Business Studies Redspot 2011-2019

Syllabus
Cambridge IGCSE®
Business Studies 0450
For examination in June and November 2020, 2021 and 2022.
Also available for examination in March 2020, 2021 and 2022 for India only.
Version 2
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Contents
1 Why choose this syllabus? ..................................................................................................... 2
2 Syllabus overview .................................................................................................................... 5

Aims 5
Content overview 6
Assessment overview 7
Assessment objectives 8
3 Subject content .......................................................................................................................10
4 Details of the assessment ....................................................................................................22

Paper 1 – Short Answer and Data Response 22
Paper 2 – Case Study 22
Command words 23
5 What else you need to know .............................................................................................. 24

Before you start 24
Making entries 25
After the exam 26
How students and teachers can use the grades 26
Grade descriptions 26
Changes to this syllabus for 2020, 2021 and 2022 27
Changes to this syllabus

For information about changes to this syllabus for 2020, 2021 and 2022, go to page 27.
The latest syllabus is version 2, published October 2017. There are no significant changes which affect teaching.
Any textbooks endorsed to support the syllabus for examination from 2015 are still suitable for use with this
syllabus.
Cambridge IGCSE Business Studies 0450 syllabus for 2020, 2021 and 2022.
1 Why choose this syllabus?
Key benefits
Cambridge IGCSE® syllabuses are created especially for international students. For over 25 years, we have worked
with schools and teachers worldwide to develop syllabuses that are suitable for different countries, different types
of schools and for learners with a wide range of abilities.
Cambridge IGCSE Business Studies is accepted by universities and employers as proof of an understanding of
business concepts and techniques across a range of different types of businesses. Learners will be able to:
•• understand different forms of business organisations, the environments in which businesses operate and
business functions such as marketing, operations and finance
•• appreciate the role of people in business success.
They will also gain lifelong skills, including:

•• the ability to calculate and interpret business data
•• communication skills needed to support arguments with reasons
•• the ability to analyse business situations and reach decisions or judgements.
Our programmes balance a thorough knowledge and understanding of a subject and help to develop the skills
learners need for their next steps in education or employment.
Our approach encourages learners to be:
Cambridge
learner
‘The strength of Cambridge IGCSE qualifications is internationally recognised and has provided
an international pathway for our students to continue their studies around the world.’
Gary Tan, Head of Schools and CEO, Raffles International Group of Schools, Indonesia
2 www.cambridgeinternational.org/igcse Back to contents page

Cambridge IGCSE Business Studies 0450 syllabus for 2020, 2021 and 2022. Why choose this syllabus?
Recognition and progression

The combination of knowledge and skills in Cambridge IGCSE Business Studies gives learners a solid foundation for
further study. Candidates who achieve grades A* to C are well prepared to follow a wide range of courses including
Cambridge International AS & A Level Business.
Cambridge IGCSEs are accepted and valued by leading universities and employers around the world as evidence of
academic achievement. Many universities require a combination of Cambridge International AS & A Levels and
Cambridge IGCSEs or equivalent to meet their entry requirements.
UK NARIC, the national agency in the UK for the recognition and comparison of international qualifications and
skills, has carried out an independent benchmarking study of Cambridge IGCSE and found it to be comparable to
the standard of GCSE in the UK. This means students can be confident that their Cambridge IGCSE qualifications
are accepted as equivalent to UK GCSEs by leading universities worldwide.
Learn more at www.cambridgeinternational.org/recognition
‘Cambridge IGCSE is one of the most sought-after and recognised qualifications in the world. It
is very popular in Egypt because it provides the perfect preparation for success at advanced level
programmes.’
Mrs Omnia Kassabgy, Managing Director of British School in Egypt BSE
Back to contents page www.cambridgeinternational.org/igcse 3

Cambridge IGCSE Business Studies 0450 syllabus for 2020, 2021 and 2022. Why choose this syllabus?
Supporting teachers
We provide a wide range of practical resources, detailed guidance, and innovative training and professional
development so that you can give your learners the best possible preparation for Cambridge IGCSE.
Teaching resources Exam preparation resources

• School Support Hub • Question papers
www.cambridgeinternational.org/support • Mark schemes
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community forums.
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Find out more at
Qualifications
www.cambridgeinternational.org/social-media

2 Syllabus overview
Aims
The aims describe the purposes of a course based on this syllabus.
The aims are to enable students to:

•• apply their knowledge and critical understanding to current issues and problems in a wide range of business
contexts
•• make effective use of relevant terminology, concepts and methods, and recognise the strengths and limitations
of the ideas used in business
•• distinguish between facts and opinions, and evaluate qualitative and quantitative data in order to help build
arguments and make informed judgements
•• appreciate the perspectives of a range of stakeholders in relation to the business environment, individuals,
society, government and enterprise
•• develop knowledge and understanding of the major groups and organisations within and outside business, and
consider ways in which they are able to influence objectives, decisions and activities
•• develop knowledge and understanding of how the main types of businesses are organised, financed and
operated, and how their relations with other organisations, consumers, employees, owners and society are
regulated
•• develop skills of numeracy, literacy, enquiry, selection and use of relevant sources of information, presentation
and interpretation
•• develop an awareness of the nature and significance of innovation and change within the context of business
activities
•• acquire a foundation for further study of business or other subjects.
Support for Cambridge IGCSE Business Studies

Our School Support Hub www.cambridgeinternational.org/support provides Cambridge schools with a
secure site for downloading specimen and past question papers, mark schemes, grade thresholds and other
curriculum resources specific to this syllabus. The School Support Hub community offers teachers the
opportunity to connect with each other and to ask questions related to the syllabus.

Cambridge IGCSE Business Studies 0450 syllabus for 2020, 2021 and 2022. Syllabus overview
Content overview
1 Understanding business activity
This section introduces the underlying ideas and concepts of business and includes the purpose and nature of
business activity and how businesses can be classified. Enterprise and entrepreneurs, and why some businesses
grow while others remain small are further important issues. How business size can be measured, types of
business organisation, business objectives and stakeholder objectives are the concluding topics.
2 People in business

The focus is the functional area of human resources and includes the importance and methods of motivating a
workforce. How businesses are organised and managed and the methods of recruitment, selection and training
of employees are also considered. Finally, the section covers the importance and methods of effective internal
and external communication.
3 Marketing
This section includes the role of marketing, the distinctions between niche and mass markets and the
techniques of market segmentation. The methods and importance of market research are covered. The central
role of the marketing mix, i.e. the four Ps, is made clear. Marketing strategies to influence consumer decisions
at home and in new foreign markets are the final topics in this section.
4 Operations management
The focus is the functional area of production and includes the meaning and methods of production and how
productivity can be increased. The different costs of production and break-even analysis are covered. The
section concludes with the importance and methods of achieving quality in the production process and location
decisions of businesses.
5 Financial information and decisions

This finance and accounting section covers the need for and sources of business finance, cash-flow forecasting
and working capital. Simple income statements are covered as well as statements of financial position and the
analysis of accounts including why and how accounts are used.
6 External influences on business activity

This section focuses on different external influences on business activity and how these impact on a business.
It includes government influences on economic, environmental and ethical issues and how they impact on
the functional areas of businesses. In addition, the international economy including globalisation and its
effects on businesses and governments, multinational businesses and exchange rates are important issues.
Legal constraints are an external influence to be considered but these influences are covered in the relevant
functional areas above, as well as in this last section.

Assessment overview
All candidates take two papers.
All candidates take: and:
Paper 1 1 hour 30 minutes Paper 2 1 hour 30 minutes

Short Answer and Data Response 50% Case Study 50%
80 marks 80 marks
Four questions requiring a mixture of short Four questions based on a case study, provided
answers and structured data responses as an insert with the paper
Candidates answer all questions Candidates answer all questions
Externally assessed Externally assessed

Assessment objectives
The assessment objectives (AOs) are:
AO1 Knowledge and understanding
•• demonstrate knowledge and understanding of facts, terms, concepts, conventions, theories and techniques
commonly applied to or used as part of business behaviour.
AO2 Application
•• apply knowledge and understanding of facts, terms, concepts, conventions, theories and techniques.
AO3 Analysis
•• distinguish between evidence and opinion in a business context

•• order, analyse and interpret information in narrative, numerical and graphical forms, using appropriate
techniques.
AO4 Evaluation
•• present reasoned explanations, develop arguments, understand implications and draw inferences
•• make judgements, recommendations and decisions.

Weighting for assessment objectives

The approximate weightings allocated to each of the assessment objectives (AOs) are summarised below.
Assessment objectives as a percentage of the qualification
Assessment objective Weighting in IGCSE %
AO1 Knowledge and understanding 40
AO2 Application 20
AO3 Analysis 25
AO4 Evaluation 15
Assessment objectives as a percentage of each component
Assessment objective Weighting in components %
Paper 1 Paper 2
AO1 Knowledge and understanding 50 30
AO2 Application 20 20
AO3 Analysis 20 30
AO4 Evaluation 10 20

3 Subject content
In all of the following, candidates are required to apply their understanding to a variety of simple business
situations. Candidates should be able to make simple decisions based upon the analysis and evaluation of
information provided.
1 Understanding business activity

1.1 Business activity
1.1.1 The purpose and nature of business activity: •• Concepts of needs, wants, scarcity and
opportunity cost
•• Importance of specialisation
•• Purpose of business activity
•• The concept of adding value and how added
value can be increased
1.2 Classification of businesses

1.2.1 Business activity in terms of primary, secondary •• Basis of business classification, using examples to
and tertiary sectors: illustrate the classification
•• Reasons for the changing importance of business
classification, e.g. in developed and developing
economies
1.2.2 Classify business enterprises between private

sector and public sector in a mixed economy
1.3 Enterprise, business growth and size

1.3.1 Enterprise and entrepreneurship: •• Characteristics of successful entrepreneurs
•• Contents of a business plan and how business
plans assist entrepreneurs
•• Why and how governments support business
start-ups, e.g. grants, training schemes
1.3.2 The methods and problems of measuring •• Methods of measuring business size, e.g. number
business size: of people employed, value of output, capital
employed (profit is not a method of measuring
business size)
•• Limitations of methods of measuring business
size

Cambridge IGCSE Business Studies 0450 syllabus for 2020, 2021 and 2022. Subject content
1.3.3 Why some businesses grow and others remain •• Why the owners of a business may want to
small: expand the business
•• Different ways in which businesses can grow
•• Problems linked to business growth and how
these might be overcome
•• Why some businesses remain small
1.3.4 Why some (new or established) businesses fail: •• Causes of business failure, e.g. lack of
management skills, changes in the business
environment, liquidity problems
•• Why new businesses are at a greater risk of failing
1.4 Types of business organisation

1.4.1 The main features of different forms of •• Sole traders, partnerships, private and public
business organisation: limited companies, franchises and joint ventures
•• Differences between unincorporated businesses
and limited companies
•• Concepts of risk, ownership and limited liability
•• Recommend and justify a suitable form of
business organisation to owners/management in
a given situation
•• Business organisations in the public sector,
e.g. public corporations
1.5 Business objectives and stakeholder objectives

1.5.1 Businesses can have several objectives and the •• Need for business objectives and the importance
importance of them can change: of them
•• Different business objectives, e.g. survival,
growth, profit and market share
•• Objectives of social enterprises
1.5.2 The role of stakeholder groups involved in •• Main internal and external stakeholder groups
business activity: •• Objectives of different stakeholder groups
•• How these objectives might conflict with each
other, use examples
1.5.3 Differences in the objectives of private sector

and public sector enterprises

2 People in business
2.1 Motivating employees
2.1.1 The importance of a well-motivated workforce: •• Why people work and what motivation means
•• The benefits of a well-motivated workforce:
labour productivity, reduced absenteeism and
labour turnover
•• The concept of human needs, e.g. Maslow’s
hierarchy
•• Key motivational theories: Taylor and Herzberg
2.1.2 Methods of motivation: •• Financial rewards, e.g. wage, salary, bonus,

commission and profit sharing
•• Non-financial methods, e.g. job enrichment, job
rotation, teamworking, training, opportunities for
promotion
•• Recommend and justify appropriate method(s) of
motivation in given circumstances
2.2 Organisation and management

2.2.1 Draw, interpret and understand simple •• Simple hierarchical structures: span of control,
organisational charts: levels of hierarchy, chain of command
•• Roles and responsibilities of directors, managers,
supervisors, other employees in an organisation
and inter-relationships between them
2.2.2 The role of management: •• Functions of management, e.g. planning,

organising, coordinating, commanding and
controlling
•• Importance of delegation; trust versus control
2.2.3 Leadership styles: •• Features of the main leadership styles,

e.g. autocratic, democratic and laissez-faire
•• Recommend and justify an appropriate leadership
style in given circumstances
2.2.4 Trade unions: •• What a trade union is and the effects of

employees being union members

2.3 Recruitment, selection and training of employees

2.3.1 Recruitment and selecting employees: •• Recruitment and selection methods
•• Difference between internal recruitment and
external recruitment
•• Main stages in recruitment and selection of
employees
•• Recommend and justify who to employ in given
circumstances
•• Benefits and limitations of part-time employees
and full-time employees
2.3.2 The importance of training and the methods of •• Importance of training to a business and to
training: employees
•• Benefits and limitations of induction training,
on-the-job training and off-the-job training
2.3.3 Why reducing the size of the workforce might •• Difference between dismissal and redundancy
be necessary: with examples
•• Understand situations in which downsizing the
workforce might be necessary, e.g. automation or
reduced demand for products
•• Recommend and justify which employees to
make redundant in given circumstances
2.3.4 Legal controls over employment issues and •• Legal controls over employment contracts, unfair
their impact on employers and employees: dismissal, discrimination, health and safety, legal
minimum wage
2.4 Internal and external communication

2.4.1 Why effective communication is important and •• Effective communication and its importance to
the methods used to achieve it: business
•• Benefits and limitations of different
communication methods including those based
on information technology (IT)
•• Recommend and justify which communication
method to use in given circumstances
2.4.2 Demonstrate an awareness of communication •• How communication barriers arise and

barriers: problems of ineffective communication; how
communication barriers can be reduced or
removed

3 Marketing
3.1 Marketing, competition and the customer
3.1.1 The role of marketing: •• Identifying customer needs
•• Satisfying customer needs
•• Maintaining customer loyalty
•• Building customer relationships
3.1.2 Market changes: •• Why customer/consumer spending patterns may

change
•• The importance of changing customer needs
•• Why some markets have become more
competitive
•• How businesses can respond to changing
spending patterns and increased competition
3.1.3 Concepts of niche marketing and mass •• Benefits and limitations of both approaches to
marketing: marketing
3.1.4 How and why market segmentation is •• How markets can be segmented, e.g. according
undertaken: to age, socio-economic grouping, location,
gender
•• Potential benefits of segmentation to business
•• Recommend and justify an appropriate method
of segmentation in given circumstances
3.2 Market research

3.2.1 The role of market research and methods used: •• Market-orientated businesses (uses of market
research information to a business)
•• Primary research and secondary research
(benefits and limitations of each)
•• Methods of primary research, e.g. postal
questionnaire, online survey, interviews, focus
groups
•• The need for sampling
•• Methods of secondary research, e.g. online,
accessing government sources, paying for
commercial market research reports
•• Factors influencing the accuracy of market
research data
3.2.2 Presentation and use of market research •• Analyse market research data shown in the form
results: of graphs, charts and diagrams; draw simple
conclusions from such data

