Cambridge IGCSE Business Studies 0450 — 2015 May/June Paper 1 · Variant 2

This document consists of 10 printed pages and 2 blank pages. DC (NF/AR) 97917/2 © UCLES 2015 [Turn over Cambridge International Examinations Cambridge International General Certificate of Secondary Education * 8 8 0 1 6 8 8 3 8 1 * BUSINESS STUDIES 0450/12 Paper 1 May/June 2015 1 hour 30 minutes Candidates answer on the Question Paper. No Additional Materials are required. READ THESE INSTRUCTIONS FIRST Write your Centre number, candidate number and name in the spaces at the top of this page. Write in dark blue or black pen. You may use an HB pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, 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. The total number of marks for this paper is 80. The syllabus is approved for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate.

2 0450/12/M/J/15 © UCLES 2015 1 PJK makes a range of luxury sports watches. Each watch is handmade by skilled workers. Quality assurance is important. The Operations Director has been looking at costs and prices as he wants to do a break-even analysis. This data is shown in Table 1. He is planning to invest in new technology to automate parts of the production process. The Operations Director thinks this is the best way to improve profitability. Table 1: Costs and revenue ($) Price per watch $100 Variable cost per watch $50 Annual sales 6000 Annual fixed costs $200 000 (a) What is meant by ‘quality assurance’? … … … … [2] (b) Identify two ways in which break-even analysis might be helpful to PJK. Way 1: … … Way 2: … … [2]

3 0450/12/M/J/15 © UCLES 2015 [Turn over (c) Using the information in Table 1, draw a break-even chart for PJK on Figure 1. [4] Figure 1 50 000 100 000 150 000 200 000 250 000 300 000 350 000 400 000 450 000 500 000 550 000 600 000 0 1000 2000 3000 4000 5000 6000 7000 8000 costs and revenue ($ per year) output (units)

4 0450/12/M/J/15 © UCLES 2015 (d) Identify and explain two advantages to PJK of having skilled workers. Advantage 1: … … Explanation: … … … … Advantage 2: … … Explanation: … … … … [6] (e) Do you think that investing in new technology is the best way to improve profitability at PJK? Justify your answer. … … … … … … … … … … … … [6]

5 0450/12/M/J/15 © UCLES 2015 [Turn over BLANK PAGE

6 0450/12/M/J/15 © UCLES 2015 2 Alkin is a multinational company. It manufactures breakfast food products including many leading brands of cereal. Alkin plans to start selling in country Z, which is a fast-growing market. Alkin plans to form a joint venture with a local business, based in country Z. ‘Effective communication will be important to our success but I think there are many advantages in expanding this way’ said Alkin’s Managing Director. The Government of country Z is worried about the effect of multinational companies like Alkin on consumers. (a) What is meant by a ‘multinational company’? … … … … [2] (b) What is meant by a ‘brand’? … … … … [2] (c) Identify and explain two reasons why effective communication might be important for Alkin. Reason 1: … … Explanation: … … Reason 2: … … Explanation: … … [4]

7 0450/12/M/J/15 © UCLES 2015 [Turn over (d) Identify and explain two advantages to Alkin of using a joint venture to expand into country Z. Advantage 1: … … Explanation: … … … … Advantage 2 … … Explanation: … … … … [6] (e) Do you think that the Government in country Z is right to be worried about the effect of multinational companies such as Alkin on consumers? Justify your answer. … … … … … … … … … … … … [6]

8 0450/12/M/J/15 © UCLES 2015 3 Mabel wants to set up her own hairdressing business. She will need to build good customer relationships. She has done some secondary market research to find out possible demand and what methods of promotion to use. She has decided to buy her inventory (stock) from a wholesaler. Mabel is now looking for the right location for her business. She thinks that location will be more important than price charged to the success of her business. (a) Identify two ways that a business could build good customer relationships. Way 1: … … Way 2: … … [2] (b) What is meant by ‘secondary market research’? … … … … [2] (c) Identify and explain two methods of promotion (other than promotional pricing) that Mabel might use. Method 1: … Explanation: … … … Method 2: … Explanation: … … … [4]

9 0450/12/M/J/15 © UCLES 2015 [Turn over (d) Identify and explain two possible disadvantages to Mabel of buying her inventory from a wholesaler. Disadvantage 1: … … Explanation: … … … … Disadvantage 2: … … Explanation: … … … … [6] (e) Do you think that the right location is more important than the prices she charges to the success of Mabel’s business? Justify your answer. … … … … … … … … … … … … [6]

