Cambridge O Level

BUSINESS STUDIES 7115/21

*8055059647*

Paper 2 Case Study May/June 2020

1 hour 30 minutes

You must answer on the question paper.

You will need: Insert (enclosed)

INSTRUCTIONS
• Answer all questions.
• Use a black or dark blue pen. You may use an HB pencil for any diagrams or graphs.
• Write your name, centre number and candidate number in the boxes at the top of the page.
• Write your answer to each question in the space provided.
• Do not use an erasable pen or correction fluid.
• Do not write on any bar codes.
• You may use a calculator.

INFORMATION
• The total mark for this paper is 80.
• The number of marks for each question or part question is shown in brackets [ ].
• The insert contains the case study.

This document has 12 pages. Blank pages are indicated.

06_7115_21_2020_1.4
© UCLES 2020 [Turn over
 2

1 (a) Explain four characteristics that make Simon a successful entrepreneur.

Simon is a risk taker as he left the job to start his own business and
Characteristic 1: ................................................................................................................
sacrifice his salary in hope for profit
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
Simon is hard working as he has been producing his juice at home by
Characteristic 2: ................................................................................................................
himself and selling them without much support. He has also carried out market research
...........................................................................................................................................
all on his own
...........................................................................................................................................

...........................................................................................................................................

Simon is creative and innovative as he's trying to develop new flavors

Characteristic 3: ................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Simon has self belief and determination so he is ready to sell healthy

Characteristic 4: ................................................................................................................

drinks which are different from mass produced drinks which shows his conviction to his
...........................................................................................................................................
idea
...........................................................................................................................................

........................................................................................................................................... [8]

© UCLES 2020 06_7115_21_2020_1.4

 3

(b) Explain the three main methods of production FJ could use to produce its products in the
factory. Which method should FJ use? Justify your answer.

He can use job production in which one unit is produced at a time so at his
Method 1: ..........................................................................................................................
market stall he would produce each unit according to customer's order. This method is
...........................................................................................................................................
suitable as long as demand for his demands are low even though unit cost would be high
...........................................................................................................................................
because of low output level
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Batch production is when one type of juice is produced in certain quantity and
Method 2: ..........................................................................................................................
then units for another type of drink will be produced so drinks within a batch would be
...........................................................................................................................................
identical but different for drinks in other batches. there will be better economies of scale
...........................................................................................................................................
then job production but this approach might require more production resources like
...........................................................................................................................................

frequent adjustments in equipment for different type of drink

...........................................................................................................................................

...........................................................................................................................................

Method 3: Flow production is when large quantities are produced in a way that units of
..........................................................................................................................
output move between various stages of production without having to wait for completion
...........................................................................................................................................
of earlier units of output Simon can use this approach when his demand increases and
...........................................................................................................................................
he has to produce for multiple cities but there should be sufficient evidence about high
...........................................................................................................................................
demand and enough resources to invest in capital equipment. average unit cost would be
...........................................................................................................................................

lower due to technical economies

...........................................................................................................................................

Recommendation: ............................................................................................................
I recommend that Simon should use batch production because his

current sales aren't high enough to take a risk and invest heavily in flow production and
...........................................................................................................................................
he wants to expand into other cities so job production will not produce enough. Simon
...........................................................................................................................................
will be able to monitor quality for each type of drink seperately batch after batch and this
...........................................................................................................................................
would reduce reliance on worker skills and ensure standardized quality within the batch
...........................................................................................................................................
of drinks
........................................................................................................................................... [12]

© UCLES 2020 06_7115_21_2020_1.4 [Turn over

 4

2 (a) Explain one advantage and one disadvantage to Simon of using crowd-funding as a source
of finance for FJ.

risk is spread over large number of people

Advantage: .......................................................................................................................

...........................................................................................................................................

When Simon would put up his idea of healthy food drinks through a website
Explanation: ......................................................................................................................

then investment would be coming through many people with small individual contributions
...........................................................................................................................................
even if a product or service doesn't work and there is loss, still it will be of smaller amount
...........................................................................................................................................
for an individual contributor
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

idea would become public even before product is launched

Disadvantage: ...................................................................................................................

