 Large 2000 800 Sylvie is considering two options to increase sales (see Table 1.2). 20 Table 1.2: Options to increase sales Option 1 • Competitors’ prices are 8% lower on Reduce the price of the units by 10% average. • The estimated price elasticity of demand is –0.8. 25 Option 2 • Sales staff are currently paid a monthly Implement a performance related pay salary. scheme (PRP) • To introduce a PRP scheme the monthly salary would be reduced by 10%. • Targets would be set and if sales staff met 30 the targets then they would receive PRP increasing their monthly salary by 15%. (a) (i) Define the term ‘industrial market’ (line 1). [2] (ii) Explain the term ‘price elasticity of demand’ (line 24). [3] (b) (i) Refer to Table 1.1. Calculate the total revenue received by UF in 2019. [3] (ii) Explain one source of finance available to UF for purchasing new machinery. [3] (c) Recommend which of the two options in Table 1.2 UF should choose to increase sales. Justify your recommendation. [11] (d) Analyse two ways, other than the two options in Table 1.2, UF can improve customer relations. [8]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘industrial market’ (line 1). 2 Knowledge and Application Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Answers could include: Consists of businesses that sell to other businesses (B2B). One business is the consumer and another business the supplier. Examples. 1(a)(ii) Explain the term ‘price elasticity of demand’ (line 24). 3 Knowledge and Application Marks Good explanation 2–3 Partial explanation/understanding 1 No creditable content 0 Answers could include: Measures the responsiveness of demand to a change in the price of a product. Can be elastic or inelastic. Formula or worked example. 1(b)(i) Refer to Table 1.1. Calculate the total revenue received by UF in 2019. 3 Correct answer. (3 marks) Right method but mistakes. (2 marks) Attempt (e.g. formula or identifies data). (1 mark) Answer $3 150 000 + $1 600 000 = $4 750 000 ($ not required) Formula TR = P × Q (1) Working $900 × 3500 = $3 150 000 (1) $2000 × 800 = $1 600 000 (1) 1(b)(ii) Explain one source of finance available to UF for purchasing new machinery. 3 Level Knowledge and Application Marks APAP Explanation of a source of finance in context 3 AP Identification of source of finance in context 2 K Identification of a source of finance 1 0 No creditable content 0 Context and content is likely to come from: • Any source of finance either external or internal for 1 mark but most likely share capital, leasing, bank loan, hire purchase Context likely to reflect UF is a plc so share capital or, because finance is required for a long-term asset – machinery - bank loan rather than overdraft, or leasing or hire purchase. 1(c) Recommend which of the two options in Table 1.2 UF should choose to 11 increase sales. Justify your recommendation. Knowledge and Analysis and Evaluation Marks Marks Application (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 the 4 Arguments (two sided) based 4 impact of each option on on of each option in context sales in context Shows understanding of the 3 Argument (one sided) based on 3 impact of one option on the advantages or sales in context disadvantages of one option in context Identifies two ways to 2 One piece of limited analysis of 2 increase sales the impact of two options on sales Identifies one way to 1 One piece of limited analysis of 1 increase sales one way to increase sales No creditable content 0 Context/content: Option 1 – reduce price • Customers might be happy as they complained about high prices, but will quality be compromised? • Price-inelastic demand will reduce revenue. If costs stay the same profits will fall so lower dividends for shareholders, possible redundancies if revenue falls. More price-competitive so could take business away from other firms but competitors may also reduce price and start a price war. Option 2 – PRP • Customer complaints about service so training would help address this issue but could be expensive. • Employees unhappy if monthly salary reduced but may be motivated to improve performance with PRP which would give them an increase of 15% in their monthly pay, but would targets be realistic? • If employees may resent the training or be unhappy with pay scheme so they may look for jobs with competitors taking their skills, experience and knowledge elsewhere. • Costs of training and PRP scheme will increase costs so decrease profits and potentially reduced dividends for shareholders. 1(d) Analyse two ways, other than the two options in Table 1.2, UF can improve 8 customer relations. Knowledge and Analysis Level Marks Marks Application (4 marks) (4 marks) 2 Shows understanding of 4 Developed analysis of two 4 two methods to improve methods to improve customer relationships customer relationships in in context context Shows understanding of 3 Developed analysis of one 3 one method to improve method to improve customer relationships customer relationships in in context context 1 Shows knowledge of 2 Limited analysis of two 2 two methods to improve methods to improve customer relationships customer relationships Shows knowledge of 1 Limited analysis of one 1 one method to improve method to improve customer relationships customer relationships No creditable content 0 Could choose any two of the 4Cs: Cost, Convenience, Communication, Customer solution Contextual analysis likely to come from: • Business to business so must be convenient to market and size appropriate to premises. • Are just two sizes appropriate for all premises? Maybe need another size? New product? • Responding to customer complaints on the website.

This question in 9609/21 May/June 2020

1 Energy Solutions (ES) ES is a public limited company in country X. The business was set up in 1980. For 25 years most of ES’s revenue came from coal mining. Although ES still owns many coal mines, the business now specialises in hydraulic fracturing, known as fracking. This is a process used to extract gas from underneath the ground. The government of country X encourages firms like ES to grow. The growth of ES has led 5 to economies of scale and lower unit costs. ES considers the effects of fracking on all the stakeholders of the business. Fig. 1.1 is an extract from a recent newspaper article about fracking. Fracking is not liked by everyone. On the positive side it could produce enough gas to mean that country X can produce its own energy for the next 100 years. This is also 10 likely to mean lower energy prices for both businesses and consumers. Competing companies in the market have taken full advantage of fracking and are expecting to increase their revenue and profit substantially in the future. However, people who live near the fracking sites have reported many minor earthquakes. These have not damaged any buildings but the price of houses in those areas has 15 decreased significantly. There has also been a concern that fracking could lead to pollution and a loss of wildlife. Fig. 1.1: Extract from a recent newspaper article about fracking Despite the complaints from some external stakeholders, ES plans to increase the number of fracking sites in country X. This will require ES to buy licences from the government of 20 country X. Each licence costs $50m and ES will require both internal and external sources of finance to fund this purchase. ES employs over 1000 people. Every worker benefits from a profit-sharing scheme (see Table 1.1) as well as their basic pay. Table 1.1: Profit-sharing scheme at ES 25 Profit in 2019 $12m Each director’s share of profit 0.25% Each manager’s share of profit 0.1% Each of other employees’ share of profit 0.002% (a) (i) Define the term ‘revenue’ (line 2). [2] (ii) Explain the term ‘unit costs’ (line 6). [3] (b) (i) Refer to Table 1.1. Calculate the difference in dollars received by each director and each manager from the profit-sharing scheme. [3] (ii) Explain one disadvantage to ES of using a profit-sharing scheme. [3] (c) Analyse one internal source of finance and one external source of finance that ES could use to purchase a fracking licence. [8] (d) Evaluate how two external stakeholders of ES might be affected by the company continuing to use the fracking process. [11]