3.3 Marketing mix

3.3.1 Product: •• The costs and benefits of developing new
products
•• Brand image; impact on sales and customer
loyalty
•• The role of packaging
•• The product life cycle: main stages and extension
strategies; draw and interpret a product life cycle
diagram
•• How stages of the product life cycle can influence
marketing decisions, e.g. promotion and pricing
decisions
3.3.2 Price: •• Pricing methods (benefits and limitations of

different methods), e.g. cost plus, competitive,
penetration, skimming, and promotional
•• Recommend and justify an appropriate pricing
method in given circumstances
•• Understand the significance of price elasticity:
difference between price elastic demand and
price inelastic demand; importance of the
concept in pricing decisions (knowledge of
the formula and calculations of PED will not be
assessed)
3.3.3 Place – distribution channels: •• Advantages and disadvantages of different

channels, e.g. use of wholesalers, retailers or
direct to consumers
•• Recommend and justify an appropriate
distribution channel in given circumstances
3.3.4 Promotion: •• The aims of promotion

•• Different forms of promotion and how they
influence sales, e.g. advertising, sales promotion
•• The need for cost-effectiveness in spending the
marketing budget on promotion
3.3.5 Technology and the marketing mix: •• Define and explain the concept of e-commerce
•• The opportunities and threats of e-commerce to
business and consumers
•• Use of the internet and social media networks for
promotion

3.4 Marketing strategy

3.4.1 Justify marketing strategies appropriate to a •• Importance of different elements of the
given situation: marketing mix in influencing consumer decisions
in given circumstances
•• Recommend and justify an appropriate marketing
strategy in given circumstances
3.4.2 The nature and impact of legal controls related •• Impact of legal controls on marketing strategy,
to marketing: e.g. misleading promotion, faulty and dangerous
goods
3.4.3 The opportunities and problems of entering •• Growth potential of new markets in other
new foreign markets: countries
•• Problems of entering foreign markets,
e.g. cultural differences and lack of knowledge
•• Benefits and limitations of methods to overcome
such problems, e.g. joint ventures, licensing
4 Operations management
4.1 Production of goods and services
4.1.1 The meaning of production: •• Managing resources effectively to produce goods
and services
•• Difference between production and productivity
•• Benefits of increasing efficiency and how to
increase it, e.g. increasing productivity by
automation and technology, improved labour
skills
•• Why businesses hold inventories
•• The concept of lean production: how to achieve
it, e.g. just-in-time inventory control and Kaizen;
benefits of lean production
4.1.2 The main methods of production: •• Features, benefits and limitations of job, batch
and flow production
•• Recommend and justify an appropriate
production method for a given situation
4.1.3 How technology has changed production

methods, e.g. using computers in design and
manufacturing

4.2 Costs, scale of production and break-even analysis

4.2.1 Identify and classify costs: •• Classifying costs using examples, e.g. fixed,
variable, average, total
•• Use cost data to help make simple cost-based
decisions, e.g. to stop production or continue
4.2.2 Economics and diseconomies of scale: •• The concept of economies of scale with
examples, e.g. purchasing, marketing, financial,
managerial, technical
•• The concept of diseconomies of scale with
examples, e.g. poor communication, lack of
commitment from employees, weak coordination
4.2.3 Break-even analysis: •• The concept of break-even

•• Construct, complete or amend a simple
break-even chart
•• Interpret a given chart and use it to analyse a
situation
•• Calculate break-even output from given data
•• Define, calculate and interpret the margin of
safety
•• Use break-even analysis to help make simple
decisions, e.g. impact of higher price
•• Understand the limitations of break-even analysis
4.3 Achieving quality production

4.3.1 Why quality is important and how quality •• What quality means and why it is important for
production might be achieved: all businesses
•• The concept of quality control and how
businesses implement quality control
•• The concept of quality assurance and how this
can be implemented
4.4 Location decisions

4.4.1 The main factors influencing the location and •• Factors relevant to the location decision of
relocation decisions of a business: manufacturing businesses and service businesses
•• Factors that a business could consider when
deciding which country to locate operations in
•• The role of legal controls on location decisions
•• Recommend and justify an appropriate location
for a business in given circumstances

5 Financial information and decisions

5.1 Business finance: needs and sources
5.1.1 The need for business finance: •• The main reasons why businesses need finance,
e.g. start-up capital, capital for expansion and
additional working capital
•• Understand the difference between short-term
and long-term finance needs
5.1.2 The main sources of finance: •• Internal sources and external sources with
examples
•• Short-term and long-term sources with
examples, e.g. overdraft for short-term finance
and debt or equity for long-term finance
•• Importance of alternative sources of capital,
e.g. micro-finance, crowd-funding
•• The main factors considered in making the
financial choice, e.g. size and legal form of
business, amount required, length of time,
existing loans
•• Recommend and justify appropriate source(s) of
finance in given circumstances
5.2 Cash-flow forecasting and working capital

5.2.1 The importance of cash and of cash-flow •• Why cash is important to a business
forecasting: •• What a cash-flow forecast is, how a simple one is
constructed and the importance of it
•• Amend or complete a simple cash-flow forecast
•• How to interpret a simple cash-flow forecast
•• How a short-term cash-flow problem might
be overcome, e.g. increasing loans, delaying
payments, asking debtors to pay more quickly
5.2.2 Working capital: •• The concept and importance of working capital
5.3 Income statements

5.3.1 What profit is and why it is important: •• How a profit is made
•• Importance of profit to private sector businesses,
e.g. reward for risk-taking/enterprise, source of
finance
•• Difference between profit and cash

5.3.2 Income statements: •• Main features of an income statement,

e.g. revenue, cost of sales, gross profit, profit and
retained profit
•• Use simple income statements in decision-
making based on profit calculations (constructing
income statements will not be assessed)
5.4 Statement of financial position

5.4.1 The main elements of a statement of financial •• The main classifications of assets and liabilities,
position: using examples
5.4.2 Interpret a simple statement of financial

position and make deductions from it,
e.g. how a business is financing its activities and
what assets it owns, sale of inventories to raise
finance (constructing statements of financial
position will not be assessed)
5.5 Analysis of accounts

5.5.1 Profitability: •• The concept and importance of profitability
5.5.2 Liquidity: •• The concept and importance of liquidity
5.5.3 How to interpret the financial performance •• Gross profit margin

of a business by calculating and analysing •• Profit margin
profitability ratios and liquidity ratios:
•• Return on Capital Employed
•• Current ratio
•• Acid test ratio
5.5.4 Why and how accounts are used: •• Needs of different users of accounts and ratio
analysis
•• How users of accounts and ratio results might
use information to help make decisions, e.g.
whether to lend to or invest in the business

6 External influences on business activity

6.1 Economic issues
6.1.1 Business cycle: •• Main stages of the business cycle, e.g. growth,
boom, recession, slump
•• Impact on businesses of changes in employment
levels, inflation and Gross Domestic Product
(GDP)
6.1.2 How government control over the economy •• Identify government economic objectives,
affects business activity and how businesses e.g. increasing Gross Domestic Product (GDP)
may respond: •• Impact of changes in taxes and government
spending
•• Impact of changes in interest rates
•• How businesses might respond to these changes
6.2 Environmental and ethical issues

6.2.1 Environmental concerns and ethical issues •• How business activity can impact on the
as both opportunities and constraints for environment, e.g. global warming
businesses: •• The concept of externalities: possible external
costs and external benefits of business decisions
•• Sustainable development; how business activity
can contribute to this
•• How and why business might respond to
environmental pressures and opportunities,
e.g. pressure groups
•• The role of legal controls over business activity
affecting the environment, e.g. pollution controls
•• Ethical issues a business might face: conflicts
between profits and ethics
•• How business might react and respond to ethical
issues, e.g. child labour
6.3 Business and the international economy

6.3.1 The importance of globalisation: •• The concept of globalisation and the reasons for
it
•• Opportunities and threats of globalisation for
businesses
•• Why governments might introduce import tariffs
and import quotas

6.3.2 Reasons for the importance and growth of •• Benefits to a business of becoming a
multinational companies (MNCs): multinational and the impact on its stakeholders
•• Potential benefits to a country and/or economy
where a MNC is located, e.g. jobs, exports,
increased choice, investment
•• Potential drawbacks to a country and/or
economy where a MNC is located, e.g. reduced
sales of local businesses, repatriation of profits
6.3.3 The impact of exchange rate changes: •• Depreciation and appreciation of an exchange
rate
•• How exchange rate changes can affect businesses
as importers and exporters of products,
e.g. prices, competitiveness, profitability
(exchange rate calculations will not be assessed)

4 Details of the assessment
Paper 1 – Short Answer and Data Response
Written paper, 1 hour 30 minutes, 80 marks
The question paper comprises four questions requiring a mixture of short answers and structured data responses.
The paper assesses content drawn from the entire syllabus.
Each question is introduced by stimulus material. For some questions candidates will need to refer to the stimulus
material in their answers. The stimulus material may include tables, graphs and images.
Candidates answer all questions.
Candidates should be aware of the marks for each part question. These are printed on the question paper.
Candidates should use them as a guide to the amount of detail and length of response expected and to help them
manage their time effectively.
Candidates write their answers on the question paper.
The paper assesses the following assessment objectives:

AO1: Knowledge and understanding
AO2: Application
AO3: Analysis
AO4: Evaluation
Paper 2 – Case Study
Written paper, 1 hour 30 minutes, 80 marks
The question paper comprises four questions based on a case study, provided as an insert with the paper. The case
study includes appendices with data presented in a variety of forms, such as tables, graphs, newspaper extracts and
advertisements.
The paper assesses content drawn from the entire syllabus.
Candidates answer all questions.
Candidates should be aware of the marks for each part question. These are printed on the question paper.
Candidates should use them as a guide to the amount of detail and length of response expected and to help them
manage their time effectively.
Candidates write their answers on the question paper.
The paper assesses the following assessment objectives:

AO1: Knowledge and understanding
AO2: Application
AO3: Analysis
AO4: Evaluation

Cambridge IGCSE Business Studies 0450 syllabus for 2020, 2021 and 2022. Details of the assessment
Command words
The table below includes command words used in the assessment for this syllabus. The use of the command word
will relate to the subject context.
Command word What it means

Calculate work out from given facts, figures or information
Consider review and respond to given information
Define give precise meaning
Explain set out purposes or reasons / make the relationships between things evident / provide why
and/or how and support with relevant evidence
Identify name/select/recognise
Justify support a case with evidence/argument
Outline set out main points
State express in clear terms

5 What else you need to know
This section is an overview of other information you need to know about this syllabus. It will help to share the
administrative information with your exams officer so they know when you will need their support. Find more
information about our administrative processes at www.cambridgeinternational.org/examsofficers
Before you start

Previous study
We do not expect learners starting this course to have previously studied business studies.
Guided learning hours

We design Cambridge IGCSE syllabuses based on learners having about 130 guided learning hours for each subject
during the course but this is for guidance only. The number of hours a learner needs to achieve the qualification
may vary according to local practice and their previous experience of the subject.
Availability and timetables

You can enter candidates in the June and November exam series. If your school is in India, you can enter
your candidates in the March exam series. You can view the timetable for your administrative zone at
www.cambridgeinternational.org/timetables
Private candidates can enter for this syllabus.
Combining with other syllabuses

Candidates can take this syllabus alongside other Cambridge International syllabuses in a single exam series. The
only exceptions are:
•• Cambridge IGCSE (9–1) Business Studies (0986)
•• Cambridge O Level Business Studies (7115)
•• syllabuses with the same title at the same level.
Cambridge IGCSE, Cambridge IGCSE (9–1) and Cambridge O Level syllabuses are at the same level.
Group awards: Cambridge ICE

Cambridge ICE (International Certificate of Education) is a group award for Cambridge IGCSE. It allows schools
to offer a broad and balanced curriculum by recognising the achievements of learners who pass examinations in a
range of different subjects.
Learn more about Cambridge ICE at www.cambridgeinternational.org/cambridgeice

Cambridge IGCSE Business Studies 0450 syllabus for 2020, 2021 and 2022. What else you need to know
Making entries
Exams officers are responsible for submitting entries to Cambridge International. We encourage them to work
closely with you to make sure they enter the right number of candidates for the right combination of syllabus
components. Entry option codes and instructions for submitting entries are in the Cambridge Guide to Making
Entries. Your exams officer has a copy of this guide.
Exam administration
To keep our exams secure, we produce question papers for different areas of the world, known as ‘administrative
zones’. We allocate all Cambridge schools to one administrative zone determined by their location. Each zone has
a specific timetable. Some of our syllabuses offer candidates different assessment options. An entry option code
is used to identify the components the candidate will take relevant to the administrative zone and the available
assessment options.
Support for exams officers

We know how important exams officers are to the successful running of exams. We provide them with the support
they need to make your entries on time. Your exams officer will find this support, and guidance for all other phases
of the Cambridge Exams Cycle, at www.cambridgeinternational.org/examsofficers
Retakes
Candidates can retake the whole qualification as many times as they want to. This is a linear qualification so
candidates cannot re-sit individual components.
Equality and inclusion

We have taken great care to avoid bias of any kind in the preparation of this syllabus and related assessment
materials. In compliance with the UK Equality Act (2010) we have designed this qualification to avoid any direct
and indirect discrimination.
The standard assessment arrangements may present unnecessary barriers for candidates with disabilities or learning
difficulties. We can put arrangements in place for these candidates to enable them to access the assessments and
receive recognition of their attainment. We do not agree access arrangements if they give candidates an unfair
advantage over others or if they compromise the standards being assessed.
Candidates who cannot access the assessment of any component may be able to receive an award based on the
parts of the assessment they have completed.
Information on access arrangements is in the Cambridge Handbook at

www.cambridgeinternational.org/examsofficers
Language
This syllabus and the related assessment materials are available in English only.

