Business objectives and stakeholder objectives — Paper 2 · IGCSE Business Studies (9-1) 0986

2 (a) Identify and explain how the following two stakeholder groups might be affected by SA’s plans to expand. Shareholders: … … … … … … … … Local community: … … … … … … … … [8] (b) Consider the following three benefits to SA of having well-motivated employees. Which benefit will be the most important to SA if it wants to increase profit? Justify your answer. Higher output: … … … … … … Fewer employees leaving: … … … … … … Higher quality: … … … … … … Conclusion: … … … … … … … … [12]

20 marks

Mark scheme: 2(a) Identify and explain how the following two stakeholder groups might 8 be affected by SA’s plans to expand. Knowledge [2 × 1] Award one mark for each effect Analysis [2 × 1] Award one mark for a relevant explanation for each effect Application [2 × 2] Award two application marks for each effect Examples might include: Shareholders • Higher dividend if the expansion is successful – may be lower dividend is retailed profit used • They might be asked to provide share capital – $15m required • Change the market price of shares • Increased risk of their investment Local community • Unemployment in the local area might fall/incomes in the local area might rise • More production jobs will be available • May case environmental costs/damage/negative externalities Indicative response: Shareholders – The cost of expansion is $15m (ap) and they might be asked to provide share capital (k). This could reduce the market price of their shares in the soap company (ap) as it will take time for the new investment to lead to higher profits and possibly higher dividends (an). Possible application marks: Plc set up 20 years ago; produces soap; sold in a mass market; start selling niche market soaps; need a new factory/equipment; will cost $15m; 50 workers. There may be other examples in context that have not been included here. 2(b) Consider the following three benefits to SA of having well-motivated 12 employees. Which benefit will be the most important to SA if it wants to increase profit? Justify your answer. Relevant points might include: Higher More products available to sell – likely to increase revenue output – increased profit as costs may not increase proportionately May increase productivity – lower unit/average costs Fewer Happier more satisfied employees less likely to leave for employees another employer – reduces recruitment costs/less need leaving for training of new employees Higher Fewer mistakes made – lower unit costs – improved gross quality profit – higher profits Gives a better reputation with regards to the product – may increase price/more customers attracted Knowledge/Analysis/Evaluation – award up to 10 marks using the levels- based mark scheme below. Knowledge/Analysis/ Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified conclusion of the most important benefit that will lead to higher profit and why it is more important than the other two benefits. 7–8 marks for limited conclusion of the most important benefit. Level 2 4–6 marks Detailed discussion of each benefit. Level 1 1–3 marks Outline of each benefit. Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Higher output likely to increase sales Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Higher output of soap is likely to lead to higher sales and may even lead to higher revenue. If costs do not increase in the same proportion as the increase in revenue then profit may also increase enabling SA to pay higher dividends. (L2 plus application for recognising that it is a company producing soap). Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a conclusion which justifies which is the most important benefit. 2(b) Award up to 2 additional marks for relevant application. Possible application marks: Produces soap; sold in a mass market; niche market soaps; new factory and equipment that will cost $15m; employs 100 production workers in the current factory; employ 50 workers in the new factory; luxury soap. There may be other examples in context that have not been included here.

This question in 0986/21 May/June 2019

1 (a) Identify and explain one advantage and one disadvantage to WA of developing new products. Advantage: … … Explanation: … … … … … … Disadvantage: … … Explanation: … … … … … … [8] (b) Consider the following three possible business objectives for WA. Which objective is likely to be most important to WA in the long run? Justify your answer. Be an environmentally friendly business: … … … … … … Increase market share: … … … … … … Survival: … … … … … … Conclusion: … … … … … … … [12]

