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

Question 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 …

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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

Question 2

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

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

Question 3

Designer Clothing (DC) DC is a medium sized private limited company. DC has three main shareholders. It has been trading for ten years. DC …

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘shareholders’ (line 1). 2 Knowledge and Application Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 A correct definition must show the difference between a shareholder and an owner / (part) owner of a company, has limited liability etc. A shareholder is the owner/part owner of a company/incorporated business. Can be private or public limited company. A shareholder tends to buy shares and sell when they increase in value. A shareholder will expect dividends from the profits as a return on their investment. A shareholder has voting rights at the AGM and invests in a business/has voting rights. Answer Mark Reason A shareholder is a stakeholder 1 Partial definition A shareholder is an owner of a Could be a sole trader 0 business A shareholder is part-owner of a Refers to part ownership and company company 1 so not a sole trader or partner but only partial A shareholder invests money in a Two correct elements 2 business and receives dividends 1(a)(ii) Briefly explain the term ‘focus group’ (line 22). 3 Award one mark for each point of explanation: Example of some other way of showing good understanding, i.e. 1 mark Accuracy can be affected by bias, Opinions may not be C representative of the general population/target market. Not statistically significant. Can aid decision making B Consumers/potential consumers/target market/customers 1 mark A Primary/qualitative/opinions/feedback/led by interviewer 1 mark This is a method of primary research. Used by businesses to get a group of customers together for feedback on a product or service. Can be expensive. Gives more accurate and qualitative data. Allows dialogue during the research process. Accuracy can be affected by bias. Opinions may not be representative of the general population/target market. Not statistically significant. Interviewer is present to lead discussion. Answer Mark Reason A group of people 0 Too vague A group of customers 1 B mark for customers An interviewer carries out primary 2×A points with ‘interviewer’ and research on a group of customers ‘primary research’ and a B mark for 2 customers. No C element so 2 marks Primary research on potential All 3 – A, B and C elements consumers to help make decisions 3 about a product. 1(b)(i) Refer to Table 1 and other information. Calculate the price of the dress for Lydia. 3 Mark Rationale 3 marks Correct calculation of price (with or without working or $) 2 marks Correct calculation* of total costs (with or without $) 1 mark Correct formula or correct calculation* of wages 0 marks No creditable content (FC+VC) + mark-up = Price Wages = 20 hours × $10 = $200 Total costs = $200 + $250 + $50 = $500 Add 50% = $250 So selling price will be $750 *Working required or explicit identification of TC/wages Common incorrect answers Answer Mark Rationale 10 × 20 = 200 1 Correct calculation of wages $200 + $250 + $50 = $500 2 Total costs calculated with working 500 × 150% 2 Correct calculation, answer missing FC + VC then add mark up 1 Correct formula $500 0 A wrong answer with no working $200 0 A wrong answer with no working Wages=200 1 Explicit identification of wages TC=500 1 Explicit identification of TC 1(b)(ii) Explain one payment method (other than time based) that DC could use to pay its 3 employees. Level Knowledge and Application Marks 2 (APP) Explanation of a payment method other than time based 3 in context 1b (KK) Explanation of a payment method other than time based 2 1a (K) Identification of a payment method other than time based 1 0 No creditable content 0 Context and content is likely to come from: • Piece rates, e.g., employees could be paid per pair of trousers in the new batch production • Salary where dress designers are paid a an annual salary which is paid monthly • Commission for designers per dress (% of the value e.g. of the $750) • Bonuses linked to the profits paid for DC, more sales of designer clothing will lead to bonuses being paid • Similar approach for performance related pay and profit sharing. Context – designers, employees on the batch production method, designer clothing, reputation for quality Identification Explanation Possible context Piece rate Payment based on Quality may be sacrificed and output DC have an excellent reputation for quality Commission Payment based on the Dress designers would be paid value produced commission on $750 price of a dress 1(c) Analyse two human resource problems that DC might experience from the 8 introduction of the new batch production method. Level Knowledge and Marks Analysis Marks Application (4 marks) (4 marks) Shows understanding Good analysis of two (or of two (or more) 4 more) human resource human resource (ANAN problems that DC might 4 problems in context + experience from the ANAN) introduction of the new batch 2 production method. (APP’s) Shows understanding Good analysis of one human of one human resource problem that DC 3 resource problem in might experience from the 3 (ANAN) context introduction of the new batch production method. Shows knowledge of Limited analysis of two (or two (or more) human 2 (AN + more) human resource 2 resource problems AN) problems 1 (K’s) Shows knowledge of Limited analysis of one human one human resource 1 (AN) resource problem 1 problem 0 No creditable content Contextual analysis likely to come from: • Lower morale/job satisfaction – workers are used to working on unique clothing and will have immense pride in their work. This may fall if working on a batch production line. • Deskilling – if machinery is being used, this may replace the skills of the employees used to make unique clothing • Training needs – the new machinery will involve training, how will Khaleal manage this? • Fear of change/communication issues – employees are likely to be very wary of the new machinery/batch production. Khaleal needs to have a clear communication and employee participation strategy. ARA 1(d) Discuss a suitable pricing strategy that DC could use for the new range of 11 trousers. Knowledge and Marks Analysis and Evaluation (7 marks) Marks Application (4 marks) Justified evaluation based on 7 arguments in context Developed evaluation based on 6 arguments in context An evaluative statement based on 5 arguments in context Shows understanding of Arguments (two sided) based on one one or more pricing 4 or more pricing strategy in context 4 strategy in context Identifies one or more Argument (one sided) based on one 3 3 pricing strategy in context pricing strategy in context Shows understanding of Two or more pieces of limited analysis one or more pricing 2 of one or more pricing strategy 2 strategy Identifies one or more One piece of limited analysis of one 1 1 pricing strategy pricing strategy No creditable content Context must be explicit not just implied but the strategy, i.e. penetration for a new product is not context, but penetration because DC have a new range of trousers is contextual Context/content: • Competitive – the trousers are being sold to department stores. They are likely to have other competitors and so they will need to be competitive to persuade the department stores to stock the trousers. This may be feasible as the department stores will know the prices they are prepared to pay. • Penetration – DC are moving into a new market. They may look to offer high discounts on initial orders, build their relationship with the department stores and then increase prices. Can DC afford this? How will competitors react? • Skimming – unlikely to be effective as these are batch produced products – they may have a reputation for quality but batch production will mean the uniqueness of each piece of clothing will be lost so unlikely to be able to charge higher prices especially to a department store. • Price discrimination – unlikely to be effective as difficult for DC to separate the market for trousers particularly by geography. They are selling direct to the department stores who will then decide which stores to sell them in. DC does not have control of this. They are also trying to break into a new market so unlikely this will work.

Question 4

Nearly New (NN) NN sells second-hand computers. NN is owned by Nathan who is a sole trader. Nathan is a fully trained and qualified compute…

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2 Nearly New (NN) 2(a)(i) Define the term ‘inventory’. 2 Knowledge and Application Marks A correct definition 2 A partially correct definition 1 No creditable content 0 A correct definition will cover two of the following bullets: • Stock • Raw materials, work in progress, finished products • Used in, or the result of the production process/operations – to fulfil future demand, to sell • Current asset Note: Inventory is a syllabus term to mean the stock of a business – a definition of inventory in terms of all the assets owned by a business (i.e. to take an inventory) is not rewardable. 2(a)(ii) Briefly explain the term ‘sole trader’. 3 C One mark for each of the following (up to a maximum of two 1–2 marks): marks B • Unincorporated • Unlimited liability • No continuity • No separate legal identity • Income tax must be paid (not corporation tax) • Owns all of the profit/responsible for all the losses/takes all the risk • Shares cannot be sold • Accounts do not need to be produced/published/made available A One individual or one person (must be a clear idea of a single 1 mark person) Note: the B and C marks are dependent on gaining the A mark Exemplar Marks Rationale Owned by one person who has 3 A, B and C unlimited liability and takes of the profit for themselves. A single owner with no shareholders 3 A, B and C and accounts do not need to be published. A sole trader has unlimited liability 3 It does not matter if the A and no continuity. It is owned by one mark comes after the B and person. C marks Owned by one person with no 2 A and B shareholders A sole trader does not have any 0 No A mark – this could just shareholders as easily apply to a partnership. A business that has unlimited liability 0 No A mark – this could just with no shareholders and no as easily apply to a continuity. partnership. The person responsible for finance, 0 No understanding of one decision making etc« owner – this could be a manager 2(b)(i) Calculate the total profit that Nathan would make if he sold the whole batch 3 of repaired laptop computers. Mark Rationale 3 marks Correct calculation of the total profit (no $ required) with or without correct working 2 marks Correct calculation of total costs or correct calculation of total revenue (with working) 1 mark Correct formula or correct calculation of total variable costs (with working) 0 marks No creditable content Note: allow an answer of 1500 even if the candidate has identified it as a different figure in the answer (i.e. Total Cost = 1500 = 3 marks) Formula: Total revenue – total costs = profit Calculations: Total variable costs = 20 × £50 repair = $1000 Total costs = Purchase cost = $2000 20 × £50 repair = $1000 $3000 50% mark up = $1500 $4500 Profit = $1500 2(b)(i) Common answers Answer Marks Rationale 1500 (no working) 3 Allow the answer with or without working and $ or incorrect working $2000 + $1000 = $3000 2 Working to support that this is the total cost figure 3000 (no working) 0 A wrong answer with no working to know where the answer has come from 20 × $50 = $1000 1 Working to support the calculation of variable costs $2000 0 A wrong answer with no working to know where the answer has come from 50% of $2000 = $1000 2 One error – mark up was calculated on 20 × $50 = $1000 FC not TC OFR So profit = $0 $2000 2 A route to find total revenue but no 20 = $100 (FC per profit figure – any valid route to find TR computer) correctly without a correct calculation of profit should be awarded 2 marks as $100 + $50 (VC) = $150 long as there is working. (total cost per computer) 50% of $150 = $75 (mark up per computer) $150 + $75 = $225 (price per computer) $225 × 20 = $4500 (total selling revenue) $4500 (no working) 0 A wrong answer with no working to know where the answer has come from 2(b)(ii) Explain one advantage to Nathan of using a cost based pricing strategy. 3 Level Knowledge and Application Marks 2 (APPAPP) Explanation of an advantage of using cost 3 based pricing in context 2 (APP) Identification of an advantage of using cost 2 based pricing in context 1 (K) Identification of an advantage of using cost 1 based pricing 0 No creditable content 0 Answers could include: Examples of Examples of context Possible explanations identifications of an (APP) (APPAPP) advantage (K) Quick and simple Nathan is a computer Therefore this will save engineer and may not Nathan time. be experienced in running a business. Nathan needs to focus So Nathan can focus on on repairing computers gaining sales for the not complicated pricing business. methods. Always leads to a profit Each computer has a So any price higher total cost of $150. than this will result in a Always covers the full profit for Nathan. cost of each computer Predictable profit Nathan chose a 50% So the mark-up should margin mark-up. always equal the profit margin. So Nathan can target a certain margin that he will find acceptable. 2(c) Analyse two methods Nathan could use to improve NN’s cash flow. 8 Level Knowledge and Analysis application 2 Shows 4 Good analysis of TWO 4 understanding of methods of improving cash TWO methods of flow in context improving cash flow in context Shows 3 Good analysis of ONE 3 understanding of method of improving cash ONE method of flow in context improving cash flow in context 1 Shows knowledge of 2 Limited analysis of TWO 2 TWO methods of methods of improving cash improving cash flow flow Shows knowledge of 1 Limited analysis of ONE 1 cash flow or ONE method of improving cash method of improving flow cashflow 0 No creditable content One factor analysed in context, max 3 + 3 Note: the focus of the analysis must be on improving cashflow Answers could include: • Could use a cashflow forecast to identify when Nathan needs extra cash • Nathan could take a partner (this is contextual) • Could arrange credit facilities with suppliers– would the large electrical retailers offer him any credit? • If Nathan currently offers credit (unlikely) he could make sure his customers pay on delivery or in advance. • Nathan could take out a short term source of finance for times when he needs extra cash to purchase inventory – cost of finance, likelihood of getting finance • Take out a long term source of finance to give Nathan access to cash when he needs it – opportunity cost of using finance, cost of finance • Keep a low amount of cash tied up in inventory – unlikely to be popular as customers want next day delivery and a range of computers 2(c) Examples of Examples of application/context Examples of possible methods analysis Arrange Nathan is purchasing from large More time to pay Æ sell credit with electrical retailers who may be computers before paying suppliers likely to give him credit. for the stock Æ revenue before costs need to be Nathan is an established paid Æ less chance of customer of the large electrical negative cashflow businesses and therefore more likely to get credit. Nathan needs the time this credit would give him to repair the computers. Short term Nathan is an established Allow purchase without source of business and may get credit. needing cash Æ Will not finance worsen Nathans Nathan is a sole trader and may cashflow position Æ Less struggle to get a short term chance of negative source of finance cashflow A short term source of finance would allow Nathan to purchase Increase costs of NN Æ the computers without needing a Increase price of a ‘buffer’ of cash available – he can computer Æ May reduce add in the cost of finance to the sales Æ may reduce price of the computers (i.e. costs profits plus). 2(d) Recommend which one of the two potential employees Nathan should select. 11 Justify your recommendation. Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) A justified recommendation for 7 Nathan on which potential employee he should select based on the given arguments for selecting Katy and Sahdat A developed recommendation for 6 Nathan on which potential employee he should select based on the given arguments for selecting Katy and Sahdat An evaluative 5 statement/recommendation based on the given arguments for selecting Katy and Sahdat Shows understanding of 4 Argument(s) based on selecting 4 selection criteria for Katy Katy and Sahdat as potential and Sahdat employees for NN Shows understanding of 3 Argument(s) based on selecting 3 selection criteria for Katy Katy or Sahdat as potential or Sahdat employees for NN Shows knowledge of 1–2 Limited analysis of Katy and 2 selection Sahdat as potential employees Limited analysis of Katy or 1 Sahdat as potential employees Note: APP, AN and ANAN about Katy should be placed in left hand margin and Sahdat in right hand margin Katy • Lower previous salary • Some experience of dealing with electrical retailers (NNs suppliers) • Degree – but is this necessary? • Younger – but is this a benefit and should Nathan make a decision based on age (legal issues?) • Relevant skills and organisation could be useful Sahdat • Higher previous salary – does this mean that he will expect more? • More experience in relevant area • No qualifications, but are they necessary? • Older, but could this be a benefit? • Will his skills of managing employees and communication be any use within NN where he will be the only employee and possibly not customer facing? 2(d) An example of how an answer could develop and how it should be annotated. K APP AN ANAN (one EVAL sided) Selection is Katy has got This may This is likely to I would the ability to some help Nathan reduce the recommend that choose experience to negotiate costs for Nathan chooses between working for a better prices Nathan of doing Sahdat because potential large and credit business, better employees electrical with his improve his productivity will for a retailer. suppliers cashflow and help Nathan to position. (K) (APP) who are the increase his sell computers large chances of quicker and this A business electrical making a profit. may help solve can select retailers. (ANAN – Katy) his major employees (AN) problem of through cashflow. (EVAL interviews, – statement) experience, skills etc. However it However More Quicker repairs (K) depends upon Sahdat has experience could increase whether Nathan more may lead to the productivity feels he can experience quicker of NN and manage Sahdat. than Katy in repairs. (AN) mean that he (EVAL – repairing can sell more developed) computers computers, but he has quicker and If he can’t then been his own gain more this productivity boss for the profit. (ANAN – boost is unlikely last 10 years. However he Sahdat) to happen and (APP) may not be Katy might be willing to the better option take If Sahdat as she may be instructions cannot take easier to from Nathan orders then manage. (EVAL about what Nathan may – justified) to do. (AN) find him difficult to manage and this may lead to conflict and lower productivity for NN. (ANAN – Sahdat) Note: only two ANANs are needed (one for Katy and one for Sahdat) to enable evaluation many candidates will attempt more analysis to give depth to their evaluation. Make sure you are only awarding analysis to the appropriate level – if a candidate has tried to cover lots of different points but only got to limited analysis (AN) each time, then this does not build an argument. Please look out for quality of analysis rather than quantity.

Question 5

Jones Sticky Labels (JS) JS is a private limited company that produces sticky labels for the industrial market. JS was set up by Lucy Jones…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘industrial market’. 2 Knowledge and Application Marks A correct definition 2 A partially correct definition 1 No creditable content 0 A correct definition should cover both of the following: • An explanation of market(s) – sales, trade etc.. • An explanation of industrial – to another business, used in the production process, purchased to change or resale When a business sells (1) to another business (1) 1(a)(ii) Briefly explain the term ‘lead time’. 3 Award one mark for each point of explanation: C Example or some other way of showing good understanding 1 mark B To delivery/finishing production 1 mark A Time from ordering/starting production 1 mark Lead time is the time between the start and a finish of a process. Answers could include: Lead time is the length of time it takes for a firm to receive an order of stock (B) after it has been ordered (A). For example if a firm orders stock on a Tuesday and it arrives on Friday, the lead time is three days (C). 1(b)(i) Refer to Table 1. Calculate the profit that JS would make on the 3 supermarket order. Rationale Marks Correct calculation of the profit (with or without $ and with or 3 marks without correct working) Correct formula (can be implied by the use of figures) and 2 marks correct calculation of two appropriate figures Correct formula or correct calculation of one figure (TVC, TFC, 1 mark TC per unit) No creditable content 0 marks Formula: Total revenue – total costs 50 x ($15+$5) = $1000 total variable costs $1000 + $500 = $1500 total fixed costs Total costs = $2500 Total revenue = $2750 $2750 – $2500 = $250 Profit = $250 1(b)(ii) Explain one possible problem of allocating fixed costs for JS. 3 Level Knowledge and Application Marks 2b Explanation of one problem of allocating fixed 3 APP+ APP costs in context 2a Identification of one problem of allocating fixed 2 APP costs in context 1 Identification of one problem of allocating fixed 1 K costs – no context 0 No creditable content 0 Fixed costs do not change as output changes: • These costs may not be directly attributable to the production process and therefore it may be difficult to know which administrative and other fixed costs are due to the supermarket order. • Would these costs be paid even if the supermarket order is not taken? – If so it may not be appropriate to allocate them to the supermarket order. • The allocation of these costs may make the supermarket order appear less profitable and lead JS to make a poor decision. • A problem of allocating fixed costs may be to do with the calculation or forecasting of those fixed costs 1(c) Analyse two advantages to JS of using CAD. 8 Knowledge and Level Marks Analysis (4 marks) Marks Application (4 marks) Good analysis of two advantages of using 4 CAD in context Shows understanding 2 3–4 of using CAD in context Good analysis of one advantage of using 3 CAD in context Limited analysis of two advantages of 2 using CAD Shows knowledge of 1 1–2 the use of CAD Limited analysis of one advantage of 1 using CAD Limited analysis in context: Marks limited to 4+2=6 Answers could include: • Flexibility – allows JS to design stickers and edit the designs (and allows customers to edit designs) with minimal cost implications. Designs can be sent electronically to customers for approval – this may speed up the lead time from order to production. • Accuracy – CAD may allow the designs to be more accurate and improve the quality of JS’s stickers. • Reduced storage space for designs – can save JS costs. • Easier to find previous designs and reproduce past designs/reprints. • It may be quicker to produce designs using CAD than hand drawing – this can reduce costs • Templates can be set up to save time/costs • CAD can be linked with CAM to speed up the production process/less chance for errors. 1(d) Evaluate suitable payment methods for the employees at JS. 11 Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified evaluation based on 7 arguments in context Developed evaluation based 6 on arguments in context An evaluative statement 5 based on argument(s) in context Shows understanding of 4 Argument based on the two 4 two (or more) payment (or more) payment methods methods in context in context Shows understanding of 3 Argument based on the one 3 one payment method in payment method in context context Shows knowledge of two 2 Limited analysis of two (or 2 (or more) payment more) payment methods methods Shows knowledge one 1 Limited analysis of one 1 payment method payment method No creditable content Answers could include: Possible payment methods: • Time based – currently being used, rewards amount of time, but no allowance for quality of the stickers or the differing working conditions. • Salary – may be appropriate for administrative jobs/design jobs which are task based, but again will not take into account different working conditions or effort put into the job. • Piece rates – useful to motivate workers on the production line but to what extent is one worker responsible for each sticker or group of stickers? Is it possible to separate out the responsibility? Could be used to reward those who work in unfavourable working conditions and who put in more effort. • Commission – useful for sales staff, but to what extent are production workers likely to have any input into sales. • Bonuses – Could be used to reward effort but an objective system would be required otherwise could be divisive. • Profit sharing – Would tie in worker motivation into the bigger picture of JS’s performance but how could this improve reward for effort or differing working conditions. • Performance related pay – Would require a system that tied in effort and working conditions to satisfy JS’s workers.

Question 6

Umpire Umbrellas (UU) UU is a private limited company that sells umbrellas with pictures it prints on them. All of the pictures on the umbr…

Accepted Answer

2(a)(i) Define the term ‘consumer’ (line 4). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content A person who purchases a good or service for personal use/enjoyment. A person who uses a good or service ARA Exemplar Rationale Marks A consumer is someone who A correct definition 2 uses a product A consumer is someone who Mixed up with customer 1 buys a good or service but a partial understanding One of the two main markets; Repetition form the case – 0 business and consumer no understanding 2(a)(ii) Briefly explain the term ‘variable costs’ (line 11). 3 Award one mark for each point of explanation: Knowledge Marks Example or some other way of showing good C 1 understanding (e.g. comparison with fixed costs) B Link to output changing 1 A Costs that change (allow vary) 1 Content A variable cost is one that changes as output changes. For example bread is a variable cost for a sandwich producer because the more sandwiches are made the more bread is needed. Exemplar Rationale Marks A cost that changes when a business produces more, for All three elements 3 example the material for each umbrella is a variable cost Variable costs change with The comparison with FC is output unlike fixed costs which good enough for the C 3 do not mark Costs that change like wages A and C marks only 2 Costs like wages and raw C mark only – do not 1 materials reward more than once ARA 2(b)(i) Calculate the total revenue of the order from the large bank (lines 7–12). 3 Rationale Marks Correct answer with or without correct working or $ 3 Correct calculation of TC 2 Formulae or correct calculation or TVC 1 No creditable content 0 Content Formula: Price x quantity = total revenue OR Profit = total revenue – total costs, so total costs + profit = total revenue NB the abbreviation for profit is pi 10 000 × $0.75 = $7500 (TVC) – 1 mark with working $7500 + $2000 = $9500 (TC) – 2 marks with working $9500 + $3000 = $12 500 (TR) Answer = $12 500 (3 marks) Common answers Answer Rationale Marks 12 500 (no working) A correct answer 3 Missed out FC – one error (10 000 × $0.75) + $3000 Correct calculation of TVC 2 = $10 500 and then OFR for the final step $10 500 (no working) 0 No correct calculation of $2000 + $3000 = $5000 TVC or TC but OFR for 1 final step $3000 Just used profit figure 0 OFR applies 2(b)(ii) Explain one reason why UU needs accurate cost data 3 Level Knowledge and Application Marks 2b (APP) Explanation of a use of cost data in context 3 2a (K +K) Explanation of a use of cost data 2 1 (K) Identification of a use of cost data 1 0 No creditable content 0 Note: use of the answer to Q2(b)(i) is not required for context, but is an obvious way to contextualise an answer. Correct use of an incorrect answer to 2(b)(i) should be fully rewarded (own figure rule –OFR) Content • To set prices (e.g. the bank order has a 33.33% profit margin), so that UU does not make a loss • To plan resources (land, labour ,capital) • To make good business decisions • To ensure the business makes profit • To calculate break even ARA Reason (K) Possible context (APP) Each design may have different costs so the data is important to set the price To set prices The bank order has a 33.33% mark up – this may be the standard cost-plus pricing strategy of UU To plan what resources they need to make each batch of To plan products (the context here is batch as they are made by resources batch production) So that UU can decide how best to grow the business (i.e. To make good Options 1 or 2) business decisions To know which design of Umbrella is most profitable 2(c) Analyse two advantages to UU of using batch production. 8 Knowledge and Analysis Level Application Marks Marks (4 marks) (4 marks) Developed analysis of Shows understanding two advantages of 2b of two advantages to 4 4 batch production in UU of batch production context Developed analysis of Shows understanding one advantage of 2a of one advantage to UU 3 3 batch production in of batch production context Shows knowledge Limited analysis of two 1b specifically of batch 2 advantages of batch 2 production production Limited analysis of one Shows knowledge of 1a 1 advantage of batch 1 production processes production No creditable content 0 Note: give candidates the BOD if they have made a point which could apply to more than just batch production. Content • Cheaper than job production – important because UU produces 20 000 of each consumer design • Allows for economies of scale which can reduce the unit cost of each umbrella (currently $0.75 for the bank order) • Quicker than job production – important because of the 10 day delivery guarantee. • Allows for more flexibility than flow production – important because of the range of designs that UU have. ARA Examples of Examples of Examples of possible analysis advantages application/context Making a batch allows UU to make More sure each umbrella is the same standardised 20 000 made of quality so that customers are not quality than job each design disappointed, losing customer loyalty production and repeat sales. So UU can make the designs to the More flexible Business orders are customers specification, leading to than flow all unique with the increase customer satisfaction and production logo on more sales. 2(d) Recommend which of the two options for growth UU should use. Justify 11 your answer. Knowledge and Analysis and Evaluation Application Marks Marks (7 marks) (4 marks) A justified recommendation based on a developed argument 7 of both options A developed recommendation based on a developed argument 6 of both options A basic recommendation/judgement 5 based on a developed argument of both options Shows understanding of Developed argument based on Option 1 for growth and 4 the impact on UU of using 4 Option 2 for growth Option 1 and Option 2 Shows understanding of Developed argument based on Option 1 for growth or 3 the impact on UU of using 3 Option 2 for growth Option 1 or Option 2 Shows knowledge of Limited analysis of Option 1 and 1–2 2 business growth Option 2 Limited analysis of Option 1 or 1 Option 2 No creditable content 0 Content Option 1 • Risk of growth through franchise – may lose control of brand and image. • Only the consumer market – UU still retain control of the business market – but could poor image reduce this market too? • Less risk to UU because they have lower costs which will be covered by the fee and royalties. If the franchisee makes a profit UU gets royalties, however if the franchisee makes a loss UU are not affected. • Could this reduce UU’s consumer market through the internet (ie not localised). Option 2 • Increasing the range of the product portfolio reduces risk. • Could allow UU to expand into areas where Umbrellas are not appropriate or used. • Requires external finance which is likely to be expensive for UU and increase costs. • Very competitive market – low profit margins • Growing market – Boston Matrix starting out as a problem child (?). ARA

Question 7

Pencil Pushers (PP) Jacqueline is a sole trader who owns PP. She set up the business six months ago to manufacture pencils. The market for …

Accepted Answer

2(a)(i) Define the term ‘capital intensive’ (line 19). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content The use of machinery/equipment/technology rather than labour. 2(a)(ii) Briefly explain the term ‘niche market’ (line 2–3). 3 Award one mark for each point of explanation: Knowledge Marks Example or some other way of showing good 1 understanding Specific target market 1 Small segment 1 Content A small sector of the market – targeting a specific group. Can be defined by a number of different characteristics. Examples. 2(b)(i) Calculate how many packs of pencils PP must sell to break even each 4 month. Rationale Marks Correct answer with or without correct working 4 Correct calculation of contribution 3 Correct calculation of VC per pack price 2 Formulae 1 No creditable content 0 Content Fixed costs Contribution $3.00 = $0.03 (per pencil) 100 pencils $0.03 × 5 (pack) = $0.15 (per pack of 5 pencils) $1.00 – $0.15 = $0.85 (contribution) $8500 = 10 000 pencils $0.85 2(b)(ii) Explain how Jacqueline could use your answer to 2(b)(i). 2 Level Knowledge and Application Marks Explanation of a use of the answer to 1(b)(i) in 2 (APP) 2 context Explanation of a use of break-even analysis/ 1 (K) 1 calculation 0 No creditable content 0 N.B. Correct use of an incorrect answer to 1(b)(i) should be fully rewarded (own figure rule – OFR) Content • To plan for inventory • To increase production to meet BE • To manage capacity • To calculate margin of safety • To understand level of risk ARA and OFR 2(c) Analyse two methods Jacqueline could use to improve PP’s cash flow. 8 Knowledge and Analysis Level Application Marks Marks (4 marks) (4 marks) Shows understanding Good analysis of two of two methods of 2b 4 methods of improving 4 improving cash flow in cash flow in context context Shows understanding Good analysis of one of one method of 2a 3 method of improving 3 improving cash flow in cash flow in context context Limited analysis of two methods of improving 2 Shows knowledge of cash flow 1 methods to improve 1–2 cash flow Limited analysis of one method of improving 1 cash flow 0 No creditable content 0 Content • Reduce the debtor time – however will shops still trade with PP? • Take out a short-term source of finance (no debt) • Reduce inventory (PP has high inventory) – however will PP be able to fulfill orders in time? • Ask suppliers for time to pay (no creditors at present) – 30–60 days might allow PP to pay for supplies when they have been paid by customers. • Increase revenue – however likely to need short term investment in marketing • Discounts for prompt payment – however could reduce profitability • Increase price – however likely to reduce demand and revenue – depends on elasticity ARA 2(d) Evaluate Jacqueline’s decision to target the mass market. 11 Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) A justified about Jacqueline’s decision to enter the mass 7 market A judgement about Jacqueline’s decision to enter 6 the mass market A balanced argument (two- sided) that evaluates 5 Jacqueline’s decision to target the mass market Shows understanding of Argument (one-sided) based mass marketing in 3-4 on Jacqueline’s decision to 3-4 context target the mass market Shows knowledge of market Limited analysis of mass 1-2 1-2 segmentation/mass marketing marketing No creditable content 0 Content Pros of mass market Cons of mass market • More potential customers – the • More competitive – mass market for pencils may 10 producers include everyone, so demand • Lower profit margin – retailers will be higher will reduce profit margin and • Retailers provide a route to competition market • PP will need to build up brand • Retailers may provide some of and reputation (high costs – the promotion needed only established 6 months ago) • Few barriers to entry – competitive market • Potential for economies of scale