After the exam

Grading and reporting
Grades A*, A, B, C, D, E, F or G indicate the standard a candidate achieved at Cambridge IGCSE.
A* is the highest and G is the lowest. ‘Ungraded’ means that the candidate’s performance did not meet the
standard required for grade G. ‘Ungraded’ is reported on the statement of results but not on the certificate. In
specific circumstances your candidates may see one of the following letters on their statement of results:
•• Q (result pending)
•• X (no result)
•• Y (to be issued)
These letters do not appear on the certificate.
How students and teachers can use the grades

Assessment at Cambridge IGCSE has two purposes.
•• To measure learning and achievement.
The assessment:
–– confirms achievement and performance in relation to the knowledge, understanding and skills specified in
the syllabus, to the levels described in the grade descriptions.
•• To show likely future success.
The outcomes:
–– help predict which students are well prepared for a particular course or career and/or which students are
more likely to be successful
–– help students choose the most suitable course or career.
Grade descriptions
Grade descriptions are provided to give an indication of the standards of achievement candidates awarded
particular grades are likely to show. Weakness in one aspect of the examination may be balanced by a better
performance in some other aspect.
Grade descriptions for Cambridge IGCSE Business Studies will be published after the first assessment of the IGCSE
in 2020. Find more information at www.cambridgeinternational.org/igcse

Changes to this syllabus for 2020, 2021 and 2022

The syllabus has been reviewed and revised for first examination in 2020.
Changes to syllabus content •• The information on page 19, Section 5.5 Analysis of accounts has been
updated. The heading in 5.5.1 now reads ‘Profitability’.
•• The syllabus content has been reworded for clarity and to provide
further guidance to teachers.
•• The syllabus content has been represented in a two-column format to
make it clearer.
•• The international accounting terminology has been updated. Balance
sheet has been replaced with statement of financial position.
•• A list of command words has been added to the syllabus.
Changes to assessment •• The assessment objective (AO) weightings have been reviewed and
(including changes to specimen updated in response to feedback from teachers.
papers) •• The AO descriptors have not changed.
•• Specimen Paper 1 has been updated to include ‘define’ as a command
word.
•• The specimen mark scheme for the part (b) questions in Paper 2 has
been updated so the AO2 application marks are integrated into the
levels of response marking grid.
•• Question paper titles have been updated.
Paper 1: Short Answer and Data Response
Paper 2: Case Study
Regulation •• From 2020 this syllabus will no longer be regulated by the
qualifications and examination regulators in England, Wales and
Northern Ireland.
•• Changes to the syllabus and specimen papers reflect the change in
regulated status.
Significant changes to the syllabus are indicated by black vertical lines either side of the text.
In addition to reading the syllabus, teachers should refer to the updated specimen assessment materials.
The syllabus and specimen papers use our new name, Cambridge Assessment International Education.
You are strongly advised to read the whole syllabus before planning your teaching programme.
Any textbooks endorsed to support the syllabus for examination from 2015 or 2020 are suitable for
use with this syllabus.

‘While studying Cambridge IGCSE and Cambridge International A Levels, students broaden their horizons
through a global perspective and develop a lasting passion for learning.’
Zhai Xiaoning, Deputy Principal, The High School Affiliated to Renmin University of China
Cambridge Assessment International Education

1 Hills Road, Cambridge, CB1 2EU, United Kingdom
Tel: +44 (0)1223 553554 Fax: +44 (0)1223 553558
Email: info@cambridgeinternational.org www.cambridgeinternational.org
® IGCSE is a registered trademark.
Copyright © UCLES September 2017

Cambridge IGCSE®
*0123456789*
BUSINESS STUDIES 0450/01

Paper 1 Short Answer and Data Response For examination from 2020
SPECIMEN PAPER 1 hour 30 minutes
You must answer on the question paper.
No additional materials are needed.
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 [ ].
This document has 10 pages. Blank pages are indicated.
© UCLES 2017 [Turn over

2
1 UDig is a large mining company based in country B. UDig is in the private sector. It supplies
businesses in country B with 30% of the coal they need and the rest is imported.
UDig now has eight mines but plans to close two of them. This will threaten 1800 employees with
redundancy. The Managing Director said: ‘I blame the appreciation of country B’s exchange rate
and new legal controls, including those to protect the environment. The Government should help
private sector businesses.’
(a) Define ‘private sector’.
...................................................................................................................................................
.............................................................................................................................................. [2]
(b) Define ‘redundancy’.
...................................................................................................................................................
.............................................................................................................................................. [2]
(c) Outline how the appreciation of country B’s exchange rate might affect UDig.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [4]
© UCLES 2017 0450/01/SP/20

3
(d) Explain two factors UDig should consider when deciding which mines to close.
Factor 1: ...................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Factor 2: ...................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]
(e) Do you think government should help private sector businesses? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]
© UCLES 2017 0450/01/SP/20 [Turn over

4
2 Izaak owns a small fish restaurant. He employs two chefs (cooks) and three workers who serve in
the restaurant.
Izaak has been trying to increase added value to improve profits. Izaak has been looking at the
financial performance of his business. An extract is shown in Table 2.1. Izaak has received a
number of complaints about food and service. He knows he must improve quality but cannot
decide on the best way to do this.
Table 2.1
Extract from income statements ($000)
Last year Current year

Revenue X 300
Cost of sales 180 150
Gross profit 120 150
Expenses 90 Y
Profit 30 15
(a) Define ‘revenue’.
...................................................................................................................................................
.............................................................................................................................................. [2]
(b) Calculate the values of X and Y.
X ...............................................................................................................................................
Y .......................................................................................................................................... [2]
(c) Outline two ways Izaak could increase added value.
Way 1: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Way 2: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
.............................................................................................................................................. [4]
© UCLES 2017 0450/01/SP/20

5
(d) Explain two problems that low quality might cause Izaak’s business.
Problem 1: ................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Problem 2: ................................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]
(e) Do you think the profitability of Izaak’s fish restaurant has improved since last year? Justify
your answer using appropriate ratios.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]

6
3 ReBag is a social enterprise. ReBag employs 30 people in four small towns in different parts of the
country. They work from home and make a range of bags from pieces of old fabric (cloth).
Asha started the business three years ago using micro-finance. Last year ReBag’s revenue was
$700. Asha said: ‘Our external stakeholders want ReBag to employ people in five more towns.
Getting a bank loan to expand the business will be a problem. What will I do about management?
How will I inform workers about possible expansion?’
(a) Define ‘social enterprise’.
...................................................................................................................................................
.............................................................................................................................................. [2]
(b) Identify two functions of management.
Function 1: ................................................................................................................................
...................................................................................................................................................
Function 2: ................................................................................................................................
.............................................................................................................................................. [2]
(c) Identify four external stakeholder groups.
Stakeholder group 1: ................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [4]
© UCLES 2017 0450/01/SP/20

7
(d) Explain two possible reasons why it might be difficult for ReBag to get a bank loan.
Reason 1: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]
(e) Explain two possible methods of internal communication that a small business could use to
inform workers about a possible expansion. Justify which method should be chosen.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]

8
4 GBU is a public limited company. It makes a range of beauty products including shampoo and
soaps for the mass market.
Last year GBU’s revenue fell. The Marketing Director has been looking at some results from its
primary market research. It was based on a sample of 2000 people, see Fig. 4.1. She believes
maintaining customer loyalty is more important than attracting new customers.
Where do you buy Do you buy GBU

beauty products? beauty products?
mail
order
200 no
300
online shop
700 1100
yes
1700
Fig. 4.1
(a) Define ‘mass market’.
...................................................................................................................................................
.............................................................................................................................................. [2]
(b) Calculate the percentage (%) of people who buy beauty products online. Show your working.
...................................................................................................................................................
.............................................................................................................................................. [2]
(c) Identify four methods of primary market research that a business could use.
Method 1: ..................................................................................................................................
...................................................................................................................................................
Method 2: ..................................................................................................................................
...................................................................................................................................................
Method 3: ..................................................................................................................................
...................................................................................................................................................
Method 4: ..................................................................................................................................
.............................................................................................................................................. [4]
© UCLES 2017 0450/01/SP/20

9
(d) Explain two advantages to GBU of using shops as a channel of distribution.
Advantage 1: ............................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Advantage 2: ............................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]
(e) Do you think maintaining customer loyalty should be more important to a business than
attracting new customers? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]
© UCLES 2017 0450/01/SP/20

10
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.
Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.
© UCLES 2017 0450/01/SP/20

Cambridge IGCSE®

Paper 1 Short Answer and Data Response For examination from 2020
MARK SCHEME
Maximum Mark: 80
Specimen

0450/01 Cambridge IGCSE – Mark Scheme For examination
SPECIMEN from 2020
Generic Marking Principles
These general marking principles must be applied by all examiners when marking candidate answers.
They should be applied alongside the specific content of the mark scheme or generic level descriptors
for a question. Each question paper and mark scheme will also comply with these marking principles.
GENERIC MARKING PRINCIPLE 1:
Marks must be awarded in line with:
• the specific content of the mark scheme or the generic level descriptors for the question
• the specific skills defined in the mark scheme or in the generic level descriptors for the
question
• the standard of response required by a candidate as exemplified by the standardisation
scripts.
Marks awarded are always whole marks (not half marks, or other fractions).
Marks must be awarded positively:
• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit
is given for valid answers which go beyond the scope of the syllabus and mark scheme,
referring to your Team Leader as appropriate
• marks are awarded when candidates clearly demonstrate what they know and can do
• marks are not deducted for errors
• marks are not deducted for omissions
• answers should only be judged on the quality of spelling, punctuation and grammar when
these features are specifically assessed by the question as indicated by the mark scheme. The
meaning, however, should be unambiguous.
Rules must be applied consistently e.g. in situations where candidates have not followed
instructions or in the application of generic level descriptors.
Marks should be awarded using the full range of marks defined in the mark scheme for the
question (however; the use of the full mark range may be limited according to the quality of the
candidate responses seen).
Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should
not be awarded with grade thresholds or grade descriptors in mind.
© UCLES 2017 Page 2 of 10

SPECIMEN from 2020
Question Answer Marks

1(a) Define ‘private sector’. 2
Award 2 marks for full definition.

Award 1 mark for the partial definition.
Businesses owned by/part of the national economy (1) individuals/not under

direct state control. (1)
1(b) Define ‘redundancy’. 2

Job position no longer needed (1) worker loses job. (1)

1(c) Outline how the appreciation of country B’s exchange rate might affect 4
UDig.
Award 1 mark for each relevant point.

Award 1 mark for each relevant reference to this business.
Answers might include:

• Imported products cheaper/have lower prices (1) making UDig less
competitive (1) so local businesses might go elsewhere for the 30% (1)
leading to lower sales for its coal. (1)
• Not as competitive (1) so UDig may have to cut costs (1) by closing
mines (1) and making people redundant. (1)
• Not as competitive (1) so may have to reduce its profit margin (1) by
lowering the cost of coal (1) so not as much money to reinvest in the
business. (1)
Other appropriate responses should also be credited.

1(d) Explain two factors UDig should consider when deciding which mines to 6
close.
Award 1 mark for identification of each relevant factor (maximum of 2).

Award 1 mark for each relevant reference made to this business (maximum
of 2).
Award 1 mark for each relevant explanation (maximum of 2).
Relevant points might include:

• Level of output (1) where UDig extract the least amount of coal (1) could
be closed as it will make less sales revenue. (1)
• Number of employees (1) as 1800 jobs threatened (1) if close sites with
fewer employees the business may be able to save some of the jobs. (1)
• Ease of access (1) of the eight locations (1) as sites difficult to reach
could help lower transport costs. (1)
• Pollution levels (1) as new legal controls have been introduced (1) so
high polluting sites might be forced to close anyway. (1)

SPECIMEN from 2020

1(e) Do you think government should help private sector businesses? 6
Justify your answer.
Award up to 2 marks for identification of relevant issues.

Award up to 2 marks for relevant development of points.
Award up to 2 marks for justified decision as to whether government should
help private sector businesses.

• Protect jobs (1) which help government meets an economic objective. (1)
Protect vital industry (1) otherwise local businesses will need to find
alternative supply. (1) Private sector business problems may only be
temporary (1) so money could be better spent elsewhere. (1)
• Government support reduces incentives (1) for private sector businesses
to be successful. (1) This could result in businesses being less
efficient (1) and government wasting money. (1) However, some start-
up private businesses might fail (1) without government support at the
beginning. (1)

2(a) Define ‘revenue’. 2

Price × Quantity sold. (2) Income of the business (1) from the sale of goods or
services. (1)
2(b) Calculate the values of X and Y. 2
Award 1 mark per correct calculation:
X 300 000 or 300

Y 135 000 or 135
2(c) Outline two ways Izaak could increase added value. 4
Award 1 mark for each relevant way.

Award 1 mark for each relevant reference to this business.
Ways to increase added value are:

• Increase price (1) greater margin per meal served. (1)
• Reduce costs of materials (1) so buy cheaper fish. (1)

SPECIMEN from 2020

2(d) Explain two problems that low quality might cause Izaak’s business. 6
Award 1 mark for identification of relevant problem (maximum of 2).

Award 1 mark for relevant reference made to this business (maximum of 2).

• Loss of existing customers/loyalty (1) as food does not taste right (1)
leading to lower revenue. (1)
• Cost of replacement (1) which increases his cost of sales (1) but he is
trying to improve profits. (1)
• Cost of fines (1) as poor quality fish (1) may break laws. (1)
• Damage to reputation/image (1) of restaurant (1) so customers may go
elsewhere. (1)

2(e) Do you think the profitability of Izaak’s fish restaurant has improved 6
since last year? Justify your answer using appropriate ratios.
Award up to 2 marks for identification of relevant issues or relevant ratios.

Award up to 2 marks for calculation of relevant ratios.
Award up to 2 marks for justified decision as to whether the profitability has
improved or not.

• Gross profit margin improved (1) from 40% to 50% (1) showing better
control of variable costs. (1) However, profit margin down (1) from 10% to
5% (1) shows less control of expenses. (1)
Relevant calculations are:

Profit Margin: 10% in 2015, 5% in 2016
Gross Profit Margin: 40% in 2015, 50% in 2016

3(a) Define ‘social enterprise’. 2

Business with social objectives (1) and not just aiming to make a profit. (1)

SPECIMEN from 2020

3(b) Identify two functions of management. 2
Award 1 mark per function:
• coordinate
• control
• organise
• planning
• command.

3(c) Identify four external stakeholder groups. 4
Award 1 mark per stakeholder group:
• Government
• Suppliers
• Local community
• Customers
• Lenders/banks
• Pressure groups.

3(d) Explain two possible reasons why it might be difficult for ReBag to get a 6
bank loan.
Award 1 mark for identification of each relevant reason (maximum of 2).

of 2).

• Low revenue (1) only $700 (1) so can they afford to repay. (1)
• No security/no buildings to secure the loan on (1) as people work from
home (1) so increased risk for lenders. (1)
• Limited experience (1) only operated for 3 years (1) so no guarantee that
business will last. (1)
• Already has existing debt (1) used micro-finance (1) so the bank might
not be willing to lend any more. (1)

SPECIMEN from 2020

3(e) Explain two possible methods of internal communication that a small 6
business could use to inform workers about a possible expansion.
Justify which method should be chosen.
Award up to 2 marks for identification of relevant methods.

Award up to 2 marks for relevant explanation of method(s).
Award 2 marks for justified decision as to which is the most appropriate
method.
Meeting (1)
• So able to see reactions to ideas/comments. (1)
• Will increase costs for travel. (1)
• Will take people away from work. (1)
Email (1)/Internal social media (1)

• Allows people to read information in own time/have copy for future
reference. (1)
• Must have access to internet so may have to pay cost of computer for
staff. (1)
Justification might include:

• Meeting difficult to arrange if people are based in different places (1) so
not everyone might be able to attend. (1)
• People might not have access to internet (1) so are not able to
respond. (1)

4(a) Define ‘mass market’. 2

Selling the same product (1) to the whole market. (1)

4(b) Calculate the percentage (%) of people who buy beauty products online. 2
Show your working.
• method, e.g. (700/2000) × 100 (1)

• 35% (1)
If correct answer given with no working shown, award 2 marks.

