Cambridge IGCSE Business Studies 0450 — 2016 Oct/Nov Paper 1 · Variant 3

Cambridge International Examinations Cambridge International General Certificate of Secondary Education 0450/13 October/November 2016 1 hour 30 minutes BUSINESS STUDIES Paper 1 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. This document consists of 9 printed pages and 3 blank pages. [Turn over 11_0450_13_2016_1.11 © UCLES 2016 *4375973482*

UDig is a large mining company in the private sector. It supplies businesses in country B with 30% of the coal they need. UDig now has eight mines but plans to close two of them and this will threaten 1 1800 employees with redundancy. The Managing Director said: ‘I blame the appreciation of country B’s exchange rate and new legal controls including those to protect the environment. The Government should help UDig keep these mines open.’ What is meant by ‘private sector’? (a) … … … … [2] What is meant by ‘redundancy’? (b) … … … … [2] Identify and explain two ways an appreciation of country B’s exchange rate might affect UDig. (c) Way 1:… … Explanation:… … Way 2:… … Explanation:… … [4] 11_0450_13_2016_1.11 © UCLES 2016 2

Identify and explain two ways in which legal controls might affect UDig. (d) Way 1:… … Explanation:… … … … Way 2:… … Explanation:… … … … [6] The Managing Director thinks ‘the Government should help UDig keep these mines open’. Do you agree? Justify your answer. (e) … … … … … … … … … … … … [6] [Turn over 11_0450_13_2016_1.11 © UCLES 2016 3

GBU is a public limited company. It makes a range of beauty products including shampoo and soaps for the mass market. Last year GBU’s revenue fell. The Marketing Director has been looking 2 at the results from its primary market research based on a sample of 2000 consumers. An extract is shown in Fig. 1. She believes maintaining customer loyalty is more important than attracting new customers. Fig. 1: Extract from GBU’s market research Where do you buy your beauty products? Would you buy our beauty products? shop online mail order yes no 200 700 1100 300 1700 What is meant by ‘mass market’? (a) … … … [2] Calculate the percentage (%) of consumers who buy beauty products online. (b) … … [2] Identify and explain two possible reasons why GBU's market research might not be useful to the Marketing Director. (c) Reason 1:… … Explanation:… … Reason 2:… … Explanation:… … [4] 11_0450_13_2016_1.11 © UCLES 2016 4

Identify and explain two advantages to GBU of using shops as a channel of distribution. (d) Advantage 1:… … Explanation:… … … … Advantage 2:… … Explanation:… … … … [6] Do you think maintaining customer loyalty should be more important to GBU than attracting new customers? Justify your answer. (e) … … … … … … … … … … … … [6] [Turn over 11_0450_13_2016_1.11 © UCLES 2016 5

Izaak owns a small fish restaurant. He employs two chefs (cooks) and three workers who serve in the restaurant. He has been trying to increase added value to improve profits. Izaak has been 3 looking at the business accounts as shown in Table 1. He thinks fixed costs are too high. Izaak has received a number of complaints about food and service. He knows he must improve quality but cannot decide the best way to do this. Table 1: Extract from income statements for years ending 30 September 2015 and 2016 ($000) 2016 2015 300 300 Revenue 150 180 Cost of sales 150 120 Gross profit 135 90 Expenses 15 30 Profit What is meant by ‘added value’? (a) … … … [2] What is meant by ‘cost of sales’? (b) … … … [2] Identify and explain two ways Izaak could increase revenue. (c) Way 1:… … Explanation:… … Way 2:… … Explanation:… … [4] 11_0450_13_2016_1.11 © UCLES 2016 6

Identify and explain two problems that low quality might cause for Izaak’s business. (d) Problem 1:… … Explanation:… … … … Problem 2:… … Explanation:… … … … [6] Do you think Izaak should be pleased with the financial performance of his business? Justify your answer using appropriate ratios. (e) … … … … … … … … … … … … [6] [Turn over 11_0450_13_2016_1.11 © UCLES 2016 7

