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

1 (a) Explain two ways TT could grow. Way 1: ............................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Way 2: ............................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider how TT might benefit from the following three economies of scale as it continues to grow. Which is likely to have the greatest effect on TT’s profit? Justify your answer. • Purchasing • Technical • Financial Purchasing: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Technical: .......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Financial: .......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Conclusion: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: Question Answer Marks 1(a) Explain two ways TT could grow. 8 Award 1 mark for each relevant way (maximum of two marks). Award a maximum of 3 additional marks for each explanation of the way TT could grow – one of which must be applied to this context. Relevant reasons might include: Internal growth such as:  TT grows its existing operations – often by using retained profits from its existing business – to set up a new factory abroad producing a new toy for children up to the age of 5  Develop new products – to increase sales  Entering new markets – e.g. produce products for a different age group  Diversification External growth such as:  TT takes over another toy manufacturer – this is horizontal integration where TT takes over a competitor – TT wants to expand into country Z and could take over a toy manufacturer already located in that country  Mergers  Vertical integration – takes over a supplier or retailer  Joint ventures  Licensing For example: Internal growth (1) as TT decides to expand by opening its own new factory (1). This could be in country Z where TT plans to expand sales (app). This is a less risky way to grow than taking over another business, even though it is quite slow if it has to use its own funds (1). Application could include: manufacture toys; toys/toys for under 5’s; older children/children; expanding into new markets abroad; existing economies of scale; toy shops; cost $10m; multinational company; specialist new equipment; flow production. 1(b) Consider how TT might benefit from the following three economies of 12 scale as it continues to grow. Which is likely to have the greatest effect on TT’s profit? Justify your answer.  Purchasing  Technical  Financial Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more economies of scale. 3 Well-justified conclusion. 9–12 Candidates discussing all three economies of scale in detail, in context and with a well-justified conclusion including why the alternative economies of scale were rejected should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one economy of scale. 2 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing two or more economies of scale in detail and applying them to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the economies of scale with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining all three economies of scale in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include:  Bulk buy components – discounts/cheaper prices for bulk purchases – reduces unit costs of components/lower Purchasing average cost – may be able to lower prices – becomes more competitive – increases sales of toys – revenue increases and reduced unit costs  Specialist machines can be used – specialisation easier to implement – easier to use in flow production – Technical speeding up the production process and becoming more efficient – unit costs lower as output of toys per worker is higher  Raise capital more cheaply – lower risk of not repaying debts – banks may offer lower interest rates – lower Financial costs of borrowing for the expansion of the large business than if it was a smaller business  Purchasing economy of scale will have the greatest effect on TTs profit as it produces toys on a large scale so discounts on components will reduce unit costs by a significant amount, increasing gross profit and profit. TT has already benefited from technical economies when it purchased specialist equipment for its flow production line and therefore there may be few additional increases in efficiency and if TT uses internal sources of finance for expansion then financial economies will not benefit TT at all.  Technical economy of scale will have the greatest effect as this will enable TT to expand flow production further and more technologically advanced machines can be purchased, speeding up the production process and Conclusion increasing productivity by a high amount. There may be significant savings on unit costs, which will allow TT to be more competitive in the new market in country Z. Lower unit costs and increased revenue will probably lead to higher profit.  Financial economy of scale will have the greatest effect as TT plans to expand and will probably need to raise some of the capital by borrowing. This will keep down the costs of expanding, as $10m may need to be borrowed if TT takes over the other company or builds a factory in country Z. TT is already producing on a large scale so the increased benefits from the other economies may be limited leaving financial economies giving the biggest increase in profit.