30 marks

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

This question in 9609/22 Oct/Nov 2020

2 ML Computers (MLC) MLC is a successful private limited company that has been trading for 20 years in country K. The company makes a range of laptop computers. It is the market leader in a highly competitive market. MLC is developing a new touchscreen computer that will use the latest technology. Initially secondary market research was carried out, followed by primary market research. The market 5 research data suggested a high potential demand for the new touchscreen computer. The Marketing Manager is planning the launch of the new touchscreen computer using price skimming. All computers are made in MLC’s two factories in country K. Operations are capital intensive. New machinery is needed to manufacture the new touchscreen computer. Maria, the Managing 10 Director, decided to use leasing for the new machinery. MLC has 350 employees. One of its objectives is to reduce labour turnover to 8% by 2026. Labour turnover rates currently vary across the two factories. The labour turnover for Factory A is currently 14%. Table 2.1 shows employee data for Factory B. Table 2.1 Employee data for Factory B 15 Total number of employees 200 Employees who left during the year 25 Maria is the majority shareholder with 55% of shares. She is concerned about the future growth of the company. Over the next three years she plans to launch five new computers using the latest technology. At a recent board meeting Maria proposed that the company changes the ownership 20 of the business to a public limited company. (a) (i) Identify one secondary market research source. [1] (ii) Explain the term leasing. [3] (b) (i) Refer to Table 2.1 and other information. Calculate the difference in labour turnover between factory A and factory B. [3] (ii) Explain one advantage to MLC of low labour turnover. [3] (c) Analyse one advantage and one disadvantage to MLC of using price skimming to launch the new touchscreen computer. [8] (d) Evaluate whether MLC should change from a private limited company to a public limited company. [12]

30 marks

Mark scheme: 2(a)(i) Identify one secondary market research source. 1 Responses may include: • journal articles • Government data /census • textbooks • dictionaries and encyclopaedias • books • newspapers and magazines • accounts and reports • previous sales/internal data • competitor data • Data collected by other businesses • Feedback found on media / other sources – do not accept ‘internet’ unless the source is clear or other named internet source. Accept all valid responses. 2(a)(ii) Explain the term leasing. 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 the Limited application of one relevant point to a business question. context. 0 marks 0 marks No creditable response. No creditable response. Indicative content Responses may include: AO1 Knowledge and understanding • A legal contract to enable the lessee to use an asset in return for a payment. • The ability to use something for a regular payment/rent. No further marks can be gained without knowledge and understanding AO2 Application A characteristic of leasing, such as; • The lessee will never own the asset. The asset is always owned by the lessor. • The lessor is usually responsible for maintenance of the asset. • The lessor may be responsible for insurance of the asset. • Allows a business to update their equipment more often. • An external source of finance. • Can avoid the finance needed to purchase an asset. Example of leasing or something that is usually leased by a business. Accept all valid responses. 2(b)(i) Refer to Table 2.1 and other information. Calculate the difference in labour turnover between factory A and factory 3 B. Answer Guidance Formula Award 3 marks for correct answer of 1.5% (with or Number of employees leaving business without percentage sign). =  100 (1) Average number of employees within business If rounding is used then accept 13% (and an answer OR of 1%). factory B: 25/200  100 (1) = 12.5% (2) = 14% – 12.5% (OFR) = 1.5% (3) Answer = 1.5% 2(b)(i) Exemplar and annotations Marks 3 marks Correct answer Working and % does not matter. 1.5% Must be three to denote the three marks. 2 marks • Correct calculation of labour turnover for To award two marks, there must be Factory B (12.5%) • Two and a OR OR • An incorrect answer with one mistake • One , one and one allowing OFR for final stage. 1 mark • Correct formula (can be assumed from the To award one mark, there must be: correct use of figures ie (25/200) X 100 • One and two 0 marks No creditable content. To award zero marks, there must be • One 2(b)(ii) Explain one advantage to MLC of low labour turnover. 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 the Limited application of one relevant point to a business question. context. 0 marks 0 marks No creditable response. No creditable response. Knowledge Knowledge of an advantage of low labour turnover 1 mark Explanation Explanation of an advantage to MLC of low labour turnover 1 mark Context Context linked to an advantage to MLC of low labour turnover 1 mark No marks can be awarded without knowledge. Responses may include: AO1 Knowledge and understanding • Reduced costs • Improved motivation/morale • More experienced/efficient employees / higher productivity • Better customer experience • Improved corporate culture • More attractive when recruiting new employees No further marks can be gained without knowledge and understanding 2(b)(ii) AO2 Application Explanation may include: • Reduced costs; such as lower induction costs due to fewer new employees • Improved motivation/morale; because the workers want to stay in the workplace • More experienced/efficient employees / higher productivity – so the business will have more/better/higher quality production. • Better customer experience; because the employees are likely to be more experienced • Improved corporate culture; because the employees want to stay at MLC • More attractive when recruiting new employees; because the new recruits will be joining an experienced and happy team. Context may include: • Market leader for laptops • Produces a range of laptop computers • Developing a new touchscreen laptop computer • Secondary and primary market research shows high potential demand for the new product • Private limited company • Trading for 20 years • Two factories in Country K • Capital intensive • Lease new machinery to make the new computer • 350 employees • Objective to reduce labour turnover to 8% by 2026 • Labour turnover is 14% in Factory A • Labour turnover is 12.5% in Factory B (OFR) Accept all valid responses. 2(c) Analyse one advantage and one disadvantage to MLC of using price skimming to launch the new touchscreen 8 computer. 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. Price skimming is a pricing strategy in which a firm charges a high initial price and then gradually lowers the price to attract more price-sensitive customers. The pricing strategy is usually used by a first mover who faces little to no competition. 2(c) Responses may include: AO1 Knowledge and understanding Advantages: • Quicker return on investment / cover development costs • Supports higher profit margins when the computer is first offered for sale • Can help develop a prestigious brand image / associate product with higher quality • Can help the business target a specific market segment Disadvantages: • Relies on low competition in the market/unique product • Customers may wait until the price reduces • Customers who purchase the product at the higher price may feel ‘conned’ when/if the price reduces • Reduced sales volumes (whilst the price is high) may offer an opportunity for competitors to enter the market AO2 Application • Market leader for laptops • Produces a range of laptop computers • Secondary and primary market research shows high potential demand for the new computer • New computer will use the latest technology • Private limited company • Trading for 20 years • Capital intensive • Lease new machinery to make the new computer • Objective to reduce labour turnover to 8% by 2026 • Maria is the majority shareholder / owns 55% of shares 2(c) AO3 Analysis Advantages: • Quicker return on investment / cover development costs; make a profit more quickly – allows growth of the business. • Supports higher profit margins when the computer is first offered for sale; can be reinvested in the business – allows for profit maximisation in the long term. • Can help develop a prestigious brand image / associate product with higher quality; leading to higher sales revenue – increases profit. • Can help the business target a specific market segment; niche market can have a lower cost of customer acquisition – increases profit margin. Disadvantages: • Relies on low competition in the market/unique product; if competitors are cheaper then low sales – low profit margin. • Customers may wait until the price reduces; low initial sales – may lead to business failure. • Customers who purchase the product at the higher price may feel ‘conned’ when/if the price reduces; poor brand image – low sales. • Reduced sales volumes (whilst the price is high) may offer an opportunity for competitors to enter the market; low sales – leading to a reduced profit. Accept all valid responses. 2(d) Evaluate whether MLC should change from a private limited company to a public limited company. 12 Level AO1 Knowledge and AO2 Application AO3 Analysis AO4 Evaluation 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 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 to answer the question. causes, impacts and/or made. consequences. • Developed evaluative comments which balance some key arguments. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key term(s) of relevant point(s) to that identifies • A judgement/conclusion is and/or factor(s) is used the business context. connections between made with limited to answer the question. causes, impacts and/or supporting consequences. comment/evidence. • 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) Responses may include: AO1 Knowledge and understanding Knowledge of differences between a private limited company and a public limited company, including; • In a private limited company, shares cannot be sold on the stock market / only sold to family and friends (privately) . Whereas in a public limited company shares can be sold on the stock market . • Private limited companies can be setup for a relatively low amount, whereas the capital requirements for a public limited company are much higher. • Private limited companies have a limit on the maximum number of shareholders (typically 50), whereas there is no limit to the number of shareholders in a public limited company. • Anyone can purchase shares in a public limited company, whereas only those invited can buy shares in a private limited company. • A private limited company requires fewer directors (typically a minimum of one), whereas a public limited company requires more (typically a minimum of two). • A public limited company can be at risk of a hostile takeover, whereas a private limited company has virtually no risk of a hostile takeover. • A public company must publish its accounts, whereas a private limited company just has to make them available. AO2 Application • Market leader for laptops • Produces a range of laptop computers • Developing a new touchscreen laptop product • New computer uses the latest technology • Trading for 20 years • Two factories in country K • Capital intensive • Lease new machinery to make the new product • 350 employees • Objective to reduce labour turnover to 8% by 2026 • Launch five new products over the next three years • Maria is the majority shareholder / owns 55% of shares 2(d) AO3 Analysis Analysis that MLC should change from a private limited company to a public limited company, including; • MLC (and the shareholders of MLC) could release a large amount of equity by converting to a public limited company – used to develop new products for sale – used to finance the future growth of the company. • Allows MLC to reach a much larger pool of potential investors – can be used to finance expansion in the future. • May provide positive publicity/stability for MLC – increase sales/profit. Analysis that MLC should not change from a private limited company to a public limited company, including; • There is the risk of public limited companies being taken over whereas this risk does not apply to private limited companies as permission is required to purchase shares; this means that the owners may lose control of the business – leading to having to sell their shares. • Maria can retain more control over a private limited company – may allow her to reach her objectives for the business (future growth). AO4 Evaluation • A judgement whether MLC should or should not change from a private limited company to a public limited company. • What the judgement might depend upon, such as; the objectives of the current shareholders, the likely interest from potential investors, the level of control desired by the current shareholders, the state of the economy in country K, the actions/reactions of competitors in the market (especially those who may look to takeover MLC), the level of capital that exists in MLC. • The most appropriate form of business ownership may depend upon the business’s objectives and financial situation – if the company needs more finance to support expansion a public limited company may be appropriate, but due to the drawbacks of lack of control the business should remain a private limited company if it has sufficient financial resources. • The company leases machinery to produce the new laptop computer so may not need significant amounts of finance. • How do the other shareholders feel about the change of ownership – will the change lead to shareholders withdrawing their investment? • Maria is currently the majority shareholder with a 55% share – the change may affect her control of the business. • Will the change help the business to build a stronger brand image with stakeholders – will it lead to new business opportunities? Accept all valid responses.

