Cambridge IGCSE Business Studies 0450 — 2010 Oct/Nov Paper 1 · Variant 1

This document consists of 11 printed pages and 1 blank page. DC (CB (LD)) 17528/3 © UCLES 2010 [Turn over UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education 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. Do not use staples, paper clips, highlighters, glue or correction fluid. DO NOT WRITE IN ANY BARCODES. Answer all questions. The businesses described in this paper are entirely fictitious. 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. * 7 3 7 2 4 4 5 6 2 3 * BUSINESS STUDIES 0450/11 Paper 1 October/November 2010 1 hour 45 minutes Candidates answer on the Question Paper. No Additional Materials are required. For Examiner’s Use 1 2 3 4 5 Total

2 © UCLES 2010 0450/11/O/N/10 For Examiner’s Use 1 Leo owns a garage in the centre of a town located in country A. The garage has a lot of stock of cars for sale. It also sells petrol and has a shop selling a wide range of food. ‘Petrol is a loss-leader for my garage’ said Leo. ‘Most of my profit comes from selling cars and I am looking for ways to increase the profits of the rest of my business.’ (a) What is meant by a loss leader? … … … … [2] (b) Identify two overhead costs that you think Leo’s garage would have to pay. Overhead 1: … Overhead 2: … [2] (c) The Government in country A has raised interest rates. Explain the impact that this increase might have on the profits of Leo’s garage. … … … … … … … … [4]

3 © UCLES 2010 [Turn over 0450/11/O/N/10 For Examiner’s Use (d) Identify and explain three ways in which Leo could promote his business. Way 1: … Explanation: … … … Way 2: … Explanation: … … … Way 3: … Explanation: … … … [6] (e) Although Leo’s business is profitable it has a cash flow problem. Recommend two methods that Leo could use to help solve the problem. Justify your recommendations. Method 1: … … … … … … Method 2: … … … … … … [6]

4 © UCLES 2010 0450/11/O/N/10 For Examiner’s Use 2 Suki is the manager of a department in a large retail shop. Her job is varied and she is responsible for the recruitment and motivation of the staff who work in her department. Suki enjoys her job but sometimes finds it hard. ‘Finding the right staff is difficult and motivating some of them is almost impossible!’ she said. (a) Identify two examples of fringe benefits that shop workers are likely to receive. Fringe benefit 1: … Fringe benefit 2: … [2] (b) Identify two reasons why recruiting shop workers might be difficult. Reason 1: … … Reason 2: … … [2] (c) Identify and explain two reasons why shop workers might lack motivation. Reason 1: … Explanation: … … … Reason 2: … Explanation: … … … [4]

5 © UCLES 2010 [Turn over 0450/11/O/N/10 For Examiner’s Use (d) Suki is also responsible for making sure that workers follow Health and Safety laws in her department. Identify and explain three ways in which such laws might help protect employees and customers. Way 1: … Explanation: … … … Way 2: … Explanation: … … … Way 3: … Explanation: … … … [6] (e) The sales of the shop have fallen recently. The management think that costs must be cut. Two suggestions have been made to do this: • Make 50% of the shop workers redundant • Reduce the hours of all shop workers by 50%. Which one of these two options do you think the management should choose? Justify your recommendation. … … … … … … … … … … … … [6]

6 © UCLES 2010 0450/11/O/N/10 For Examiner’s Use 3 Manfred is the Finance Director for a large public limited company called BTX. He sets the financial budgets for all the departments. Manfred is worried about the falling sales of BTX. He was looking at the data in Table 1. Table 1: Selected Financial Data from BTX ($000’s) 2008 2009 Sales 1 200 11 00 Net Profit 200 250 Capital employed 1 000 1 500 Current Ratio 1.2 0.7 (a) What is meant by a financial budget? … … … … [2] (b) Calculate the net profit margin for BTX in 2009. … … [2] (c) Explain what the current ratio tells Manfred about BTX’s financial position. … … … … … … … … [4]

7 © UCLES 2010 [Turn over 0450/11/O/N/10 For Examiner’s Use (d) BTX wants to raise new funds in 2010 to help finance its growth plans. Identify and explain three ways it could do this. Way 1: … Explanation: … … … Way 2: … Explanation: … … … Way 3: … Explanation: … … … [6] (e) Do you think that the management of BTX should be worried about the performance of the company in 2009? Justify your answer. … … … … … … … … … … … … [6]