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

2 (a) Explain two benefits to TT of using lean production methods. Benefit 1: .......................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Benefit 2: .......................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Using Appendix 2 and other information, consider TT’s financial position. Do you think TT is in a good financial position to expand? Justify your answer using suitable calculations. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 2(a) Explain two benefits to TT of using lean production methods. 8 Award 1 mark for each benefit (maximum of two marks). Award a maximum of 3 additional marks for each explanation of the benefit of using lean production methods – one of which must be applied to this context. Relevant benefits might include  Employees might be able to offer ways for small continuous improvements in the factory – may improve efficiency – reduce unit costs  Less inventory / less storage required for components – as JIT means components only ordered when required for production – reduces cost of storage of inventory / reduces amount of working capital required / may improve cash flow  Production of toys is quicker – as Kaizen means the factory layout is more effective – time is not wasted between manufacturing tasks  Defects/waste could be reduced or eliminated – reduces repair/returns cost – customer happy with quality – good reputation  The equipment used for flow production could be used in a better way – increased efficiency – lower unit costs  Some processes may be removed – speeds up the production of toys – increases productivity  Improved health and safety of employees as motion between jobs may be reduced – less time off work due to injury – more output produced For example: There is less storage required for components (1). This is because just-in-time inventory control is used (app) means the components to manufacture the products are only ordered when required for production (1). This will reduce the warehouse space required and reduce costs (1). Application could include: manufacture toys; toys/toys for under 5’s; older children/children; expanding into new markets abroad; existing economies of scale; Kaizen; JIT; specialist new equipment; flow production. 2(b) Using Appendix 2 and other information, consider TT’s financial 12 position. Do you think TT is in a good financial position to expand? Justify your answer using suitable calculations. Level Description Marks 3 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of whether TT is in a good financial position. 9–12 Well-justified conclusion. Candidates discussing in detail whether TT is in a good financial position, in context and with a well-justified conclusion including why TT may not be in a good financial position should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of some arguments around whether TT is in a good financial position. 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing in detail whether TT is in a good financial position and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the financial position of TT with little/no explanation. 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the financial position of TT in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include:  Accounts receivable has increased by $3m  The amount of cash held has increased by $2m  Amount of trade credit has increased by $1m  TT no longer has an overdraft Level 1  TT has taken out another bank loan for $5m statements  TT has current assets of $15m in 2022  TT has current liabilities of $5m in 2022  Current assets have increased by $5m  Current liabilities have remained the same  Accounts receivable has increased by $3m – as more customers are allowed credit or existing customers are allowed a longer period to pay  The current ratio in 2022 is 3 / the current ratio has increased by 1  This is high as 2 would be more acceptable and indicates Level 2 that TT may have too many of its assets in a liquid form statements  The acid test ratio in 2022 is 2 / the acid test ratio has also increased by 1  The acid test ratio is high as a ratio of 1 would be acceptable and indicates that assets are being held in non-income earning form  The liquidity seems to be sufficient to encourage banks to increase the loans to pay for the $10m expansion  Yes, TT is in a good financial position to expand as it has increased both liquidity ratios between 2021 and 2022. It is in a good position to be able to expand and fund some of the $10m for expansion out of its own funds. It does not look likely to have a liquidity problem as it expands.  No, TT may not be in a good financial position to expand as it appears to have too much liquidity as the liquidity Conclusion ratios could be considered to be too high. It has also increased its current liabilities by increasing its accounts payable and doubled its bank loans. These loans will have to be doubled again if TT chooses to finance the expansion from external sources. However, as TT is planning to expand then this may be a good financial position to fund this expansion with some internal sources of finance.

3 (a) Explain one way the information in each chart in Appendix 1 might be useful to TT. Chart 1: ............................................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Chart 2: ............................................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Chart 3: ............................................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Chart 4: ............................................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Using Appendix 3 and other information, consider the three applicants for the job of Marketing Manager for country Z. Who is the best applicant for the job? Justify your answer. Labiba: .............................................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Shahin: ............................................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Samihah: .......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 3(a) Explain one way the information in each chart in Appendix 1 might be 8 useful to TT. 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:  Chart 1 – Can estimate the size of the market – as the number of under 5’s in the population is 20m which is quite a large market  Chart 2 – Higher unemployment increases the availability of potential employees / lower consumer incomes – therefore easier to recruit workers for the new factory / consumers may not be willing to pay a higher price for toys  Chart 3 – Helps to choose the most suitable channel of distribution in the new country – as the majority of consumers buy their products in specialist toy shops  Chart 4 – Can know how much competition there is in the market – there are only 3 main companies so easier to check on competitors’ prices For example: TT can estimate the size of the market (1) as the research shows that there are 20 million children under 5 in country Z (app). Application can come from information in the charts in Appendix 1 or elsewhere in the case study. 3(b) Using Appendix 3 and other information, consider the three applicants 12 for the job of Marketing Manager for country Z. Who is the best applicant for the job? Justify your answer. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more applicants. 3 9–12 Well-justified recommendation. Candidates discussing all three applicants in detail, in context and with a well-justified recommendation including why the alternative applicants were rejected should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one applicant. 2 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing two or more applicants in detail and applying this to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the applicants with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining all three applicants in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: Benefits Possible drawbacks  Well qualified so has  Experience is as an the capacity to learn assistant so she may new skills not have the  Has experience of the necessary experience job as an Assistant to run a department Marketing Manager  Labiba may find it so will understand difficult to settle in what the job involves country Z  Speaking 2  It may cause jealousy languages will be from other employees suitable to work in at TT if Labiba is another country promoted  Already works for TT and so will Labiba understand the toy products and the way TT works  TT trains its staff and so will probably be well trained for existing job  Other TT employees may be more motivated as they see the promotional opportunities within the business – may be less likely to leave  The best qualified of  The experience has all the applicants with not been in a toy a degree in company and business therefore may not management and understand TT’s therefore might be a market quick learner  No experience of  Already experienced working in large as a marketing company as has only Shahin manager and will been working in a understand what the small food company role involves  Is already based in country Z and so will not need to move there – already understands the culture of country Z 3(b) Benefits Possible drawbacks  Speaks more  Lowest qualified of languages than the the three applicants other applicants –  Works for a more likely to be able competitor and may to speak to have very different employees in country working practices – Z may not fit in well to  The most TT experienced as has  Samihah may find it worked in a large difficult to settle in Samihah toy company so will country Z be more familiar with the requirements of a toy company  Works for a competitor of TT and may bring additional ideas to TT to improve the marketing of the new toy  Labiba is the best applicant as she already works for TT and TT knows how well Labiba works. Her boss can give an accurate assessment of Labiba’s capabilities, which is likely to be more accurate than outside references. Labiba already understands the toy market and will be better than Shahin who only has experience of a small company. Samihah may not fit into the culture of TT as the competitor may have very different ways of operating.  Shahin is the best applicant as she is already a Recommendation marketing manager and is the only applicant already based in country Z. Shahin will have the best understanding of the market in country Z even though their experience is with food and Shahin does not need to move to another country unlike the other two applicants.  Samihah is the best applicant as she has the most experience of the three, as is already a marketing manager and understands what the role involves, unlike Labiba. Samihah’s experience has been in a large toy company similar to TT and is likely to bring new ideas to the marketing of the new toy.