10 0450/12/M/J/15 © UCLES 2015 4 A2Z is a small but successful airline company in country B, providing flights for business people. The management of A2Z wants the business to expand. It will have to buy more aeroplanes and recruit more airline pilots. The Human Resources manager has produced a job description for the pilots. She is now ready to advertise for the new pilots. She believes the best way for A2Z to motivate its pilots is to use financial rewards. (a) Identify two possible reasons why A2Z might want to expand. Reason 1: … … Reason 2: … … [2] (b) Identify two factors that A2Z should consider when choosing a source of finance to buy more aeroplanes. Factor 1: … … Factor 2: … … [2] (c) Identify and explain two advantages to A2Z of producing a job description. Advantage 1: … … Explanation: … … Advantage 2: … … Explanation: … … [4]

11 0450/12/M/J/15 © UCLES 2015 (d) Identify and explain two suitable ways A2Z could use to advertise the new jobs. Way 1: … … Explanation: … … … … Way 2: … … Explanation: … … … … [6] (e) Do you think that using financial rewards is the best way for A2Z to motivate its pilots? Justify your answer. … … … … … … … … … … … … [6]

12 0450/12/M/J/15 © UCLES 2015 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. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after the live examination series. 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.

® IGCSE is the registered trademark of Cambridge International Examinations. CAMBRIDGE INTERNATIONAL EXAMINATIONS Cambridge International General Certificate of Secondary Education MARK SCHEME for the May/June 2015 series 0450 BUSINESS STUDIES 0450/12 Paper 1 (Short Answer/Structured Response), maximum raw mark 80 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 should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the May/June 2015 series for most Cambridge IGCSE®, Cambridge International A and AS Level components and some Cambridge O Level components.

Page 2 Mark Scheme Syllabus Paper Cambridge IGCSE – May/June 2015 0450 12 © Cambridge International Examinations 2015 1 (a) What is meant by ‘quality assurance’? [2] Clear Understanding [2] – checking for quality standards [1] throughout the production process / every stage [1] Some Understanding [1] – e.g. checking work done Do not accept ‘checking at end / checking end product’ in this instance as this defines quality control (b) Identify two ways in which break even analysis might be helpful to PJK. [2] Application [2 × 1] – award 1 mark for each relevant way Points could include: • Planning / forecasting / decision making / help set prices • Help work out level of profit at different levels of output • Show margin of safety • Shows how much needed to produce to cover costs / avoid loss / breakeven point • Help apply for finance Do not accept points such as shows costs / sales / profit on their own as too vague (c) Using the information in Table 1, draw a break even chart for PJK. [4] • Accurately plotted TR (revenue) line [1]: start at 0, at 4000 units should be at $400 000 • Accurately plotted TC line [2] in total for start at $200 000[1] $400 000 at 4000 units [1] • Labelling: TR and TC [1] only if layout is correct. TR must start at zero and lines must cross Notes: • Accurately drawn unlabelled break-even chart [3] • For 4 marks TR [revenue] and TC must be clearly labelled • Max 1 mark for inaccurately plotted break-even chart with TR and TC correctly labelled (d) Identify and explain two advantages to PJK of using skilled workers. [6] Knowledge [2 × 1] – award 1 mark for identification of each relevant advantage [max 2] Application [2 × 1] – award 1 mark if relevant reference made to this business Analysis [2 × 1] – award 1 mark for each relevant explanation Relevant points might include: • Work quicker / more efficient / more productive [k] so lower average costs [an] • More output [k] so able to meet any increase in customer demand [an] for watches [app] • Higher quality / fewer mistakes [k] so less wasted materials [app] so can buy less inventory [an] • Brand image / good reputation [k] as it’s a luxury product [app] so people trust / buy [an] • Less training needed [k] so saves cost [an] • Less supervision needed [k] so managers have time to do other jobs [an] • More flexible workforce [k] as able to switch between different stages of production [app] Application marks may be awarded for appropriate use of the following: luxury product, watches, quality assurance, handmade, production process, materials / parts

