Cambridge IGCSE Business Studies 0450 — 2017 Oct/Nov Paper 1 · Variant 1

Cambridge International Examinations Cambridge International General Certificate of Secondary Education 0450/11 October/November 2017 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_11_2017_1.8 © UCLES 2017 *7197256577*

Ella has just left college and wants to start up her own business. She has designed a new bicycle light with a safety feature not found in any rival products. Ella knows obtaining finance will be difficult. 1 She plans to have the lights produced in another country. Each light will cost $8 to produce. Ella cannot decide whether to use price skimming. She said: ‘I have received orders for 300 lights and I have not even started promoting them’. Ella wants to be a successful entrepreneur. Table 1: Information on possible promotion options for Ella’s bicycle light. Option 2: Advertise in specialist magazine Option 1: Set up her own website $300 for full page colour advertisement $500 for web page to show product specifications and contact details Cost information One of the most popular cycling magazines in the country. For extra $750 website would allow customers to order online Other information Identify two characteristics of a successful entrepreneur. (a) Characteristic 1:… … Characteristic 2:… … [2] Identify two possible reasons why Ella plans to produce the lights in another country. (b) Reason 1:… … Reason 2:… … [2] Identify and explain two reasons why obtaining finance might be difficult for Ella’s business. (c) Reason 1:… … Explanation:… … Reason 2:… … Explanation:… … [4] 11_0450_11_2017_1.8 © UCLES 2017 2

Identify and explain one advantage and one disadvantage to Ella of using price skimming. (d) Advantage:… … Explanation:… … … … Disadvantage:… … Explanation:… … … … [6] Recommend which promotion option Ella should choose. Justify your answer using the information in Table 1. (e) … … … … … … … … … … … … [6] [Turn over 11_0450_11_2017_1.8 © UCLES 2017 3

NMBJ makes a range of cookies (biscuits) using batch production. Last year profit increased by $1.5million. The directors think this is because of an increase in productivity and better management 2 of working capital. NMBJ has a low level of inventory. NMBJ plans to increase the wages of all 300 employees by $50 per month from March. The Finance Director is worried: ‘This decision will add $15000 to wages each month. Many employees are leaving. Is paying higher wages the best way to improve motivation?’ Table 2: Cash flow forecast for the period January - March 2018 ($000) March February January 600 520 560 Cash inflow Cash outflows: X 60 60 Wages 520 480 500 Other costs 595 540 560 Total cash outflows Y (20) 0 Net cash flow (15) W 5 Opening balance Z (15) 5 Closing balance What is meant by ‘productivity’? (a) … … … … [2] Identify two reasons why a business might need working capital. (b) Reason 1:… … Reason 2:… … [2] Calculate the following values shown on the cash flow forecast. (c) W:… X:… Y:… Z:… [4] 11_0450_11_2017_1.8 © UCLES 2017 4

Identify and explain one advantage and one disadvantage to NMBJ of having a low level of inventory. (d) Advantage:… … Explanation:… … … … Disadvantage:… … Explanation:… … … … [6] Do you think paying higher wages is the best way for NMBJ to improve employee motivation? Justify your answer. (e) … … … … … … … … … … … … [6] [Turn over 11_0450_11_2017_1.8 © UCLES 2017 5

GDC is a transport delivery business in country Z. It operates in a competitive market. GDC has 5000 employees and 1000 delivery vehicles. GDC’s organisational structure has many levels of 3 hierarchy with a long chain of command. The managers use an autocratic leadership style. Last year GDC delivered 2 billion parcels for businesses. The Managing Director said: ‘Having a good reputation is important. We have also benefited from economies of scale’. GDC wants to expand its operations to another country, but cannot decide the best way to do this. What is meant by ‘economies of scale’? (a) … … … … [2] What is meant by ‘autocratic leadership style’? (b) … … … … [2] Identify and explain one advantage and one disadvantage of GDC’s organisational structure. (c) Advantage:… … Explanation:… … Disadvantage:… … Explanation:… … [4] 11_0450_11_2017_1.8 © UCLES 2017 6