ReBag is a social enterprise. Asha started the business three years ago using micro-finance. ReBag employs 30 women in four small towns in different parts of the country. They work from home and 4 make a range of bags from pieces of old fabric (cloth). Last year ReBag’s revenue was $700. Asha said: ‘Our external stakeholders want ReBag to employ women in five more towns. Getting a bank loan to expand the business will be a problem. What will I do about management? How will I communicate? I cannot keep visiting everyone.’ What is meant by a ‘social enterprise’? (a) … … … … [2] Identify two functions of management (other than communication) that Asha performs. (b) Function 1:… … Function 2:… … [2] Identify two external stakeholder groups of ReBag. Explain why each stakeholder group might be interested in this business. (c) External stakeholder group 1:… Explanation:… … … External stakeholder group 2:… Explanation:… … … [4] 11_0450_13_2016_1.11 © UCLES 2016 8

Identify and explain two possible reasons why it might be difficult for ReBag to get a bank loan. (d) Reason 1:… … Explanation:… … … … Reason 2:… … Explanation:… … … … [6] Explain two possible methods Asha could use to communicate with ReBag workers. Recommend which method she should choose. Justify your answer. (e) … … … … … … … … … … … … [6] 11_0450_13_2016_1.11 © UCLES 2016 9

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® IGCSE is the registered trademark of Cambridge International Examinations. This syllabus is approved for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate. This document consists of 10 printed pages. © UCLES 2016 [Turn over Cambridge International Examinations Cambridge International General Certificate of Secondary Education BUSINESS STUDIES 0450/13 Paper 1 Short Answer / Structured Response October/November 2016 MARK SCHEME Maximum Mark: 80 Published 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 October/November 2016 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 – October/November 2016 0450 13 © UCLES 2016 Question Answer Marks 1(a) What is meant by ‘private sector’? Clear understanding [2]: e.g. when individuals own business activities Some understanding [1] e.g. run by individuals OR not controlled directly by government [1] OR aim to make a profit [1] OR controlled by person / group of people [1] 2 1(b) What is meant by ‘redundancy’? Clear understanding [2]: e.g. job position has gone and hence person is no longer required Some understanding [1] e.g. loses job [1] or job role has gone [1] 2 1(c) Identify and explain two ways an appreciation of country B’s exchange rate might affect UDig. Knowledge [2] – award up to 2 marks for each relevant point Application [2 × 1] – award 1 mark for each explanation in context Points might include: If assume UDig based in country B, • Imported products cheaper / have lower prices [k] so local businesses might go elsewhere for the 30% [app] • Not as competitive [k} so may have to close more mines [app] • UDig’s exports more expensive/ prices rise [k] • May have to reduce its profit margin [k] for its coal [app] If assume UDig based outside B: (they will be an exporter so) • UDig’s Products become cheaper / lower prices [k] • Increase in profit margin (if don’t lower prices) [k] 4

Page 3 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2016 0450 13 © UCLES 2016 Question Answer Marks 1(d) Identify and explain two ways in which legal controls might affect UDig. Knowledge [2 × 1] – identification of relevant benefit 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: • Need to provide safety equipment [k] as work is highly dangerous [app] could lead to higher costs [an] • Reduction in number of working hours [k] in the mines [app] could lead to lower output [an] • Introduce / increase minimum wage [k] for its 1800 employees [app] leading to further redundancies [an] • Location restrictions [k] so cannot operate in some areas [an] leading to more closures [app] • Pollution restrictions [k] as coal burning could damage environment [app] so less demand from companies [an] 6 1(e) The Managing Director thinks ‘ the Government should help UDig keep the mines open’. Do you agree? Justify your answer. Knowledge [1] – award 1 mark for identification of relevant issue(s) 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 as to whether the Government should help UDig keep the mines open. Relevant points might include: • Protect jobs [k] as 1800 at risk [app] so help Government meet its economic objectives [an] • Protect vital industry [k] as its produces 30% of its coal [app] if more mines shut – will need to find alternative supply [an] • Could conflict with other Government objectives [k] as this is a private sector business [app] • May only be a temporary problem [k] as currency appreciation might not last [app] so money which could be better spent elsewhere [an] 6

