Cambridge IGCSE Business Studies 0450 — 2005 May/June Paper 2 · Variant 1

This document consists of 13 printed pages and 3 blank pages. (KN) S76409/1 © UCLES 2005 [Turn over UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education BUSINESS STUDIES 0450/02 Paper 2 May/June 2005 1 hour 45 minutes Candidates answer on the Question Paper. No Additional Materials are required. READ THESE INSTRUCTIONS FIRST Write your Centre number, candidate number and name on all the work you hand in. Write in dark blue or black pen in the spaces provided on the Question Paper. Do not use staples, paper clips, highlighters, glue or correction fluid. Answer all questions. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question. The business described in this question paper is entirely fictitious. Centre Number Candidate Number Name For Examiner’s Use 1 2 3 4 5 Total If you have been given a label, look at the details. If any details are incorrect or missing, please fill in your correct details in the space given at the top of this page. Stick your personal label here, if provided. www.XtremePapers.com

2 0450/02/M/J/05 EKZ: A food wholesaler EKZ is a partnership owned by 2 people. It is a food wholesaling business. It imports food from many European countries and then sells it to small local retailers. Shop owners have to pay cash to EKZ when they make purchases. Fig. 1 shows EKZ wholesale outlets and the shops they sell and distribute their products to. Map to show the locations of EKZ’s wholesale outlets in Country A Fig. 1 EKZ employs 500 workers as shown below in Fig. 2. It has to follow the employment laws that protect employees. Written orders are sent to the managers of the wholesale outlet every week. However, one of the workers in the wholesale outlet was heard to say, “We never know what to do”. Organisation chart of EKZ Fig. 2 Finance Manager Purchasing Manager Marketing Manager Personnel Manager 2 Partners Wholesale General Manager Wholesale Outlet A Manager Supervisor Cashiers Warehouse staff Supervisor Wholesale Outlet B Manager Wholesale Outlet C Manager Wholesale Outlet D Manager PORT EKZ wholesale outlet airport main roads city/towns with many small food shops protected area for wildlife. Government building restrictions KEY © UCLES 2005 5

3 0450/02/M/J/05 [Turn over Recently EKZ have had increased competition from several large supermarkets. These supermarkets import their own food products. If EKZ are to compete effectively they must have an appropriate marketing mix. The small local shops have also faced competition from the supermarkets. EKZ want to support local shop owners and think that improving their customer service would be one way of keeping these customers. At the present time the owners of the local food shops have their own vans to collect food from EKZ. They find it difficult to transport products which are chilled or frozen. If these products are not kept cold enough then they cannot be sold because of consumer protection laws. The country’s exchange rate has fluctuated over the last year. The owners of EKZ have found it difficult to make accurate forecasts of their costs. This has resulted in cash flow problems at certain times in the year. The currency of EKZ country is $. Table 1 The EKZ marketing manager says “We are going to have to offer more promotional pricing to our customers on certain products to help us increase sales. Our advertising method of sending sales leaflets to the local shops seems to be quite effective. I don’t think we should advertise in local newspapers or on the radio even though the large supermarkets do. We must do something because our sales have not increased and our net profit has fallen.” Extract from the accounts of EKZ year ending 31 December 2004 and 2003 in $m 2004 2003 Sales 120 120 Cost of sales 80 60 Gross profit 40 60 Expenses 35 40 Net profit 5 20 Owners’ funds 100 100 Fig. 3 © UCLES 2005 2004 2003 Exchange rate (average over the year) $1 = 3 Euros $1 = 2 Euros 10 15 20

4 0450/02/M/J/05 1 (a) The owners of EKZ do not have limited liability. Explain what you understand by this. … … … … … …[3] (b) What are the advantages to the owners of EKZ of operating the business as a partnership? … … … … … … … … … … … … … …[7] (c) Refer to Fig. 2. Identify two possible communication barriers within EKZ. … … … …[2] For Examiner’s Use © UCLES 2005

5 0450/02/M/J/05 [Turn over (d) Discuss how EKZ could improve its internal communication. … … … … … … … … … … … … … … … …[8] For Examiner’s Use © UCLES 2005

6 0450/02/M/J/05 2 (a) Why do you think small food retailers buy from EKZ rather than importing the products themselves? … … … … … … … … … … … … … … … …[8] For Examiner’s Use © UCLES 2005