Question 8

Ontime Taxis (OT) OT is a taxi business. OT is owned by two brothers who set up the business as a private limited company to benefit from l…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘limited liability’ (line 2). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content Any two of the following points: continuity, separate legal identity; shareholders; losses limited to investment/no personal risk. Exemplar Marks Rationale A business whose shareholders/owners are not personally responsible for any 2 Both elements met business debts A business whose owners personal assets will not be used to pay business 2 Both elements met debts A business whose owners have a 2 Both elements met separate legal identity to the business A shareholder can only lose the capital 2 Both elements met invested in the business No reference to Limited liability for business debts 2 owners/ shareholders When a business fails, the owners are Limited liability not 1 not responsible for the debts explained clearly A company is protected from financial 0 Not a correct definition loss No responsibility for business debts 0 Too vague 1(a)(ii) Briefly explain the term ‘competitive pricing strategy’ (line 3). 3 Award one mark for each point of explanation: Knowledge Marks C Example or some other way of showing good understanding 1 B Same price or lower or higher 1 A Price is based on what the competition changes 1 • C mark is dependent on A and B being present Content Basing the price on what the competition is charging. This may be to set the same price as the competition or, in most cases, to set a lower price than the competition. Exemplar Marks Rationale Basing the selling price in relation to the prices of competitors; e.g. a lower price 3 All elements met to attract customers To identify competitors prices and then 3 All elements met pricing lower to achieve more sales To set your prices lower than competitor 2 A and B businesses No example or To set your prices in relation to 1 extended competitor businesses understanding A way of pricing your good to make it 0 Too vague more attractive to purchase 1(b)(i) Using Table 2 and any other relevant information, calculate the break 3 even number of kilometres each month for vehicle Z. Rationale Marks Correct answer, with or without working or units 3 Correct use of figures (price – variable costs per unit) 2 Formula* 1 No creditable content 0 * Can be implied by use of figures ** Can be in the form of a diagram Content Fixed costs or fixed cost or TR = TC** Contribution price – variable costs per unit Contribution = $0.50 – $0.30 = $0.20 $380 $0.20 = 1900 kilometres Rationale Marks 1900 (with or without Km) (ignore miles, etc.) 3 $500 / $0.25 = 2000 (OFR for different car) 2 Fc / contribution 1 $2000 0 380 / 0.3 = 1266.66 (common but incorrect) 0 1(b)(ii) Explain one reason why break even analysis might not be useful to OT 3 when choosing the new vehicle. Level Knowledge and Application Marks Explanation of a limitation of break-even analysis 2b APP 3 in context Explanation of a limitation of break-even analysis 2a(K + K) 2 out of context 1(K) Identification of a limitation of break-even analysis 1 0 No creditable content 0 Content: • Costs could change, especially with a new car which could have accidents, etc. • Not just about the costs – quality/safety may be more important • How long will each car last – what is the maximum mileage? • Does not take into account profitability – If many miles above breakeven are completed then Car Y might be far more profitable Possible context Reason (K) APP Marks (K+K) Other factors in E.g. a non-financial E.g. boot space (in a 3 addition to cost factor car) So on the price of Costs could Which make the replacement car parts 3 change VC and FC change may be important As Car Y may be Does not take into May breakeven but more profitable if more account 3 not make a profit miles are covered As profitability the VC is lower 1(c) Analyse two external sources of finance OT could use for the new taxi. 8 Knowledge and Level Marks Analysis (4 marks) Marks Application (4 marks) Shows understanding Developed analysis of 2b of two external sources 4 two external sources 4 of finance in context of finance in context Shows understanding Developed analysis of 2a of one external source 3 one external source of 3 of finance in context finance in context Shows knowledge of Limited analysis of 1b two external sources of 2 two external sources 2 finance of finance Shows knowledge of Limited analysis of 1a one external source of 1 one external source of 1 finance finance 0 No creditable content Content • New shareholders – OT is a private limited company (LTD/LLC) so can sell shares but not to the general public. Loss of control of business. • Bank loan – can be secured or not on the car • Leasing – good option for a car as lower maintenance costs, etc. • Debt factoring • Hire purchase • Grant/government finance ARA Only award out of context answers (e.g. mortgage with L1 marks) Do not accept ‘buy the new taxi’ for app as in the question 1(c) Examples of Examples Examples of Examples of possible of external application/ possible developed sources context analysis analysis New In addition to the Means they have to Less future profits shareholders two brothers work harder Fixed monthly Help with Bank loan For $30 000 repayments budgeting saves $30 000 up Don’t need up- Leasing No loss on control front costs front investment Don’t need the Don’t need up- Own the car at the HP full $30 k up front front investment end of the period 1(d) Using Table 2 and any other relevant information, recommend the 11 market segment OT should target. Justify your recommendation. Knowledge and Analysis and Evaluation Marks Marks Application (4 marks) (7 marks) A justified recommendation based on a developed 7 argument of the suitability of one market segment in Table 1 A developed recommendation based on a developed 6 argument of the suitability of one market segment in Table 1 A basic recommendation based on a developed 5 argument of the suitability of one market segment in Table 1 Shows understanding of Argument of targeting two two market segments in 4 4 market segments in context context Shows understanding of Argument of targeting one one market segment in 3 3 market segment in context context Knowledge of two or Limited analysis of targeting 2 2 more market segments two market segments* Knowledge of one Limited analysis of targeting 1 1 market segment one market segment No creditable content 0 Using Table 1 and any other relevant information, recommend the market segment OT should target. Justify your recommendation. * If only one segment has been identified, any repeat AN’s should be marked as repeat so the counters show the correct analysis level Contents Shoppers: • Short journeys – low revenue • Long time period for journeys – could be higher number of customers • No brand loyalty – taxis will need to be conveniently placed • Taxis will need to be driving around to pick up customers – will increase variable costs

Question 9

Jim’s Farm (JF) JF is a private limited company which owns a farm. It produces crops including maize and sunflower seeds. The crops are sol…

Accepted Answer

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

Question 10

Sadiq’s Social Restaurant (SSR) SSR is a small social enterprise located in a low-income inner city area. SSR employs young people who have…

Accepted Answer

2(a)(i) Define the term ‘induction’ (line 12). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No credible content 0 Note: Do not reward ‘training’ as it is too generic A correct definition could cover the following: • Introduction to the business rules, regulations and procedures (or an example) • Provided when first joining a business Exemplar Marks Rationale A general introduction to the business 2 Two elements rules provided to all new starters covered Generic training such as fire safety 2 Two elements provided to new employees covered Provided to new employees 1 A simple statement General training and information about 1 An understanding the rules and regulations in a business but too vague A type of training 0 Too vague 2(a)(ii) Briefly explain the term ‘social enterprise’ (line 5). 3 Award one mark for each point of explanation Knowledge Marks C Example or some other way of showing good 1 understanding – triple bottom line, not a charity, people, planet and profit B Profits are reinvested in order to meet the organisations 1 aim or a loss allowed to meet aims of organisation A Understanding of social enterprise – main aim/objective 1 is to fulfil a social need/not maximisation profit The organisations aim is to make a profit not for the shareholders but to meet a social or environmental need. It is often referred to as the triple bottom line. Exemplar Marks Rationale Business making a profit to meet the 3 All three elements social needs of a section of society, often called the triple bottom line Business venture whose main aim is 2 All and C only to help a social need (A) rather than make a personal profit (C) Meeting the needs of society 1 A only The 3 Ps/ People, planet and profit 1 Identified key themes only, no real understanding No identifiable content 0 2(b)(i) SSR uses cost-based pricing to add 60% to variable costs when 3 pricing each meal. Refer to Table 2.1. Calculate the average price of each meal in the proposed city centre restaurant. Level Rationale Marks 2 (APP) Correct calculation (with or without working 3 and/or $) 1b (KK) Correct process 2 1a (K) Correct formula or correct calculation of VC 1 ($3.75) 0 mark No credible content 0 Total price = Total variable costs × 1 + mark-up (1) OR Total variable costs × 60 + TVC (1) 100 Allow any reasonable formula City Centre = ($1.50 + $2.25) = $3.75 (1) × 1.6 (1) = $6.00 (3) Allow full marks for a correct answer with or without working or $ (3) Common incorrect/incomplete answers Answer Mark Rationale $6 3 Correct answer ($1.50 + $1.30) x 1.6 2 Edge of city figures (correct process =$4.48 but wrong figures – one mistake) $4.48 (no working) 0 Incorrect answer 60% of $3.75 = $2.25 2 Correct calculation of VC and mark up $2.25 (no working) 0 An incorrect answer with no working Total variable costs x 1 Correct formula 1.6 $5.50 x 1.6 = $8.80 1 Used price not VC but process is correct 0 No creditable content 2(b)(ii) Briefly explain one advantage to SSR of using cost-based pricing. 3 Level Knowledge and Application Marks 2 (APP) Explanation of 1 or more advantages to SSR of 3 using cost-based pricing 1b (KK) Explanation of 1 or more generic advantages of 2 cost based pricing 1a (K) Knowledge of cost based pricing 1 0 No creditable content 0 Context is likely to come from: • Food is seasonal and prices change so ensures a suitable profit margin is kept • Customers are happy that they are paying reasonable prices based on what they are eating/ not being charged premium prices 2(c) Analyse two possible impacts on stakeholders of SSR if the second 8 restaurant is successful. Knowledge and Level Marks Analysis Marks application 2 Shows knowledge 4 Developed analysis 4 of two stakeholders of two impacts of in context success of the second restaurant on two stakeholder groups in context Shows knowledge 3 Developed analysis 3 of one stakeholder of one impact of in context success of the second restaurant on one stakeholder group in context 1 Shows knowledge 2 Limited analysis of 2 of two stakeholder two impacts of groups success on two stakeholder groups Shows knowledge 1 Limited analysis of 1 of one stakeholder one impact of group success on one stakeholder group 0 No creditable content 0 Note: Do not allow analysis of the impact on any stakeholder group of the factors in Tables 2.1 and 2.2. This question is about the impact of SUCCESS not the location. Major stakeholders: customers, local education provider, local government, employees, competition, investors, suppliers, job centre (any reasonable answer accepted) Contextual analysis likely to come from: • Government – increased size of training scheme impacts on jobless figures which is good for job seekers payments • Customers – more seating/bigger restaurant means more availability for local customers means lower waiting time • Employees – more jobs means that more young people will be able to work and gain new skills leading to better chances of gaining future employment • Suppliers – two successful restaurants lead to more orders and in turn increased profit. 2(d) Recommend which location SSR should choose for its second 11 restaurant. Justify your recommendation. Knowledge and Analysis and Marks Marks Application (4 marks) Evaluation (7 marks) A justified recommendation based on a developed 7 argument of both options A developed recommendation based on a developed 6 argument of both options A basic recommendation/ judgement based on a 5 developed argument of both options Shows understanding Developed argument of decision making based on factors for factors for city centre 4 city centre AND out of 4 AND out of town town location for SSR location for SSR restaurant restaurant Shows understanding Developed argument of decision making based on factor(s) for factor(s) for city centre 3 city centre OR out of 3 OR out of town location town location for SSR for SSR restaurant restaurant Shows knowledge of Limited analysis of two two factors affecting 2 factors affecting 2 location location Shows knowledge of 1 Limited analysis of one one factor affecting 1 factor affecting location location No creditable content 0 2(d) Content/context and analysis: City Centre: • Already has restaurant layout > less initial investment but no personal touch? • Competition from established restaurants > might reduce custom but a popular location for new customers? • Lack of parking > might impact on ability of people to visit but may be well serviced by public transport • Higher average price per mean – $6 • Higher sales revenue per month = $6000 • Higher net profit per month = $1750 Edge of city: • Permission to convert > can create personalised style but expensive • Location has fewer potential customers but less competition – captive audience • Lower monthly fixed costs – less pressure on the finances • Lower average price per mean – $4.48 – better for a social enterprise? • Lower forecast sales revenue per month = $3360 • Lower forecast (net) profit per month = $885

Question 11

Wood’s Logs (WL) WL was set up by Robert Wood 50 years ago. It is a private limited company with all of the shares owned by the Wood family…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘break even’ (line 24). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Break-even can be defined in a number of ways: • expenditure (costs) and income (revenue) are equal • the level of sales/units where there is no profit or loss • TR = TC Exemplar Marks Rationale When a business makes enough 2 Both elements covered sales/revenue/income to cover all the costs. TC = TR 2 Both elements covered Cost of sales is equal to sales 1 No understanding of total costs revenue. (CoS only covers direct costs) The business makes no profit or loss 1 No understanding of the level of sales/units The point at which a business stops No understanding of the level of making a loss and can start to make a sales/units profit Where the business has made 0 Tautological, no understanding enough sales to have broken even. 1(a)(ii) Explain the term ‘industrial markets’ (line 5). 3 Award one mark for each point of explanation: Rationale Marks C Example or some other way of showing good understanding 1 B Understanding that it is not the end user, i.e. used to produce, not to 1 end user etc. – anything to do with manufacturing and production A Understanding of business to business 1 Content When a business sells to another business, in contrast to selling to the end user. Industrial markets usually supply components for use in the production of products and services. ARA Exemplar Marks Rationale An industrial market is when a 3 A clear understanding of all three business sells components to another elements business who then sells it to another business or the end user When a business sells to another 2 An understanding of B2B and not an business who is not the end user end user but no C mark Selling business to business 1 Point A only When you sell to someone who is not 1 Point B only the end user 1(b)(i) Refer to Table 1. Calculate the new closing balance for Month 3 if the inventory 3 storage costs for each month increase by 20%. Rationale Marks Correct answer with or without correct working or $ or 000s 3 Attempt at calculating Month 3 closing balance using correct figures 2 Formula or correct calculation of Inventory storage for any one month 1 No creditable content 0 Content Month 1 Month 2 Month 3 ($000s) ($000s) ($000s) Cash Inflows Revenue 250 300 100 Total cash in 250 300 100 Cash Outflows Labour 150 150 150 Inventory storage 12 6 60 Expenses 5 5 5 Total cash out 167 161 215 Opening balance 20 103 242 Closing balance 103 242 127 Closing balance = Opening balance + Cash in – Cash out 1(b)(i) Correct answer: $127 000 (accept 127 as the ‘000 is in the column header) Exemplar Mark Rationale 127 (127,000) 3 Does not require the ‘000 of the $ sign 50 × 20% = 60; cash out for mth 2 Calculated one month, closing 3 = 215 closing balance = 124 balance is incorrect as other two months ignored 12 Or 6 OR 60 (with working) 1 Calculated at least one correct new inventory Closing balance = opening 1 Correct formula balance + cash in – cash 1(b)(ii) Explain one benefit for WL of holding inventory 3 Level Knowledge and Application Marks 2b (APP APP) Explanation of a benefit of holding inventory in context 3 2a (APP) Identification of a benefit of holding inventory in context 2 1 (K) Identification of one benefit of holding inventory 1 0 No creditable content 0 Content • To meet changing demand – seasonal demand • To meet unexpected demand – primary business, trees take time to grow – unexpected demand can only be met by holding stock • Respond to customer needs – Industrial market – importance of customer service, repeat customers etc. • To be able to maintain a steady level of production ARA Identification of a benefit Identification of a benefit in Explanation of a benefit (1 mark) context (2 marks) in context (3 marks) To meet changing demand As demand is seasonal So there is always stock ready for sale To meet unexpected As it takes time to cut down So potential sales/revenue demand trees/for them to grow /profit are not lost To have a steady rate of As it is a labour intensive To ensure their 100 production business employees have constant work 1(c) Analyse two factors which may have affected the location of WL. 8 Level Knowledge and Marks Analysis (4 marks) Marks Application (4 marks) 2b Shows understanding of 4 Good analysis of two (or 4 two (or more) factors which more) factors which may may have affected location have affected location of of WL WL 2a Shows understanding of 3 Good analysis of one factor 3 one factor which may have which may have affected affected location of WL location of WL 1b Shows knowledge of two 2 Limited analysis of two (or 2 (or more) factors which may more) location factors affect location 1a Shows knowledge of one 1 Limited analysis of one 1 factor which may affect location factor location No creditable content 0 Content • Geographic – Likely to need a relatively rural area to grow trees and process them. However, cannot be too rural as there is a need for a workforce (labour intensive). • Demographic – WL is a labour intensive business – will need to be close enough to a populated area to provide the workforce. Alternatively, may need to offer accommodation. • Legal – There are likely to be legal restrictions on how many and what type of trees can be felled. May have needed to locate in a country where the laws are more relaxed. • Political – Environmental concerns/leanings of the political party in charge (e.g. Green party) • Resources – Need to be near trees/raw materials for production • Infrastructure – Need to be near a road and rail network for deliveries. • Marketing – there may be types of wood/areas where certain trees grow which have a higher value than others. 1(c) ARA Example of a Examples of Examples of possible analysis factor (K) application/context (APP) (AN + DEV) Location/ As they need to be on/ near So they can have easy access resources woodland (AN) to reduce overheads (DEV) Infrastructure Need t be close to rail/road To ensure easy access for network deliveries (AN) to reduce delivery costs (DEV) Demographic As WL is a labour intensive Need to have a populated area business to provide workforce (AN) to meet staffing levels (DEV) 1(d) Recommend which of Mintzberg’s management roles is likely to be the most 11 important for the new Managing Director of WL. Justify your recommendation. Knowledge and Application Marks Analysis and Evaluation Marks (4 marks) (7 marks) Justified recommendation based 7 on argument in context Developed recommendation 6 based on argument in context An evaluative 5 statement/recommendation based on argument in context Shows understanding of two or 4 Two or more arguments based 4 more uses of Mintzberg’s on the importance of management role(s) in context Mintzsberg’s management role(s) in context Shows understanding of one 3 One argument based on the 3 use of Mintzberg’s management importance of Mintzsberg’s role(s) in context management role(s) in context Shows knowledge of Mintzbergs 2 Limited analysis of two or more 2 management theory AND one of Mintzberg’s management management role OR two role(s) management roles Shows knowledge of Mintzbergs 1 Limited analysis of Mintzberg’s 1 management theory OR one management theory/ one management role management role No creditable content 0 1(d) Content • Interpersonal – is related to anything a manager does which relates to relationships with staff (use examples from below) • Informational – is related to providing information • Decisional – is related to making decisions • Figurehead – Robert has been the MD for 50 years and is well liked as the figurehead. New MD will have to replace him but may be unknown. • Leader/to lead – Over 100 employees – labour intensive – important to lead well to maintain/improve efficiency • Liaison/ to liaise – Workforce is demotivated, new MD will need to liaise with them • Monitor/to monitor/receiver – Demand and profit is falling – therefore the need to monitor this to avoid any more loss is important. • Disseminator/to disseminate – Over 100 workers – need to get information to them quickly and efficiently, especially with poor motivation • Spokesperson – May need to represent the company to governments, environmentalist and the workforce • Entrepreneur – demand/profits have been falling – need to diversify, find an environmental solution. Need to take risks and bring business back into profit. • Disturbance Handler/to handle disturbances – demotivated work force, may start industrial action. Seasonal business – a poor winter may disturb both supply and demand. • Resource Allocator/to allocate resources – Inventory management I important – storage costs – also trees cannot be easily replaced, or replaced I the short term – need to efficiently manage resources. • Negotiator/to negotiate – May need to negotiate with customers (businesses) as well as the demotivated workforce. ARA An example of how an answer could develop and how it should be annotated. K APP AN DEV EVAL The new MD Robert was a A good To improve The entrepreneur role needs to be a good figurehead the morale of is the most important figurehead figurehead will have the the as without new ideas because he trust and demotivated the business will not was well loyalty of the workforce have enough demand liked for over workforce 50 years And this is the most immediate concern for Entrepreneur to diversify Which will To increase WL as demand is find new profits/ falling ways to revenue However this depends boost upon the MD being demand able to have some interpersonal skills

Question 12

Cracking Eggs (CE) Lian is a chicken farmer. Her farm is located on the edge of a busy town. The main output from her farm is eggs. The egg…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘fixed costs’ (line 22). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content Money paid by a business where the amount does not change (1) as output changes (1). Award one mark for each element of a correct definition: • does not change/stays the same • as output changes/varies Exemplar Mark Rationale Costs that don’t vary (1) 2 Both elements, costs don’t change as with output (1) output changes The cost doesn’t change 1 Only one element Unchanging costs 1 Only one element costs change with output 0 Confused with variable costs 1(a)(ii) Explain the term ‘channels of distribution’ (line 3). 3 Award one mark for each point of explanation: Rationale Mark C Example or some other way of showing good understanding, 1 i.e. examples of intermediaries, channels B Stages/intermediaries/different ways of selling/chain of 1 businesses A From producer to consumer/sell products to consumers 1 Content • A chain of stages which a product or service goes through on the way from the producer to the consumer. • Can be direct, using the internet, or through intermediaries such as a warehouse, agent or retailer. ARA Exemplar Mark Rationale Different ways of selling (B mark) 3 Point from each category products to consumers (A mark) e.g. supplier to wholesaler to consumer (C mark) A chain of intermediaries (B) a good 3 Point from each category passes through until it reaches the final buyer (A) e.g. wholesalers, retailers, direct (C) Chain of businesses (B) that sell 2 Only two categories covered products to consumers (A) The ways in which (B) producers sell 2 Only two categories covered to consumers (A) Stages a product passes through (B) 1 A bit vague but BOD for ‘stages’ Selling products to consumers (A) 1 Again a bit vague but fits the A category The production process 0 No understanding shown 1(b)(i) Calculate the profit CE will make from production line B if it sorts, 4 packages and sells 150 000 eggs in a month. Rationale Marks Correct answer with or without correct working 4 Formulae or correct calculation of two from TVC or TFC or TR OR 3 Correct calculation of TVC, TFC and TR Formulae and correct calculation of one from TVC or TFC or TR 2 OR Correct calculation of two from TVC, TFC or TR Formulae or correct calculation of one from TVC or TFC or TR 1 No creditable content 0 NB Can award a mark for OFR where relevant Profit = (P × Q) – ((VC × Q) + FC)) or TR – TC or TR – (TVC + TFC) 150 000 = 25 000 boxes 6 per box 25 000 × $0.45 = $11 250 (TVC) $10 000 = $5000 (TFC) 2 $0.90 × 25 000 = $22 500 (TR) $22 500 – ($11 250 + $5000) = $6250 Correct answer is $6250 NB Formulae can be implied through use of relevant figures 1(b)(i) Common incorrect answers Answer Mark Rationale 22 500 – (11 250 + 10 000) = 3 Correct calculation of TR and TVC 1250 (OFR) but didn’t divide FC/2 but under OFR rule mark for the final answer Profit = TR-TC (1) 3 Correct formula and calculation of = (0.90 × 150 000) – TFC but didn’t divide eggs/6 to ((0.45 × 150 000) + 5000 (1)) = arrive at boxes but under OFR rule 62 500 (OFR) mark for the final answer as this is the correct product of their calculation 22 500 – 16 250 3 Correct formula implied (1) Correct calculation of TR (1) and TC (1) Profit = TR – TC (1) 2 Correct formula but didn’t divide = (0.90 × 150 000) – FC/2 and didn’t divide eggs/6 to ((0.45 × 150 000) + 10 000)) = arrive at boxes but under OFR rule 57 500 (OFR) mark for the final answer as this is the correct product of their calculation 28 500 – 25 300 = 3200 (OFR) 2 This is both production lines so 1 mark for correct (implied) formula and OFR for answer as this is the correct product of their calculation Profit = TR – TC 1 Correct formula TR = P × Q 1 Correct formula for TR 62 500 0 No working to show how arrived at this answer 1250 0 No working to show how arrived at this answer 1(b)(ii) Explain one problem of CE’s allocation of fixed costs. 2 Level Knowledge and Application Marks 2 Explanation of a problem of allocating fixed costs for CE 2 (APP) in context 1 (K) Identification of a problem with allocating fixed costs 1 0 No creditable content 0 Content • The two production lines have different revenues - $0.04 per egg (A) compared to $0.15 per egg (B) – should both lines pay the same. • Production line B has a much larger gross profit margin (50% compared for B to 32.5% for A) – paying the same fixed costs may make production line A seem unprofitable. • Production line A would seem to have less processing (no sorting, bigger quantities) so should it need to pay the same as line B? • We do not know how many eggs are processed by each line so it is difficult to know if the allocation is appropriate. • We do not know how employees are paid, could be salaries, so line B has more employees so higher costs ARA Example of how responses should be marked Identification of a problem (K) Explanation of a problem in (1 mark) context (APP) (2 marks) The two lines do not have the same May be unfair if the two lines have level of output so allocation unfair different outputs but we don’t know how many eggs each line produces One line might have higher fixed Employees may be paid a salary costs than the other, e.g. salaries and line B has more employees so could have higher fixed costs One line could have less processes Line A has less processing as they than the other don’t have to sort into sizes so unfair that they have the same fixed costs as line B Not accurate CE have not identified relevant fixed costs for each line, just divided total fixed costs between the two lines 1(c) Analyse two ways in which CE adds value to its products. 8 Knowledge and Level Application Marks Analysis (4 marks) Marks (4 marks) Shows understanding Good analysis of two of two ways in which ways in which CE 2b 4 4 CE adds value to its adds value to its products in context products in context Shows understanding Good analysis of one of one way in which way in which CE adds 2a 3 3 CE adds value to its value to its products products in context in context Shows knowledge of Limited analysis of two ways of adding two ways in which 1b 2 2 value CE adds value to its products Shows knowledge of Limited analysis of one way of adding one way in which CE 1a 1 1 value adds value to its products 0 no creditable content 0 Content • Packaging (boxes and trays) – a cost for the firm, but has a double benefit to consumer market – protects and advertises. • Sorting – consumers obviously see value in different sized eggs and therefore CE can probably have higher prices for large eggs and therefore gain more profit. • Money back guarantee – little cost for the firm but builds up trust for the brand. • Branding – food product so trust in the brand will be important. • Convenience – availability through retailers for the consumer market – more likely to purchase than coming to the farm. • Best before date – both in consumer and producer markets this will help to avoid wastage when purchased and again builds trust in the brand. 1(c) ARA Example of a Examples of Examples of possible way (K) application/context (APP) analysis (AN + DEV) Branding CE has built a brand with a customers are prepared to reputation for high quality pay higher prices for a eggs quality product (AN) which means that CE can charge a premium price for the eggs therefore increasing the added value resulting in higher profits (DEV) Increase the The costs of production are as customers are getting price whilst the same for each box but more egg in the larger sizes keeping costs CE could charge more for they won’t mind paying a the same the larger eggs higher price (AN). This is also a way of segmenting their market into those who will only pay a lower price compared to those who will pay a higher price therefore maximizing CE’s revenue from each segment (DEV) Decrease CE could use cheaper This could damage their costs whilst packaging for the eggs by reputation for quality (AN) keeping price e.g. using cheaper materials and customers may stop the same in the boxes and trays buying the eggs and buy those of CE’s competitors instead, therefore reducing the revenue CE receives (DEV) 1(d) Evaluate the likely impact on the stakeholders of CE of the planned 11 expansion. Knowledge and Analysis and Evaluation Application Marks Marks (7 marks) (4 marks) Justified evaluation based 7 on argument in context Developed evaluation based on argument in 6 context An evaluative statement based on argument in 5 context Argument based on an Shows understanding of impact of the planned more than one 4 4 expansion on two (or stakeholder in context more) stakeholders of CE Argument based on an Shows understanding of impact of the planned one stakeholder in 3 3 expansion on one context stakeholder of CE Limited analysis of an Shows knowledge of impact of expansion on more than one 2 2 two (or more) stakeholder stakeholders Limited analysis of an Shows knowledge of 1 impact of expansion on 1 one stakeholder one stakeholder Content • Lian (owner) – Lian may need to fund the investment but the reward of more sales should outweigh this cost. May depend on the market growth of the retail market. • Employees – Expansion is likely to make the current employees feel more secure – some may get promoted to supervise the new production line or training new workers. 1(d) • Consumers – More retail eggs may make CE’s products more accessible, which is good for the customers. The extra investment may be recouped with higher prices, alternatively in the long run, economies of scale may lead to lower average costs/prices • Local residents – more noise, pollution – might reduce house prices. More trucks picking up eggs? • Business customers – Will the allocated fixed costs increase on Production Line A, increasing costs/prices on the eggs – alternatively there could be savings from economies of scale passed on to business customers. • Shareholders – Might be asked to invest more to fund the expansion or the costs of the expansion could increase costs and reduce dividends. • Competitors – CE’s expansion will mean that they can supply more to the market which could reduce the demand for competitors’ eggs. ARA An example of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Owner Lian Needs a The new product However, the profit the loan to line will require from the new owner finance investment in more production line should the machinery and outweigh the costs expansion more employees. (EVAL) and allow The employees will greater distribution of need to be trained. the product thereby This might mean increasing market that Lian will need a share and revenue bank loan, which (EVAL) so the owner will increase the will feel the greater costs and possibly impact from the reduce profit. expansion (EVAL) 1(d) ARA An example of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Customer CE have two Expanding Customers can However the types of to retailers get their eggs eggs may customers – will be closer to home, increase in price the industrial more which will cut (EVAL) as the market and convenient down on travel retailer will add a the for the time and cost mark-up to the consumer customer. as they no cost to them so market and longer have to customers may are to go to the farm still travel to the expand to but still can get farm to get the retailers high quality lower price fresh eggs. (EVAL) therefore not as great an impact on the customer (EVAL)

Question 13

U-LEARN (UL) Nadia graduated, last year, with a degree in business management. Nadia is friendly and creative with lots of ideas. Whilst at…

Accepted Answer

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.