20 marks

Mark scheme: Question Answer Marks 1(a) Identify and explain one advantage and one disadvantage to WA of 8 developing new products. Knowledge – award one mark for each relevant advantage / disadvantage [2 × 1 marks] Analysis – award one mark for a relevant explanation for each advantage / disadvantage [2 × 1 marks] Application – award two application marks for each advantage / disadvantage [2 × 2 marks] Answers are likely to include: Advantage • New markets • Maintains image for fashionable designs • Remains competitive • Expansion • Wider range of products / diversification / spreading risk • Attract more customers / increase sales Disadvantage • New products might fail • May not be demanded if not liked by consumers • Increased costs – for example development costs / marketing / advertising / market research / storage or warehouse costs / wasted raw materials during development / training labour in new skills • Higher prices needed to recoup development costs Indicative response: WA will remain competitive (k) by ensuring the furniture is fashionable (ap). This will increase demand or at least maintain demand for its furniture (an) and may result in profit increasing again (ap). Possible application marks: Family owned ltd company; small business; started 10 years ago; furniture; wood from sustainable forests; uses batch production to make furniture; new fashionable designs each year; selling price $200; environmentally friendly business objective; reduced profit in 2018; chairs / tables 1(b) Consider the following three possible business objectives for WA. 12 Which objective is likely to be most important to WA in the long run? Justify your answer. Relevant points might include: Advantages Disadvantages Be an • Improved brand image • May have a higher environmentally – may attract ethical cost –higher price friendly customers – increase for furniture business sales • Less competitive • Less likely to break especially if government regulations competitors do not on environmental use sustainable damage wood • Employees may prefer to work for an ethical business • Avoids WA having to deal with pressure groups Increase • Increase sales – higher • Increased cost of market share revenue and profit marketing • More dominant in the • Marketing costs may market – more be higher than influence on price improvement in sales and revenue • Increase in WA sales may not increase market share if market is growing at the same rate Survival • Avoids making a loss – • Long term not good costs are covered as low / no retained • Easier to achieve than profit this is usually other objectives – just a short-term needs to aim to break- objective even • May need to borrow • Protects family externally if low investment profit Knowledge / Analysis / Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified conclusion as to which is the most important and why the other objectives will be less important in the long run. 7–8 marks for some limited judgement shown in conclusion as to which objective will be most important in the long run. Level 2 4–6 marks Detailed discussion of the advantages and/or disadvantages of each objective. Level 1 1–3 marks Outline of the advantages and/or disadvantages of each objective. Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Improved brand image if aim to be environmentally friendly Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Improved brand image if aim is to be environmentally friendly and this may attract an increased number of customers who are concerned about environmental damage and want to support ethical businesses. However, this might be more expensive, for example when buying the wood and so prices may have to be increased. (L2 plus application for mentioning buying wood) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a conclusion of which objective will be most important in the long run. Award up to 2 additional marks for relevant application. Possible application marks: Family owned ltd company; small business; started 10 years ago; furniture; wood from sustainable forests; new fashionable designs each year; individually designed furniture produced using job production; selling price $200 and $250 per item; ethical business objective; reduced profit in 2018; chairs / tables; high cost of wood; uses cost-plus pricing; WA price is higher than competitors, 10% market share There may be other examples in context that have not been included here

This question in 0986/22 May/June 2019

3 (a) Identify and explain how two stakeholder groups of WA are likely to be affected by the reduction in profit in 2018. Stakeholder group 1: … … Explanation: … … … … … … Stakeholder group 2: … … Explanation: … … … … … … [8] (b) Consider the following three ways WA could use to increase employee motivation. Recommend which way WA should choose. Justify your answer. Introduce piece rate: … … … … … … Give shares in WA to employees: … … … … … … Introduce job rotation: … … … … … … Recommendation: … … … … … … … … [12]

20 marks

Mark scheme: 3(a) Identify and explain how two stakeholder groups of WA are likely to be 8 affected by the reduction in profit in 2018. Knowledge – award one mark for identifying a relevant stakeholder group [2 × 1 marks] Analysis – award one mark for a relevant explanation how each stakeholder group will be affected [2 × 1 marks] Application – award two application marks for explaining in context how each stakeholder group will be affected [2 × 1 marks] Answers are likely to include: Shareholder / Directors / • Lower dividend likely to be paid – Owners / Family lower return on their investment • Need to change business objectives to try to increase profit again – may require further investment – changes to the way the company is operated Employees • Less likely to be given a wage increase OR accept workers and – less motivated managers as separate • May have to accept a reduction in stakeholders wage rates or longer hours for same pay Suppliers • Asked to reduce price of wood – less wood purchased • Slower to get paid for wood supplied – worse cash flow Accept other stakeholder groups e.g. customers, competitors, government, bank, local community. Indicative response: Supplier (k) that sells wood to WA to make the furniture (ap) may not be paid as quickly if the profit is lower (an). Supplier may have to lower the price of its wood to help WA reduce its costs (ap). Possible application marks: Family owned ltd company; small business; started 10 years ago; furniture; wood from sustainable forests; selling price $200 and $250 per item; environmentally friendly business objective; 2 brothers and a sister; 20 employees; 10% above minimum wage. There may be other examples in context that have not been included here. Note – Do NOT reward reduction in profit as application because this is in the question. 3(b) Consider the following three ways WA could use to increase employee 12 motivation. Recommend which way WA should choose. Justify your answer. Relevant points might include: Introduce piece • Taylor’s theory – money motivates rate • Increases pay – by rewards for producing a higher output However • Wage costs may increase • Quality might be reduced if rush to produce more output • Less likely to be applicable to office staff and so may not be fair Give shares to • Employees now receive payment from dividends WA employees • Increased rewards from higher output / profit • Maslow – increased sense of belonging However • Existing shareholders of this private limited company will lose some control • May lead to reduced dividends per share or less retained profit • Shares may not easily be sold (Ltd) – workers may prefer cash to shares Introduce job • Makes the work more interesting / less boring rotation • Change tasks performing regularly However • Increases training requirements as each worker currently only performs one task • Quality may be lower if less specialised in tasks • May mean sometimes a worker does a job not liked • May only be motivating in the short term until the worker gets used to the new tasks Knowledge / Analysis / Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified recommendation of which way to choose to increase employee motivation and why it is more important than the other ways. 7–8 marks for limited recommendation of which way it should choose to increase employee motivation. Level 2 4–6 marks Detailed discussion of each way to increase motivation Level 1 1–3 marks Outline of each way to increase motivation Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Job rotation makes the work more interesting. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Job rotation makes the work more interesting as the workers change round the jobs regularly and therefore are less likely to get bored. This increases the motivation of the worker but they are less specialised and therefore may not perform each task a well as if they only performed the one task so quality may be lower (L2). Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a recommendation which justifies which way should be chosen to increase employee motivation. Award up to 2 additional marks for relevant application. Possible application marks: Family owned ltd company; small business; started 10 years ago; furniture; uses batch production to make furniture; each skilled worker only performs one task; individually designed furniture produced using job production; environmentally friendly business objective; reduced profit in 2018; 10% above minimum wage; 20 workers; tables / chairs; paid an hourly wage rate. There may be other examples in context that have not been included here.