...........................................................................................................................................

Other fruit drink sellers might also launch similar drink before FJ as they
Explanation: ......................................................................................................................
might have more resources for a quicker launch but Simon is still in his survival stage thus
...........................................................................................................................................
his drinks won't be able to take first entrant advantage
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

........................................................................................................................................... [8]

© UCLES 2020 06_7115_21_2020_1.4

 5

(b) Consider the following three methods of market research Simon used. Which do you think is
the best method to use when deciding which product to produce? Justify your answer.

• Online questionnaire
• Accessing government population data
• Focus group

being online would allow large sample size and collecting quantitative
Online questionnaire: ........................................................................................................
and qualitative data in terms of types of juices they prefer etc. without hiring field staff.
...........................................................................................................................................
however, many people might not be interested in responding unless some incentive is
...........................................................................................................................................
offered
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Accessing government population data: government publishes population related stats

..........................................................................
which are usually available free of cost and Simon can find out population growth rate in
...........................................................................................................................................
different cities etc for deciding where to launch his drinks first. however it might require
...........................................................................................................................................
too much data processing in order to find out required information for a small business like FJ
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

group of people like potential buyers of FJ's drinks can be assembled to

Focus group: .....................................................................................................................

discuss what they like and don't like about the drink especially the new drinks can be
...........................................................................................................................................
offered to them for such discussions but its a time taking process and simon might lack
...........................................................................................................................................
expertise and resources to arrange such discussions
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

I think Simon should use focus group as out of the three methods this one
Conclusion: .......................................................................................................................
can be most specific to FJ's drinks and Simon needs specific response in terms of what
...........................................................................................................................................
people like and don't like about his drinks. secondly, group members can be offered free
...........................................................................................................................................
drinks for holding them in a discussion so cost will be low as well.
...........................................................................................................................................

...........................................................................................................................................

........................................................................................................................................... [12]

© UCLES 2020 06_7115_21_2020_1.4 [Turn over

 6

3 (a) Explain four ways an increase in government spending may affect a business.

government can spend to give subsidies like in country Z it is promoting healthy

Way 1: ...............................................................................................................................
eating and drinking so Simon might be paid by government to keep his prices low
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

government can spend to develop infrastructure which would help simon to spread
Way 2: ...............................................................................................................................
his operations into other cities like quicker delivery due to better roads available
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

government can spend more to raise wages and salaries and as a result people with
Way 3:................................................................................................................................
higher income would be able to spend more on healthy drinks like the ones offered by FJ
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

arranging exhibitions for small enterprises which gives them exposure to large
Way 4: ...............................................................................................................................
number of people and their number of customers can rise
...........................................................................................................................................

...........................................................................................................................................

........................................................................................................................................... [8]

© UCLES 2020 06_7115_21_2020_1.4

 7

(b) Referring to Appendix 2, consider the suitability of the three applicants for the position of
manager. Which applicant should Simon select? Justify your answer.

his expected wage rate is lowest so lower wage expense. he has worker for 4 years
Joe: ...................................................................................................................................
while studying. he has 3 A levels which is appropriate for the job he also holds hygiene
...........................................................................................................................................
certificate. however, joe wants to reduce his working hours but that might not be possible
...........................................................................................................................................
when new cafe is launched and there are many things to be managed
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

she is demanding highest wage rate but she already has exposure to a
Zabeen:.............................................................................................................................
managerial position so she would have an idea on how to manage the new branch but she
...........................................................................................................................................
doesn't have any formal qualifications which might be a hurdle for office communication
...........................................................................................................................................
and machine manuals. zabeen's appointment would motivate her as being a manager
...........................................................................................................................................

would satisfy her self esteem needs

...........................................................................................................................................