Identify and explain two reasons why a good reputation might be important to GDC. (d) Reason 1:… … Explanation:… … … … Reason 2:… … Explanation:… … … … [6] Recommend the most suitable way for GDC to expand its business to another country. Justify your answer. (e) … … … … … … … … … … … … [6] [Turn over 11_0450_11_2017_1.8 © UCLES 2017 7

CHONS is a public limited company. The directors want to open a new coal mine. All the coal will be exported. The Managing Director is hopeful that the Government will allow the coal mine to be 4 opened. She said: ‘CHONS always meets legal controls. In an area of high unemployment surely creating jobs is more important than protecting the environment. Most stakeholder groups including shareholders and suppliers are happy. CHONS will not be asking for any Government support.’ Table 3: Information about the proposed coal mine 50m tonnes per year Planned output 60 years Number of years coal mine will operate 10000 Jobs created High Level of waste products causing pollution High Risk of traffic problems What is meant by a ‘stakeholder group’? (a) … … … … [2] Identify two ways (other than legal controls) that a government might use to influence business decisions. (b) Way 1:… … Way 2:… … [2] Identify and explain one advantage and one disadvantage of CHONS being a public limited company. (c) Advantage:… … Explanation:… … Disadvantage:… … Explanation:… … [4] 11_0450_11_2017_1.8 © UCLES 2017 8

Identify and explain two ways in which legal controls might affect CHONS. (d) Way 1:… … Explanation:… … … … Way 2:… … Explanation:… … … … [6] Do you think the Government should allow CHONS to open the coal mine? Justify your answer using the information in Table 3. (e) … … … … … … … … … … … … [6] 11_0450_11_2017_1.8 © UCLES 2017 9

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® IGCSE is a registered trademark. 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 12 printed pages. © UCLES 2017 [Turn over Cambridge Assessment International Education Cambridge International General Certificate of Secondary Education BUSINESS STUDIES 0450/11 Paper 1 Short Answer/Structured Response October/November 2017 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 International will not enter into discussions about these mark schemes. Cambridge International is publishing the mark schemes for the October/November 2017 series for most Cambridge IGCSE®, Cambridge International A and AS Level components and some Cambridge O Level components.

0450/11 Cambridge IGCSE – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 2 of 12 Question Answer Marks Guidance 1(a) Identify two characteristics of a successful entrepreneur. Knowledge [2 × 1] – award 1 mark for each relevant characteristic Points could include: risk taker, innovator, creative, self-confident, optimistic, hardworking, independent, effective communicator, leadership, initiative, self-motivating/determined, results driven, good at networking, multi-skilled 2 Award any reasonable answer. 1(b) Identify two possible reasons why Ella plans to produce the lights in another country Application: [2 × 1] award 1 mark for each relevant reason Points might include: • lower costs • no local factory or capacity to make it • access to materials • Fewer restrictions 2 1(c) Identify and explain two reasons why obtaining finance might be difficult for Ella’s business. Knowledge [2 × 1] – award 1 mark for each relevant reason Application [2 × 1] – award 1 mark for each explanation in context Possible points might include: • No business experience [k] of making lights [app] • Seen as higher risk OR don’t trust her OR can’t repay [k] as just left college [app] • Can offer no security [k] • May not have a business plan OR documentation to support request for finance [k] • Unproven product [k] 4 Application marks may be awarded for appropriate use of the following: just left college, bicycle light, new business or product or entrepreneur, produce in another country, correct use of numbers e.g. $8, $500, $750 and $300.