This question in 9609/22 Feb/March 2024

1 Brenda’s Bricks (BB) BB is a newly established social enterprise in country X. It was set up by Brenda. Brenda has no experience of running a national business, but she used all her savings to recruit a team of young intrapreneurs. Country X specialises in recycling plastic waste from other countries. It has a dynamic business environment and many businesses have recently failed. 5 Brenda saw an opportunity to recycle low-cost plastic waste into construction bricks. These could be used to help the poorest in society to build waterproof houses. BB recently featured in a government promotion highlighting successful innovators. BB has trialled the method using job production and needs investment to produce its bricks commercially. A large national business, CC, is keen to invest in community projects to 10 improve their corporate social image. CC needs to see a business plan before making a decision. Brenda has started to investigate the costs of production for the business plan that CC has requested. (See Table 1.1.) Table 1.1: Data about BB’s costs and methods of production 15 Batch production Flow production Purchase cost $100 000 capital cost $150 000 capital cost Hire purchase cost $500 per month over a 20-year $600 per month over a 25-year period period Output A variety of sizes manufactured One size of brick used in 80% 20 to customer preferences of house construction Manufacturing time Average 40 bricks per hour 100 bricks per hour (a) (i) Identify one potential risk to a business. [1] (ii) Explain the term national business (line 2). [3] (b) (i) Refer to Table 1.1. Calculate the total cost for the 25-year period of using hire purchase if Brenda chooses to use flow production. [3] (ii) Explain one advantage for BB of using hire purchase as a source of finance. [3] (c) Analyse two limitations for BB of creating a business plan. [8] (d) Evaluate whether BB should use flow production to produce bricks. [12]

