Cambridge IGCSE Business Studies (9-1) 0986 — 2022 May/June Paper 2 · Variant 1

1 (a) Explain four reasons why governments might support business start-ups. Reason 1: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reason 2: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reason 3: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reason 4: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the benefits to Yasin of the two sections of his business plan shown in Appendix 1. Which section do you think helped him most when starting up his business? Justify your answer. Market research: ............................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Resources: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Conclusion: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: Question Answer Marks 1(a) Explain four reasons why governments might support business start- 8 ups. Award 1 mark for each relevant reason (maximum of four). Award a maximum of 1 additional mark for each explanation of the reason. There are no application marks available for this question. Relevant reasons might include:  To reduce unemployment – new businesses create jobs and therefore help to reduce unemployment in the country / fewer welfare benefits to pay  To increase competition – new businesses will provide more choice for consumers and therefore will provide more competition for existing businesses / may keep prices lower and quality higher  To provide/have a wider variety of goods and services available – so there will be a wider choice for consumers  To increase output / improve standard of living – new businesses will produce more goods and services in the economy/increase in GDP  To benefit society – new start-ups may support social enterprises and therefore provide benefits other than just creating jobs  They may grow into larger businesses in the future – successful larger businesses started small, so it is worth supporting businesses to get started  Earns taxation – the business will pay tax if profitable and this will be a source of revenue for the government which they can then use for providing public services.  To motivate/encourage entrepreneurs – government support may reduce the risk of failure For example: To reduce unemployment (1) – as new start-up businesses often need to hire employees and these people may have been unemployed (1). 1(b) Consider the benefits to Yasin of the two sections of his business plan 12 shown in Appendix 1. Which section do you think helped him most when starting up his business? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both sections. Well-justified conclusion. Candidates discussing both sections in detail, in context and with a well-justified conclusion including why the alternative section was rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one section. Judgement with some justification / some evaluation of choice made. Candidates discussing at least one section in detail and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the sections with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both sections in context should be rewarded with the top marks in the band. 0 No Creditable Response 0 1(b) Relevant points might include: Market  Able to identify the market for eating bread as being research targeted at all age groups  Market research shows that starting to produce cakes is likely to be successful as 70% of respondents want to buy cakes  Use of local ingredients could be emphasised in advertising if MB changes production techniques and suppliers Resources  To be able to calculate how much start-up capital is needed by Yasin to buy the bakery equipment  It is a starting point for Yasin to make the necessary purchases to get the bakery started  helps him to more effectively plan for the opening of the bakery  Helpful to identify the costs for Yasin to set up the bakery – to see if he needs a bank loan Conclusion Justification might include:  Market research is the most important as this shows that the bakery has the demand for it to be successful. Without a demand for bread the business will fail. However, a lack of experience may mean the list is not accurate or complete and Yasin may need a lot more capital than he thinks.  Resources is the most important as this helped Yasin to plan what items of equipment are required for the bakery and how much all these items will cost. This is important for Yasin to work out how much start-up capital is required and make sure he has sufficient finance to get started successfully or arrange to raise additional finance if necessary. However, the sample was small and therefore the results may not be accurate so Yasin may make bad decisions when starting the bakery.