This question in 0986/22 May/June 2019

2 (a) Identify and explain how the following two stakeholder groups of MF will be affected by the production of this new product. Employees: … … Explanation: … … … … … … Customers: … … Explanation: … … … … … … [8] (b) Consider how each of the following might use MF’s financial statements as shown in Appendix 1. Which user would find the information most helpful? Justify your answer. Government: … … … … … … Bank: … … … … … … Shareholders: … … … … … … Conclusion: … … … … … … … … [12]

20 marks

Mark scheme: 2(a) Identify and explain how the following two stakeholder groups of MF 8 will be affected by the production of this new product. Knowledge [2 × 1] – award one mark for how each stakeholder group is affected Analysis [2 × 1] – award one mark for a relevant explanation of how each stakeholder group is affected Application [2 × 2] – award two application marks for how each stakeholder group is affected Answers are likely to include: Employees • increased production – output per worker increase • increased job security – more skills acquired • new production methods used – workers may not like change • more training required – feel more motivated – gain more • job satisfaction – gain higher wages Customers • more choice of products/ help to reduce weight for some consumers • may not buy the new product – as customers are unhappy with the effect on the environment • better meets the needs of some customers – makes customers feel more loyal to the company • will have to pay a higher price if customers want the new ice cream Indicative response: Increased production (1) as the new sugar free ice cream will be produced (ap). This will require further training for employees as the new equipment is different to the original equipment in the factory (1) and the new automated equipment that has been installed to produce the new ice cream will require quite different skills (ap). Possible application marks: Sugar free ice-cream; MF has a large market share of the food markets; objectives are growth and increased market share; new automated production line required; new skilled workers need recruiting; increasing trends of people being overweight in country X. There may be other examples in context that have not been included here. 2(b) Consider how each of the following might use MF’s financial statements 12 as shown in Appendix 1. Which user would find the information most helpful? Justify your answer. Relevant points might include: Government • Helps to see/calculate the amount of tax due • Increased profitability means higher tax revenue • May need to support failing business with grant or subsidy Bank • Helps establishes if MF can repay any outstanding loans – or if any further loans might be required – shows liquidity of MF – shows profitability of MF – can be used to assess risk to the bank from loans or overdraft • Improved liquidity is good as more likely to repay debts Shareholders • See whether dividends are likely to be paid – judge likely direction of share price – consider whether further investment should be made • Increased profitability should lead to increased dividends Knowledge/Analysis/Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified conclusion as to which user would find the information most helpful and why the other two users will find the information less helpful. 7–8 for limited conclusion as to which user of the accounts will find the information most helpful Level 2 4–6 marks Detailed discussion of how each user might find the accounts helpful. Level 1 1–3 marks Outline of how each user might find the accounts helpful. Level 1 – 1 mark for each L1 statement (max of 3 marks), e.g. the bank might want to see if MF is making a profit to see if they can repay any loans. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks), e.g. the bank might want to see if MF is making a profit to see if it can repay any loans otherwise the bank may not have the loan repaid. This would cause problems for the bank as it would risk losing its money. Also MF might need an overdraft and the bank could also see that the overdraft is likely to be repaid after seeing that the liquidity of the business is good (L2). Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a conclusion as to which user of the accounts will find the information most helpful. Award up to 2 additional marks for relevant application. Possible application marks: Sugar free ice-cream; MF is a public limited company established 30 years ago; MF has a large market share of the food markets; objectives are growth and increased market share; new automated production line required; increasing trends of people being overweight in country x; increased government costs to treat overweight people. Reference to data in Appendix 1. There may be other examples in context that have not been included here.