7 0450/02/M/J/05 [Turn over (b) EKZ plan to open a new wholesale outlet. Discuss the factors that might affect this location decision. … … … … … … … … … … … … … … … … … … … … … … … …[12] For Examiner’s Use © UCLES 2005

8 0450/02/M/J/05 3 (a) Identify two groups (stakeholders) that might find EKZ’s profit and loss account useful. … … … …[2] (b) Explain why these two groups would find this information useful. … … … … … … … … … … … …[6] For Examiner’s Use © UCLES 2005

9 0450/02/M/J/05 [Turn over (c) Using the information in the case study and Fig. 3 discuss the financial position of EKZ using at least two ratios. … … … … … … … … … … … … … … … … … … … … … … … …[12] For Examiner’s Use © UCLES 2005

10 0450/02/M/J/05 4 (a) Assume you are the marketing manager of EKZ. What changes would you make to the marketing mix to increase sales? Justify your answer. … … … … … … … … … … … … … … … … … … … … … … … …[12] For Examiner’s Use © UCLES 2005

11 0450/02/M/J/05 [Turn over (b) Why might prices in the small food shops be higher than in supermarkets? … … … … … … … …[4] (c) Outline two ways small food shops could compete with large supermarkets. … … … … … … … …[4] For Examiner’s Use © UCLES 2005

12 0450/02/M/J/05 5 (a) Refer to Table 1. The exchange rate changed between 2003 and 2004. Explain what effect this might have had on EKZ. … … … … … … … … … … … …[6] (b) The government often controls business activity. Give two examples of how the government controls business activity. … … … …[2] For Examiner’s Use © UCLES 2005

13 0450/02/M/J/05 (c) Discuss how EKZ might be affected by government controls on business activity. … … … … … … … … … … … … … … … … … … … … … … … …[12] For Examiner’s Use © UCLES 2005

16 0450/02/M/J/05 BLANK PAGE Every reasonable effort has been made to trace all copyright holders where the publishers (i.e. UCLES) are aware that third-party material has been reproduced. The publishers would be pleased to hear from anyone whose rights they have unwittingly infringed. University of Cambridge International Examinations is part of the University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education MARK SCHEME for the June 2005 question paper 0450 BUSINESS STUDIES 0450/02 Paper 2 (Case Study), maximum raw mark 100 This mark scheme is published as an aid to teachers and students, to indicate the requirements of the examination. It shows the basis on which Examiners were initially instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began. Any substantial changes to the mark scheme that arose from these discussions will be recorded in the published Report on the Examination. All Examiners are instructed that alternative correct answers and unexpected approaches in candidates’ scripts must be given marks that fairly reflect the relevant knowledge and skills demonstrated. Mark schemes must be read in conjunction with the question papers and the Report on the Examination. • CIE will not enter into discussion or correspondence in connection with these mark schemes. CIE is publishing the mark schemes for the June 2005 question papers for most IGCSE and GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses. www.XtremePapers.com

Grade thresholds for Syllabus 0450 (Business Studies) in the June 2005 examination. minimum mark required for grade: maximum mark available A C E F Component 2 100 65 44 29 20 The threshold (minimum mark) for B is set halfway between those for Grades A and C. The threshold (minimum mark) for D is set halfway between those for Grades C and E. The threshold (minimum mark) for G is set as many marks below the F threshold as the E threshold is above it. Grade A* does not exist at the level of an individual component.

June 2005 IGCSE MARK SCHEME MAXIMUM MARK: 100 SYLLABUS/COMPONENT: 0450 BUSINESS STUDIES Paper 2 (Case Study)