More questions on Enterprise, business growth and size

2 (a) Explain one benefit and one limitation to Yasin of using a break-even chart. Benefit: ............................................................................................................................. ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Limitation: ......................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the following two ways MB could achieve lean production. Which is the best way for Yasin to choose? Justify your answer. • Kaizen. • Just-in-time inventory control. Kaizen: .............................................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Just-in-time inventory control: ........................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 2(a) Explain one benefit and one limitation to Yasin of using a break-even 8 chart. Award 1 mark for each benefit/limitation (maximum of two marks). Award a maximum of 3 additional marks for each explanation of the benefit/limitation of using the break-even chart– one of which must be applied to this context. Relevant benefits might include:  Shows break-even output – so Yasin knows how much bread he needs to sell to break even – this will allow him to plan the bakery and equipment required – to ensure at least the minimum quantity of bread is produced and sold  Shows the margin of safety – this is the amount of bread Yasin predicts will be sold above the break-even output – it provides a target for sales of bread – so that MB makes a profit  Helps in decision making – so that Yasin knows the minimum target amount of bread to produce – he can see if he needs to increase the price to break-even more quickly – or if lower ingredient costs is required by MB to make a profit  Shows the area of profit or loss – and therefore what the output needs to be to cover all costs – if the market research shown in the business plan does not indicate that sufficient sales will be made to make a profit – then Yasin may need to think again about his plans for the bakery. Relevant limitations might include:  A break-even chart assumes all the output will be sold/provides an estimate of sales – but MB may not sell all the bread in the day – some may be wasted and the costs of producing these will not be taken into account – so at a specific output the business may not make a profit but may make a loss  The break-even chart is drawn on the assumption of straight lines – but when the output is higher Yasin may be able to bulk buy ingredients – this may mean he can receive discounts so the variable cost per unit may not be constant  Fixed costs/variable costs may change – if the scale of production changes as the bakery expands – the rent or depreciation of equipment will change/ingredient costs may change  Need a separate break-even chart for each product/need a new chart if prices are changed – relevant if going to make cakes For example: The chart shows the break-even output for MB (1) so Yasin will know how many units of bread he will need to sell each month to break even (app). This will allow him to plan for the equipment required (1) so he can ensure the bakery sells the minimum amount of bread to cover all the costs and not make a loss (1). Application could include: bread; bakery; cakes; data presented in Appendix 2; fixed costs will change if either of the options in Appendix 2 go ahead. 2(b) Consider the following two ways MB could achieve lean production. 12 Which is the best way for Yasin to choose? Justify your answer.  Kaizen.  Just-in-time inventory control. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both ways. Well-justified recommendation. Candidates discussing both ways in detail, in context and with a well-justified recommendation including why the alternative way was rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one way. Judgement with some justification / some evaluation of choice made. Candidates discussing at least one way in detail and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the ways with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both ways in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: Advantages Disadvantages Kaizen  Employees might be  The 2 employees able to offer may not be suggestions about willing/able to make how small continuous suggestions for changes may improve improvements the efficiency of the  The employees may bakery have reduced hours if  Helps eliminate waste efficiency is improved – time is not wasted which may make between tasks / them reluctant to help eliminating waste of  It will take time and/or space / eliminating money to reorganise wasted resources the bakery to improve  As there is less time the flow of products between the different through the different processes of baking processes bread – it can lead to  Yasin may not have increases in the skills and productivity/efficiency knowledge to do this  There should be less effectively – may work-in-progress – as have to pay someone the flow through and else to plan the layout of the bakery is bakery layout – more efficient, and increased costs for a the amount of part- small business in the finished bakery short-term products should be  There may be a limit reduced to the improvements MB can make using Kaizen 2(b) Advantages Disadvantages Just-in-time  Reduces the costs of  If there is an increase inventory control holding inventory of in demand for certain ingredients such as types of bread, then flour there may not be  Less working capital sufficient ingredients required to pay for to meet the increased inventory demand  Less storage space  Any delays in orders required – reduces being delivered may costs or makes more disrupt production effective use of the and may stop the bakery production production of some area items  Bread and cakes will  It relies on a good be fresh due to fresh relationship between ingredients – helps Yasin and his ensure customer suppliers satisfaction  Relies on Yasin  No excess ingredients making the orders purchased – so does quickly when needed not go out-of- date/does not go stale Recommendation Justification might include:  Kaizen is the most effective because it could save time between the different tasks performed in the bakery. This may speed up baking and allow more output to be produced in a shorter time period therefore increasing the output of bread and possibly increasing revenue or reducing costs as more efficient. JIT is less important as the bread is baked each day and ingredients will need to be purchased regularly anyway.  Less working capital is required for JIT, so this is the best option for a small bakery as Yasin is likely to have limited funds to run the new business. The bread is made each day so fresh ingredients are required, and this makes JIT the most suitable because a small bakery may have limited opportunities to implement Kaizen ideas.