4 (a) Explain four effects of training on a business. Effect 1: ............................................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Effect 2: ............................................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Effect 3: ............................................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Effect 4: ............................................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the benefits and drawbacks for country Z if TT builds a factory there. Do you think the government of country Z should allow TT to build this factory? Justify your answer. Benefits for country Z: ...................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Drawbacks for country Z: .................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Conclusion: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 4(a) Explain four effects of training on a business. 8 Award 1 mark for each relevant reason (maximum of four). Award a maximum of 1 additional mark for each explanation. There are no application marks available for this question. Relevant effects might include:  Greater motivation of employees – work harder to produce output  More flexible workforce – employees can be moved between tasks as necessary  Increased productivity/efficiency – lower unit costs  Quality of the product may be improved – greater customer satisfaction / improved brand image / improved reputation  Employees able to use new technology – easier to introduce new equipment to speed up production  Improves customer service – if trained how to answer customer queries  Fewer mistakes as employees are trained – less waste/less repair costs  Workforce is more knowledgeable/skilled – able to complete tasks more effectively  Output lost whilst training employees – higher costs  Employees may expect higher pay increasing wage costs as a result of being trained – lower motivation if pay is not increased  Training costs are incurred by the business – higher costs for the business may lead to lower profit initially  Employees may leave the business after they have been trained – therefore increases recruitment costs For example: The business will have a more flexible workforce (1) this means when an employee is absent another employee can be moved to cover their task without production being halted (1). 4(b) Consider the benefits and drawbacks for country Z if TT builds a factory 12 there. Do you think the government of country Z should allow TT to build this factory? Justify your answer. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both the benefits and drawbacks for country Z. 3 9–12 Well-justified conclusion. Candidates discussing in detail both the benefits and drawbacks for country Z, in context and with a well- justified conclusion including why the alternative benefits or drawbacks were rejected should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one benefit or drawback for country Z. 2 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing in detail both benefits and drawbacks for country Z and applying these to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the benefits and/or drawbacks with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the benefits and drawbacks for country Z in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: Benefits Drawbacks  It creates jobs – lowering  The jobs created may be unemployment as it has been unskilled and low paid rising in country Z – raising  There may be reduced sales for incomes in the country and the three local toy businesses helping to increase economic as their costs may be higher growth/GDP  Profits may be sent back to  Increased investment – the new country Y – loss of government factory will create jobs to build it tax revenue in country Z and new infrastructure may be  Scarce resources may be used built also benefiting local up quickly by the multinational businesses business leaving few non-  TT could export from county Z – renewable resources remaining improving its balance of when the multinational has left payments – earns foreign  The multinational business currency for country Z to could have a lot of political purchase more imports influence and gain concessions  TT may pay taxes to the such as grants that could have government – increases tax been spent on local businesses revenue to provide more  Increased noise and air services for its population of 200 pollution when the factory is million being built – may cause  Increased consumer choice – damage to the environment and more competition and more health of the local population toys available to buy and the new toy is unique Conclusion:  Allowing TT to locate in the country has more benefits for country Z than it has drawbacks. The jobs created when unemployment is increasing will help the country develop and may benefit from a technology transfer from TT to other businesses in the country. This may increase their efficiency and improve their productivity – so many other local businesses may benefit which outweighs the drawbacks to the three local toy companies that may not be able to compete with TT.  The government in country Z should not allow TT to build a factory there as it may not gain tax revenue if the government of country Z has to make concessions to attract TT to locate there. As TT’s production is quite automated few jobs will be created and these may not increase incomes much so there will be little gain to the economy.

More questions on Business and the international economy