Cambridge IGCSE Business Studies (9-1) 0986 — 2023 May/June Paper 2 · Variant 1

1 (a) Explain four barriers to communication for a business. Barrier 1: ........................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Barrier 2: ........................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Barrier 3: ........................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Barrier 4: ........................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the following two ways VP can purchase its inventory. Which way should it use? Justify your answer. • Head Office purchases the inventory for all the restaurants. • Restaurant Managers purchase their own inventory from local suppliers. Head Office purchases the inventory for all the restaurants: ........................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Restaurant Managers purchase their own inventory from local suppliers: ....................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: Question Answer Marks 1(a) Explain four barriers to communication for a business. 8 One mark for each barrier (max 4). Award a maximum of one additional mark for each explanation of the barrier. There are no application marks available. Reasons could include:  Problems with the sender – the language used is not clear/use of jargon or technical terms so do not understand instructions  The message is too long/too much detail is included in the message – so the main meaning of the message may be lost in the detail  Problems with the medium/method – the wrong medium is used such as putting an urgent message on a noticeboard so may not be seen immediately  Computer failure/internet connection/technology fails – the message may not be received  No feedback is given – so the sender is unaware the message has not been received  Problems with the receiver – if a meeting is used and it goes on a long time then the receiver may stop listening  The channel/chain of command may be too long – too many people through which the message is sent it may be distorted  Language differences – hinder understanding of the message For example: Problems with the sender (1) they may use language that includes jargon or technical terms so do not understand instructions (1). 1(b) Consider the following two ways VP can purchase its inventory. Which 12 way should it use? Justify your answer.  Head Office purchases the inventory for all the restaurants.  Restaurant Managers purchase their own inventory from local suppliers. Level Description Marks 3 Sound application of knowledge and understanding 9–12 of 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 is rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of at least one way. Judgement with some justification/some evaluation of choices 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 1–4 of relevant business concepts. Limited ability to discuss the ways with little/no explanation. Simple judgement with limited justification/limited evaluation of choices made. Candidates outlining both ways in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include:  Able to make bulk purchases – discounts received – lowering variable costs/lower unit cost of food ingredients - possibly reducing prices/increasing profit  Easier to standardise the meals/control Head office quantity and quality of ingredients in purchases the different restaurants as all the inventory come inventory for all the from the same food suppliers - maintains restaurants reputation for good quality fast food  Increased transport costs for food ingredients to be taken to each fast-food restaurant Warehouse storage is required for inventory before it is sent out to each restaurant – increases costs  Managers can order different ingredients for meals to meet local tastes – increases demand/improved competitiveness – increases revenue  Local suppliers can deliver more frequently and quickly – ensures ingredients will be fresh – improves reputation of the restaurants  Managers may feel more motivated/trusted – Restaurant if allowed to make some decisions and order Managers purchase their own ingredients their own inventory  May be unable to meet sudden increase in from local suppliers demand for specific meals – if ingredients are not available – may lose customers as disappointed – lose reputation/customers do not return  Restaurant Managers are very busy - so may not have the time to order ingredients  Some ingredients may not be available locally to each restaurant - limiting the availability of the full menu in some restaurants 1(b) Justification might include:  All inventory is purchased by head office is the best way for VP to choose as this will allow considerable cost savings due to purchasing economies of scale. This will allow VP to keep prices low and to be more competitive with other similar restaurants, possibly increasing revenue. Ordering only from local suppliers may make it difficult to Recommendation meet customer demand as food ingredients may run out if local suppliers are small.  Each Restaurant Manager purchases their own inventory is the best way to choose because each restaurant can meet local demand, and this will attract more customers leading to higher revenue. Also the costs of storage are lower as smaller quantities can be purchased so profit from selling fast-food will be higher.