Question 14

Bob’s Furniture (BF) Bob is a carpenter who uses job production to make furniture using premium materials. Each item of furniture is priced…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘job production’ (line 1) 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No credible content 0 A correct definition should cover the following: • one by one/made individually/one at a time • for a specific customer/order/not repeated/high standard/custom work/skilled labour Exemplar Rationale Marks A one off product for a Both elements covered 2 specific customer An individual product Both elements covered 2 designed to a specific customer requirement A customised product An understanding of 1 customisation (no expansion) An individually designed Only one element of the flow 1 product identified 1(a)(ii) Explain the term ‘opportunity cost’ (line 4) 3 Award one mark for each point of explanation Point Explanation Marks C Example or some other way of showing good 1 understanding – e.g. Affordability, time issues, choice, scarcity B Understanding of foregone/not used 1 A Understanding of the concept of ‘next best’ 1 Note: C mark can only be awarded if A and B marks have already been awarded Exemplar Rationale Marks Opportunity cost is the value of the next All three 3 best option foregone, due to time or cost elements issues. The value of the second best option that is All three 3 not chosen as it is not as not as good as the elements first. Opportunity cost is the value of the next A and B 2 best option foregone The next best option foregone A and B 2 A lost option B 1 Using the best option only NAQ 0 1(b)(i) Refer to Table 1. Calculate the forecast profit margin for option 1. Rationale Marks Correct answer (with or without formula or %) 4 Attempt using correct figures 3 Correct formula and calculation of cost or revenue 2 OR Correct calculation of cost and revenue OR Correct calculation of profit Correct formula or correct calculation of one figure (cost or 1 revenue – total or individual) No credible content 0 Profit × 100 Sales revenue Cost of one bench = 50 + 25 + 25 = $100 Revenue of one bench = $100 × 1.5 = $150 Profit = $150 – $100 = $50 $50 Profit margin = = 0.33 × 100 = 33% $150 1(b)(i) or Profit = ( $150 − $100 ) × 5 = $250 = 0.33 × 100 = 33% Sales revenue = 5 × 150 = $750 Response Mark Rationale 33 (no working) 4 Correct answer, no working or % needed 50% (no working) 0 Incorrect answer – no working to back up where figure came from $150 – $100 = $50 3 Wrong base figure used – attempt $50 using correct figures (must have $100 = 50% working) $750 – $500 = $250 2 Correct calculation of total profit for one bench (must have working) $150 – $100 = $50 2 Correct calculation of profit for one bench (must have working) $500 1 Correct calculation of total costs $100 1 Correct calculation of cost of one bench $750 1 Correct calculation of total revenue $150 1 Correct calculation of revenue for one bench OFR applies 1(b)(ii) Explain one way in which Bob could increase the forecast profitability 2 of option 1. Level Knowledge and application Marks 2 Explains one or more way in which Bob could 2 (APP) increase forecast profitability (in context) 1a Identifies one or more way in which forecast 1 (K) profitability could be increased (In or out of context) 0 No creditable content 0 Some ways Bob could increase forecast profitability: • Bob could decrease the cost of raw materials by using cheaper wood • Could choose a different method of transportation to reduce costs • Could change to a batch method of production of benches which could reduce labour costs Exemplar Rationale Marks Could change to a batch One explained with direct link 2 method of production of to the case. benches which could reduce labour costs Decrease cost of raw One identified without any 1 materials explanation No creditable content 0 1(c) Analyse two benefits to Bob of using cost-based pricing. 8 Knowledge and Level Application Marks Analysis (4 marks) Marks (4 marks) 2b Shows 4 Developed analysis 4 understanding of on Bob of two two benefits of cost- benefits of cost- based pricing a in based pricing in context context 2a Shows 3 Developed analysis 3 understanding of on Bob of one one benefit of cost- benefit of cost-based based pricing in pricing in context context 1 2 Limited analysis on 2 Shows knowledge of a business of two two benefits of using benefits of cost- cost-based pricing based pricing 1 Limited analysis on 1 Shows knowledge of a business of one one benefit of using benefit of cost-based cost-based pricing pricing 0 No creditable content Knowledge A method of creating a selling price based on relevant factors Putting the same mark up on all products regardless of other variables/factors Benefits include: • Easy to use • Quick to calculate • Covers all costs • Can be used in a dynamic market • Allows for pricing of ‘one-off’ products • Can be used for new/innovative products ARA Context/content/analysis: • Will never make a loss on any garden benches made (APP/AN) and will lead to better forecasting (ANAN) • Is responsive to changes in the cost of raw materials (k) such as wood (APP) which means that costs will always be covered (an) and may reduce the selling price if costs fall (ANAN) 1(d) Refer to Table 1.1 and any other relevant information. Recommend 11 which of the two options Bob should choose. Justify your recommendation. Knowledge and Analysis and Marks Marks Application (4 marks) Evaluation (7 marks) Justified 7 recommendation based on argument in context Developed 6 recommendation based on argument in context An evaluative statement / 5 recommendation based on argument in context Shows understanding of 4 A balanced argument 4 two factors affecting based on analysis of decision making of both both options available options in context to Bob’s Furniture Shows understanding of 3 Argument based on 3 factor affecting decision analysis of one option making of one option in available to Bob’s context Furniture Shows knowledge of two 2 Limited analysis of two 2 factors affecting decision factors affecting decision making in a business making Shows knowledge of one 1 Limited analysis of one 1 factor affecting decision factor affecting decision making in a business making in a business No creditable content Annotate the first option on the LHS and the second option on the RHS Answers could include: • The opportunity costs associated with choosing option X over option Y (time taken, costs etc) • The upselling opportunity offered from selling a complimentary product • The potential brand dilution of selling lower quality garden furniture affecting the premium core business • Maximising usage and profit potential of raw materials for option 2 Any answer which does not reference either option 1 or 2 and focuses only on the core business cannot score higher than limited analysis (i.e. 2 + 2)

Question 15

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

Accepted Answer

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

Question 16

Super Heroes (SH) SH is a leisure (theme) park aimed at 10–18 year olds. It is owned by two companies, X and Y, which started SH as a joint…

Accepted Answer

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

Question 17

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

Accepted Answer

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

Question 18

Aashna’s Pies (AP) AP produces and sells high quality pies. Aashna set up AP five years ago when she spotted a gap in the market. AP is a p…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘shareholder’ (line 3). 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): • Owns part/a percentage • …of a company/limited liability business Exemplar Mark Rationale Owns a part of a limited 2 All elements met company Owns a percentage of a limited 2 All elements met liability business Owner of a limited company 1 Needs ‘PART’ owner Has share in/invests capital in 1 Shares is taut/all business a company structures require investment Control and ownership are not 0 Do not award for control the same thing 1(a)(ii) Explain what is meant by the term ‘flow production’ (line 16). 3 Award one mark for each point of explanation: Rationale Marks C Example or some other way of showing good 1 understanding B An understanding of it being a production process 1 A An understanding of flow 1 C based on A OR B Content Flow – a large number of standardised products / constantly produced Production process – the fact it is a process. 1(b)(i) Refer to Table 1.1. Calculate the total revenue gained from Vegetarian 3 Victory pies in 2019. Rationale Marks Correct answer with or without correct working or $ 3 Formula (can be implied) and correct calculation of 2019 3 sales Formula (can be implied) or correct calculation of 2019 1 sales No creditable content 0 Note: any relevant figure multiplied by the price implies the correct formula (i.e.5000 x $2.50) Content TR = Price × quantity 5000 – 10% = 4500 4500 × $2.50 = $11 250 Answer = $11 250 OFR Common answers Answer Mark Rationale 11 250 3 Correct answer – does not need $ (–) $1250 with 2 Worked out –10%, used the correct calculations formula but wrong final answer 1250 with no 0 Wrong answer calculations 1(b)(ii) Explain one way in which AP could use product portfolio analysis. 3 Level Knowledge and Application Marks 2b Explanation of a way AP could use product 3 portfolio analysis in context 2a Explanation of a way a business could use 2 product portfolio analysis 1 Identification of a way a business could use 1 product portfolio analysis 0 No creditable content 0 Content • To identify when to discontinue products – VV is in decline • To identify when to market products – FF is growing • To identify when to develop new products – what happens when FF reaches maturity? • To identify when to extend the PLC of products – MM or VV Examples Identification of Explanation Possible context a use Identify stage of Shows how well Such as meaty marvel in product life cycle the product is maturity doing Identify which So can plan a E.g. meaty marvel product is mature replacement 1(c) Analyse two economies of scale that AP might lose if the business 8 reduces the total number of pies produced. Knowledge and Analysis Level Application Marks Marks (4 marks) (4 marks) 2b Shows 4 Good analysis of 4 understanding of losing two (or more) two (or more) economies of scale in economies of scale context in context 2a Shows 3 Good analysis of 3 understanding of losing one economy one economy of of scale in context scale in context 1b Shows knowledge of 2 Limited analysis of 2 two (or more) two (or more) economies of scale economies of scale 1a Shows knowledge of 1 Limited analysis of 1 one economy of one economy of scale scale 0 No creditable content Content • Technical – capital intensive mass production • Specialisation/managerial – specialist workers make the fillings • Marketing – AP brand is growing in popularity • Purchasing – AP can bulk buy certain ingredients – pastry is shared across all pies and cheese is also used in FF • Financial – AP brand may make it easier/cheaper to fund any new product development/expansion Allow external economies of scale. 1(c) Example of an Examples of Examples of possible economy of application/context analysis (AN + DEV) scale (K) (APP) Specialisation Each filling e.g. VV Lose knowledge of flavour made by specialists profiles which may change the taste and lose custom Purchasing Vegetables for Miss out on bulk buy deals Vegetarian Victory which increases the variable costs of the pie 1(d) Recommend how AP could develop its products in the future. Justify 11 your recommendation. Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified recommendation 7 based on argument(s) in context Developed recommendation 6 based on argument(s) in context An evaluative statement/recommendation 5 based on argument(s) in context Shows understanding 4 Two or more arguments of two or more based on how AP could 4 elements of product develop its products in the development in context future Shows understanding 3 One argument based on how of one element of AP could develop its products 3 product development in in the future context Shows two or more Limited analysis of two or pieces of knowledge of 2 more impacts of product 2 product development development on a business Shows one piece of Limited analysis of one knowledge of product 1 impact of product 1 development development on a business No creditable content 0 1(d) Content • Reduce the meat in the MM to meet concerns over health risks. • Pies could be sold into sets of three pies to suit families. • Pies could be sold in variety packs so that it suits a family’s tastes and those who do not eat meat. • Could the pies be developed to have a longer ‘best before’ date or frozen to allow for a longer shelf life? • The price could be increased to allow for the development of a new product or to fund the redevelopment of an existing product. • The data suggests that the MM should be redeveloped to extend the PLC – could it have less meat to meet health concerns? • VV could be redeveloped now that it is in decline, to increase sales – or a new vegetarian product could be developed to replace the VV – importance of non-meat alternatives. Examples K APP AN DEV EVAL Longer Short BB Could be Improve Most shelf life date – eat stored for transport important within 2 longer economies of element is to days scale increase shelf life Increase As Attract new Increase as this number of consumers customer revenue/profits reduces vegetarian worried base wastage / pies about increases health range of risks of outlets, meat which leads to increased total sales

Question 19

Flora’s Fitness (FF) Flora is a self employed personal trainer and she trades as Flora’s Fitness (FF). She invested $10 000 as start‑up cap…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘corporate social responsibility’ (CSR) (line 4). 2 Knowledge Marks A full definition 2 A partial, vague or unfocused definition 1 No credible content 0 A full definition should cover the following: • objectives/strategy focused on • economic, social and environmental benefits (people, profit and planets), triple bottom line (at least two) Content: A business which aims to benefit society, the environment as well the owners (2) Economic, social and environmental benefits not just about making profit (2) An objective to look after the environment (1) Economic, social and environmental benefits (1) 1(a)(ii) Explain the term ‘start-up capital’ (line 2). 3 Award one mark for each point of explanation: Rationale Marks Example or some other way of showing good 1 understanding. Can be a use of start-up capital or a source. Understanding that it is to launch a business / set-up / 1 seed money Understanding of the concept money invested, used in a 1 business Content: Money invested (1) to purchase everything necessary to set-up (1) a business, e.g. machinery (1) Money used (1) to purchase everything necessary to launch (1) a business Other appropriate responses should also be credited. Do not accept ‘start’ as it is in the question. Do not accept $10 000 invested in FF as this is repetition from the data. The money needed for a business does not NAQ. 1(b)(i) Refer to Table 1.1 and any other relevant information. Calculate the 3 maximum weekly revenue for pricing strategy 1. Rationale Marks Correct answer (with or without working or $) 3 Correct use of figures 2 Correct formula 1 No credible content 0 $5 × 20 = $100 (per session) $100 × 2 = $200 (per day) $200 × 5 = $1000 (per week) Answer = $1000 (accept with or without $) OFR applies Do not reward incorrect answers e.g. $500 or $200 without working. 1(b)(ii) Explain one advantage to FF of pricing strategy 2. 3 Level Knowledge and application Marks 2b Explanation of one advantage to FF of pricing 3 (APP + strategy 2. APP) 2a Identification of one advantage to FF of pricing 2 (APP) strategy 2. 1 Knowledge of one or more pricing strategies. 1 (K) 0 No creditable content 0 Knowledge of pricing strategies may include: competitive, penetration, skimming, price discrimination, cost-based pricing. Knowledge of pricing strategies can be implied. Possible advantages of pricing strategy 2 include: • Guaranteed income – no matter how many people Flora would get $75 • Helps with cash flow – when Flora is starting the business. Other appropriate responses should also be credited. 1(c) Analyse two sources of secondary market information Flora could use 8 to find out more about trends in the fitness market. Knowledge and Marks Analysis Marks Application (4 marks) (4 marks) 2b Shows 4 Good analysis of 4 understanding of two sources of two sources of secondary market secondary market information in information in context context 2a Shows 3 Good analysis of 3 understanding of one source of one source of secondary market secondary market information in information in context context 1b Shows knowledge 2 Limited analysis of 2 of two sources of two sources of secondary market secondary market information with no information context 1a Shows knowledge 1 Limited analysis of 1 of one source of one source of secondary market secondary market information with no information context 0 No creditable content Note: annotate the first source in the left-hand margin and the second source in the right-hand margin. Knowledge and understanding may include: Examples of sources of secondary market information • Reports • Census data • News reports • Magazines • Newspapers • Internet Application may include: • Fitness activities (fitness market is in the question) • $10 000 start-up capital • ABC is a national bank with a focus on CSR • ‘Healthy employer’ • Why employees do not go to fitness centres 1(c) Analysis may include: • Impacts on the business that could arise from the secondary source research • Costs/limitations of the secondary research (out-dated) • Benefits of the secondary research (quicker, cheaper etc.) Exemplars: • Published reports about keeping fit can provide data on current fitness trends which can influence her work out routines. • News reports detailing fitness trends which can be done in lunch hours to meet target market needs. Other appropriate responses should also be credited. 1(d) Evaluate the benefits to ABC of offering employees fitness sessions. 8 Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified evaluation/ 7 judgement based on argument in context Developed evaluation/ 6 judgement based on argument in context An evaluative statement/ 5 judgement based on argument in context Shows understanding 3–4 Argument(s) based on two 4 of motivating benefits of ABC offering employees in context employee fitness sessions Argument(s) based on one 3 benefit of ABC offering employee fitness sessions Shows knowledge of 1–2 Limited analysis of two 2 motivating employees benefits of motivating employees Limited analysis of one 1 benefit of motivating employees No creditable content 0 Knowledge and understanding may include: • Motivation; theory and practice • Fringe benefits and perks • HRM Application may include: • ABC – a national bank • ABC – focus on CSR • One session before work and one session at lunchtime • Paid by bank (discount/fringe benefit) for employees • Survey revealed that high prices and lack of time are reasons employees do not go to the gym • Fitness is becoming a trend in country P Analysis may include: • Benefits of fitness sessions to employees • Impact on ABC of fitness session 1(d) Evaluation: • Extent of the benefit(s) to ABC • Benefit(s) of sessions vs costs to ABC • What the benefit(s) might depend on; number of participating employees, interest from ABC employees, etc. • A judgement over whether fitness sessions are more of a benefit than a cost to ABC • A judgement over which is the most important benefit to ABC. Other appropriate responses should also be credited.

Question 20

Apple Farm (AF) AF is owned by Desi. Desi is a sole trader. AF specialises in growing and packaging apples which the business sells to a su…

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Question Answer Marks 1(a)(i) Define the term ‘fixed costs’ (line 5). 2 Level Knowledge and Application Marks 2 A correct definition 2 1 A partial, vague or unfocused definition 1 0 No creditable content 0 Costs which do not vary as output changes (in the very short run). A correct definition should include the following elements: • costs do not change • as output changes. Exemplar Rationale Marks Fixed costs stay the same Both elements 2 when the business produces more or less. Fixed costs always stay the One element 1 same. When output changes fixed One element and a tautology. 1 costs remain fixed. Fixed costs stay fixed. Tautology 0 ARA 1(a)(ii) Briefly explain the term ‘sole trader’ (line 1). 3 Knowledge Marks Understanding of another element of a sole trader, such as: 1–2 • unlimited liability • shared legal identity with business • no continuity • no requirement to produce or make available accounts • no shares/shareholders • unincorporated • likely to be a small business • the owner keeps all the profits or bears the losses/risk • the owner has full control • makes all decisions themselves • Example of a sole trader. Understanding of a that a sole trader is owned by one person. 1 A business in which one person has unlimited liability and, in return, has full control of the business and keeps all the profits. Exemplar Rationale Marks A sole trader is owned by one All three elements 3 person (A) who has unlimited liability (B) and does not need to publish financial accounts (C). A sole trader is owned by a A and B 2 single person (A) and does not have shareholders (B) A business where there is B only. There must be 1 unlimited liability (B), no need understanding that there is to produce financial accounts, only one owner to gain the A no continuity and no mark. shareholders. Solely owned business. Tautology 0 ARA 1(b)(i) Calculate the break-even output for packs of apples sold by AF. 3 Rationale Marks Correct answer with or without correct working or units 3 Correct calculation of contribution per unit (must be backed up 2 with working) Formula 1 No creditable content 0 Price – $1 per pack VC – $0.50 per pack FC – $5000 Formula: Fixed Costs Contribution per unit Contribution per unit = Price – Variable costs (per unit) = $1 – $0.50 = $0.50 $5000 = 10 000 packs $0.50 1(b)(ii) Explain one possible use of break-even analysis to Desi. 3 Level Knowledge and Application Marks 2 Explanation of way a business can use break-even 3 (APP) analysis/data in context 1b Explanation of way a business can use break-even 2 (K+K) analysis/data 1a Identification of way a business can use break-even 1 (K) analysis/data 0 No creditable content 0 Knowledge may include: • To plan future production • To model ‘what if’ scenarios (change in price and cost) • To make business decisions about production • To discover the margin of safety • To target a level of profit Application may include: • Only one customer – supermarket (B2B) • Specialises in one type of apple – may make BE analysis more useful • Use of numbers (including OFR from Q1bi) • Decision about future production of apple juice (for example, new machinery cost, modelling costs of organic ingredients, model packaging costs, etc.) ARA 1(c) Analyse one advantage and one disadvantage to AF of leasing the new 8 machinery for producing apple juice. Knowledge and Level Application Marks Analysis (4 marks) Marks (4 marks) 2 Good analysis of one advantage and one disadvantage of 4 leasing as a source Shows of finance in context understanding of 3–4 leasing as source of Good analysis of finance in context one advantage or one disadvantage of 3 leasing as a source of finance in context 1 Limited analysis of one advantage and one disadvantage of 2 leasing as a source Shows knowledge of finance of leasing as a 1–2 source of finance Limited analysis of one advantage or one disadvantage of 1 leasing as a source of finance 0 No creditable content Advantages may include: • Cheaper option in the short term – therefore less risk if the apple juice is not successful • Maintenance is likely to be covered by leasing agreement, so lower costs • Desi may be able to update the machine on a regular basis for no extra purchasing cost. Disadvantages may include: • More expensive option in the long run (after 2½ years it will be more expensive) • Machinery would not be an asset to the business – only a cost • No resale value if the apple juice is not successful - Desi might be stuck with a contract to make lease payments for a year or more, whereas if he bought the machinery he might be able to sell it on for a small loss. ARA 1(d) Evaluate the importance of appropriate packaging for the new apple 11 juice. Analysis and Knowledge and Marks Evaluation Marks Application (4 marks) (7 marks) Justified evaluation about the importance of appropriate packaging 7 based on arguments in context Developed evaluation about the importance of appropriate packaging 6 based on arguments in context An evaluative statement about the importance of appropriate packaging 5 based on arguments in context Two arguments based on appropriate 4 Shows understanding of packaging in context the role of packaging in 3–4 context One argument based on appropriate packaging in 3 context Two pieces of limited analysis of appropriate 2 packaging Shows knowledge of the 1–2 role of packaging One piece of limited analysis of appropriate 1 packaging No creditable content Knowledge may include: • Packaging as a marketing tool; USP, promotion, product description etc. • Packaging as an operations tool (i.e. fit for purpose); quality, reduce damage etc. • Packaging as part of logistics; transportation, storage, etc. 1(d) Application may include: • Edible product, relatively short shelf-life • Objective to create product differentiation • Organic product with no added chemicals • Supermarket insisting on strength of packaging for transportation • Sold in multiple branches of the supermarket. Arguments may include: • Important to promote the product, especially as it is a new product to the market. • Important to promote the USP of the product as being organic and no added chemicals and preservatives • Important to make sure the product is protected in transport – will Desi be responsible for any wastage? • There may be legal requirements to put certain information on the packaging However: • There may be more important aspects to the product, such as taste and placement in the supermarket – will the packaging matter if the product is not on show enough • Is the packaging more about function than promotion – will consumers care if the outside looks good? Evaluation may include: • A judgement over the level of importance of appropriate packaging (compared to other issues) • A judgement over which argument is most important when considering the appropriate packaging • An evaluation of the level of importance • What the judgement/evaluation might depend upon. ARA

Question 21

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

Accepted Answer

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

Question 22

Auto Bike (AB) AB is a private limited company that repairs and maintains motorbikes. AB has nine garages in country J and employs eight hi…

Accepted Answer

2(a)(i) Define the term ‘objective’ (line 13). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Indicative content AO1 Knowledge and understanding • Specific and measurable goals which a business sets out to achieve. A correct definition should include: • an idea that an objective is an aim/goal/target (allow any similar term) • that a business (or a stakeholder) wants to achieve/reach/obtain (allow any similar term). Exemplar Marks Rationale The aims that a business wants to 2 Both elements achieve covered The targets a business wants to reach 2 Both elements covered What an owner is aiming to do 2 Both elements The long-term aims which can be about 1 One element – there profit, sales, or CSR is no idea that a business is trying to achieve them What a business wants to achieve 1 One element – no idea of an aim Objectives are the business objectives 0 Tautology that a business has ARA 2(a)(ii) Explain the term ‘private limited company’ (line 1). 3 Award one mark for each point of explanation: Rationale Marks C Application of a private limited company to an 1 example or some other way of showing good understanding B Understanding of a feature unique to a private 1 limited company A Understanding of feature(s) of a company 1 Must have A and B marks before awarding the C mark. Indicative content AO1 Knowledge and understanding Features of a company including: • an incorporated business • shares can be sold/owners are shareholders • limited liability • separate legal identity • continuity • must make accounts available to everyone Features unique to a private limited company including: • cannot sell shares on a public stock exchange • do not need to publish accounts (just make available) • may only be sold to family and/or friends AO2 Application Application of a private limited company, such as: • an example of a private limited company, such as Jaguar, Lifestyle International, etc. (Do not reward repetition from the data, i.e. ‘AB is a private limited company’.) • application of how any of the K&U points might apply to a business, e.g. a private limited company not being able to sell shares on the stock market might restrict its ability to raise finance • application of further knowledge of a private limited company, such as continuity, legal personality, limited liability 2(a)(ii) Exemplar Marks Rationale A business with shares but they 3 All elements covered cannot be sold on the stock market. This limits their sources of finance A limited liability business that does 3 All elements covered not have to publish its accounts so the competitors cannot see them Sells shares but not on the stock 2 A and B marks only exchange A company which can sell shares has 1 Only the A mark limited liability and is incorporated (many times) AB is a private limited company 0 No K&U, just repetition from the data AB is privately owned 0 Confusion with a private sector business ARA 2(b)(i) Calculate the profit made from selling standard and advanced services 3 in April. Rationale Marks Correct answer(s) with or without correct working or $ 3 • Correct calculation of total revenue and total costs for both 2 services • Correct calculation of the total profit of standard or advanced services • Correct calculation of the profit from one standard and one advanced service • Formula 1 • Correct calculation of one total revenue or one total cost figure • Correct calculation of the profit from one advanced or one standard service No creditable content 0 Indicative content Formula: revenue – total costs or (price – total costs per unit) x quantity Standard services Advanced services $250 – ($50 + $60) = $140 (profit $400 – ($60 + $100) = $240 (profit from one standard service) from one advanced service) $140 × 1000 = $140 000 (profit $240 × 200 = $48 000 (profit from from all standard services) all advanced services) 1000 × $250 = $250 000 (total 200 × $400 = $80 000 (total revenue from standard services) revenue from advanced services) ($50 + $60) × 1000 = $110 000 ($60 + $100) × 200 = $32 000 (total (total cost of standard services) cost of advanced services) $250 000 – $110 000 = $140 000 $80 000 – $32 000 = $48 000 (total (profit from all standard services) profit from all advanced services) $140 000 + $48 000 = $188 000 (total profit from all services) $188 000 (3 marks) or $140 000 and $48 000 (3 marks) 2(b)(i) Common incorrect answers Answer Mark Rationale 188 000 (no working) 3 A correct answer, $ not required 140 000 and 48 000 3 A correct answer, $ not required 140 000 2 The calculation of only standard services profit, $ not required 48 000 2 The calculation of only standard services profit, $ not required $140 + $240 = $380 2 Correct calculation of profit from one standard and one advanced service 1000 × $250 = 1 Only calculation of total revenue, needs $250 000 total costs for 2 marks 200 × $400 = $80 000 $250 000 + $80 000 = $330 000 $110 000 + $32 000 1 Only calculation of total costs, needs = $142 000 total revenue for 2 marks $550 (no working) 0 Only the revenue from one standard and one advanced service, not the total. Also no working to back this up 2(b)(ii) Explain one possible problem for AB of trying to allocate indirect 3 costs. Level Knowledge and Application Marks 2b (APP+ Explanation of one possible problem of allocating 3 APP) indirect costs in context 2a (APP) Identification of one possible problem of allocating 2 indirect costs in context 1a (K) Knowledge of one possible problem of allocating 1 indirect costs 0 No creditable content 0 Although the definition of an indirect cost (a cost that cannot be attributed to a production process) is not rewardable, it contains a problem, so will usually gain a K mark. Indicative content AO1 Knowledge and understanding Knowledge of problems of allocating indirect costs may include: • not attributable to the production process • not attributable to a specific product/service • how to split costs such as marketing, administration, expenses when they are not directly linked to a costs centre AO2 Application • The attributed indirect cost of an advanced service is $40 more than a standard service (APP) – this may not reflect the difference in marketing/admin/expenses (APP+APP). • It may be difficult to allocate costs to the different types of service (APP) – because some garages may be busier than others (APP+APP). • The allocation is fixed, even though the garage sells five times more standard services than advanced (APP). If a garage does more/fewer services, then the contribution should vary (APP+APP). • Marketing for the different services may be through the AB brand (APP) – but the allocation does not reflect this (APP+APP). • The two services have different allocated indirect costs (APP) – $60 for a standard service and $100 for an advanced service (APP+APP) – however, there is no reason given for the difference (APP+APP). Application (APP) is likely to come from the context, with developed application (APP+APP) from further use of that context. 2(b)(ii) Example of how responses should be marked. Knowledge of Application Developed problem of allocating (APP – 2 marks) application indirect costs (APP+APP – 3 (K – 1 mark) marks) It may be difficult to The standard service But it may take as know the true level of only has an allocation much administration indirect cost that of $60 as the advanced should be allocated to service each product Each service will be But the advanced And this might make sold using the same service is allocated the advanced service branding which is part $40 more in indirect seem less profitable of the indirect costs costs ARA 2(c) Analyse two below the line promotion methods that AB could use to 8 increase the sales of advanced services. Level Knowledge and Marks Analysis Marks Application (4 marks) (4 marks) 2b Applies promotion 4 Good analysis of 4 to two below the two below the line line promotion promotion methods methods in context 2a Applies context to 3 Good analysis of 3 one below the line one below the line promotion method promotion method in context 1b Shows knowledge 2 Limited analysis of 2 of two below the two below the line line promotion promotion methods methods 1a Shows knowledge 1 Limited analysis of 1 of one below the one below the line line promotion promotion method method 0 No creditable content Annotate marks for the first method in the left-hand margin and marks for the second method in the right-hand margin. Indicative content AO1 Knowledge and understanding Knowledge of below the line promotion methods, including: • Sales promotion; allow promotional pricing (i.e. BOGOF), but not just pricing • Direct marketing and direct mail, e.g. flyers • Public relations • Sponsorship • Personal selling • Branding and merchandising • Telemarketing • Trade fairs and exhibitions • Social media • Using own website (not a third party) • Word of mouth 2(c) AO2 Application • AB repairs and maintains motorcycles • Nine garages • Highly qualified mechanics • Two types of service: standard and advanced • May be possible to ‘upsell’ from standard to advanced services • AB sells five times as many standard services compared to advanced services • Higher profit margin for advanced services AO3 Analysis • Sales promotion: no outlay required (AN) – may focus on upselling from standard services to advanced, meeting the objective of increasing advanced sales (DEV) – however, may reduce sales of standard services (DEV). • Direct marketing and direct mail: can be focussed on customers who may have purchased services from AB in the past which can increase the chance of targeting the right customers (AN) – reduces the cost of promotion, increasing profits (DEV). • Public relations (PR): articles about AB in local newspapers may target the local market which increases the chances of successful promotion (AN) – however, there is no guarantee that the articles will show AB in a positive light (DEV). • Sponsorship: of local/national sports teams close to branches of AB may link AB to a successful team leading to increased sales (AN) – however, if the team does badly then AB may suffer from being associated with the team, leading to decreased sales (DEV). • Personal selling: upselling advanced services increases sales of a more profitable service (AN) – which could lead to a higher average profit margin and increased total profit (DEV). • Branding and merchandising: toys of motorbikes branded with AB, pens, etc., may get passed around and be seen by a large number of people (AN) – however, there may be a large initial cost with no guarantee of success (DEV). • Packaging: AB may be able to put stickers on motorcycles which have been serviced by AB and which could be seen by many potential customers (AN) – however, owners may not want to have the stickers, meaning they throw them away, wasting the money spent to produce them (DEV). • Telemarketing: direct calling of potential/existing customers of AB may increase sales (AN) – however, the cost is likely to be high and may not be targeted on the right market, wasting time and money (DEV). • Trade fairs and exhibitions: may allow AB to team up with other local businesses (for example, tyre garages) leading to cross promotion of the services (AN) – increasing sales of all services with minimal cost (DEV). 2(c) Examples of how an answer could develop and how it should be annotated. K APP AN DEV Sponsorship (K) Of a sports team This could lead However, AB that competes to the may have to pay near one of AB’s supporters of a large amount nine garages the team seeing to sponsor the (APP) the AB brand team and the every week audience may when their team not have a plays, motorcycle, increasing sales leading to a for AB (AN) waste of AB’s marketing budget (DEV) Direct mail (K) AB could send These previous And since many emails to all of customers are vehicles need a their previous likely to yearly service, it customers purchase may build up a because they services from loyal customer know that they AB, increasing base who repeat are most likely sales (AN) purchase from to own a AB often (DEV) motorcycle (APP) ARA 2(d) Recommend a new payment method for the mechanics at AB. Justify 11 your recommendation. Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified evaluation based 7 on argument in context Developed evaluation 6 based on argument in context An evaluative statement 5 based on argument in context Applies two pieces of 4 Argument based on two 4 context to impacts of payment understanding of a new method(s) in context payment method(s) Applies one piece of 3 Argument based on one 3 context to impact of payment understanding of a new method(s) in context payment method(s) Shows two pieces of 2 Limited analysis of two 2 knowledge about a new impacts of payment payment method(s) method(s) Shows one piece of 1 Limited analysis of one 1 knowledge about a new impact of payment payment method(s) method(s) No creditable content Do not reward time-based payment methods as these are repetition of the case and not a new method. Candidates can gain all the marks from one payment method or more than one method. 2(d) Indicative content AO1 Knowledge and understanding Knowledge of payment methods, including: • Salary – a set payment for the completion of a set of tasks. Does not vary based on time/output. • Piece rates – payment per item of output. • Commission – a reward for sales, usually as a percentage of sales/profit. • Bonuses – a payment to reward the best employees. • Profit sharing – a reward based on the level of profit to link employee pay to success of the business. • Performance related pay – linking the business/employee performance to the amount paid. AO2 Application • AB repairs and maintains motorcycles • Nine garages • Highly qualified mechanics • Two types of service: standard and advanced • Higher profit margin for advanced services • Motivation of the mechanics is low • Mechanics believe that they are not paid well • Working conditions are dirty and noisy • Currently use time-based payment based on hours worked • Some mechanics believe current pay system rewards lazy workers • Current pay does not take into account level of difficulty of different jobs. AO3 Analysis Analysis of leasing may include: • Salary: could be varied for each employee based on experience/skill, increasing motivation of those who have higher skills (AN) – however, likely to be seen as unfair as current method and therefore increasing cost with no increase in revenue (DEV). • Piece rates: may reward speed increasing the number of services that AB can perform and increase revenue (AN) – but could reduce quality which may ruin AB’s reputation which is important for a service (DEV). • Commission: may reward sales and encourage the upselling of standard to advanced service, increasing the profit of AB (AN) – however, since services seem to have a fixed price this again would not reward complexity or quality of work, demotivating the mechanics (DEV). • Bonuses: could be used to reward harder work/skill increasing the number of and/or quality of AB’s services and increasing revenue (AN) – but may be divisive amongst workforce leading to more demotivation and a lack of quantity or quality (DEV). • Profit sharing: may be used to reward hardest worker/those with greater skill, motivating the mechanics to produce more (AN) – however, may not account for how much each worker really contributes to the overall profit (DEV). • Performance related pay: may reward hardest workers leading to increased sales (AN) – but might not reward the complexity of the task, in which case it may demotivate and be seen as unfair (DEV). 2(d) AO4 Evaluation • A recommendation about a new payment method for the mechanics at AB. • A judgement over the relative suitability of the chosen payment method. • Elements that the recommendation/judgement could depend upon, including: the AB’s budget, AB’s profitability, the expected increase in sales from a motivated workforce, the profit margin of each of the types of services, the reaction of the mechanics, the payment system/level at similar businesses (competitors). • Weighing up of the impacts on the mechanics and AB of the recommended new payment method. • Weighing up of the likely advantages/disadvantages of the new payment system against the advantages/disadvantages of the current (time-based) system. Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL AB could This would This will This means A piece rate pay their mean reward the that AB can system of mechanics paying mechanics sell more payment may be using a them for who work services a suitable piece rate each hardest leading to replacement for (K) service because increased AB’s time-based they they will profit system (EVAL). complete earn more (DEV) This is because it on a and overcomes one motorcycle increase of the mechanics’ (APP) the biggest concerns capacity of that lazy workers AB (AN) are currently rewarded the However, And a If the This will same as those piece rate service services damage who work hard rewards business are rushed, AB’s (EVAL). quantity not like AB then reputation However, its quality (K) needs a customers and could suitability good might start lead to a depends on reputation to complain significant whether AB can so that and seek loss of ensure the customers their sales and mechanics do feel their money profit not cut corners motorcycle back (AN) (DEV) and give poor is safe quality services (APP) (EVAL) ARA