0450/11 Cambridge IGCSE – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 3 of 12 Question Answer Marks Guidance 1(d) Identify and explain one advantage and one disadvantage to Ella of using price skimming. Knowledge [2 × 1] award one mark for one advantage and one disadvantage Application [2 × 1] award one mark for each relevant reference to this business Analysis [2 × 1] award one mark for each relevant explanation Points might include: Advantages: • Recover costs quicker [k] as need to sell fewer than 300 [app] to pay for development [an] • Gives the image of a quality product [k] which can attract wealthy customers [an] to try out the new light [app] • Higher revenue per item[k] • Break even at a lower output [k] Disadvantages: • Put off some potential customers [k] leading to lower sales [an] • Only work in short term [k] as competitors could produce cheaper alternatives [an] 6 Application marks may be awarded for appropriate use of the following: just left college, light, new business, new product, new entrepreneur, produce in another country, raising finance difficult, correct use of numbers, safety features Note: be wary of ‘higher sales’/ ‘higher revenue’ as a K point. It must be per unit 1(e) Recommend which promotion option Ella should choose. Justify your answer using the information in Table 1. Knowledge [1] – award 1 mark for identification of relevant points (s) Application [1] – award 1 mark for 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 which method of promotion Ella should use Points might include: • Option 2 is cheaper [k] as is $200 less than option 1[app] + [an] • Ella can’t afford much advertising [k] as a new business [app] she can’t afford a website [an] • Specialist magazine reaches the target market [k] for bicycle lights [app] therefore likely to sell more [an] • Website may not be required [k] already has an order for 300[app] 6 Application marks may be awarded for appropriate use of the following: just left college, light, new business, produce overseas, raising finance difficult, price skimming, correct use of numbers, magazine, website Either option is acceptable if justified. Note: $250 is incorrect as this is an incorrect calculation of the difference between the cost of a website with and without online ordering

0450/11 Cambridge IGCSE – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 4 of 12 Question Answer Marks Guidance 2(a) What is meant by ‘productivity’? Clear understanding [2] e.g. a measure of the output of a business in relation to its inputs [2] OR effective utilisation of resources in a time period [2] Equation: output divided by Input [2] Some understanding [1] e.g. output per worker OR measure of efficiency OR rate at which they produce goods 2 2(b) Identify two reasons why a business might need working capital. Knowledge [2 × 1] award one mark per reason • Paying invoices/bills • Day to day expenses • Buying raw materials • Paying wages • Paying salaries • Paying rent • Re-payment of short term debts • Paying utilities • Use in an emergency • Evidence to support requests for finance 2 2(c) Calculate the following values shown on the cash flow forecast. Application [4] award one mark per correct answer W: 5 or 5000 X: 75 or 75 000 Y: 5 or 5000 Z: (10) or (10 000) Note: Z must be shown as a negative number to be credited. 4 Note: answers can be written on the cash flow forecast or in the space provided Do not use OFR as no wage calculation is required.

0450/11 Cambridge IGCSE – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 5 of 12 Question Answer Marks Guidance 2(d) Identify and explain one advantage and one disadvantage to NMBJ of having a low level of inventory. Knowledge [2 × 1] – award 1 mark for one advantage and one disadvantage identified Application [2 × 1] – award 1 mark for each relevant reference made to this business Analysis [2 × 1] – award 1 mark for each relevant explanation Possible points might include: Advantages: • Lower inventory holding costs [k] help reduce variable costs [an] • Lower security OR rent costs OR insurance [k] as less space needed [an] for ingredients [app] • More flexible [k] as adapt to each different batch [app] to keep customers returning [an] • Help cash flow [k] • Less risk of waste OR damage OR obsolescence [k] which could lower productivity [app] Disadvantages: • Possible delays in production [k] as batches delayed [app] leading to lower output [an] • Few OR no purchasing economies of scale [k] which could help reduce cash outflows [app] • Not able to meet orders [k] for cookies [app] so could damage reputation [an] 6 Application marks may be awarded for appropriate use of the following: cookies/biscuits, related words such as ingredients or examples, productivity, use of numbers, batch production, $1.5 million. Note: Points can refer to raw materials or finished goods.