This question in 0986/21 Oct/Nov 2019

4 (a) Explain two reasons why profit is important to FJ. Reason 1: … … Explanation: … … … … … … Reason 2: … … Explanation: … … … … … … [8] (b) Consider the two products outlined in Appendix 3. Which product should FJ produce? Justify your answer using relevant calculations. Drink A: … … … … … … … … Drink B: … … … … … … … … Recommendation: … … … … … … … … [12]

20 marks

Mark scheme: 4(a) Explain two reasons why profit is important to FJ. 8 Award 1 mark for each relevant reason (maximum of 2). Relevant reasons might include: • Return on investment • Source of retained profit for investment • Attracts business partners • Enables Simon to pay a bonus to employees Award a maximum of 3 additional marks for each explanation of why profit is important to FJ – one of which must be applied to this context. For example: As a return on his investment (1) as Simon gave up his job and risked his own money in starting FJ (app). If no profit is made, then Simon could have put his money elsewhere and gained a return on it (1) and he may decide to close down FJ and start up another business. (1) 4(b) Consider the two products outlined in Appendix 3. Which product 12 should FJ produce? Justify your answer using relevant calculations. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both products. 3 9–12 Well-justified recommendation. Candidates discussing both products in detail, in context and with well-justified recommendation including why the alternative product was rejected should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one product. 2 5–8 Judgement with some justification/some evaluation of choice made. Candidates discussing both products in detail and applying it to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss each product with little/no explanation. 1 1–4 Simple judgement with limited justification/limited evaluation of choice 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 reasons might include: • Selling price is $3.00 higher than Drink B • Targeted at higher income consumers so may be willing to pay the higher price • Revenue = $10 000 • Total cost = $8500 • Profit = $1500 per week • Gross Profit $2000 Drink A • Gross profit per drink = $1.00 • GPM = 20% • PM = 15% • Average cost = $4.25 • Highest quality with more fruits in the drink • More variety of drinks available as uses 6 different fruits • Revenue = $10 000 same as Drink A • Total cost = $5500 • Profit = $4500 per week • Gross profit = $5000 • Gross profit per drink = $1.00 • GPM = 50% • PM = 45% Drink B • Average cost = $1.10 • Only two fruits in each drink will make the drink lower quality • Highest sales - forecast demand is 3000 higher than Drink A • Break-even = 500 same as break-even for Drink A = 500 Justification might include: • Choose Drink A as although Drink B will give the highest profit of the two drinks it is the lowest quality of drink with only two fruits. As incomes increase customers may prefer the higher quality drinks and so drink A may become more popular and drink B lose sales. The sales figures are only predictions anyway and may be different. Recommendation • Drink B may be best to choose as it has the highest gross and profit margins and also makes the highest profit per week. Even though incomes are rising, and it targets lower income customers, they may still have high sales as customers may just buy more of these drinks. Also, more likely to have higher sales than Drink A which will make it easier to expand and sell the drinks after opening more fruit drink market stalls.

This question in 0986/21 May/June 2020

1 (a) Explain two reasons why having business objectives is important to Gemma. Reason 1: … … Explanation: … … … … … … Reason 2: … … Explanation: … … … … … … [8] (b) Consider the advantages and disadvantages of buying the Beautywise franchise. Do you think Gemma was right to buy the franchise? Justify your answer. Advantages: … … … … … … … … Disadvantages: … … … … … … … … Conclusion: … … … … … … … … [12]

20 marks

Mark scheme: Question Answer Marks 1(a) Explain two reasons why having business objectives is important to 8 Gemma. Award 1 mark for each relevant reason (maximum of two): Relevant reasons might include: • A clear target/aim/purpose for owner to work towards – guides the business in the right direction - avoids loss of focus • Decision-making will be focused on the objectives – meaning better decisions are taken – the business would be more efficient • Clear objectives will help focus the employees and management on the same goal – helps motivate employees - making it more likely to be achieved • Allows measurement of success – can judge performance or progress • Comparison of performance - so business managers at each shop can compare how the shop has performed against their objective(s) - to see whether or not it has been successful Award a maximum of 3 additional marks for each explanation – one of which must be applied to this context. Indicative response: An objective is a target to work towards (1) and Gemma has set the objective of increasing sales (app). By setting this objective all the employees can try to find ways to increase sales (1), which should ensure all the employees and managers work towards a common goal making it more likely to be achieved. (1) Application could include: increase market share, increase sales by 10% each year, jewellery, rings and bracelets, she plans to open a second shop. 1(b) Consider the advantages and disadvantages of buying the Beautywise 12 franchise. Do you think Gemma was right to buy the franchise? 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 advantages and disadvantages of buying a franchise. Well-justified conclusion. Candidates discussing advantages and disadvantages in detail, in context and with well-justified conclusion, including why the alternative argument 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 advantage or disadvantage. Judgement with some justification/some evaluation of choice made. Candidates discussing the advantages and disadvantages of buying a franchise 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 advantages and disadvantages with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining advantages and disadvantages of buying a franchise in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: Advantages Disadvantages • It is a known jewellery • High cost of $50 000 per Buying a brand so the chances of year paid to franchisor franchise business failure are • Payment each year of reduced 20% of gross profit – • The franchisor pays for less profit for Gemma advertising on national • Less independence in television and national decision making newspapers lowering • Cannot sell other Gemma’s marketing jewellery – restricts budget supplies in the shop • All jewellery supplied by franchisor so don’t need to find suppliers saving Gemma time • Training employees and Gemma will be provided by the franchisor saving costs • Banks more willing to lend as it is a lower risk of failure Conclusion Justification might include: • No, as Gemma cannot take her own decisions and she has done well so far with the original jewellery shop. She should choose to sell whatever jewellery she wants and keep all the gross profit for herself, even though the franchise may be more popular and overall sales may have been higher, as she may have more gross profit to keep. • Yes, as a relatively new business of 5 years buying a franchise will make it much easier to obtain finance from the bank to use for the expansion.