SPECIMEN from 2020

4(c) Identify four methods of primary market research that a business could 4
use.
Award 1 mark per method.
Four from:
• focus groups/consumer panels
• (postal) questionnaires
• online survey
• interviews
• observations.
4(d) Explain two advantages to GBU of using shops as a channel of 6
distribution.
Award 1 mark for each relevant advantage (maximum of 2).

of 2).

• Contact with customers, giving advice on beauty products such as type
of shampoo to use (1) helps to build customer loyalty (1) so maintain
market share/current customers. (1)
• Attract people passing a shop (1) if people run out of shampoo (1) they
will want to buy it straightaway. (1)
• Sales might increase (1) as 1100/2000 people still buy beauty products
from shops (1) as people want to see before they buy. (1)

SPECIMEN from 2020

4(e) Do you think maintaining customer loyalty should be more important to 6
a business than attracting new customers? Justify your answer.
Award up to 2 marks for identification of relevant issues.

Award up to 2 marks for relevant development of point(s).
Award up to 2 marks for justified decision as to whether it is more important to
maintain customer loyalty than to attract new customers.
Customer loyalty:
• Spread word/free advertising (1) as existing customers might recommend
product to others. (1)
• Keep reputation (1) leading to a competitive advantage. (1)
• Able to match products to existing customer needs (1) so they know what
to produce. (1)
New customers:
• Widen target market (1) as 80% like their products. (1)
• Customer tastes change (1) so may be cheaper to find new customers
rather than develop existing products. (1)
Justification might include:

• Attracting new customers is more expensive than keeping existing
customers. (1) However, attracting new customers is a good way of
increasing market share. (1)

SPECIMEN from 2020
BLANK PAGE

Cambridge IGCSE®

Paper 2 Case Study For examination from 2020
SPECIMEN INSERT 1 hour 30 minutes
*0123456789*
INFORMATION
● This insert contains the case study.
● You may annotate this insert and use the blank spaces for planning. Do not write your answers on the
insert.

2
The BB Health Spa (BB)
Bethany owns The BB Health Spa in Main City in country X. Economic growth has been high for the
last few years. The government of country X wants this growth to continue so it has reduced income
tax. However, it is also worried about inflation becoming a problem so it has increased interest rates.
The BB Health Spa is very busy and Bethany is considering taking on a partner to help manage the
business and give her more free time. However, she has been a sole trader for 10 years and wants the
business to stay small.
The customers of The BB Health Spa are people of all ages who are interested in their health. Bethany
employs two qualified workers to provide the treatments for customers. Bethany herself also provides
customers with treatments. In addition, she does all the administration such as ordering inventory,
accounts and paying invoices when the spa is closed.
The BB Health Spa still uses the original treatment equipment which was purchased when the business
started. Some spas nearby have the latest equipment but these spas charge much higher prices than
The BB Health Spa. Bethany records all the financial transactions by filling in accounts books by hand.
This takes her a long time. Customers book appointments using the telephone and Bethany later
telephones them to remind them when an appointment is due.
Appendix 1
Advert for treatments at The BB Health Spa
Come to The BB Health Spa

Sports Therapies
Gym
Yoga
© UCLES 2017 0450/02/SI/20

3
Appendix 2
Weekly forecasts for two possible additional services
Steam room Hair cuts
Additional customers 200 50
Average price charged per customer $5 $25

Wages $60 $400
Cost of sales $40 $125
Lease of equipment $400 $175
Appendix 3
Daily News September
New equipment now available in many health spas to make skin look younger
There have been a number of changes in technology for health spas which allow the treatments to be
much more effective in making skin look younger. Many people are keen to try these treatments using
the latest equipment to get younger looking skin. This equipment is very expensive for health spas to
buy or lease.
The news of these treatments has appeared on social media sites and on mobile phone Apps leading
to higher demand. ‘Some customers will pay high prices for such treatments’, said a local health spa
owner who is keen to promote his health spa as being one of the first to use the new equipment.
There have also been developments in software which make customer bookings and accounts much
easier, quicker and with fewer mistakes. Automatic text (sms) messages are used to remind customers
of their appointments – so no need to miss an appointment again.
Look out for these changes in health spas near you!
© UCLES 2017 0450/02/SI/20

4
BLANK PAGE
© UCLES 2017 0450/02/SI/20

Cambridge IGCSE®
*0123456789*

SPECIMEN PAPER 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.

2
1 (a) Explain two possible reasons why Bethany wants the business to remain small.
Reason 1: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [8]
© UCLES 2017 0450/02/SP/20

3
(b) Explain why the following three factors are important to Bethany when choosing a business
partner:
• knowledge of new technology
• experience in managing a health spa
• capital to invest.
Which factor do you think is most important? Justify your answer.
Knowledge of new technology: .................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Experience in managing a health spa: .....................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Capital to invest: .......................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Conclusion: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................ [12]

4
2 (a) Explain two reasons why it is important to Bethany to identify changes in customer
preferences.
Reason 1: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [8]
© UCLES 2017 0450/02/SP/20

5
(b) State the advantages and disadvantages of the following three ways to achieve good quality
service at the health spa:
• only employ highly trained workers
• record all customer complaints
• buy only the best quality materials to use in the health spa.
Which do you think is the most important way? Justify your answer.
Only employ highly trained workers: .........................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Record all customer complaints: ..............................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Buy only the best quality materials to use in the health spa: ....................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Conclusion: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................ [12]

6
3 (a) Explain four reasons why effective communication between the owner and employees in a
business is important.
Reason 1: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Reason 3: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Reason 4: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
.............................................................................................................................................. [8]
© UCLES 2017 0450/02/SP/20

7
(b) Consider the weekly forecasts in Appendix 2 for the two additional services Bethany could
choose:
• hair cuts
• steam room.
Include calculation of profit for the two services in your response.
Which additional service should Bethany choose to offer? Justify your answer.
Hair cuts: ..................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Steam room: .............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: ....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................ [12]
8
4 (a) Explain four ways the new technology identified in Appendix 3 could help Bethany improve
her business.
Way 1: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Way 2: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Way 3: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Way 4: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
.............................................................................................................................................. [8]
© UCLES 2017 0450/02/SP/20

9
(b) Explain how the following two changes are likely to affect The BB Health Spa:
• lower income tax in country X
• increase in interest rates in country X.
Which change is likely to have the most effect on profit? Justify your answer.
Lower income tax in country X: ................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Increase in interest rates in country X: .....................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Conclusion: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................ [12]
© UCLES 2017 0450/02/SP/20

10
BLANK PAGE
© UCLES 2017 0450/02/SP/20

Cambridge IGCSE®

MARK SCHEME
Maximum Mark: 80
Specimen

SPECIMEN from 2020
• the specific skills defined in the mark scheme or in the generic level descriptors for the
question
• the standard of response required by a candidate as exemplified by the standardisation
scripts.
• answers should only be judged on the quality of spelling, punctuation and grammar when
these features are specifically assessed by the question as indicated by the mark scheme. The
Marks should be awarded using the full range of marks defined in the mark scheme for the
question (however; the use of the full mark range may be limited according to the quality of the
candidate responses seen).

SPECIMEN from 2020

1(a) Explain two possible reasons why Bethany wants the business to 8
remain small.
Award 1 mark for each relevant reason (maximum of two reasons):
Relevant reasons might include:

• to stay as her own boss
• to make all the decisions
• no one to fall out with
• no one to share the profits with
• size of the market – not able to expand
• better communication with customers and employees
• easier to control
• lack of capital to expand
• satisficing/happy with level of profit.
Award a maximum of 3 additional marks for each explanation – one of which

must be applied to this context – of the reasons why the owner wants the
business to remain small.
For example:
To stay as her own boss (1) as Bethany has run the business successfully
for 10 years (1) and she does not want anyone telling her what to do or
disagreeing with her decisions. (1) The business idea is all her own and so
she does not want any conflict which might cause important decisions to be
delayed giving problems for the business. (1)

SPECIMEN from 2020

1(b) Explain why the following three factors are important to Bethany when 12
choosing a business partner:
• knowledge of new technology
• experience in managing a health spa
• capital to invest.
Which factor do you think is most important? 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 two or more factors.
Well-justified conclusion/recommendation.
Candidates discussing all three factors in detail, in

context and with well-justified conclusion/recommendation
including why the alternative points are rejected should be
rewarded with the top marks in the band.
Detailed discussion of at least one factor.
Judgement with some justification/some evaluation of

choices made.
Candidates discussing two or more factors 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 factors with little/no explanation.
Simple judgement with limited justification/limited

evaluation of choices made.
Candidates outlining three factors in context should be

0 No creditable response. 0

SPECIMEN from 2020

1(b) Relevant points might include:
Knowledge • Know how to use new machines for treating clients –

of new can operate new machines without training – so less
technology training required – less costs.
• Can train other staff in the spa – reducing training costs
for all staff – can introduce new treatments more quickly.
• Has more knowledge than Bethany – may feel like
partner is more important than Bethany – started the
business 10 years ago – wants to feel in control.
Experience • More efficient – knows what to do in running the spa
in managing – may have additional skills to Bethany in managing a
a health spa.
spa • Frees up time for Bethany – each specialise in different
parts of the business such as ordering inventory – this is
what Bethany wants from a partnership.
• May make decisions Bethany does not like – as they
may do things differently – may not understand the ways
Bethany runs the spa and could cause conflict between
them leading to less efficiency.
Capital to • Provides capital to buy the latest equipment – no need
invest for loans – less interest payments so lower costs.
• More capital can be raised than possibly borrowing
alone – as a small business it might be difficult to
expand to compete with other spas – so making it easier
to expand and compete with larger spas providing more
up-to-date treatments.
• But new partner will expect to share profit – have a say
in how the business is run such as which new service to
introduce – Bethany loses some control of how the spa
is run.
Conclusion • Bethany wants more free time – if chooses partner
with experience in managing a spa allows Bethany to
achieve this – but may have to borrow capital increasing
costs.
• Knowledge of new technology best choice – increases
competitiveness – speeds up training and delivery of
new treatments in spa – increases prices – increases
profit – but lack of capital – needs to borrow – may not
save Bethany time – still needs to carry out all tasks in
managing spa.
• Capital to invest – lower costs from no interest to pay –
but increased costs of training on new treatments – may
not free up time for Bethany which is what she wants
from taking on a partner.

SPECIMEN from 2020

2(a) Explain two reasons why it is important to Bethany to identify changes 8
in customer preferences.
Award 1 mark for each relevant reason (maximum of two reasons).

• to meet customer needs
• to remain competitive
• keep a good reputation
• keep customer loyalty/maintain demand.
Award a maximum of 3 additional marks for each explanation – one of which

must be applied to this context – of the reasons why it is important to
identify changes in customer preferences.
For example:
To meet customer needs (1) as Bethany wants to run the business
successfully to make a profit (1) and she needs to offer the services her
clients want otherwise she will lose customers to competitors. (1) She will
need to know if certain treatments are wanted and if she doesn’t offer them
at the moment she will need to learn how to provide them in order to retain
existing customers. (1)

SPECIMEN from 2020

2(b) State the advantages and disadvantages of the following three ways to 12
achieve good quality service at the health spa:
• only employ highly trained workers
• record all customer complaints
• buy only the best quality materials to use in the health spa.
Which do you think is the most important way? Justify your answer.

Detailed discussion of two or more ways.
Candidates discussing all three factors in detail, in

context and with well-justified conclusion/recommendation
Detailed discussion of at least one factor.

choices made.
Candidates discussing two or more factors in detail and

marks in the band.

Candidates outlining three factors in context should be


SPECIMEN from 2020

Advantages Disadvantages
Only employ • Ensures customer • Highly trained staff
highly trained satisfaction with expect higher wages.
workers treatments. • May find it difficult to
• Treatments carried out recruit new staff.
correctly.
Record all • Identify problems with • Takes time to do this.
customer treatments and try to • Not all clients will tell
complaints correct them. you when they are
• Clients know Bethany not happy with their
cares about their treatments.
treatments being
carried out correctly.
Only buy the • Helps establish an • High price for
best quality image of high quality treatments may deter
materials to treatments. potential customers.
use in the • Ensures good results of • High quality image may
health spa treatments. put some customers off,
i.e. exclusivity.
Conclusion • The best materials will not give the best results if
performed by poorly trained staff.
• Recording customer complaints will not ensure
problems do not persist if poor quality materials are
used.
• Highly trained staff may still make mistakes and
complaints need to be monitored to ensure all
customers are happy and mistakes are avoided in the
future.

SPECIMEN from 2020

3(a) Explain four reasons why effective communication between the owner 8
and employees in a business is important.
Award 1 mark for each relevant reason (maximum of four reasons).

• to ensure instructions are understood
• to ensure employees carry out the instructions correctly
• to ensure mistakes are not made
• to ensure the business works efficiently
• to ensure customers are given correct information
• to find customer preferences from employees
• inaccuracy causes poor reputation
• collaboration is better between worker and owner
• motivation is better between worker and owner.
Award a maximum of 1 additional mark for each explanation of the reason

why effective communication between the owner and employees is important.
For example:
To ensure mistakes are not made by employees (1) as employees may not
have much experience and only know how to carry out a few tasks therefore
they need to be told what to do. (1)

SPECIMEN from 2020

3(b) Consider the weekly forecasts in Appendix 2 for the two additional 12
services Bethany could choose:
• hair cuts
• steam room.
Include calculation of profit for the two services in your response.
Which additional service should Bethany choose to offer? Justify your

answer.

Detailed discussion of both services.
Candidates discussing both services in detail, in context,

with appropriate calculations, and with well-justified
conclusion/recommendation including why the alternative
points are rejected should be rewarded with the top marks
in the band.
Detailed discussion of at least one service.

choices made.
Candidates discussing at least one service in detail and

applying it to the case, with appropriate calculations,
should be rewarded with the top marks in the band.

Candidates outlining both services in context should be


SPECIMEN from 2020

Basic statements Appropriate calculations

Steam • $1000 • Profit = $500
room • –$500 • NPM = 50%
• This has 150 more • GPM = 96%
customers than hair • Gross profit = $960
cuts.
• The price charged is $20
lower and should gain
more customers.
Hair cuts • $1250 • Profit = $550
• –$700 • NPM = 44%
• The cost of sales are • GPM = 90%
$85 more than the • Gross profit $1125
steam room.
• The lease costs are
$225 less than the
steam room.
Conclusion • Hair cuts has $50 more profit than steam room.
• However, the net profit margin is 6% higher for steam
room.
• The gross profit is $165 higher for hair cuts but the gross
profit margin is 6% lower.
• Suggests in absolute terms that hair cuts is better and
the one to choose.
• However, in profitability terms the steam room is better
and the one to choose.

4(a) Explain four ways the new technology identified in Appendix 3 could 8
help Bethany improve her business.
Award 1 mark for each way (maximum of four ways).
Relevant ways might include:

• improve communications with customers – text (sms) messages can be
sent as reminders of appointments
• improve service provided for customers – new equipment used in the spa
improves treatments to customers
• improve efficiency – accounting software is faster way to carry out tasks
• improve effectiveness of advertising – App improves marketing as
available to many more people.
Award a maximum of 1 additional mark for each explanation of the way

which must be applied to this context.
For example:
Improve communication with customers (1) as they can be reminded of
appointments by using the automated text (sms) service that sends a
message of the date and time of the treatment. (1)
SPECIMEN from 2020

4(b) Explain how the following two changes are likely to affect The BB Health 12
Spa:
• lower income tax in country X
• increase in interest rates in country X.
Which change is likely to have the most effect on profit? Justify your
answer.