More questions on Achieving quality production

3 (a) Explain four ways Yasin can advertise MB’s products. Way 1: ............................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Way 2: ............................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Way 3: ............................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Way 4: ............................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the two options outlined in Appendix 2. Which option should Yasin choose? Justify your answer using appropriate calculations. Option 1: ........................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Option 2: ........................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... 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Mark scheme: 3(a) Explain four ways Yasin can advertise MB’s products. 8 Award 1 mark for each appropriate way (maximum of four). Award a maximum of 1 additional mark for each explanation in context. Relevant ways might include:  Local radio – as the bakery attracts only local people so many potential customers may hear the advert  Local newspaper/magazine – as a voucher could be included for money off bread  Posters – in the window of the bakery shop to attract customers passing by  Leaflets/fliers – can be handed out in the local town centre so that potential customers will know the location of the shop as it is new  Social media – emphasise that he uses imported ingredients  Packaging/carrier bags – emphasise the ethical image of the business  Website/online/internet – so if consumers are searching for local shops that sell bread so it can give information of the products and location of the shop  Billboards – can be placed in busy areas of the local town directing them to the bakery location  Sponsorship – local sports team may have shirts with the MB name to raise awareness of the bakery  Word-of-mouth – existing customers recommend good bread/tasty bread to their friends and family For example: Leaflets (1) can be handed out in the local town centre and to raise awareness of where the bakery shop is located (app). Application could include: bread; bakery; cakes; bakery shop; uses imported ingredients; ethical image; ingredients; fresh products; sustainable packaging; consumed by all age groups. 3(b) Consider the two options outlined in Appendix 2. Which option should 12 Yasin choose? Justify your answer using appropriate calculations. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both options. Well-justified recommendation. Candidates discussing both options in detail, in context and with a well-justified recommendation including why the alternative option was rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one option. Judgement with some justification / some evaluation of choice made. Candidates discussing at least one option in detail and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the options with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both options in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: Option 1 – small  Sales are higher by 3900 per month (L1) cupcakes  Total cost is $5000 per month (L1)  Total revenue $8000 per month (L1)  Profit per month is $ 3000, $1000 more than Option 2 (L2)  Break-even output 2000 cupcakes a month (L2)  Forecast margin of safety is 2000 per month (L2) Option 2 – large  Total revenue $6000 (L1) birthday cakes  Total cost is $4000 per month (L1)  Profit per month is $2000 (L2)  Break-even output 60 large birthday cakes a month (L2)  Forecast margin of safety is 40 per month (L2) Recommendation Justification might include:  Option 1 is the better one to choose as it has the higher profit by $1000 than Option 2 and a higher margin of safety (as a proportion of sales). Option 2 may have a higher predicted growth of sales, but this is only a forecast and may not happen. It is better to choose the more certain higher profit now than the possibility of higher sales later.  Option 2 is better than Option 1 as the gross profit margin is 8.33% higher. However, the future growth of sales is forecast to be higher and may lead to higher profits in the future.