30 marks

Mark scheme: Question Answer Marks 1(a)(i) Identify one potential risk to a business 1 Indicative content Responses may include: • lack or loss of customers/demand/reputation/image • financial – poor cashflow management/unexpected costs/low profits • competition – new competitors/new more superior competing products/new substitutes • IT failure/cyber-attack/supply chain disruption/pandemic/economic factors • operational/compliance/legal/strategic risks • changing external factors, e.g. poor economic climate • inexperienced managers • bankruptcy/insolvency/business failure Accept all valid responses. 1(a)(ii) Explain the term national business (line 2). 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 the Limited application of one relevant point to a business question. context. 0 marks 0 marks No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of national business , may include: • in one country • within a country • only one country • only domestic AO2 Application Explanation of a national business may include: • the business only sells products (in one country) / sell • the business only operates (within a country) / trading • customers from (only one country) • (only domestic) target market / not worldwide or global 1(a)(ii) Context applied to national business , including: • any example of a national business, e.g. retailer with branches in one country • an example of a benefit or cost of being a national business Application can be made to BB/CC or any other scenario/context/business/person Do not reward vague answers, e.g. business that operates nationwide Accept all valid responses. Guidance in awarding marks Knowledge & understanding Knowledge of a national business 1 mark Explanation Explanation of a national business 1 mark Context Applied to a business context/business environment 1 mark 1(b)(i) Refer to Table 1.1. Calculate the total cost for the 25-year period of using hire purchase if Brenda chooses to use 3 flow production. Indicative content 1 mark for the formula for calculating the hire purchase cost (words or figures) 1 mark for calculating the hire purchase cost per year / number of months over the 25-year period 1 mark for calculating the hire purchase cost over the 25-year period • Hire purchase cost = (cost per month  12 months)  25 years • Hire purchase cost over a 25-year period = $600  12 months = $7200 = $7200  25 years = $180 000 Answer = $180 000 (3) 1(b)(i) Marks 3 marks Correct answer Working and units do not matter. $180 000 allow 180 000 Must be three to denote the three marks. 2 marks One of the following: To award two marks, there must be • Correct formula for the hire purchase cost over a • Two and a 25-year period (figures or words) OR AND ONE OF • One , one and one • Correct calculation of the hire purchase cost per year ($7200) OR • Correct calculation of the number of months over the 25-year period (12  25 = 300 months) • Incorrect answer with one mistake allowing OFR for the final stage, e.g. 180 1 mark One of the following: To award one mark, there must be: • Correct formula for the hire purchase cost over a • One and two 25-year period (figures or words) OR • Correct calculation of the hire purchase cost per year ($7200) OR • Correct calculation of the number of months over the 25-year period (12  25 = 300 months) 0 marks No creditable content. To award zero marks, there must be • One 1(b)(ii) Explain one advantage for BB of using hire purchase as a source of finance. 3 AO1 Knowledge and understanding AO2 Application 1 mark 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark 1 mark Knowledge of one relevant point is used to answer the Limited application of one relevant point to a business question. context. 0 marks 0 marks No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding • fixed monthly repayments • own the product after the final payment is made (unlike leasing) • can budget as know the fixed monthly repayment • business does not have to make a large initial cash payment • long timescale to finance the asset AO2 Application • APP can be awarded for a further development of the AO1 point Use of context/data related to HP as a source of finance for BB: Machinery ($) $100 000 capital cost – mass production $500 per month over a 20-year period $150 000 capital cost – batch production $600 per month on a 25-year period 1(b)(ii) • used all savings • featured in a government promotion • dynamic business environment • new business Application for the second APP mark must be made to BB and cannot be generic No reward for reference to interest payments leading to BB paying more than the purchase cost of the asset as it is a disadvantage. Accept all valid responses. Guidance in awarding marks Knowledge & understanding Knowledge of an advantage of the use of hire purchase 1 mark Explanation Explanation of an advantage of the use of hire purchase 1 mark Context Applied to a business context/business environment 1 mark 1(c) Analyse two limitations for BB of creating a business plan. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two relevant • Application of two relevant Limited analysis points is used to answer points to a business • Limited analysis that identifies the question. context. connections between causes, impacts • Knowledge of one relevant • Application of one relevant and/or consequences of two points. point is used to answer the point to a business context. • Limited analysis that identifies question. connections between causes, impacts and/or consequences of one point. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. 1(c) Indicative content AO1 Knowledge and understanding Knowledge of limitations to BB of creating a business plan (max 2 marks – annotate first limitation on left and second limitation on right) including: • requires skill to produce a business plan • require experience to produce a business plan • waste/use of resources to create business plan, e.g. time, financial • opportunity cost of producing a business plan • could create a false sense of certainty • based on estimates/predictions • may lead entrepreneurs to be inflexible/reduce creativity – new opportunities may arise that are not in the plan, and could be overlooked/rejected • cannot account for changes in the external environment Do not reward vague answers, e.g. poorly written or inaccurate data. AO2 Application Context applied to a limitation of BB creating a business plan (max 2 marks), including: • BB is a newly established enterprise • Brenda is inexperienced • no sales data • social enterprise • dynamic business environment • many businesses have recently failed • recycle low-cost waste to help the poorest in society • any financial data from Table 1.1 • CC is keen to invest to improve its own corporate social image 1(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. Limitations may include: • requires skill, experience and understanding to produce a business plan which Brenda does not have may make errors with the market research/predictions – may lead to CC not investing in the project • waste/use of resources to create business plan, e.g. time, financial; which could be used on other tasks in the business – leading to reduced profits/revenue • could create a false sense of certainty; leading to poor decisions – business failure • based on estimates/predictions which may be inaccurate; leads to a shortfall in funds – banks may not be willing to increase investment • inflexibility; BB may miss out on new opportunities – limit growth potential/profitability Accept all valid responses. 1(d) Evaluate whether BB should use flow production to produce bricks. 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. 1(d) Indicative content AO1 Knowledge and understanding Knowledge of the features of flow production (max 2 marks), including: • continuous production/24–7 • mass production • higher productivity • suited to identical/standardised products (no changes/undifferentiated)/lack of flexibility • automation • high purchase cost • use of machinery/technology • machines need to be maintained • large quantities of output AO2 Application Context applied to features of flow production (max 2 marks), including: • BB is a newly established enterprise • no sales data • social enterprise • dynamic business environment • many businesses have recently failed • recycle low-cost waste • any financial data from Table 1.1 • CC is keen to invest to improve its own corporate social image • BB’s target market are the poorest in society/citizens on low incomes • mass production produces one standard brick/batch production creates a variety of sizes of bricks according to customer preferences • one size of brick used in 80% of house construction 1(d) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. • higher productivity; increased efficiency – increase profitability • mass production; higher market share – increased revenue and profits for future growth • the standard brick is used in 80% of house construction – potential for a large share of the market – market leadership • higher productivity; economies of scale/reduced unit cost of production – can lower prices for customers • higher purchase cost; larger source of finance needed to purchase outright – increased cost of borrowing/less funds available for future expansion • higher purchase cost per month; higher monthly expenses – increased cash outflow • cannot change the design of the brick; reduced customer satisfaction – reduced market share as customers move to competitors with more choice 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 over whether BB should use flow production to produce bricks • what the judgement might depend upon; the amount of investment and level of risk CC is prepared to accept for a new social enterprise, the likely requirements of the target market, the ability and skill of the end users and the lifespan of the machinery. • weighing up of the arguments for flow production on the success of the social enterprise Accept all valid responses. 1(d) Exemplars for awarding evaluation L1 (limited L2 (developed supporting L3 (developed supporting evidence with supporting evidence) context) evidence) BB should use flow BB should use flow production because a BB should use flow production because 100 bricks production. higher number of bricks can be produced can be produced per hour which is 60 more per per hour. hour than batch production. No, batch production No, batch production is better than flow No, batch production is better than flow production is better than flow production because a variety of brick because a variety of brick sizes can be made production. sizes can be made leading to greater leading to greater customer satisfaction. 20% of customer satisfaction. house construction do not use the standard brick size so these customers’ needs would otherwise be unmet. Flow production Flow production should be used by BB Flow production should be used by BB as the should be used by BB. as the higher productivity will enable the higher productivity will enable the business to business to generate more revenue. generate more revenue, which can be used to cover the $600 hire purchase cost per month.