This question in 0986/21 Oct/Nov 2020

1 (a) Explain four business objectives Tokumbo could set for SA. Objective 1: … … … … Objective 2: … … … … Objective 3: … … … … Objective 4: … … … … [8] (b) Consider the opportunities and threats of e-commerce for SA. Which is likely to have the greatest effect on SA? Justify your answer. Opportunities: … … … … … … … … Threats: … … … … … … … … Conclusion: … … … … … … … … … [12]

20 marks

Mark scheme: Question Answer Marks 1(a) Explain four business objectives Tokumbo could set for SA. 8 Award 1 mark for each relevant objective (max 4). Award a maximum of 1 additional mark for each explanation of the business objective in context. Relevant business objectives might include: • Profit – so Tokumbo will have the funds to pay for the development of his website • Increase sales / number of customers – so revenue from safari tours increases • Return on investment for the owner – so Tokumbo can gain a return on his investment in SA as he is a sole trader • Growth / expansion of the business – so that the business can take advantage of the growth in the number of young people camping • Market share – increased publicity and awareness for tourists visiting the country • Survival – as SA is a new business and has only been operating for 2 years • Provide services to the community • Providing good customer service • Reducing environmental impact For example: Tokumbo will want to make a profit (1) as he has invested his own money into the sole trader business (app). Application might include: safari holidays; increase in tourists from other countries; high income tourists; luxury safari holidays; 5 employees; only been operating for 2 years; sole trader; game reserve; camping / tent; wild animals; 4 safari guides; 4 safari vehicles; accommodation in local / luxury hotels; fuel. 1(b) Consider the opportunities and threats of e-commerce for SA. Which is 12 likely to have the greatest effect on SA? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of the opportunities and threats. Well-justified conclusion. Candidates discussing the opportunities and threats in detail, in context and with a well-justified conclusion including why the alternative was rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of the opportunities or threats. Judgement with some justification / some evaluation of choice made. Candidates discussing the opportunities and threats in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and 1–4 understanding of relevant business concepts. Limited ability to discuss opportunities and threats with little / no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the opportunities and threats in context should be rewarded with the top marks in the band. 0 No Creditable Response 0 1(b) Relevant points might include: Opportunities • Websites can be used to promote SA and its holidays worldwide – reaches potential customers from other countries – cheaper than many other forms of promotion • Bookings can be taken directly by SA over the internet – this means that intermediaries such as holiday companies are not required – SA profit margins are therefore not shared as it doesn’t pay them a fee • Tourists may be encouraged to purchase more additional services when booking SA holidays – easier to link through to other services • It is easier for SA to book hotel rooms for guests – quicker and cheaper than other communication methods such as phone calls • Easier to change prices if necessary than having to republish holiday brochures – reprints are expensive, and this makes it cheaper Threats • High levels of competition from many other safari businesses in country X and other countries that may also have websites – makes it harder to be the business tourists choose to book from • Website design may not be clear if Tokumbo does not know how to do this – are likely to be incurred for paying an expert to set up the site – and maintenance costs of up-dating the safari holiday site • There is still no face-to-face contact with customers • Customers may not be familiar with new businesses – less likely to buy if business not known 1(b) Conclusion Justification might include: • E-commerce will provide more opportunities than threats as the target customers of SA are tourists from other countries and having a website is an easy way to promote SA safari holidays to these customers rather than using intermediaries that may sell holidays from several other holiday businesses. There are many competitors but as long as SA can keep attracting customers using the internet then revenue will increase, and the threats are less of a concern • E-commerce will provide more threats than opportunities as many competitors will also have websites and sell their safari holidays through online bookings. There is no guarantee that people searching for a holiday will find SA’s website and they could easily find competitors’ websites instead and hence not be aware of SA at all. Therefore, there is reduced revenue