Page 4 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2016 0450 13 © UCLES 2016 Question Answer Marks 2(a) What is meant by ‘mass market’? Clear understanding [2]: e.g. selling the same product to the whole market OR very large number of sales of a standard product Some understanding [1] e.g. large number of potential customers OR a market that has general wants and needs 2 2(b) Calculate the percentage (%) of customers who buy goods on-line. Good Application [2] 35% Some application [1] method e.g. 700 of 2000 2 2(c) Identify and explain two possible reasons why GBU’s market research might not be useful to the Marketing Director. Knowledge [2 × 1] – award 1 mark for identification of relevant problem Application [2 × 1] – award 1 mark for each explanation in context Relevant points might include: • Wrong / leading questions asked [k] for a mass market product [app] • Wrong people asked / not representative [k] as may not buy beauty products [app] • Wrong sample size [k] as may need to speak to more than 2000 [app] 4

Page 5 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2016 0450 13 © UCLES 2016 Question Answer Marks 2(d) Identify and explain two advantages to GBU of using shops as a channel of distribution. Knowledge [2 × 1] – award 1 mark for each relevant advantage Application [2 × 1] – award 1 mark for relevant reference made to this business Analysis [2 × 1] – award 1 mark for each relevant explanation Relevant points might include: • Contact / feedback from customers [k] to build customer loyalty [app] so maintain market share / current customers [an] • Attract people passing shop [k] as people might run out of shampoo [app] and buy it straightaway [an] • Sales might increase [k] as not everyone has access to / wants to shop on the internet / as people want to see before they buy [an] • Lower storage costs [k] as do not need additional warehouse [an] • Research shows customers prefer to buy this way [k] as selected by 55% [app + an] so should increase sales [an] • Can act as promotion [k] 6

Page 6 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2016 0450 13 © UCLES 2016 Question Answer Marks 2(e) Do you think maintaining customer loyalty should be more important to GBU than attracting new customers? Justify your answer. Knowledge [1] – award 1 mark for identification of relevant issue(s) 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 as to whether it is more important for GBU to maintain customer loyalty than attract new customers Relevant points might include: Customer loyalty: • Maintain market share / sales [k] • Spread word / free advertising [k] as existing customers might recommend product to others [an] • Keep reputation [k] in a mass market [app] leading to a competitive advantage [an] • Able to match products to existing customer needs [k] for beauty products [app] so they know what to produce [an] New customers: • Widen target market [k] as 80% of people like their products [app + an] • Customer tastes change [k] so may be cheaper to find new customers rather than develop existing products [an] • Need to carry out advertising to attract customers [k] which will increase costs [an] Other factors: • May be other reasons why customers do not buy [k] if prices are higher this may be why revenue fell [app] 6

Page 7 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2016 0450 13 © UCLES 2016 Question Answer Marks 3(a) What is meant by ‘added value’? Clear understanding [2]: e.g. difference between price of a finished product and the cost of the inputs involved in making it OR difference between the selling price of a product and the cost of bought in materials and components [2] OR improvement to the product that makes it worth more plus a relevant example [2] Some understanding [1] e.g. improvement to the product that makes it worth more 2 3(b) What is meant by ‘cost of sales’? Clear understanding [2] cost of producing or buying in the goods sold OR variable cost of making the goods sold [2] OR cost per unit × number of output sold [2] Some understanding [1] e.g. money spent on materials 2 3(c) Identify and explain two ways Izaak could increase revenue. Knowledge [2 × 1] – award 1 mark for each relevant way [max 2] Application [2 × 1] – award 1 mark for each explanation in context Relevant points might include: • Increase advertising [k] • Widen target market [k] • Change prices e.g. offer discounts or increase prices [k] • Offer new / more products [k] e.g. different fish dishes [app] • Loyalty scheme [k] encourage customers to return to restaurant [app] • Improve quality [k] 4