Question 23

Van Man (VM) Obi is a sole trader who operates a van service. He used to be employed by a similar business but realised that he likes to be…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘sole trader’ (line 1). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Must be distinct from other ownership types Indicative content AO1 Knowledge and understanding • A business in which one person provides the finance and in return has full control of the business and keeps all the profits. • An only trader has all the risk / unlimited liability. • An only trader pays income tax. Exemplar Marks Rationale A person who invests all the capital and 2 Correct definition has unlimited liability The only owner of the business who 2 Correct definition invests all the capital The only owner of the business/owns a 1 Partial knowledge business by themselves A person who owns the business 1 Partial definition The owner of a business 1 Implied ‘only’ An owner operator 1 Implies a single person Finance may be limited 0 Limited for all business structures ARA 1(a)(ii) Explain the difference, for a business, between price and cost. 3 Award one mark for each point of explanation: Rationale Marks Understanding of the difference between a price and a cost 1 Understanding of a cost 1 Understanding of a price 1 Indicative content AO1 Knowledge and understanding • A price is an amount paid by a customer / the amount a business sells/charges for its product/service. • A cost is an amount paid by a business / to a supplier. • A cost is the amount of money used to produce the goods/service. AO2 Application Application of the difference between a price and a cost, such as: • Businesses receive the value of a price (from the customer) but pay the value of a cost (to a supplier). • The difference between price and cost is profit. 1(a)(ii) Knowledge of a price and a cost may be assumed from application. Exemplar Mark Rationale Price is more than its cost 3 The simplest form of answer The mark-up/the profit margin/profit 3 Simplest form of answer A price is the amount paid by a 3 All three elements customer, a cost is the amount paid for clear raw materials used in the manufacture and the difference is the profit made. A cost is the amount the raw materials 3 All three elements cost, whereas the price is the amount a clear business charges its customers for the finished product. Cost is the expenses incurred in making 3 All three elements a product, whereas price includes the clear profit set by the seller. Cost is the expenses incurred in making 2 No difference shown a product. Price is the amount a business charges its customers for the finished product. ARA 1(b)(i) Calculate the profit that Obi will make from a customer who hires two 3 vans for three days. Rationale Marks Correct answer with or without correct working or $ 3 Correct calculation of TR and TC 2 Formula or correct calculation of TR or correct calculation of 1 TC No creditable content 0 Indicative content (Total) revenue – (Total) cost = profit Total revenue = ($250 + $225 + $225) × 2 = $1400 Total cost = ($170 + $170 + $170) × 2 = $1020 $1400 – $1020 = $380 Profit = $380 OFR If candidates continue to discount 10% beyond the second day, then award as a correct answer. Common incorrect answers Answer Marks Rationale $330 3 Continued use of 10% discount $190 2 Only calculated one van – incorrect final answer but correct formulae implied by use of figures $165 2 Only calculated one van – incorrect final answer but correct formulae implied by use of figures 1(b)(ii) Explain one factor which may affect the demand for Obi’s services. 3 Level Knowledge and Application Marks 2b Explanation of one factor in context 3 (APP+APP) 2a (APP) Identification of one factor in context 2 1a (K) Identification of one factor 1 0 No creditable content 0 Indicative content AO1 Knowledge and understanding Knowledge of a factor affecting demand may include: • (perceived) waiting/lead time • (perceived) price • population • income level • consumer tastes and preferences • level of competition • advertising AO2 Application • Price – Obi charges $250 – how do Obi’s prices compare with competition? • Population – direct correlation between number of people wanting to move and the population – Obi’s service is likely to be required more often if it is located in an area with a high population. • Income levels – higher income likely to move household/bulky items more often – and use a service as opposed to doing it themselves. • Consumer tastes and preferences – service based so potential customers will look for reviews – Obi might have good reviews of his service from past customers. • Level of competition in the local/national market – Obi used to be employed by a similar business – therefore some competition. • Advertising – a service sector business and likely to be competitive – customers need to know about the service to book it. 1(b)(ii) Application (APP) is likely to come from the context, with developed application (APP+APP) from further use of that context. Example of how responses should be marked. Identification of a Application Developed application way (APP – 2 marks) (APP + APP – 3 marks) (K – 1 mark) Competition from the other who may reduce prices to business he was attract Obi’s customers employed by Income level is $250 per day too expensive ARA 1(c) Recommend whether Obi should purchase Van A or Van B. Justify your 11 recommendation. Knowledge and Marks Analysis and Evaluation Marks Application (4 marks) (7 marks) Justified recommendation 7 based on argument(s) in context Developed recommendation 6 based on argument(s) in context An evaluative 5 statement/recommendation based on argument(s) in context Shows understanding 4 Argument based on Van A 4 of factor(s) affecting AND Van B in context Van A AND Van B in context Shows understanding 3 Argument based on Van A 3 of factor(s) affecting AND Van B in context Van A OR Van B in context Shows knowledge of 2 Limited analysis of Van A 2 two or more factors AND Van B affecting decision making Shows knowledge of 1 Limited analysis of Van A OR 1 one factor affecting Van B decision making No creditable content Arguments for Van A on one side and Van B on the other to show arguments for each Indicative content AO1 Knowledge and understanding Knowledge of factors affecting decision making, including: • cost(s) • timescale • revenue • utility 1(c) AO2 Application 11 Application may include: • sole trader • main business is based on the use of vans • already owns three vans • eight full-time employees • demand is growing fast • use of Table 1.2 AO3 Analysis Analysis of Van A may include: • lower purchase cost • higher maintenance costs • shorter lifespan • lower (slightly) insurance costs • high level of reliability • are other qualitative elements relevant? Analysis of Van B may include: • higher purchase cost • lower maintenance costs • longer lifespan • higher (slightly) insurance costs • possibly less reliable based on customer review • use of colours may provide an advertising benefit • speed of manufacturer response to break down is good • faster – may allow a speedier service (but could also have legal issues) • are other qualitative factors relevant? AO4 Evaluation • A recommendation about whether Ralph should choose Van A or Van B. • A judgement over the relative suitability of the vans. • Elements that the recommendation/judgement could depend upon, including availability of finance/amount of finance, how long Obi keeps his vans for on average, length of warranty, past reviews, whether he trusts his employees not to speed, fuel economy as a factor. • Weighing up of the relative impacts on Obi of the vans. 1(c) Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Cost VAN A – Reduces Increases Should buy boring but direct costs profit margins Van A fuel efficient of petrol Because Lifespan1 VAN B – Capital cost Helps long- lower direct lasts 9 years spread over term costs more a longer time budgeting important than long- term budgeting Even though the image may be impacted ARA 1(d) Analyse two factors which may influence the source of finance that Obi 8 chooses for the new van. Level Knowledge and Marks Analysis (4 marks) Marks Application (4 marks) 2b Shows understanding 4 Good analysis of two 4 of two factors which factors which may may influence the influence the source of source of finance in finance in context context 2a Shows understanding 3 Good analysis of one 3 of one factor which factor which may may influence the influence the source of source of finance in finance in context context 1b Shows knowledge of 2 Limited analysis of two 2 two factors which may factors which may influence the source of influence the source of finance finance 1a Shows knowledge of 1 Limited analysis of one 1 one factor which may factor which may influence the source of influence the source of finance finance 0 No creditable content Indicative content AO1 Knowledge and understanding Knowledge factors affecting sources of finance, including: • size/structure of business • cost of finance • costs of the business • flexibility • need to retain control • use of the finance • level of existing debt AO2 Application • Sole trader • Main business is based on the use of vans • Already owns three vans • Eight full-time employees • Demand is growing fast • Use of Table 1.2 – may be based on recommendation made in Q.1(c) AO3 Analysis • Speed of acceptance – requires a source of finance that will allow immediate purchase – capitalise on the increased demand – • Running costs – some sources of finance may allow this to be included (such as leasing or hire purchase) – reduces variable outgoings • Flexibility – Obi may need to repay over the lifetime of the van, or he may be able to reduce the cost of finance and repay earlier if demand remains high – can manage cashflow • Need to retain control – Obi likes to be in control so is unlikely to want a source of finance that means he loses control (such as taking a partner or selling shares) – • The use of the finance – acquiring a van – some sources of finance are more suited to longer term options (such as bank loans) or the acquisition of a capital item that loses value (such as leasing or hire-purchase) • Level of existing debt – Obi used his savings to set up VM so he has no debt – has to use external sources Examples of how an answer could develop and how it should be annotated. K APP AN DEV Cost of finance $30/40k loan Higher loan = Reduces larger cashflow/profits repayments Level of Savings used Means has to use Which may existing debt so no debt external sources involve loss of control ARA

Question 24

Benjamin’s Beds (BB) Benjamin’s Beds (BB) is a large manufacturer of beds and has a strong brand image for quality. Its main channel of dis…

Accepted Answer

2(a)(i) Define the term ‘market share’ (line 14). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content • One mark for a portion/section of a market (or comparison with other businesses / whole market) • One mark for controlled by a business or product The section of a market (1) controlled by a business. (1) Allow formula (sales of business / sales in market X 100) for 2 marks – either expressed as a formula or in words. Accept any reasonable answer Exemplar Mark Rationale Section of a market controlled by 2 Clear understanding a company Sales of business 2 Clear understanding × 100 Total sales The sales of one business 2 Sales of one business = compared to the sales of another controlled by business business. Compared = portion Sales of business 2 Comparison of one business to the whole Total sales market. Market controlled by a 1 No portion/section company/product How big a company is 0 Too vague 2(a)(ii) Explain the term ‘efficiency’ (line 21) 3 Award one mark for each point of explanation: Marks C Example or some other way of showing good 3 understanding B Understanding that it leads to the highest amount of 2 outputs A Understanding of the concept of least amount of inputs 1 C marks dependent on A and B mark being present Content The least amount of inputs (1) to make the maximum output (1) to reduce waste (1) Exemplar Mark Rationale Least inputs for the highest output 3 All three elements to reduce waste Least amount of inputs used to 2 No expansion gain the highest output Highest output possible 1 Only output Reduction of waste 0 No understanding of inputs or outputs Accept any reasonable answer 2(b)(i) Refer to Table 2.1 and other information. Calculate BB’s total annual 3 cost if it uses the proposed new machinery. Rationale Marks Correct answer, with or without working and $ sign 3 Attempt to calculate with correct figures / correct calculation of 2 TVC ($300 000) and TFC ($450 000) Formula/ correct calculation of TVC ($300 000) or TFC 1 ($450 000) No creditable content 0 Content Total variable costs + fixed costs [1 mark] (40 × 7500) + (500 000 × 0.9) [2 marks] Answer = ($)750 000 [3 marks] Common incorrect answers Answer Mark Rationale 750 000 3 Correct answer. $ not required. 300 000 + 500 000 = 800 000 2 No attempt to reduce FC by 10% $800 000 (no working) 0 Do not award any marks for an incorrect answer without working. $250 000 + $450 000 = 2 One mistake – incorrect $700 000 calculation of TVC 2(b)(ii) Explain one possible limitation to BB of using the proposed new 3 machinery. Level Knowledge and Application Marks 2a (App) Explains one possible limitation to BB of using the 3 proposed new machinery 1b (K+K) Explains one possible limitation of using new 2 machinery with no application to BB 1a (K) Identifies one or more possible limitation of using 1 new machinery with no application to BB 0 No creditable content 0 Indicative content AO1 Knowledge and understanding Limitations may include: • Capital cost – opportunity cost of spending in other areas • Retraining – may reduce cashflow / increase costs • Space requirements – may require a new factory /extension • Risk – compared to ‘known’ machinery AO2 Application • BB has a reputation for quality • Beds – large product (large machinery) • Use of Table 2.1 (in comparison to increased costs) • Market is growing rapidly • Wide range of consumer (online) styles required • Decreasing staff morale and welfare. Accept any reasonable answer Exemplar Mark Rationale Increased retraining costs will 3 Explanation of a factor in mean reducing prices to hotels context will be difficult Increased training costs reduces 2 Explanation of a factor not cashflow in context Increased training costs 1 Identification of a factor 2(c) Analyse two possible disadvantages to BB of decreased staff morale 8 and welfare. Knowledge and Analysis Level Application Marks Marks (4 marks) (4 marks) 2b Shows knowledge of 4 Developed analysis 4 two disadvantages of two of decreased morale disadvantages of and welfare in decreased staff context morale and welfare in context 2a Shows knowledge of 4 Developed analysis 3 one disadvantage of of one decreased morale disadvantage of and welfare in decreased staff context morale and welfare in context 1b Shows knowledge of 2 Limited analysis of 2 two disadvantages two disadvantages of decreased morale of decreased staff and welfare morale and welfare 1a Shows knowledge of 1 Limited analysis of 1 one disadvantage of one disadvantage decreased morale of decreased staff and welfare morale and welfare 0 No creditable content Content AO1 Knowledge and understanding Knowledge of morale – the confidence, enthusiasm, and discipline of a person or group at a particular time. Knowledge of welfare – a working environment that's healthy and safe for everyone in the workplace. Disadvantages could include: • Increased labour turnover • Increased recruitment costs • Increased training costs • Decreased efficiency • Increased trade union action. 2(c) AO2 Application • Large manufacturer of beds. • Strong brand image for quality. • Main distribution channel is B2B, but entering the B2C market (becoming more important as online orders are increasing). • Old machinery currently used, but proposition to introduce new machinery (at a cost). • Increased demand in the market – market is growing rapidly. • Increased demand (online) for a wider range of styles – requires retraining. • Pressure to reduce prices (and costs). • BB uses non-financial motivators. • Motivation was good until recently. • Efficiency is falling – long hours due to increased demand (but no financial compensation?). AO3 Analysis Disadvantages could include; • Increased labour turnover; increase in BB’s recruitment costs – may mean that producing beds for the online market, where profit margins are lower, is unprofitable. • Increased recruitment costs; increase in BB’s FC’s – may reduce the impact of the 10% saving of the new machinery and make the business unprofitable. • Increased training costs; lowers the ability of BB to compete in the online market – BB cannot take advantage of this growing market. • Decreased efficiency; less beds being produced – may mean that BB cannot match the demands of the growing online market and lose market share. • Increased trade union action; may lead to industrial action – reduce productivity so that BB cannot produce enough to meet the online demand and sales fall. Accept any reasonable answer Identification Understanding Limited Developed of in context analysis (AN) analysis in disadvantage (APP) context (Dev) (K) Increased Due to workers Which increases And reduces labour turnover leaving because recruitment profit margins. of increased costs workload from online orders Decreased From working Increases unit Which increases efficiency long hours, costs of the selling prices. without financial beds compensation, to fulfil the growing market needs 2(d) Recommend whether BB should focus on the producer market (B2B) or 11 the consumer market (B2C). Justify your recommendation. Analysis and Knowledge and Evaluation Application (4 marks) Marks Marks (7 marks) Annotation Annotation A justified 7 recommendation based on arguments EVAL + EVAL + EVAL A developed 6 recommendation based on developed EVAL arguments + EVAL A basic 5 recommendation based on developed EVAL arguments Applies context to 4 Argument based on 4 knowledge (B2C) and producer of consumer APP focusingmarkets inoncontextboth DEV (B2B) market + + APP DEV Applies context to 3 Argument based on 3 knowledge (B2C) or producer of consumer APP focusingin contexton one market DEV (B2B) market 2(d) Analysis and Knowledge and Evaluation Application (4 marks) Marks Marks (7 marks) Annotation Annotation Knowledge of 2 Limited analysis of 2 consumer (B2C) and focussing on the K AN producer (B2B) market consumer (B2C) market + + K and limited analysis of AN focussing on the producer (B2B) market Knowledge of 1 Limited analysis of 1 consumer (B2C) or focussing on the producer (B2B) market consumer (B2C) market K AN or limited analysis of focussing on the producer (B2B) market No creditable content Content AO1 Knowledge and understanding Knowledge of the consumer market (B2C), including: • Purchased by the end-user • Direct sales to consumers and through retailers and online • Importance of brand in a competitive market • Sales are likely to be single units. Knowledge of the producer market, including: • Purchased by a business who uses the product to produce another product/service • Direct sales to another business, unlikely to be through retailers • Importance of price, added value and durability • Sales are likely to be for multiple units. 2(d) AO2 Application • Large manufacturer of beds. • Strong brand image for quality. • Main distribution channel is B2B, but entering the B2C market (becoming more important as online orders are increasing). • Old machinery currently used, but proposition to introduce new machinery (at a cost). • Increased demand in the market – B2C market is growing rapidly. • Increased demand (online) for a wider range of styles in B2C market – requires retraining and substantial marketing costs. • Pressure to reduce prices (and costs) in B2B market. • Limited range of styles in B2B market. • Demand in B2B market is constant with low marketing costs. • BB uses non-financial motivators. • Motivation was good until recently. • Efficiency is falling. AO3 Analysis For B2C • B2C online sales increasing • Hotels want to reduce prices • No increase in demand from hotels For B2B • A constant demand from hotels aids planning • Less marketing needed for hotels • Limited bed range may increase production as less downtime needed for repurposing machines AO4 Evaluation • A recommendation about a whether RR should focus on the consumer (B2C) or producer (B2B) market. • A judgement over the relative suitability of each market. • Elements that the recommendation/judgement could depend upon. • Weighing up of the impacts on choosing a market. • Weighing up of the likely advantages/disadvantages of each market.

Question 25

Farm Produce (FP) FP is a primary sector co-operative made up of six farms in country G. Each farm grows a range of fruit and vegetables. F…

Accepted Answer

Question Answer Marks 1(a)(i) Define the term ‘labour intensive’ (line 8). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content: Production based on a high level of employee input compared with capital equipment. A correct definition will include the following points:  use of a high number of employees/manual/workers  as opposed to a high level of capital (no/limited machinery involved) Exemplar Marks Rationale Using a higher proportion of 2 Both elements employees than capital. covered When something is made by people 2 Both elements instead of capital. covered A hand made product. 1 One element Where more labour than capital is 1 One element – used. ‘labour’ is a tautology. The intensity of the labour used. 0 A tautology. ARA 1(a)(ii) Explain the term ‘co-operative’ (line 1). 3 Award one mark for each point of explanation: C Example or some other way of showing good 1 mark understanding, e.g. bulk buying, common in agriculture, motivational, slow decision-making, allows the achievement of economies of scale, mutual benefit, types of co-operative (worker and customer) etc. B Knowledge of the operation of a co-operative: 1 mark  Responsibilities are shared  Owners may contribute to the running/operation/control of the business  Shared decision-making  All members have one vote  Profits are shared A Knowledge of the ownership of a co-operative: 1 mark  Owned / financed by workers / customers / members Note: Using the case as an example is repetition and not rewardable as the C mark A and B must be awarded before C mark can be given. Content: A co-operative is a business structure where the workers are the owners. The profits are shared with workers. Workers (owners) do not have to manage the business: they may vote for Directors. In smaller co-operatives, such as worker co-operatives, workers may also manage the business. Exemplar Mark Rationale Members (A) own a co-operative and 3 A, B and C share the running (B) of the business. Co-operatives can be slow when making decisions (C). A co-operative can be owned by 3 A, B and C customers or workers (A) who will each have a vote (B). Because they own it, they are motivated for it to do well (C). A co-operative has shared ownership 2 A and B by workers (A) and responsibilities (B) 1(a)(ii) Exemplar Mark Rationale Members (A) who join together to 1 A only – cannot benefit from bulk buying award C without both A and B A co-operative is made up of people 1 Three points but all who share the responsibilities of the from B, so only one business (B). Each person has a vote, mark. and the decision-making is shared. ARA 1(b)(i) Refer to Table 1.2. Calculate the profit made by FP in April 2022. 4 Rationale Marks Correct answer with or without correct working or $ 4 Three correct stages in calculation 3 Two correct stages in calculation 2 Formula (may be implied) or one correct stage in calculation 1 No creditable content 0 Method 1 Method 2 TR – TVC – TFC Small ($10  400) – ($8  400) – 400  $10 = $4000 $2000 300  $20 = $6000 = $4000 – $3200 – $2000 150  $35 = $5250 = -$1200 (1) TR = $15 250 (1) Medium ($20  300) – ($10  300) – 400  $8 = $3200 $2000 300  $10 = $3000 = $6000 – $3000 – $2000 = $1000 (1) 150  $15 = $2250 Large TVC = $8450 (1) ($35  150) – ($15  150) – $2000 + $2000 + $2000 = $2000 $6000 (1) = $5250 – $2250 – $2000 (TFC) = $1000 (1) –$1200 + $1000 + $1000 = $15 250 – $8450 – $6000 = $800 (1) $800 (1) Method 3 Answer = $800 (4) Small: $2  400 = $800 (1) Medium: $10  300 = $3000 (1) Large $20  150 = $3000 (1) Answer = $6800 – $6000 = $800 (1) 1(b)(i) Common incorrect answers Answer Mark Rationale 800 (with or without working) 4 Does not need $ TR=$15250 3 There is only one mistake. FC = $6000 The candidate has used VC VC = $8 + $10 + $5=$33 per box, not TVC. In all other ways this is correct, so 3 $15250 – $6000 – $33 = marks. $9217 $9217 (no working) 0 A wrong answer, without working is always 0 marks. $4000 – $3200 = $800 3 One mistake – only one (small) share of FC has been $6000 – $3000 = $3000 subtracted. In all other ways (medium) this is correct, so 3 marks. $5250 – $2250 = $3000 (large) $800 + $3000 + $3000 – $2000 =$4800 $4800 (no working) 0 A wrong answer, without working is always 0 marks. TR=$15250 3 There is only one mistake. FC = $6000 The candidate has multiplied VC = ($8  10) + $10  $20) the VC per box by the price, + ($15  35) = $805 not output. In all other ways this is correct, so 3 marks. $15250 – $6000 – $805 = $8445 TR = 15250 1 Although we can guess how Answer = $8445 the candidate got to this number, we do not know for sure. Only mark what is there, so this is only 1 mark (for correct calculation of TR). $8445 0 A wrong answer, without working is always 0 marks. 1(b)(ii) Explain one problem FP may have when deciding how to allocate fixed 2 costs to each box size. Level Knowledge and Application Marks 2 (APP) Explanation of one problem of allocating fixed 2 costs in context 1 (K) Identification of one problem of allocating fixed 1 costs 0 No creditable content 0 Content: Knowledge of problems of allocating fixed costs (FC):  Takes time to allocate the FCs  Takes money to allocate the FCs  Separation of FCs by the box sizes  Consequence of separation of the FCs, such as: – makes a product appear unprofitable – leads to a pricing mistake. Application may include:  Three box sizes  Same FC ($2000) for each box size  Different prices ($10, $20, $35) for each box size  Different variable cost ($8, $10, $15) for each box size  Different sales for each box size (400, 300, 150).  OFR from Q1(b)(i) – allow for wrong numbers if used incorrectly in Q1(b)(i). Note: correct use of any one figure is enough for APP. However, there must be a K to be able to award APP. ARA Exemplar Mark Rationale Fixed costs are difficult to 2 Problem of separation clearly separate based on each box identified and context used. size (K). FP has allocated the same fixed costs each box size (APP). 1(b)(ii) Exemplar Mark Rationale Each box has different fixed 2 Problem clearly identified and costs so it is difficult to context used. separate them (K). However, FP makes each pay a third (APP). FP makes each box pay the 2 APP cannot be awarded same allocation of fixed costs before K, but you can (and (APP), but each box size may should) go back to reward it have different overhead costs once K has been found. (K). It makes the small box look 2 The small box only looks unprofitable (K and APP). unprofitable because of the allocated fixed costs, so that is a problem, in context. 1(c) Analyse how two stakeholders of FP might be affected by the decision 8 to stop selling the small box size. Level Knowledge and Marks Analysis (4 Marks Application (4 marks) marks) 2b Shows 4 Good analysis of 4 understanding of the impact of the two stakeholders APP decision to stop DEV in context + selling the small + size on two APP box stakeholders of DEV FP 2a Shows 3 Good analysis of 3 understanding of the impact of the one stakeholder decision to stop in context selling the small APP DEV box size on one stakeholder of FP 1b Shows 2 Limited analysis 2 knowledge of two K of the impact of AN stakeholders + stopping selling a + K product on two AN stakeholders 1a Shows 1 Limited analysis 1 knowledge of of the impact of one stakeholder K stopping selling a AN product on one stakeholder 0 No creditable content Note: – annotate the first stakeholder in the left margin and the second stakeholder in the right margin. Indicative content AO1 Knowledge and understanding Knowledge of stakeholders may include:  Managers  Owners/shareholders/members  Employees  Customers/consumers  Suppliers  Local community  Government. 1(c) AO2 Application  Managers – of one of the farms  Owners – members of FP co-operative  Employees – 26 workers, workers in distribution centre, labour intensive  Customers/consumers – 400 boxes (weekly so may be 100 customers). May be individual (living on own) customers – highest sales, most in demand by customers.  Suppliers – of farm equipment and consumables  Competitors – who provide seasonal fruit and vegetables, such as other farms and supermarkets  Local community – around FP’s farms and/or distribution centre.  Government – of country G which promotes eating fruit and vegetables AO3 Analysis  Customers – will they have to move to competitors or pay for a larger box – increased price – less disposable income – lower quality of life  Owners/shareholders/members of FP co-operative – if customers move to competitors, then less sales revenue (fixed costs will need to be allocated across two box sizes not three) – lower profitability  Government – less tax revenue (or lower need for subsidies)  Competitors – customers may move from FP (assuming they sell a similar small box size) – decreased revenue – profit  Employees – possibility of less work through loss of sales or possibility of increased work through gain of sales revenue of larger boxes – effect on income and living standards.  Local community – as customers, but also may be affected by pollution (noise and air) from the transportation – fewer small boxes may mean less transportation – lower pollution. Examples of how an answer could develop and how it should be annotated. K APP AN DEV Customers might live on so may find it and leads to a their own, difficult to afford lower standard a bigger box, of living. Shareholders who are the will make which may members of the more/less profit* decrease/increa co-operative se their income. *The small box only looks unprofitable because of the allocation of fixed costs. It makes a positive contribution, so if FP stops selling it, the owners get less profit. Allow answers which state that the owners will make more or less profit ARA 1(d) Evaluate the most important factor affecting the supply of FP’s boxes 11 of fruit and vegetables to customers. Knowledge and Marks Analysis and Marks Application (4 Evaluation marks) (7 marks) Annotation Annotation Justified evaluation 7 EVAL based on arguments in context + EVAL + EVAL Developed 6 EVAL evaluation based on arguments in context + EVAL An evaluative 5 statement based on arguments in context EVAL Shows 4 Arguments based on 4 understanding of two APP two factor affecting DEV factors affecting + supply in context + supply in context APP DEV Shows 3 Argument based on 3 understanding of one factor affecting one factor affecting APP supply in context DEV supply in context Knowledge of two 2 Limited analysis of 2 factors affecting K two factors affecting AN supply +K supply + AN Shows knowledge of 1 Limited analysis of 1 one factor affecting one factor affecting K AN supply supply No creditable content 0 Note: this is a supply question – do not allow any factors which affect demand. 1(d) Knowledge may include:  Any factor affecting supply – price (accept as affecting quantity sold) – costs – indirect tax – subsidies (government grant) – legislation – capacity – weather – technology – productivity – factors of production o land o labour o capital o enterprise. Application may include:  Agriculture  Annual government grant  Minimum wage set to increase  26 workers across farms and distribution centre  Food products  Labour intensive production  Use of Table 1.1  Use of Table 1.2. Analysis may include:  Price: – an increase in price may lead FP to an increase in (quantity) supplied – gain more revenue and increase the profitability of the boxes. – A decrease in price may lead FP to a decrease in (quantity) supplied – gain less revenue and decrease the profitability of the boxes.  Costs: – increase may lead to lower quantity of boxes and/or increase in price – lower profit/profitability. – decrease may lead to high quantity of boxes and/or decrease in price – higher profit/profitability.  Indirect tax: – increase may lead to lower quantity of boxes and/or increase in price – lower profit/profitability. – decrease may lead to high quantity of boxes and/or decrease in price – higher profit/profitability.  Subsidies/grant: a subsidy to the farm is likely to increase the quantity of boxes FP produces and/or decrease the price of FP’s boxes – increased profit. 1(d)  Legislation: such as planning laws which could make it easier for FP to expand and increase production – increasing revue/profit.  Capacity: an increase in FP’s capacity is likely to lead to an increase in the quantity produced of FP’s boxes – increased sales and profit.  Weather: poor weather may adversely affect FP’s ability to produce fruit and vegetables reducing the contents of boxes – decreased revenue/profit.  Technology: more advanced production technology or advances in administration automation may reduce FP’s costs – increasing profitability.  Productivity: increased productivity may lead to an increase in supply – increasing FP’s revenue.  Labour availability: the more workers who are available the more FP can supply fruit and veg – increased profit. Evaluation may include:  A judgement over importance of factors affecting supply of FP’s products  Evaluation of the relative impact of different factors  Elements that the evaluation/judgement might depend upon: level of competition, current pay of workers, elasticity, complements, substitutes etc. ARA Examples of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Weather Is likely to If the which Overall, the affect the weather is increases most important amount of good, FP the supply. factor is the fruit and will weather vegetables increase (EVAL) that FP can the number because FP grow. of products cannot plan for to sell it in advance (EVAL). Labour because This is Which However, this costs the likely to means that depends how minimum reduce the FP will much the wage is set supply of make less climate in to increase products revenue. country G is by 10%. likely to change each year (EVAL).