...........................................................................................................................................

his wage rate is between joe and zabeen but has ideal experience of being a manager
Jim: ...................................................................................................................................

for a considerable time period. he also holds hygiene certificate and has reasonable
...........................................................................................................................................
qualifications for office communication and reading machine manuals. Jim would be
...........................................................................................................................................
motivated because his self actualization needs would be fulfilled
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Jim would be most suitable as manager for the new stall because
Recommendation: ............................................................................................................
initially sales might be low so Zabeen's wages would be difficult to pay. Exact nature of
...........................................................................................................................................
experience would reduce chances of mistakes and help build goodwill quickly. It would be
...........................................................................................................................................
a challenge to make the new stall successful being a new business and with new drinks
...........................................................................................................................................

so Jim would feel motivated and excited to take up the challenge rather than feeling
...........................................................................................................................................
stressed
........................................................................................................................................... [12]

© UCLES 2020 06_7115_21_2020_1.4 [Turn over

 8

4 (a) Explain two reasons why profit is important to FJ.

re-investment in business
Reason 1: .........................................................................................................................

...........................................................................................................................................
when profit is reinvested or retained in a business then it doesn't require
Explanation: ......................................................................................................................
payment or repayment of interest and it reduces need for taking loans thus saving FJ
...........................................................................................................................................
from higher interest expense. loans might be difficult to obtain as a business is just six
...........................................................................................................................................
months old with few fixed assets to pledge as asset.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

source of motivation for employees

Reason 2: .........................................................................................................................

...........................................................................................................................................

incase FJ announces to share financial gains with it's employees then more
Explanation: ......................................................................................................................
profit might mean profit sharing or bonuses extra. when FJ would earn profit then it might
...........................................................................................................................................
mean job security for FJ's employees as the business is successful in selling it's drinks.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

........................................................................................................................................... [8]

© UCLES 2020 06_7115_21_2020_1.4

 9
calculations to be on blank page. and stuff on blank page 10 needed to be here.

(b) Consider the two products outlined in Appendix 3. Which product should FJ produce? Justify
your answer using relevant calculations.

profit=total revenue-total cost

Drink A: .............................................................................................................................
revenue=2000*5 = 10000
...........................................................................................................................................

total cost = 4*2000 = 8000+500 = 8500

...........................................................................................................................................

profit = 10000-8500 = 1500

...........................................................................................................................................

...........................................................................................................................................

net profit margin = 1500/10000*100

...........................................................................................................................................

break even : fixed cost/per unit contribution

...........................................................................................................................................

500/1 = 500
...........................................................................................................................................
revenue= 5000*2 = 10000
Drink B:..............................................................................................................................

total cost = 5000+500 = 5500

...........................................................................................................................................

profit = 10000-5500 = 4500

...........................................................................................................................................

...........................................................................................................................................
net profit margin = 4500/10000*100 = 45
...........................................................................................................................................

break even: 500/1 = 500

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
I recommend production of drink B because it's expected profit
Recommendation:.............................................................................................................

is 3 times more and safety margin is of 4500 units as compared to 1500 units
...........................................................................................................................................

of drink A. So if actual sales are half than what has been forecasted still drink
...........................................................................................................................................

b will be able to earn more profit. FJ is still new in market and it can't spend
...........................................................................................................................................

enough to promote its drink to high earning consumers similarly it might struggle
...........................................................................................................................................

to arrange enough working capital to buy fruits of 6 different varieties which all
...........................................................................................................................................

might not be in enough supply. drink b also has better profitability as compared
...........................................................................................................................................

to drink A
........................................................................................................................................... [12]

© UCLES 2020 06_7115_21_2020_1.4

 10

BLANK PAGE

Drink A: drink is targeted at high income consumers who are less likely

to be affected in recession but risk is concentrated over lesser number of customers

than drink b. secondly, high number of fruits is required which can create supply

related problems

Drink B: high weekly demand increases safety margin as both option have same

breakeven quantity. only two types of fruits are required so supply of raw material

can be reliable as consumers have low income and drinks have low selling price so

sales might not decrease by a great deal even if incomes fall because drink b can be

purchased in small amount

© UCLES 2020 06_7115_21_2020_1.4

 11

BLANK PAGE

© UCLES 2020 06_7115_21_2020_1.4

 12

BLANK PAGE

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable
effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will
be pleased to make amends at the earliest possible opportunity.

To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge Assessment
International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at
www.cambridgeinternational.org after the live examination series.

Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.

© UCLES 2020 06_7115_21_2020_1.4