0450/11 Cambridge IGCSE – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 6 of 12 Question Answer Marks Guidance 2(e) Do you think paying higher wages is the best way for NMBJ to improve employee motivation? Justify your answer. Knowledge [1] – award 1 mark for identification of relevant points (s) Application [1] – award 1 mark for relevant reference made to this business Analysis [2] – award up to 2 marks for relevant development of point(s) Evaluation [2] award up to 2 marks for justified decision as to whether paying higher wages is the best way for NMBJ to improve employee motivation Points might include • Only a short term incentive [k] have to pay, whatever the output [an] • Money is the main motivator [k] • Other ways to motivate e.g. job rotation, enrichment, fringe benefits [k] • Help retain workers [k] so not as many people leave [app] leading to lower recruitment costs [an] • This will increase costs for the business [k] by $15 000 per month [app] so output per worker would need to rise [an] 6 Application marks may be awarded for appropriate use of the following: correct use of numbers, batch production, cookies or related words such as ingredients; workers leave, profits increased, 1.5 million, increased productivity Candidates could calculate value of wages per worker (to show increase i.e. $200 to $250) App and AN Note: The focus needs to be on the business for analysis to be awarded. e.g. ‘Job rotation is a better motivator[k] so workers are not bored’ is only awarded as knowledge Question Answer Marks Guidance 3(a) What is meant by ‘economies of scale’? Clear understanding: [2] factors that lead to lower average costs as a business increases in size. Some understanding:[1] benefit of increasing in size 2 Do not award answers such as 'benefit of being big' as this does not explain the term

0450/11 Cambridge IGCSE – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 7 of 12 Question Answer Marks Guidance 3(b) What is meant by ‘autocratic leadership style’? Clear understanding: [2] managers expect to be in charge of business and expect their orders to be followed OR managers make decisions without consulting workers [2] Some understanding: [1] workers have no say in decisions OR decisions made by managers [1] 2 3(c) Identify and explain one advantage and one disadvantage of GDC’s organisational structure. Knowledge [2 × 1] award 1 mark for one advantage and one disadvantage identified Application [2 × 1] award 1 mark for each explanation in context Advantages • Employees have a clearly defined role [k] so know where they fit into delivery process [app] • Clear chain of command OR know their manager [k] so know who to ask for help if problem with a parcel [app] • Employees have a clear career structure [k] so can see how to progress from driver [app] • Specialists can be employed [k] Disadvantages • Slow communication [k] due to many number of levels [app] • Heavy workload for managers [k] so do they have time to focus on expansion [app] • Communication between departments can be difficult [k] which could damage its good reputation [app] • Can create rivalry between departments [k] • Workers can feel isolated [k] 4 Application marks may be awarded for appropriate use of the following: competitive market, expand to other countries, correct use of numbers, business customers, good reputation, delivery, parcels, many levels of hierarchy, long chain of command, 5000 employees, autocratic.

0450/11 Cambridge IGCSE – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 8 of 12 Question Answer Marks Guidance 3(d) Identify and explain two reasons why a good reputation might be important to GDC. Knowledge [2 × 1] award one mark for each reason Application [2 × 1] award one mark for each relevant reference to this business Analysis [2 × 1] award one mark for each relevant explanation Points might include: • Build trust OR loyalty [k] so customers want to use their delivery services [app] and keep purchasing from them [an] • Attract new customers [k] and therefore sales will increase [an] • Easier to raise finance [k] which could help growth plans [app] • Way to attract OR retain employees [k] so able to offer a good service [an] • Can charge higher prices [k] for each delivery [app] helping it increase revenue per unit [an] • Create brand awareness [k] so customers do not buy from competitors [an] in this competitive market [app] • Word of mouth promotion [k] 6 Application marks may be awarded for appropriate use of the following: competitive market, expand to other countries, use of numbers, business customers, delivery, parcels, many levels of hierarchy, long chain of command 3(e) Recommend the most suitable way for GDC to expand its business to another country. Justify your answer. Knowledge [1] – award 1 mark for identification of relevant points (s) Application [1] – award 1 mark for relevant reference made to this business Analysis [2] – award up to 2 marks for relevant development of point(s) Evaluation [2] award up to two marks for justified decision regards to the most suitable way for GDC to expand. Relevant points might include: • Joint venture [k] with a local delivery business [app] you share the risks of expansion [an] • Merger/takeover [k] they will benefit from local expertise [an] • Franchise [k] they will receive a license fee [an] • Set up own operations [k] they will keep control [an] however this is an expensive way [an] 6 Application marks may be awarded for appropriate use of the following: competitive market, correct use of numbers, business customers, good reputation, delivery, parcels, many levels of hierarchy, long chain of command, delivery vehicles, economies of scale, logistics Note: Do not award marketing methods e.g. e-commerce or hiring an agent.