Question 26

Seaside Hotel (SH) SH is a large hotel located in a tourist area of country H. SH has 120 rooms and employs 42 workers during the peak (bus…

Accepted Answer

2(a)(i) Define the term ‘redundant’ (line 16). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content: An employee loses their job when a business no longer has the need for their job role. A correct definition will include the following points:  A form of dismissal e.g. they lose their job, ‘let go’ etc…  When the job role is no longer needed Exemplar Marks Rationale When an employee loses their 2 Both elements covered job because their role is no longer needed Redundancy is when a job is not 2 Both elements covered necessary and the worker is dismissed. When a contract is terminated 1 Only one element due to not being able to afford the wages. When an employee is dismissed 1 One element from a job. When something is no longer 1 One element – must be needed. an idea of losing a job or dismissal. When an employee is made 0 A tautology. redundant. ARA 2(a)(ii) Explain the term ‘joint venture’ (line 25). 3 Award one mark for each point of explanation: C Example or some other way of showing good 1 mark understanding, i.e. formal contract. To award C there must be understanding that this is not a merger (i.e. remain separate businesses). B Shared 1 mark risk/reward/facilities/staff/capital/knowledge/experience/ promotion etc… A Two or more businesses/parties agreeing to work 1 mark together Note: A joint venture is not a merger. Using the case as an example is repetition and not rewardable as the C mark A and B must be awarded before C mark can be given. Content: This is normally when two (or more) businesses agree to work together to share expertise/finance/rewards from a project. Example, two companies working together to create a new product. Will be formalised in a contractual agreement. Exemplar Mark Rationale A joint venture is when two business 3 Both elements come together to do a certain project. included and an They might share their resources. For example. example, if Nissan and Toyota worked together to make a new electric car. When more than one party work 3 Both elements and a together and they share the profits. way of showing This may require a contract to show good understanding who gets what. When two or more businesses come 2 Both elements BUT together, share the risk and reward. the example is An example is the joint venture of SH copied form the to use their restaurant facilities. data, so only two marks. 2(a)(ii) Exemplar Mark Rationale When two or more business work 1 One element – do together for example if Nissan and not award C mark if Toyota work together to produce a A and B not new electric car. awarded. When more than one party works 1 One element. together on a project. 2(b)(i) Refer to Table 2.2 and any other information. Calculate the average 2 margin of safety from April to September 2021. Rationale Marks Correct answer with or without correct working or units 2 Formula or correct calculation of current level of production 1 No creditable content 0 Content: Level of production – break-even level of production (120 / 100)  95 = 114 rooms (1) 114 rooms – 72 rooms = 42 (1) rooms (OFR) Answer = 42 rooms is the average margin of safety (2) accept 35% (must include % sign) Alternative route: BE level = 60% (1) Current level = 95% Margin of safety = 35% (2) Common incorrect answers Answer Mark Rationale 42 (no working) 2 ‘Rooms’ not needed. 35 (no working) 1 If candidate has used this method, then they must include % for both marks. 95% of 120 = 114 1 If there is a correct calculation of 120 – 114 = 6 rooms the current level of output, award 1 mark. 114 1 Correct calculation of current level 72 = 1.583 of output. 1.583 (no working) 0 You must be able to see the calculation of the current level of output to reward a mark, if the answer is wrong. 2(b)(i) Answer Mark Rationale Current production – 1 Correct margin of safety formula. BE level Current production = 1 The candidate miscalculated the 115 current level of production, but the 115 – 72 = 41 last stage is correct based on their own figure. So OFR and 1 mark. 2(b)(ii) Explain two possible limitations to SH of using break-even analysis. 4 Level Knowledge and Application Marks 2b Explanation of two limitations of using 4 (APP + APP) break-even analysis in context 2a (APP) Explanation of one limitation of using break- 3 even analysis in context 1b Knowledge of two limitations of using break- 2 (K + K) even analysis 1a (K) Knowledge of one limitation of using break- 1 even analysis 0 No creditable content 0 OFR may be based on calculation in Question 2(b)(i). One contextual limitation that is awarded K and APP must always gain 3 marks The answer must be a limitation of break-even, not a generic ‘inaccurate’ answer. Content:  Unrealistic assumptions – assumes each room is sold at the same price, unlikely for a seaside hotel  Assumes that the fixed costs are constant – such as the market costs when producing promotional materials for the hotel.  Assumes constant average variable costs – however 42 workers employed at peak season suggests that this is not true  Based on an average – may not be useful information about peak (busy/holiday) and off-peak times  Does not include any income from the joint venture with the restaurant.  Assumes all output will be sold ARA Exemplar Mark Rationale It assumes that variable costs 4 BE does assume remain constant (K), for example constant VC, and the the cleaning may be different for context of cleaning and each room (APP). It assumes the rooms. Second price is the same (K) for each room limitation is also correct (APP). and in context. 2(b)(ii) Exemplar Mark Rationale BE assumes the price does not 3 Clear limitation and change (K), which is wrong for a context. hotel (APP). Second limitation is not BE is also based on an estimate in context. (K) It is only based on an average (K) 3 Clear limitation and for peak season (APP). context. Based on estimates (K) 1 Clear limitation but no context May not be accurate, because it is 0 Not a specific limitation based on a hotel. of BE. 2(c) Analyse one possible advantage and one possible disadvantage to SH 8 of Tia’s autocratic leadership style. Level Knowledge Marks Analysis (4 Marks and marks) Application (4 marks) 2b Shows 4 Good analysis 4 knowledge of of one one advantage advantage and APP DEV and one one + + disadvantage disadvantage of autocratic of autocratic APP DEV leadership in leadership in context context 2a Shows 3 Good analysis 3 knowledge of of one one advantage advantage or disadvantage or APP onedisadvantage DEV of autocratic of autocratic leadership in leadership in context context 1b Shows 2 Limited 2 knowledge of analysis of one one advantage K advantage and AN and one + one + disadvantage K disadvantage AN of autocratic of autocratic leadership leadership 1a Shows 1 Limited 1 knowledge of analysis of one one advantage advantage or or K one AN disadvantage disadvantage of autocratic of autocratic leadership leadership 0 No creditable content Annotate advantage on the left and disadvantage on the right 2(c) Indicative content AO1 Knowledge and understanding Knowledge advantages of autocratic leadership style may include:  Speed of decision-making  Unambiguous objectives/commands  Clear chain of command  May increase productivity  Less need to train/skill employees Knowledge of disadvantages of autocratic leadership may include:  Lack of creativity  May cause demotivation  May stifle communication  Subordinates are unable to make any decisions AO2 Application  Tia is one of three managers at SH  Tia has responsibility for cleaners: – Areas must be cleaned to the required standards – Health and safety issues (chemical cleaners, use of cleaning equipment, etc.) – Coordination over 12 cleaners over 120 rooms – Half of the cleaners are temporary employees only employed during the peak season – Likely to be relatively low-skilled/pay  Tia also has responsibility for the Marketing employees: – Designing (creativity) of promotional materials – 7 marketing employees – Likely to be relatively high-skilled/pay  Most employees are likely to be customer facing in a hotel  Average of 95% capacity utilisation in peak season (busy hotel)  Objective to increase value added to the service that SH provides. AO3 Analysis Advantages may include:  Speed of decision-making: in peak season, Tia has a large span of control. Autocratic leadership may be a more efficient way of controlling and co-ordinating this number of employees – increased productivity and decreased costs.  Unambiguous objectives/commands: can ensure a standard level of quality ‘fit for purpose’, essential with cleaning – may help SH to achieve their objective of increasing value added, increase repeat customers.  Clear chain of command: enables the team to clean the 120 rooms efficiently – reduced costs, increased profitability.  May increase productivity: clear commands may allow the Marketing employees to produce standardised promotional material which is more likely to fit the image of SH – increased sales profit.  Less need to train/skill employees: new cleaners are recruited each year (in peak season) so an autocratic style is likely to be appropriate as they may only work for a few weeks/months and need to be trained and supervised quickly. 2(c) Disadvantages may include:  Lack of creativity: marketing employees are likely to need to be creative, especially with the cross advertising with the hotel. This will have a direct impact on sales – increased revenue and profit for SH.  May cause demotivation: especially for the marketing employees with reduced quality of marketing materials – poor sales/growth.  May stifle communication: Tia may not find out about problems in the hotel reduced quality – lower sales/profit.  Subordinates unable to make any decisions: 19 workers for Tia to manage – how can she be autocratic and directly supervise so many workers – might this lead to them only working hard when Tia is directly observing/supervising them – reduced productivity and increased costs. Examples of how an answer could develop and how it should be annotated. K APP AN DEV An advantage Which means This is likely to Increasing the could be that it that Tia can lead to better chance of is quick. make fast quality rooms repeat sales. decision about for customers. what cleaning needs to be done. However, it may in the marketing This is likely to reducing SH’s reduce department. lead to poor sales revenue. creativity quality promotions, 2(d) Recommend how SH can increase the value added to its service. 11 Justify your recommendation. Knowledge and Marks Analysis and Marks Application (4 Evaluation marks) (7 marks) Annotation Annotation Justified 7 EVAL recommendation based on arguments + EVAL in context + EVAL Developed 6 EVAL recommendation based on arguments + in context EVAL An evaluative 5 statement / recommendation EVAL based on arguments in context Shows 4 Argument based on 4 understanding of APP two ways of adding DEV two ways of adding + value in context + value in context APP DEV Shows 3 Argument based on 3 understanding of one way of adding one way of adding APP value in context DEV value in context Shows knowledge 2 Analysis of two ways 2 of two ways of K of adding value AN adding value +K + AN Shows knowledge 1 Analysis of one way 1 of one way of of adding value K AN adding value No creditable content 0 Note: the two ways may come from the same piece of knowledge (i.e. new facilities). 2(d) Indicative content AO1 Knowledge Knowledge of ways of adding value, including:  Branding  Advertising  USP  Additional services  Additional product benefits  Reducing cost  Increasing quality. Application may include:  Hotel – rooms  Customer service - guests  Cleaning  Promotional materials (SH branding)  Views of the sea  Local tourism  Does not currently have a restaurant  Joint venture with local restaurant Analysis may include:  Branding: common in the hotel industry, a brand name can increase the price of a room – increasing profit margin.  Advertising: to increase the number of customers who are aware of SH increasing sales of rooms – increased profit.  USP: by adding something unique to SH’s hotels it makes the service different from competitors allowing SH to charge a higher price – increased profitability.  Additional services: can differentiate SH from competitors allowing SH to charge a higher room rate – however the additional services can increase costs and reduce profit.  Reducing services: stopping the joint venture to allow higher revenue from a restaurant – higher profit.  Additional product benefits: offering refreshments, for example, can give SH more opportunities for sales, increasing revenue – increased profit.  Reducing costs – being more efficient or getting rid of unnecessary services may allow SH to reduce costs and increase profitability – however customers may demand a lower price to compensate for the reduction in perceived quality.  Increasing quality: increasing the price customers are willing to pay – increased profit. Evaluation may include:  A judgement/evaluation over the suitability/usefulness of way(s) of adding value  Evaluation of the relative benefits/costs of different ways  Elements that the evaluation/judgement might depend upon: tourism, weather, current perception of SH, response from local competitors. ARA 2(d) Example of how an answer could develop and how it should be annotated. K APP AN DEV EVAL Develop a for high- This And Overall, it would USP quality means that increases be better for SH rooms. SH can the profit to develop a USP charge a made on (EVAL) because higher each room they will maintain price their quality standards which Reduce By making This could However, it is important in a costs some of increase may mean hotel (EVAL). the the profit of lower However, it cleaners SH quality depends on how redundant. rooms and SH’s competitors less sales. respond (EVAL).

Question 27

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

Accepted Answer

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

Question 28

Fruit Farm (FF) FF is a private limited company that provides packaged fruit to the industrial market (B2B). The farm grows a variety of di…

Accepted Answer

Question Answer Marks 1(a)(i) Identify one content theory of motivation. 1 Indicative content. Responses may include: • Taylor / scientific management • Mayo / human needs / Hawthorne effect • Maslow / hierarchy of needs • Herzberg / 2 factors • McClelland / 3 needs Accept all valid responses. 1(a)(ii) Explain the term supply chain management. 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 The coordination (allow management) of the flow/movement of goods and services / raw materials. AO2 Application Limited application applies knowledge of supply chain management from one aspect of the supply chain (i.e. suppliers to a business, within a business or from the business to customers). Developed application + applies knowledge of supply chain management in two or more aspects of a business. Exemplars for application: • Between suppliers and the business – and the business to customers . • Between different parts of the business – and to the customer. • Raw materials within the business – and distribution channels. • Involves the complete chain of inventory from suppliers – or to customers. • Involves inventories, such as raw materials – and finished goods. Accept all valid responses. 1(b)(i) An employee works for 8 hours and picks 5 boxes of apples, 2 boxes of bananas and 4 trays of strawberries. 3 Refer to Table 1.1 and other information. Calculate the difference between the employee’s pay using piece rate and time-based payment. Indicative content. Piece rate: Apples – 5 boxes  $2 = $10 Bananas – 2 boxes  $1.50 = $3 Strawberries – 4 trays  $3 = $12 Total pay = $25 (1) Time based: 8 hours  $4.50 = $36 (1) Difference: $36 – $25 = $11 (1 OFR applies) Answer = ($)11 (3) 1(b)(ii) Explain one advantage to FF of introducing time-based payment. 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 Advantages of time-based payment method may include: • improves flexibility • improves quality • easier to forecast cash flow / costs • produce more output • motivates employees. AO2 Application Limited application , applies knowledge to FF once. Developed application + applies knowledge to FF twice. • Higher payment to fruit pickers • Answer to Q1(b)(i) (OFR) • FF already has poor motivation among its fruit pickers • Fruit pickers on piece rate may choose poor quality e.g., unripe/over-ripe fruit to fill boxes/trays • Different fruit may be more financially beneficial to fruit pickers on piece rate • $4.50 is only one flat payment. Accept all valid responses. 1(c) Analyse two non-financial motivators that FF could use to motivate its fruit pickers. 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. Annotate the first non-financial motivator ( ) in the left margin. Annotate the second non-financial motivator ( ) in the right margin. 1(c) Responses may include: AO1 Knowledge and understanding Knowledge of non-financial motivators (max 2 s), including: • Induction training • On the job / off the job training • opportunities for promotion • development • status • job re-design • team working • empowerment • participation / different leadership / management style • job enrichment. Do not allow any financial motivators, including: time based, salary, piece rates, commission, bonuses, profit sharing, performance-related pay, fringe benefits, paid holiday, gifts etc. AO2 Application Max one for application in the first non-financial motivator and max one for application in the second non-financial motivator. Application of knowledge of a non-financial motivator to FF (max 2 s), including • Fruit picking is labour intensive work . • 80 fruit pickers currently employed who are paid using piece rate, but would like time based • Change to time-based would increase FF’s costs significantly, 44% increase (based on OFR Q1(b)(i)). • Poor induction. • No encouragement of multi-skilling. • Autocratic management style. 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. Analysis may include: • (Training) can improve the induction of employees and lead to greater efficiency – greater sales, profit . • (Development) could be used to encourage employees to move between different jobs which increases employee flexibility – increased efficiency / sales / profit. • (Job re-design) may reduce the costs for FF – increased profitability. A two-sided analysis may also provide development: • (Team working) may allow different employees to work together which may improve efficiency – however may increase costs / cause distraction among employees . • (Empowerment) may improve the quality of decisions made – however FF’s fruit pickers may not make good decisions that benefit the business. • (Participation) may lead to improved efficiency – however could slow down decision-making process. • (Job enrichment) may make the employees want to and produce more – however there may not be any opportunities for enrichment. Accept all valid responses. 1(d) Evaluate the likely impact on FF’s stakeholders of improving the sustainability of 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 Developed analysis Developed evaluation of relevant key term(s) application of that identifies • A developed and/or factor(s) is used relevant point(s) to connections between judgement/conclusion is made. to answer the question. the business causes, impacts and/or • Developed evaluative context. consequences. comments which balance some key arguments. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key term(s) of relevant point(s) that identifies • A judgement/conclusion is and/or factor(s) is used to the business connections between made with limited supporting to answer the question. context. causes, impacts and/or comment/evidence. consequences. • An attempt is made to balance the arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable response. No creditable No creditable response. No creditable response. response. 1(d) Responses may include: AO1 Knowledge and understanding Limited knowledge will be demonstrated through knowledge of sustainability or knowledge of a stakeholder. Developed knowledge + will be demonstrated from the knowledge of sustainability and knowledge of a stakeholder. For example: Knowledge of sustainability (max 1 ), including: • the importance of sustainability, or a green business, is when a business has minimal negative impact or a positive effect on the global or local environment, community, society, or economy. • The impact of sustainability in terms of cost, publicity, new markets etc. Knowledge of business stakeholders (max 1 ), including: • individuals or groups with an interest in the activities of a business • internal stakeholders e.g. owners/shareholders, employees, managers / external stakeholders e.g. customers, local community, suppliers • the roles, rights and responsibilities of stakeholders. AO2 Application Limited application applies knowledge of FF once. Developed application + applies knowledge of FF twice. • FF provides products to the industrial market (not consumer market) . • Move from single use plastic in packaging to recycled materials . • Current system is labour intensive – new machinery would be capital intensive. • Less chemicals used in growing. • New Supply Chain Management required. • Relevant stakeholders of FF; fruit pickers, shareholders (FF is a private limited company), industrial customers (likely to be grocery shops, supermarkets, restaurants etc.), suppliers (seeds, packaging), directors, environmentalists, local community (farm – large agricultural area), final customers (of fruit purchased in shops). 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. 1(d) Impacts may include: • Increase in costs e.g. purchase of machinery, cost of recycled materials – (Shareholders) reduced profit in the short run , however, may increase profitability in the long run . – (Directors) opportunity cost of new capital / increased decisions to be made – reduced employees to supervise. – (Customers) increased price – may attract a new market of final customers (who favour sustainable products). • More environmentally sustainable: – (Customers) may choose to stock more of FF’s products – to attract environmentally conscious final customers. – (Environmental groups) may be happier with FF – may become customers of FF’s customers. – (Fruit pickers) may prefer to work for an environmentally sustainable business – may increase motivation. – (Suppliers) may not be able to provide new materials so may lose sales – decreased profit. – (Suppliers) FF may use new suppliers who gain FF as a customer – increased revenue. • New supply chain management: – (Suppliers) may have to change what is sold to FF – increasing suppliers’ costs. – (Environmental groups) may be happier with FF – and get more satisfaction from FF’s products. – (Local community) may be happier from less chemicals being used – increase value of homes / more pleasant living conditions. – (Shareholders) may increase costs – however, may also increases sales to new customers. • Change to capital intensive packaging process: – (Shareholders) increased production costs – however, may increase profitability with new target market. – (Employees) may no longer be required and may face redundancy – reduced income. 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 about the likely impacts of measures to improve the sustainability of operations on the stakeholders of FF. • A judgement over which stakeholder(s) may be most impacted by the measures to improve sustainability. • A judgement over the measures which are most likely to impact the stakeholders. • Elements that the judgement could depend upon, including, the number of workers in the packaging section, the cost of the machinery to produce the recycled packaging, the availability of new suppliers, the level of impact on FF’s costs/profitability, the objectives of different stakeholder groups, the objectives of FF. • Weighing up of the impacts on stakeholders of the proposed measures to improve the sustainability of FF. Accept all valid responses.

Question 29

Office Furniture Designs (OFD) Markus is an entrepreneur and is planning to set up a private limited company called OFD in four weeks’ time…

Accepted Answer

1(a)(i) Identify one quality an entrepreneur needs for success. Indicative content Identification of a quality may include:  Creativity  Innovation  Risk-taking  Effective communicator  Ability to negotiate  Confidence  Determination  Hard-working. Accept all valid responses. Question Answer Marks 1(a)(ii) Explain the term opportunity cost. AO1 Knowledge and understanding 1 mark AO2 Application 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark Knowledge of one relevant point is used to answer the question. 1 mark Limited application of one relevant point to a business context. 0 marks No creditable response. 0 marks No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of opportunity cost may include:  Opportunity cost is the benefits forgone/lost of the next best alternative/when a decision is made.  What is lost when a decision is made. AO2 Application Limited application applies knowledge of opportunity cost to a  choice/decision OR to the lost benefit. Developed application + applies knowledge of opportunity cost to a  choice/decision AND to the lost benefit. Application can be made to Markus/OFD or any other scenario/context/business/person. Accept all valid responses. 3 Question Answer Marks 1(a)(ii) Exemplar and annotations Mark Rationale The next best alternative that has been given up . For example, if Markus chooses to spend money on customer services and not marketing then the opportunity cost would have been the loss of the marketing benefits . 3 An answer which starts with the knowledge and then applies it to Markus. The next best thing forgone when making a decision . A business could choose to buy some desks , but they would miss out on being able to buy chairs . 3 Again, knowledge first, followed by application to a decision (choose to buy some desks) and to the lost benefit (not being able to buy chairs). If a business has £100 and they choose to buy inventory instead of fuel , then the opportunity cost is the lost benefit of the fuel because it has been lost . 3 A different way of answering the question. There is application of both elements of opportunity cost (the choice and the lost benefit) as well as clear knowledge of the concept by the end of the response. The next best opportunity forgone . For example, when you choose to buy a chocolate bar . 2 Clear knowledge. Some application of a choice, but not the lost benefit. What you miss out on when a decision is made . 1 Not a perfect definition, but enough to award the knowledge mark. No attempt to apply. It is about choices that have to be made by a business, for example choosing to buy a new piece of machinery. 0 No knowledge of opportunity cost. Too vague. Question Answer Marks 1(b)(i) Refer to Table 1.1. Calculate the forecast closing balance for August 2023. Indicative content Formula to find closing balance = Net cashflow for month + Opening balance (1) Knowledge that closing balance of one month is the opening balance of the next month (written explanation or demonstration by completing the cash flow forecast) (1) June July August Cash sales 8 12 15 Credit sales 0 15 24 Total cash inflows 8 27 39 Supplies 25 32 34 Utilities 3 3 4 Rent 15 15 15 Salaries/wages 10 11 11 Operating expenses 5 7 8 Total cash outflows 58 68 72 Net cash flow (50) (41) (33) Opening balance 10 (40) (81) Closing balance (40) (81) (114) 3 Question Answer Marks 1(b)(i) Final answer for X = (114) (1) Answer = ($114 000) or –114 000 allow –114 (3) OFR applies Allow 2 marks for $114 000 or 114 000 or 114 Marks 3 marks Correct answer (including minus) (114 000) or –114 000 allow –114 and (114) Working and $ do not matter. Allow brackets or minus sign to denote a negative number. Must be three to denote the three marks. 2 marks Two of the following:  Correct formula  Correct calculation of Net Cash Flow (33) or -33  Correct identification of opening balance (81) or -81 OR An incorrect answer with one mistake allowing OFR for final stage. OR $114 000 or 114 000 or 114 (no minus) To award two marks, there must be:  Two and a OR  One , one and one 1 mark One of the following:  Correct formula  Correct calculation of Net Cash Flow (–33)  Correct identification of opening balance (–81) To award one mark, there must be:  One and two 0 marks No creditable content. To award zero marks, there must be:  One Question Answer Marks 1(b)(ii) Explain one factor that will influence Markus’ choice of a source of finance. AO1 Knowledge and understanding 1 mark AO2 Application 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark Knowledge of one relevant point is used to answer the question. 1 mark Limited application of one relevant point to a business context. 0 marks No creditable response. 0 marks No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of a factor that may affect the choice of source of finance :  Cost of finance  Flexibility  Need to retain control  The use/reason/amount needed  Level of existing debt/cashflow. AO2 Application Limited application , applies knowledge to Markus/OFD once. Developed application + applies knowledge to Markus/OFD twice. Application of a factor may include:  OFD is a new business  OFD will be a private limited company  Markus will have limited start-up funds  OFD will operate in a highly competitive market  Data from Table 1.1 3 Question Answer Marks 1(b)(ii)  Answer from Q1b(i) (OFR applies)  OFD will offer customers one month trade credit  OFD’s suppliers may insist on payment on delivery (immediate payment). Accept all valid responses. Exemplar and annotations Mark Rationale A factor would be flexibility , because OFD needs $40 000 in June but this increases to $114 000 by August . 3 Flexibility is a reasonable factor, explained in the specific context of OFD/Markus by using the data in Table 1.1. Markus may want to keep control of OFD , so he would not want to sell any of the shares of the new private limited company . 3 Keeping control is and there are two specific pieces of context based on this so two . OFD is a new business and Markus has limited start-up funds so the most important factor is how much debt he already has . 3 Although the appears first, it cannot be awarded until the has been found. However, there is obvious , so you can go back and award the . Markus chose trade credit so that he can have inventory which is vital to a new business . 2 The fact that Markus chose trade credit is irrelevant, however the use of the source of finance is . The context of new business linked to this is reasonable , but only one point of application. How much it costs because the more it costs the worse his cashflow will get. If the cashflow is poor, he may build up debts and the business might ultimately fail. 1 Knowledge of a factor. The rest of the answer is not applying it to the context, so (Not Answering Question). Markus has chosen trade credit, which may mean he can improve his cashflow in June by reducing the outgoings by $25 000. This means that the closing balance will only be ($15 000) and mean that he may only need a small overdraft . 0 Although there is some relevant context, there is no knowledge of a factor, so no marks can be awarded. Question Answer Marks 1(c) Analyse two benefits to OFD of offering induction training to all employees. Level AO1 Knowledge and understanding 2 marks AO2 Application 2 marks AO3 Analysis 4 marks 2 3–4 marks Developed analysis  Developed analysis that identifies connections between causes, impacts and/or consequences of two points.  Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks  Knowledge of two relevant points is used to answer the question.  Knowledge of one relevant point is used to answer the question. 1–2 marks  Application of two relevant points to a business context.  Application of one relevant point to a business context. 1–2 marks Limited analysis  Limited analysis that identifies connections between causes, impacts and/or consequences of two points.  Limited analysis that identifies connections between causes, impacts and/or consequences of one point. 0 0 marks No creditable response. 0 marks No creditable response. 0 marks No creditable response. Annotate the first benefit in the left-hand margin and the second benefit in the right-hand margin. 8 Question Answer Marks 1(c) Indicative content AO1 Knowledge and understanding Knowledge of the benefits of induction training (max 2 s), may include:  Understanding workplace issues  Knowing who you are working with; organisational structure  Information about basic terms and conditions, e.g. holiday entitlement  Information about the goods/services sold, e.g. desks and office chairs  IT training to help new employee use the IT system  Basic customer service training/expectations  How to ensure that the products are fit for purpose AO2 Application Max one for application in the first benefit and max one for application in the second benefit, including;  OFD is a new business (do not reward repetition of the question)  Entrepreneur  Private limited company  Opening in four weeks’ time  Business took several months to set up  Limited start-up funds  Eight employees; five employees in warehouse, three in customer service  All employees are new / undergo induction together  Two-week induction training  Competitive service  High-quality customer service  Operate in a warehouse (but does not manufacture furniture)  Sell direct to customers (online retailer). Question Answer Marks 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.  All of the five employees are new and undergo induction together. It will help to ‘build’ the new team by helping them get to know each other so they will start to work productively quicker.  As it is a new business, the employees can agree the processes/procedures to operate and solve any potential issues before opening.  Markus is keen to offer a high-quality customer service. The induction training is an ideal time to embed a high-quality culture throughout the business.  The employees will become familiar with the technology used to operate the online retail business.  The training will motivate the employees as they will feel valued by their new employer which will encourage them to work hard.  The employees will settle in quicker as a result of the induction training, reducing labour turnover. This will save recruitment costs as Markus will not have to replace employees. Accept all valid responses. Exemplar and annotations AO1 Knowledge AO2 Application AO3 Analysis The workers will understand the health and safety rules by spending two weeks on the induction training. The employees are less likely to have an accident which could reduce the productivity of OFD which may mean that the business is more likely to survive its first year of trading . It will improve teamwork of the three customer service assistants which may mean that the customers get better customer service, feel loyal to the business and repeat purchase . Question Answer Marks 1(d) Evaluate whether Markus needs accurate cost information before setting up OFD. Level AO1 Knowledge and understanding 2 marks AO2 Application 2 marks AO3 Analysis 2 marks AO4 Evaluation 6 marks 3 5–6 marks Developed evaluation in context  A developed judgement/conclusion is made in the business context.  Developed evaluative comments which balance some key arguments in the business context. 2 2 marks Developed knowledge of relevant key term(s) and/or factor(s) is used to answer the question. 2 marks Developed application of relevant point(s) to the business context. 2 marks Developed analysis that identifies connections between causes, impacts and/or consequences. 3–4 marks Developed evaluation  A developed judgement/conclusion is made.  Developed evaluative comments which balance some key arguments. 12 Question Answer Marks 1(d) Level AO1 Knowledge and understanding 2 marks AO2 Application 2 marks AO3 Analysis 2 marks AO4 Evaluation 6 marks 1 1 mark Limited knowledge of relevant key term(s) and/or factor(s) is used to answer the question. 1 mark Limited application of relevant point(s) to the business context. 1 mark Limited analysis that identifies connections between causes, impacts and/or consequences. 1–2 marks Limited evaluation  A judgement/ conclusion is made with limited supporting comment/ evidence.  An attempt is made to balance the arguments. 0 0 marks No creditable response. 0 marks No creditable response. 0 marks No creditable response. 0 marks No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of cost information (max 2 s), including:  Costs are the amounts a business incurs when producing products and services.  Cost information data may be required to set up and operate the business, including pricing.  Cost information allows a business to calculate profit, profit margins, break-even etc.  There are many different types of costs: fixed, variable, direct and indirect.  A business may not have actual cost information – only estimates. AO2 Application Limited application applies knowledge of cost information to OFD once. Developed application + applies knowledge of cost information to OFD twice.  OFD is a new business / opening in four weeks  Use of data from Table 1.1  OFD will operate in a competitive market  Limited start-up funds Question Answer Marks 1(d)  Five warehouse employees  Three customer service assistants 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.  Cost information is used to create financial forecasts. If the data is inaccurate, Markus’ predictions will be incorrect and may lead to him overspending and getting into debt.  Cost information supports the cashflow forecast which will be used for decision making. Inaccurate information will lead to poor decision making, e.g. pricing of products or applying for finance.  It is challenging to predict everything that could happen, especially for a new business. Unexpected events could have major implications for costs.  Cost information will be used to make profit predictions and monitor/improve business performance. AO4 Evaluation Annotate evaluative judgements in the left-hand margin and evaluative comments in the right-hand margin. 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.  Relative importance of cost information – are other issues more important, e.g. potential customer demand, marketing, qualities/skills of the entrepreneur setting up the business  Accuracy depends on the Markus’ market research and business knowledge/experience. Significant events may occur that could impact the accuracy of the cost information, e.g. global pandemic  Is this the first business that Markus has set up/run?  The impact of inaccurate cost predictions may be reduced by higher-than-expected income.  The more time spent on cost predictions, the more likely they are to be accurate. However, is the benefit of accurate cost information worth the opportunity cost of the time spent?  A judgement that other factors are more important than cost information. Accept all valid responses. Question Answer Marks 1(d) Exemplar and annotations Markus needs accurate cost information so that he can accurately price his products . This is particularly important as OFD is operating in a competitive market . With accurate cost information, Markus can make sure the price includes an adequate profit margin and is not too high which could put off the business customers and reduce sales which could lead to OFD not making any profit . Therefore, Markus is highly unlikely to get his pricing strategy correct without accurate cost information and pricing is likely to be the most important aspect in this highly competitive market . However, this depends on whether Markus can obtain accurate cost information . The data can only be an estimate as OFD is a new business, and he might be better to just copy the cost and price information of one of his competitors and save the time involved in calculating accurate costs for OFD . AO1 – 2 marks AO2 – 2 marks AO3 – 2 marks AO4 – 6 marks TOTAL – 12 marks

Question 30

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

Accepted Answer

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

Question 31

Gold Theme Park (GT) Gold Park was a mine where gold was extracted until 2012. Although there was still some gold in the mine, the direct c…