This question in 9609/23 Oct/Nov 2024

2 Premium Homes (PH) PH owns student rental accommodation in all the major cities in country Y. PH used demographic segmentation in its market research. This research identified that university students would pay a premium for high specification rental accommodation. PH has specialist teams focused on sales, maintenance, customer service and finance. There is little opportunity for internal promotion. PH pays low salaries, however, it offers 5 profit sharing to motivate its 150 employees. This has been effective as PH has had low labour turnover. In the last two years, profit levels have fallen by 75%. In 2024, 45 employees left PH. Complaints about maintenance and customer service have increased due to the lack of experienced employees in PH. 10 The Finance Director is reviewing PH’s existing sources of finance, shown in Fig 2.1. Bank loans 8% Owner’s Mortgage investment 42% 28% Overdrafts 22% Fig 2.1 PH’s sources of finance Frank, the Operations Director, wants to improve the sustainability of PH’s operations. He plans to: • stop renting out accommodation in some lower-income cities, and sell these buildings 15 • upgrade accommodation in high-income cities • reduce the size of the workforce. (a) (i) Identify one way in which business size can be measured. [1] (ii) Explain the term demographic segmentation. [3] (b) (i) Refer to lines 6–8. Calculate PH’s labour turnover in 2024. [3] (ii) Explain one way in which PH could use Maslow’s Hierarchy of Needs. [3] (c) Analyse one advantage and one disadvantage to PH of using an overdraft as a source of finance. [8] (d) Evaluate whether Frank’s plan will improve the sustainability of PH’s operations. [12]

