Cambridge IGCSE Business Studies 0450 — 2011 May/June Paper 1 · Variant 1

This document consists of 11 printed pages and 1 blank page. DC (SM/CGW) 36366/2 © UCLES 2011 [Turn over UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education * 8 3 2 2 9 3 3 8 2 1 * BUSINESS STUDIES 0450/11 Paper 1 May/June 2011 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. 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 question 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. For Examiner’s Use 1 2 3 4 5 Total

2 0450/11/M/J/11 © UCLES 2011 For Examiner’s Use 1 Autobrake is a business that manufactures brake systems for cars. Fig. 1 shows its market share in 2005 and 2010. The market for brake systems was worth $70m in 2010. It is likely to become an increasingly competitive market. Autobrake’s management believe that the company needs to develop a wider range of products if it is to be profitable in the future. Fig.1: Market shares for brake systems 20 0 2005 2010 40 60 % market share year 80 100 = Autobrake = other companies (a) What is meant by an ‘increasingly competitive market’? … … … …[2] (b) Calculate the value of Autobrake’s sales in 2010. … …[2] (c) Autobrake uses flow production in its factories. Identify and explain two benefits of using flow production. Benefit 1: … Explanation: … … … Benefit 2: … Explanation: … … …[4]

3 0450/11/M/J/11 © UCLES 2011 [Turn over For Examiner’s Use (d) Identify and explain three possible reasons why Autobrake’s market share changed between 2005 and 2010. Reason 1: … Explanation: … … … Reason 2: … Explanation: … … … Reason 3: … Explanation: … … …[6] (e) Do you think that investing in a wider range of products will mean that the business will become more profitable in the future? Justify your answer. … … … … … … … … … … … …[6]

4 0450/11/M/J/11 © UCLES 2011 For Examiner’s Use 2 The economy of country A is in recession. To deal with the problems caused by the recession, the Government has cut interest rates and reduced taxes. These changes have had a big impact on businesses in country A. The Government has also introduced laws to protect employees at work. Some people have suggested that the Government should give grants and subsidies to private sector businesses to help them survive. (a) What is meant by the term ‘recession’? … … … …[2] (b) Identify two ways in which consumers might be affected by a recession. Way 1: … … Way 2: … …[2] (c) Identify and explain two consequences of a fall in interest rates on businesses in country A. Consequence 1: … Explanation: … … … Consequence 2: … Explanation: … … …[4]

5 0450/11/M/J/11 © UCLES 2011 [Turn over For Examiner’s Use (d) Identify and explain three ways by which employees can be protected at work by Government laws. Way 1: … Explanation: … … … Way 2: … Explanation: … … … Way 3: … Explanation: … … …[6] (e) Do you think that Governments should give financial support to private sector businesses to survive in a recession? Justify your answer. … … … … … … … … … … … …[6]

6 0450/11/M/J/11 © UCLES 2011 For Examiner’s Use 3 Sarah set up a business as a sole trader running a nursery for small children too young to go to school. The business is successful and has opened a number of new nurseries. Sarah took on a business partner in 2007. Growth has continued and now the business has 10 nurseries in different towns and villages. Sarah is planning to open another nursery and is looking for a suitable location. (a) What is meant by the term ‘sole trader’? … … … …[2] (b) A nursery school is classified as a tertiary sector activity. Identify two other examples of businesses that are also in the tertiary sector. Example 1: … Example 2: …[2] (c) Identify and explain two advantages to Sarah of having a business partner. Advantage 1: … Explanation: … … … Advantage 2: … Explanation: … … …[4]

7 0450/11/M/J/11 © UCLES 2011 [Turn over For Examiner’s Use (d) Identify and explain three factors Sarah should consider when choosing a suitable location for a new nursery. Factor 1: … Explanation: … … … Factor 2: … Explanation: … … … Factor 3: … Explanation: … … …[6] (e) Do you think that it would be a good idea for Sarah to continue to expand her business? Justify your answer. … … … … … … … … … … … …[6]