This question in 0986/21 Oct/Nov 2022

2 (a) Explain one business objective for ET and one other objective that a social enterprise like Daycare might have. Business objective for ET: … … Explanation: … … … … … … Objective for a social enterprise like Daycare: … … Explanation: … … … … … … [8] (b) Using Appendix 2 and other information, consider the two options for the first performance at the theatre. Which is the best option for Zaara to choose? Justify your answer using suitable calculations. Option 1: … … … … … … … … Option 2: … … … … … … … … Recommendation: … … … … … … … … [12]

20 marks

Mark scheme: 2(a) Explain one business objective for ET and one other objective that a 8 social enterprise like Daycare might have. One mark for each objective (max of 2). Award a maximum of 3 additional marks for each explanation of the objective – one of which must be applied to this context. Relevant answers might include: Business objective for ET  Survival – to not go bankrupt in the first year of operation – to cover costs  Profit – to provide a return on investment – for the owners who risked their own money  Growth of the business – to possibly increase sales – leading to increased revenue in the future  Market share – attract a higher number of customers – possibly leading to higher revenue Other objectives for social enterprise, Daycare  Service to the community/help local people – to create jobs for people in the local area – support disadvantaged groups in society/make a profit to put back into local initiatives  Provide childcare to enable low-income parents/carers to go out to work – increase their incomes – raising their living standards  Provide education for the pre-school children of low-income families  Provides access to education that otherwise would not be provided  Improves the likelihood of these children being more successful when they do go to school/may improve their ability to earn higher incomes in the future/get a better paid job  To provide funds to reinvest back into the social enterprise – by making a profit  To break-even For example: To provide a service to the community (1) to look after the pre- school children (app) and support disadvantaged groups in the society that cannot afford to pay for these services (1) so it will allow parents/guardians to go to work and improve their family’s income (1) Application might include: pre-school children; theatre; performances; actors; pay fair wages; tourists; low-income area; 24 part-time employees; provides education for children under 5. 2(b) Using Appendix 2 and other information, consider the two options for 12 the first performance at the theatre. Which is the best option for Zaara to choose? Justify your answer using suitable calculations. Level Description Marks 3 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both options. Well-justified recommendation. 9–12 Candidates discussing both options in detail, in context and with a well-justified recommendation including why the alternative option is rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one option. Judgement with some justification / some evaluation of 5–8 choice made. Candidates discussing at least one option in detail and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the options with little/no explanation. 1–4 Simple judgement with limited justification / limited evaluation of choices 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  Fewer employees  The average wage are required to put cost is the highest – on a performance – $20 higher than reducing total Option 2 variable costs  Makes a loss of  Costs for scenery $210 for each and costumes is performance the lowest of the  Lowest revenue two options – gained for each $1000 lower than performance of the Option 1 Option 2 two options –  Total cost is the $1000 per lowest of the two performance options – at $1210 per performance  Lowest price per seat at $10 – so likely to sell all the tickets ensuring the estimated revenue is received  Has the lowest • Has the highest wage cost per number of employee of the employees per two options – at performance – 17 $10 per actor more than Option 1  Makes the highest – highest total profit per wage costs performance of the • Highest cost of the two options – at two options – Option 2 $260 per $2240 per performance performance  Has the highest  Highest price per revenue of the two person – $25 each options – at $2500 – may not sell all – $1500 higher tickets – so than Option 1 revenue may be lower than estimated at $2500 2(b) Justification may include: • ET should choose Option 1 to have in the theatre as it has the cheapest total cost at $1210 per performance. As the theatre is new it should try to keep its costs as low as possible. Option 2 has much higher costs to put on the performances and ET may not have the funds to do this. Also the price per Recommendation ticket is higher for the other option and as the theatre is located in a low-income area of Main City the theatre may not sell all 100 seats and the estimated revenue may not be received. • ET should choose Option 2 for the theatre as it makes a profit of $260 per performance when the revenue is $2500.

This question in 0986/22 May/June 2023

1 (a) Explain two reasons why setting business objectives is important to JJ. Reason 1: … … Explanation: … … … … … … Reason 2: … … Explanation: … … … … … … [8] (b) Using Appendix 1 and other information, consider the two new products JJ could produce. Which product should JJ choose? Justify your answer using break-even calculations. • Product A • Product B Product A: … … … … … … … … Product B: … … … … … … … … Recommendation: … … … … … … … … [12]