0450/11 Cambridge IGCSE – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 9 of 12 Question Answer Marks Guidance 4(a) What is meant by a ‘stakeholder group’? Clear understanding [2]: any person or people with a direct interest in the performance and activities of a business Some understanding [1]: someone affected by what a business does 2 Do not award examples. 4(b) Identify two ways (other than legal controls) that a government might use to influence business decisions. Knowledge [2 × 1] award one mark per way Points might include: • cheaper rents • loans OR grants OR subsidies • training • interest rates • taxation • build infrastructure 2

0450/11 Cambridge IGCSE – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 10 of 12 Question Answer Marks Guidance 4(c) Identify and explain one advantage and one disadvantage of CHONS being a public limited company. Knowledge [2 × 1] award one mark for each advantage and disadvantage Application [2 × 1] award one mark for each relevant reference to this business Advantages: • Able to sell shares on stock market [k] so no limit to potential number of shareholders [app] • Access to more sources of finance [k] so do not have to ask for support from Government [app] • Limited liability [k] • Separate legal identity [k] of mining business and owners [app] • Better status OR seen as lower risk [k] so suppliers more willing to offer credit [app] Disadvantages: • Have to disclose accounts [k] so less able to keep expansion plans secret [app] • Many legal requirements/regulations [k] • Selling shares expensive [k] • Risk of loss of control [k] for the original shareholders [app] 4 Application marks may be awarded for appropriate use of the following: coal or mining related words, correct use of data from table, no government support, export, shareholders, suppliers, expansion plans.

0450/11 Cambridge IGCSE – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 11 of 12 Question Answer Marks Guidance 4(d) Identify and explain two ways in which legal controls might affect CHONS. Knowledge [2 × 1] award one mark for each way identified Application [2 × 1] award one mark for each relevant reference to this business Analysis [2 × 1] award one mark for each relevant explanation Points might include: • Need to provide safety equipment [k] such as helmets for miners [app] increasing costs [an] • Limit working hours [k] so cannot obtain 50 m tonnes [app] • Minimum wages [k] so cannot afford to create 10 000 jobs [app] • Pollution restrictions/permits [k] as coal burning could damage environment [app] so stakeholders become unhappy [an] • Where business is located [k] as need Government to allow mine to be built [app] without it they cannot start operations [an] • Restrictions on what OR how much can be produced [k] • Increase costs [k] • Banning/restricting exports [k] CHONS would not be able to operate because they are planning to export [an] coal [app] • Banning/restricting imports [k] 6 Application marks may be awarded for appropriate use of the following: coal or mining related words, no government support, correct use of data from table, export, government permission to open mine, environment, shareholders, creating jobs, 10 000

0450/11 Cambridge IGCSE – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 12 of 12 Question Answer Marks Guidance 4(e) Do you think the Government should allow CHONS to open the coal mine? Justify your answer using the information in Table 3. Knowledge [1] – award 1 mark for identification of relevant issue(s) Application [1] – award 1 mark for relevant reference made to this business Analysis [2] – award up to 2 marks for relevant development of point(s) Evaluation [2] award up to 2 marks for justified decision as to whether the Government should allow CHONS to open the coal mine Points might include: • Jobs created [k] for 10 000 people [app] so more money to spend in community [an] • Use up local coal [k] as plan to export it all [app] • Impact on environment [k] • Traffic problems created [k] which could discourage people OR other businesses setting up in area [an] • Other businesses will benefit [k] e.g. Suppliers [app] 6 Application marks may be awarded for appropriate use of the following: no government support, correct use of data from table, export, high unemployment, protect the environment, PLC, suppliers, shareholders, traffic Either viewpoint is acceptable Do not award reference to coal mine as application as stated in question.