30 marks

Mark scheme: 2(a)(i) Identify one way in which business size can be measured. 1 Indicative content Identification of a method may include: • Capital employed • Market capitalisation • Market share • Revenue (allow sales, sales turnover or turnover, income) • Quantity sold • Value of output • Number of employees • Area/space • Number of outlets • Number of customers Do not allow profit – which is a measure of success or performance, but not size. If more than one answer is given, only mark the first, reading from top left to bottom right. Accept all valid responses. 2(a)(ii) Explain the term demographic segmentation. 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 the Limited application of one relevant point to a business question. context. 0 marks 0 marks No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of demographic segmentation may include: • The identification of groups of customers with similar or common needs or characteristics within a market • Dividing the market according to factors that describe the population • Specific customer groups / target markets AO2 Application Explanation of demographic segmentation (max 1 mark) including: • Study of population data/trends • Examples of demographic factors, e.g. age, gender, race, social class, income Context applied to demographic segmentation , including (max 1 mark): • A valid example of a business that uses demographic segmentation to plan how it markets its products, e.g. a luxury car manufacturer may use demographic segmentation to target its advertising at high-income individuals or PH targets its student rental accommodation at university students 2(a)(ii) • Used for marketing of different products or services to specific consumer groups • Helps the business to adapt the marketing mix to the needs of the target customer group • Different marketing decisions for different groups Accept all valid responses Application can be made to PH or any other scenario/context/business/person. Exemplar and annotations Mark Rationale Dividing the market into groups according to age 3 The answer starts with application but shows or gender , for example a clothes retailer has knowledge by the reference to age/gender. There is three departments with products for men, women an example of the use of demographic segmentation and children . by a clothes retailer. Identifying groups of customers with similar needs or 2 Clear knowledge. With some application of how characteristics within a market using population data such as age Used for marketing of different products or services 1 A reasonable definition to specific types of customer Segmenting using demographics 0 Tautological 2(b)(i) Refer to lines 6–8. Calculate PH’s labour turnover in 2024. 3 Formula to calculate labour turnover: number of employees leaving in 1 year •  100 (1 mark – formula only) Average number of people employed Use of figures: 45 •  100 (1 mark – use of correct figures) 150 Labour turnover: • 30% (1 mark – correct answer – no % necessary) Exemplar and annotations Marks Answer Rationale 3 marks Correct answer Working and % do not matter. 30% 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 identification of figures OR • One , one and one OR An incorrect answer with one mistake allowing OFR for final stage. OR 0.3 (has not completed final stage to multiply by 100) OR A correct answer from an inverted formula (3.3 – OFR) 2(b)(i) Marks Answer Rationale 1 mark One of the following: To award one mark, there must be: • Correct formula • One and two 0 marks No creditable content. To award zero marks, there must be • One 2(b)(ii) Explain one way in which PH could use Maslow’s Hierarchy of Needs 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 the Limited application of one relevant point to a business question. context. 0 marks 0 marks No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of a use of a motivational theory (max 1 mark), including: • Change the way that employees are treated/managed/motivated at PH or relevant examples • Make changes to increase motivation to maintain PH’s low labour turnover/retain employees • Understand employee behaviour/employee motivation • Measuring employee needs AO2 Application Explanation of a use of Maslow’s hierarchy of needs (max 1 mark), including: • Explain how motivation affects how employees behave, e.g. an employee doing a repetitive job/working alone may have a high absenteeism rate • Explain the use with reference to one of Maslow’s categories of need, e.g. physiological, safety, love and belonging, esteem and self-actualisation needs • Examples of how PH could change the way that employees are managed/motivated: • Offer more opportunities for internal promotion • Increase employee salaries • Encourage employees to stay in the business • Change working conditions 2(b)(ii) Context applied to PH (max 1 mark), including: • Use of demographic segmentation in its market research • University students would pay a premium price for high specification rental accommodation • Specialist teams focused on sales, maintenance, customer service and finance. • Little opportunity for internal promotion • Low salaries • Offers profit sharing • 150 employees • Low labour turnover • Profit reduced by 75% • In 2024, 45 employees left PH • Increased complaints about maintenance and customer service • Use of data from Fig. 2.1 • Operations Director wants to improve the sustainability of PH’s operations Accept all valid responses. Exemplar and annotations Mark Rationale Managers can understand what motivates 3 Use of Maslow’s hierarchy of needs by managers employees such as ensuring physiological needs , with further explanation with reference to Maslow’s are met for the 150 employees . hierarchy . The third mark is for reference to the context . Helps managers decide how to change their 2 Knowledge of a use and applied to the number of management style so that less than 45 employees. employees leave this year . Identifies the different motivations for human 1 Knowledge of a use with no application behaviour Maslow’s Hierarchy of needs is a motivational theory 0 No use of Maslow’s hierarchy of needs. This answer is the study of understanding what drives a person to is a definition of the theory and does not answer the question work towards a particular goal or outcome . 2(c) Analyse one advantage and one disadvantage to PH of using an overdraft as a source of finance. 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 used relevant points to a • Limited analysis that identifies connections to answer the business context. between causes, impacts and/or consequences question. • Application of one of two points. • Knowledge of one relevant point to a • Limited analysis that identifies connections relevant point is used business context. between causes, impacts and/or consequences to answer the of one point. question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Advantage in the left hand side column, disadvantage in the right hand side column 2(c) Indicative content AO1 Knowledge and understanding Knowledge of one advantage using an overdraft as a source of finance (max 1 mark), including: • Quick – previously agreed / immediately available • Convenient – can use it as required • Flexible • No repayment schedule • No loss of ownership Knowledge of one disadvantage using an overdraft as a source of finance (max 1 mark), including: • High interest rates / fees • Can be recalled at any time • Often low limit available • Can only be used for short-term needs • Must be repaid Note: the advantages/disadvantages have to be true for an overdraft, but not exclusively true to an overdraft (i.e. they may apply to other sources of finance). AO2 Application Application of an advantage or disadvantage to PH , including: • Use of demographic segmentation in its market research • University students would pay a premium price for high specification rental accommodation • Specialist teams focused on sales, maintenance, customer service and finance. • Little opportunity for internal promotion • Low salaries • Offers profit sharing • 150 employees • Low labour turnover • Profit reduced by 75% • In 2024, 45 employees left PH • Increased complaints about maintenance and customer service • Use of data from Fig. 2.1 2(c) • Operations Director wants to improve the sustainability of PH’s operations • Use of data from Fig. 2.1 • Operations Director wants to improve the sustainability of PH’s operations AO3 Analysis Limited analysis of an advantage/disadvantage of using an overdraft – candidate shows one link in the chain of analysis. Developed analysis of an advantage/disadvantage of using an overdraft candidate shows two or more links in the chain of analysis or a two-sided analysis. Analysis may include: • Quick – previously agreed / immediately available; the funds can be used for expansion immediately – leading to increased market share • Convenient – can use it as required; no time is wasted with application – can be used for other activities such as marketing • Flexible; can be used for any type of purchase – to meet the business objectives • No repayment schedule; this will reduce cash outflows – This money can be used to better maintain the properties rented, reducing customer complaints. • High interest rates/fees; higher interest rates may increase costs – this will reduce profits • Can be recalled at any time; the business may need to suddenly repay the money leading to cashflow problems – threatening business survival • Often low limit available; The overdraft limit may be low. This will limit the investments that PH can make – therefore the business will not be able to reduce complaints. • Can only be used for short-term needs; limiting the project that the money can be used for – some objectives may not be met • Must be repaid; increasing cash outflows – less funds available for marketing Accept all valid responses. 2(c) Exemplar and annotations AO1 Knowledge AO2 Application AO3 Analysis Exemplar of an advantage Interest only charged on the For upgrading Ensures short term cost is Annotations for the overdrawn amount accommodation in high- minimal reducing further advantage should be income cities . pressure on profit levels . placed in the left-hand margin. Exemplar of a disadvantage The funds need to be repaid If student accommodation This could lead to a bad Annotations for the not rented out . credit rating if payments disadvantage should be missed which may placed in the right-hand increase cost of future margin. borrowing . 2(d) Evaluate whether Frank’s plan will improve the sustainability of PH’s operations 12 Level AO1 Knowledge and AO2 Application AO3 Analysis AO4 Evaluation 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 knowledge Developed application Developed analysis Developed evaluation of relevant key term(s) of relevant point(s) to the that identifies • A developed and/or factor(s) is used to business context. connections between judgement/conclusion answer the question. causes, impacts and/or is made. consequences. • Developed evaluative comments which balance some key arguments. 2(d) Level AO1 Knowledge and AO2 Application AO3 Analysis AO4 Evaluation understanding 2 marks 2 marks 6 marks 2 marks 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 the that identifies • A and/or factor(s) is used to business context. connections between judgement/conclusio answer the question. causes, impacts and/or n is made with limited consequences. supporting comment/evidence. • 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. Indicative content AO1 Knowledge and understanding Knowledge of sustainability of operations (max 1 ), including: • Operating / surviving / remaining in business for the long-term / future / not running out of money / continuity / stable • Efficiency • Productive • Day-to-day running of the business • Keeping customers satisfied • Maintaining profitability – reducing expenses and increasing revenue Note: The question stem asks about operational sustainability. Therefore, operational sustainability must be the focus of the answer, not environmental sustainability. 2(d) AO2 Application Application of an advantage or disadvantage to PB , including: • Use of demographic segmentation in its market research • University students would pay a premium price for high specification rental accommodation • Specialist teams focused on sales, maintenance, customer service and finance. • Little opportunity for internal promotion • Low salaries • Offers profit sharing • 150 employees • Low labour turnover • Profit reduced by 75% • In 2024, 45 employees left PH • Increased complaints about maintenance and customer service • Use of data from Fig. 2.1 AO3 Analysis Limited analysis of whether the plan will improve the sustainability of PH’s operations – candidate shows one link in the chain of analysis. Developed analysis of whether the plan will improve the sustainability of PH’s operations – candidate shows two or more links in the chain of analysis. • Financial stability; reduce short term cash inflow – reduce debt burden and interest payments • Focus on profit; increase profit margins – focus on core values • Increased efficiency of workforce; may lose excellent employees who take knowledge to competitors – lose market share/customer service may reduce further due to losing more experienced employees • Keeping customers satisfied; increased market share – more market power / ability to increase prices • Business continues for the long-term; increased employee satisfaction from greater job security – reduced labour turnover AO4 Evaluation Limited evaluation – an unsupported judgement and/or weak attempt at an 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 . 2(d) • The impact of the plan depends on the timescales, future aims and objectives and financial liquidity of PH. After downsizing the amount of revenue generated may not meet shareholder expectations • Will demand for premium accommodation increase in the future? What are the demands of students? • Should PH repurpose its accommodation for a different target audience, create a subsidiary brand and grow market share? • Is market share and size the most important measure of success, or is profitability more important? • The extension strategy may generate a short-term boost to sales/market share, but will it be sustained in the long- term? • A judgement on whether the course of action is suitable for PH. Accept all valid responses. Exemplars for awarding evaluation L1 (limited supporting L2 (developed supporting L3 (developed supporting evidence) evidence) evidence with context) Frank’s plan will improve the Frank’s plan will improve the Frank’s plan will improve the sustainability of PH’s operations. sustainability of PH’s operations. sustainability of PH’s operations. Increased labour efficiency will reduce Increased labour efficiency will reduce expenditure on salaries. expenditure on salaries. This will help to reverse the trend of reducing profit levels over the past two years. I don’t think the sustainability of PH’s I don’t think the sustainability of PH’s I don’t think the sustainability of PH’s operations will be improved. operations will be improved. Investing operations will be improved. Investing in new accommodation will cost a lot in new accommodation will cost a lot of money. of money, and PH does not have experienced employees to do the work as they have left.

