Cambridge IGCSE Business Studies (9-1) 0986 — 2024 May/June Paper 2 · Variant 1

1 (a) Explain two drawbacks for EP of having a tall organisational structure. Drawback 1: ...................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Drawback 2: ...................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the following two ways EP could use to increase added value. Which way should EP use? Justify your answer. • Increasing prices • Reducing raw material costs Increasing prices: ............................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reducing raw material costs: ........................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: Question Answer Marks 1(a) Explain two drawbacks for EP of having a tall organisational structure. 8 Award 1 mark for each drawback (max 2). Award a maximum of 3 additional marks for each explanation of the drawback of having a tall organisational structure – one of which must be applied to this context. Relevant drawbacks might include:  Communication is slower – as a long chain of command – takes longer for messages to pass from senior managers to lowest level employees  Misunderstandings may occur – as more people for messages to be passed through – more chance of errors being passed on  Senior managers are more remote from lower levels in the hierarchy – these managers are less aware of the views of employees – more likely for employees to feel demotivated  Decision making can be slower/weaker – as more levels to discuss issues and pass on decisions – react to customer changes more slowly  May have a narrow span of control – which may reduce the opportunities for delegation – employees feel less trusted with more direct control  Increasing managerial/supervisor costs – as likely to need more managers as there are more levels in the hierarchy For example: Communication is slower (1) as more employees for messages to be passed through (1) giving more chance of errors in the messages (1) about the production of pottery (app). Application could include: pottery; cups; plates; bowls; trading for 40 years; new Marketing Manager; Managing Director; 84 employees; 6 levels; external recruitment/recruitment from outside the business; high-quality products; want to increase efficiency; private limited company; information from Appendix 2. 1(b) Consider the following two ways EP could use to increase added value. 12 Which way should EP use? Justify your answer.  Increasing prices  Reducing raw material costs Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both ways. Well-justified recommendation. Candidates discussing both ways in detail, in context and with a well-justified recommendation including why the alternative way was rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one way. Judgement with some justification/some evaluation of choice made. Candidates discussing at least one way in detail and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the ways with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining both ways in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include:  Improve the quality even more – of the pottery – then customers will be willing to pay a higher price – but it depends on the prices charged by competitors for their pottery products – may lose sales  Improve the brand image further – advertise the pottery – makes the products more well- known and hence EP may be able to raise Increasing prices prices as customers like to buy more well- known branded products  Provide extra services – such as gift wrap the cups and plates to give as a gift – customers will be willing to pay a higher price if the product is made to appear more attractive in its packaging  Higher prices may lead to lower demand for pottery – possibly reducing revenue  Buying cheaper raw materials by changing supplier/buying in bulk to gain a discount/negotiating cheaper price – but customers may find the pottery products are of lower quality – unhappy customers may give EP a bad reputation – lower sales  Source cheaper raw materials from imports Reducing raw instead of domestic raw materials – input material costs costs reduce – but quality may be lower – lose sales  Reduce the amount of raw materials in each pottery item – makes pottery items smaller – will reduce amount of raw materials needed if output remains the same – may not be noticed by customers so no effect  Increasing prices is the best way to increase added value because EP has a reputation for high-quality pottery products and customers are likely to be willing to pay higher prices. This is safer than potentially getting a bad reputation for poor quality products which might happen if lower quality raw materials are Recommendation purchased.  Reducing input/raw material costs is the best way to increase added value as customers may not notice this as long as the quality of the raw materials is not much lower reducing the quality of the products such as plates and bowls.