Accepted Answer

Question Answer Marks 1(a)(i) Identify one type of training. 1 Indicative content. Identification of a type of training: • Induction • On-the-job • Off-the-job Only accept these responses 1(a)(ii) Explain the term ‘direct costs’. 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 direct cost(s) may include: • Costs that are directly related to the production process. • Costs that are directly attributed to operations/a cost centre. No further marks can be gained without knowledge and understanding AO2 Application Limited application applies knowledge of direct to business costs, including: • Amounts/things that are payable by a business / incurred by a business OR • Example or some other way of showing good understanding of a direct cost. Developed application + applies knowledge of direct to business costs, including • Amounts/things that are payable by a business / incurred by a business AND • Example or some other way of showing good understanding of a direct cost. Accept all valid responses. 1(a)(ii) Exemplar and annotations Mark Rationale Costs which are linked to the operations of a business 3 An answer which starts with the knowledge and then . For example, a gold mine would need to pay applies it to costs with an example. the miners who extract the gold . Something a business pays to make a product or 3 APP cannot be awarded without K, but once the K has service , such as raw materials . been awarded you can go back and reward the APP. Any example (it does not need to come from the data) can be used. Paid by a business , to produce a service . The 3 One of the APPs can come from further explanation it opposite of indirect costs which are not linked to does not have to be an example. production . Costs that are directly related to the production 2 No application of costs, so max 2 marks. process such as wages . Costs that can be attributed to a specific cost centre 2 Knowledge of the direct element with good unlike indirect costs which cannot . An example understanding. The example is fine, but no of a direct cost for GT are the wages of the tour understanding of costs. guides. Production costs . 1 Simple knowledge of the direct element. Costs which are directly accountable to a cost object 1 Knowledge of the direct element – ignore anything such as the marketing of GT. that is incorrect. No negative marking. The things a business has to pay . For example, a 0 Although there is some attempt at application, these marks cannot be awarded without knowledge. business may need to pay wages and advertising . Direct costs are the same as variable costs . 0 Variable costs share some characteristics with direct costs, but they are not the same. 1(b)(i) Refer to Table 1.1. Calculate the change in GT’s total costs between 2020 and 2022. 3 Indicative content. • Formula: total costs = total revenue – profit (1) • Calculation of cost in either 2020 or 2022 (1) – Costs in 2020: $3.4m – $0.9m = $2.5m – Costs in 2022: $2.8m – 0.2m = $2.6m • Change in costs: $2.6m – $2.5m = $0.1m (1 OFR) Answer = $0.1m (3) Accept answer as a percentage 4% (with % sign) as full marks Exemplar and annotations Marks 3 marks Correct answer Working and $ do not matter. $0.1m or 4% allow 0.1 If presented as a percentage, then % sign must be included for full marks allow OR clear and correct working shown. (0.1 / 2.5)  100 = 4 (obviously meant Must be three to denote the as a percentage) three marks. 2 marks Two of the following: To award two marks, there must be • Correct formula • Two and a • Correct calculation of TC for 2020 OR (2.5) • One , one and one • Correct calculation of TC for 2022 (2.6) OR An incorrect answer with one mistake allowing OFR for final stage. 1(b)(i) Marks 1 mark One of the following: To award one mark, there must be: • Correct formula • One and two • Correct calculation of TC for 2020 (2.5) • Correct calculation of TC for 2022 (2.6) 0 marks No creditable content. To award zero marks, there must be • One 1(b)(ii) Explain one way to measure the size of GT. 3 AO1 Knowledge and understanding AO2 Application 1 mark 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark 1 mark Knowledge of one relevant point is used to answer the Limited application of one relevant point to a business question. context. 0 marks 0 marks No creditable response. No creditable response. Indicative content AO1 Knowledge and understanding • Knowledge of an appropriate way to measure the size of a business; revenue, number of outlets, number of employees, market share, number of customers, market capitalisation capital employed, area/space etc. Do not allow profit – which is a measure of success or performance, but not size. No further marks can be gained without knowledge and understanding AO2 Application Limited application , applies knowledge to GT once. Developed application + applies knowledge to GT twice OR through the calculation or comparison of data (eg a percentage change). 1(b)(ii) • Use of data related to GT to show the size of the business (this data can be used more than once) 2020 2021 2022 Sales revenue ($m) 3.4 3.2 2.8 Number of 54 55 47 employees Profit ($m) 0.9 0.3 0.2 Number of visitors 0.8 0.8 0.65 (m) • GT includes a museum, tours, a roller coaster, restaurant, and gift shop • Some employees previously worked in the gold mine • Some employees are tour guides and customer service representatives Accept all valid responses. Exemplar and annotations Mark Rationale Number of employees , in 2020 GT had 54 3 Number of employees is a way to measure size and employees but this decreased to 46 in 2022 . the use of two data points shows developed application. The size of GT can be measured by revenue . GT’s 3 Revenue is a way to measure size and the candidate revenue decreased by 17.65% . has used two pieces of data (revenue for 2020 and revenue for 2022) to come to a correct calculation. It may be necessary to check calculations and allow for correct rounding. GT has got smaller since its visitors have 3 Visitors (customers) is a way to measure size and the decreased to 0.65m . use of two data points for developed application. 1(b)(ii) Exemplar and annotations Mark Rationale GT has gotten smaller, since their revenue has 3 Revenue is a way to measure size and the use of two fallen to $2.8m and its visitors have also fallen to data points for developed application. 0.65m . As a theme park, visitor numbers are an important 3 Visitors is a way to measure size. The context of a way to measure size, which has fallen to 0.65m in theme park is limited application (go back and award 2022 . after the K has been awarded) with a use of the data from Table 1.1 to develop this application. Number of employees has decreased to 46 in 3 Only limited application through the use of one data 2022 . point. It is not enough to state that it has ‘decreased’ – the figures must be used. The number of people that GT employs , such as 2 Application does not need to come from the data in the customer service operatives . Table 1.1. The number of visitors is really important because 1 No specific context used in this answer. the more visitors GT has, the more revenue it is likely to generate and the bigger its profit. This all stems from the visitors who are the customers of GT and therefore the most important way to measure the size of GT . The size of GT can be measured by the number of 1 AO1 knowledge does not need to be in context, so factories it has. The more factories the more it can can be awarded, even if the answer does not match produce. the context. A big business is likely to have more power in the 0 No valid way to measure the size of the business. market and can dominate the competition . 1(c) Analyse two possible sources of secondary market research that the Marketing Director could use to help improve 8 GT. AO1 Knowledge and AO2 Application AO3 Analysis Level understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two relevant • Application of two relevant Limited analysis points is used to answer the points to a business context. • Limited analysis that identifies question. • Application of one relevant connections between causes, • Knowledge of one relevant point to a business context. impacts and/or consequences point is used to answer the of two points. question. • Limited analysis that identifies 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. Annotate the first source in the left-hand margin and the second source in the right-hand margin. 1(c) Indicative content: AO1 Knowledge and understanding Knowledge of sources of secondary market research (max 2 s), include; • journal articles • 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. No further marks can be gained without knowledge and understanding AO2 Application Max one for application in the first source and max one for application in the second source, including; • Link to leisure markets, such as days out and entertainment. • Link to specific competitors, such as other days out, services, museums. • Link to elements specific to GT, such as: – converted mine / gold mine – guided tours – roller coaster rides – entry prices of similar services – need to reduce price – need to make GT more fun. 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. Analysis may be of the cost and/or benefit and/or risk of the source of market research to GT. Costs may include: • Monetary cost of research – may affect the profitability of GT. • Time cost of research – opportunity cost of time spent on other activities. Benefits may include: • Understanding of the market to increase in visitor numbers – increased sales revenue. • Relatively lower cost than more primary market research – increased profit. Risk may include: • Use of secondary research to find out more about the market and potential visitors – to increase sales revenue/profit. Accept all valid responses. Exemplar and annotations AO1 Knowledge AO2 Application AO3 Analysis Newspapers . To spot trends in what people like Which can help GT increase their when visiting roller coasters in the sales revenue by selling more theme park. tickets and make a greater profit . Competitors websites To see what their prices are because So GT can set a better price for their some customers think GT’s prices are tickets and increase customer too high . satisfaction however the data might be outdated . 1(d) Evaluate the importance to the ongoing success of GT of developing intrapreneurship. 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. 1(d) Indicative content AO1 Knowledge and understanding Knowledge of intrapreneurship (max 2 s), including: • Intrapreneurship is where the workers come up with innovative ideas using enterprise to increase the profitability of the business. The business may reward the intrapreneur for their ideas. • Allows employees to act like entrepreneurs / introduce enterprise within the business (employed). • The qualities of intrapreneurship, including; passion, talent, curiosity, motivation, resourcefulness, networking, confidence, knowledge and experience. • the role of intrapreneurship, including: problem solving, idea generation, identify opportunities, overcome threats, empowerment. No further marks can be gained without knowledge and understanding AO2 Application Limited application applies knowledge of intrapreneurship to GT once. Developed application + applies knowledge of intrapreneurship to GT twice. • Link to leisure markets, such as days out and entertainment. • Link to elements specific to GT’s intrapreneurship, such as: – some employees used to work in the gold mine – good knowledge about the theme of GT – some employees are younger workers on flexible contracts – falling sales ($3.4m in 2020 to $2.8m in 2022 – 17.65% fall) – fewer employees in 2022 than 2021 – loss of intrapreneurship skills – falling profit ($0.9m in 2020 to $0.2m in 2022 – 77.78% fall) – link to ability to fund ideas – fall in visitors due to; not fun, too high prices. 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. Advantages of intrapreneurship to GT may include: • Using GT’s own resources to find solutions to their falling visitor numbers may be cheaper than external management consultants – lower GT’s cost and increase profit. • GT workers may provide better / more effective solutions to GT’s problems – more likely to increase visitor numbers. • Use of the mine’s previous employees for their intrapreneurial ideas may be more likely to improve the business – increase visitor numbers. • Asking for employee involvement may increase the motivation of the staff – increased productivity/sales revenue, 1(d) Disadvantages of intrapreneurship to GT may include: • GT’s employees (especially the younger workers on flexible contracts) may not have the experience and/or knowledge to help GT increase visitor numbers – opportunity cost of spending time on tasks other than their main function. • GT’s employees may not provide adequate solutions which may not increase visitor numbers – GT may make a loss in the future. • GT needs a quick solution (because profit is likely to become loss in the near future) and intrapreneurship may not provide this – visitor numbers may not increase leading to GT making a loss or not surviving. • GT already has two possible solutions (lower price and increase fun of the park), so a focus on intrapreneurial ideas may waste time – opportunity cost. 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 about the likely role of intrapreneurship in the ongoing success of GT. • What the judgement might depend upon; the timeframe that GT must find a solution to their falling visitor numbers, the ability/skill of GT’s workers, the ability/skill of Kayo to utilise the intrapreneurial skills of GT’s employees, the validity of GT’s previous primary market research, the findings of the secondary market research etc. • Weighing up of the arguments for the role of intrapreneurship to the ongoing success of GT. Accept all valid responses. 1(d) Exemplars for awarding evaluation L1 (limited supporting L2 (developed supporting L3 (developed supporting evidence) evidence) evidence with context) Intrapreneurship is very important to Intrapreneurship is very important to Intrapreneurship is very important to the success of GT. the success of GT because it gives the success of GT because it gives the business new innovative ideas. the business new innovative ideas for roller coasters. Intrapreneurship is not as important Intrapreneurship is not as important Intrapreneurship is not as important as finance. as finance because without enough as finance because without enough money a theme park will not survive. money a theme park will not survive against all of the other leisure businesses in the market. It depends on how good the It depends on how good the It depends on how good the intrapreneurs are. intrapreneurs are. If they come up intrapreneurs are. If they come up with innovative ideas, then it is with innovative ideas about how to important. better use the gold mine, then it is important. In the short term it is, but in the long In the short term it is to bring in new In the short term it is to bring in new term it is not. ideas for the theme park, but in the ideas for the theme park, but in the long term having the right price may long term reducing the price that is too be more important. high may be more important.

Question 32

Bear Bears (BB) BB is a business partnership owned by Sade and Chika. BB produces personalised teddy bears (toys) for children. The toys ar…

Accepted Answer

2(a)(i) Identify one method of market segmentation. 1 Indicative content Methods of market segmentation: • geographic • demographic • psychographic/behavioural Only accept these responses 2(a)(ii) Explain the term ‘mass customisation’. 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 mass customisation may include: • A production process where some elements can be changed to meet customer needs. No further marks can be gained without knowledge and understanding AO2 Application Limited application applies knowledge of customisation to mass production, including: • A process to customise whilst producing large amounts of similar products/flow production. OR • Example or some other way of showing good understanding. Developed application + applies knowledge of customisation to mass production, including: • A process to customise whilst producing large amounts of similar products/flow production. AND • Example or some other way of showing good understanding. Accept all valid responses. 2(a)(ii) Exemplar and annotations Mark Rationale Products which are changed based on customer 3 An answer which starts with the knowledge and then preferences , but still produced in large numbers applies it to the mass element with an example. for example T-Shirts with different designs . Mass customisation usually capital intensive 3 APP cannot be awarded without K, but once the K has production by using IT systems to make slightly been awarded you can go back and reward the APP. different products ,on a production line . Production line/assembly line/flow production is all fine for APP. Products can be changed slightly such as a car 2 Knowledge and an example. with different features . Products which can be adapted to meet the differing 1 Simple knowledge of the direct element. needs of customers . Large scale production with capital intensive 0 Although there is some attempt at application, these operations . For example, a T-Shirt with different marks cannot be awarded without knowledge. designs . 2(b)(i) Calculate BB’s fixed costs last month. 3 Indicative content • Formula: break even point  contribution = fixed costs (1) OR total costs – (total) variable costs (1) • Break even point = 4000 – 120 = 3880 units (1) • 3880  $6 = $23 280 (1 OFR applies) Answer = $23 280 (3) Exemplar and annotations 3 marks Correct answer Working and $ do not matter. $23 280 Must be three to denote the three marks. 2 marks Both of the following: To award two marks, there must be • Correct formula • Two and a • Correct calculation of break even point OR (3880). • One , one and one OR An incorrect answer with one mistake allowing OFR for break even point. OR An answer of $24 000 (including working of $6 X 4000 units – or any other appropriate working) 2(b)(i) 1 mark One of the following: To award one mark, there must be: • Correct formula • One and two • Correct calculation of break even point (3880). 0 marks No creditable content. To award zero marks, there must be • One 2(b)(ii) Explain one limitation for BB of using break-even analysis. 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 limitation of using break-even analysis , including: • Fixed costs may not be constant – may change in long run • Assumption that output equals sales • Assumption that unit variable costs remain constant at all output levels • Assumption that price will remain constant at all output levels • Only useful for individual (or limited number of) product lines • Does not take into account external changes (social, legal, economic, political, technological) or qualitative data • Only a forecast/estimate. No further marks can be gained without knowledge and understanding 2(b)(ii) AO2 Application Limited application , applies knowledge to BB once. Developed application + applies knowledge to BB twice. Application of a factor may include: • Each bear is sold for $50 with a contribution of $6 • Margin of safety last month was 120 units • Break-even point last month was 3880 (OFR based on Q2bi) • Personalised products – unlikely to have the same variable costs (although piece rate payment may make this possible) • Proposed JIT may make former break-even analysis irrelevant • Information from Table 2.1, such as the quantity and type of materials used. Accept all valid responses. Exemplar and annotations Mark Rationale Break-even analysis assumes that fixed costs do not 3 Knowledge of a limitation with two pieces of context change . BBs fixed costs were $23 280 last applied. month, however this is likely to change if they introduce JIT . BB is considering introducing greater equality , 3 The APP cannot be awarded until there is knowledge, which may increase the costs and the price may need however you can go back and annotate it. to increase from $50 which makes the break even calculations irrelevant . The variable costs of BB may not be constant 2 Knowledge and one piece of context. which could mean that the margin of safety will fall from 120 units . Break even analysis assumes all output produced is 1 Knowledge and no application to the context. sold . 2(b)(ii) Exemplar and annotations Mark Rationale Break even analysis is a way of calculating the 0 Although there is some relevant context, there is no quantity needed to stop making a loss and start knowledge of a limitation, so no marks can be making a profit. This is useful to BB because they can awarded. calculate how many teddy bears need to be sold to cover all of the costs, including the $6 unit contribution. 2(c) Analyse two possible impacts on BB of adopting a just in time (JIT) approach to inventory management. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two relevant • Application of two relevant Limited analysis points is used to answer the points to a business context. • Limited analysis that identifies question. • Application of one relevant connections between causes, • Knowledge of one relevant point to a business context. impacts and/or consequences point is used to answer the of two points. question. • Limited analysis that identifies 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. Annotate the first impact in the left-hand margin and the second impact in the right-hand margin. 2(c) Indicative content AO1 Knowledge and understanding Impacts of just in time (JIT) (max 2 s), including: • Less space needed • Waste reduction • Shorter lead times • Prevents over-production • Reduces capital tied up in inventory control • May run out of inventory – may require good relationship with supplier • May lead to delays • Requires planning/forecasting • May not be able to respond to changes in demand • May lead to idle resources. No further marks can be gained without knowledge and understanding AO2 Application Max one for application in the first impact and max one for application in the second impact, including; • Personalised product (toys) using mass customisation. • One week lead time to customers. • BB has low margin of safety (120 units last month). • Currently holds a large amount of inventory in raw materials (400kgs) and work in progress (300 un-customised toys). • No finished products being held (probably due to customisation and lead time). • Inventory held in a temperature-controlled warehouse. 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. • Less space needed; reduction in storage costs – no need for warehouse which could reduce the fixed costs – improve margin of safety – increased profitability. However, may increase need for deliveries and variable costs of production. • Waste reduction; lower costs – higher profit margin. • Reduces capital tied up in inventory control; may facilitate sale of warehouse which can free-up capital to be used elsewhere in the business – facilitate expansion. However, the increased costs of more deliveries, supplier relations may increase variable/direct costs significantly. 2(c) Less capital tied up in stock which may improve BB’s working capital position. However, costs may increase. • May run out of inventory; which may increase the lead time for customer order – increase customer dissatisfaction, reduce sales, profits. May lead to BB making a loss since BB is close to break even. • Requires planning/forecasting; to enable BB to run without a stock of raw materials and work in progress. • May lead to idle resources; employees being idle – increased costs, reduced productivity. Accept all valid responses. Exemplar and annotations AO1 Knowledge AO2 Application AO3 Analysis Reduces the need for inventory to be In the temperature-controlled Which means that BB can sell the stored . warehouse . warehouse and use the spare capital to expand production . Could lead to delays in fulfilling Which might make it difficult to get Which might lead to a reduction in customer orders . customers their order within a week sales revenue for BB and reduce . the profitability of the firm . 2(d) Evaluate the most likely impact on BB of increased equality in its stitching department. 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) Indicative content AO1 Knowledge and understanding Knowledge of equality (max 2 s), including: • Equality in the workplace means equal job opportunities and fairness for employees and job applicants. • Equality means that a business must not treat people unfairly because of protected characteristics. For example, because of sex, age, race, religion, culture – allow any acceptable protected characteristic. • Equality means having an inclusive and fair working environment. No further marks can be gained without knowledge and understanding AO2 Application Limited application applies knowledge of equality to BB once. Developed application + applies knowledge of equality to BB twice. • Personalised products (toys) using mass customisation – stitching (where David works) department does the customisation. • Employees paid using piece rate. • David is only man in stitching department – possible inequality in recruitment process. • Stitching employees • Lack of male washroom facilities on ground floor. • David given tasks which require heavy lifting. • David asked to fix problems with machines – limits his ability to earn (piece rate). 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. Positive impacts, including: • BB may gain a reputation as a better employer which may improve their recruitment – reduce business costs of recruitment and/or lead to better employees. • Owners may avoid being sued for discrimination in the workplace (unlimited liability) by an employee. • May increase motivation of the current workers which could increase productivity – decrease sales, increase profitability. • May improve the quality of the work which could allow BB to increase prices – increased profitability. 2(d) Negative impacts, including: • Costs of increasing equality, including: – cost of recruiting more men to the stitching department – cost of building a men’s washroom on the ground floor – costs of retraining other employees to fix machines – costs of employing someone / training someone to do the heavy lifting and/or capital expense of equipment to do this. • If BB admit to inequality in the stitching department (by improving it) then they may be open to allegations of discrimination – legal issues, poor reputation, customer reaction. • Possibility that other departments/groups in BB will demand equality. 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 the most likely/important impacts of increased equality in the stitching department. • What the judgement might depend upon, including; the legal rights/responsibilities of businesses in BB’s home country, the legitimacy/accuracy of David’s claims about inequality in the stitching department, the level of equality in the other departments of BB, other HRM/operational issues facing BB. • Weighing up of the relevant impacts of increased equality in the stitching department. Accept all valid responses. Exemplars for awarding evaluation L1 (limited supporting L2 (developed supporting L3 (developed supporting evidence) evidence) evidence with context) A decrease to BB’s public image is A decrease to BB’s public image is A decrease to BB’s public image is the most likely impact. the most likely impact because it the most likely impact because they needs to maintain its revenue which is rely on customised customer orders to essential to survive. maintain its revenue which is essential to survive. 2(d) L1 (limited supporting L2 (developed supporting L3 (developed supporting evidence) evidence) evidence with context) Motivation will have the biggest Motivation will have the biggest Motivation will have the biggest impact impact because the employees will impact because BB uses mass have a big effect on the amount of customisation so the they will have a products that can be produced, big effect on the amount of products limiting the output. produced, limiting the output, The most important impact will be The most important impact will be The most important impact will be lower labour turnover. lower labour turnover because BB’s lower labour turnover because BB’s business model relies on employing business model relies on employing people, some of whom are not happy people in the factory, some of whom at the moment. are not happy at the moment, like David who is the only male in department. All of this may depend upon what the All of this may depend upon whether All of this may depend upon whether owners want. the owners care about happiness of the owners care about happiness of all their employees or just see them all their employees, including David as a cost burden on BB. the only male in department, or just see them as a cost burden on BB. It will be different in the short term, In the short term, equality will have a In the short term, equality will have a compared with the long term. negative impact due to the increased negative impact due to the increased costs incurred by BB, but in the long costs incurred by BB of building a new term it will have a beneficial impact bathroom, but in the long term it will because labour turnover will have a beneficial impact because decrease. labour turnover will decrease. Some stakeholders will see it as a Employees may see it as a positive Employees may see it as a positive positive impact. impact because they are getting equal impact because they are getting equal rights, which might lead to better pay rights, which might lead to David for some and make them feel more getting equal access to a bathroom secure in their job. and not have to do all of the traditionally ‘male’ job roles.

Question 33

Jake’s Cakes (JC) Jake started baking cakes while at university. He baked cakes for friends’ birthdays and other celebrations. He posted pi…

Accepted Answer

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

Question 34

Zoe’s Bags (ZB) Zoe’s Bags (ZB) is an online retailer that makes and sells a range of luxury hand-made bags. The business was set up three …

Accepted Answer

Question Answer Marks 1(a)(i) Identify one feature of JIT inventory management 1 Indicative content Responses may include: • Low/no inventory levels • Stock ordered according to production/customer demand • Reduced storage costs • Reduced risk of stock being stolen/damaged/becoming obsolete/wastage • Reduced insurance cost / decreased insurance risk • No/smaller warehouse required • Good relationship with suppliers Do not allow better customer relationship Managing inventory is a tautology Accept all valid responses. 1(a)(ii) Explain the term niche market 3 AO1 Knowledge and understanding AO2 Application 1 mark 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark 1 mark Knowledge of one relevant point is used to 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 A niche market is a (small) section/part/subset of the market. No further marks can be gained without knowledge and understanding AO2 Application A characteristic of a niche market (or niche marketing), such as: • High quality/reputation • USP/clear focus/differentiated • High profit (margin) • Loyal customers • Low economies of scale/high production costs • High risk/often single product/’all eggs in one basket’ • May be more vulnerable to change than a mass market • Easier for small business to enter the market (e.g. lower marketing costs) Example of a niche market (not a business that targets a niche market) Do not allow specialised/customised as APP Accept all valid responses. 1(b)(i) Refer to Fig. 1.1 and other information. Calculate the margin of safety in February. 3 Answer Guidance Formula to find margin of safety = actual output - break- Award 3 marks for correct answer of 400 (with or without even output (1) workings) Read the break-even output correctly from break-even Award 2 marks for correct answer 400 with dollar sign, e.g. chart = 1000 units (1) $400 as the margin of safety is not a financial value OR 1400 – 1000 (2) OFR Answer = 400 (units) or 40% (3) 1(b)(i) Exemplar and annotations Marks 3 marks Correct answer Working does not matter. 400 units or 400 or 40% Must be three to denote the three marks. 2 marks One of the following: To award two marks, there must be • Correct presentation of numbers (1400 – • Two and a 1000), but no correct answer OR • Correct answer with incorrect units (i.e. $400 • One , one and one or 400%) OR An incorrect answer with one mistake allowing OFR for final stage. 1 mark One of the following: To award one mark, there must be: • Correct formula • One and two • Correct identification of the break-even point (1000) 0 marks No creditable content. To award zero marks, there must be • One 1(b)(ii) Explain one way that Zoe and Luis can use break-even analysis. 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 a way to use break-even analysis 1 mark Explanation Explanation of a way Luis could use break-even analysis 1 mark Context Context linked to a way Luis could use break-even analysis 1 mark No marks can be awarded without knowledge. Responses may include: AO1 Knowledge and understanding • To support decision making (i.e. pricing decisions, costing decisions) • To calculate useful data (i.e. break-even level of output, margin of safety, profit/loss levels at levels of output) Do not allow calculations that are needed to produce break even analysis (i.e. VC, FC, TR) • To consider ‘what if’ scenarios, • To forecast costs/pricing No further marks can be gained without knowledge and understanding 1(b)(ii) AO2 Application Explanation may include: • To support decision making; for example Luis could use the break-even data to decide on an appropriate marketing mix • To calculate useful data; such as the level of output at which ZB will stop making a loss. • To consider ‘what if’ scenarios; for example the impact of changing factors of production • To forecast costs/pricing when the level of output changes Context may include: • Margin of safety of 400 (OFR based on answer to Q1(b)(i) • Break-even level of output of 1000 (OFR based on answer to Q1(b)(i) • Allow any correct identifications/calculations of the data in Fig 1.1 (i.e. FC = $25 000, VC per unit = $15, TR/P per unit = $40 – Note: some calculations depend upon the output) • Business set up three years ago / in 2021 • Business has grown each year • Bags are made to order • ZB uses JIT • Lead time is five days • 50% growth in sales in February due to magazine advertising promotion. • Larger production team (due to sales growth) • Two supervisors recruited • 15 production employees • Supervisors given off-the-job training • Production employees paid a salary (fixed, direct cost) • Increased labour turnover recently • Recommendation to introduce performance-related pay • Luxury hand-made bags Accept all valid responses. 1(c) Analyse two benefits to ZB of providing off-the-job training to the new supervisors. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two • Application of two Limited analysis relevant points is relevant points to a • Limited analysis that identifies connections between used to answer the business context. causes, impacts and/or consequences of two points. question. • Application of one • Limited analysis that identifies connections between • Knowledge of one relevant point to a causes, impacts and/or consequences of one point. relevant point is business context. used to answer the question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Off-the-job training is training that takes place away from their place of work. Examples of off-the-job training include a college/university course, distance learning (mark only given if no other marks awarded). 1(c) Responses may include: AO1 Knowledge and understanding Benefits of off-the-job training include: • Specialist/expert training / higher quality • Fewer interruptions / better concentration • Change of environment • Can lead to recognised qualifications • Less production interruptions / does not impact quality / can be done outside work hours • Can be safer / less risk/ allows practice/mistakes Knowledge of a benefit must be specific to off-the-job training AO2 Application • Sells products online / online retailer • Luxury hand-made bags • Made to customer’s order • 15 employees • ZB works closely with its main supplier of raw materials • Operates a JIT inventory management system • ZB set up three years ago • ZB operates as a partnership • Growing demand following magazine advertising promotion in January • Labour turnover increasing AO3 Analysis • Specialist/expert/quality training; less waste in the business – higher profit. • Fewer interruptions / better concentration; supervisors may need less time to be trained, reducing costs – leading to higher profit. • Specialist equipment can be used; which may not be available in the business, so makes supervisors more productive – increased production and revenue. • Change of environment; may motivate workers making them more productive – increased products to sell and revenue. • Valuing employees; makes employees more loyal and less likely to leave the business – reducing recruitment costs. 1(c) • Can lead to recognised qualifications; which may motivate employees to work harder and be more productive – increases revenue. • Fewer production interruptions / does not impact quality; more products produced – decreases average costs. • Can be safer / less risk; less wastage, so lower costs – increased profit. Accept all valid responses. 1(d) Evaluate whether ZB should introduce performance-related pay. 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. 1(d) Responses may include: AO1 Knowledge and understanding Knowledge of performance related pay and/or salary, including; • Performance-related pay; is where the amount of payment is linked – to the employee’s meeting targets/quality/ability • Do not reward ‘performance’ • Salary; a salary is a fixed payment (usually paid monthly) irrespective of number of hours worked and/or productivity One payment system can gain both AO1 marks, if developed knowledge is shown. AO2 Application • Sells products online / online retailer • Luxury hand-made bags • Made to customer’s order • 15 employees • Operates a JIT inventory management system • ZB set up three years ago • ZB operates as a partnership • Growing demand following magazine advertising promotion in January • Orders increased by 50% • Labour turnover increasing • Five-day lead time • Workers currently paid a salary AO3 Analysis Analysis for performance related pay, including; • Performance-related pay offers employees an incentive to work harder – increased productivity . • Performance-related pay offers the employees the opportunity to potentially earn more money than when they were paid a salary. This could reduce labour turnover – decreases costs. • Money as a method of motivation and increased productivity – lower costs. • Challenge of setting fair performance objectives / fair review of performance for all employees, increases productivity – increases sales. • Performance-related pay may encourage some employees to work faster/harder and quicker dispatch of orders may become a source of competitive advantage – increased market share. 1(d) Analysis against performance related pay, including; • Money not motivating all employees so may increases costs – and lead to lower profit • Time/administration involved with managing/operating a performance-related pay system increases costs – reduces profit. • Employees may focus on producing a higher quantity under a performance-related pay system, which could have a negative impact on quality - which could affect future sales/brand image. • The change to performance-related pay may lead to less pay stability for employees and could increase labour turnover further – increasing costs. Allow analysis for and against a maintaining salary, including; • Salary payments offer stability for employees as they know how much they will receive each month which may reduce labour turnover – reducing costs. • Salary payments offer no incentive for employees to increase production – no growth. AO4 Evaluation • A judgement whether ZB should introduce performance related pay, and/or a judgement that ZB should maintain its system of paying a salary. • What the introduction of performance related pay may depend upon, such as; whether employees are motivated by pay, the local labour market and the employee’s reaction to the idea • Whether the benefits of the increased employee effort/motivation outweigh the costs of introducing the system? • What payment systems do other local businesses offer – will ZB continue to lose experienced employees if unhappy about the change? • What impact will the change have on product quality – will this affect future sales/brand image? • Will employees receive a basic payment alongside the performance-related element to provide stability? Accept all valid responses.