20 marks

Mark scheme: Question Answer Marks 1(a) Explain two reasons why setting business objectives is important to JJ. 8 Award 1 mark for each reason (max 2). Award a maximum of 3 additional marks for each explanation of the reason why setting business objectives is important – one of which must be applied to this context. Relevant reasons might include:  A clear target/aim/purpose/goal to work towards – guides the business in the right direction – avoids loss of focus  Decision-making will be focused on the objectives – meaning better decisions are taken – the business may be more efficient  Helps motivate employees – objectives will help focus the employees and management to increase efficiency – making it more likely to be achieved  Comparison of performance – so business managers can compare how each department has performed against their objectives - to see whether or not it has been successful  Allows measurement of success – can judge performance or progress  Helps the business to produce a plan or strategy for the business to achieve these objectives For example: To give a clear target for employees and managers to work towards (1) so they all know what is expected of them (1) when producing different items of jewellery (app). Therefore, this means the target is more likely to be achieved (1). Application could include: jewellery; set up 25 years ago; public limited company; objective to increase profit every year; to expand the business; sold directly to customers in other countries; 30% sold using ecommerce; 70% sold in jewellery shops; raw materials purchased locally; 60 full-time employees; 25 part-time employees; bracelets; rings; earrings. 1(b) Using Appendix 1 and other information, consider the two new products 12 JJ could produce. Which product should JJ choose? Justify your answer using break-even calculations.  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, 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 choice 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 choice made. Candidates outlining both products in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: Product A  The price is much lower than for Product B, leading to more sales of bracelets needed to break-even  Forecast sales are higher at 2500 per week than Product B which may make it easier to meet demand if it is high  The break-even output is 2000 units per week – which is much higher than Product B – may be more difficult to achieve  The margin of safety is much higher at 500 than Product B making it a safer product to produce assuming all output is sold  The variable cost is lower by $15 than for each ring Product B  The price of rings is much higher than bracelets by $70  Break-even is 625 rings per week  The margin of safety is 125 per week if forecast sales are accurate – which is much lower than for Product A at 500 per week – increasing risk of not covering costs if sales are lower than forecast  The profit is much lower for Product B if all forecast sales are made – at $10 000 rather than $12 500 for Product A  Forecast sales each week is much lower at 750 rings, 1750 fewer items to produce each week  May be easier to promote and sell fewer items each week making it easier to achieve maximum sales Recommendation  JJ should choose to produce Product A, bracelets, as the margin of safety is higher than for Product B and may be less risk of not breaking-even if not all the forecast sales are made each week. Rings are more expensive to produce and if not sold then the variable cost of each ring is $40 so more will have been spent on variable cost per product than producing bracelets at $25 each.  JJ should choose to make Product B, rings, as the break-even output is much lower at 625 than the 2000 needed for bracelets and therefore may be easier to achieve.

This question in 0986/22 May/June 2024

3 (a) Explain four reasons why profit is important to a business. Reason 1: … … … … Reason 2: … … … … Reason 3: … … … … Reason 4: … … … … [8] (b) Consider the opportunities and threats of ecommerce for JJ. Which is likely to have the most effect on JJ? Justify your answer. Opportunities: … … … … … … … … Threats: … … … … … … … … Conclusion: … … … … … … … … [12]

20 marks

Mark scheme: 3(a) Explain four reasons why profit is important to a business. 8 Award 1 mark for each relevant reason (max 4). Award a maximum of 1 additional mark for each explanation. There are no application marks available for this question. Relevant reasons might include:  It is the reward to the entrepreneur/owners/shareholders – and is the reward for them using their skills and qualities in the business  It is a source of finance – to purchase non-current assets/for investment in long-term assets/development of new products  May attract investors – if the business is expanding and raising capital by selling additional shares  It is an indicator or measure of success - the higher the profit the more successful the business is likely to be  Can indicate if a product should be withdrawn if it is not making a profit  To measure the performance of managers For example: If the business makes a good profit, then it may attract investors (1) to help it raise capital by selling additional shares (1). 3(b) Consider the opportunities and threats of ecommerce for JJ. Which is 12 likely to have the most effect on JJ? 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 the opportunities and threats. Well-justified conclusion. Candidates discussing the opportunities and threats in detail, in context and with a well-justified conclusion, including why the opportunities or threats had the least effect, 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 the opportunities or threats. Judgement with some justification/some evaluation of choice made. Candidates discussing the opportunities or threats 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 opportunities or threats with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining the opportunities and threats in context should be rewarded with the top marks in the band. 0 No Creditable Response 0 3(b) Relevant points might include: Opportunities  Websites can be used to promote JJ’s jewellery – reaches potential customers from other countries – cheaper than many other forms of promotion  Orders can be taken directly by JJ over the internet – this means that intermediaries such as jewellery shops are not required – JJ’s profit margins are therefore not shared  Customers may be encouraged to purchase more additional items of jewellery when buying one item – easier to link through to other products that make a matching set  It is easier for JJ to order raw materials – quicker and cheaper than other communication methods such as phone calls  Easier to change prices, if necessary, rather than having to reprint brochures – makes it cheaper to do this Threats  High levels of competition from many other jewellery manufacturers which may also have websites – makes it harder to be the business that people choose to buy from  Website maintenance costs and costs of updating the site - will increase expenses and total costs  Cannot try on the jewellery, such as rings – to check if it fits and if it meets customers’ expectations – may be less likely to make a purchase if cannot see the products  Delivery and return costs may be high  The risk of hacking and losing customer data/increased security costs to keep the website safe from data being corrupted Conclusion Justification might include:  Ecommerce will provide more opportunities than threats as 30% of JJ’s target customers are from countries outside of country X and having a website is a low-cost way to promote and sell their jewellery. There are many competitors but as long as JJ can keep attracting customers using the internet then this will mean the threats from increased competition may not be a concern.  Ecommerce will provide more threats than opportunities as many competitors will also have websites and sell their jewellery online. There is no guarantee that people searching for items of jewellery such as bracelets will find JJ’s website and consumers could easily find a competitor’s website instead and not be aware of JJ at all.