More questions on Business activity

2 (a) Explain two advantages and two disadvantages of using external recruitment to find EP’s new manager. Advantage 1: .................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Advantage 2: .................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Disadvantage 1: ................................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Disadvantage 2: ................................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the following three ways EP could use to increase the sales of its products. Which would be the best way for EP to use? Justify your answer. • Advertising using social media • Emailing special offers to existing customers • Setting up a website Advertising using social media: ........................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Emailing special offers to existing customers: .................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Setting up a website: ........................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 2(a) Explain two advantages and two disadvantages of using external 8 recruitment to find EP’s new manager. Award 1 mark for each relevant advantage/disadvantage (max 2 advantages and max 2 disadvantages). Award 1 additional mark for each explanation of the advantage or disadvantage in context. Relevant advantages might include:  There will be new ideas in the business – which may make the business more competitive with other pottery manufacturers  There may be no rivalry between the new manager and existing employees – there will not be jealousy amongst the 7 marketing employees who did not get the promotion  The quality of the candidates may be high/more experienced/more skilled  Wider choice of applicants to choose from  There will be no new vacancy to replace the internal applicant Relevant disadvantages might include:  Recruitment may take longer – as advertisements are needed which may take time to be read and respond to applicants/interviewing applicants for the job of Marketing Manager  The person is not known to the business – risk of employing someone who does not have the skills and expertise required to understand the production of products such as cups and bowls  May be more expensive than internal recruitment  May be less effective for a time after first being employed – as the new person will take time to understand the tall organisational structure of EP  It may be demotivating for existing employees as not able to be promoted For example: There may be a wider choice of applicants (1) who have more experience in the production of pottery products (app). Application could include: pottery; cups; plates; bowls; high-quality products; private limited company; trading for 40 years; new Marketing Manager; Managing Director; want sales to increase; plastic or bamboo products; information from Appendix 2. 2(b) Consider the following three ways EP could use to increase the sales of 12 its products. Which would be the best way for EP to use? Justify your answer.  Advertising using social media  Emailing special offers to existing customers  Setting up a website Level Description Mark 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of two or more ways. Well-justified recommendation. Candidates discussing the three ways in detail, in context and with a well-justified recommendation, including why the alternative ways were rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one way. Judgement with some justification/some evaluation of choice made. Candidates discussing two or more ways in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the ways with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining the three ways in context should be rewarded with the top marks in the band. 0 No Creditable Response 0 2(b) Relevant points might include: Advantages Disadvantages  Can target specific  Can easily be demographic groups ignored as there such as higher are a lot of adverts income earners on social media  Viral marketing/share  Can be expensive information with family for EP to pay for and friends enables pop-ups to ensure recommendations for its pottery is seen plates and cups to by a large group of be spread quickly and people to a large group of  Potential customers Advertising using potential customers may not use social social media  Potential customers media and will see an advert for therefore they will the shops to look for not be aware of EP’s pottery when EP’s products they go to sites such  Easier to leave bad as Facebook, which reviews can lead to increases awareness fewer purchases of of EP’s products cups and the bad  Social media widely reviews may be used by consumers – unfair if only a small large scale exposure proportion of reviews are bad  Low cost/cheaper way  Email may go into to get information to a spam and so be lot of existing pottery ignored customers  No guarantee the  Emails go direct to email address is existing customers, correct and who may be more therefore will not be likely to purchase seen by all EP’s EP’s products due to customers the high-quality  Existing customers Emailing special  May be used to direct of plates may see offers to existing customers to retailers’ this as annoying customers websites – by and get a negative including links in the view of EP email  Only sent to existing customers/some customers may not have email so not targeting new customers/may be less effective 2(b)  Makes information  Increased costs of about EP’s pottery paying for a more accessible to specialist to set up potential customers the website/ searching for its improvements products – makes  Cost of postage them more likely to and packaging purchase a set of  On-going costs of dinner plates maintenance of the  Have complete control website, e.g. over the way its updating prices of pottery is shown in plates Setting up a the adverts  Search engines website  Prices can be quickly may not bring up updated EP’s products on  Can include the first page of a interactive search unless EP adverts/videos, which pays for this which are more attractive to can be expensive customers  Relies on people  Website can be used finding the for online ordering – website/may be more accessible for relatively unknown customers living further away from retailers Justification might include:  Social media is the best way to choose as the advert for pottery is more likely to be seen than on a website, which has to be searched for and social media will appear immediately. Viral marketing means that people using social media can more quickly spread information than the website and emails to existing people about EP’s products and may not increase sales as these customers already have EP pottery.  Using emails is the best way to choose as an Recommendation email is less likely to be ignored and targets people who have already been a customer and therefore may be more likely to read the email and purchase additional products to match their existing pottery plates.  Setting up a website is the best way to choose as it can include a lot of information about EP’s high-quality products which the other two alternatives do not. It can include interactive sections that may be attractive to potential customers and therefore increase sales.