More questions on Production of goods and services

2 (a) Explain two advantages and two disadvantages of VP’s Restaurant Managers delegating tasks to their Assistant Managers. Advantage 1: .................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Advantage 2: .................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Disadvantage 1: ................................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Disadvantage 2: ................................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Using Appendix 2 and other information, consider the two countries VP could choose to locate its new restaurants. Which country should VP choose? Justify your answer. Country A: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Country B: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 2(a) Explain two advantages and two disadvantages of VP’s Restaurant 8 Managers delegating tasks to their Assistant Managers. One mark for each advantage/disadvantage (max 2 advantages/max 2 disadvantages). Award a maximum of one additional mark for each explanation of the advantage/disadvantage in the context of VP. Advantages could include:  Restaurant Managers cannot carry out every job themselves/reduce workload – they can then focus on the most important tasks at the fast- food restaurant and make better decisions  Restaurant Managers are less likely to make mistakes – as they can focus on specific tasks such as marketing new menus  Gives the Restaurant Managers time to assess employees performance below them in the hierarchy – they can then identify where employees need more support/training in developing/cooking new recipes  May increase motivation/feel more trusted for Assistant Managers – improved speed of serving fast-food  Assistant Managers may develop new skills Disadvantages could include:  Restaurant Managers could lose some control over subordinates – mistakes may be made leading to worse reputation if food is served longer than 5 minutes after ordering  Restaurant Managers may be reluctant to give up some control – if Assistant Managers do a good job carrying out the delegated tasks such as ordering new ingredients for the meals  The Assistant Manager may not have the skills to carry out the tasks that have been delegated to them/may need additional training – may lead to poor decisions being made such as unskilled chefs being employed at the restaurant  Assistant Managers may not like having tasks delegated to them/feel overloaded with work by Restaurant Managers For example: Restaurant Managers can focus on their most important tasks (1) which will help them to make better decisions for the fast-food restaurants (app). Application could include: fast food; restaurant; vegetarians; meals; public limited company; food outlets across the country; diners; menus; recipes; cooking; serving; ingredients; 50 employees; receive a meal in less than 5 minutes; service is the fastest possible. 2(b) Using Appendix 2 and other information, consider the two countries VP 12 could choose to locate its new restaurants. Which country should VP choose? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of both countries Well-justified recommendation. Candidates discussing both countries in detail, in context and with well-justified recommendation including why the alternative country is rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of at least one country. Judgement with some justification / some evaluation of choices made. Candidates discussing at least one country 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 1–4 of relevant business concepts. Limited ability to discuss the countries with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining both countries in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: Benefits Drawbacks  Gross profit is $14,  There are many and Country B is competitors so $8 demand may be  Highest price per lower – may have meal at $20 – to reduce price to possibly highest attract customers – revenue if demand possibly reducing remains high revenue  Many competitors  May have to spend may indicate that more on marketing there is high as there are many demand for fast- competitors in the food restaurants market in order to enter the new market abroad – Country A increasing costs  Higher wage costs at twice the cost of Country B – may lead to higher costs overall  Harder to recruit new workers as unemployment is low – may have to offer more fringe benefits to attract employees from their many competitors 2(b)  Lowest variable  Lower gross profit cost per meal at between price of $2 rather than $6 $10 and costs of in country A – $2 = $8, whereas it makes it easier to is $14 in country A charge the lowest  Few competitors price of $10 per may indicate that meal demand for  High vegetarian fast- unemployment food in country B makes it easier to is low – VP needs recruit new to spend on market employees for the research to be sure restaurants – there is a market in more likely to country B – remain with VP as investment could few alternative be wasted if there Country B employment is not a sufficient opportunities in demand to make country B – the expansion lowering successful recruitment costs/training costs in the future  Lowest wage costs at $5 per hour – reducing total labour costs  Low price at $10 per meal may attract many customers – possibly increasing revenue Justification may include:  VP should choose country A as it can charge the highest price of $20 per meal which may lead to higher revenue and costs are likely to be lower as variable costs are lower at $6 which gives a higher gross profit, so after expenses have been paid, it may lead to Recommendation higher profit. Country B should not be chosen because it has a lower price per meal and unemployment is high and there may be lower demand.  VP should choose country B as it has the lowest wage costs, and it will be easy to recruit new employees as there is high unemployment there.