Page 8 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2016 0450 13 © UCLES 2016 Question Answer Marks 3(d) Identify and explain two problems that low quality might cause for Izaak’s business. Knowledge [2 × 1] – identification of relevant point [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: • Loss of existing customers / loyalty [k] as food does not taste right [app] leading to lower revenue [an] • Loss of new customers [k] • Cost of replacement [k] as have to recook food [app] increasing his cost of sales [an] • Cost of fines [k] as poor quality may break laws [an] • Damage to reputation / image [k] of restaurant [app] so customers may go elsewhere [an] • Cannot supply on time [k] leading to more complaints [app] • Increase waste [k] • Cannot charge higher prices [k] on menu [app] 6 3(e) Do you think Izaak should be pleased with the financial performance of his business? Justify your answer using appropriate ratios. Knowledge [1] – award 1 mark for identification of relevant issue(s) 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 as to whether Izaak should be pleased with the financial performance of his business Relevant methods might include: • Gross profit increased [k] to 150 000 [app] • Gross profit margin improved [k] to 50% [app + an] so better control of variable costs [an] • Profit margin down [k] to 5% [app + an] so less control of overheads [an] • Profit has fallen [k] by 50% [app + an] • Expenses up [k] could reflect fact that fixed costs too high [app] • Revenue has not changed [k] • Cost of sales down [k] 6

Page 9 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2016 0450 13 © UCLES 2016 Question Answer Marks 4(a) What is meant by a ‘social enterprise’? Clear understanding [2]: e.g. business with both social objectives as well as aim to make a profit Some understanding [1] e.g. not all about profit 2 4(b) Identify two functions of management (other than communication) that Asha performs. Application [2 × 1] award one mark per function Points might include: coordinate, control, organise, planning, command, delegate, motivate / supervise, decision making, problem solving, recruitment 2 4(c) Identify two external stakeholder groups of ReBag. Explain why each stakeholder group might be interested in this business. Knowledge [2 × 1] award 1 mark per stakeholder Application [2 × 1] – award 1 mark for each explanation in context Relevant points might include: • Government [k] as create jobs in more towns [app] • Suppliers [k] to obtain more fabric [app] • Local community [k] as employing 30 people [app] • Customers [k] who buy the bags [app] • Lenders / banks [k] to see if they should offer a bank loan [app] • Pressure groups [k] 4

Page 10 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2016 0450 13 © UCLES 2016 Question Answer Marks 4(d) Identify and explain two possible reasons why it might be difficult for ReBag to get a bank loan. Knowledge [2 × 1] – identification of relevant point [max 2] Application [2 × 1] – award 1 mark for relevant reference made to this business Analysis [2 × 1] – award 1 mark for each relevant explanation Relevant points might include: • Low revenue [k] only $700 [app] so can they afford to repay [an] • No security [k] so increased risk for lenders [an] • Limited experience [k] only operated for 3 years [app] so no guarantee that business will last [an] • No business plan / poor planning [k] • Already has existing debt [k] as Asha used micro-finance [app] 6 4(e) Explain two possible methods Asha could use to communicate with ReBag workers. Recommend which method she should choose. Justify your answer. Knowledge [1] – award 1 mark for identification of relevant issue or method(s) 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 as to which is the most appropriate method. Relevant points might include: Meeting [k] • so able to see reactions to ideas / comments [an]; • Difficult to arrange / time issues [an] all based in remote towns [app] so not everyone might be able to attend [an]; • Will mean travel costs / making it expensive [an]; • Will take people away from work / lead to loss of production [an] of bags [app] so may not be able to meet demand [an] Email [k] allowing people to read information in own time [an] • People might not have access to internet [an] as in remote locations [app] so are not able to respond [an]; • Must pay cost of computer [an] from $70 [app] so can they afford it [an] Phone [k] so immediate feedback is possible [an] Videoconferencing [k] Newsletter [k] can contain a large amount of information [an] Letter [k] 6