More questions on Marketing mix

3 (a) Explain four reasons why consumer spending patterns for a product might change. Reason 1: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reason 2: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reason 3: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reason 4: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the following two ways EP could increase efficiency in its factory. Which would be the best way for EP to use? Justify your answer. • Improving labour skills • Introducing more automation and technology Improving labour skills: ..................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Introducing more automation and technology: ................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 3(a) Explain four reasons why consumer spending patterns for a product 8 might change. Award 1 mark for each reason why consumer spending patterns may have changed (max 4). Award a maximum of one additional mark for each explanation of the reason. There are no application marks for this question. Relevant reasons might include:  Changes in consumer tastes and fashions – increased/decreased demand for the products  Products no longer meet customer needs – choose to buy alternative products instead  Changes in incomes – now/no longer able to afford better quality products  The price of a product changes – higher prices usually lead to lower sales  Changes in the prices of competitors’ products – if competitors’ products are cheaper then customers will buy from them instead  Spending on advertising and promotional activities – if effective then is likely to result in sales increasing for the successfully advertised product  Changes in the population/age structure of the population – an increase in the number of older people in the population will increase demand for products that are popular with them  New technology means new products become available – this will increase demand for these products/demand for old technology products decreases For example – There are changes in consumer tastes and fashions (1) so if a product becomes less fashionable then demand for these products will decrease (1). 3(b) Consider the following two ways EP could increase efficiency in its 12 factory. Which would be the best way for EP to use? Justify your answer.  Improving labour skills  Introducing more automation and technology Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both ways. Well-justified recommendation. Candidates discussing both ways in detail, in context and with a well-justified recommendation, including why the alternative way was rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one way. Judgement with some justification/some evaluation of 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 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 Improving labour  Increases motivation  Increases costs skills of the 50 production from training the employees – made to 50 production feel more valued as employees – in training given to them the short-term – investment in the may reduce employees profitability – if  May enable increase in costs employees to work is greater than more quickly – output increase in of pottery is produced revenue when in a shorter time the employees  Output per worker are being trained increases – increases  Output of cups productivity – fewer may be reduced inputs for a given whilst employees output are being trained  Employees may – depends on become more flexible whether it is off- – could cover for the-job or on-the- absent colleagues – job training keeps the factory  Skilled running employees may smoothly/fewer be tempted to interruptions in output leave and work  Increases skills of for a competitor employees which that makes high- decreases waste/ quality products leads to fewer – then costs of mistakes training wasted – it takes time to recruit new employees reducing efficiency 3(b) Advantages Disadvantages Introducing more  May require fewer full-  May result in automation and time employees on redundancy technology the production line – payments – reduces wage costs increases costs  Output can be in the short-term produced more – legal quickly – reduces unit requirements for costs – may allow redundancy prices to be reduced – payments may price of pottery be high products may be  Cost of more competitive – purchasing increasing sales equipment and  Changes in pottery maintenance design may be made costs of the more quickly – quicker technology may to react to changes in be high – customer preferences increases total costs of making pottery products/may need to be updated – increases costs  Increased training costs if employees need training how to use the equipment/may need to employ new skilled workers to operate the equipment – increased recruitment costs  Could lead to a demotivated workforce - fear of change to job roles 3(b) Recommendation Justification might include:  Improving labour skills is the best way to increase efficiency at EP’s factory. The 50 production employees will learn more skills which will enable them to produce more output per worker than previously. This will motivate the employees to work harder and produce more output. Automation is very expensive and unless sales increase EP may find it difficult to raise sufficient funds for the investment.  Introducing automation and technology in the factory to make pottery products such as plates is the best way to increase efficiency. Technology will mean fewer production workers will be needed so saving on wage costs and greatly increasing output for each remaining employee in the factory.