More questions on Location decisions

3 (a) Explain two possible reasons why VP wants to expand. Reason 1: ......................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reason 2: ......................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the benefits and limitations of the following two ways VP can enter a new market in another country. Which way should VP choose? Justify your answer. • Joint venture • Franchising Joint venture: .................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Franchising: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 3(a) Explain two possible reasons why VP wants to expand. 8 One mark for each reason (max 2). Award a maximum of three additional marks for each explanation of the reason why VP wants to expand, one of which must be in context. Answers might include:  To gain higher profits for the owners – as expansion will lead to increased sales in new markets abroad – leading to increased revenue  To lower average/unit costs – gain from economies of scale – such as bulk buying of food ingredients – a discount will be received from bulk purchases  To gain a larger share of the market – may produce a stronger brand image – might result in greater customer loyalty  To gain more status and prestige for the owners – from the company being more well known in country Z – may be listed on stock exchanges in other countries  To gain access to new markets/diversification – this would reduce/spread risk For example: To gain higher profits for the owners (1) because expansion is likely to increase revenue, (1) as VP will sell its products in more markets (1). The higher profits should allow the shareholders of VP to be paid higher dividends (app). Application could include: fast food; restaurant; vegetarians; meals; food outlets across the country; diners; shareholders/public limited company; ingredients. 3(b) Consider the benefits and limitations of the following two ways VP can 12 enter a new market in another country. Which way should VP choose? Justify your answer. • Joint venture • Franchising Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of two ways. Well-justified conclusion. Candidates discussing both ways in detail, in context and with well-justified conclusion including why the alternative way is 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 choices made. Candidates discussing one or more ways 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 choices made. Candidates outlining both ways in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: Advantages Disadvantages  VP will share the  It will take time and risks and costs of effort to find the right setting up the fast- partner to join with in food chain in the venture – which another country with may delay the its partner in the expansion plans joint venture – this  There may be may help VP to management borrow less capital conflicts between to expand into the the two businesses other country – leading to  VP can gain arguments and important local inefficiency – higher knowledge about costs the market – easier  Profits will have to to focus meals on be shared – may local tastes – reduce return on increasing investment from the demand/sales/reven expansion – may ue not be agreeable to Joint venture  Less likely to the shareholders of require expensive VP market research to  The level of understand the fast- expertise may not food market – be the same in the reducing the costs partner business – of entering the new may make the market abroad return on  Lowering the risks investment unfair of entering the new  The work and market abroad - resources may not more likely to be equally shared understand local between the two customs and tastes partners in the joint – adapt fast-food venture – VP may meals to meet local have to put more demand work and resources as it is the main partner in the venture 3(b)  Saves time on  Poor quality expanding into the management may foreign market – as lead to a lowering of business operating the reputation of the fast-food VP brand – if the restaurants will franchisee in the make the foreign country investment does not maintain  Payment from standard of franchise fees for delivering fast food using the VP brand in 5 minutes - fee goes back to  Low level of control VP which may by VP Directors – increase profits – over how the making a return franchise operates Franchising from the expansion the vegetarian for low investment fast-food chain from VP  The franchisee has  Lower capital information about requirement - no the food need to raise ingredients and finance for the recipes of VP and expansion – no may use these need to sell when the franchise additional shares agreement has with possible loss of expired – could control/no bank loan develop a better required so no need version and become to pay interest rates a competitor increasing fixed costs Justification may include:  Forming a joint venture is the best way to overcome the problems of entering a new fast- food market in another country which VP is unfamiliar with as this will enable VP to understand this new market by gaining knowledge from this other business. The local business will be able to advise and guide VP on the best locations to choose and the best meals to serve to meet local demand and Conclusion successfully enter this market. Franchising should not be chosen as the franchisee may provide poor service and lead to a poor brand image of VP.  Selling a franchise to businesses in the new fast-food market in another country will reduce the investment required for VP to expand. This will make it cheaper and quicker to expand into this new market while still receiving revenue from the fees charged for the franchise.