This question in 9609/21 May/June 2025

2 Personalised Blankets (PB) Kaia left university with a degree in textile design. Using her entrepreneurial qualities, Kaia set up PB as a sole trader. Her current objective is to break even. Kaia uses job production to make blankets which are personalised with a picture. Each customer logs into the PB website and chooses the size of blanket. The customer then uploads a picture that they want printed onto the blanket. 5 Many of Kaia’s customers buy the blankets as gifts for special occasions. Kaia has employed a social media influencer to promote her blankets. The influencer will be paid a salary of $250 a week and a 5% commission on revenue that comes directly from the influencer. Fig 2.1 shows the revenue that came directly from the social media influencer in February. 10 4500 4000 3500 3000 2500 Revenue ($) 2000 1500 1000 500 0 Week 1 Week 2 Week 3 Week 4 Fig. 2.1 Revenue directly from the social media influencer in February Kaia would like to relocate PB to larger premises. She is applying for external sources of finance, and she has written a five-year business plan to support her applications. (a) (i) Identify one external source of finance. [1] (ii) Explain the term business plan. [3] (b) (i) Refer to Fig. 2.1 and other information. Calculate the total payment to the social media influencer in February. [3] (ii) Explain one disadvantage to Kaia of using a commission payment method. [3] (c) Analyse one advantage and one disadvantage to Kaia of using job production. [8] (d) Evaluate the most likely reason for Kaia’s objectives to change over the next five years. [12]