8 © UCLES 2010 0450/11/O/N/10 For Examiner’s Use 4 Sweet Scent is a company that manufactures toiletries such as soap, sun cream and toothpaste. Fig.1 and Fig. 2 show the product life cycles of two of its brands of face cream coded W and X. Sales Value $ Time Sales Value $ Time Fig. 1: Product W Fig. 2: Product X (a) What is meant by a product life cycle? … … … … [2] (b) Identify the four stages of the product life cycle of product X. Stage 1: … Stage 2: … Stage 3: … Stage 4: … [2] (c) Identify and explain two main differences in the life cycles of the two products shown in Fig. 1 and Fig. 2. Difference 1: … Explanation: … … … Difference 2: … Explanation: … … … [4]

9 © UCLES 2010 [Turn over 0450/11/O/N/10 For Examiner’s Use (d) Sweet Scent is soon to launch a new range of toothpaste called Gleam. Identify and explain three factors that the management of Sweet Scent should consider before setting a price for Gleam. Factor 1: … Explanation: … … … Factor 2: … Explanation: … … … Factor 3: … Explanation: … … … [6] (e) The management of Sweet Scent believe that the more the company spends on advertising, the more profitable the product will be. Do you think they are right? Justify your answer. … … … … … … … … … … … … [6]

10 © UCLES 2010 0450/11/O/N/10 For Examiner’s Use 5 ATC is a very large exporting company with many offices throughout the world. The top management know that effective communication is vital in such a large business. Recently the management held a meeting to consider the ways communication operates in the business. Discussion focused on the ideas of one-way communication and communication feedback. (a) What is meant by communication feedback? … … … … [2] (b) Identify two business situations in which one-way communication would be suitable. Situation 1: … … Situation 2: … …[2] (c) Identify and explain two ways in which information technology has affected how a business communicates with its stakeholders. Way 1: … Explanation: … … … Way 2: … Explanation: … … … [4]

11 © UCLES 2010 0450/11/O/N/10 For Examiner’s Use (d) ATC employs 10 000 staff throughout the world. Identify and explain three benefits that ATC might gain from delegating decision-making to its staff around the world. Benefit 1: … Explanation: … … … Benefit 2: … Explanation: … … … Benefit 3: … Explanation: … … …[6] (e) ATC has a policy of recruiting staff for the senior jobs from within the business. It is changing its policy so that external recruitment will be used to recruit senior staff in the future. Do you think that the change will benefit ATC? Justify your answer. … … … … … … … … … … … … [6]

12 0450/11/O/N/10 © UCLES 2010 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 Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge. BLANK PAGE

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education MARK SCHEME for the October/November 2010 question paper for the guidance of teachers 0450 BUSINESS STUDIES 0450/11 Paper 1 (Short Answer/Structured Response), maximum raw mark 100 This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes must be read in conjunction with the question papers and the report on the examination. • CIE will not enter into discussions or correspondence in connection with these mark schemes. CIE is publishing the mark schemes for the October/November 2010 question papers for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses.

Page 2 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2010 0450 11 © UCLES 2010 This mark scheme includes a summary of appropriate content for answering each question. It should be emphasised, however, that this material is for illustrative purposes and is not intended to provide a definitive guide to acceptable answers. It is quite possible that among the scripts there will be some candidate answers that are not covered directly by the content of this mark scheme. In such cases, professional judgement should be exercised in assessing the merits of the answer and the senior examiners should be consulted if further guidance is required. Examples of possible answers are also included in this mark scheme. Again, it should be emphasised that this is for illustrative purposes and the examples chosen represent only some of the many possible responses that would merit reward. 1 (a) What is meant by a loss leader? [2] Loss leader is a product sold below cost price [1] in order to encourage customers to buy other products sold by the business [+1] Answers like: products they make no money (make a loss) on [1] form of promotion [1] Do NOT credit an answer which simply says it is a product on which they make the biggest loss, as this is incorrect. 1 mark for simple understanding of what the term means 1 mark for saying why it is used (b) Identify two overhead costs that you think Leo’s garage would have to pay. [2] Any recognised fixed or indirect cost example acceptable • rates • interest • heating • lighting • salaries NOT wages One mark per valid example Do NOT credit expenses/taxes/stock/transport (c) The government in country A has raised interest rates. Explain the impact that this increase might have on the profits of Leo’s garage. [4] Interest rate rises will increase his business costs as cost of his debt rises. They will also reduce sales, as cars are usually bought on some kind of credit. Given that most of his profit comes from car sales, this is particularly damaging to the business. Identification of areas of impact [max 2], e.g. costs rise, sales fall, profits fall Explanation/analysis of impact [max 3] – explain why profit falls The above mark scheme implies that at least two ways have been identified. This is, however, not necessary to gain four marks, e.g. an answer which focuses on why sales would fall and the impact this would have on the profitability of his garage could gain four marks if well developed.

