Cambridge IGCSE Business Studies (9-1) 0986 — 2025 Oct/Nov Paper 2 · Variant 1

1 (a) Explain two advantages and two disadvantages of a business being a private limited company. Advantage 1: ............................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Advantage 2: ............................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Disadvantage 1: ........................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Disadvantage 2: ........................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... [8] (b) Consider the following three economies of scale for LB. Which economy of scale is likely to have benefited LB the most? Justify your answer. • Financial • Purchasing • Managerial Financial: .................................................................................................................................. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Purchasing: ............................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Managerial: ............................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Conclusion: ............................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... [12]

Mark scheme: Question Answer Marks 1(a) Explain two advantages and two disadvantages of a business being a 8 private limited company. Award 1 mark for each advantage/disadvantage (max 2 advantages/max 2 disadvantages). Award 1 additional mark for each explanation of the advantage/disadvantage. There are no application marks for this question. Relevant advantages might include: • Has a separate legal identity – company can be sued but not usually the owners • Can sell shares to family and friends to raise capital – larger amounts of capital may be raised than if a sole trader / partnership • Limited liability – owners will not lose personal possessions if business is unable to pay its debts • Cannot be taken over without the consent of the shareholders • Provides continuity on the death of the owner Relevant disadvantages might include: • Accounts are not private – competitors may access the accounts • Cannot sell shares to the public / shares cannot be sold on the stock exchange - not easy to transfer shares so family and friends may be less willing to buy shares • Legal formalities required to operate the company – need to have accounts audited and registered with government which takes time and increases costs • Legal formalities setting up the company – has to complete paperwork to register the company which takes time and money / may take more time for owner than setting up as a sole trader/partnership For example: Cannot sell shares to the public on the stock exchange (1) as it is not easy to transfer / sell shares family and friends may be less willing to buy shares in the first place (1). 1(b) Consider the following three economies of scale for LB. Which 12 economy of scale is likely to have benefited LB the most? Justify your answer. • Financial • Purchasing • Managerial Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of two or more economies of scale. Well-justified conclusion. Candidates discussing all three economies of scale, in context and with a well-justified conclusion, including why the alternative economies of scale were rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one economy of scale. Judgement with some justification / some evaluation of choice made. Candidates discussing in detail two or more economies of scale and applying these 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 economies of scale with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining all three economies of scale in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: Financial • Raise finance more easily and cheaply – as lower risk of not repaying debts due to larger size of business • Banks may offer lower interest rates – lower costs of borrowing for the expansion of the large business than if it was a smaller business Purchasing • Bulk buy components – discounts / cheaper prices for bulk purchases – reduces average / unit cost of components • May be able to lower prices – as average cost of each product is lower – becomes more competitive – increases sales of bathroom products – revenue increases Managerial • Specialist managers can be employed – better at their jobs / more knowledgeable as only carried out this task – e.g. marketing manager knows best place to advertise to be more cost efficient • Able to attract the most talented managers – more efficient in manufacturing luxury bathroom products Conclusion Justification might include: • Financial economies of scale will have the greatest effect as LB plans to expand and build a new factory in another country and will probably need to raise some of the finance by borrowing. This will keep down the repayment costs of expanding. LB is already producing on a large scale so the increased benefits from the purchasing and managerial economies may be limited leaving financial economies giving the biggest reduction in unit costs. • Purchasing economies of scale will have the greatest effect on LB’s average costs as it produces bathroom products on a large scale so discounts on components will reduce unit costs by a significant amount, increasing gross profit and profit. • Managerial economies of scale will have the biggest effect on unit costs as all managers will be experienced in producing showers and baths and are specialists in their areas leading to efficiencies in all departments of the business.

