Cambridge IGCSE Business Studies 0450 — 2005 Oct/Nov Paper 2 · Variant 1

This document consists of 13 printed pages and 3 blank pages. SP (NH) S79108/4 © UCLES 2005 [Turn over UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education BUSINESS STUDIES 0450/02 Paper 2 October/November 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 businesses described in this question paper are entirely fictitious. Centre Number Candidate Number Name 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. For Examiner’s Use 1 2 3 4 5 Total www.XtremePapers.com

2 © UCLES 2005 0450/02 O/N/05 Lopez Lopez is a medium sized business that produces a wide range of chocolate bars. It is located in Country A and currently only sells chocolate bars in that country. It has been in business for 6 years and has grown rapidly. Jennifer is the Managing Director of the company and her brother, Miguel, is the Marketing Manager. They sell most of their chocolate bars to small shops. These shops pay cash two months after the goods are delivered. Lopez manufactures chocolate bars using batch production methods. Jennifer is considering changing to flow production if the company expands and sells its products to other countries. Jennifer wants the business to continue to grow rapidly. However, she worries about buying more raw materials to manufacture the chocolate bars because the present supplier cannot supply any more. Lopez pays cash for supplies on delivery. Also, more workers will need to be recruited to increase production and they may need to be trained. An additional member of staff will be needed to work in the sales department. This person will carry out general office duties but also deal with customer enquiries and take orders. Miguel said, ‘If we want to continue to expand we need to develop new products.’ Jennifer replied, ‘We will need to find out what type of sweets will appeal to potential customers in these countries; they have very different buying habits to our present customers. Our target market for these new products could be young children. These markets are likely to be very competitive.’ 1,000,000 shares of $1 each were issued when the company was founded. The shares are owned as shown in Fig. 1. Fig. 1: Ownership of shares in Lopez 5 10 15 20 Key 4 other family members Miguel

3 © UCLES 2005 0450/02 O/N/05 [Turn over The financial performance of the business for the last two years of trading is shown in Table 1. Jennifer said, ‘Profitability of the company is good. However, the cash flow has been a problem over the last two years and is still a problem.’ Table 1 Table 2 Summary of the sales and raw material costs for Lopez in 2005 in $’000 Table 3 Summary of the cash flow for Lopez in 2005 in $’000 25 30 35 40 45 August September October Sales for the month 100 150 200 Raw material costs 20 30 40 August September October Cash from Sales 60 80 100 Total in 60 80 100 Raw materials 20 30 40 Wages 50 60 55 Expenses 5 5 5 Purchase of machinery 1000 Total out 75 95 1100 MONTHLY BALANCE (15) (15) (1000) Opening balance Closing balance 20 5 5 (10) (10) (1010) Year ending 31 October 2005 2004 Gross profit ratio 80% 80% Net profit ratio 25% 15% ROCE (ROCE = Return on Capital Employed) 20% 10%

4 © UCLES 2005 0450/02 O/N/05 1 (a) (i) What two documents had to be drawn up when Lopez was registered as a private limited company? … … … …[2] (ii) Would you advise the owners of Lopez to convert the business into a Public Limited Company (plc)? Explain your answer. … … … … … … … … … … … … … … … …[8] For Examiner’s Use

5 © UCLES 2005 0450/02 O/N/05 [Turn over (b) Jennifer has clear objectives of business growth for Lopez. What are the advantages of having clear business objectives? … … … … … … … …[4] (c) Outline the management responsibilities of Miguel as Lopez’s Marketing Manager. … … … … … … … … … … … …[6] For Examiner’s Use

6 © UCLES 2005 0450/02 O/N/05 2 Miguel, the Marketing Manager, wants to develop a new range of sweets. These would be sold in other countries as well as in Country A. (a) (i) Explain why Miguel should carry out market research before developing a new range of sweets. … … … … … … … … … …[5] (ii) Advise Miguel on how to carry out market research. … … … … … … … … … … … …[6] For Examiner’s Use

7 © UCLES 2005 0450/02 O/N/05 [Turn over (b) Discuss three factors that could influence the marketing for the new range of sweets. … … … … … … … … … … … … … … … … … …[9] For Examiner’s Use

8 © UCLES 2005 0450/02 O/N/05 3 (a) If the business made a gross profit of $640,000 in 2005, what is the value of sales revenue in 2005? Show your calculations. … … … … … … … …[4] (b) (i) Refer to Table 2 and Table 3. Explain what Jennifer meant when she said cash flow is still a problem for the business. … … … … … … … … … … … …[6] For Examiner’s Use