This question in 0986/22 May/June 2024

2 (a) Explain one objective each of the following TSE stakeholder groups might have. Shareholders: … … … … Suppliers: … … … … Employees: … … … … Customers: … … … … [8] (b) Consider the following two ways TSE could use to increase efficiency. Which way should TSE use? Justify your answer. • Improving labour skills • Increasing automation and technology Improving labour skills: … … … … … … … … Increasing automation and technology: … … … … … … … … Recommendation: … … … … … … … … [12]

20 marks

Mark scheme: 2(a) Explain one objective each of the following TSE stakeholder groups 8 might have. • Shareholders • Suppliers • Employees • Customers Award 1 mark for each objective (max 4). Award a maximum of 1 additional mark for each explanation of the objective applied to this context. Relevant objectives might include: Shareholders: • To receive dividends – from increased profit when more tennis balls are sold • To increase the price of their shares • To increase profit • To increase market share • To increase revenue/sales Suppliers: • To increase sales/revenue/profits from selling its raw materials – such as plastic to make the rackets • To be paid on time/paid back Employees: • To receive higher wages – when working full-time in the factory • To have a secure job / no risk of being made redundant • To have good working conditions • To have opportunities for promotion – as looking into a new market in another country Customers: • To receive a quality product / doesn’t break easily – when playing badminton • To pay a low price for the product • To get it delivered on time For example: To receive dividends (1) from increased profit when more sports equipment is sold (app). Application could include: sports equipment; skilled and full-time workers; sells in 30 countries; factories in 10 countries; two companies that may be taken over; want to increase market share; a well-motivated workforce is important; uses new technology and automation for flow production; rubber; plastic; high-quality products. 2(b) Consider the following two ways TSE could use to increase efficiency. 12 Which way should TSE use? Justify your answer. • Improving labour skills • Increasing 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 is rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one way. Judgement with some justification / some evaluation of choices made. Candidates discussing 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 2(b) Relevant points might include: Advantages Disadvantages Improving labour • Increases motivation • Increases costs of skills of skilled making footballs – in production the short-term may employees – made reduce profitability – if to feel more valued increase in costs is as training given to greater than increase in them – investment in output when the the employees employees are being • Increases skills of trained employees so may • Output of sports enable them to work equipment may be more quickly – reduced whilst output of sports employees are being equipment is trained – amount of produced in a decrease in output shorter time depends on whether it • Output per worker is off-the-job or on-the- increases – job training increases • Skilled employees may productivity – fewer be tempted to leave inputs for a given and work for a output competitor that makes • Employees may high-quality products – become more then costs of training flexible – with wasted training they could possibly move around the factory covering for absent colleagues – keeps the factory running smoothly/fewer interruptions in output 2(b) Advantages Disadvantages Increasing • May require fewer • May result in automation and full-time employees redundancy payments technology on the production for the skilled line – reduces wage employees – costs increases costs in the • Output can be short-term – legal produced more requirements for quickly – reduces redundancy payments unit costs may be high • Changes in design • Maintenance costs of of badminton the technology may be equipment may be high – increases total made more quickly – costs of making tennis quicker to react to balls changes in customer • Increased training preferences costs if employees • Lower unit costs of need training how to footballs – may use the equipment allow prices to be • May need to employ reduced – price may new skilled workers to be more competitive operate the equipment – increases sales on the flow production line – increased recruitment costs Recommendation Justification might include: • Improving labour skills is the best way to increase efficiency at TSE’s factories. The skilled production employees will learn more skills which will enable them to produce more output per worker than previously. This will also motivate the workers to work harder and produce more output. Automation is very expensive to purchase the new equipment, and TSE may find it difficult to raise sufficient funds for the investment in many factories. • Introducing automation and technology in the factory to make tennis balls in 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 factories.

This question in 0986/22 May/June 2025