Detailed discussion of both changes.
Candidates discussing both changes in detail, in context

and with well-justified conclusion/recommendation
Detailed discussion of at least one change.

choices made.
Candidates discussing at least one change in detail and

marks in the band.
Limited ability to discuss changes with little/ no

explanation.

Candidates outlining both changes in context should be


SPECIMEN from 2020

4(b)
Lower • Higher income for customers – increased demand for
income tax luxury services.
in country X • However, customers may go to higher quality
competitors that offer the latest equipment giving better
results on the skin – reducing revenue.
Increase • Less income to spend on luxuries – less demand for
in interest treatments such as those offered by the health spa.
rates in • Higher cost of loans and overdrafts if Bethany wants
country X to purchase the latest equipment – higher costs for the
business – because it is small it has few sources to
raise finance.
Conclusion • If Bethany does not need a loan higher interest rates
may have little effect on the business but lower income
tax will have an effect on most of her customers.
• If the increase in income tax is not too high very few
customers may be affected and there will be little effect
on demand.
• Customers may be unwilling to forego treatments even if
their disposable income falls as they may not see them
as a luxury.
• Customers will not take out loans for treatments and so
the higher interest rates will have little or no effect on
demand for treatments.

SPECIMEN from 2020
BLANK PAGE

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
International General Certificate of Secondary Education
* 5 7 1 0 6 7 4 3 7 7 *

Paper 1 October/November 2011
1 hour 45 minutes
Candidates answer on the Question Paper.
No Additional Materials are required.
READ THESE INSTRUCTIONS FIRST
Write your Centre number, candidate number and name on all the work you hand in.
Write in dark blue or black pen.
Do not use staples, paper clips, highlighters, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.
Answer all questions.

The businesses described in this paper are entirely fictitious.
At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.
For Examiner’s Use
Total
This document consists of 11 printed pages and 1 blank page.
DC (NF/SW) 36795/3
2
1 Carlos was made redundant from his job in a factory. He used his redundancy money and For
some of his savings to start a new business. He bought a boat to give trips to tourists on Examiner’s
a river near his home. The boat cost him $150 000. Table 1 shows the revenue and cost Use
estimates that Carlos made.
Table 1
Revenue per boat trip $80

Variable cost per boat trip $30
Average number of boat trips per week 25
Weekly overhead costs [fixed costs] $500
Carlos wanted his business to give him job security and to give a return on his investment of
at least 20% each year. He estimates that annual profits will be $37 500.
(a) What is meant by ‘made redundant’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(b) Identify two examples of overhead costs that Carlos might incur.
Example 1: .......................................................................................................................
..........................................................................................................................................
Example 2: .......................................................................................................................
..................................................................................................................................... [2]
(c) Using the information given in Table 1, draw a break-even chart for Carlos’ business.
$
2500
2000
1500
Revenue Weekly
& Costs Break-Even
1000 Chart
500
0
0 10 20 30
Number of boat trips per week
[4]
© UCLES 2011 0450/11/O/N/11
3
(d) Identify and explain three methods that Carlos could use to promote his new business. For
Examiner’s
Method 1: ......................................................................................................................... Use
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Method 2: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Method 3: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]
(e) Carlos wanted his business to give him job security and a return on capital of at least
20%. Do you think that his business will help him achieve these objectives? Justify your
answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]
© UCLES 2011 0450/11/O/N/11 [Turn over

4
2 Early Tots makes wooden toys for children. The business uses both primary and secondary For
market research data to decide what products to make. It has a wide range of toys but some Examiner’s
of the products are nearing the end of their product life cycle. The managers are thinking Use
about using extension strategies for these products.
(a) What is meant by the term ‘secondary market research’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(b) What is meant by the term ‘product life cycle’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(c) Identify and explain two methods that Early Tots could use to gather primary market
research data.
Method 1: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Method 2: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [4]
© UCLES 2011 0450/11/O/N/11

5
(d) Identify and explain three extension strategies that Early Tots could use. For
Examiner’s
Strategy 1: ........................................................................................................................ Use
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Strategy 2: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Strategy 3: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]
(e) Consider the advantages and disadvantages of two channels of distribution that Early
Tots could use for a new range of wooden toys. Recommend which channel Early Tots
should use. Justify your answer.
Channel 1: .......................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Channel 2: .......................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]

6
3 Crompton Springs, a private limited company, bottles mineral water. The production method For
is automated but inefficient, because the machinery used was bought 20 years ago. The Examiner’s
company uses unskilled and low paid workers to load and unload the production lines. The Use
managers have decided to invest in new machinery.
(a) What is meant by ‘production method is automated’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(b) Identify two features of a private limited company.
Feature 1: .........................................................................................................................
..........................................................................................................................................
Feature 2: .........................................................................................................................
..................................................................................................................................... [2]
(c) Identify and explain two possible reasons why workers at Crompton Springs are low
paid.
Reason 1: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 2: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [4]
© UCLES 2011 0450/11/O/N/11

7
(d) Identify and explain three problems that inefficiency can cause a business. For
Examiner’s
Problem 1: ........................................................................................................................ Use
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Problem 2: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Problem 3: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]
(e) Do you think that the employees at Crompton Springs will be happy with the managers’
decision to invest in new machinery? Justify your answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]

8
4 XYZ is a large retail business with over 50 shops. The business is going to open a new shop For
and wants to recruit a manager. A job description for the new position of shop manager Examiner’s
has been produced. The directors are also looking at the methods they use to pay their Use
employees.
(a) Identify two ways of measuring the size of a business.
Way 1: ..............................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
..................................................................................................................................... [2]
(b) Identify two suitable places to advertise the position of a new shop manager.
Place 1: ............................................................................................................................
..........................................................................................................................................
Place 2: ............................................................................................................................
..................................................................................................................................... [2]
(c) Identify and explain two advantages to XYZ of producing a job description for the
position of shop manager.
Advantage 1: ....................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Advantage 2: ....................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [4]
© UCLES 2011 0450/11/O/N/11

9
(d) Identify and explain three different payment methods that XYZ could use to reward their For
employees. Examiner’s
Use
Method 1: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Method 2: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Method 3: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]
(e) Do you think that the appointment of a suitable shop manager will mean that the new
shop is certain to be successful? Justify your answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]

10
5 Country W has a mixed economy. The public sector has grown in recent years. The For
Government has also introduced many new laws regulating business behaviour and Examiner’s
protecting employees and consumers. Use
(a) What is meant by the term ‘mixed economy’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(b) Identify two objectives often set by businesses in the public sector.
Objective 1: ......................................................................................................................
..........................................................................................................................................
Objective 2: ......................................................................................................................
..................................................................................................................................... [2]
(c) Identify and explain two reasons why the size of the public sector might increase over
time.
Reason 1: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 2: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [4]
© UCLES 2011 0450/11/O/N/11

11
(d) Identify and explain three ways in which consumers might benefit from consumer For
protection laws. Examiner’s
Use
Way 1: ..............................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Way 3: ..............................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]
(e) The management of many businesses in the private sector think that employment
legislation is making them less competitive. Do you agree? Justify your answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]
© UCLES 2011 0450/11/O/N/11

12
BLANK PAGE
University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of
Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.
© UCLES 2011 0450/11/O/N/11

MARK SCHEME for the October/November 2011 question paper

for the guidance of teachers
0450 BUSINESS STUDIES

0450/11 Paper 1 (Short Answer/Structured Response),
maximum raw mark 100
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of
the examination. It shows the basis on which Examiners were instructed to award marks. It does not
indicate the details of the discussions that took place at an Examiners’ meeting before marking began,
which would have considered the acceptability of alternative answers.
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
Page 2 Mark Scheme: Teachers’ version Syllabus Paper
IGCSE – October/November 2011 0450 11
This mark scheme includes a summary of appropriate content for answering each question. It
should be emphasised, however, that this material is for illustrative purposes and is not
intended to provide a definitive guide to acceptable answers. It is quite possible that among
the scripts there will be some candidate answers that are not covered directly by the content
of this mark scheme.
In such cases, professional judgement should be exercised in assessing the merits of the
answer.
Examples of possible answers may also be included in this mark scheme. Again, it should be
emphasised that this is for illustrative purposes and the examples chosen represent only
some of the many possible responses that would merit reward.
© University of Cambridge International Examinations 2011

1 (a) What is meant by ‘made redundant’? [2]
Means that his job position has gone and hence he is no longer required [2].
Simple idea like loses job [1] or job has gone [1].
Both idea of loss of employment and the loss of the job position needed for [2].
A development of an idea such as losing his job but giving financial compensation can also
gain full marks.
(b) Identify two examples of overhead costs that Carlos might incur. [2]
The costs might include:

• insurance
• storage costs of boat
• any cost unrelated to actual use of the boat, e.g. repairs to boat
• rent
• rates
• interest charges
• licence to use the boat.
Do NOT accept cost of the boat or fuel costs or wages or taxes.
(c) Using the information given in Table 1, draw a break-even chart for Carlos’ business.
[4]
Answer: 25 trips generates a total revenue of $2000. Total costs are $1250.
Break-even is at 10 trips.
The 4 marks are awarded as follows:
Accurate plot of TR [1].
Accurate plot of TC [2]. This is allocated by starting at $500 [1], gradient determined by
variable cost [1].
Correct labelling of TR and TC lines (both) [1]. This mark CAN be awarded even if plots are
not accurate to scale.

(d) Identify and explain three methods that Carlos could use to promote his business. [6]
Identification of methods [3 x 1].

Methods of promotion must be in context. Promotions can take various forms:
• leaflets
• advertisements
• hotel posters
• sponsorship
• direct mail
• promotional pricing (short-term discounts)
• special offers
• branding
• competitions.
Three methods of advertising, if clearly in context, are accepted as separate points, such as
advertising in tourist offices/advertising in tourist magazines.
If answer says advertising on television/advertising on radio/advertising in newspapers, this

can ONLY be rewarded ONCE.
Showing how the methods work and so help promote the business [3]: ‘They work by
increasing awareness and the attractiveness of the business and so encourage sales.’
(e) Carlos wanted his business to give him job security and a return on capital of at least
20%. Do you think that his business will help him achieve these objectives? Justify
your answer. [6]
Understanding of objectives and link to new business [2]:

Some understanding of the notions of job security and return on capital will gain [2]. This
could be demonstrated by defining these terms or through implicit understanding of each
notion.
Analysis of what he hopes to achieve [2]:

For example, this could be done by showing how job security might be increased by being
his own boss and by the fact that he expects to make a profit, which will generate a return on
capital of 20%. E.g. ‘Using the given profits figure, the expected rate of return is 25%
($37 500/$150 000) thus in excess of target [2].
Note: any attempt to use the data should be regarded as analysis.
Evaluation [2]:
This implies forming a judgement on the likelihood of achieving and maintaining objectives
[2].
If only one objective has been considered, maximum mark = 4 (1k + 2an + 1ev).
2 (a) What is meant by the term ‘secondary market research’? [2]
Information about the market, customer needs and competition already available and
collected by other agencies [2].
Simple idea such as information already collected [1]. If focus is purely on market research of
any kind, e.g. information about the market or finding out what people want, [1].
Example: called desk research [0].

(b) What is meant by the term ‘product life cycle’? [2]
The term ‘product life cycle’ means changes in the level or pattern of sales of a product over
time [2].
Two marks can be gained by two different routes:
• reference to time and level of sales [2]
• simple answer like sales change supported by correct statement of the product stages
[2]. E.g.: Shows how sales rise and eventually fall. It covers the period from launch
through to decline [2].
Changes in level of sales [1]. A list of the stages alone [1]. Sales [0].
(c) Identify and explain two methods that Early Tots could use to gather primary market
research data. [4]
Methods that could be used are:

• samples
• questionnaires/survey
• consumer panel
• interviews
• observation
• focus group.
Quota sampling and random sampling are rewardable only once. They are two different
methods of sampling, NOT two methods of primary data collection.
Knowledge of methods [2].
Explaining how they operate and hence gather data [2].
The explanation marks can be given for either showing how the method actually collects data
or describing the features of the methods.
(d) Identify and explain three extension strategies that Early Tots could use. [6]
Extension strategies fall into four basic types:

• creating new uses
• introducing new features
• seeking new target markets
• rebranding by creating a different image and so appealing to new market segments.
Practical answers might include:

• make (build) and play rather than just play
• new improved version with more features
• entering new markets such as exporting.
Do NOT accept adverts UNLESS specifically linked to the extension strategies listed above.
So an answer that said more advertising or lower prices does NOT gain credit.
Knowledge [3], analysis/application [3].

(e) Consider the advantages and disadvantages of two channels of distribution that Early
Tots could use for a new range of wooden toys. Recommend which channel Early Tots
should use. Justify your answer. [6]
A channel of distribution refers to the means by which a product is passed from its place of
production to the final customer.
Knowledge of options [2]:

• traditional channel using wholesaler and retailer
• bypass routes missing one or other out
• direct sales to customers.
Analysis of consequences of options [2]. The consequences of using different channels can
probably be analysed against the following:
• level of exposure
• cost
• middleman margins
• final selling price
• practical issues such as stockholding.
Evaluation of options leading to a recommendation [2].

If only one channel has been looked at then max [3].
3 (a) What is meant by ‘production method is automated’? [2]
Implies a system of production where machinery and technology carry out the work and few
if any people are directly employed [2].
Answer like ‘doesn’t use much labour’ [1].
(b) Identify two features of a private limited company. [2]
Features might include:

• legal identity in own right
• owners have limited liability
• restriction placed on sale of shares
• owned by individuals.
(c) Identify and explain two possible reasons why workers at Crompton Springs are low
paid. [4]
Many reasons could explain this. They include:

• low skill and hence contribution of little value
• excess supply of unskilled workers drives down wage rate
• local employment market conditions
• company unable to pay high wages
• no minimum wage legislation exists in the country.
Knowledge [2], analysis/application [2].
The analysis point shows why the factor explains the existence of the low wage. E.g. ‘So if
there is an excess supply of unskilled labour then people are easily replaced and so there is
no need to pay high wages.’

(d) Identify and explain three problems that inefficiency can cause a business. [6]
Inefficiency implies poor use of resources. The consequences of this are likely to be:
• higher unit costs
• waste of time and resources
• unable to supply on time
• quality defects.
Identification of problem [3]. Analysis of points means showing why they create problems [3].
E.g. ‘Higher unit costs lead to a loss of competitiveness and hence lower sales.’
(e) Do you think that the employees at Crompton Springs will be happy with the
managers’ decision to invest in new machinery? Justify your answer. [6]
Identification of points [2]. New machines may result in the following:

• loss of jobs
• training required
• perhaps higher pay
• long-term job security
• change in working conditions.
Analysis of implications [2]. This involves showing why the consequences may happen.
Conclusions showing evaluation [2]. This entails showing the likely reaction of workers.
Clearly some may be happy while others may be insecure.
The answer can be one-sided OR balanced.
4 (a) Identify two ways of measuring the size of a business. [2]
Any two ways:

• sales turnover
• capital employed
• number of employees
• market share.
Do NOT accept answers like number of goods produced or number of shops.
Do NOT accept profit.
(b) Identify two suitable places to advertise the position of a new shop manager. [2]
Suitable places include:

• in-house publications
• recruitment agencies
• trade publications
• in shop window
• newspaper
• Internet.