9 © UCLES 2005 0450/02 O/N/05 [Turn over (ii) Advise Jennifer on how she could improve the company’s cash flow. … … … … … … … … … … … … … … … … … … … …[10] For Examiner’s Use

10 © UCLES 2005 0450/02 O/N/05 4 (a) If Lopez expands, they will need to recruit an additional member of staff for the sales department. Draw up a job description for this post. … … … … … … … … … … … …[6] (b) Should this new member of staff receive any training? Explain your answer. … … … … … … … …[4] For Examiner’s Use

11 © UCLES 2005 0450/02 O/N/05 [Turn over (c) A new Sales Manager has just been recruited. Discuss how Jennifer and Miguel could motivate this new manager. (You should include both financial and non-financial methods in your answer.) … … … … … … … … … … … … … … … … … … … …[10] For Examiner’s Use

12 © UCLES 2005 0450/02 O/N/05 5 (a) (i) Why do you think Lopez currently uses batch production? … … … … … … … …[4] (ii) Would you advise the company to change to flow production? Explain your answer. … … … … … … … … … … … … … … … …[8] For Examiner’s Use

13 © UCLES 2005 0450/02 O/N/05 (b) Why do you think that quality control is important to a company such as Lopez? … … … … … … … … … … … … … … … …[8] For Examiner’s Use

16 0450/02 O/N/05 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. 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 November 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. The minimum marks in these components needed for various grades were previously published with these mark schemes, but are now instead included in the Report on the Examination for this session. • CIE will not enter into discussion or correspondence in connection with these mark schemes. CIE is publishing the mark schemes for the November 2005 question papers for most IGCSE and GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses. www.XtremePapers.com

Page 1 Mark Scheme Syllabus Paper IGCSE – NOVEMBER 2005 0450 2 © University of Cambridge International Examinations 2005 1 (a) (i) What two documents had to be drawn up when Lopez was registered as a limited company? [2] Content: Memorandum of Association and Articles of Association Knowledge 1 mark for each document (1 x 2 documents). (ii) Would you advise the owners of Lopez to convert the business into a Public Limited Company (plc)? Explain your answer. [8] Content: Advantages of a plc - can sell shares to the public; rapid expansion possible with specialist managers appointed; easier to raise finance; high status; easier to attract suppliers. Disadvantages - many legal formalities; have to disclose accounts and other information to any interested parties; expensive to ‘go public’; divorce between ownership and control more likely; risk of takeover. Evaluative comments - Lopez might need to raise more capital and this could be by the sale of shares to the public. This might be better than taking out a loan as no interest needs to be paid. However, there is a danger of a loss of control or it would be easier for the company to be taken over and therefore I would advise them not to become a plc. Knowledge/Application Evaluation Level 2 2-4 marks 2 or more advantages/ disadvantages of a plc, applied to the case. 3-4 marks Concluding comments showing good judgement made as to whether to change to a plc. Level 1 1 mark 1 advantage/disadvantage of a plc. 1-2 marks Limited judgement shown. (b) Jennifer has clear objectives of business growth for Lopez. What are the advantages of having clear business objectives? [4] Content: Plans are made to meet these objectives; clear focus for employees of the business; facilitates budgets as part of planning. Knowledge Analysis Level 2 2 marks Two or more advantages given. 2 marks Good discussion of advantage(s). Level 1 1 mark One advantage given. 1 mark Limited discussion of advantage(s).

Page 2 Mark Scheme Syllabus Paper IGCSE – NOVEMBER 2005 0450 2 © University of Cambridge International Examinations 2005 (c) Outline the management responsibilities of Miguel as Lopez’s Marketing Manager. [6] Content: Marketing manager is responsible for market research, planning of new products, deciding on the marketing mix, evaluating sales data. Linked to the case - develop new sweets, market research in new country, research the competition in other market, develop a marketing mix for the new products. Knowledge Application Level 2 2 marks Two or more responsibilities outlined. 3-4 marks Good application of the responsibilities in terms of marketing manager of sweet/chocolate manufacturer. Level 1 1 mark One responsibility outlined. 1-2 marks Limited application of responsibilities to case. 2 Miguel, the Marketing Manager, wants to develop a new range of sweets. These would be sold in other countries as well as in Country A. (a) (i) Explain why Miguel should carry out market research before developing a new range of sweets. [5] Content: To find out the potential market so that they can develop an appropriate marketing mix. To identify if there is sufficient demand to be worth selling in the other country. To indicate the target market so that suitable advertising can be developed that will reach these potential customers. Analysis/Evaluation Level 2 3-5 marks Advantage(s) of market research explained. Clear justification as to why the research would be needed. Level 1 1-2 marks Limited explanation of an advantage of market research and/or limited justification. (ii) Advise Miguel on how to carry out market research. [6] Content: Need to design a questionnaire, set a budget to carry out the research, select the type of sample and sample size, decide where to carry out the research and when, collate the results. Evaluation might be - the sample size needs to be as large as possible to make the results more accurate; the research needs to be carried out at a place and time so that the target market will be available to answer the questions; the cost of the research needs to be considered in relation to the accuracy of the information collected.