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2 (a) Explain two advantages and two disadvantages to LB of using primary market research. Advantage 1: ............................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Advantage 2: ............................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Disadvantage 1: ........................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Disadvantage 2: ........................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... [8] (b) Consider the advantages and disadvantages of the two options LB could use to distribute its new product range in country X. Which channel of distribution should LB use? Justify your answer. • Selling to specialist retail shops • Selling directly to customers through LB’s website Selling to specialist retail shops: ............................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Selling directly to customers through LB’s website: .................................................................. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Recommendation: .................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... [12]

Mark scheme: 2(a) Explain two advantages and two disadvantages to LB of using primary 8 market research. Award 1 mark for each advantage/disadvantage (max 2 advantages/max 2 disadvantages). Award a maximum of 1 additional mark for each explanation of the advantage/disadvantage in context. Relevant advantages might include: • Is up to date – finds out about current trends in bathroom products • Relevant to the business as direct contact with potential customers – that produces basins and showers • Is first–hand information / planned and carried out by those who want the information – about this very competitive market • Effective at gathering information about a specific problem – as to which new designs to choose to produce • Not available to other businesses Relevant disadvantages might include: • Can be expensive to collect information – about sales through specialist retail shops • May take time to collect / not available immediately – for this company that has been operating for over 20 years • May not be accurate if people carrying it out are not experienced in this type of research / interviewer bias • Less accurate results gathered if sample does not represent the target market For example: The information is up to date (1) so the business will be aware of current trends in designs of bathroom products (app). Application might include: luxury bathroom products; baths/basins/showers; plan to produce a new range of bathroom products; started 20 years ago; sells in specialist retail shops; website contains information on product range; operates in a very competitive market; need to decide which new designs to produce. 2(b) Consider the advantages and disadvantages of the two options LB 12 could use to distribute its new product range in country X. Which channel of distribution should LB use? Justify your answer. • Selling to specialist retail shops • Selling directly to customers through LB’s website Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both options. Well-justified recommendation. Candidates discussing in detail both options, in context and with a well-justified recommendation, including why the alternative option was rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one option. Judgement with some justification / some evaluation of choice made. Candidates discussing in detail at least one option and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the options with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both options in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: Advantages Disadvantages Selling to • May be able to sell • Have less control specialist retail bathroom products in over the way the shops larger quantities to basins and showers retailers – more likely are displayed to improve cash flow • Will be displayed • Reduces distribution alongside costs – if sell to a few competitors’ products large retail shops – may lead to fewer rather than direct to sales if luxury customers – fewer nature of products journeys for delivery is less obvious lorries • Price may be higher • Already has a after retail profit relationship with these margin added – shops – may be leading to fewer sales familiar with the quality • No direct contact with of the luxury customers – so may bathroom products – not be able to can pass this emphasise the information and advice luxury bathroom on to customers – products sales may be higher • Lower level of inventories – as some products are sent to the retailer • Retailer may pay for some of the advertising – may reduce marketing costs • Customers are already familiar with LB’s products being displayed in these specialist shops so may make it easier to sell a new range of products 2(b) Advantages Disadvantages Selling directly • Lower price can be • Delivery costs paid by to customers charged as no profit customers will be high through LB’s margin for the retailer as baths are large website included – may lead to and heavy – may higher demand – reduce sales increased sales and • May get damaged revenue when being delivered • Direct contact with to customers’ homes customers – may gain – increasing costs useful feedback on from repair or showers and baths – replacement of less market research products needed in the future • The luxury nature of • LB controls the way its the products cannot new bathroom range is be appreciated using described and online sales as information provided for customers cannot see customers – more or feel the luxury accurate than if sold bathroom products through a retailer – customers may not be willing to pay the higher price as do not appreciate the high quality • Storage costs will be higher – as products stored before being dispatched in small quantity to each customer • Increased cost of website being adapted to be able to take customer orders – also ongoing maintenance costs 2(b) Recommendation Justification might include: • LB should sell the new bathroom range to the existing specialist retail shops as it already has a good relationship with them, and their employees are likely to be familiar with LB’s products so can advise customers about their luxury nature encouraging customers to think paying the higher price is worth it. Selling directly to customers through its website will be a new way of distributing its products and may not be successful due to LB’s lack of experience. • LB should sell the new bathroom range directly to customers through LB’s website as it will allow LB to sell to a wider range of customers across a wider area than the current specialist retail shops and therefore have higher sales.