More questions on Production of goods and services

4 (a) Explain two factors EP should consider when choosing a source of finance. Factor 1: ........................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Factor 2: ........................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Using Appendix 3 and other information, consider the following two products EP makes. Which product should EP stop making? Justify your answer. • Product A • Product B Product A: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Product B: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 4(a) Explain two factors EP should consider when choosing a source of 8 finance. Award 1 mark for each factor (max 2). Award a maximum of 3 additional marks for each explanation of a factor that affects which source of finance to choose – one of which must be applied to this context. Relevant answers might include:  Legal form of business – EP is a private limited company so share issue is an option – and new shares can be sold to raise finance  Amount required – if the finance is required to improve cash flow then it may not be a very large amount – and it is likely sources such as an overdraft will provide sufficient funds  Length of time to repay – if the finance is required for a short length of time then trade credit might be suitable – as this is repaid to the supplier within 30/60 days – if needed for long period of time then other sources may be more suitable  Existing loans – if the business already has several loans, then this may not be an option – due to the already high expense of interest payments on the loans  Control of the business – the original owners may not want to lose control and therefore may not choose to sell more shares – so the control and ownership of the business remains with the original owners  Purpose for using the finance  Size of business  The interest cost involved with some sources of finance – which will increase costs and lower profit margins For example: The purpose for using the finance. (1) If the finance is required for ways to improve efficiency at EP (app) then a source such as a bank loan could be chosen (1) as this finance can be used to increase efficiency and then repaid over a longer period of time as unit costs are reduced and profitability increases (1). Application could include: pottery; cups; plates; bowls; trading for 40 years; private limited company; high-quality products; want sales to increase; plastic or bamboo products; wants to increase efficiency; improving labour skills; more automation and technology; information from Appendix 2. 4(b) Using Appendix 3 and other information, consider the following two 12 products EP makes. Which product should EP stop making? Justify your answer.  Product A  Product B Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both products. Well-justified recommendation. Candidates discussing both products in detail, in context and with a well-justified recommendation of which product to stop making, including why the alternative product was rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one product. Judgement with some justification/some evaluation of choices made. Candidates discussing at least one product 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 products with little/no explanation. Simple judgement with limited justification/limited evaluation of choices made. Candidates outlining both products in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: Advantages Disadvantages Product A  Sales in volume terms  Price is lower by are much higher than $30 per product Product B at $40 per unit  Total cost is lower  GPM is lower by than for Product B by 12.5% $210 000  Sales are  PM is higher at 30% increasing at the  Profit is higher at lower rate of 10% $60 000 but from a per year than for lower number of sales Product B – so so the profit margin revenue is not must be higher likely to increase  Demand is increasing as much as for by 10% each year so Product B future sales are likely to be higher – may become even more profitable in the future as revenue is likely to increase and total cost stays the same Product B  GPM is higher at  PM is lower at 62.5% 12.5%  Price per unit is higher  Sales are lower at $40 per unit – at 10 000 units leading to higher per year revenue  Profit in 2023 is  Revenue is higher at lower by $10 000 $400 000  Demand is increasing at double the rate of Product A each year – so sales are likely to increase to 12 000 units leading to higher revenue of $480 000 in the future 4(b) Recommendation Justification might include:  EP should stop producing Product A because demand is growing at only 10% per year whereas demand for Product B is growing at 20% so will increase revenue at a faster rate hence profit should overtake the $60 000 profit made from Product A.  EP should stop producing Product B because the total cost is much higher at $350 000, and the Managing Director wants to keep costs low. Product B also makes a lower profit of $50 000 in 2023.