Question 35

Cobblestone Shoes (CS) Yazeem is a highly skilled shoemaker. He opened CS in 1975, as a sole trader, to design and repair shoes. When Yazee…

Accepted Answer

2(a)(i) Identify one type of training. Indicative content Types of training are:  Induction  On the job  Off the job 1 2(a)(ii) Explain the term mass market. AO1 Knowledge and understanding 1 mark AO2 Application 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark Knowledge of one relevant point is used to answer the question. 1 mark Limited application of one relevant point to a business context. 0 marks No creditable response. 0 marks No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of mass market (max 1 mark), including:  Aiming a product or service at the majority of people.  Made for the large part of the population  Made for most of the population/market Allow ‘not a segment of the market’ or ‘all of the market’ or ‘everyone’. 3 Question Answer Marks 2(a)(ii) AO2 Application Explanation of a characteristic of the mass market (or mass marketing) , including:  Many different size/colour products  One size fits all products /standardised  Customer wants are more general and less specific  Associated with high output/quantity (than a segment or niche market)  Associated with low(er) prices (than a segment or niche market)  May benefit from economies of scale  Lower risk than niche markets or segmented markets  High level of competition  Competition on national/international/global scale. Context applied to mass market(s) , including:  Relevant example of mass market(s) (including the shoe market) Must be an example of the market (the people who might purchase canned drinks) – not a product aimed at the mass market (Coke) Application can be made to PS or any other scenario/context/business/person. Accept all valid responses. Guidance in awarding marks Knowledge & understanding Knowledge of a/the mass market 1 mark Explanation Explanation of a characteristic of the mass market 1 mark Context Applied to a business context/ business environment 1 mark Question Answer Marks 2(a)(ii) Exemplar and annotations Mark Rationale Mass markets are aimed at everybody . For example, in the shoe market, this might be plain black shoes that anybody could wear which are all the same . 3 An answer which starts with the knowledge and then applies it to mass shoe market, with a characteristic. CS can sell in high quantity to the whole market . At a low price . 3 Two characteristics surrounding the knowledge. Aiming at the majority of people who might want to buy the product . For example, customers who might buy a blank T- Shirt . 2 Clear knowledge. Some application through an example. A mass market is one that is not focussed on a market segment . Therefore, the product could be bought by anyone. It is likely that a large number of people would be potential customers. 1 A reasonable definition but what follows is more of the same knowledge. Mass markets have high sales revenue and products are likely to have higher price than a niche market . This could give the business access to economies of scale . 0 There are two characteristics here, but no knowledge of mass markets. Therefore, no marks can be awarded. Question Answer Marks 2(b)(i) Refer to Table 2.1. Calculate the contribution per unit for the recent batch of shoes. Formula: Contribution per unit = price – VC or TR – TVC / output or Profit (TR – TC) / margin of safety (1) Method 1 $18 750 / 500 = $37.50 and $25 000 / 500 = $50 (1) $50 – $37.50 = $12.50 (1) Method 2 ($25 000 – $18 750) = $6250 (1) $6250 / 500 = $12.50 (1) Method 3 $25 000 – $23 750 = $1250 (1) $1250 / 100 = $12.50 (1) Answer = $12.50 (3) 3 Question Answer Marks 2(b)(i) Exemplar and annotations Marks 3 marks Correct answer $12.50 or 12.50 or 12.5 Working and $ do not matter. 2 marks Both of the following:  Formula  One correct stage of calculation OR An incorrect answer with one mistake allowing OFR for final stage. To award two marks, there must be  Two and a OR  One , one and one 1 mark One of the following:  Correct formula  One correct stage of calculation. To award one mark, there must be:  One and two 0 marks No creditable content. To award zero marks, there must be  One Question Answer Marks 2(b)(ii) Explain one limitation for CS of using break-even analysis. AO1 Knowledge and understanding 1 mark AO2 Application 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark Knowledge of one relevant point is used to answer the question. 1 mark Limited application of one relevant point to a business context. 0 marks No creditable response. 0 marks No creditable response. Indicative content AO1 Knowledge and understanding Knowledge of a limitation of using break-even analysis , including:  not all costs and revenue can be split  assumes all costs are a straight line (constant)  assumes price is constant  assumes all output is sold/does not take into account demand/demand fluctuates  assumes all costs are fixed or variable  needs to be calculated for each product  it ignores capacity  assumes that fixed costs do not change as output increases  assumes fixed costs can be allocated  assumes no external influences. Do not accept that break-even analysis data may be inaccurate/wrong or time consuming. This is not a specific limitation of break-even analysis. 3 Question Answer Marks 2(b)(ii) AO2 Application Explanation of a limitation if using break-even analysis , including:  not all costs and revenue can be split: and break-even assumes that all costs can be split.  assumes all costs are a straight line (constant); whereas costs are likely to fall (on average) as output increases.  assumes price is constant; whereas most businesses will need to reduce the price to sell more.  assumes all output is sold; which is unlikely for most businesses – wastage, obsolescence etc.  assumes all costs are fixed or variable; whereas there are semi-fixed / semi-variable costs.  needs to be calculated for each product: only really works for a single product business.  it ignores capacity; if the capacity is below the break-even point, then the business will never break even.  assumes that fixed costs do not change as output increases; but as output increases most firms will need to source more fixed assets.  assumes fixed costs can be allocated: which is not always possible for a multi-product business. Context applied to a limitation of using break-even analysis including:  Yazeem uses a range of colours and sizes – may be impossible to do break-even for each style of shoe/size/colour.  Uses batch production – may be impossible to allocate the fixed costs to each style/size/colour.  At least two employees (Yazeem and Abir) – how can their time be allocated to production/administration etc.  Increase in low-priced shoes – may make it impossible to sell all the output.  Use of Table 2.1.  OFR from Q2(b)(i) Accept all valid responses. Guidance in awarding marks Knowledge & understanding Knowledge of a limitation of using break-even analysis 1 mark Explanation Explanation of a limitation of using break-even analysis 1 mark Context Context linked to a limitation of using break-even analysis 1 mark Question Answer Marks 2(b)(ii) Exemplar and annotations Mark Rationale Break-even analysis assumes average costs do not change but CS’s average variable costs are likely to change because CS is using batch production . 3 Knowledge of a limitation with explanation of why it is a limitation and application to the context of CS. Abir has suggested using JIT , which is likely to mean the transportation costs are not constant . 3 A backwards answer. Starts with the context, then the explanation and lastly knowledge. An equally valid approach – as long as there is knowledge somewhere in the answer. The price may not be the same for every pair of shoes which could mean that the Total Revenue is not constant . 2 The knowledge is fine. The explanation refers to a different point of knowledge, but it DOES explain this limitation, so it is valid. No context. Break even analysis assumes all output produced is sold . 1 Knowledge and no explanation or application to the context. Break even analysis is a way of calculating the quantity needed to stop making a loss and start making a profit. This is useful to CS because they can calculate how many shoes need to be sold to cover all of the costs which were $23 750 for the recent batch. 0 Although there is some relevant context, there is no knowledge of a limitation, so no marks can be awarded. Break even analysis can be wrong. If the Manager miscalculates the break-even point, then any decision made on this will also be wrong. 0 Being incorrect/wrong/inaccurate, is not a limitation of break-even analysis. It could be said about any calculation, so do not award. Question Answer Marks 2(c) Analyse two disadvantages to CS of adopting a JIT approach to inventory management. Level AO1 Knowledge and understanding 2 marks AO2 Application 2 marks AO3 Analysis 4 marks 2 3–4 marks Developed analysis  Developed analysis that identifies connections between causes, impacts and/or consequences of two points.  Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks  Knowledge of two relevant points is used to answer the question.  Knowledge of one relevant point is used to answer the question. 1–2 marks  Application of two relevant points to a business context.  Application of one relevant point to a business context. 1–2 marks Limited analysis  Limited analysis that identifies connections between causes, impacts and/or consequences of two points.  Limited analysis that identifies connections between causes, impacts and/or consequences of one point. 0 0 marks No creditable response. 0 marks No creditable response. 0 marks No creditable response. 8 Question Answer Marks 2(c) Indicative content AO1 Knowledge and understanding Knowledge of just in time inventory management (max 1 mark if no knowledge of disadvantage(s)), including:  Orders made from suppliers as needed.  Products produced as required by customers.  Limited or zero inventory required to be held. Knowledge of disadvantages of just in time (max 2 marks – annotate first disadvantage on left and second disadvantage on right), including:  Risk of running out of stock.  Reliance on (new) suppliers – frequency of ordering/deliveries  Requires planning/time.  Limited scope for mass/batch production (little scope for economies of scale) – increased average cost  Finished product inventory cannot be used for promotional purposes.  Difficult to forecast/budget  Cost of infrastructure/capital  Might be difficult to respond to changing demand. AO2 Application Context applied to a disadvantage of using JIT (max 2 marks), including:  Currently selling to mass market (professionals for work or smart dress).  Currently using batch production.  Abir has suggested a move towards niche, unique (job produced) shoes.  New local supplier suggested by Abir.  Shoes on display in the shop.  Raw material of leather must be in climate controlled storage.  No current relationship to suggested new supplier.  Range of sizes and colours. Question Answer Marks 2(c) AO3 Analysis Analysis of disadvantage(s) of using JIT, including: 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.  Risk of running out of stock;  may dissatisfy customers and lead to bad publicity – lower sales/profit.  May lead Yazeem to be idle increasing costs – lower profitability.  Reliance on suppliers; if the new local supplier is chosen then there is no current relationship, so shoe production may be delayed – decreased sales/profit.  Requires planning/time – If Yazeem/Abir are planning the logistics they may be less productive in producing shoes – lower sales/profit.  Limited scope for mass/batch production (little scope for economies of scale); increased costs – lower profitability.  Finished product inventory cannot be used for promotional purposes; customers may not come into a show shop without any shoes to try on – lower sales/profit. Accept all valid responses. Exemplars and annotations AO1 Knowledge AO2 Application AO3 Analysis CS may run out of stock . And since CS is selling to the mass market . Customers may choose to go elsewhere, reducing CS’s revenue leading to less profit . CS would need a new supplier Although Abir has already found one who is happy to deliver as required However, CS do not have a relationship with them and they might not deliver the materials on time leading to customers being dissatisfied and going to a competitor. . Question Answer Marks 2(d) Evaluate the importance to CS of being a small business. Level AO1 Knowledge and understanding 2 marks AO2 Application 2 marks AO3 Analysis 2 marks AO4 Evaluation 6 marks 3 5–6 marks Developed evaluation in context  A developed judgement/conclusion is made in the business context.  Developed evaluative comments which balance some key arguments in the business context. 2 2 marks Developed knowledge of relevant key term(s) and/or factor(s) is used to answer the question. 2 marks Developed application of relevant point(s) to the business context. 2 marks Developed analysis that identifies connections between causes, impacts and/or consequences. 3–4 marks Developed evaluation  A developed judgement/conclusion is made.  Developed evaluative comments which balance some key arguments. 1 1 mark Limited knowledge of relevant key term(s) and/or factor(s) is used to answer the question. 1 mark Limited application of relevant point(s) to the business context. 1 mark Limited analysis that identifies connections between causes, impacts and/or consequences. 1–2 marks Limited evaluation  A judgement/conclusion is made with limited supporting comment/evidence.  An attempt is made to balance the arguments. 0 0 marks No creditable response. 0 marks No creditable response. 0 marks No creditable response. 0 marks No creditable response. 12 Question Answer Marks 2(d) Indicative content AO1 Knowledge and understanding Knowledge of the features of being a small business (max 2 marks), including:  Lifestyle  Independence  Opportunities  Creative freedom  Less reliance on other people  Expertise  Unique selling point (USP)  Personal satisfaction  Personal service for customers  Focus  Easy to plan  Easy to control/coordinate/lead  Potential for growth  Encourages innovation/intrapreneurship/entrepreneurship  May struggle obtaining finance / limited finance  Increased risk Question Answer Marks 2(d) AO2 Application Context applied to features of being a small business (max 2 marks), including:  Yazeem is a highly skilled shoemaker  Sole trader  Abir is fully trained in making shoes  CS opened in 1975  Currently targeting a mass market (professional men and women)  Currently produced using batch production  Shoes sold in own shop  Range of sizes and colours  Increase in low-priced mass market shoes – reduced CS sales and repairs  Abir feels it is time for Yazeem to retire  Abir would like to design and produce unique shoes for niche markets  New products would use price skimming  Use of Table 2.1  Abir suggested adoption of JIT Question Answer Marks 2(d) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis.  Lifestyle/personal satisfaction; Yazeem (and Abir) can choose their own hours which may increase their happiness – likely objective of Yazeem as a sole trader.  Independence; Yazeem does not have to ask anyone’s opinion when making decisions which may suit him – increased happiness.  Opportunities; as a small business Yazeem and Abir can more easily take advantage of new trends (such as the niche markets) – increased sales/profit.  Creative freedom; both Yazeem and Abir are skilled and can create shoes which suit the market without having to have decisions agreed by others – increased sales/profit.  Less reliance on other people; less opportunities for wastage – lower costs, increased profitability.  Expertise; both Yazeem and Abir are highly skilled and can focus these on their small customer base – increased customer satisfaction.  Unique selling point (USP); having expert owners may allow CS to sell at a higher price – increased profitability.  Personal service for customers; customers feel like they are being well looked after (as they are dealing with the owners) – increased sales/profit.  Focus; As Yazeem is the owner he is more likely to be motivated – increased productivity.  Easy to plan; few employees mean that CS can adapt their business to meet current demand – increased sales/profit.  Easy to control/coordinate/lead; less customers mean that CS can adapt their business to meet current demand – increased sales/profit. 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 the importance of being a small business.  Evaluation of the relative importance of different advantages/factors.  Elements that the evaluation/judgement might depend upon – Yazeem and Abir’s personal objectives, whether Yazeem wants to retire (or not), the relative size of competitors in the market, the location of CS, changes in the shoe manufacture and retail market, changes in technology, price elasticity of demand for CS shoes. Accept all valid responses. Question Answer Marks 2(d) Exemplars for awarding evaluation L1 (limited supporting evidence) L2 (developed supporting evidence) L3 (developed supporting evidence with context) Being a small business is important for CS. Being a small business is important for CS because it means Yazeem can retain control of his business. Being a small business is important for CS because it means Yazeem can retain control of his sole trader business. It is not important for CS to be a small business. It is not important for CS to be a small business because the business should be allowed to grow to a more efficient size, where costs are lower. It is not important for CS to be a small business because the business should be allowed to grow to a more efficient size, where costs are lower, so that it can compete with the mass market retailers who are selling cheaper shoes for people to wear to work or dress smartly. The importance of CS being a small business depends on the objectives of Yazeem. The importance of CS being a small business depends on the objectives of Yazeem. If his objective was to maximise profit, then it is more important for CS to grow. The importance of CS being a small business depends on the objectives of Yazeem. If his objective was to give the business to Abir, then maybe she should decide how important the size of CS is. In the short term being a small business is important. In the short term being a small business is important, however in the long term Yazeem may need to grow to take advantage of economies of scale. In the short term being a small business is important, however in the long term Yazeem may need to grow to take advantage of economies of scale to reduce the cost of the batch production process used by CS.

Question 36

Festival Wear (FW) FW is a partnership started by two friends, Maz and Jane. FW manufactures and sells high quality T-shirts at $40 each. T…

Accepted Answer

2(a)(i) Identify one fixed cost. Indicative content Fixed cost  rent  interest  salaries  wages Accept all valid responses. Question Answer Marks 2(a)(ii) Explain the term mass customisation. AO1 Knowledge and understanding 1 mark AO2 Application 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark Knowledge of one relevant point is used to answer the question. 1 mark Limited application of one relevant point to a business context. 0 marks No creditable response. 0 marks No creditable response. Indicative content AO1 Knowledge and understanding Mass customisation is the use of flexible computer-aided technology on production lines to make products that meet individual customers’ requirements for customised products. Knowledge of mass customisation (max 1 mark), including:  Bulk production  Flexible  Made to order  Customer preferences AO2 Application Explanation of a characteristic of mass customisation , including:  Lower unit costs combined with personalisation / Increased product choice  Higher customer retention/loyalty  Customers prepared to pay a higher price  Higher profit margins 3 Question Answer Marks 2(a)(ii) Context applied to mass market(s) , including:  Relevant example of mass customisation (including the T-shirt market) Application can be made to FW or any other scenario/context/business/person. Accept all valid responses. Guidance in awarding marks Knowledge & understanding Knowledge of mass customisation 1 mark Explanation Explanation of a characteristic of mass customisation 1 mark Context Applied to a business context/ business environment 1 mark 2(b)(i) Calculate FW’s break-even output per month if the new payment method is introduced. FC/contribution = BE (1) FC = 182 000, VC = 12 (1) Contribution = 40 – (12) (1) = 28 (1) 182 000/28 = 6500 (3) OFR 3 Question Answer Marks 2(b)(ii) Explain one advantage to FW’s employees of the new payment method. AO1 Knowledge and understanding 1 mark AO2 Application 2 marks 2 marks Developed application of one relevant point to a business context. 1 mark Knowledge of one relevant point is used to answer the question. 1 mark Limited application of one relevant point to a business context. 0 marks No creditable response. 0 marks No creditable response. Indicative content AO1 Knowledge and understanding – Note: Must be linked to employees NOT FW Knowledge of an advantage of lower salary + commission , including:  Payment made according to number of sales – commission  Possibility of higher monthly pay  Incentive so motivating Do not accept disadvantages. AO2 Application Explanation of an advantage of lower salary + commission , including:  If sales forecast correct employees would earn more  Can choose to work harder/longer for increased pay  Investment could expand sales possibilities so higher pay  Rewards successful selling Context applied to a limitation of using break-even analysis including:  Maz estimates sales volume to increase to 30 000 per month  Commission $2 per T-shirt 3 Question Answer Marks 2(b)(ii)  Business is expanding  Diversification of product portfolio – baseball caps  OFR from Q2(b)(i) Accept all valid responses. Guidance in awarding marks Knowledge & understanding Knowledge of an advantage of the change in payment method 1 mark Explanation Explanation of an advantage of the change in payment method 1 mark Context Context linked to an advantage of the change in payment method 1 mark Question Answer Marks 2(c) Analyse two external sources of finance that FW could use to invest in new machinery. Level AO1 Knowledge and understanding 2 marks AO2 Application 2 marks AO3 Analysis 4 marks 2 3–4 marks Developed analysis  Developed analysis that identifies connections between causes, impacts and/or consequences of two points.  Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks  Knowledge of two relevant points is used to answer the question.  Knowledge of one relevant point is used to answer the question. 1–2 marks  Application of two relevant points to a business context.  Application of one relevant point to a business context. 1–2 marks Limited analysis  Limited analysis that identifies connections between causes, impacts and/or consequences of two points.  Limited analysis that identifies connections between causes, impacts and/or consequences of one point. 0 0 marks No creditable response. 0 marks No creditable response. 0 marks No creditable response. 8 Question Answer Marks 2(c) Indicative content AO1 Knowledge and understanding Knowledge of an external source of finance (max 2 marks – annotate first source on left and second source on right), including:  bank loan  another partner  convert to a limited company  venture capital  leasing  hire purchase  bank loans  mortgages  debt factoring  trade credit  micro-finance  crowd funding  government grant AO2 Application Context applied to an external source of finance (max 2 marks), including:  $4m needed  Low break-even so good contribution to help get a loan  Good business attractive to shareholders  Required for expansion  New product could be risky  Market research needed to assess viability  Partnership Question Answer Marks 2(c) AO3 Analysis Analysis of a relevant external sources of finance, including: 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.  Long term loan may be suitable – would banks lend to a partnership?  Venture capitalist will want quick returns – so less time to make returns  Probably no debts to factor – so unavailable source  Government grant unlikely – unless help available to help (small) businesses to expand  Too much for micro-finance  Loss of ownership if convert – danger of takeover  Effect on liquidity – depending on length of time involved  Cost of finance – could be high interest rates Note: Analysis must relate to a suitable source for financing machinery. For example, a mortgage is an external source so would get a K mark but not realistic for financing machinery unless linked by, e.g. saying a mortgage on the factory building to get finance to purchase the machinery. Accept all valid responses. Question Answer Marks 2(d) Evaluate whether FW should expand its product portfolio to increase its sales volume. Level AO1 Knowledge and understanding 2 marks AO2 Application 2 marks AO3 Analysis 2 marks AO4 Evaluation 6 marks 3 5–6 marks Developed evaluation in context  A developed judgement/conclusion is made in the business context.  Developed evaluative comments which balance some key arguments in the business context. 2 2 marks Developed knowledge of relevant key term(s) and/or factor(s) is used to answer the question. 2 marks Developed application of relevant point(s) to the business context. 2 marks Developed analysis that identifies connections between causes, impacts and/or consequences. 3–4 marks Developed evaluation  A developed judgement/conclusion is made.  Developed evaluative comments which balance some key arguments. 1 1 mark Limited knowledge of relevant key term(s) and/or factor(s) is used to answer the question. 1 mark Limited application of relevant point(s) to the business context. 1 mark Limited analysis that identifies connections between causes, impacts and/or consequences. 1–2 marks Limited evaluation  A judgement/conclusion is made with limited supporting comment/evidence.  An attempt is made to balance the arguments. 0 0 marks No creditable response. 0 marks No creditable response. 0 marks No creditable response. 0 marks No creditable response. 12 Question Answer Marks 2(d) Indicative content AO1 Knowledge and understanding Knowledge of product portfolio (max 2 marks), including:  Range of products in one business  Product diversification  Meet customer demand for more product choice Could relate to product life-cycle, Boston matrix Could consider impact on the 4ps/4cs e.g.  Price  Product  Promotion  Place AO2 Application Context applied to features of FW (max 2 marks), including:  Reliance on one product is risky so maybe should diversify into baseball caps  May need to change distribution method - sell at music festivals only – maybe could sell elsewhere e.g., other retailers, online  Other products more suitable e.g., posters  Move to a bigger factory provides opportunity  Requires $4m investment  FW is expanding Question Answer Marks 2(d) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis.  Requires research to establish demand  Single product portfolio – is the market saturated?  Satisfy more customers – increasing sales volume and increasing revenue and profit  There is a lack of direction for the future of the business and so there is a risk to the security and stability of FW.  Need for an integrated marketing mix to increase sales volume 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.  An evaluation is likely to come from candidates making a judgment and justification of expanding product portfolio.  Any changes that might need to be made to make it more effective/less risky.  Are there more suitable methods of increasing sales volume?  Business expanding is now the right time to increase products.  High investment in the new factory needs careful consideration of equipment if expand portfolio. Accept all valid responses. . Note: Developed evaluation in context should link to sales.

Question 37

Vegan Burger (VB) VB is an established vegan burger chain in country X. Its Unique Selling Point (USP) is high quality, good value vegan me…

Accepted Answer

2(a)(i) Identify one feature of a franchise. 1 Indicative content Knowledge of one feature of a franchise including: • the legal right/contract for another business to use the: name; logo; marketing methods • need to follow franchisor’s requirements • franchise fee • share of profits (royalty fee) to franchisor • trades under an established brand name • franchisee has access to training/support • franchisee cannot make decisions without franchisor’s approval Accept all valid responses. 2(a)(ii) Explain the term market share (line 6). 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: • formula (2 marks) sales of the business/product market share =  100 total market sales AO1 Knowledge and understanding • the sales of a specific business/product AO2 Application • comparison to the sales in the total market Application to a business context: • way of comparing the size of a business against its competitors • shows the amount of ‘power/influence’ that the business has in the market/market dominance 2(a)(ii) • an increased market share gives the business more power, e.g. price setter • the business with the highest market share is the market leader • selling 25 franchise licenses helped VB increase its market share in country X • VB added vegan pizza to its menu to gain a higher market share of the fast-food market • example of a market leader to illustrate market share, e.g. Tesco is the market leader of the UK supermarket industry so has the highest market share Application can be made to VB or any other scenario/context/business/person. Allow application to market share. Accept all valid responses. Guidance in awarding marks Knowledge & understanding Knowledge of market share 1 mark Explanation Explanation of market share 1 mark Context Applied to a business context/ business environment 1 mark 2(b)(i) Refer to table 2.1. Calculate VB’s breakeven level of output per month per restaurant. 3 Indicative content 1 mark for the formula for breakeven (words or figures) OR correct calculation for the contribution per unit 1 mark for formula for breakeven (words or figures) AND calculating the contribution per unit 1 mark for calculating the breakeven level of output per month per restaurant (OFR) • formula: fixed costs / contribution per unit (1) • calculation of fixed costs and contribution per unit (1) – fixed costs: $1000 – contribution per unit: selling price per unit ($6) – variable cost per unit ($2) $4 • calculation of the breakeven level of output per month per restaurant – $1000/$4 – BE level of output: 250 per month (1 OFR) • answer = 250 (units) (3) Accept all valid responses. 2(b)(i) Marks 3 marks Correct answer Working and units do not matter. 250 (units) allow 250 Must be three to denote the three marks. 2 marks Both of the following: To award two marks, there must be Correct formula for the breakeven output (words or • Two and a figures) OR AND • One , one and one Correct calculation of the contribution per pizza OR An incorrect answer for the breakeven output with one mistake allowing OFR for final stage. 1 mark One of the following: To award one mark, there must be: Correct formula for the breakeven output (words or • One and two figures) OR Correct calculation of the contribution per pizza 0 marks No creditable content. To award zero marks, there must be • One 2(b)(ii) Explain one reason for VB to have accurate cost information. 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 • to calculate profit or loss • to make pricing and business decisions • to predict cashflow • to measure performance • to set budgets • to allocate resources AO2 Application Explanation of a reason for VB to have accurate cost information • APP can be awarded for development of the AO1 point, e.g. – to calculate profit or loss; requires a business to know its costs/revenues – to make pricing and business decisions; so that costs are covered – to predict cashflow; by considering accurate outflows – to measure performance; by analysing how costs change over time – to set budgets; in line with predicted expenditure – to allocate resources; so that the business knows what it is paying out for 2(b)(ii) Context applied to VB of a reason for accurate cost information: • each pizza is sold for $6 with a contribution of $4 • fixed costs per month of $1000 • breakeven output is 250 pizzas per month • any data from Table 2.1 • objective changed from developing brand awareness to increasing market share • franchise • Patel’s Pizza is a competing business • VB ran a six-month national television marketing campaign to promote the new vegan pizza Application for the second APP mark must be made to VB and not generic. Accept all valid responses. Guidance in awarding marks Knowledge and understanding Knowledge of a reason for accurate cost information 1 mark Explanation Explanation of a reason for accurate cost information 1 mark Context Applied to a business context/business environment 1 mark 2(c) Analyse two benefits for VB of on-the-job training. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two • Application of two Limited analysis relevant points is relevant points to a • Limited analysis that identifies connections between used to answer the business context. causes, impacts and/or consequences of two points. question. • Application of one • Limited analysis that identifies connections between • Knowledge of one relevant point to a causes, impacts and/or consequences of one point. relevant point is business context. used to answer the question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. 2(c) Indicative content AO1 Knowledge and understanding Knowledge of on-the-job training (max of 1 mark if no benefit of on-the-job training) Knowledge of benefits of on-the-job training (max 2 marks – annotate first benefit on left and second benefit on right) including: • provided by managers or experienced colleagues – so trainers use first-hand experience to train • methods include demonstration/instruction/coaching/job rotation • low cost/off-the-job training is not needed • learn while doing the actual job • employee will produce output whilst training • training in a live/real situation • training tailored to working at VB • the employee will get to know colleagues • the employee will learn about the organisational culture AO2 Application Context applied to a benefit for on-the-job training (max 2 marks), including: • breakeven output is 250 pizzas per month • any data from Table 2.1 • objective changed from developing brand awareness to increasing market share • franchise • vegan pizza has been sold by VB for two years • each restaurant sells on average 500 pizzas and 4500 burgers per month • Patel’s Pizza is a competing business • VB ran a six-month national television marketing campaign to promote the new vegan pizza 2(c) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis candidate shows two or more links in the chain of analysis or a two-sided analysis. • on-the-job training is cheaper than off-the-job training; low risk – increase profits • utilise trainers from within the business; motivates the employees chosen to do the training – increased productivity/reduced labour turnover • increases productivity; employees trained while working – increases revenue/profits • tailored to the needs of VB; trains on the specific machinery used/menu served – less induction training needed • trainee will get to know colleagues whilst training; better team working – better customer service/customer satisfaction Accept all valid responses. 2(d) Evaluate whether VB should continue to market vegan pizza. 12 Level AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation and understanding 2 marks 2 marks 6 marks 2 marks 3 5–6 marks Developed evaluation in context • A developed judgement/conclusion is made in the business context. • Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed Developed Developed Developed evaluation knowledge of application of analysis • A developed judgement/conclusion is relevant key term(s) relevant point(s) to that identifies made. and/or factor(s) is the business connections • Developed evaluative comments used to answer the context. between causes, which balance some key arguments. question. impacts and/or consequences. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key of relevant point(s) that identifies • A judgement/conclusion is made with term(s) and/or to the business connections limited supporting comment/evidence. factor(s) is used to context. between causes, • An attempt is made to balance the answer the question. impacts and/or arguments. consequences. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 2(d) Indicative content AO1 Knowledge and understanding Knowledge of marketing (max 2 marks), including: • the marketing mix (four Ps) – getting the right product at the right price to the right place and making customers aware of it using the right promotional methods • market research • the nature of marketing AO2 Application Context applied to features of marketing (max 2 marks), including: • established vegan burger chain – USP for high quality, good value vegan burger meals • featured on a documentary for successful entrepreneurs in country X • breakeven output is 250 pizzas per month • any data from Table 2.1 • objective changed from developing brand awareness to increasing market share • franchise • primary market research two years ago found pizza was a popular fast food • vegan pizza has been sold by VB for two years • each restaurant sells on average 500 pizzas and 4500 burgers per month • profit for vegan pizza is $1000 per month ($500 per month  4 = $2000 – $1000 fixed cost) • Patel’s Pizza is a competing business • VB ran a six-month national television marketing campaign to promote the new vegan pizza 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. Possible impacts of continuing to market vegan pizza, including: • pizza is a popular fast food – VB has a USP for high quality, good value vegan meals – may gain a higher market share – increase revenues 2(d) • VB restaurants sell 500 pizzas per month – loyal customers – removing the vegan pizza from the menu may upset loyal customers – could reduce overall sales revenue • Patel’s Pizza may capitalise on the vegan trend – pizza is their USP – VB may lose market share – reduce overall profits • changing to hot desserts means that the pizza ovens need to be repurposed – expensive to change – reducing profits • demand for hot desserts is unknown whereas two years ago primary market research stated that pizza was a popular fast food – little demand for hot desserts – reduced sales revenue Possible impacts of not continuing to market vegan pizza, including: • VB vegan pizzas need more marketing to be successful – increased cost – reduced profitability (if revenue does not increase by a sufficient amount to offset the increased cost) • 90% of VB’s sales are burgers – pizza only accounts for 10% of sales – pizza reduces brand identity – reduced market share • hot desserts complement the main burger meal – increased demand for burgers as customers can enjoy a complete meal – increased market share • market share/investment into marketing campaign for pizza is lost – reduces offering – could lead to a negative impact on entrepreneurial success – impact on personal reputation • new marketing campaign may be needed to support the launch of the hot desserts – may be added to the franchise fee – could lead to loss of franchises – reduction in the number of outlets 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 VB should continue to market vegan pizza. • a judgement over the most likely/important impacts of continuing/not continuing to market vegan pizza • what the judgement might depend upon, including the importance of current trends, levels of customer loyalty, impact on USP and reputation, impact of competition, appetite of franchisees for more training costs/increased marketing, impact of potential loss of reputation Accept all valid responses. 2(d) Exemplars for awarding evaluation L1 (limited L2 (developed supporting L3 (developed supporting evidence with supporting evidence) context) evidence) VB should continue VB should continue to market vegan VB should continue to market vegan pizza because it to market vegan pizza because it has spent money has spent money purchasing pizza making equipment pizza. purchasing pizza making equipment in in each of its restaurants which would be wasted if it each of its restaurants which would be withdrew from the market. The business currently sells wasted if it withdrew from the market. 500 pizzas per month which is likely to grow as it takes more than two years to become an established pizza seller. VB should not VB should not continue to market vegan VB should not continue to market vegan pizza and sell continue to market pizza and sell hot desserts which hot desserts which complement the main burger meal vegan pizza. complement the main burger meal and and therefore attract new customers seeking a therefore attract new customers seeking complete meal to VB. Patel’s Pizzas is more popular a complete meal to VB. and VB cannot compete with this business. Whether VB Whether VB continues to market vegan Whether VB continues to market vegan pizza depends continues to market pizza depends upon its level of upon its level of experience. VB is experienced in vegan pizza experience. VB is experienced in vegan vegan food. The capital expenditure for pizza making depends upon its food. equipment was low so the business will not lose a lot level of experience. of money by withdrawing from the pizza market.

