Cambridge IGCSE Business Studies 0450 — 2012 May/June Paper 2 · Variant 3

This document consists of 11 printed pages, 1 blank page and 1 Insert. DC (SLM) 58583/1 © UCLES 2012 [Turn over UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education * 2 8 8 6 1 0 9 2 8 7 * BUSINESS STUDIES 0450/23 Paper 2 May/June 2012 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 Insert contains the case study. The business described in this question paper is 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 0450/23/M/J/12 © UCLES 2012 For Examiner’s Use 1 (a) Identify and explain two advantages and two disadvantages to Vijay Singh of the business being a private limited company instead of a partnership. Advantage 1: … … Explanation: … … Advantage 2: … … Explanation: … … Disadvantage 1: … … Explanation: … … Disadvantage 2: … … Explanation: … … [8]

3 0450/23/M/J/12 © UCLES 2012 [Turn over For Examiner’s Use (b) Vijay wants new shareholders to invest in the company. Consider four different pieces of financial information someone would want to see before deciding whether to become a shareholder. Justify why each piece of information would be important in helping to decide whether or not to invest in the company. Information 1: … … Explanation: … … … … Information 2: … … Explanation: … … … … Information 3: … … Explanation: … … … … Information 4: … … Explanation: … … … … [12]

4 0450/23/M/J/12 © UCLES 2012 For Examiner’s Use 2 (a) Producing good quality school uniforms is very important to SCS. Identify and explain two reasons why good quality products are important to SCS. Reason 1: … … Explanation: … … … … … … Reason 2: … … Explanation: … … … … … … [8]

5 0450/23/M/J/12 © UCLES 2012 [Turn over For Examiner’s Use (b) Appendix 3 informs Vijay that there are new laws which cover health and safety, employment and consumer protection. How important do you think each of these laws will be to SCS? Justify your answer. Health and safety: … … … … … … … … Employment: … … … … … … … … Consumer protection: … … … … … … … … [12]

6 0450/23/M/J/12 © UCLES 2012 For Examiner’s Use 3 (a) Good communication is important to business. Using two possible examples from SCS, explain how poor communication could affect the business. Example 1: … … Explanation: … … … … … … Example 2: … … Explanation: … … … … … … [8]

7 0450/23/M/J/12 © UCLES 2012 [Turn over For Examiner’s Use (b) Consider three types of training SCS could use for its newly recruited production workers. Recommend which one of the three types of training you think will be the most effective in increasing the productivity of its new production workers. Justify your choice. Type 1: … … … … … … Type 2: … … … … … … Type 3: … … … … … … Recommendation: … … … … … … [12]

8 0450/23/M/J/12 © UCLES 2012 For Examiner’s Use 4 (a) Identify and explain two possible benefits for SCS of selling its uniforms on the Internet as well as through retail shops. Benefit 1: … … Explanation: … … … … … … Benefit 2: … … Explanation: … … … … … … [8]

9 0450/23/M/J/12 © UCLES 2012 [Turn over For Examiner’s Use (b) For each item of secondary information listed below, consider how it might affect SCS’s marketing decisions. Number of schools in the country with their own specially designed uniforms: … … … … … … … … … Where competitors’ products are sold: … … … … … … … … Competitors’ prices: … … … … … … … … [12]

10 0450/23/M/J/12 © UCLES 2012 For Examiner’s Use 5 (a) SCS uses batch production to manufacture its uniforms. Identify and explain one advantage and one disadvantage to SCS of using batch production. Advantage: … … Explanation: … … … … … … Disadvantage: … … Explanation: … … … … … … [8]

11 0450/23/M/J/12 © UCLES 2012 For Examiner’s Use (b) Consider the advantages and disadvantages of Option 1 and Option 2. Recommend which option you think Vijay should choose. Justify your choice by calculating profitability ratios using information from Appendix 2. Option 1: … … … … … … … … Option 2: … … … … … … … … Recommendation: … … … … … … … … [12]

12 0450/23/M/J/12 © UCLES 2012 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 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.