8 0450/11/M/J/11 © UCLES 2011 For Examiner’s Use 4 Trucker is a public limited company that makes products such as tractors and construction vehicles. Table 1 gives selected information from its Balance Sheet for the last two years. Table 1: Trucker’s Balance Sheet as at 30 June $m 2009 2010 Fixed Assets Current Assets Current Liabilities Net Assets Financed by: Long term Liabilities Shareholders’ Funds Capital Employed 150 90 200 60 200 260 260 180 100 220 85 225 305 305 (a) What is meant by the term ‘shareholders’ funds’? … … … …[2] (b) Identify two examples of Trucker’s current assets. Example 1: … Example 2: …[2] (c) Identify and explain two reasons why a business might have creditors. Reason 1: … Explanation: … … … Reason 2: … Explanation: … … … …[4]

9 0450/11/M/J/11 © UCLES 2011 [Turn over For Examiner’s Use (d) Identify and explain three possible reasons why Trucker’s net assets increased in 2010. Reason 1: … Explanation: … … … Reason 2: … Explanation: … … … Reason 3: … Explanation: … … …[6] (e) Can the success of Trucker’s business be assessed just by analysing its Balance Sheet? Justify your answer. … … … … … … … … … … … …[6]

10 0450/11/M/J/11 © UCLES 2011 For Examiner’s Use 5 Fig. 2 shows the organisational structure of ABC, a business that manufactures toys. As the business has grown, the management has found it difficult to maintain good internal communication and to control activities. ABC always recruits its senior managers from within the company. Fig. 2: ABC’s organisational structure (a) What is meant by the term ‘internal communication’? … … … …[2] (b) Identify two features of the organisational structure of ABC as shown in Fig. 2. Feature 1: … Feature 2: …[2] (c) Identify and explain two reasons why managers may be reluctant to delegate tasks to employees in their organisation. Reason 1: … Explanation: … … … Reason 2: … Explanation: … … …[4]

11 0450/11/M/J/11 © UCLES 2011 For Examiner’s Use (d) Identify and explain three advantages to ABC of recruiting senior managers from within the business. Advantage 1: … Explanation: … … … Advantage 2: … Explanation: … … … Advantage 3: … Explanation: … … …[6] (e) Recommend two ways in which communication could be improved in a large organisation. Justify your recommendations. Way 1: … … … … … … Way 2: … … … … … …[6]

12 0450/11/M/J/11 © UCLES 2011 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 May/June 2011 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. • Cambridge will not enter into discussions or correspondence in connection with these mark schemes. Cambridge is publishing the mark schemes for the May/June 2011 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 – May/June 2011 0450 11 © University of Cambridge International Examinations 2011 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. 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.

Page 3 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2011 0450 11 © University of Cambridge International Examinations 2011 1 (a) What is meant by an ‘increasingly competitive market’? [2] For 2 marks must have understanding of ‘increasingly’ and ‘competitive market’. A greater number of businesses [1] producing products aimed at the same market segment [1]. A number of similar companies [1], as this shows an understanding of a competitive market. (b) Calculate the value of Autobrake’s sales in 2010. [2] Correct answer [2], method [1]. $ sign not required. Autobrake’s sales = $14m [2]. Must have million for 2 marks. $70m x 20% [1], sales x market share [1]. Correct method but wrong year [2005] i.e. $70m x 40% [1], $28m alone [0]. (c) Autobrake uses flow production in its factories. Identify and explain two benefits of using flow production. [4] Knowledge [2 x 1]: • larger output/mass production • economies of scale or lower unit costs • overheads spread over many units • intensive use of machinery • productivity rises • continuous process • standardised products/consistent quality • specialisation/unskilled workers. Do not accept ‘quicker’, ‘cheaper’ or ‘quality’ alone as knowledge points. These can be used as part of an explanation. Analysis [2 x 1]: explaining how the benefit identified helps Autobrake. E.g. reducing unit cost [k] is a benefit because it increases competitiveness [an]. (d) Identify and explain three possible reasons why Autobrake’s market share changed between 2005 and 2010. [6] Remember Autobrake’s market share has fallen. Total market demand for the product has not fallen. Knowledge [3 x 1]: • product range dated • new rivals entered market • incorrect pricing • quality issues damaged reputation • marketing strategies ineffective. Analysis [3 x 1]: explain how the factor identified results in a relative fall in sales. E.g. If product range is old-fashioned [k] this results in consumers turning to other businesses to better meet their needs [an].