(c) Identify and explain two advantages to XYZ of producing a job description for the
position of shop manager. [4]
The advantages to XYZ of a job description are:

• clarifies nature of job
• makes it easier to match applicants to vacancy
• saves the business time
• allows them to evaluate the job.
Explanation shows why these advantages occur.
Do NOT accept advantages to the applicant. This is NOT answering the question.
(d) Identify and explain three different payment methods that XYZ could use to reward
their employees. [6]
Knowledge [3]. The methods of paying employees are usually considered as follows:
• time rates
• performance-based
• bonus for exceeding targets (incentive payments)
• commission based on results
• rewards based on the demands of the job, e.g. salary or wages
• profit-sharing
• share ownership.
Answer must be contextualised so do not accept piece rates since XYZ is a shop.
Do not accept fringe benefits.
Analysis/application [3]. The analysis shows how the system operates. No consideration
needed as to its implications etc.
(e) Do you think that the appointment of a suitable shop manager will mean that the new
shop is certain to be successful? Justify your answer. [6]
Identification of issues [2]. A manager plays a crucial role in determining success. They:
• set standards
• control activities
• manage staff
• set targets.
However, success will not occur if:
• the shop is in the ‘wrong’ place
• its products are not required by customers
• competition is very high.
Analysis of impact of suitable manager on success [2].
Evaluative judgement showing awareness of other relevant factors [2].

5 (a) What is meant by the term ‘mixed economy’? [2]
Businesses that are owned and run by both the state and individuals [2].
OR an economy that has both a private and public sector [2].
OR an economy where resources are allocated by both individuals (or the market) and the
government [2].
A simple answer like ‘not all businesses are owned by the state’ [1] or ‘not all are owned by
individuals’ [1], i.e. NOT specified who the other owners are.
(b) Identify two objectives often set by businesses in the public sector. [2]
The objectives are likely to be:

• access for all
• freely available or affordable
• provision of minimum standard
• ensure the provision of essential services
• do NOT accept to reduce unemployment or to charge lower prices.
(c) Identify and explain two reasons why the size of the public sector might increase over
time. [4]
Knowledge [2]. Reasons include:

• political views regarding desirability
• state of economy might demand action
• expectations of society change.
Analysis [2]. The analysis shows why the factor identified may explain changes in the size of
the public sector.
(d) Identify and explain three ways in which consumers might benefit from consumer
protection laws. [6]
Knowledge [3]. Consumers benefit in a number of ways. They are protected against:
• substandard products
• misleading selling methods
• excessive prices
• lack of legal redress.
Analysis showing why these benefits occur or how consumers are protected [3].
For example, a consumer sold a good by misleading selling has something which they might
not want and would not have bought if they had been properly informed. They can gain
compensation for this, which clearly represents a benefit to them.
Do NOT credit knowledge of specific laws or acts as such. So an answer that said ‘trades
description act’ would not gain a mark. However, the answer might go on to say that this act
prevents goods from being wrongly described [1k], which stops the consumer from being
misled [1an].

(e) The management of many businesses in the private sector think that employment
legislation is making them less competitive. Do you agree? Justify your answer. [6]
Identification of issues [2].

Points might include:
• having to pay higher wages
• difficult to cut costs by laying off staff
• provision of good conditions at work increases costs
• employees might feel more secure.
Analysis of issues [2]. This involves showing how the points identified affect the
competitiveness of the business. For example, the business’s costs may increase and this
would make them less competitive. However, if the staff feel well looked after then their
performance might be better and productivity would increase. So competitiveness might be
improved.
Evaluation of issues [2]. A judgement based upon the analysis resulting in a conclusion. A
one-sided answer is acceptable for full marks.


INSERT
1 hour 45 minutes
This Insert contains the case study material.

Anything the candidate writes on this Insert will not be marked.
DC (LEO/DJ) 32721/3
2
Everyday Suits
Simon owns a business called Everyday Suits. It is a private limited company. The business makes
suits for men using batch production. The production workers are paid an hourly wage. They have no
fringe benefits, as Simon believes the workers should be happy that they have a job. Simon employs
100 production workers who work on the production of suits. He has 5 employees who help him in
the office. There is only one manager who is responsible for Finance. Simon carries out all the other
management functions for the business.
The business has grown quickly and profits have also increased rapidly over the last two years. To
finance the rapid growth of the business Simon has taken out a large bank loan for $15 000 which is
being repaid over 5 years.
Simon wants to continue to expand the business. He wants to increase the range of suits to add to his
current range of medium priced suits. There is a lot of competition for medium priced suits and this
market segment is not growing. He has identified two other market segments for suits, both of which
have increasing demand. However, he is unsure which market segment option to choose.
Option 1:
Start selling expensive suits that are hand made and of high quality material. These suits would be
made to measure for each customer and individually designed. The market for these suits is a niche
market. He would need to employ more skilled workers.
Option 2:
Start selling low priced suits to the mass market. However, to enter this market Simon will need to
invest in machinery to produce suits on a large scale. He could gain from economies of scale which
would be an advantage.
Appendix 1
Balance Sheet for Everyday Suits at 31st August 2011 in $
2011 2010
Fixed Assets
Equipment 20 000 20 000
Current Assets
Stock 10 000 5 000
Debtors 30 000 10 000
Cash at Bank 0 5 000
Total 40 000 20 000
Current Liabilities
Creditors 10 000 20 000
Overdraft 20 000 0
Total 30 000 20 000
Working capital 10 000 0

Net Assets employed 30 000 20 000
Financed by:
Share capital 10 000 10 000
Profit and loss reserves 5 000 10 000
Bank loan 15 000 0
Capital employed 30 000 20 000
© UCLES 2011 0450/21/INSERT/O/N/11

3
Appendix 2
Proposed Organisation Chart for Everyday Suits
Simon
? ? ? ? Finance
Appendix 3
Added value for Everyday Suits
LE LE
SA SA
Rolls of Cut-out sections Sections sewn Sold to retailers

cloth purchased for suit together to
make finished suit
© UCLES 2011 0450/21/INSERT/O/N/11

4
BLANK PAGE
© UCLES 2011 0450/21/INSERT/O/N/11

* 9 5 7 9 1 0 8 4 3 6 *

1 hour 45 minutes

The Insert contains the case study.
The businesses described in this question paper are entirely fictitious.
Total
This document consists of 11 printed pages, 1 blank page and 1 Insert.
DC (LEO) 32719/3
2
1 (a) Simon wants to motivate his production workers to work harder. Identify two methods he For
could use to motivate production workers at Everyday Suits. Explain why these methods Examiner’s
would be effective. Use
Method 1: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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Method 2: .........................................................................................................................
Explanation: .....................................................................................................................
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...................................................................................................................................... [8]
© UCLES 2011 0450/21/O/N/11

3
(b) Appendix 2 shows the proposed new organisation chart for Everyday Suits. Simon will For
not be able to do all the work himself if the business grows bigger. Examiner’s
Use
Choose four departments that Simon could create and justify why each department
could be important to the success of the business.
Department 1: ..................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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Department 2: ..................................................................................................................
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Department 3: ..................................................................................................................
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Department 4: ..................................................................................................................
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.................................................................................................................................... [12]

4
2 (a) Refer to Appendix 3. Identify and explain two ways Simon could increase the added For
value of his current business. Examiner’s
Use
First way: ..........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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Second way: ....................................................................................................................
Explanation: .....................................................................................................................
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...................................................................................................................................... [8]
© UCLES 2011 0450/21/O/N/11

5
(b) To expand the business Simon may need new machinery. To finance this, he is For
considering using an overdraft or leasing the equipment or selling more shares. Consider Examiner’s
these three options for raising finance and recommend which one he should choose. Use
Justify your choice.
Using an overdraft: ...........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Leasing equipment: .........................................................................................................
..........................................................................................................................................
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Selling more shares: ........................................................................................................
..........................................................................................................................................
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Recommendation: ............................................................................................................
..........................................................................................................................................
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.................................................................................................................................... [12]
6
3 (a) As Everyday Suits expands it will need to employ new managers. Identify and explain For
four parts of an induction training programme for new managers. Examiner’s
Use
1. ......................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
2. ......................................................................................................................................
Explanation: .....................................................................................................................
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3. ......................................................................................................................................
Explanation: .....................................................................................................................
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4. ......................................................................................................................................
Explanation: .....................................................................................................................
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..................................................................................................................................... [8]
© UCLES 2011 0450/21/O/N/11

7
(b) Simon thinks that Option 1 would require a different marketing mix to Option 2. In what For
ways do you think each of the elements of the marketing mix will be different for Option Examiner’s
1 and Option 2? Justify your answer. Use
Product: ...........................................................................................................................
..........................................................................................................................................
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Price: ................................................................................................................................
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Promotion: .......................................................................................................................
..........................................................................................................................................
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Place: ...............................................................................................................................
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.................................................................................................................................... [12]

8
4 (a) As Everyday Suits expands it could gain from economies of scale. Identify and explain For
two examples of economies of scale the business might benefit from as it expands. Examiner’s
Use
Example 1: .......................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
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Example 2: .......................................................................................................................
Explanation: .....................................................................................................................
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...................................................................................................................................... [8]
© UCLES 2011 0450/21/O/N/11

9
(b) Using the information in Appendix 1, do you think Simon should be satisfied with the For
financial position of the business? Justify your answer using appropriate ratios. Examiner’s
Use
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10
5 (a) Everyday Suits currently uses batch production. However, if Simon chooses Option 1 For
job production will be used or if he follows Option 2 flow production will be used. Explain Examiner’s
the main features of job production for Option 1 and the main features of flow production Use
for Option 2.
Job production: ................................................................................................................
..........................................................................................................................................
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Flow production: ...............................................................................................................
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...................................................................................................................................... [8]
© UCLES 2011 0450/21/O/N/11

11
(b) Simon will need to use new machinery in the production of suits if he chooses Option 2. For
Do you think that the production workers at Everyday Suits would think the use of new Examiner’s
machinery was a good idea or not? Justify your answer. Use
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© UCLES 2011 0450/21/O/N/11

MARK SCHEME for the October/November 2011 question paper


0450/21 Paper 2 (Case Study), maximum raw mark 100
examination.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
of this mark scheme. In such cases, professional judgement should be exercised in assessing
the merits of the answer.
Examples of possible answers are also included in this mark scheme. Again, it should be
Application marks are not awarded for the name of the business or person from the case
material. Application is by answering in the context of the case or by using the information in
the case to help answer the question.

1 (a) Simon wants to motivate his production workers to work harder. Identify two methods
he could use to motivate production workers at Everyday Suits. Explain why these
methods would be effective. [8]
Content:
Increased wages; bonus; use piece-rate; fringe benefits; training; job rotation/enrichment;
non-financial benefits.
NB do not credit any negative features of the motivational methods.
The marks available for this question are as follows: 2 marks for knowledge, 2 marks for
application and 4 marks for explanation/analysis – the methods must be appropriate for
production workers.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each method.

(4 marks × 2 methods)
Below is an example to illustrate the difference between a simple explanation worth one
additional mark and a developed explanation worth 2 additional marks. An example is also
provided of where the application mark might be awarded.
Possible application marks:
suits (any reference to any aspect of suits reward once only); batch production; 100
production workers; profits increased as grown quickly; continue to expand the business;
employ skilled workers; invest in new machinery; information from Appendix 3; private
limited company.
There may be other examples in context which have not been included here.
Method: Introduce piece-rate to pay production workers. (1 knowledge mark)
Simple explanation: Introduce piece-rate to pay production workers as this will encourage
them to work harder as the more suits they make the more they will get paid. (1 additional
mark for simple explanation)
Developed explanation: Introduce piece-rate to pay production workers as this will encourage
them to work harder as the more suits they make the more they will get paid. This will mean
that the workers’ pay will increase if they make more suits and they will feel that their efforts
are being rewarded. (1 further explanation mark for a developed explanation)
Application: The application mark could be achieved as the answer refers to suits.
(1 application mark)

Appendix 2 shows the proposed new organisation chart for Everyday Suits. Simon will not be
able to do all the work himself if the business grows bigger.
(b) Choose four departments that Simon could create and justify why each department
could be important to the success of the business. [12]
Content:
Marketing/Market Research; Human Resources; Sales; Purchasing; Production/Operations;
Administration; IT; R&D.
NB do not accept Finance.
Level 1 The marketing department is needed. 1 mark for each suitable functional area.
Level 2 E.g. The marketing department is needed to carry out market research into the
styles of suits which customers like the most. This will enable the company to
produce suits which should meet customer demand and sell well. It is vitally
important that the company makes a product which meets customer needs or the
business may lose profit or even make a loss.
6 marks for a good level 2 answer plus 1 application mark for mentioning the style of
suits they should sell.
5 marks for the first level 2 answer plus 1–2 marks for each additional level 2
answer. I.e. two level two answers = 6 marks; 3 level 2 answers = 7 marks; 4 level 2
answers = 8 marks. However, if the level 2 answer is very well explained then 6
marks can be awarded for the first level 2 answer. If the second level 2 answer is
also very well explained then 8 marks in total can be awarded. 6 × L2 = 10 marks.
suits (any reference to any aspect of suits reward once only); private limited company;
batch production; 100 production workers; 5 office workers; profits increased as grown
quickly; a lot of competition; employ skilled workers; invest in new machinery; information
from Appendix 3.
Application Knowledge/Analysis/Evaluation
Level 2 2 marks 5–10 marks
Well applied to the case. At Good discussion of the role of the functional
least two examples of area would gain one L2 and then good
reference to, or use of, the judgement shown as to why the functional area
case. is important to the business a second L2 can be
awarded.
Level 1 1 mark 1–4 marks
Limited application to the Suitable functional area listed/stated. Limited
case. At least one example of judgement shown as to why functional area is
reference to, or use of, the needed.
case.