Page 3 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2010 0450 11 © UCLES 2010 (d) Identify and explain three ways in which Leo could promote his business. [6] Promotions can take various forms. Likely ones to include: • short-term price cuts or special offers, e.g. 10% off indicates short-term • gifts • competitions • after-sales service • samples • advertising (only credit once) • personal selling Identification of methods [3] Showing how the promotion works and help increase business [3]: the way the methods work is by means of increasing awareness and attractiveness of the business, e.g. a special offer tempts people into the business and encourages extra sales and/or repeat purchases. (e) Although Leo’s business is profitable it has a cash flow problem. Recommend two methods that Leo could use to help solve the problem. Justify your recommendations. [6] Cash flow problems stem from an imbalance in the amounts and timing of cash in and out of a business. Thus any measures that favourably improve the amounts and/or time of cash movements are acceptable. Probable answers to include: • speed up debtor payments • delay payment to creditors • reduce level of stock held (cars)/selling assets • reduce working capital needs • increase stock turnover rates • overdraft or short-term loan Method of cutting costs, e.g. finding a cheaper supplier (do not accept cutting costs alone) Do NOT accept a price cut as an appropriate method, unless specifically says this will shift the stock faster. Identification of methods [2] Explanation/analysis as to how method will impact on cash flow [2] Evaluation of methods in context [2] The evaluation might make reference to the ease and suitability of the method identified. 2 (a) Identify two examples of fringe benefits that shop workers are likely to receive. [2] Content: • staff discount on products • subsidised meals • transport to work • health insurance • assistance with accommodation • days off/holiday To be acceptable, examples must be appropriate to context. One mark per acceptable example. [2] In this context, do NOT accept company car/payment of school fees/sick pay/bonus or any form of financial payment.

Page 4 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2010 0450 11 © UCLES 2010 (b) Identify two reasons why recruiting shop workers might be difficult. [2] Difficulties might be to do with: • low rates of pay in the store • poor reputation of the store • shortage of labour in the area • lack of skills • poor working conditions or long hours proving unattractive (putting off people from applying) Other answers possible. One mark per reason identified. [2] (c) Identify and explain two reasons why shop workers might lack motivation. [4] Motivation is in effect having a positive attitude towards work. The lack of this might be due to: • dislike of nature of work • unhappy with surroundings • do not like fellow workers and/or boss • do not like style of management • lack of prospects • low rates of pay N.B. terms like pay and prospects alone insufficient. Must say low pay or lack of prospects. Identification of reasons [2] Explanation to show why it might result in a lack of motivation [2], e.g. unhappy with surroundings resulting in low morale at work and hence a negative attitude. (d) Suki is also responsible for making sure that workers follow Health and Safety laws in her department. Identify and explain three ways in which such laws might help protect employees and customers. [6] The legislation is likely to deal with the following issues: physical conditions at work such as heating, lighting, ventilation/provision of sanitation/danger from environment such as trailing wires or exposed electrical sockets/lifting of heavy stock items etc. N.B. context is important in assessing relevance of an answer. Do not accept food hygiene or consumer legislation issues. Identification of areas on which laws might impinge [3] Explanation of how employees and/or customers are protected [3]