Page 3 Mark Scheme Syllabus Paper IGCSE – NOVEMBER 2005 0450 2 © University of Cambridge International Examinations 2005 Knowledge/Application Evaluation Level 2 3-4 marks Clear description of how to carry out market research. Well applied to the case study. 2 marks Clear justification of why these considerations need to be taken into account. Level 1 1-2 marks Knowledge of market research shown and/or limited application to the case study. 1 mark Limited justification of the considerations. (b) Discuss three factors that could influence the marketing for the new range of sweets. [9] Content: Factors affecting the marketing mix: the target market, laws, culture of the country, competition, production costs, advertising budget, disposable income. Evaluation of how they could affect it - the target market would influence where the sweets were advertised and how they were promoted. Culture - would affect the type of products which could be developed and the style of advertising that was used. Also the type of outlets used and the channel of distribution would be affected by the culture and characteristics of the country. Competition - would affect the advertising used, pricing policy and where they sold their products in order to compete and be successful. N.B. Level 1 can be awarded if the candidate only discusses the 4 P’s. Application Analysis Level 2 2 marks Well applied to the case. 3-6 marks Good discussion of 2 or more factors. Level 1 1 mark Limited application to the case. 1-2 marks Limited discussion of 2 or more factors or good discussion of 1 factor. 3 (a) If the business made a gross profit of $640,000 in 2005, what is the value of sales revenue in 2005? Show your calculations. [4] Content: Gross profit 80%. Gross profit $640,000. 640,000 x 100/80 = $800,000. Analysis Level 2 4 marks Correct answer. Level 1 1-3 marks Some working out correct but errors (correct figures for sales and gross profit identified and correct formula used. 1 mark each).

Page 4 Mark Scheme Syllabus Paper IGCSE – NOVEMBER 2005 0450 2 © University of Cambridge International Examinations 2005 (b) (i) Refer to Table 2 and Table 3. Explain what Jennifer meant when she said cash flow is still a problem for the business. [6] Content: Cash flowing out of the bank account and not flowing back in quickly enough. This leads to a lack of cash for the business. Evaluative comments might include - runs out of cash and cannot pay creditors therefore they cannot produce any more products if creditors will not supply them with raw materials. They may need an overdraft and then they will be charged interest. This will increase costs which could lead to lower profits. Analysis/Evaluation Level 2 3-6 marks Clear explanation of what is meant by cash flow problems possibly including examples. Evaluation of why cash flow can cause problems for the business. Level 1 1-2 marks Idea shown of cash flow as a problem (ii) Advise Jennifer on how she could improve the company’s cash flow. [10] Content: Delay payments to creditors and try to speed up debtor payments. Increase sales revenue to increase the inflows of cash. Lease rather than purchase when buying new capital to spread the payments. Knowledge/Application Analysis/Evaluation Level 2 3-4 marks Knowledge of the need to increase cash inflow and/or reduce cash outflow. Or could discuss the timing of the cash flows. Well applied to case. 4-6 marks Good discussion of 2 different suggestions. Good judgement shown as to the best ways to improve cash flow. Level 1 1-2 marks Outlined how to increase cash inflow or cash outflow. Limited application to the case. 1-3 marks Limited discussion of 2 suggestions or good discussion of 1 suggestion. Limited judgement shown.