Page 1 Mark Scheme Syllabus Paper IGCSE – JUNE 2005 0450 2 © University of Cambridge International Examinations 2005 1 (a) The owners of EKZ do not have limited liability. Explain what you understand by this. [3] Content: This is where the owners of the business can be held responsible for the debts of the business and lose their personal possessions. Knowledge and Application Understanding of limited liability shown and applied in the context of owners of the partnership. 1-3 marks (b) What are the advantages to the owners of EKZ of operating the business as a partnership? [7] Content: Share profits amongst a small number of partners, additional capital from partners, more control over business decisions, privacy in accounts, fewer rules. For example: The partners will have more privacy over the financial information of the business than if they were a private limited company where their accounts could be viewed by anyone. Application and Analysis Level 2 Two or more advantages explained in context. 4-7 marks Level 1 One advantage explained or three advantages listed. 1-3 marks (c) Refer to Fig. 2. Identify two possible communication barriers with EKZ. [2] Content: examples might include - too many people to pass on the message, receiver does not listen, unclear message, technical breakdown, wide span of control, chain of command is long. Knowledge 1 mark for each example 1 x 2 examples (d) Discuss how EKZ could improve its internal communication. [8] Content: Examples might include - sender ensures message contains appropriate language, sender ensures right person receives the message, feedback should be given, the appropriate channel should be selected, the shortest possible channel should be used, make sure the right channel is used, importance of the message should be emphasised, direct communication should be used where possible. For example: By insisting on feedback this allows the sender to check that the right person received the message. However, the type of feedback will not always tell the sender that the message has been understood. So this is a good way to improve internal communication if there is a way of checking that the information has also been understood as well as just saying that it had been received. Knowledge Analysis and Evaluation Level 2 Two or more ways given. 2 marks Good discussion of two or more ways to improve internal communication. Good judgement shown as to why this would lead to an improvement in communication. 4-6 marks Level 1 One way is given. 1 mark Limited discussion of how to improve internal communication. Some judgement shown as to why it would lead to an improvement in communication. 1-3 marks

Page 2 Mark Scheme Syllabus Paper IGCSE – JUNE 2005 0450 2 © University of Cambridge International Examinations 2005 2 (a) Why do you think small food retailers buy from EKZ rather than importing the products themselves? [8] Content: They do not want to buy in large quantities; expensive to import small amounts; can get advice from wholesaler; do not have to search out supplier from overseas. For example: Small food retailers would not have the time or experienced staff to know where to buy food from in other countries. They would not know where the best prices were and therefore may pay more to overseas suppliers. Also, buying small amounts of food would be more expensive to transport from abroad than large amounts and so buying from EKZ may still be cheaper than buying the food themselves. Application Knowledge and Analysis Level 2 Well applied to the case. 3 marks Good discussion of advantages of buying from wholesaler and/or the disadvantages of importing. 4-5 marks Level 1 Weakly applied to the case. 1-2 marks Limited discussion of buying from a wholesaler and/or disadvantages of importing. 1-3 marks (b) EKZ plan to open a new wholesale outlet. Discuss the factors that might affect this location decision. [12] Content: Factors affecting location decisions such as nearness to - ports, small retail shops; transport and communication; availability of power; government influence (regulations or grants). For example: The wholesaler needs to be near small food shops or transporting goods could be more expensive. Small shop owners may not travel far to buy their goods so if the wholesaler is not nearby then they would not make many sales. This factor is therefore very important when making a location decision. Knowledge Application Analysis and Evaluation Level 2 Two or more location factors given. 2 marks Well applied to the case. 2 marks Good discussion of the location factors. Good judgement made as to the importance of the factors when influencing location. 5-8 marks Level 1 One location factor given. 1 mark Weakly applied to the case. 1 mark Limited discussion. Limited judgement shown. 1-4 marks 3 (a) Identify two groups (stakeholders) that might find EKZ profit and loss account useful. [2] Content: Examples might include - Government, partners, employees, bank, creditors, potential new partners. Knowledge One mark for each suitable example 1-2 examples

Page 3 Mark Scheme Syllabus Paper IGCSE – JUNE 2005 0450 2 © University of Cambridge International Examinations 2005 (b) Explain why these two groups would find this information useful. [6] For example: Potential new partners will want to see if the business is profitable. They will need to see the likely return on their investment to help them decide whether or not to invest in the partnership. Analysis and Evaluation Level 2 Good discussion of the two groups and why they would find it useful. 4-6 marks Level 1 Limited discussion of two groups or good discussion of one group and why they would find it useful. 1-3 marks (c) Using the information in the case study and Fig.3. Discuss the financial position of EKZ Partners, using at least two ratios. [12] Content: 2004 2003 Gross profit ratio gone down 33% 50% Net profit ratio decreased 4% 17% ROCE fallen 5% 20% Absolute changes = Sales same; cost of sales increased (33%); gross profit gone down; expenses gone down; net profit fallen. For example: The business seems to be doing worse as the ratios are worsening. Net profit fell from 17% to 4%. This seems to be because the cost of sales has increased with the same value of sales so it would suggest raw material prices have increased. However, expenses have gone down but not enough to improve new profit. Knowledge and Application Analysis and Evaluation Level 2 Two or more different ratios correctly calculated. 3-4 marks Good discussion of what the ratios show. Good judgement shown as to the performance of the business in terms of the ratios. 5-8 marks Level 1 Limited attempt to calculate the ratios but some errors. The absolute figures are used to indicate the changes (e.g. cost of sales increased). 1-2 marks Limited discussion of what the ratios show or general discussion of the figures themselves (e.g. cost of sales increased). Limited judgement shown in terms of the absolute figures. 1-4 marks