Question 38

Frank’s Fruits (FF) Frank grows fruit, including oranges, on his farm in country J. He sells his fruit at a market in a local city one day …

Accepted Answer

Question Answer Marks 1(a)(i) Identify one method of measuring the size of a business. 1 Indicative content Identification of a method may include: • Capital employed • Market capitalisation • Market share • Revenue (allow sales, sales turnover or turnover) • 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. 1(a)(ii) Explain the term primary sector. 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 primary sector will include (max 1 mark): • Natural resources / raw materials OR • An example of the processes involved in the primary sector, such as extraction/agriculture/farming/growing/fishing/mining etc. AO2 Application Explanation of primary sector will include (max 1 mark): • Natural resources / raw materials AND • An example of the processes involved in the primary sector, such as extraction/agriculture/farming/growing/fishing/mining etc. 1(a)(ii) Context applied to primary sector , including (max 1 mark): • Any example of primary sector, including: – A valid example of a primary sector business (do not allow FF as an example, unless it is clear that it is focussed on the farming element of the business (because it is in the primary and tertiary sectors). – A valid example of a primary sector product, such as ‘fruit’, ‘oil’ or ‘metal’ etc. Accept all valid responses Exemplar and annotations Mark Rationale Businesses in the primary sector are involved in natural resources 3 An answer which starts with the knowledge . For example, Frank farms oranges . and then has an example of the process and the product. Businesses that extract raw materials . For example, 3 growing oranges . A business could mine coal , which has been dug up from 2 the ground. Getting things from nature , such as farming . 2 Clear knowledge. Some application. The extraction of raw materials. 2 Not a perfect definition, but enough to award the knowledge mark. No attempt to apply. It is about producing goods. 0 No knowledge of the primary sector. Too vague. 1(b)(i) Refer to Table. 1.1. Calculate the number of oranges that Frank needs to sell to break even in July 2025. 3 Indicative content Formula to find the break-even quantity Fixed costs • (price per unit – variable cost per unit) (1) OR Fixed costs ALT 1 • Contribution (1) 0.80  5650 = 4520 (total revenue) 4520 – 2825 (TVC) Variable cost per unit = $2825 / 5650 = 1695 (total contribution) (1) = $0.50 (1) 1695 / 5650 Contribution per unit = $0.80 – $0.50 = 0.30 (contribution per unit) (1) = $0.30 (1) 1350 / 0.3 Final answer = 1350 / ($0.30) = 4500 (1) = 4500 (1) 4500 oranges or 4500 (3) 4500 oranges or 4500 (3) OFR applies for final answer and contribution per unit 1(b)(i) Exemplar and annotations Marks 3 marks Correct answer Working and oranges/units/percentage sign do 4500 oranges or 4500 not matter. 2 marks BOTH of the following: To award two marks, there must be • Correct formula • Two and a • Correct calculation of variable cost per unit OR ($0.50) • One , one and one OR OR • Two and a Correct calculation of contribution per unit ($0.30) OR An incorrect answer with one mistake allowing OFR for final stage. 1 mark One of the following: To award one mark, there must be: • Correct formula • One and two • Correct calculation of variable cost per unit 0 marks No creditable content. To award zero marks, there must be a minimum of one 1(b)(ii) Explain one limitation for Frank of using break-even analysis. 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 limitation of break-even analysis : • Fixed costs may not be constant • Assumption that output equals sales. • Assumption that unit variable costs remain constant. • Assumption that price will remain constant. • Only useful for individual (or limited number of) product lines. • Does not take into account external changes. • Only a forecast/estimate. • Difficult to allocate fixed costs. AO2 Application Explanation of a limitation of using break-even analysis (max 1 mark), including: • Fixed costs may not be constant – may change in long run • Assumption that output equals sales – but not all output may be sold • Assumption that unit variable costs remain constant – but may not be at all output levels • Assumption that price will remain constant – but may not be at all output levels 1(b)(ii) • Only useful for individual (or limited number of) product lines – must be done for each product • Does not take into account external changes – such as social, legal, economic, political, technological • Only a forecast/estimate – so may not be reliable. Context applied to FF (max 1 mark), including: • Frank is a sole trader • Frank grows the fruit sold on his farm • Frank sells the fruit from a market • Competitors are a national supermarket and fruit seller who sells from a shop • Freshness is Frank’s USP / fruit is a perishable product • Competitive pricing • Objective is to increase profit by 10% by the end of 2026 Accept all valid responses. Exemplar and annotations Mark Rationale A limitation is that it assumes that only one product is sold 3 A clear limitation that is explained because break-even analysis has to be done for each product . and has context . Frank sells oranges and lemons on his farm . Assumes the selling price stays the same which is not 2 A limitation identified . The context of appropriate for Frank as he uses competitive pricing . Frank’s pricing strategy is applied , but no explanation. Assumes no stock of oranges are kept so it is appropriate for 1 Knowledge of a factor. The rest of the answer is not answering the question, so Frank’s business to make more profit. (Not Answering Question). Break-even analysis does not tell Frank the amount of cash 0 No valid knowledge is shown, so no marks generated from selling oranges . can be awarded. 1(c) Analyse two benefits to Frank of operating as a sole trader. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two • Application of two Limited analysis relevant points is relevant points to a • Limited analysis that identifies connections used to answer the business context. between causes, impacts and/or consequences of question. • Application of one two points. • Knowledge of one relevant point to a • Limited analysis that identifies connections relevant point is business context. between causes, impacts and/or consequences of used to answer the one point. question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Annotate the first benefit in the left-hand margin and the second in the right-hand marking. 1(c) Indicative content AO1 Knowledge and understanding Knowledge of the benefits of operating as a sole trader (max 2 s), may include: • Keep all profit made / no sharing of profit • Can make all business decisions without having to consult other owners / no consultation • Total control • Freedom to choose own work hours • Can employ staff • Relatively low start-up costs • Financial data is private • Easy to set up / less administration AO2 Application Max one for application in the first benefit and max one for application in the second benefit. Application of knowledge of benefit of operating as a sole trader to Frank/FF (max 2 s), including • Frank grows the fruit sold on his farm • Frank sells the fruit from a market • Frank used all of his redundancy money from his job with large company to set up the business • Competitors are a national supermarket and fruit seller who sells from a shop • Freshness is Frank’s USP • Competitive pricing • Objective is to increase profit by 10% by the end of 2026 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. • Frank is able to make all decisions. No time is wasted consulted with other owners which enables the decisions to be implemented quicker/before competitors and therefore generate more profit. • The sole trader can keep a larger amount of profit as it doesn’t have to be shared with other owners. • The costs of setting up a sole trader are typically less than other forms of ownership so less capital will be needed to start the business. • The owner can choose their own working hours and so enjoy a better work-life balance. This can help the sole trader make better business decisions and increase its market share. 1(c) As a sole trader, there is no separate legal identity for FF. Therefore, any financial impact on the business, is also an impact on Frank and can be awarded as analysis and developed analysis. Accept all valid responses. Exemplar and annotations AO1 Knowledge AO2 Application AO3 Analysis Frank can keep all of the profit made and it was his own redundancy money Which increases Franks income as a sole trader , that he used to set up FF . and could lead to a better lifestyle for him . It is easier and cheaper to set up as a Which is likely to help Frank meet his This is because he will have lower sole trader , 25% profitability target by 2026 . setup costs and therefore increase the profit made from selling his fruit . 1(d) Evaluate whether Frank should introduce price skimming. 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 is relevant key term(s) relevant point(s) to connections 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 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 price skimming (max 2 s), including: • Price skimming is where a product is priced at a higher price than competitors • Maximises the selling price • May create a luxurious/exclusive product image • Often used for a new product to the market or where a producer has a strong USP (so a high price can be charged) • Price may need to be reduced as the market becomes more competitive • Low price elasticity of demand (inelastic PED, so high price can be charged) AO2 Application Limited application applies knowledge of cost information to OFD once. Developed application + applies knowledge of cost information to OFD twice. • Frank is a sole trader • Frank grows the fruit sold on his farm • Frank sells the fruit from a market • Frank used all of his redundancy money from his job with large company to set up the business • Competitors are a national supermarket and fruit seller who sells from a shop • Freshness is Frank’s USP • Competitive pricing • Objective is to increase profit by 10% by the end of 2026 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. • Price skimming means that a higher price will be charged for the oranges. Assuming that the costs remain the same, Frank will make a higher profit per orange sold. • Frank has a USP for freshness which gives his products an advantage over competitors. This quality may mean that demand for the product will be retained at current levels despite the increase in price. Customers may be less sensitive to increases in price. • Increase in price may mean that demand reduces by a larger proportion so Frank’s profitability will reduce. • Competitive pricing means that Frank’s products will not have an advantage/disadvantage compared to the prices charged by competitors. Currently uses competitive pricing so demand will remain the same. 1(d) • Frank sells his products from a market so overheads likely to be lower than those of the supermarket and shop so Frank’s profitability is likely to be higher than his main competitors. AO4 Evaluation Limited evaluation - unsupported judgement and/or a weak attempt at evaluative comment Developed evaluation – supported judgement and/or reasonable evaluative comment Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. • The impact on profitability depends on the price elasticity of demand. • Frank has a USP for freshness which gives his products an advantage over competitors. This quality may mean that demand for the product will be retained at current levels despite the increase in price. Customers may be less sensitive to increases in price. • Impact of other external factors • A judgement that other factors are more important than price alone. Accept all valid responses. Exemplars for awarding evaluation L1 (limited supporting L2 (developed supporting L3 (developed supporting evidence) evidence) evidence with context) He should introduce price skimming. He should introduce price skimming He should introduce price skimming because this will allow him to have a because this will allow him to have a much higher level of profitability for his much higher level of profitability for his products. products and meet his objective of increasing profit by 10% It depends upon the reaction of It depends upon the reaction of It depends upon the reaction of Frank’s customers to the price Frank’s customers to the price Frank’s customers to the price skimming. skimming. If customers are price skimming. If customers are price elastic, then he should not introduce elastic, then he should not introduce it it. because customers will simply choose to shop at the national supermarket.

Question 39

Town Trucks (TT) TT is a private limited company in country J. TT has contracts to deliver products to secondary, tertiary and quaternary s…

Accepted Answer

Question Answer Marks 1(a)(i) Identify one business activity within the quaternary sector. 1 Responses may include: The quaternary sector consists of those industries providing knowledge/communication and information services, such as • computing • ICT • consultancy • research and development (R&D) • digital marketing • digital recruitment and selection • Intellectual property (copyright, patents) Allow examples of specific business’, industries etc. that exist in the quaternary sector, including • web/internet design • Education • Training • Media • Government • Cyber security Note: – allow any activity that could be in the quaternary sector Accept all valid responses. 1(a)(ii) Explain the term supply chain management. 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 supply chain management (max 1 mark), including: The coordination (allow management) of the flow/movement of goods and services. Allow – management of inventory –management of raw materials AO2 Application Limited application applies knowledge of supply chain management from one aspect of the supply chain (ie suppliers to a business, within a business or from the business to customers). Developed application + applies knowledge of supply chain management in two or more aspects of a business. Explanation of supply chain management (max 2 marks), including: From suppliers to business Within the business To the customer 1(a)(ii) • From suppliers – and to customers . • Between different parts within the business – and to the customer. • Raw materials within the business – and to distribution channels. • Involves the complete chain of inventory from suppliers – to customers. • Involves inventories, from raw materials – to finished goods. Accept all valid responses. Exemplar and annotations Mark Rationale Coordination of the movement of products . For example, how 3 Explicit knowledge of supply chain raw materials are delivered to the business and how the management and explanation of two business delivers products to customers . elements of the supply chain. The coordination of products from the suppliers delivering to 3 Poorly defined, but there is clear the business and how the business moves these through its knowledge that the supply chain involves production process . movement. Two elements of the movement, from the supplier to the business and then the business through the production process. Movement of inventory around a factory , and to the 3 Knowledge of movement with movement customers around a factory and to customers, so all three marks. Management of the raw materials being turned into products 2 Clear knowledge, but only one type of which can be sent to customers . movement. Managing the movement of products . 1 Not a perfect definition, but enough to award the knowledge mark. No attempt to apply. Looking after how products are offered to customers. 0 No explicit knowledge of movement. Can not award APP without K. Managing the supply chain. 0 Tautology 1(b)(i) Refer to Table 1.1 and other information. Calculate TT’s forecast total profit from the QZ contract. Formula: Profit = TR – TC (direct costs + indirect costs) (1) OR Calculation of total direct costs = $5  5000 = $25 000 (1) Calculation of TC: TC = $25 000 + $9000 = $34 000(1) Answer $40000 – $34000 = $6000 (1 – OFR rule applies) Ans = $6000 (3 marks) 1(b)(i) Exemplars and annotations Marks 3 marks Correct answer Working and $ sign do not 6000 matter. An answer of 6 is incorrect. 2 marks Correct calculation of total costs To award two marks, there must (TC) ($34 000 – with working). be • Two and a OR OR • One , one and one Correct calculation of gross profit ($15 000 – with working) OR • Two and a OR An incorrect answer with one mistake allowing OFR for final stage. 1 mark One of the following: To award one mark, there must • Correct formula be: • Correct calculation of total • One and two direct costs ($25 000) 0 marks No creditable content. To award zero marks, there must be a minimum of one 1(b)(ii) Explain one reason why TT needs accurate cost information. 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 Identification of a reason why a business needs accurate cost information (max 1 mark), including: • To calculate the total cost of production • To make sure a profit is made • To identify the profit margin • To identify the break even point / margin of safety / target profit level • To know how much finance is needed • To categorise costs • To forecast sales • To budget/plan • To set prices 1(b)(ii) AO2 Application Explanation of a reason why a business needs accurate cost information (max 1 mark), including: • To calculate the total cost of production – to calculate profit levels • To make sure a profit is made – which can increase dividends • To identify the profit margin – to benchmark against other businesses • To identify the break-even point / margin of safety / target profit level – to ensure the business sells enough to cover the costs • To know how much finance is needed – so that a bank can see how much profit may be made • To categorise costs – to budget for cost centres • To forecast sales – to estimate the break-even level of sales • To budget – so that the business can plan for future expansion • To set prices – by knowing the total costs which need to be covered. Context applied to TT (max 1 mark), including: • TT has shareholders • Specialises in supply chain management • Contracts to deliver raw materials • To secondary and tertiary sector businesses • Agreed contract between TT and QZ • Use of Table 1.1 • TT employs 120 drivers • Objective to increase sales • Targeting small, online retail businesses • Requires a new fleet of smaller trucks 1(b)(ii) Exemplar and annotations Mark Rationale To set prices by calculating the total costs and setting a price 3 A reason identified, explained higher than the cost per unit when delivering 5000 products for and in context, so all 3 marks. QZ . To set budgets for the 5000 QZ deliveries . 2 A reason identified, but not explained. The context about QZ is fine. So that TT can know how much finance it needs to cover the 1 Identification of a reason, but no QZ order. explanation and the context is TV. Names are not enough for context. So that TT can survive. 0 No specific reason identified. • Plans to use digital promotion. Accept all valid responses. 1(c) Analyse two advantages to TT of improving diversity and equality in the workplace. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two • Application of two Limited analysis relevant points is relevant points to a • Limited analysis that identifies connections used to answer the business context. between causes, impacts and/or consequences of question • Application of one two points. • Knowledge of one relevant point to a • Limited analysis that identifies connections relevant point is business context. between causes, impacts and/or consequences of used to answer the one point. question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. 1(c) Note: Annotate the first advantage in the left-hand margin and the second advantage in the right-hand margin. Responses may include: AO1 Knowledge and understanding Identification of an advantage of improving diversity and equality , including: • Increase potential supply of workers • Reduce the chance of being sued • Increase motivation • Improve reputation/ brand image • Attract more diverse employees • Reduce labour turnover AO2 Application Application of the advantage to TT , including: • TT is a private limited company • Specialises in supply chain management • Contracts to deliver raw materials • To secondary and tertiary sector businesses • Works with one of the largest manufacturers in country J • Agreed contract between TT and QZ • Use of Table 1.1 • TT employs 120 drivers • Objective to increase sales • Targeting small, online retail businesses • Requires a new fleet of smaller trucks • Plans to use digital promotion • Industry has been criticised for not having diversity and equality 1(c) AO3 Analysis • Limited analysis of an advantage of improving diversity and equality to a business – developed analysis , including: • Increase potential supply of workers: reduce labour costs – increase profitability. • Reduce the chance of being sued – decrease business costs – increase profit. • Increase motivation – increase efficiency of the business – increase profitability. • Improve reputation – increase sales / contracts – increase profit. • Attract more diverse employees – brings new ideas into the business – increase sales / profit. • Reduce labour turnover – reduce business costs – increase profitability. Accept all valid responses. Exemplar and annotations AO1 Knowledge AO2 Application AO3 Analysis Motivate drivers , as there are 120 of them , so this might lead to more productive employees leading to lower average costs . Attract better employees . Which will help TT reach its by having more skilled employees, objective to increase sales , TT can increase the number of deliveries and therefore increase the profit . 1(d) Evaluate the usefulness of digital promotion to TT when targeting small online retailers. 12 Level AO1 AO2 Application AO3 Analysis AO4 Evaluation Knowledge and 2 marks 2 marks 6 marks understanding 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 relevant key relevant point(s) to that identifies is made. term(s) and/or the business connections • Developed evaluative comments factor(s) is used context. between causes, which balance some key to answer the impacts and/or arguments. question. consequences. 1 1 mark 1 mark 1 mark 1–2 marks Limited Limited application Limited analysis Limited evaluation knowledge of relevant point(s) that identifies • A judgement/conclusion is made of relevant key to the business connections with limited supporting term(s) and/or context. between causes, comment/evidence. factor(s) is used impacts and/or • An attempt is made to balance the to answer the consequences. arguments. question. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 1(d) Responses may include: AO1 Knowledge and understanding – knowledge of digital promotion Knowledge of digital promotion (max 2 marks), including: • Social media • Email • Using the internet /technology (marketing) • Online (marketing) • Spam • Influencer • Search engine optimisation • Mobile/smartphone/ app-based (marketing) • Viral (marketing) • Pay per click AO2 Application Application to TT , including: • TT is a private limited company • Specialises in supply chain management • Contracts to deliver raw materials • To secondary and tertiary sector businesses • Works with one of the largest manufacturers in country J • Agreed contract between TT and QZ • Use of Table 1.1 • TT employs 120 drivers • Objective to increase sales • Requires a new fleet of smaller trucks 1(d) AO3 Analysis Analysis of the usefulness of digital promotion, including • Limited analysis of the use of digital promotion – developed analysis , including: • To communicate: relatively inexpensive which reduces business costs – increases profit. • To inform: digital promotion can be very fast with messages reaching customers instantly, this is likely to increase customer knowledge of a business and increase sales – increasing profit. • To persuade: people spend vast amounts of time on digital devices so digital promotion is likely to target these customers more than other types of promotion, increasing sales – increasing profit. Always on: especially with the increase in wearable technology, digital promotion increases the chances of customers seeing the promotion and being persuaded to make a purchase – increasing profit. AO4 Evaluation Limited evaluation of the usefulness of digital promotion – developed – developed in context , including: • Relative usefulness of digital promotion in targeting smaller online retailers. • Comparison with non-digital types of promotion • Comparison of different digital promotion methods. • Use of digital methods may depend upon; cost of method, target market of customers for the online retailers, advances in technology (speed, influence etc.), budget available, geographical spread of market etc. • The impact of the chosen digital promotion methods method(s) and the impact of the methods themselves. • The likely response from competitors. • A judgement of the most useful method of digital promotion. Accept all valid responses. 1(d) Exemplars for awarding evaluation Evaluate the usefulness of digital promotion to TT when targeting small online retailers. L1 (limited L2 (developed supporting L3 (developed supporting evidence supporting evidence) with context) evidence) Digital promotion is Digital promotion is very useful for TT Digital promotion is very useful for TT very useful for TT. because it is a low-cost way to change because it is a low-cost way to change customers opinion about the business. customers opinion about the business. Low cost is important so that TT can make the new QZ contract successful. Digital promotion is Digital promotion is not useful for TT Digital promotion is not useful for TT not useful for TT. because it is more likely to be ignored by because it is more likely to be ignored by customers as spam. customers as spam because of the newspaper criticism.

Question 40

Clever Bean (CB) CB is a public limited company that operates a chain of coffee shops in several countries. The company was founded in 2010…

Accepted Answer

Question Answer Marks 1(a)(i) Identify one feature of a public limited company. 1 AO1 Knowledge and understanding Indicative content Identification of a feature may include: • can sell shares • has shareholders • limited liability • separate legal identity from its owners • must publish its accounts and report to its shareholders 1(a)(ii) Explain the term dynamic business environment. 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 (max 1 mark), including: • rapid / fast changing market • requires businesses to quickly adapt / be flexible. • changes may be internal or external AO2 Application Explanation of internal changes (max 1 mark), including: • leadership or management changes • organisational restructuring • investment in technology Application for internal changes (max 1 mark), including: • a new manager may bring a different vision or management style. • merging departments • upgrading equipment 1(a)(ii) Explanation of external changes (max 1 mark), including: • technological advancements • economic shifts • political and legal changes • social trends • environmental factors • new products /ideas/entrants • consumer tastes Application for external changes (max 1 mark), including: • AI, automation • inflation, recession • new regulations, trade policies • consumer preferences, demographics • climate change, sustainability pressures • examples of dynamic markets • examples of factors meaning markets are dynamic e.g. competition Accept all valid responses. 1(b)(i) Refer to Table 1.1. Calculate the change in profit from 2023 to 2024. 3 Indicative content. Profit = Revenue – Total costs (1) Profit in 2023 = $44m – ($6m + $16m) = $22m (1) OR Profit in 2024 = $50m – ($10m + $20m) = $20m (1) Change in profit = Profit in 2024 – Profit in 2023 = $20m – $22m = –$2m (OFR applies) Answer = –$2 (3), $ not required. Accept text explanation, such as decreases, instead of minus sign. In brackets indicates a minus figure No minus sign or other indication of decrease 2 marks OFR applies 1(b)(ii) Explain one use to CB of cost information. 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 (max 1 mark), including: Uses may include: • helps determine the price/set prices • ensure it makes a profit/improve profitability • ensures the business covers its costs and earns a margin on each sale. • respond to rising costs • reduce unnecessary costs • help identify profitable/loss making products • set budgets AO2 Application Explanation (max 1 mark), including: • respond to rising costs by adjusting prices • identifying high-cost/profitable items allows the business to streamline operations or reduce waste. • accurate cost data helps the owner decide whether to introduce new products, offer discounts, or invest in equipment • can be used to help obtain external finance 1(b)(ii) Context (max 1 mark), including: • example of price-setting – e.g. CB calculates that the total cost of ingredients, labour, and overheads for one latte is $1.50. To make a profit, CB decides to sell the latte for $3.00. • if milk prices increase, the shop might adjust its pricing or switch suppliers. • operate in mass market • use of answer to 1(b)(i) (OFR)/reduction in profit (OFR)/profit change between 2023 and 2024 • use of information in Table 1.1 – direct costs increased by $4m (to $10m) and indirect costs increased by $4m (to $20m) • competitive market • considering market segmentation • demand for healthy food Accept all valid responses. 1(c) Analyse two benefits to CB of training its employees. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two relevant • Application of two relevant Limited analysis points is used to answer the points to a business context. • Limited analysis that identifies question. • Application of one relevant connections between causes, • Knowledge of one relevant point to a business context. impacts and/or consequences point is used to answer the of two points. question. • Limited analysis that identifies 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. Annotate the first benefit in the left-hand margin and the second in the right-hand margin. 1(c) Responses may include: AO1 Knowledge and understanding (max 2 s) • improve the quality and consistency of its products and services • increase productivity • increase efficiency • motivate staff • develop new skills and knowledge AO2 Application Max one for application in the first benefit and max one for application in the second benefit. • working in a coffee shop is labour intensive work. • highly paid employees would like to improve skills • mission statement refers to a unique experience for customers • CB face very high costs that they need to control • train staff to be helpful, friendly and knowledgeable • offers food as well as coffee • located in high-income areas of major cities • competitive/dynamic business environment • operate in several countries AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis candidate shows two or more links in the chain of analysis or a two-sided analysis. Analysis may include: • training improves the skills of employees – greater efficiency/productivity more customers served/more sales/ profit. • empowerment – may improve motivation by allowing employees to feel more knowledgeable e.g., advising customers on different products • can increase customer satisfaction and loyalty – enhance its reputation/revenue/profits • improve staff morale and retention – reduce turnover/absenteeism/recruitment costs • increased efficiency – reducing costs and increasing profits • build its customer base – attracting customers from the competition Accept all valid responses 1(d) Evaluate whether CB should make greater use of market segmentation to be more successful. 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 is relevant key term(s) relevant point(s) to connections 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 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) Responses may include: AO1 Knowledge and understanding (max 2 s) • market has smaller groups/sub-groups • used to better target marketing efforts • methods include geographic, demographic and psychographic Do not award K for product differentiation, must be market segmentation AO2 Application Limited application applies knowledge of market segmentation to CB once. Developed application + applies knowledge of market segmentation to CB twice. • customers are becoming more aware of the health effects of consuming too much caffeine or sugar in their drinks. • operates in prime areas • use fair trade coffee beans • customers environmentally conscious. • highly competitive/dynamic business environment • currently operates in the mass market. • target young professionals, students and tourists • research shows customers want healthy food options • use of answer from 1(b)(i)/decreasing profit • use of information from table 1.1 – e.g. rising costs/increasing revenue AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Arguments for greater use of market segmentation: • Better targeting of customer needs – tailor products and marketing more effectively. • Improved marketing efficiency – marketing campaigns can be more cost-effective and impactful when aimed at specific segments. • Become more competitive – attracting a wider customer base 1(d) Arguments against greater use of market segmentation: • increased complexity and costs – may require changes in product lines, marketing strategies, and store layouts, increasing operational complexity and costs. • further investment required – causing a strain on resources. • risk of alienating existing customers – might confuse or alienate loyal customers who value the current broad appeal. • maintaining a consistent brand image across – marketing becomes expensive and challenging • limited capacity to implement segmentation – may lack the data analytics capabilities or marketing expertise needed to effectively identify and serve distinct segments. 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. While market segmentation offers opportunities for CB to better meet customer needs and stand out in a competitive market, it also introduces risks and costs. A balanced approach may be most suitable – CB could begin with light segmentation (e.g. offering healthier food options) while maintaining its mass market appeal. This would allow CB to test the effectiveness of segmentation without overcommitting resources. Other evaluative arguments may include: • target market – how to identify and attract a different market segment and costs involved • selling at a lower price might damage the brand reputation. • choice depends on operating costs, and customer preferences • CB would need to conduct market research to determine which method would be more effective in increasing demand for its products • a recommendation which could be that related to one method or could be that a combination is better. this helps CB to appeal to customers with different needs. • yes, it should/should not with justification Evaluation must be clearly related to market segmentation Accept all valid responses.

Question 41

Natalia’s Naturals (NN) NN is a small business owned by Natalia. NN produces and sells a range of natural skincare products. In 2020, Natal…

Accepted Answer

2(a)(i) Identify one internal stakeholder of a business. 1 AO1 Knowledge and understanding Indicative content Responses may include: • employees • owners • shareholders • managers • directors • investors Accept all valid responses. 2(a)(ii) Explain the term ‘distribution channels. 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 (max 1 mark), including: • stages/routes/path a good/service passes through to the final buyer/customer/consumer • how a product or service gets from the producer to the final customer/from supplier to consumer AO2 Application Explanation of distribution channels (max 1 mark), including: • can be direct/indirect/digital • help businesses access wider markets • efficient for getting products to customers • convenient for customers • reduce costs through specialisation • help gain brand recognition 2(a)(ii) Application for distribution channels (max 1 mark), including: • vary according to business type • business can use more than one channel such as selling through website and retail shop • examples of distribution channels such as: producer sells direct to the consumer involves intermediaries such as wholesalers/retailers/agents digital platforms/websites/apps/social media • example of a business distribution channel Accept all valid responses 2(b)(i) Refer to Table 2.1. Calculate the break-even level of output of the new face cream. 3 Indicative content formula: break-even output = fixed costs / selling price-variable costs (contribution per unit) (1) calculation of contribution per unit = $5 – $2 = $3 (1) calculation of output = 12 000/3 (1) = 4000 units Answer = 4000 (3) OFR applies 2(b)(ii) Explain one limitation to NN of break-even analysis. 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 limitation (max 1 mark), including: • may be based on unrealistic assumptions • price can change • fixed costs can change • variable costs do not always stay the same • some costs semi-fixed/variable • sales not the same as output • hard to calculate for a single product in a business. • does not take account of changes in the external environment 2(b)(ii) Dis AO2 Application Explanation of a limitation (max 1 mark), including: • leads to inaccurate analysis • assumes all units produced are sold • example of changing fixed costs such as rent/salaries/investments • example of changing variable costs • example of semi-fixed/variable costs • example of difference between sales and output such as unsold inventory/returns/discounts • products may have different profit margins Context applied to a limitation (max 1 mark), including: • answer to 2(b)(i) (OFR) • price of $5 • sells other products that contribute to fixed costs • use of table 2.2 • rents workshop • competitive market Accept all valid response 2(c) Analyse one advantage and one disadvantage to NN of being a small business. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks • Knowledge of two relevant • Application of two relevant Limited analysis points is used to answer the points to a business context. • Limited analysis that identifies question. • Application of one relevant connections between causes, • Knowledge of one relevant point to a business context. impacts and/or consequences point is used to answer the of two points. question. • Limited analysis that identifies 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. Annotate the advantage in the left-hand margin and the disadvantage in the right-hand margin. 2(c) Responses may include: AO1 Knowledge and understanding Knowledge of an advantage (max 1 mark), including: • more flexible and adaptable to changing customer needs or market conditions • more personal and responsive customer service • lower overheads and operating costs • easier to control and manage • able to target niche markets or segments Knowledge of a disadvantage (max 1 mark), including: • lower economies of scale • high unit costs. • low bargaining power • difficult to be competitive • may not be able to fulfil all orders • smaller customer base • fewer distribution channels • limited funding opportunities AO2 Application Max one for application to an advantage and Max one for application to a disadvantage • needs to sell 4000 units of new product to break even (OFR from 2(b)(i)) • high fixed costs of one product such as the new face cream $12 000 • niche market for natural ingredients in skincare • competitive market with large chains/established brands • can quickly adapt products for different skin types • hand-made products • Natalia manages all tasks/no employees • Natalia works long hours/stressed and exhausted 2(c) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis candidate shows two or more links in the chain of analysis or a two-sided analysis. Advantages, including: • can be more flexible and adaptable as a small business – such as by being able to modify its products/prices/promotions/places quickly and easily according to customer feedback or market trends. • increase customer satisfaction – leading to customer loyalty/retention. • reduced fixed costs – more profit Disadvantages, including: • small market and high costs – lead to a lower profit margin • less potential for growth – limited access to capital • difficult to compete in the market – less brand recognition • limited sources of finance – difficult to attract investors/obtain loans Accept all valid responses 2(d) Evaluate whether outsourcing is the most suitable way to increase NN’s production capacity. 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 is relevant key term(s) relevant point(s) to connections 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 with term(s) and/or to the business connections limited supporting comment/evidence. factor(s) is used to context. between causes, • An attempt is made to balance the answer the question. impacts and/or arguments. consequences. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 2(d) Responses may include: AO1 Knowledge and understanding – of outsourcing (max 2 s), including: • the process of contracting out a business activity or function to another business/organisation • pay other businesses to take on some tasks • can help reduce unit costs • a business can concentrate on what it does best • can reduce risks • specialists skilled in function • specialist facilities AO2 Application Limited application applies knowledge of outsourcing to NN once. Developed application + applies knowledge of outsourcing to NN twice. • growing demand for its products • small business • Natalia works long hours/stressed and exhausted • NN’s values/standards • Natalia’s passion and satisfaction as an entrepreneur • competitive market • loyal customer base • narrow distribution channels • organic ingredients • natural, handmade products • local suppliers • small, rented workshop • answer to 2(b)(i), required output/sales to break-even 2(d) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis candidate shows two or more links in the chain of analysis or a two-sided analysis. Arguments for outsourcing: • outsourcing allows a business to scale up production – no need to invest in larger premises or equipment. • would free up time to focus on other tasks – like product development/marketing. • external manufacturers may have better equipment and processes – leading to improved efficiency/product consistency. • this could enhance reputation – supporting growth/sales Arguments against outsourcing: • could compromise product quality – resulting on dissatisfied customers • customers may perceive outsourced products as less personal – reducing demand • may conflict with values – especially if the external firm does not share the same environmental standards. • may involve high initial costs or long-term contracts- risky for a small business with limited financial resources. 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. Outsourcing could help NN expand production and reduce Natalia’s workload, but it also poses risks to quality, brand identity, and cost control. A hybrid approach may be more suitable – Natalia could outsource part of the production while maintaining control over key processes. This would allow NN to grow sustainably while preserving its unique brand values. Other points might include: • depends on various factors – such as her objectives, resources, capabilities, market conditions • judgement over the most important/influential factor affecting growth of NN • elements that the judgement could depend upon, such as losing control over the quality and consistency of the products, compromising on the natural and organic ingredients used in the products, or damaging the reputation and image of NN • judgement on the implications for cost and NN’s ability to compete with big brands • weighing up of the factors and their relative influence on NN’s options Accept all valid responses

Question	Answer	Marks	From
1	see sheet	30	9609/22 Feb/March 2017
2	see sheet	30	9609/21 May/June 2017
3	see sheet	30	9609/23 May/June 2017
4	see sheet	30	9609/22 Oct/Nov 2017
5	see sheet	30	9609/23 Oct/Nov 2017
6	see sheet	30	9609/22 May/June 2018
7	see sheet	30	9609/23 May/June 2018
8	see sheet	30	9609/23 Oct/Nov 2018
9	see sheet	30	9609/22 Feb/March 2019
10	see sheet	30	9609/22 Feb/March 2019
11	see sheet	30	9609/21 May/June 2019
12	see sheet	30	9609/21 Oct/Nov 2019
13	see sheet	30	9609/23 Oct/Nov 2019
14	see sheet	30	9609/22 Feb/March 2020
15	see sheet	30	9609/21 May/June 2020
16	see sheet	30	9609/23 May/June 2020
17	see sheet	30	9609/22 Oct/Nov 2020
18	see sheet	30	9609/23 Oct/Nov 2020
19	see sheet	30	9609/22 Feb/March 2021
20	see sheet	30	9609/24 May/June 2021
21	see sheet	30	9609/22 Oct/Nov 2021
22	see sheet	30	9609/22 Oct/Nov 2021
23	see sheet	30	9609/23 Oct/Nov 2021
24	see sheet	30	9609/22 Feb/March 2022
25	see sheet	30	9609/22 May/June 2022
26	see sheet	30	9609/22 May/June 2022
27	see sheet	30	9609/23 Oct/Nov 2022
28	see sheet	30	9609/22 Feb/March 2023
29	see sheet	30	9609/22 May/June 2023
30	see sheet	30	9609/21 Oct/Nov 2023
31	see sheet	30	9609/22 Oct/Nov 2023
32	see sheet	18	9609/22 Oct/Nov 2023
33	see sheet	30	9609/23 Oct/Nov 2023
34	see sheet	30	9609/22 Feb/March 2024
35	see sheet	30	9609/22 May/June 2024
36	see sheet	30	9609/23 May/June 2024
37	see sheet	30	9609/23 Oct/Nov 2024
38	see sheet	30	9609/22 Feb/March 2025
39	see sheet	30	9609/22 May/June 2025
40	see sheet	30	9609/21 Oct/Nov 2025
41	see sheet	30	9609/21 Oct/Nov 2025

Questions44 pages

Mark scheme41 answers

Another paper, or another topic

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