Cambridge IGCSE Business Studies (9-1) 0986 — 2019 May/June Paper 2 · Variant 2

1 (a) Identify and explain one advantage and one disadvantage to WA of developing new products. Advantage: ....................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Disadvantage: ................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the following three possible business objectives for WA. Which objective is likely to be most important to WA in the long run? Justify your answer. Be an environmentally friendly business: ......................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Increase market share: ..................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Survival: ............................................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Conclusion: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: Question Answer Marks 1(a) Identify and explain one advantage and one disadvantage to WA of 8 developing new products. Knowledge – award one mark for each relevant advantage / disadvantage [2 × 1 marks] Analysis – award one mark for a relevant explanation for each advantage / disadvantage [2 × 1 marks] Application – award two application marks for each advantage / disadvantage [2 × 2 marks] Answers are likely to include: Advantage • New markets • Maintains image for fashionable designs • Remains competitive • Expansion • Wider range of products / diversification / spreading risk • Attract more customers / increase sales Disadvantage • New products might fail • May not be demanded if not liked by consumers • Increased costs – for example development costs / marketing / advertising / market research / storage or warehouse costs / wasted raw materials during development / training labour in new skills • Higher prices needed to recoup development costs Indicative response: WA will remain competitive (k) by ensuring the furniture is fashionable (ap). This will increase demand or at least maintain demand for its furniture (an) and may result in profit increasing again (ap). Possible application marks: Family owned ltd company; small business; started 10 years ago; furniture; wood from sustainable forests; uses batch production to make furniture; new fashionable designs each year; selling price $200; environmentally friendly business objective; reduced profit in 2018; chairs / tables 1(b) Consider the following three possible business objectives for WA. 12 Which objective is likely to be most important to WA in the long run? Justify your answer. Relevant points might include: Advantages Disadvantages Be an • Improved brand image • May have a higher environmentally – may attract ethical cost –higher price friendly customers – increase for furniture business sales • Less competitive • Less likely to break especially if government regulations competitors do not on environmental use sustainable damage wood • Employees may prefer to work for an ethical business • Avoids WA having to deal with pressure groups Increase • Increase sales – higher • Increased cost of market share revenue and profit marketing • More dominant in the • Marketing costs may market – more be higher than influence on price improvement in sales and revenue • Increase in WA sales may not increase market share if market is growing at the same rate Survival • Avoids making a loss – • Long term not good costs are covered as low / no retained • Easier to achieve than profit this is usually other objectives – just a short-term needs to aim to break- objective even • May need to borrow • Protects family externally if low investment profit Knowledge / Analysis / Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified conclusion as to which is the most important and why the other objectives will be less important in the long run. 7–8 marks for some limited judgement shown in conclusion as to which objective will be most important in the long run. Level 2 4–6 marks Detailed discussion of the advantages and/or disadvantages of each objective. Level 1 1–3 marks Outline of the advantages and/or disadvantages of each objective. Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Improved brand image if aim to be environmentally friendly Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Improved brand image if aim is to be environmentally friendly and this may attract an increased number of customers who are concerned about environmental damage and want to support ethical businesses. However, this might be more expensive, for example when buying the wood and so prices may have to be increased. (L2 plus application for mentioning buying wood) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a conclusion of which objective will be most important in the long run. Award up to 2 additional marks for relevant application. Possible application marks: Family owned ltd company; small business; started 10 years ago; furniture; wood from sustainable forests; new fashionable designs each year; individually designed furniture produced using job production; selling price $200 and $250 per item; ethical business objective; reduced profit in 2018; chairs / tables; high cost of wood; uses cost-plus pricing; WA price is higher than competitors, 10% market share There may be other examples in context that have not been included here