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education MARK SCHEME for the May/June 2012 question paper for the guidance of teachers 0450 BUSINESS STUDIES 0450/23 Paper 2 (Case Study), 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 2012 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 2012 0450 23 © University of Cambridge International Examinations 2012 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. Application marks are not awarded for the name of the business or person from the case material. Application is by answering in the context of the case or by using the information in the case to help answer the question. 1 (a) Identify and explain two advantages and two disadvantages to Vijay Singh of the business being a private limited company instead of a partnership. [8] Content: Advantages and disadvantages must relate to the difference between a private limited company and a partnership. Advantages • raise capital by selling shares • limited liability • continuity • easier to get bank loan • separate legal identity. Disadvantages • shareholders expect dividends • accounts not totally private • more complex legal process. The marks available for this question are as follows: 4 marks for knowledge and 4 marks for explanation/analysis. 1 mark for each advantage/disadvantage identified (4 marks max). Plus one mark for explaining why it is an advantage or disadvantage. 1 knowledge mark + 1 explanation mark (2 marks x 2 advantages and 2 disadvantages). Advantage/disadvantage: Can raise capital by selling shares. (1 mark for knowledge) Explanation: Can raise capital by selling shares this means more capital can be raised. (1 explanation mark)

Page 3 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0450 23 © University of Cambridge International Examinations 2012 (b) Vijay wants new shareholders to invest in the company. Consider four different pieces of financial information someone would want to see before deciding whether to become a shareholder. Justify why each piece of information would be important in helping to decide whether or not to invest in the company. [12] Content: • Profit and loss account/profit • Profitability ratios • Balance sheet/share capital • Current ratio • Cash flow forecast • Sales forecast • Break even analysis • Share price/ recent dividend/yield data • Capital employed • Amount of borrowing Level 1 e.g. Potential shareholders would want to see the balance sheet. 1 mark for each statement. Level 1 e.g. Potential shareholders would want to see the balance sheet as it shows the value of the fixed assets in the business such as factory buildings and sewing machines as well as current assets. (L2) If the value of the assets is low relative to share capital then potential investors may not invest in the business as the share price might fall. (L2) 6 marks for two level 2 answers plus 1 application mark for mentioning sewing machines, factory buildings. Possible application marks: schools; school uniform; factory buildings; private limited company; trading for 15 years; capital employed $10m; employs 100 production workers and 10 office workers; increasing output. There may be other examples in context which have not been included here. Application Knowledge/Analysis/Evaluation Level 2 2 marks Well applied to case. At least two examples of reference to, or use of, the case. 5–10 marks Good discussion of what each piece of financial information shows/what the information says about the business. Judgement shown about why the information is important to potential shareholders when deciding whether to invest in the business. Level 1 1 mark Limited application to the case. At least one example of reference to, or use of, the case. 1–4 marks Financial information identified.

Page 4 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0450 23 © University of Cambridge International Examinations 2012 2 (a) Producing good quality school uniforms is very important to SCS. Identify and explain two reasons why good quality products are important to SCS. [8] Content: • Good reputation • Increased sales • More competitive • Can charge a higher selling price • Creates customer satisfaction • Creates brand loyalty. 1 knowledge mark + up to 2 explanation marks + 1 application mark for each reason. (4 marks × 2 reasons) Possible application marks: schools; children/students; sewing machines; private limited company; special design uniform; trading for 15 years; standard design; large clothes shops; cloth purchased from local supplier; government announcement about school uniforms; material used. There may be other examples in context which have not been included here. For example: To gain a good reputation (1 mark for knowledge) so that customers are confident that the school clothes will last their children a long time. (1) This means customers will keep coming back and buying SCS products and so keep sales and profits high. (1) Application: The application mark could be achieved as the answer makes reference to school clothes and children. (1 application mark)

Page 5 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0450 23 © University of Cambridge International Examinations 2012 (b) Appendix 3 informs Vijay that there are new laws which cover health and safety, employment and consumer protection. How important do you think each of these laws will be to SCS? Justify your answer. [12] Content: Health and safety provide safety equipment provide notices safety training Employment redundancy rules protection from being easily sacked minimum wage discrimination laws Consumer protection no false descriptions no misleading advertisements genuine sale prices return of faulty goods Level 1 e.g. If SCS sells faulty goods the consumer has the right to return them. 1 mark for each statement. Level 2 e.g. If SCS sells faulty trousers, the consumer has the right to return them. The shop will return the trousers to SCS and this will cost SCS as they will have to replace the trousers. (L2) It might also mean they get a bad reputation for poor quality and this could affect future sales (L2). 6 marks for good level 2 answer plus 1 application mark for mentioning school trousers. Possible application marks: school uniform; sewing machines; factories/factory buildings; private limited company; special design uniform; standard design; large clothes shops; cloth purchased from local supplier; employs 100 production workers and 10 office workers; time rate; good working conditions; batch production; increasing output; new skilled production workers recruited; machinery; reference to figures in appendix 2. There may be other examples in context which have not been included here. Application Knowledge/Analysis/Evaluation Level 2 2 marks Well applied to case. At least two examples of reference to, or use of, the case. 5–10 marks Good discussion of why these laws have been passed. Judgement shown about how these laws will affect the business. Level 1 1 mark Limited application to the case. At least one example of reference to, or use of, the case. 1–4 marks Reasons for passing these laws stated.