2 (a) Refer to Appendix 3. Identify and explain two ways Simon could increase the added
value of his current business. [8]
Content:
Increase price; decrease input costs; adding features to suits; exclusive brand name/logo;
recognisable packaging.
application and 4 marks for explanation/analysis.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each factor (4 marks
× 2 ways).
production workers; a lot of competition; employ skilled workers; invest in new machinery;
information from Appendix 3, e.g. cloth/fabric.
Reason: They could reduce the cost of the cloth purchased for making the suits.
(1 knowledge mark)
Simple explanation: They could reduce the cost of the cloth purchased for making the suits.
This will reduce the input costs and increase the difference between the input costs and
price. (1 additional mark for simple explanation)
Developed explanation: They could reduce the cost of the cloth purchased for making the
suits. This will reduce the input costs and increase the difference between the input costs
and price. Simon could find a cheaper supplier or negotiate a lower price from cloth suppliers
to increase the added value. (1 further explanation mark for a developed explanation)
Application: The application mark could be achieved as the answer refers to cloth to make
suits. (1 application mark)

(b) To expand the business Simon may need new machinery. To finance this, he is
considering using an overdraft or leasing the equipment or selling more shares.
Consider these three options for raising finance and recommend which one he should
choose. Justify your choice. [12]
Content:
Overdraft – quickly arranged; flexible; can be expensive; repayable on demand; high interest
rates; only borrow small amount.
Lease – capital not needed; payments spread out over time; updates possible; asset not
owned; maintenance/repairs covered.
Selling more shares – don’t have to be repaid; no interest paid; may lose some control;
profits shared; takes time to arrange.
Level 1 E.g. They could sell more shares and so they would not need to pay any interest on
the loan.
1 mark for each statement.
Level 2 E.g. They could sell more shares and so they would not need to pay any interest on
the loan. The money would be used to buy the new equipment so that an increasing
number of suits would be produced. The money would not have to be repaid and so
it would not add to the debt of the company. Not paying any interest means that the
business would have less money to pay out and should improve the cash flow of the
business. However, there would be more shareholders and they would expect
dividends paid out of the profits.
6 marks for a good level 2 answer plus 1 application mark for mentioning the
production of suits.
5 marks for the first level 2 answer, plus 1–2 marks for each additional level 2
answer. I.e. two level two answers = 6 marks; 3 level 2 answers
= 7 marks; 4 level 2 answers = 8 marks. However, if the level 2 answer is very well
explained then 6 marks can be awarded for the first level 2 answer. If the second
level 2 answer is also very well explained then 8 marks in total can be awarded.
Level 3 Detailed discussion of at least three level 2 answers which consider which option to
choose and justify why it is better than the other two sources. E.g. level 2 answer +
selling more shares will be better than an overdraft because the business will not be
able to borrow very much money using an overdraft and it is repayable on demand.
It is also better than leasing because the business will still need to pay more than
the purchase price of the equipment when leasing and so selling more shares will be
the cheapest option for the company.
suits (any reference to any aspect of suits reward once only); private limited company;
batch production; 100 production workers; profits increased as grown quickly; bank loan of
$15 000; continue to expand the business; financial information from Appendix 1.

Level 3 9–10 marks
At least 3 options explained at Level 2 + good
judgement shown as to which source of finance
to choose and why it is better than the other two
sources.
Well applied to the case. At Good discussion of the advantage/disadvantage
least two examples of of any of the sources of finance listed. Or
reference to, or use of, the balanced argument (even if listed). Some
case. judgement shown about which one they should
choose in recommendation.
Limited application to the Advantage/disadvantage of any of the sources
case. At least one example of of finance listed.
reference to, or use of, the
case.
3 (a) As Everyday Suits expands it will need to employ new managers. Identify and explain
four parts of an induction training programme for new managers. [8]
Content:
Shown round the business/facilities; introduce colleagues; go over the contract; shown to
work area; outline the job; history of company; fire drill; safety procedures/safety equipment;
aims/objectives of the business.
The marks available for this question are as follows: 4 marks for knowledge and 4 marks for
explanation.
1 knowledge mark + 1 explanation mark for each example (4 × 2 marks for each item).
E.g. The new manager would be introduced to new colleagues (1 knowledge mark) so that
they will feel more comfortable starting to work having met the other employees they will be
managing. (1 explanation mark)

(b) Simon thinks that Option 1 would require a different marketing mix to Option 2. In
what ways do you think each of the elements of the marketing mix will be different for
Option 1 and Option 2? Justify your answer. [12]
Content:
Product – individual suits for Option 1 but mass-produced product for Option 2.
Price – premium pricing for Option 1 and competitive pricing for Option 2.
Place – Option 1 sold through specialist shops while Option 2 sold through chain stores.
Promotion – newspapers aimed at high income groups for Option 1 but popular newspapers
for Option 2.
NB the answers must focus on marketing and not production and cost.
Level 1 E.g. The product is different – for Option 1 it is an individual product but for Option 2
it is a mass-produced product. 1 mark for each statement.
Level 2 E.g. The product is different – for Option 1 it is an individual product but for Option 2
it is a mass-produced product. Option 1 requires the suits to be made to measure for
each individual customer and the suit will be unique to each customer. However,
Option 2 will have to be standard size suits made of standard cloth. There will be a
restricted range of sizes and fabrics/colours to choose from. The cloth for Option 1
will be of better quality than Option 2.
5 marks for level 2 answer.
5 marks for the first level 2 answer plus 1–2 marks for each additional level 2
answers = 8 marks; 6 level 2 marks = 10 marks. However, if the level 2 answer is
very well explained then 6 marks can be awarded for the first level 2 answer. If the
second level 2 answer is also very well explained then 8 marks in total can be
awarded.
suits (any reference to any aspect of suits reward once only; a lot of competition;
information from Appendix 3; niche market.
Well applied to the case. At Comparisons/contrast made (even if listed) to
least two examples of show why the marketing mix will be different for
reference to, or use of, the the two options for each of the elements of the
case. marketing mix would gain one L2. For
justification or further development of the
differences, award a second L2.
Limited application to the Elements of the marketing mix listed/stated for
case. At least one example of each option.
case.

4 (a) As Everyday Suits expands it could gain from economies of scale. Identify and explain
two examples of economies of scale the business might benefit from as it expands. [8]
Content:
Financial; marketing; technical; risk-bearing; managerial; bulk buying/purchasing.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each economy of

scale (4 marks × 2 economies of scale).
suits (any reference to any aspect of suits reward once only); material/fabric; buttons;
thread; one finance manager; invest in new machinery.
Economy of scale: The business could gain financial economies of scale. (1 knowledge mark)
Simple explanation: The business could gain financial economies of scale because it has
expanded and is now larger and banks will see it as being more likely to pay the money back
and therefore less risk. (1 additional mark for simple explanation)
Developed explanation: The business could gain financial economies of scale because it has
expanded and is now a larger company, so banks will see it as being more likely to pay the
money back and therefore less risk. Less risk will mean that the interest rates will be lower to
reflect the lower risk. (1 further explanation mark for a developed explanation)
Application: The application mark could be achieved as the answer refers to expanding to
become a larger company. (1 application mark)

(b) Using the information in Appendix 1, do you think Simon should be satisfied with the
financial position of the business? Justify your answer using appropriate ratios. [12]
Content:
Level 1 – straight repetition of data in Appendix 1 no credit.
No cash in 2011 and overdrawn (L1).
Debtors increased in 2011 (L1).
Creditors decreased in 2011 (L1).
Level 2
Current ratio – 1:1 (L2) and 1:1.33 (L2).
Acid test 1:0.75 (L2) and 1:1 (L2).
Gearing ratio = 50%.
Level 1 E.g. No money at the bank.
1 mark for each statement up to a max of 4 marks.
Level 2 E.g. Current ratio 1:1.

Acid test 1:0.75.
answer. I.e. two level 2 answers = 6 marks; 3 level 2 answers = 7 marks; 4 level 2
answers = 8 marks. However, if the level 2 calculation is explained then 6 marks can
be awarded for the first level 2 answer. If the second level 2 calculation is also
explained then 8 marks in total can be awarded.
Level 3 This will include at least two calculations with comments on the figures and
judgement explained as to whether the business is in a strong financial position or
not.
Knowledge/Analysis/Evaluation
At least two L2 calculations and/or ratios. Decision made and justified on the
calculations as to whether or not the financial position of the business is good.
Level 2 5–8 marks
Financial information calculated and/or ratios calculated on the liquidity of the
business.
Level 1 1–4 marks
Basic statements about financial situations/limited judgement shown.

5 (a) Everyday Suits currently uses batch production. However, if Simon chooses Option 1
job production will be used or if he follows Option 2 flow production will be used.
Explain the main features of job production for Option 1 and the main features of flow
production for Option 2. [8]
Content:
Job production – products are made to the specific design of the customer; often labour-
intensive; highly skilled workers; high quality/individual product.
Flow production – uses machinery; production line used; low-skilled workers; standardised
product; continuous production; large quantity produced.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each method of

production (4 marks × 2 methods of production).
suits (any reference to any aspect of suits reward once only); 100 production workers; paid
hourly; continue to expand the business; material/cloth; invest in new machinery;
information from Appendix 3.
Job/flow production: Job production will mean the suit is made to the individual design of the
customer. (1 knowledge mark)
Simple explanation: Job production will mean the suit is made to the individual design of the
customer and so will meet the customer’s needs. It may be made by just one worker who
does all the processes themselves. (1 additional mark for simple explanation)
Developed explanation: Job production will mean the suit is made to the individual design of
the customer and so will meet the customer’s needs. It may be made by just one worker who
does all the processes themselves. The worker will need to be skilled so that they can carry
out all the different processes involved in making the suit, such as cutting out and sewing
together the fabric. (1 further explanation mark for a developed explanation)
Application: The application mark could be achieved as the answer refers to cutting out and
sewing the suits together. (1 application mark)

(b) Simon will need to use new machinery in the production of suits if he chooses
Option 2. Do you think that the production workers at Everyday Suits would think the
use of new machinery was a good idea or not? Justify your answer. [12]
Content:
Advantages of new machinery – increased skills required; higher wages; makes the job
easier; business more competitive so jobs more secure; job can be done quickly; training.
Disadvantages of new machinery – jobs lost; sometimes job more boring; worried about
future security of jobs; difficult to adjust to new machinery; resistant to change; reduce skills;
maybe lower wage rate.
NB the answer should be related to the workers’ view, not the managers’ view.
Level 1 E.g. Increased skills will be required from employees. 1 mark for each statement.
Level 2 E.g. Increased skills will be required from employees and this will mean employees
will be trained by the company to operate the new machinery and so they should
make more suits and their wages will increase.
marks can be awarded for the first level 2 answer. If the second level 2 answer is
also very well explained then 8 marks in total can be awarded.
Level 3 Detailed discussion of at least three level 2 answers plus consideration of whether
employees will think it’s a good idea or not.
production workers; paid hourly; no fringe benefits; continue to expand the business;
employ skilled workers; information from Appendix 3.
3 × Level 2 + justified conclusion of whether
employees will think it’s a good idea or not.
Well applied to the case. At Advantages and disadvantages of new
least two examples of technology discussed or balanced view (even if
reference to, or use of, the listed).
case.
Limited application to the Advantages/disadvantages of new technology
case. At least one example of listed.
case.

* 8 3 2 2 9 3 3 8 2 1 *

Paper 1 May/June 2011
1 hour 45 minutes

Total
DC (SM/CGW) 36366/2
2
1 Autobrake is a business that manufactures brake systems for cars. Fig. 1 shows its market For
share in 2005 and 2010. The market for brake systems was worth $70m in 2010. It is likely Examiner’s
to become an increasingly competitive market. Autobrake’s management believe that the Use
company needs to develop a wider range of products if it is to be profitable in the future.
Fig.1: Market shares for brake systems
2010 = Autobrake
year = other companies

2005
0 20 40 60 80 100
% market share
(a) What is meant by an ‘increasingly competitive market’?
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(b) Calculate the value of Autobrake’s sales in 2010.
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(c) Autobrake uses flow production in its factories. Identify and explain two benefits of using
flow production.
Benefit 1: ..........................................................................................................................
Explanation: .....................................................................................................................
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Benefit 2: ..........................................................................................................................
Explanation: .....................................................................................................................
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(d) Identify and explain three possible reasons why Autobrake’s market share changed For
between 2005 and 2010. Examiner’s
Use
Reason 1: ........................................................................................................................
Explanation: .....................................................................................................................
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Reason 2: ........................................................................................................................
Explanation: .....................................................................................................................
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Reason 3: ........................................................................................................................
Explanation: .....................................................................................................................
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(e) Do you think that investing in a wider range of products will mean that the business will
become more profitable in the future? Justify your answer.
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2 The economy of country A is in recession. To deal with the problems caused by the recession, For
the Government has cut interest rates and reduced taxes. These changes have had a big Examiner’s
impact on businesses in country A. The Government has also introduced laws to protect Use
employees at work. Some people have suggested that the Government should give grants
and subsidies to private sector businesses to help them survive.
(a) What is meant by the term ‘recession’?
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(b) Identify two ways in which consumers might be affected by a recession.
Way 1: ..............................................................................................................................
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Way 2: ..............................................................................................................................
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(c) Identify and explain two consequences of a fall in interest rates on businesses in
country A.
Consequence 1: ...............................................................................................................
Explanation: .....................................................................................................................
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Consequence 2: ...............................................................................................................
Explanation: .....................................................................................................................
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(d) Identify and explain three ways by which employees can be protected at work by For
Government laws. Examiner’s
Use
Way 1: ..............................................................................................................................
Explanation: .....................................................................................................................
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Way 2: ..............................................................................................................................
Explanation: .....................................................................................................................
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Way 3: ..............................................................................................................................
Explanation: .....................................................................................................................
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(e) Do you think that Governments should give financial support to private sector
businesses to survive in a recession? Justify your answer.
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3 Sarah set up a business as a sole trader running a nursery for small children too young For
to go to school. The business is successful and has opened a number of new nurseries. Examiner’s
Sarah took on a business partner in 2007. Growth has continued and now the business has Use
10 nurseries in different towns and villages. Sarah is planning to open another nursery and is
looking for a suitable location.
(a) What is meant by the term ‘sole trader’?
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(b) A nursery school is classified as a tertiary sector activity. Identify two other examples of
businesses that are also in the tertiary sector.
Example 1: .......................................................................................................................
Example 2: ................................................................................................................... [2]
(c) Identify and explain two advantages to Sarah of having a business partner.
Advantage 1: ....................................................................................................................
Explanation: .....................................................................................................................
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Advantage 2: ....................................................................................................................
Explanation: .....................................................................................................................
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(d) Identify and explain three factors Sarah should consider when choosing a suitable For
location for a new nursery. Examiner’s
Use
Factor 1: ...........................................................................................................................
Explanation: .....................................................................................................................
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Factor 2: ...........................................................................................................................
Explanation: .....................................................................................................................
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Factor 3: ...........................................................................................................................
Explanation: .....................................................................................................................
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(e) Do you think that it would be a good idea for Sarah to continue to expand her business?
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4 Trucker is a public limited company that makes products such as tractors and construction For
vehicles. Table 1 gives selected information from its Balance Sheet for the last two years. Examiner’s
Use
Table 1: Trucker’s Balance Sheet as at 30 June
$m
2009 2010
Fixed Assets 200 225

Current Assets 150 180
Current Liabilities 90 100
Net Assets 260 305
Financed by:
Long term Liabilities 200 220
Shareholders’ Funds 60 85
Capital Employed 260 305
(a) What is meant by the term ‘shareholders’ funds’?
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(b) Identify two examples of Trucker’s current assets.
Example 1: .......................................................................................................................
Example 2: ................................................................................................................... [2]
(c) Identify and explain two reasons why a business might have creditors.
Reason 1: ........................................................................................................................
Explanation: .....................................................................................................................
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Reason 2: ........................................................................................................................
Explanation: .....................................................................................................................
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(d) Identify and explain three possible reasons why Trucker’s net assets increased in 2010. For
Examiner’s
Reason 1: ........................................................................................................................ Use
Explanation: .....................................................................................................................
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Reason 2: ........................................................................................................................
Explanation: .....................................................................................................................
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Reason 3: ........................................................................................................................
Explanation: .....................................................................................................................
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(e) Can the success of Trucker’s business be assessed just by analysing its Balance Sheet?
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10
5 Fig. 2 shows the organisational structure of ABC, a business that manufactures toys. For
As the business has grown, the management has found it difficult to maintain good internal Examiner’s
communication and to control activities. ABC always recruits its senior managers from within Use
the company.
Fig. 2: ABC’s organisational structure
(a) What is meant by the term ‘internal communication’?
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(b) Identify two features of the organisational structure of ABC as shown in Fig. 2.
Feature 1: .........................................................................................................................
Feature 2: ..................................................................................................................... [2]
(c) Identify and explain two reasons why managers may be reluctant to delegate tasks to
employees in their organisation.
Reason 1: ........................................................................................................................
Explanation: .....................................................................................................................
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Reason 2: ........................................................................................................................
Explanation: .....................................................................................................................
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(d) Identify and explain three advantages to ABC of recruiting senior managers from within For
the business. Examiner’s
Use
Advantage 1: ....................................................................................................................
Explanation: .....................................................................................................................
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Advantage 2: ....................................................................................................................
Explanation: .....................................................................................................................
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Advantage 3: ....................................................................................................................
Explanation: .....................................................................................................................
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(e) Recommend two ways in which communication could be improved in a large

organisation. Justify your recommendations.
Way 1: ..............................................................................................................................
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Way 2: ..............................................................................................................................
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© UCLES 2011 0450/11/M/J/11

MARK SCHEME for the May/June 2011 question paper


0450/11 Paper 1 (Short Answer/Structured response),
examination.
Cambridge is publishing the mark schemes for the May/June 2011 question papers for most IGCSE,
GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
IGCSE – May/June 2011 0450 11

1 (a) What is meant by an ‘increasingly competitive market’? [2]
For 2 marks must have understanding of ‘increasingly’ and ‘competitive market’.