Page 5 Mark Scheme Syllabus Paper IGCSE – NOVEMBER 2005 0450 2 © University of Cambridge International Examinations 2005 4 (a) If Lopez expands, they will need to recruit an additional member of staff for the sales department. Draw up a job description for this post. [6] Content: Job description should contain job title, department, responsible to, responsible for, main purpose of job, main duties, occasional duties. Applied to the case - might include duties such as deal with customer queries, take orders, fill in order forms. Knowledge/Application Level 2 4-6 marks Knowledge of 3 plus items found on a job description, well applied to a job in the sales department. Level 1 1-3 marks Knowledge of 1-3 items found on a job description but limited in its application to a job in the sales department. (b) Should this new member of staff receive any training? Explain your answer. [4] Content: Evaluation might include: new members of staff will need induction training so that they know where everything is and what they should do. No training would be needed if the new staff recruited were already skilled in the job. They would know what they should do and this will save the business money. Yes because training makes employees more productive and they will be able to do their job more efficiently. The business will benefit from this as although the training will cost the business money the employees will work better and increase profits. Evaluation Level 2 3-4 marks Yes/No with clear justification of the answer. Level 1 1-2 marks Yes/No with limited justification of the answer.

Page 6 Mark Scheme Syllabus Paper IGCSE – NOVEMBER 2005 0450 2 © University of Cambridge International Examinations 2005 (c) A new Sales Manager has just been recruited. Discuss how Jennifer and Miguel could motivate this new manager. (You should include both financial and non- financial methods in your answer). [10] Content: Financial - commission, profit sharing, bonus, performance related pay. Non-financial - children’s education fees paid, discounts on firms products, health care paid for, company vehicle, free accommodation, share options, pension paid, free trips/holidays abroad. Motivation theories might be included in the answer e.g McGregor, Maslow, Taylor. Evaluation – If the Sales Manager is well paid and so recognition for a job well done might prove to be more of a motivator according to Maslow. However, the manager is responsible for sales and so if they were paid a commission related to the amount of sales then this should motivate them to make more effort to sell more. This would probably be the best method to use because of this. Knowledge/Application Analysis/Evaluation Level 2 2-3 marks Knowledge of both financial and non- financial methods of motivating employees. Applied to a Sales Manager. 4-7 marks Good discussion of the different types of motivators and how they encourage employees to work harder. Good judgement shown of which would be the most suitable for a Sales Manager. Level 1 1 mark Knowledge of either financial or non- financial methods. 1-3 marks Limited discussion of different types of motivators and how they encourage employees to work harder. Limited judgement shown as to which would be best. 5 (a) (i) Why do you think Lopez currently uses batch production? [4] Evaluation: Products are made in batches of a certain quantity, usually as orders come in. Each stage of production of a certain quantity is completed before moving on to the next stage therefore batch is more suitable than flow production which would involve making a large quantity of the same product. There are insufficient sales to justify flow production at the present time. Evaluation Level 2 3-4 marks Clear justification of why batch should be used or why flow is not suitable. Level 1 1-2 marks Limited justification of why batch should be used or why flow is not suitable.

Page 7 Mark Scheme Syllabus Paper IGCSE – NOVEMBER 2005 0450 2 © University of Cambridge International Examinations 2005 (ii) Would you advise the company to change to flow production? Explain your answer. [8] Content: Discussion of what is meant by flow and batch production. Evaluation of flow production in the context of Lopez. • Flow production would give standard quality chocolates in large quantities. • Would there be sufficient demand to warrant this large quantity? • Batch would allow more variety of types of sweets to be produced. • Production costs per unit are probably higher for batch production than flow. Knowledge/Application Evaluation Level 2 2-4 marks Good knowledge of flow and/or batch production, well applied to the case study. 3-4 marks Good judgement shown as to whether or not to change to flow production. Level 1 1-2 marks Limited knowledge of flow and/or batch production, weakly applied to the case study. 1-2 marks Limited judgement shown as to whether or not to change to flow production. (b) Why do you think that quality control is important to a company such as Lopez? [8] Content/Evaluation: To reduce wastage and defects as this will cost the business money. To check that products meet minimum standards to comply with the law so that the business does not face prosecution. To ensure products are not faulty because if faulty products are sold it will give a bad impression to customers and the business will get a bad reputation. This will probably result in lost sales. Knowledge Analysis/Evaluation Level 2 2 marks Good knowledge of what is meant by quality control. 4-6 marks Good discussion of the advantages of quality control. Good judgement shown of the importance of quality control to this business. Level 1 1 mark Limited knowledge of what is meant by quality control. 1-3 marks Limited discussion of the advantages of quality control. Limited judgement shown of the importance of quality control to the business.