Page 5 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2010 0450 11 © UCLES 2010 (e) The sales of the shop have fallen recently. The management think that costs must be cut. Two suggestions have been made to do this: • Make 50% of the shop workers redundant • Reduce the hours of all shop workers by 50%. Which one of these two options do you think the management should choose? Justify your recommendation. [6] Reducing the staff by 50%: Might incur redundancy costs/affect morale by introducing insecurity/reduce wage bill/reduce ability to sell and hence might cut sales revenue by even more/those who leave suffer real financial loss while those who remain may have to work harder. Reducing hours by 50%: Would mean all staff are part-time/reduced wages for all/may not be acceptable to many who would leave/no redundancy costs/may involve breach of employment contract laws/also has impact on sales and revenue/easy to change if market sales pick up. On balance, reduction in staff numbers probably the best way to proceed if cost savings have to be made. [NB quality of argument key factor here, not the direction of the answer] Identification of relevant issues [2] Analysis of issues showing their consequences [2] Evaluative judgement on outcomes [2] A one-sided answer cannot exceed more than 4 marks [1k/2An/1E max] 3 (a) What is meant by a financial budget? [2] A financial budget is a numerical/quantitative plan showing future financial targets (goals or limits) for a specific time period. [2] Answers like: • amount that can be spent • financial plan • future plan • financial target will gain 1 mark An answer which excludes either limits or time has a maximum of 1 mark. (b) Calculate the net profit margin for BTX in 2009. [2] Profit margin is profit/sales %. [1] 250/1100 × 100 = 22.72% Answer = 22.72% [2] 22% – 23 % acceptable for [2] Method alone or arithmetic error [1], correct number without % [1] If figures for 2008 are used (correctly) then 1 method mark could be available.

Page 6 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2010 0450 11 © UCLES 2010 (c) Explain what the current ratio tells Manfred about BTX’s financial position. [4] Current ratio is a measure of the relationship between quick assets (current) and short-term debts (current) it is a liquidity test designed to show the ease by which a company can pay off debts on demand. A fall in the ratio shows a decline in liquidity and hence is not seen as a good thing because it implies that not all short-term debts can be met quickly. Knowledge of current ratio [2] Analysis of usefulness [2] Knowledge of current ratio can be shown by indicating what it is or how it is calculated [2] an answer that simply says ‘shows current assets and current liabilities of a business’ [1] Analysis of usefulness: analysis implies saying something about what the change means to BTX using the data [2] So an answer that says ‘the figure has changed from 1.2 to 0.7’ is merely a description not an analysis and therefore would not be credited. (d) BTX wants to raise new funds in 2010 to help finance its growth plans. Identify and explain three ways it could do this. [6] Methods must be appropriate for long-term finance for them to be acceptable. Answers likely to include: • share issue • long-term bank loans • debenture • retained profit (including reducing dividends to shareholders) • sale and lease back or other method of releasing cash from assets Do NOT accept government grants/debt factoring/fundraising Identification of methods [3] Explanation of methods showing why they generate appropriate funds [3] (e) Do you think that the management of BTX should be worried about the performance of the company in 2009? Justify your answer. [6] Analysis of the data shows the following: • sales fall (8.3%) bad • net profit rise (25%) good • profit margin rise (16.6 % to 22.72%) good • return on capital (ROCE) down (20% to 16.6%) bad • current ratio down (below safe levels) bad Identification of directional changes in relevant indicators of BTX’s success [2] Analysis of data [2] Interpretation of the information could be quantitative or qualitative Evaluative comment [2] This will involve a positive assertion supported by a justification comment based on the analysis. Evidence suggests that 2009 has not been a successful year for the business because the ROCE has fallen. However, an alternative argument would be valid if supported appropriately.

Page 7 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2010 0450 11 © UCLES 2010 4 (a) What is meant by a product life cycle? [2] Content: product life cycle shows the level or pattern (stages) of the sales of a product [1] over time [+1] To gain 2 marks, the answer must include reference to both pattern/level of sales and time either stated or at least implied, for example by a starting and end point. Answers like ‘shows sales’ [0] and ‘sales over time’ [1] (b) Identify the four stages of the product life cycle of product X. [2] Stages likely to be identified are: • Stage 1: launch or introduction • Stage 2: growth • Stage 3: maturity or saturation • Stage 4: decline The sequence must also be correct to gain credit. The correct term must be next to the appropriate stage. Thus mark allocation: 4 correct = 2 marks 2 or 3 correct = 1 mark 1 correct = 0 marks (c) Identify and explain two main differences in the life cycles of the two products shown in Fig. 1 and Fig. 2. [4] Content: main differences centre on the rapidity of the growth and decline phases and the duration of the maturity phase. (Growth and decline represent two distinct features and hence can gain full marks.) Identification of differences [2] A clear difference between the two diagrams (products) must be made. Also rapidity of the change is needed for credit to be given. So, growth alone is not enough. NB do not accept ‘sales of W are greater than sales of X’. Explanation of the difference [2] For example: • Product W shows a rapid growth of sales, implying that in the growth stage sales revenue has risen faster than product X. Similar point can be made about decline stage. • Maturity stage for product X is longer than that for product W. This implies sales value was maintained for a longer period of time for product X.