Page 4 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2011 0450 11 © University of Cambridge International Examinations 2011 (e) Do you think that investing in a wider range of products will mean that the business will become more profitable in the future? Justify your answer. [6] Knowledge [2]: • attracts new groups of customers • increases attractions of business to existing customers • enhances the image of the company • spreading risk • costs will rise • diseconomies of scale. Analysis [2]: explanation of how the knowledge point identified affects the business. Evaluation [2]: justified decision related to profitability based on points identified.

Page 5 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2011 0450 11 © University of Cambridge International Examinations 2011 2 (a) What is meant by the term ‘recession’? [2] [Sustained] reduction in GDP [2]. Fall in output [1] over time [+ 1]. Slow down in business activity [1]. Do not credit identification of impact such as falling living standards/fewer jobs/businesses making losses/fall in sales [0]. (b) Identify two ways in which consumers might be affected by a recession. [2] Knowledge [2 x 1]: • Lack of confidence/less spending • lower income/loss of income/job losses/falling living standards • reduced choice (c) Identify and explain two consequences of a fall in interest rates on businesses in country A. [4] Knowledge [2 x 1]: • cost of borrowing reduced • potential incentive to increase investment • increase in spending by consumers • interest earned on savings falls Analysis [2 x 1]: explanation shows how the business will be affected. E.g. Increase in spending by consumers [1] leading to rise in sales [1]. Loans are cheaper so businesses take more loans [1]. (d) Identify and explain three ways by which employees can be protected at work by Government laws. [6] Knowledge [3 x 1]: • unfair dismissal • employment contract • protection against exploitation/discrimination • health and safety • wage protection • maximum hours. Analysis [3 x 1]: explain how the employee might be better protected. E.g. any law that limits the number of employee hours each week [k] protects a worker from tiredness [an].

Page 6 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2011 0450 11 © University of Cambridge International Examinations 2011 (e) Do you think that Governments should give financial support to private sector businesses to survive in a recession? Justify your answer. [6] Knowledge of issues [2]: • maintains jobs • maintains output • keeps range of products • protects key industry/products/suppliers/exports • more government spending/switches spending from other areas • increases taxation. Analysis [2]: explanation of why this issue is important. Evaluation [2]: justified decision based on points identified.

Page 7 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2011 0450 11 © University of Cambridge International Examinations 2011 3 (a) What is meant by the term ‘sole trader’? [2] A business owned by one individual [2]. Some understanding of the term plus an example of a feature [2]. E.g. run by one person [1] has unlimited liability [1]. Identification of features – max 1 mark. (b) Identify two other examples of businesses that are also in the tertiary sector. [2] Any service-type activity acceptable e.g. retailing/entertainment. Do not accept a name of a business alone. E.g. Patel’s [0] but Patel’s insurance company [1]. (c) Identify and explain two advantages to Sarah of have a business partner. [2] Knowledge [2 x 1]: • injection of more capital • sharing of work load • new ideas • greater range of expertise/specialisation. Analysis [2 x 1]: explanation of how/why it benefits Sarah. (d) Identify and explain three factors Sarah should consider when choosing a suitable location for a new nursery. [6] Knowledge [3 x 1]: • cost related issues [rent/rates/government grants] • market factors/near housing estates or population • competition • transport • security • utilities/power/water • access to qualified staff/labour. Must be appropriate for a nursery. Analysis [3 x 1]: explanation of why these factors need to be considered.