Page 3 Mark Scheme Syllabus Paper Cambridge IGCSE – May/June 2015 0450 12 © Cambridge International Examinations 2015 (e) Do you think that investing in new technology is the best way to improve profitability at PJK? Justify your answer [6] Knowledge [1] – award 1 mark for identification of relevant issue(s) Positive or negative points allowed or alternative ways to improve profitability [max 1] Application [1] – award 1 mark if relevant reference made to this business Analysis [2] – award up to 2 marks for relevant development of point(s) Evaluation [2] – justified decision made as to whether new technology is the best way to improve profitability. Candidate’s final decision can be either for or against the statement Relevant points might include: • Reduce labour costs [k] so lower costs [an] • Less wastages or errors [k] so have to order less parts [app] • Additional costs e.g. redundancy or training costs [k] initially reduce profitability [an] • Impact on employee morale [k] • Better quality / accuracy [k] for this luxury product [app] so customers might pay higher price [an] leading to bigger gap between costs and revenue [an] • High initial costs of equipment [k] • Speed up production [k] so leading to lower average costs [an] • Might take away their USP [k] of being handmade [app] so reduce demand [an] • Or Introduce more efficient working practices e.g. redesign factory layout [k] • Or use cheaper materials [k] so lower variable costs [an] but could mean lower quality of watches [app] • Or sell more through increased advertising [k] but could be expensive / may not work [an] Application marks may be awarded for appropriate use of the following: luxury product / watches, skilled workers, quality assurance, handmade, production process, materials / parts 2 (a) What is meant by a ‘multinational company?’ [2] Clear Understanding [2] – a business with factories, production or service operations in more than one country OR a business with production or service operation in another country outside its normal area of operation Some Understanding [1] – e.g. has businesses everywhere / works or operates in more than one country Do not accept ‘sells in more than one country’ as could equally apply to exporter Do not accept examples (b) What is meant by a ‘brand’? [2] Clear Understanding [2]: (unique) name, feature or design / logo or image of a product or business [1] that distinguishes it from other products or businesses [1] Some Understanding [1]: e.g. something which makes a product ‘stand out’ [1] Do not accept examples

Page 4 Mark Scheme Syllabus Paper Cambridge IGCSE – May/June 2015 0450 12 © Cambridge International Examinations 2015 (c) Identify and explain two reasons why effective communication might be important for Alkin. [4] Knowledge [2 × 1] – award 1 mark for each relevant reason Application [2 × 1] – award 1 mark for each relevant explanation in context of this business Relevant points might include: • Avoid diseconomies of scale [k] as communication can be difficult in a multinational [app] • Everyone understands objectives [k] so no conflict in joint venture [app] • avoid language issues / misunderstandings [k] particularly when start selling in country Z [app] • Different cultures / management styles [k] so able to work with the local business [app] • Better / faster decision making [k] so able to quickly react to changing tastes / flavours [app] • Able to exchange ideas [k] • Better relations with suppliers [k] • Inform customers about its products [k] so that customers are interested in their food [app] Note: Points can relate to either existing business or planned joint venture Do not accept ‘improves motivation’ unless explains the impact on this business Application marks may be awarded for appropriate use of the following: joint venture, country Z or countries, multinational company, breakfast cereals or food, expansion (d) Identify and explain two advantages to Alkin of using a joint venture to expand into country Z. [6] Knowledge [2 × 1] – identification of relevant advantage [max 2] Application [2 × 1] – award 1 mark for each relevant reference made to this business Analysis [2 × 1] – award 1 mark for each relevant explanation Relevant points might include: • Access to new markets [k] increasing brand awareness [an] of its range of cereals [app] • Access to local expertise / ideas [k] e.g. cultural knowledge as tastes differ [app] so better able to meet customer requirements / ensure sales [an] • Wider range of contacts / better access to resources [k] so might be able to obtain cheaper ingredients [app] • Increased capital / share costs [k] so less risk [an] • Increased capacity [k] so can meet expected growth in demand [app] without affecting supply for other markets [an] • Way to avoid government restrictions [k] so able to maximise potential sales [an] • Less competition [k] as working with local business [app] so one less rival [an] • Economies of scale [k] • Build reputation [k] Application marks may be awarded for appropriate use of the following: multinational company, breakfast cereals or food, fast-growing market, local business