30 marks

Mark scheme: 2(a)(i) Identify one external source of finance. 1 Responses may include: Knowledge of an external source of finance: • share capital • debentures • new partners • venture capital • (bank) overdrafts • leasing • hire purchase • (bank) loans • mortgages • debt factoring • trade credit • micro-finance • crowd funding • government grants • peer to peer Accept all valid responses. 2(a)(ii) Explain the term business plan. 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 the Limited application of one relevant point to a business question. context. 0 marks 0 marks No creditable response. No creditable response. Responses may include: AO1 Knowledge and understanding Knowledge of a business plan , including: • formal written document containing the goals of a business. • the methods for attaining business goals/objectives/targets etc. • a written document that describes a business and its objectives. • a document outlining the direction of the business and how to get there. AO2 Application Explanation of a business plan (max 2 marks), including: • Any example of a section from a business plan (1 mark for each up to max of 2 marks); HRM plan, marketing plan, operations plan, finance plan. • Any other relevant data which might be included in a business plan. • Examples of potential uses of a business; gain finance, find investors etc. • A business plan may have a specific timeframe for achieving its objectives • May include internal and external influence data Accept all valid responses. 2(a)(ii) Exemplar and annotations Mark Rationale A written document showing the objectives for the business and 3 Clear knowledge that objectives form the functional areas, such as Marketing that are involved. part of the business plan. A functional Business plans are often used to apply for finance . area also identified, as well as a use of a business plan. Can be used to inform external stakeholders about the business 3 Some idea of what is in a business plan . A business plan can be created for a specific time period, such (details and environment), and a use of a as 5 years . It is the details about the business and its plan. Also the time period. environment A document outlining what the business does for a specific time 2 Knowledge of what is in a business plan period . and time period. A future plan for how a business will achieve its objectives . 1 Clear knowledge. A plan of the business for the future . 0 Tautology – candidates need to show they know what ‘business’ and ‘plan’ mean. A forecast of the sales made by a business. 0 No understanding of a business plan. 2(b)(i) Refer to Fig 2.1 and other information. Calculate the total payment to the social media influencer in February. Formula: Total payment = salary + commission (% of sales) (1) OR Correct calculation of revenue that comes directly from the influencer in Feb = Total sales in four weeks – $4000 + $3000 + $500 + $3000 = $10 500 (1) OR Correct calculation of total salary for influencer for Feb = $250 + $250 + $250 + $250 = $1000 (1) Calculation: 5% of $10 500 = $525 (1) Total payment = $1000 (salary) + $525 (commission) = $1525 (1 – OFR applies) Ans = $1525 (3 marks) 2(b)(i) Exemplar and annotations Marks 3 marks Correct answer Working and sign do not matter. $1525 $ 2 marks Correct calculation of commission based on total To award two marks, there must be revenue that comes directly from the influencer in • Two and a Feb ($525) OR • One , one and one OR OR An incorrect answer with one mistake allowing OFR • Two and a for final stage. OR An answer that misses out the commission ($11 500 with working) 1 mark One of the following: To award one mark, there must be: • Correct formula • One and two • Correct calculation of total revenue that comes directly from the influencer in Feb ($10 500). • Correct calculation of total salary for FEB ($1000). 0 marks No creditable content. To award zero marks, there must be a minimum of one 2(b)(ii) Explain one disadvantage to Kaia of using a commission payment method. 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 the Limited application of one relevant point to a business question. context. 0 marks 0 marks No creditable response. No creditable response. Responses may include: AO1 Knowledge and understanding Knowledge of a disadvantage of using commission (max 1 mark), including • Increases business costs • Reduces profit/ profit margin • Difficult to predict / forecast • May lead to aggressive sales techniques • May cause anxiety/stress/demotivation (for the employee) • May prioritise short-term gains, over long-term business objectives • May be difficult to recruit new workers • May cause employees to compete with one another • Paid from revenue, not profit (may need to be paid even if PB does not make a profit) AO2 Application Explanation of a disadvantage of using commission payment method (max 1 mark), including: • Increases business costs – as the business increases revenue, commission also increases • Difficult to predict / forecast – which can mean that PB may not be able to calculate the break-even point • May lead to aggressive sales techniques – as salespeople push to increase their own income 2(b)(ii) • May cause anxiety/stress (for the employee) – leading to lower motivation • May prioritise short-term gains, over long-term business objectives – as employees focus on increasing short term revenue and not profit margins • May be difficult to recruit new workers – because of the uncertainty of their likely income • May cause employees to compete with one another – and work towards their own utility, not the good of the business • Paid from revenue, not profit – so may need to be paid even if PB does not make a profit Context applied to PB (max 1 mark), including: • 5% commission on direct sales • OFR from Q2(b)(i) • Social media influencer gets a salary as well ($250 a week) • Use of data in chart 2.1 Exemplar and annotations Mark Rationale A commission adds to PBs costs which can reduce 3 A disadvantage identified and explained with the profit available to relocate PB to larger premises context. . It may lead to competition between workers which 3 A disadvantage, which is explained and context could lead to demotivated employees reducing the used. $10 500 revenue from the influencer . May be difficult to recruit new influencers if 5% 2 A disadvantage and context. However the commission seems low. disadvantaged is not explained as to how/why recruitment may be more difficult based on commission. Reduce profit , and may demotivate the employees. 1 There are two pieces of knowledge here, but they are not linked (ie the candidate has not stated that there is less profit because of the demotivation). Only K so max 1 mark. Paying a 5% commission means that for every $1 of 0 There is no knowledge of a disadvantage of using revenue the influencer sells, they get $0.05. commission. Accept all valid responses. 2(c) Analyse one advantage and one disadvantage to Kaia of using job production. 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 used relevant points to a • Limited analysis that identifies connections to answer the business context. between causes, impacts and/or consequences question. • Application of one of two points. • Knowledge of one relevant point to a • Limited analysis that identifies connections relevant point is used business context. between causes, impacts and/or consequences to answer the of one point. question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Note: Annotate the first advantage in the left-hand margin and the first disadvantage in the right-hand margin. 2(c) Responses may include: AO1 Knowledge and understanding Knowledge of an advantage of using job production (max 1 mark), including: • High quality • High price • Flexibility • Customisation / customer satisfaction • All finished products are sold Knowledge of a disadvantage of using job production (max 1 mark), including: • High production costs • Long lead time • Requires specialist equipment AO2 Application Application of an advantage or disadvantage to PB , including: • Kaia has a university degree in textile designs • Kaia thinks she has entrepreneurial qualities • Sole trader • Current objective to break even • Blankets personalised with a picture • Picture supplied by customer • Customers design their own blanket (customisable size and picture) • Many customers buy the blankets as gifts for special occasions (birthdays, holidays etc.) • Being promoted by a social media influencer • Use of data in Chart 2.1 AO3 Analysis Limited analysis of an advantage of job production – developed analysis , including: • High quality: increases customer satisfaction and leads to sales – increases profit. • Customisation / customer satisfaction; likely to lead to increased sales – increased profit. • All finished products are sold; more likely to have costs lower than revenue – increased profitability. 2(c) Limited analysis of a disadvantage of job production – developed analysis , including: • High production costs: may need to increase price to cover costs – less chance to break even and make a profit. • Long lead time; may irritate customers leading to bad reviews – lower sales and profit. • Requires specialist equipment; may need to purchase expensive capital equipment increasing costs – reducing profitability. Accept all valid responses. Exemplars and annotations AO1 Knowledge AO2 Application AO3 Analysis Higher prices , For individual blankets that are This is likely to lead to higher revenue personalised with a picture . leading to higher profit . Takes longer to produce . Which may be a issue if customers So, customers may go to a different are purchasing for a special occasion, business, reducing PBs revenue like a birthday , and therefore decrease the profit . 2(d) Evaluate the most likely reason for Kaia’s objectives to change over the next five years. 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 analysis Developed evaluation knowledge of application of that identifies • A developed judgement/conclusion relevant key term(s) relevant point(s) to connections is made. and/or factor(s) is the business between causes, • Developed evaluative comments used to answer the context. impacts and/or which balance some key arguments. question. 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 term(s) and/or to the business connections with limited supporting factor(s) is used to context. between causes, comment/evidence. answer the question. impacts and/or • An attempt is made to balance the consequences. arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 2(d) Responses may include: AO1 Knowledge and understanding Knowledge of why business objectives may change over time (max 1 mark), including: • As the business grows • If the previous objective has been met • As the business declines • As the business maintains • As the market changes • As competitors act / react • When aims / vision / mission changes • As the business environment changes (not required at AS level, but rewarded) – SLEEPT AO2 Application Application to PB (max 2 marks), including: • Kaia has a university degree in textile designs • Kaia thinks she has entrepreneurial qualities • Sole trader • Current objective to break even • Blankets personalised with a picture • Picture supplied by customer • Customers design their own blanket (customisable size and picture) • Many customers buy the blankets as gifts for special occasions (birthdays, holidays etc.) • Being promoted by a social media influencer • Use of data in Chart 2.1 • Thinking of relocating PB AO3 Analysis Limited analysis of how the objectives change – developed analysis , including: • As the business grows; objectives may change to profit maximisation – so that the owners can start to receive an income for their risk. • As the business declines, objectives may change to survival – and the business may reduce prices in an effort to gain a new market of customers. 2(d) • As the business maintains; the business owner may decide not to continue the business – leading to trying to recover as much of the capital invested as possible. • As the market changes, the business will need to adapt to the changing market, perhaps by making significant changes to the type of product being sold or doing some expensive market research into the new customer preferences – leading to an increase in costs and a reduction in profitability. • As competitors act / react; the business may become a price taker and change their marketing mix – so that they can maintain and grow their market share. • When aims / vision / mission changes; if the owner decides to change the mission of the business, then all the functions of the business may also need to be changed. For example, buying new capital items that allow it to make a different product – leading to an increase in business costs and reduced profit. • As the business environment changes (not required at AS level, but rewarded); for example, if the economy goes into recession, then luxury items may not be demanded, reducing customers – leading to a decrease in sales revenue and profit. AO4 Evaluation Limited valuation of the most likely reason why objectives may change – developed – developed in context , including: • A judgement of the most likely reason for Kaia’s objectives to change over the next five years. • What the judgement may depend upon; the owners desire to continue / grow the business, the market research, dynamism of the market, competitors’ actions / reactions etc. • Kaia has only just started the PB, so the objectives may change significantly over the next five years. Does she have the knowledge / research / experience to judge how the objectives might change over such a long period of time? • To what extent is PB in a growing or declining market and how many of her customers choose to repeat purchase? • Kaia’s own objectives – she thinks she has entrepreneurial qualities, so will she be looking at new products / business ideas over the next five years, which may mean that PB might not even exist, or be in a very different format to what it is today. Is it sensible to try and plan for five years with such limited experience? • A judgement about likeliness of the business objectives needing to change over five years. Accept all valid responses. 2(d) Exemplars for awarding evaluation L1 (limited L2 (developed supporting evidence) L3 (developed supporting evidence supporting evidence) with context) The most likely reason is The most likely reason is because PB has The most likely reason is because PB has because PB has reached reached its previous objective. This means reached its previous objective, to break its previous objective. that Kaia will need a new objective, such as even. This means that Kaia will need a new profit maximisation. objective, such as profit maximisation. It depends on her personal It depends on her personal objectives, It depends on her personal objectives, objectives. because she is the owner, the objectives because she is a sole trader, the objectives will need to change to adapt to her needs. will need to change to adapt to her needs.

This question in 9609/22 May/June 2025