Page 8 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2011 0450 11 © University of Cambridge International Examinations 2011 (e) Do you think that it would be a good idea for Sarah to continue to expand her business? Justify your answer. [6] Knowledge [2]: • gain economies of scale • greater recognition • profitability • loss of control • risk • objectives of the owner • increased cost • revenue • more customers. Analysis [2]: explanation of points must be related to Sarah or her business for credit. Evaluation [2]: justified decision related to growth based on points identified. For 2 evaluation marks must relate to Sarah or her business. Generic answer that is not related to Sarah’s business is maximum 3 marks.

Page 9 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2011 0450 11 © University of Cambridge International Examinations 2011 4 (a) What is meant by the term ‘shareholders’ funds’? [2] Value of equity capital plus reserves [2]. Funds/money invested into the business [1] by the owners [+ 1]. Some understanding of term e.g. money put into business by shareholders [1]. Note: do not accept dividend. (b) Identify two examples of Trucker’s current assets. [2] • debtors • stock e.g. tractors/construction vehicles • cash/bank. 1 mark per example [2 x 1]. (c) Identify and explain two reasons why a business might have creditors. [2] Knowledge [2 x 1]: • helps with cash flow/short-term funding • purchase of raw materials/stock to resell • interest-free source of finance • standard way of carrying out business transactions • taken an overdraft. Analysis [2 x 1]: explanation of why this is useful to the business. (d) Identify and explain three possible reasons why Trucker’s net assets increased in 2010. [6] Knowledge from data [3 x 1]: • fixed assets increased/went from $200m to $225m • current assets increased/went from $150m to $180m • current liabilities increased by less than the increase in current assets. Analysis [3 x 1]: explanation showing possible reason for the change identified. E.g. fixed assets are higher [k] because they bought new plant or buildings [an]. (e) Can the success of Trucker’s business be assessed just by analysing its Balance Sheet? Justify your answer. [6] Knowledge [2]: Knowledge of a Balance Sheet/ways to measure success [2]. • the assets and liabilities of a business [1] at a point in time [+1] • a financial statement at a point in time [1] • what a business owns and owes [1] • the value of a company [1]. Analysis [2]: interpretation of what a balance sheet does or does not show. Evaluation [2]: justified decision related to success based on points identified.

Page 10 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2011 0450 11 © University of Cambridge International Examinations 2011 5 (a) What is meant by the term ‘internal communication’? [2] Process of exchanging information between one group and another inside a business [2]. Flow of messages from source to recipient [1] within a business [1]. Do not accept examples of communication – the question requires a definition. (b) Identify two features of the organisational structure of ABC as shown in Fig. 2. [2] 1 mark per feature identified: • narrow span of control • tall (structure) • 4/large number of levels/hierarchy Do not accept only 2 subordinates as this is unknown. (c) Identify and explain two reasons why managers may be reluctant to delegate tasks to employees in their organisation. [4] Knowledge [2 x 1]: • may lack confidence in employees • want to maintain total control/manager feels threatened • think they know best/know the task will be done/fear of errors • employees lack training/skills • managers not capable of explaining the task. Analysis [2 x 1]: explanation shows why these reasons result in a lack of delegation. (d) Identify and explain three advantages to ABC of recruiting senior managers from within the business. [6] Knowledge [3 x 1]: • acts as a motivator for employees • individual knows the business • business knows the individual • avoids costs of external recruitment. Do not accept ‘time’ or ‘money’ unless explained. Training must clearly be related to induction to be rewarded. ‘Experienced’ is not a valid answer. Analysis [3 x 1]: explanation as to why ABC benefits.

Page 11 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2011 0450 11 © University of Cambridge International Examinations 2011 (e) Recommend two ways in which communication could be improved in a large organisation. Justify your recommendations. [6] Knowledge [2]: Could include: • telephone/cell phone • email • meetings/video-conferencing • shorten span of control • delayering. Analysis [2]: explanation of how communication would be improved. Evaluation [2]: justification of why this is suitable for a large organisation. This can be implicit.