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3 (a) Explain two reasons why working capital is important to LB. Reason 1: ................................................................................................................................. ................................................................................................................................................... Explanation: .............................................................................................................................. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Reason 2: ................................................................................................................................. ................................................................................................................................................... Explanation: .............................................................................................................................. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... [8] (b) Using Appendix 2 and other information, consider the three employees that LB could make redundant. Which employee should LB choose? Justify your answer. • Naga • Reeta • Amy Naga: ........................................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Reeta: ....................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Amy: ......................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Recommendation: .................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... [12]

Mark scheme: 3(a) Explain two reasons why working capital is important to LB. 8 Award 1 mark for each reason why working capital is important (max 2). Award a maximum of 3 additional marks for each explanation of why working capital is important – one of which must be applied to this context. Relevant reasons might include: • To be able to pay for day-to-day expenses / fixed costs / variable costs / overheads – if not able to pay for these costs then output cannot be produced – and no products could be produced • To prevent cash flow problems – so the business does not lack liquidity – and does not become insolvent / cease trading / not survive • To support a bank loan application – as having enough working capital will help to show an ability to repay the loan • To be able to offer customers credit terms to encourage sales (1) • To pay for unexpected expenses (1) For example: Needed to pay day-to day expenses (1) as LB will need to buy components to manufacture the bathroom equipment (app). If there is insufficient working capital, the business may not have the cash to pay wages and other expenses (1) it will be difficult for LB to continue trading (1). Application might include: luxury bathroom products; baths/basins/showers; started 20 years ago; plan to produce a new range of bathroom products; sells in specialist retail shops; website contains information on product range; operates in a very competitive market. 3(b) Using Appendix 2 and other information, consider the three employees 12 that LB could make redundant. Which employee should LB choose? Justify your answer. • Naga • Reeta • Amy Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of two or more employees. Well-justified recommendation. Candidates discussing all three employees, in context and with a well-justified recommendation, including why the alternative employees 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 employee. Judgement with some justification / some evaluation of choice made. Candidates discussing in detail two or more employees and applying these 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 employees with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining all three employees in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: Naga • Most expensive wages to keep paying at $400 per week – higher wage costs • Highest redundancy payments to make at $8000 but this is a one-off payment, and highest wages no longer paid each week • Has been a supervisor for the longest time at 15 years • Has worked for LB for the longest at 20 years since the company was first started. Very loyal employee and is unlikely to leave in the future • Is familiar with the production tasks of all LB’s bathroom products so is flexible and can be moved around the factory and supervise employees in other areas to carry out their tasks Reeta • Experience of 10 years working for a competitor so may bring new ideas from them – increasing efficiency in the factory • Already familiar with the new machinery that LB has introduced – so may be able to train LB’s employees reducing costs • Lowest redundancy payment required at $700 • Lowest wage at $350 per week • Has been employed for the least amount of time at 2 years Amy • Been employed for 14 years so is more experienced than Reeta in LB’s production process • Worked hard to get promotion and is loyal so unlikely to leave LB in the future – keeping future recruitment costs down • Can repair machinery if it breaks down – reduces cost of repairs for LB • Redundancy payments less than Naga at $5250 so less expensive / more than Reeta to make redundant 3(b) Recommendation Justification might include: • Naga should be made redundant as she has the highest wages and therefore will save the greatest amount of wage costs. Reeta has the lowest wages per week so is cheaper to employ and Amy is very loyal and hardworking so is unlikely to leave in the future. • Reeta should be made redundant as she has worked the shortest time for LB, at 2 years, and therefore less experienced. • Amy should be made redundant as she has not worked for LB as long as Naga and has only been a supervisor for 5 years which is less time than Naga so has less experience.