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2 (a) Identify and explain two examples of tertiary sector businesses that help WA to be successful. Example 1: ........................................................................................................................ ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Example 2: ........................................................................................................................ ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the following two ways WA could increase productivity. Recommend which would be the best way to choose to increase profit. Justify your answer. Use computers in manufacturing and design: .................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Improve employee skills: .................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 2(a) Identify and explain two examples of tertiary sector businesses that 8 help WA to be successful. Knowledge – award one mark for identifying an example of a tertiary sector business [2 × 1 marks] Analysis– award one mark for a relevant explanation of how the tertiary sector business helps WA be successful [2 × 1 marks] Application – award two application marks for explaining in context how the tertiary sector business helps WA to be successful [2 × 2 marks] Answers are likely to include: • Bank • Insurance • Advertising agency • Transport services • Communication e.g. mobile phone networks, internet providers • IT services • Retailer / wholesaler e.g. furniture retailer • Training companies Indicative response: Transport services (k) that delivers furniture to customers (ap). This saves WA having to purchase its own vehicles to deliver tables and chairs (ap) and so saves WA the expense of delivery vehicles when they would not be used all the time (an). Possible application marks: Family owned ltd; small business; started 10 years ago; furniture; wood from sustainable forests; new fashionable designs each year; individually designed furniture produced; chairs / tables; reduced profit in 2018. There may be other examples in context that have not been included here. 2(b) Consider the following two ways WA could increase productivity. 12 Recommend which would be the best way to choose to increase profit. Justify your answer. Relevant points might include: Advantages Disadvantages Use computers • Less labour required • High cost of computers in – lower labour costs • Cost of redundancy manufacturing • Increased output – payments for workers and design at a faster pace • Disruption while new • Possibly improved computers are installed quality – less • Increased training costs mistakes from for workforce to use human error new equipment • Improved designs – • May need to recruit less waste workers with new skills producing new models Improving • Makes workers • Higher cost for training employees more efficient – • May need to be off-the- skills lower unit costs job training or may • Increased motivation cause interruption to as employees feel production of the valued products • Increased output • Workers may demand may be higher than higher wages as now increased wage more skilled costs – lower unit • Employees may then costs find new jobs elsewhere as they have more skills Knowledge / Analysis / Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified recommendation as to which would be the best way to increase productivity in order to increase profit compared to other way. 7–8 marks for some limited judgement shown in recommendation as to which would be the best way to increase productivity. Level 2 4–6 marks Detailed discussion of the advantages and/or disadvantages of each way to increase productivity. Level 1 1–3 marks Outline of the advantages and/or disadvantages of each way to increase productivity. Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Use of computers may lead to fewer workers required so saves wage costs. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Use of computers may lead to fewer workers required so saves wage costs and this reduces total costs so may help to increase profit. However, workers will need to be made redundant and this will cost money in redundancy payments. (L2) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a recommendation which would be the best way to increase productivity in order to increase profit. Award up to 2 additional marks for relevant application. Possible application marks: Family owned ltd company; small business; started 10 years ago; furniture; wood from sustainable forests; uses batch production to make furniture; individually designed furniture produced using job production; environmentally friendly business objective; reduced profit in 2018; $4000 wage cost; 20 workers; 10% above minimum wage; selling price $200 and $250; highly skilled production workers. There may be other examples in context that have not been included here.

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3 (a) Identify and explain how two stakeholder groups of WA are likely to be affected by the reduction in profit in 2018. Stakeholder group 1: ........................................................................................................ ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Stakeholder group 2: ........................................................................................................ ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the following three ways WA could use to increase employee motivation. Recommend which way WA should choose. Justify your answer. Introduce piece rate: ......................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Give shares in WA to employees: .................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Introduce job rotation: ....................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 3(a) Identify and explain how two stakeholder groups of WA are likely to be 8 affected by the reduction in profit in 2018. Knowledge – award one mark for identifying a relevant stakeholder group [2 × 1 marks] Analysis – award one mark for a relevant explanation how each stakeholder group will be affected [2 × 1 marks] Application – award two application marks for explaining in context how each stakeholder group will be affected [2 × 1 marks] Answers are likely to include: Shareholder / Directors / • Lower dividend likely to be paid – Owners / Family lower return on their investment • Need to change business objectives to try to increase profit again – may require further investment – changes to the way the company is operated Employees • Less likely to be given a wage increase OR accept workers and – less motivated managers as separate • May have to accept a reduction in stakeholders wage rates or longer hours for same pay Suppliers • Asked to reduce price of wood – less wood purchased • Slower to get paid for wood supplied – worse cash flow Accept other stakeholder groups e.g. customers, competitors, government, bank, local community. Indicative response: Supplier (k) that sells wood to WA to make the furniture (ap) may not be paid as quickly if the profit is lower (an). Supplier may have to lower the price of its wood to help WA reduce its costs (ap). Possible application marks: Family owned ltd company; small business; started 10 years ago; furniture; wood from sustainable forests; selling price $200 and $250 per item; environmentally friendly business objective; 2 brothers and a sister; 20 employees; 10% above minimum wage. There may be other examples in context that have not been included here. Note – Do NOT reward reduction in profit as application because this is in the question. 3(b) Consider the following three ways WA could use to increase employee 12 motivation. Recommend which way WA should choose. Justify your answer. Relevant points might include: Introduce piece • Taylor’s theory – money motivates rate • Increases pay – by rewards for producing a higher output However • Wage costs may increase • Quality might be reduced if rush to produce more output • Less likely to be applicable to office staff and so may not be fair Give shares to • Employees now receive payment from dividends WA employees • Increased rewards from higher output / profit • Maslow – increased sense of belonging However • Existing shareholders of this private limited company will lose some control • May lead to reduced dividends per share or less retained profit • Shares may not easily be sold (Ltd) – workers may prefer cash to shares Introduce job • Makes the work more interesting / less boring rotation • Change tasks performing regularly However • Increases training requirements as each worker currently only performs one task • Quality may be lower if less specialised in tasks • May mean sometimes a worker does a job not liked • May only be motivating in the short term until the worker gets used to the new tasks Knowledge / Analysis / Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified recommendation of which way to choose to increase employee motivation and why it is more important than the other ways. 7–8 marks for limited recommendation of which way it should choose to increase employee motivation. Level 2 4–6 marks Detailed discussion of each way to increase motivation Level 1 1–3 marks Outline of each way to increase motivation Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Job rotation makes the work more interesting. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Job rotation makes the work more interesting as the workers change round the jobs regularly and therefore are less likely to get bored. This increases the motivation of the worker but they are less specialised and therefore may not perform each task a well as if they only performed the one task so quality may be lower (L2). Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a recommendation which justifies which way should be chosen to increase employee motivation. Award up to 2 additional marks for relevant application. Possible application marks: Family owned ltd company; small business; started 10 years ago; furniture; uses batch production to make furniture; each skilled worker only performs one task; individually designed furniture produced using job production; environmentally friendly business objective; reduced profit in 2018; 10% above minimum wage; 20 workers; tables / chairs; paid an hourly wage rate. There may be other examples in context that have not been included here.