More questions on Business and the international economy

4 (a) Explain, using an example, one reason why VP might need: • short-term finance • long-term finance. Short-term finance: ........................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Long-term finance: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Using Appendix 3 and other information, consider how the following three changes in country Z may affect VP. Which change is likely to have the greatest effect on VP's profits? Justify your answer. • Increase in interest rates. • Depreciation of country Z’s exchange rate. • New legal controls which require all restaurants to list the ingredients in their meals. Increase in interest rates: ................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Depreciation of country Z’s exchange rate: ...................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... New legal controls which require all restaurants to list the ingredients in their meals: ..... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Conclusion: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 4(a) Explain, using an example, one reason why VP might need: 8  short-term finance  long-term finance. One mark for reason for short-term/long-term finance (max 1). Award a maximum of three additional marks for the explanation of the reason why VP needs short-term/long-term finance, one of which must be in context, and one must include an example. Answers for short-term finance might include:  To provide working capital for the business – so that day-to-day expenses can be paid for – an overdraft may be suitable as it is only used if needed/potentially reducing interest paid  To prevent cash-flow problem/improve the cash position of the business – by taking short-term bank loan – this will provide finance for a short time to overcome the potential shortage of cash and increase liquidity For example: To provide working capital for the business (1) so that day-to-day expenses can be paid for (1). An overdraft may be suitable as it is only used if needed which potentially reduces the interest to be paid (1) when buying food ingredients for the restaurants (app). Answers for long-term finance might include:  To purchase long-term non-current assets – as these assets are likely to be very expensive – so a long-term bank loan may be suitable as it is repaid over a long period of time reducing the amount of monthly repayments/outflows each month  To expand the business – which requires a large amount of money in order to grow – the issue of shares will not incur interest payments  To update the business – often involves new technology which is expensive – so payments may need to be spread over a long period of time such as with a lease For example: To expand the business (1) as VP is planning to expand in another country (app) which requires a large amount of money to grow (1). VP might choose to issue new shares which will not incur interest payments (1). Application could include: fast food; restaurant; vegetarians; meals; public limited company/shareholders; food outlets across the country; diners; 500 restaurants; 25 000 employees; ingredients; expand into another country. 4(b) Using Appendix 3 and other information, consider how the following 12 three changes in country Z may affect VP. Which change is likely to have the greatest effect on VP's profits? Justify your answer.  Increase in interest rates.  Depreciation of country Z’s exchange rate.  New legal controls which require all restaurants to list the ingredients in their meals. Level Description Marks 3 Sound application of knowledge and 9–12 understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more changes. Well- justified conclusion. Candidates discussing all three changes in detail, in context and with well-justified conclusion including why the alternative changes are rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and 5–8 understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one change. Judgement with some justification / some evaluation of choices made. Candidates discussing two or more changes in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and 1–4 understanding of relevant business concepts. Limited ability to discuss the changes with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining all three changes in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: • Higher fixed costs from interest paid if bank loan taken out for expansion of the restaurant chain in another country – likely to lead to lower profit • Customers may buy fewer meals due to interest rates being increased for 3% to 5% to be paid on borrowing leaving less money to spend leading to reduced revenue for VP Increase in • As VP is a public limited company it is large interest rates and may enjoy financial economies of scale – leading to relatively lower interest rates charged on bank loans than smaller businesses – reducing the impact of the interest payable on the loans • Increased interest received on any reserves held by VP – increase income into the business – leading to an increase in profit • Imported food ingredients will now cost more – leading to higher variable costs – possibly lower profit margin/higher prices • Increased cost of imported ingredients may lead to VP changing to purchase from local suppliers Depreciation of - however the quality may be lower country Z • When VP has expanded to another country exchange rate and set up new restaurants profits sent back to country Z will exchange for a higher amount of country Z currency – but capital needed for expansion will exchange at a lower rate – higher investment needed • Increased costs of rewriting all menus – time taken to work out and list all the ingredients in meals – will need to be repeated every time a Introduction of new meal is added to the menu – increases new legal costs both in the short-run and possibly the long- controls that run – reducing profit require all • If VP wants to keep the same mark-up on costs restaurants to – may lead to increased price of meals –– may provide lead to lower demand/lower sales – reduced information profit about the • All restaurants will have the same costs – so ingredients in competitiveness may not change their meals • May attract different target market who didn’t appreciate the ingredients used by VP – as these are now listed on menus - may increase sales 4(b) Justification may include: • Increase in interest rates will have the greatest effect on profit because VP will need to take out large bank loans to finance the expansion in another country leading to a large increase in costs from the interest payable which will reduce VP profits. Depreciation will have little effect as ingredients are only a small proportion of costs and only 30% of ingredients are imported. The new legal controls will have little effect on profit as these are a relatively small cost and the menus are printed regularly anyway when the Conclusion of menus change with the new meals. which is likely • Depreciation of the exchange rate of country Z to have the will have the greatest effect on profit as 30% of greatest effect food ingredients are imported. This will lead to on profits a large increase in variable costs which will reduce gross profit and then profit for VP. • New legal controls that require all restaurants to provide information about the ingredients in their meals will have the greatest effect on profit as menus will have to all be reprinted every time a new meal is developed. As VP do this regularly to encourage customers to return so they do not get bored with the same meals it will result in a regular increase in costs and therefore a reduction in profit.

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