4 (a) Explain two factors LB’s managers should consider when deciding which method of communication to use to inform its employees about the expansion plans. Factor 1: ................................................................................................................................... ................................................................................................................................................... Explanation: .............................................................................................................................. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Factor 2: ................................................................................................................................... ................................................................................................................................................... Explanation: .............................................................................................................................. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... [8] (b) Using Appendix 3 and other information, consider the benefits and drawbacks for country Y of LB building its new factory there. Do you think the benefits for country Y are greater than the drawbacks? Justify your answer. Benefits: .................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Drawbacks: ................................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Conclusion: ............................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... [12]

Mark scheme: 4(a) Explain two factors LB’s managers should consider when deciding 8 which method of communication to use to inform employees about the expansion plans. Award 1 mark for each relevant factor (max 2). Award a maximum of 3 additional marks for each explanation of the factor that LB’s managers should consider when deciding which method of communication to use with employees about the expansion plans – one of which must be applied to this context. Relevant factors might include: • How many employees need to be informed – a large number of employees need to see the information – as everyone will be affected by the expansion • If feedback is needed – managers will know the message has been received – to make sure all employees understand what it will mean for their job role • How much information needs to be included in the message / complexity of the message – if it is a lot of information then a written form of communication should be used – such as an email or letter • If there is need for a written record – as legally a record may be needed for certain types of communication with employees – then there will be communication that can be referred to at some time in the future • Speed / urgency / importance of communication – employees need to be told quickly before rumours are spread around the factory • Cost of the communication methods chosen For example: How many employees need to be informed (1). A large number of employees will need to see the information (1) as everyone will be affected by the expansion plans (1) when building the new factory in country Y (app). Application could include: luxury bathroom products; baths/basins/showers; plan to produce a new range of bathroom products; plans to open a factory in another country; sells in specialist retail shops; website contains information on product range. 4(b) Using Appendix 3 and other information, consider the benefits and 12 drawbacks for country Y of LB building its new factory there. Do you think the benefits for country Y are greater than the drawbacks? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both the benefits and drawbacks for country Y. Well-justified conclusion. Candidates discussing in detail both the benefits and drawbacks for country Y, in context and with a well- justified conclusion, including why the alternative benefits or drawbacks were rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of one benefit or drawback for country Y. Judgement with some justification / some evaluation of choice made. Candidates discussing in detail at least one benefit and one drawback for country Y and applying these 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 benefits and/or drawbacks with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the benefits and drawbacks for country Y in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Relevant points might include: Benefits Drawbacks • It creates jobs – lowering • The jobs created may be unemployment in country Y – unskilled and low paid – may raising incomes in the country make it more difficult for local and helping to increase businesses to meet their economic growth/GDP labour needs as they expand • Increased investment – the due to increasing economic new factory for manufacturing growth bathroom products will mean • There may be reduced sales new infrastructure may be built for the local bathroom also benefiting local manufacturers as their costs businesses and prices may be higher • LB could export from country Y • Profits may be sent back to – improving its balance of country X – loss of government payments – earns foreign tax revenue in country Y currency for country Y to • Scarce resources may be used purchase more imports up quickly leaving few non- • LB may pay taxes to the renewable resources government – increases tax remaining when LB leaves – revenue to provide more making economic growth in services for its population the future slow down • Increased consumer choice – • LB may have some political more competition and more influence and gain financial luxury bathroom products support such as grants that available to buy – as could have been spent on local consumers have increasing businesses incomes and it has • Increased noise and air increased demand for luxury pollution when the factory products producing bathroom products is being built – may cause damage to the environment and health of the local population Conclusion Justification might include: • Allowing LB to locate in the country has more benefits for country Y than it has drawbacks. The jobs created will help the country develop and may benefit from the transfer of new technology from LB to the many other bathroom producers in the country. This may increase their efficiency and improve their productivity. So many other local businesses may benefit which outweighs the drawbacks of LB causing pollution when building the new factory as this is only in the short term. • The government in country Y should not allow LB to build a factory there as it may not gain tax revenue if the government of country Y has to offer financial support to attract LB to locate there. LB may have lower unit costs from the economies of scale it benefits from as it is a large business and therefore may cause the many local bathroom manufacturing businesses to close if they cannot compete.

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