4 (a) Calculate: (i) The total cost per month of producing 100 items of furniture. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ [2] (ii) The average cost of 1 piece of furniture. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ [2] (iii) Explain how total cost and average cost will change if the output is increased to 200 items of furniture per month. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ [4] (b) Consider how the following three changes might affect WA. Which change is likely to have the biggest effect on WA? Justify your answer. Introduction of new cost to businesses of $50 per tonne for removing waste: ................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Increase in legal minimum wage by 5%: .......................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Increase in tax on incomes: .............................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Conclusion: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 4(a)(i) Calculate the total cost per month of producing 100 items of furniture. 2 Award 1 mark for correct costs and 1 mark for correct answer $10 000 + $1 200 + $800 + $4 000 (1) = $16 000 (1) Note – if answer is only $16 000 with no working then award 2 marks 4(a)(ii) Calculate the average cost of 1 piece of furniture. 2 Award 1 mark for correct figures used and 1 mark for correct answer $16 000 / 100 (1) = $160 per item of furniture (1) Note – If answer is only $160 with no working then award 2 marks 4(a)(iii) Explain how total cost and average cost will change if the output is 4 increased to 200 items of furniture per month. Award 1 mark per point: Total cost will increase due to increase in variable costs (1) – as more wood will need to be purchased (1) TC = $26 000 / increased by $10 000 (1) Average cost will fall (1) – as the fixed costs will not change (1) – which means the fixed costs are spread over a larger output. (1) AC = $130 per item of furniture / decreased by $30 (1) Total cost will increase whilst average cost will fall (1) (Apply OFR) Note – 4 marks can be awarded even if no figures are included. 4(b) Consider how the following three changes might affect WA. Which 12 change is likely to have the biggest effect on WA? Justify your answer. Relevant points might include: Introduction of new • Increased cost of removing waste – higher cost to businesses of prices – less demand for furniture – lower $50 per tonne for profit removing waste • Applies to all businesses so not less competitive – if reduce waste produced then may be more competitive Increase in legal • No effect as already paid 10% above minimum wage by 5% minimum wage • Increased wage costs – to keep pay differential – increased total cost – lower profit • Increased income – increased demand for furniture – higher sales and profit • May increase motivation if increase in wage rates for employees Increase in tax on • Lower incomes as pay after tax will be lower incomes – lower demand – lower sales of furniture • WA furniture is higher quality so may not have much effect on sales • Workers may demand higher wages to compensate for loss of disposable income Knowledge / Analysis / Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified conclusion as to which change will have the greatest effect on WA rather than the other two changes. 7–8 marks for limited justified conclusion as to which change will have the greatest effect on WA. Level 2 4–6 marks Discussion of the impact of the changes on WA. Level 1 1–3 marks Outline of impact of changes on WA. Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Increased amount to pay to get rid of waste will raise costs. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Increased amount to pay to get rid of waste will raise costs and WA may need to increase the price of its furniture. Higher prices may deter customers and so sales and possibly profit will fall. (L2 plus application for referring to furniture in the answer) Level 3 – For L3 to be awarded there needs to be at least two level 2 marks awarded and then a conclusion as to which change will have the biggest impact on WA. Award up to 2 additional marks for relevant application. Possible application marks: Family owned ltd company; small business; started 10 years ago; furniture; new fashionable designs each year; individually designed furniture produced using job production; selling price $200 and $250 per item; environmentally friendly business objective; reduced profit in 2018; tables / chairs; paid 10% above minimum wage; WA prices are higher than competitors. There may be other examples in context that have not been included here.

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