Page 5 Mark Scheme Syllabus Paper Cambridge IGCSE – May/June 2015 0450 12 © Cambridge International Examinations 2015 (e) Do you think that the Government in country Z is right to be worried about the effect of multinational companies such as Alkin on consumers? Justify your answer [6] Knowledge [1] award 1 mark for identification of relevant issue(s) Must relate to consumers Application [1] – award 1 mark if relevant reference made to this business Analysis [2] – award up to 2 marks for relevant development of point(s) Evaluation [2] – justified decision made as to whether the Government in country Z is right to be concerned about the effect of multinational companies such as Alkin on consumers Candidate’s final decision can be either for or against the statement Relevant points might include: • Access to international brands [k] so more consumer choice [an] so better able to find cereal that suits their individual needs [app] • Increased competition [k] as local businesses have to respond [an] so lower prices [an] • Fewer choices [k] so smaller producers forced out of business [an] so prices may increase [an] • Minimum standard [k] as goods same all over the world [an] • help meet customers demand [k] in fast growing market [app] as able to supply more [an] Application marks may be awarded for appropriate use of the following: food, cereals, brands, fast growing market 3 (a) Identify two ways that a business could ‘build good customer relationships’. [2] Knowledge [2 × 1] award 1 mark per way Points might include: • Offer good / personal service e.g. be friendly with customers • Find out what customers want / offer the right product • Ask for feedback • Extra services e.g. delivery, credit terms, after sales, longer opening hours • Resolve complaints quickly / refunds • Communicate with customers regularly e.g. newsletters or mailshots • Reward customer loyalty e.g. loyalty cards, special offers, discounts, vouchers, BOGOF, events Accept any reasonable answer (b) What is meant by ‘secondary market research’? [2] Clear Understanding [2] – e.g. Information about the market / customer needs or competition [1] that is already available / collected by other agencies [1] Some Understanding [1] – e.g. Simple idea such as information already collected [1] / or what market research is e.g. information about the market or finding out what people want [1] Do not accept examples Desk research [0]

Page 6 Mark Scheme Syllabus Paper Cambridge IGCSE – May/June 2015 0450 12 © Cambridge International Examinations 2015 (c) Identify and explain two methods of promotion (other than promotional pricing) that Mabel might use. [4] Knowledge [2 × 1] – identification of suitable method [max 2] Application [2 × 1] – award 1 mark for each relevant explanation in context of this business (e.g. show how or why it might be used) Points might include: • Free gifts / samples [k] give customers small bottles of shampoo to try [app] • Demonstrations [k] let people watch whilst she shows possible styles on people’s hair [app] • Loyalty cards [k] e.g. customers get a free haircut if they visit a set number of times [app] • Advertising (allow only once) [k] e.g. local paper / radio / television / leaflets to let potential customers know about her new business [app] • Sponsorship / public relations [k] • Competitions [k] customers will book appointments to have a chance of winning prizes [app] Application marks may be awarded for appropriate use of the following: appointments, shampoo, haircuts, new business (d) Identify and explain two possible disadvantages to Mabel of buying her inventory from a wholesaler. [6] Knowledge [2 × 1] – identification of relevant disadvantage Application [2 × 1] – award 1 mark for each way if relevant reference made to this business Analysis [2 × 1] – award 1 mark for each relevant explanation (i.e. why it is an disadvantage to a business) Relevant points might include: • May not stock all / latest products [k] so can’t get all the hair products wanted [app] so wastes time looking elsewhere [an] • More expensive [k] which could push up her costs [an] • Take longer to receive stock [k] as many stages in distribution process [an] so large rival businesses might offer latest hair products first [app] • Has to buy more than she wants / can’t just buy one [k] could be more than she can afford [an] so less money to spend promotion / her new business [app] • No direct contact with manufacturer [k] so cannot tell them what needed [an] so cannot build customer relations with her customers [app] Do not accept high storage costs as not relevant to this business Do not accept ‘has to buy in bulk / large amounts’ as the role of the wholesaler is to break bulk Application marks may be awarded for appropriate use of the following: appointments, shampoo, haircuts, new business, (trying to build) customer relations