Page 4 Mark Scheme Syllabus Paper IGCSE – JUNE 2005 0450 2 © University of Cambridge International Examinations 2005 4 (a) Assume you are the Marketing Manager of EKZ. What changes would you make to the marketing mix to increase sales? Justify your answer. [12] Content: Product - possibly increasing the range of products sold/deliver to small food shops so that they will buy more frozen food. Price - promotional pricing so that the small shops will buy more and it will help them to be more competitive with the supermarkets too. Promotion - currently sending out leaflets. Advertise in grocery specialist magazines so that the target audience will see it. Promotional stands in the wholesalers to promote certain product and give advice. Place - this would seem to be alright. They are already part of a channel of distribution. However, they could sell directly to some different customers. Knowledge Application Analysis and Evaluation Level 2 Knowledge of all three to four elements of the marketing mix shown. 2 marks Well applied to the marketing mix from the case. 3-4 marks Clear and detailed discussion of the changes to be made to the marketing mix. Why the changes are necessary and how they would increase sales. 4-6 marks Level 1 Knowledge of one to two elements of the marketing mix shown. 1 mark Weakly applied to the marketing mix from the case. 1-2 marks Limited discussion of the changes to be made and limited discussion of why these changes would be effective. 1-3 marks (b) Why might prices in the small food shops be higher than in supermarkets? [4] Content: Overheads relative to turnover will be higher therefore, to cover these costs, the shop will need to charge higher prices. Costs of buying stock are higher as they cannot get bulk buying discounts, which a large supermarket can benefit from. Knowledge Analysis Level 2 Two reasons stated 2 marks Two reasons explained 2 marks Level 1 One reason stated 1 mark One reason explained 1 mark (c) Outline two ways small food shops could compete with large supermarkets. [4] Content: By giving customer service, advice, credit, delivery. Application Analysis Level 2 Two ways applied to the case. 2 marks Clear discussion of the two ways they will make the small shops more competitive. 2 marks Level 1 One way applied to the case. 1 mark One way discussed. 1 mark

Page 5 Mark Scheme Syllabus Paper IGCSE – JUNE 2005 0450 2 © University of Cambridge International Examinations 2005 5 (a) The exchange rate has changed between 2003 and 2004. Explain what effect might this have had on EKZ. [6] 2004 2003 $1:3Euros $1:2 Euros For example: The currency appreciated which means import prices are cheaper and export prices will be more expensive abroad. EKZ will be able to buy their food from abroad at a cheaper price. They could then sell this food for a cheaper price to their customers making them more competitive or they could keep prices the same and increase their profit. Analysis and Evaluation Level 2 Identified effect(s) of exchange rate change. Considered possible effects on the business. 4-6 marks Level 1 Limited appreciation of the effect(s) of the exchange rate change. Limited consideration of the possible effects on the business. 1-3 marks (b) The government often controls business activity. Give two examples of how the government controls business activity. [2] Content: Examples might include - Employment laws, Consumer protection laws, Location regulations (planning controls). Knowledge 1 mark for each suitable example (1x 2 examples) (c) Discuss how EKZ might be affected by government controls on business activity. [12] Content: possible reasons for government controls on business: Protection of employees - working conditions, H and S, minimum wage. Location decisions - influence where businesses choose to locate, planning controls. To protect consumers - goods should be safe to use, goods should be accurately described in advertising. For example: Government controls the sale of food to ensure consumers are protected from the sale of contaminated food which could cause illness. This means EKZ must check their food to ensure that it is kept at the correct temperature. This is so food does not go bad. EKZ will need to employ people to check the temperatures of the fridges and freezers and keep the equipment in good working order, which may be expensive. Application Analysis and Evaluation Level 2 Well applied to the case. 3-4 marks Good discussion of government controls and what they are intended to do. Good judgement shown of the effects of government controls on EKZ. 5-8 marks Level 1 Weak application to the case. 1-2 marks Limited discussion of government controls and what they are intended to do. Limited judgement shown of the effects of government controls on EKZ. 1-4 marks