Cambridge IGCSE and O Level Business Studies Section 1 Understanding business activity

Exam-style case study 1b answers

The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.

Case study 1b: Banke’s bakery

Question 1a Explain two ways to measure the size of Banke’s business.

Possible answers could Relevant points

include: • number of employees
• capital employed
• level of sales turnover
• market share of the business

Sample explanation

The number of employees is one way to measure size. Banke does the baking so is likely to
employ few employees, if any. Large businesses often employ a large number of workers,
although this is not always the case when capital-intensive methods of production are used.

Question 1b Consider the following three reasons why Banke might want her business to remain small.
Which reason is likely to be most important? Justify your answer.

Possible answers could Lack of demand • bakery may not have a large number of potential customers
include: in the local area – without a large demand there is no point in
trying to expand to sell large numbers of bread or pizza, so the
business will remain small
Offer personal service • Banke bakes the bread and pizza – customers might like
supporting small local business and meeting Banke – if she
expands, she may not have time to meet and talk to customers
• customers can easily ask for different, individual orders to
be made which limits Banke’s ability to increase the scale of
production
Ability to control • runs her own business successfully – does not want someone
telling her what to do
• does most of the jobs – so able to see clearly what needs to be
done
Conclusion • lack of demand – must be able to sell what she makes –
otherwise will make a loss – unless able to increase demand, this
is likely to be most important factor
• personal service – only one shop – can train employees to offer
good service as well, but it would not be Banke
• control – did not like idea of partnership so control is clearly
important to her – Billy did offer to become a partner

© Cambridge University Press 2018 Exam-style case study answers – 1b

 Cambridge IGCSE and O Level Business Studies Section 1 Understanding business activity

Question 2a Explain two disadvantages to Banke of her being a sole trader.

Possible answers could Relevant points

include: • no one to share workload with
• only have own ideas and skills
• unlimited liability
• few sources of finance available for expansion
• carry all the business risk

Sample explanation

Banke has no one to share workload with so, as well as making the bread and pizzas, she has
to run the shop which could increase the amount of stress and burden Banke has to deal with
(especially at a time when her main customer to whom she sells 60% of her products is closing
down) which could increase the chances of her making mistakes.

Question 2b Consider the advantages and disadvantages of the following two forms of business
organisation Banke could choose if she went into business with Billy. Which form do you think
Banke should choose? Justify your answer.

Possible answers could Partnership • increased capital – Billy will put money in
include: • additional partners to work in the business – help with decisions –
holidays/responsibility shared
• additional specialisms/skills of partners – Billy has 20 years’ experience
as manager – so could help expand business or know about potential
customers to help replace lost revenue when supermarket closes down
• unlimited liability – so same risk as remaining a sole trader
• disagreements may cause problems/arguments – which can lead to
slower decision making or wrong decisions being made – missing out
on opportunities – but Billy is a friend for 10 years so may not be an
issue
• profit will have to be shared – so make less than would if remain as sole
trader
Private limited • limited liability – limit losses to amount invested – reduces risk –
company important if she decides to buy franchise as it is a different business
• increased capital – can sell shares to friends and family
• legal requirements – more paperwork to set up
• less privacy with accounts – some disclosure legally required
• only sell shares to family and friends – restrict amount of capital that
can be raised
Recommendation • private limited – main advantage is limited liability – limit any loss to
amount invested – so personal assets safe – would also allow other
friends and family to invest – but would have less privacy as some
accounts disclosed – could always employ Billy as manager – so if
lower risk is important – private limited is safer option
• partnership – can share risk and will benefit from Billy’s skills and
knowledge of supermarket – but retain unlimited liability – and as pizza
is new business this increases risk

© Cambridge University Press 2018 Exam-style case study answers – 1b

 Cambridge IGCSE and O Level Business Studies Section 1 Understanding business activity

Question 3a Explain two examples of tertiary sector businesses that a business might use.

Possible answers could Relevant points

include: • banking
• transport
• advertising agency
• market research agency
• wholesaler
• website designer
• accountant
• legal services
• business advisor

Sample explanation

Banke needs to use an advertising agency to help promote her bread to the customers as she is
busy making the bread and pizzas.

Question 3b Explain why the following three recommendations are important to Banke when deciding
whether to expand her business. Which recommendation do you think is the most important?
Justify your answer.

Possible answers could Market research • greater awareness of consumer needs – can adapt its pizza or bread to
include: match what customers want – increasing sales
• help forecast likely future trends – can improve focus of new products
• know strength of competitors – can change marketing strategy, such as
prices to compete improving chances of success
• reduces risks so franchise launched with more confidence – know what
features customers want
• produce the correct amount of product to avoid wastage of bread ingredients

Clear objectives • measure of success – if achieve a certain amount of new business to

replace 60% lost, they know they are on track
• helps decision making/planning/budgeting for the new franchise
• gives sense of purpose and direction – able to take decisions/allocate
resources effectively to ensure annual target is hit

Business plan • guide business/acts as a checklist/monitoring – to help decision making/

see what action they need to take – in order to help ensure expansion is
successful
• support loan applications/attract investors – so don’t have to use own
savings as shows ability to repay

Conclusion • depends on what Banke wants to know – all help with planning but focus
on different elements
• market research – information about the market – important as lost major
customer – has to decide whether to accept franchise
• objectives – important as before she decides whether to go into partnership
or buy franchise needs to know what she wants to achieve
• business plan – overview of aims – help planning and support requests for
loans – but needs to know what she wants to do first

© Cambridge University Press 2018 Exam-style case study answers – 1b

 Cambridge IGCSE and O Level Business Studies Section 1 Understanding business activity

Question 4a Describe two stakeholders that might be affected by the closure of Lowcost Supermarket.

Possible answers could Relevant points

include: • suppliers
• employees
• government
• lenders
• local community

Sample explanation

Suppliers, such as Banke, rely on the supermarket for 60% of its business so will lose
a significant amount of revenue from its closure. If suppliers are unable to find alternative
customers for its bread or other products, the businesses also face the risk of having to
close down.

Question 4b State the advantages and advantages of the three options listed in Appendix 2. Which option
do you think Banke should choose? Justify your answer.

Possible answers could Option 1 • be own boss – able to make all decisions – was concerned about idea
include: of partnership
• lower risk – has experience in this market
• current business is successful
• level of demand – can she find new customers to replace the ones lost
by the supermarket closure?

Option 2 • partnership – able to share risk and costs but would have to share
ownership which she is worried about – may make decisions she is not
happy about
• private limited – lowers risk but set up is more time consuming and
requires more paperwork and disclosure of information

Option 3 • Billy has 20 years of management experience but not in this business
• would Billy want to be an employee? – he offered to be a partner
• would increase her workload and risk of being a sole trader – and if
business not successful would be at greater risk of losing personal
possessions if unable to pay business debts
• has some knowledge of pizza market
• new competitor is likely as someone will take franchise which could
lower her sales of bread and other food items, especially as one of her
main customers is closing down

Recommendation • Banke does not like idea of partnership – still has unlimited liability –
but has private limited company option – but would mean more
information and legal requirements to set up
• current business – about to lose main customer – so can she find
alternative customers to replace the 60%?
• franchise – help and support offered – has some knowledge of pizza
business – could help spread risk if she can afford the cost of buying
the franchise – may depend if Billy willing to work for her

© Cambridge University Press 2018 Exam-style case study answers – 1b