Page 7 Mark Scheme Syllabus Paper Cambridge IGCSE – May/June 2015 0450 12 © Cambridge International Examinations 2015 (e) Do you think that the right location is more important than the prices she charges to the success of Mabel’s’ business? Justify your answer. [6] Knowledge [1] – award 1 mark for identification of relevant issue(s) Positive or negative points allowed [max 1] Application [1] – award 1 mark if relevant reference made to this business Analysis [2] – award up to 2 marks for relevant development of point(s) Evaluation [2] – justified decision made as to whether location or price is more important than the prices she charges to the success of Mabel’s business. Note: Must consider both price and location to access evaluation marks Relevant points might include: • Near target market [k] e.g. women / men would help ensure sales [an] • If customer service is key feature [app] then price might not be important [k] as consumers might pay more for a better service [an] • High price could discourage customers [k] who would go to competitors [an] • Low prices could suggest low quality [k] • Right location could affect the level of competition [k] • Location / prices could influence image [k] • Cost of rent might be too high [k] leading to increased costs / higher prices [an] so fewer customers can afford to go there to get haircut [app] Application marks may be awarded for appropriate use of the following: good customer service, hairdressing, salon, new business, secondary market research 4 (a) Identify two possible reasons why A2Z might want to expand. [2] Knowledge / Application [2 × 1] – award 1 mark for each relevant reason Points could include: • Increase sales OR revenue OR market share or dominate market or target new markets • Increase profit • Spread risk / attract more investment • Improve reputation / status / brand image • Gain economies of scale (b) Identify two factors that A2Z needs to consider when choosing a source of finance to buy more planes. [2] Application [2 × 1] – award 1 mark for each relevant factor Points could include: • Amount needed • Current level of debt / gearing • Amount of retained profits / cash • Time (how long need finance for) • interest rates • Whether can offer security for loans • Ability to repay / able to afford Do not accept purpose as this is stated in the question

Page 8 Mark Scheme Syllabus Paper Cambridge IGCSE – May/June 2015 0450 12 © Cambridge International Examinations 2015 (c) Identify and explain two advantages to A2Z of producing a job description. [4] Knowledge [2 × 1] – award 1 mark for each advantage [max 2] Application [2 × 1] – award 1 mark for each relevant explanation in context of this business Relevant points might include: • Provides a clear idea of what job involves [k] so they can select the best pilots [app] • Saves time / money / makes selection easier [k] as won’t get applications from people who cannot fly planes [app] • As a basis for drawing up a contract [k] so sure that all duties will be carried out on-board [app] • Helps decide basis for pay [k] • Help create person specification [k] • Helps create appropriate job advert [k] • Helps resolve disputes [k] between managers and pilots [app] Do not accept advantages to employees. Candidates must not refer to person specification Application marks may be awarded for appropriate use of the following: flights, on-board, planes or aircraft, airline, pilots (d) Identify and explain two suitable ways that A2Z could use to advertise the new jobs. [6] Knowledge [2 × 1] – award 1 mark for identification of each relevant way [max 2] Application [2 × 1] – award 1 mark for each way if relevant reference made to this business Analysis [2 × 1] – award 1 mark for each relevant explanation Relevant points might include: • Specialist magazines [k] as looking for qualified people [app] so likely to read magazines targeted at them [an] • Internet job sites / own website [k] as most people use internet to look for jobs these days [an] • National TV / newspaper / radio advertisements [k] as might not be many pilots locally [app] so can attract suitable people [an] • Job centre / Recruitment agencies [k] can help produce a shortlist of possible candidates [an] • Specialist training / flight schools [k] where people have learnt to fly [app] Application marks may be awarded for appropriate use of the following: fly, pilots, airlines, highly qualified / highly skilled, passengers Do not accept answers such internet, website, schools or posters on own as too vague

Page 9 Mark Scheme Syllabus Paper Cambridge IGCSE – May/June 2015 0450 12 © Cambridge International Examinations 2015 (e) Do you think that using financial rewards is the best way for A2Z to motivate its pilots? Justify your answer. [6] Knowledge [1] – award 1 mark for identification of relevant issue(s). Positive or negative points allowed or alternative methods (points can be for business or employee) [max 1] Application [1] – award 1 mark if relevant reference made to this business Analysis [2] – award up to 2 marks for relevant development of point(s) Evaluation [2] – justified decision made as to whether financial rewards are the best way for A2Z to motivate its pilots. Candidate’s final decision can be either for or against the statement. Note: evaluation must be from the viewpoint of the business not the employee Relevant points might include: • High wages help retain workers [k] • Can the business afford to pay high wages [k] • High skilled jobs [k] so will expect high levels of financial rewards [an] otherwise they will look for a job at rival airline [app] • Money does not motivate everyone / already highly paid [k] • Training might be offered [k] as high risk job [app] so safety might be more important • profit sharing [k] as small airline [app] so might work as pilots may feel they have a direct impact on performance [an] • Opportunities for promotion [k] could have limited value [an] as it is a small airline [app] • Job security [k] • Travel discounts for pilot and/ or family [k] so able to obtain cheap tickets [app] Application marks may be awarded for appropriate use of the following: small, expansion, successful, references to risk involved in flying, tickets, highly qualified / highly skilled, highly paid, irregular work hours, passengers Do not accept pilots as application as it is stated in the question