Page 6 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0450 23 © University of Cambridge International Examinations 2012 3 (a) Good communication is important to business. Using two possible examples from SCS, explain how poor communication could affect the business. [8] Content: Give credit for generic effects on the business of poor communication • Incorrect orders delivered • Increased costs of returned goods • Wrong size/designs manufactured as order incorrect • Autocratic manager – no feedback • Organisation structure • Wrong information • Ineffective communication e.g. too slow. Up to three marks are available for explaining how the poor communication could affect the business. 1 mark for each example identified. (4 marks × 2 examples) NB Explanation marks can be awarded if no suitable example given but maximum of 3 marks for each explanation. Possible application marks: children/students; schools; school uniform; private limited company; special design uniform; standard design; large clothes shops; cloth purchased from local supplier; buttons imported; employs 100 production workers and 10 office workers; autocratic; batch production; increasing output; new skilled production workers recruited; reference to figures in appendix 2. There may be other examples in context which have not been included here. For example: Incorrect sizes of school clothes are delivered to the customer. (1 mark for application) This is because the information was written down incorrectly when the telephone order was placed.(1) As a result the school clothes will be returned to SCS warehouse and they will have to pay for the transport costs (1) and this will lead to lower profits.(1)

Page 7 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0450 23 © University of Cambridge International Examinations 2012 (b) Consider three types of training SCS could use for its newly recruited production workers. Recommend which one of the three types of training you think will be the most effective in increasing the productivity of its new production workers. Justify your choice. [12] Content: Induction training, on the job training, off the job training. Level 1 e.g. New production workers will need induction training. 1 mark for each statement. Level 2 e.g. New production workers will need induction training. This will introduce new production workers to the company. The workers will be shown round the premises and introduced to the people they will be working with. The new workers will know what they have to do when they start work which will mean the production workers will be effective straight away (L2) and this will increase their initial productivity but it will not last into the long run. (L2) 6 marks for a good level 2 answer plus 1 application mark for mentioning the company. Level 3 At least three level 2 and then a recommendation which justifies the method to increase productivity. Possible application marks: school uniform; sewing machines; factory buildings; private limited company; special design uniform; trading for 15 years; manufactures school uniforms; standard design; employs 100 production workers and 10 office workers; time rate; autocratic; good working conditions; batch production; increasing output; leased machinery; brothers; reference to figures in appendix 2. There may be other examples in context which have not been included here. Application Knowledge/Analysis/Evaluation Level 3 9–10 marks Three × Level 2 + Well justified recommendation as to the best method of training to increase productivity and why it is not the other methods (comparison made). Level 2 2 marks Well applied to case. At least two examples of reference to, or use of, the case. 5–8 marks Good discussion of methods of training and why it might increase productivity OR Advantages and disadvantages of each training method (even if listed). Some limited judgement shown in recommendation about which method might be most effective in increasing productivity. Level 1 1 mark Limited application to the case. At least one example of reference to, or use of, the case. 1–4 marks Methods of training named/briefly outlined/defined.

Page 8 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0450 23 © University of Cambridge International Examinations 2012 4 (a) Identify and explain two possible benefits for SCS of selling its uniforms on the Internet as well as through retail shops. [8] Content: Benefits should relate to selling on the internet • Access to larger market • Lower costs • Increased profits • Selling direct to customer • Less transport costs • 24/7 trading. 1 mark for each benefit identified (2 marks max). Up to two further marks are available for explaining why it is a benefit. 1 application mark for each answer. (4 marks × 2 benefits) Possible application marks: parents; private limited company; special design uniform; manufactures school uniforms; standard design; large clothes shops; increasing output; children/students; There may be other examples in context which have not been included here. For example: It means the business can reach a much larger market (1 mark for knowledge) as the internet can be accessed everywhere, even in other countries. A lot of potential parents can access the website of SCS.(1) This might lead to far more sales of school uniforms which will lead to increased profits as costs of supplying them will be lower. (1) Application: The application mark could be achieved as the answer makes reference to parents. (1 application mark)