Page 8 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2010 0450 11 © UCLES 2010 (d) Sweet Scent is soon to launch a new range of toothpaste called Gleam. Identify and explain three factors that the management of Sweet Scent should consider before setting a price for Gleam. [6] Content: The factors might include: • unit production costs • competitor prices • segment of market aimed at • pricing strategies such as penetration or skimming • market research information gathered • quality of product Identification of factors [3] Explanation or analysis of factors [3] Thus answer might say the unit cost of the product has to be considered. [1 mark for identification] This is because costs have to be covered at a minimum so that profits can be made. [1 mark for explanation] (e) The management of Sweet Scent believe that the more the company spends on advertising, the more profitable the product will be. Do you think they are right? Justify your answer. [6] Content: The issues that could be identified are: • adverts can be cost-effective • however advertising might be misdirected • markets might be saturated • other factors influence sales, not just advertising Identification of relevant points [2] Analysis of points [2] Evaluation of points [2] Argument rests on the validity of the link between advertising spending and sales revenue. A one-sided answer cannot exceed more than 5 marks. [2k/2An/1E max]

Page 9 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2010 0450 11 © UCLES 2010 5 (a) What is meant by communication feedback? [2] Feedback is a response from a receiver to a source to indicate that a message has been received and/or understood. [2] Answer like ‘someone responds’. [1] (b) Identify two business situations in which one-way communication would be suitable. [2] Must be a clear situation, not just simply two people who might communicate, e.g. manager to secretary. Situations could include the following: • order or instruction is given • informing someone about a decision that has been made • any situation when a comment or discussion is not required, e.g. “when no feedback is needed”. Answers can be of an example type or a situation type. [1 mark per valid point] Do not accept an autocratic manager because this is a choice not a suitable situation. (c) Identify and explain two ways in which information technology has affected how a business communicates with its stakeholders. [4] Identification of ways [2] business has been affected, such as: • speed of communication greater (faster) • cost of communication reduced • efficiency of communication improved • easier • less security of information • greater potential for miscommunication Explanation showing how it operates/how it has replaced another form of communication. [2] Information technology has achieved the above through: • intranet, e.g. to replace newsletters • video conferencing, e.g. to replace meetings • emails within a business, e.g. replacing memos and telephone calls • website/Internet to communicate with customers, e.g. replacing mail shots and letters • Internet to communicate with suppliers, e.g. orders replacing faxes and telephone calls (d) ATC employs 10 000 staff throughout the world. Identify and explain three benefits that ATC might gain from delegating decision-making to its staff around the world. [6] Content: Benefits might include: • increased speed of decision-making • making decisions appropriate to local conditions • increased morale/motivation for staff • more ideas generated • reduction in levels of bureaucracy in business • trusted or valued may be acceptable if it shows how the business benefits (not the employee) Identification of benefits [3] Explanation of benefits [3]

Page 10 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2010 0450 11 © UCLES 2010 (e) ATC has a policy of recruiting staff for the senior jobs from within the business. It is changing its policy so that external recruitment will be used to recruit senior staff in the future. Do you think that the change will benefit ATC? Justify your answer. [6] The implications of external recruitment are: • wide pool of candidates to choose from • new ideas brought into the company • increased costs of recruitment • new recruits lack insight/knowledge of this business Present policy has the following benefits, which would be lost when the change is implemented: • motivation goal for staff • people know the business • company knows the people • generate stability and experience However, the current policy: • reduces the pool of applicants • may not have the best person to choose from • can lead to friction between staff • can create problems of leadership and control • can lead to a lack of change and innovation. Identification of issues [2] Analysis of issues [2] Evaluation of issues leading to recommendation [2] A one-sided answer (only benefits are considered) cannot exceed more than 5 marks [2k/2An/1E max] as evaluation would be deemed to be limited.