More questions on Costs, scale of production and break-even analysis

4 (a) Explain one advantage and one disadvantage of Yasin using a democratic leadership style. Advantage: ....................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Disadvantage: ................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the following three ways Yasin could improve the ethical image of MB. Which way would be most effective? Justify your answer. • Buying all ingredients from local suppliers. • Using only environmentally friendly packaging. • Increasing wage rates to 20% above the legal minimum wage. Buying all ingredients from local suppliers: ...................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Using only environmentally friendly packaging: ............................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Increasing wage rates to 20% above the legal minimum wage: ...................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Conclusion: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 4(a) Explain one advantage and one disadvantage of Yasin using a 8 democratic leadership style. 1 mark for each advantage/disadvantage identified (maximum 2 marks). Award a maximum of 3 additional marks for each explanation of an advantage/disadvantage of Yasin using a democratic leadership style – one of which must be applied to this context. Relevant answers might include: Advantages:  Better decisions – as employees are consulted – may offer additional ideas from own experience of doing the job  Motivating for employees – asked to offer opinions before decisions are made – feel more trusted/valued – less likely to leave/lower labour turnover  Employees work better due to their sense of belonging/builds a relationship – more productive/positive Disadvantages:  Takes time to consult employees – Yasin and the employees could be more productive doing other jobs – less productive/less output produced  Unpopular decisions may be difficult to make – such as making employees redundant – may be less effective if employees are asked for their opinions as the decision may affect them directly – therefore opinions may be biased  Employees may not have the experience to make suitable contributions – unable to make helpful suggestions  Suggestions made by employees may be different to the objectives of management – may lead to conflict/confusion For example: Better decisions may be made by Yasin (1) because employees are asked for their opinions before decisions are made (1). Yasin only employs 3 people (app) so it will be easier for them to offer additional ideas from their own experience of doing the job (1). Application could include: bakery; 3 employees; work five days a week: paid legal minimum wage: produce bread; Yasin needs to keep the business competitive; introduction of cakes; changing suppliers; ethical image. 4(b) Consider the following three ways Yasin could improve the ethical 12 image of MB. Which way would be most effective? Justify your answer.  Buying all ingredients from local suppliers.  Using only environmentally friendly packaging.  Increasing wage rates to 20% above the legal minimum wage. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of two or more ways. Well-justified conclusion. Candidates discussing all three ways in detail, in context and with a well-justified conclusion including why the alternative ways were rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one way. Judgement with some justification / some evaluation of choice made. Candidates discussing two or more ways in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the ways with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining all three ways in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: Advantages Disadvantages Buying all  Ingredients are  Costs of ingredients ingredients from obtained with less are likely to be higher local suppliers pollution from than low-cost imports transportation as they and may have to will no longer be charge higher prices imported  May not be able to  Support local purchase all the community as flour range of ingredients produced by local you want – may businesses restrict the range of  Delivery is cheaper / bread produced quicker – less impact on the environment  Popular with customers – research showed 85% wanted this  Can compete with local competitors – they already use local suppliers Using only  Improves the brand  May reduce the environmentally image for the bakery quality of the bakery friendly packaging – more attractive to products if the consumers who are packaging does not environmentally protect the bread as aware – target a well different market  Takes time to source segment the environmentally  Will not be affected if friendly packaging – new environmental less time for Yasin to laws demand carry out other tasks sustainable  Likely to cost more packaging than current  Reliable supplier packaging – not all available (appendix 3) customers will be  Less chance of willing to pay higher pressure group prices activity 4(b) Advantages Disadvantages Increasing wage  Employees more  Wage costs will be rates to 20% motivated – Taylor’s higher – increasing above the legal motivation theory – total costs – possibly minimum wage workers treated lower profit well/feel appreciated  If other bakeries pay  Lower labour turnover higher wage rates, – as other employers then MB may not may be less ethical have any advantage  Easier to recruit new and it may not employees – as motivate employees attracted by higher  The higher wage rates of pay by a policy may not be good employer known in the local community hence little effect on reputation Recommendation Justification might include:  Buying from local suppliers is best because it supports local businesses, and this will make the bakery popular with local people. The business is small and relies on local customers and local people in the town may have relatives running other local businesses, improving MBs image and reputation. Paying higher wages may not be known by customers and therefore may not help to improve MB’s ethical image and packaging may just be thrown away by customers who may not take much notice of what is used for packaging as they will be more interested in the product.  Having environmentally friendly packaging is most important even if the costs are slightly higher for the packaging as this should ensure the bakery packaging is sustainable which is a good marketing point which may be popular with many potential customers. Buying from local suppliers may not be possible if the range of ingredients isn’t wide enough or increasing the wage may increase costs too much for MB to remain competitive.  Paying above the minimum wage will make the bakery a better place to work for the 3 employees and will make them less likely to leave. They will also tell their family and friends about the bakery, and this will improve the image of the bakery therefore attracting local people to buy their bread from BM.

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