Page 9 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0450 23 © University of Cambridge International Examinations 2012 (b) For each item of secondary information listed below, consider how it might affect SCS’s marketing decisions. [12] Content: Answers should relate to the effect on one/or more of the 4 P’s Number of schools in the country with their own specially designed uniforms: • know the potential size of the market for specially designed uniforms • affects the type of product produced. Where competitors’ products are sold: • know distribution channels used by competitors. Competitors’ prices: • know what prices they should charge. Level 1 e.g. by knowing what prices competitors charge they will know what prices SCS should charge for their uniforms. 1 mark for each statement. Level 2 e.g. By knowing what prices competitors charge they will know what prices SCS should charge for their uniforms. If competitors charge a high price for their school jackets and trousers then SCS could possibly raise their prices to increase profits. (L2) However, if competitors have lower prices then SCS may have to lower their prices of trousers and jackets in order to remain competitive. (L2) 6 marks for a good level 2 answer plus 1 application mark for mentioning school trousers and jackets. Possible application marks: school uniform; sewing machines; standard design; large clothes shops; cloth purchased from local supplier; buttons imported; employs 100 production workers and 10 office workers; batch production; increasing output; children/students; schools. There may be other examples in context which have not been included here. Application Knowledge/Analysis/Evaluation Level 2 2 marks Well applied to case. At least two examples of reference to, or use of, the case. 5–10 marks The usefulness of the information discussed/how the information might be used in marketing decisions. Judgement shown about why the information is important to marketing decisions. Level 1 1 mark Limited application to the case. At least one example of reference to, or use of, the case. 1–4 marks The usefulness of the information stated.

Page 10 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0450 23 © University of Cambridge International Examinations 2012 5 (a) SCS uses batch production to manufacture its uniforms. Identify and explain one advantage and one disadvantage to SCS of using batch production. [8] Content: Advantages • flexible way of working • variety in workers’ jobs • less effect if machinery breaks down. Disadvantages • can be expensive • increased movement of goods • warehouse space needed. 1 mark for each advantage/disadvantage identified (2 marks max). Plus two marks for explaining why it is an advantage or disadvantage + 1 mark for application. 1 knowledge mark + 2 explanation marks + 1 application mark. (4 marks × advantage and 4 marks × disadvantage) Possible application marks: different sizes; trousers and jackets; sewing machines; factory buildings; special design uniform; standard design; cloth purchased from local supplier; buttons imported; located near to port; employs 100 production workers and 10 office workers; time rate; good working conditions; increasing output; new skilled production workers recruited; leased machinery; reference to figures in appendix 2. There may be other examples in context which have not been included here. For example: It is a more flexible way of working (1 mark for knowledge) and production can easily be changed from one product to another to meet demand. (1) So if there is an increase in the number of orders for a particular size of trousers or jackets then SCS can quickly meet this demand. (1) 1 application mark can be awarded for mentioning production of trousers and jackets.

Page 11 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0450 23 © University of Cambridge International Examinations 2012 (b) Consider the advantages and disadvantages of Option 1 and Option 2. Recommend which option you think Vijay should choose. Justify your choice by calculating profitability ratios using information from Appendix 2. [12] Content: Option 1 • More sales than Option 2 • Already produce this uniform and no need for new machinery • More production workers need to be recruited – increased cost. Sales Revenue Gross profit Trousers 2 400 000 (L1) 1 200 000 (L1) Skirts 1 000 000 (L1) 600 000 (L1) Jackets 10 500 000 (L1) 6 000 000 (L1) Total Revenue 13 900 000 (L1) Total gross profit 7 800 000 (L2) Total cost 9 100 000 (L1) Total Net profit $4 800 000 (L2) Net profit margin = 34.5% (L2) ROCE = 48 % (L2) ($4.8m/$10m) Gross profit = 56.1%(L2) Option 2 • Fewer sales but higher prices than Option 1 • Need to produce a new product – new machinery needed • Skilled production workers need to be recruited – increased training costs Sales Revenue Gross profit Trousers 1 600 000 (L1) 800 000 (L1) Skirts 700 000 (L1) 400 000 (L1) Jackets 2 500 000 (L1) 1 500 000 (L1) Total Revenue 4 800 000 (L1) Total gross profit 2 700 000 (L2) Total cost 3 400 000 (L1) Total Net profit $1 400 000 (L2) Net profit margin = 29% (L2) ROCE = 14% (L2) ($1.4m/$10m) Gross profit = 56.3%(L2) Level 1 e.g. The total sales revenue for trousers is $2.4m. 1 mark for each statement. Level 2 e.g. The net profit for Option 1 is $4 800 000. 5 marks for level 2 answer. Level 3 At least three level 2 calculations plus a recommendation at the end which justifies which option would be the best one to choose rather than the other option.

Page 12 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0450 23 © University of Cambridge International Examinations 2012 Knowledge/Analysis/Evaluation Level 3 9–12 marks Three × Level 2 + Good judgement shown as to which option to choose (9–10 marks) and why not the other option (comparison made) (11–12 marks). Level 2 5–8 marks Correct profitability/L2 calculations. Level 1 1–4 marks Simple calculations made or simple statements made. Advantages and disadvantages of the two Options listed.