A greater number of businesses [1] producing products aimed at the same market segment
[1]. A number of similar companies [1], as this shows an understanding of a competitive
market.
(b) Calculate the value of Autobrake’s sales in 2010. [2]
Correct answer [2], method [1].

$ sign not required.
Autobrake’s sales = $14m [2]. Must have million for 2 marks.

$70m x 20% [1], sales x market share [1].
Correct method but wrong year [2005] i.e. $70m x 40% [1], $28m alone [0].
(c) Autobrake uses flow production in its factories. Identify and explain two benefits of
using flow production. [4]
Knowledge [2 x 1]:
• larger output/mass production
• economies of scale or lower unit costs
• overheads spread over many units
• intensive use of machinery
• productivity rises
• continuous process
• standardised products/consistent quality
• specialisation/unskilled workers.
Do not accept ‘quicker’, ‘cheaper’ or ‘quality’ alone as knowledge points. These can be used
as part of an explanation.
Analysis [2 x 1]: explaining how the benefit identified helps Autobrake.

E.g. reducing unit cost [k] is a benefit because it increases competitiveness [an].
(d) Identify and explain three possible reasons why Autobrake’s market share changed
between 2005 and 2010. [6]
Remember Autobrake’s market share has fallen. Total market demand for the product has
not fallen.
Knowledge [3 x 1]:
• product range dated
• new rivals entered market
• incorrect pricing
• quality issues damaged reputation
• marketing strategies ineffective.
Analysis [3 x 1]: explain how the factor identified results in a relative fall in sales. E.g. If
product range is old-fashioned [k] this results in consumers turning to other businesses to
better meet their needs [an].

(e) Do you think that investing in a wider range of products will mean that the business
will become more profitable in the future? Justify your answer. [6]
Knowledge [2]:
• attracts new groups of customers
• increases attractions of business to existing customers
• enhances the image of the company
• spreading risk
• costs will rise
• diseconomies of scale.
Analysis [2]: explanation of how the knowledge point identified affects the business.
Evaluation [2]: justified decision related to profitability based on points identified.

2 (a) What is meant by the term ‘recession’? [2]
[Sustained] reduction in GDP [2].

Fall in output [1] over time [+ 1].
Slow down in business activity [1].
Do not credit identification of impact such as falling living standards/fewer jobs/businesses

making losses/fall in sales [0].
(b) Identify two ways in which consumers might be affected by a recession. [2]
Knowledge [2 x 1]:
• Lack of confidence/less spending
• lower income/loss of income/job losses/falling living standards
• reduced choice
(c) Identify and explain two consequences of a fall in interest rates on businesses in
country A. [4]
Knowledge [2 x 1]:
• cost of borrowing reduced
• potential incentive to increase investment
• increase in spending by consumers
• interest earned on savings falls
Analysis [2 x 1]: explanation shows how the business will be affected. E.g. Increase in
spending by consumers [1] leading to rise in sales [1]. Loans are cheaper so businesses take
more loans [1].
(d) Identify and explain three ways by which employees can be protected at work by
Government laws. [6]
Knowledge [3 x 1]:
• unfair dismissal
• employment contract
• protection against exploitation/discrimination
• health and safety
• wage protection
• maximum hours.
Analysis [3 x 1]: explain how the employee might be better protected.

E.g. any law that limits the number of employee hours each week [k] protects a worker from
tiredness [an].

(e) Do you think that Governments should give financial support to private sector
businesses to survive in a recession? Justify your answer. [6]
Knowledge of issues [2]:

• maintains jobs
• maintains output
• keeps range of products
• protects key industry/products/suppliers/exports
• more government spending/switches spending from other areas
• increases taxation.
Analysis [2]: explanation of why this issue is important.

Evaluation [2]: justified decision based on points identified.

3 (a) What is meant by the term ‘sole trader’? [2]
A business owned by one individual [2].

Some understanding of the term plus an example of a feature [2].
E.g. run by one person [1] has unlimited liability [1].
Identification of features – max 1 mark.
(b) Identify two other examples of businesses that are also in the tertiary sector. [2]
Any service-type activity acceptable e.g. retailing/entertainment.

Do not accept a name of a business alone.
E.g. Patel’s [0] but Patel’s insurance company [1].
(c) Identify and explain two advantages to Sarah of have a business partner. [2]
Knowledge [2 x 1]:
• injection of more capital
• sharing of work load
• new ideas
• greater range of expertise/specialisation.
Analysis [2 x 1]: explanation of how/why it benefits Sarah.
(d) Identify and explain three factors Sarah should consider when choosing a suitable
location for a new nursery. [6]
Knowledge [3 x 1]:
• cost related issues [rent/rates/government grants]
• market factors/near housing estates or population
• competition
• transport
• security
• utilities/power/water
• access to qualified staff/labour.
Must be appropriate for a nursery.
Analysis [3 x 1]: explanation of why these factors need to be considered.

(e) Do you think that it would be a good idea for Sarah to continue to expand her
business? Justify your answer. [6]
Knowledge [2]:
• gain economies of scale
• greater recognition
• profitability
• loss of control
• risk
• objectives of the owner
• increased cost
• revenue
• more customers.
Analysis [2]: explanation of points must be related to Sarah or her business for credit.
Evaluation [2]: justified decision related to growth based on points identified. For 2
evaluation marks must relate to Sarah or her business.
Generic answer that is not related to Sarah’s business is maximum 3 marks.

4 (a) What is meant by the term ‘shareholders’ funds’? [2]
Value of equity capital plus reserves [2].

Funds/money invested into the business [1] by the owners [+ 1].
Some understanding of term e.g. money put into business by shareholders [1].
Note: do not accept dividend.
(b) Identify two examples of Trucker’s current assets. [2]
• debtors
• stock e.g. tractors/construction vehicles
• cash/bank.
1 mark per example [2 x 1].
(c) Identify and explain two reasons why a business might have creditors. [2]
Knowledge [2 x 1]:
• helps with cash flow/short-term funding
• purchase of raw materials/stock to resell
• interest-free source of finance
• standard way of carrying out business transactions
• taken an overdraft.
Analysis [2 x 1]: explanation of why this is useful to the business.
(d) Identify and explain three possible reasons why Trucker’s net assets increased in
2010. [6]
Knowledge from data [3 x 1]:

• fixed assets increased/went from $200m to $225m
• current assets increased/went from $150m to $180m
• current liabilities increased by less than the increase in current assets.
Analysis [3 x 1]: explanation showing possible reason for the change identified.
E.g. fixed assets are higher [k] because they bought new plant or buildings [an].
(e) Can the success of Trucker’s business be assessed just by analysing its Balance
Sheet? Justify your answer. [6]
Knowledge [2]:
Knowledge of a Balance Sheet/ways to measure success [2].
• the assets and liabilities of a business [1] at a point in time [+1]
• a financial statement at a point in time [1]
• what a business owns and owes [1]
• the value of a company [1].
Analysis [2]: interpretation of what a balance sheet does or does not show.
Evaluation [2]: justified decision related to success based on points identified.

5 (a) What is meant by the term ‘internal communication’? [2]
Process of exchanging information between one group and another inside a business [2].
Flow of messages from source to recipient [1] within a business [1].
Do not accept examples of communication – the question requires a definition.
(b) Identify two features of the organisational structure of ABC as shown in Fig. 2. [2]
1 mark per feature identified:

• narrow span of control
• tall (structure)
• 4/large number of levels/hierarchy
Do not accept only 2 subordinates as this is unknown.
(c) Identify and explain two reasons why managers may be reluctant to delegate tasks to
employees in their organisation. [4]
Knowledge [2 x 1]:
• may lack confidence in employees
• want to maintain total control/manager feels threatened
• think they know best/know the task will be done/fear of errors
• employees lack training/skills
• managers not capable of explaining the task.
Analysis [2 x 1]: explanation shows why these reasons result in a lack of delegation.
(d) Identify and explain three advantages to ABC of recruiting senior managers from
within the business. [6]
Knowledge [3 x 1]:
• acts as a motivator for employees
• individual knows the business
• business knows the individual
• avoids costs of external recruitment.
Do not accept ‘time’ or ‘money’ unless explained. Training must clearly be related to
induction to be rewarded. ‘Experienced’ is not a valid answer.
Analysis [3 x 1]: explanation as to why ABC benefits.

(e) Recommend two ways in which communication could be improved in a large

organisation. Justify your recommendations. [6]
Knowledge [2]:
Could include:
• telephone/cell phone
• email
• meetings/video-conferencing
• shorten span of control
• delayering.
Analysis [2]: explanation of how communication would be improved.

Evaluation [2]: justification of why this is suitable for a large organisation. This can be
implicit.

* 1 5 5 6 5 7 0 4 0 6 *

1 hour 45 minutes

Total
DC (SM/CGW) 36369/1
2
1 Terfil Enterprises organises special events such as concerts and music festivals. The founder, For
Ceri Terfil, converted the business into a private limited company in 2004. ‘We are in a niche Examiner’s
market’ said Ceri ‘and have built a reputation for efficiency and low prices. I would like the Use
business to continue to grow in the future’.
(a) What is meant by the term ‘niche market’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [2]
(b) Identify two objectives that Ceri might have had for his business when he started it.
Objective 1: ......................................................................................................................
..........................................................................................................................................
Objective 2: ......................................................................................................................
...................................................................................................................................... [2]
(c) Identify and explain two advantages to Ceri of converting the business to a private
limited company.
Advantage 1: ....................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Advantage 2: ....................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [4]
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3
(d) Identify and explain three potential problems to Terfil Enterprises of continuing to grow For
in the future. Examiner’s
Use
Problem 1: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Problem 2: ........................................................................................................................
Explanation: .....................................................................................................................
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Problem 3: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [6]
(e) How important are low prices in determining the long term success of Terfil Enterprises?
..........................................................................................................................................
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...................................................................................................................................... [6]

4
2 Telefax is a business that manufactures a range of electronic products. Table 1 shows For
selected information from its latest Balance Sheet. Examiner’s
Use
Table 1: Balance Sheet Telefax as at 30 June
$m
2009 2010
Fixed Assets 30 40
Net Assets 30 44
Financed by:
Long term Liabilities 10 20
(a) What is meant by the term ‘fixed assets’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [2]
(b) Identify two examples of Telefax’s current liabilities.
Example 1: .......................................................................................................................
Example 2: ................................................................................................................... [2]
(c) Identify and explain two reasons why most businesses have debtors.
Reason 1: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 2: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [4]
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5
(d) Identify and explain three reasons why Telefax’s bank manager might want to see the For
accounts of the business. Examiner’s
Use
Reason 1: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 2: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 3: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [6]
(e) Do you think that the financial position of Telefax has improved in 2010? Justify your
answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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...................................................................................................................................... [6]

6
3 Kemptown Fried Chicken is a chain of fast food restaurants. The business is unsuccessful For
because it is badly managed. There is no organisational structure. Job tasks and roles are Examiner’s
unclear. The workers are demotivated and low paid. Communication in the business is poor Use
and meetings are rarely held because the management think they are ‘a non-productive use
of time’.
(a) What is meant by the term ‘organisational structure’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [2]
(b) What is meant by ‘communication in the business is poor’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [2]
(c) Identify and explain two advantages of delegating tasks in an organisation.
Advantage 1: ....................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Advantage 2: ....................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [4]
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7
(d) Identify and explain three reasons why meetings between managers and workers can For
benefit the business. Examiner’s
Use
Reason 1: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 2: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 3: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [6]
(e) How effective is money in motivating workers? Justify your answer.
..........................................................................................................................................
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8
4 Delwar makes car tyres. The business is located in country Z. At present, all its sales are to For
customers in country Z. Delwar is the market leader in this country. Fig. 1 gives data regarding Examiner’s
its market share. The total value of car tyre sales in country Z in 2010 was $50m. This market Use
is no longer growing. The Managing Director of Delwar thinks that exporting tyres is the way
forward. There will be both costs and benefits of exporting tyres.
Fig. 1: Bar chart showing market share
% market share
100
80
60
40 = other companies
20 = Delwar
2005 2010
year
(a) What is meant by the term ‘market leader’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [2]
(b) Calculate the value of Delwar’s sales in 2010.
..........................................................................................................................................
...................................................................................................................................... [2]
(c) Identify and explain two possible reasons why the market for car tyres in country Z is no
longer growing.
Reason 1: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 2: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [4]
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(d) Identify and explain three methods Delwar could use to increase its market share in For
country Z. Examiner’s
Use
Method 1: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Method 2: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Method 3: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [6]
(e) Do you think Delwar’s profits would increase if the business were to export its tyres?
..........................................................................................................................................
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10
5 Extracto is a multinational mining business. It has recently found mineral deposits in For
country X. The Managing Director hopes that the deposits found are large enough for them Examiner’s
to make a good profit. Some pressure groups in country X think that Extracto has only Use
considered the financial benefits of its plans and has ignored the social costs.
(a) What is meant by a ‘financial benefit’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [2]
(b) Identify two examples of social costs that extraction of minerals might create.
Example 1: .......................................................................................................................
..........................................................................................................................................
Example 2: .......................................................................................................................
...................................................................................................................................... [2]
(c) Identify and explain two ways in which pressure groups could influence Extracto’s
decisions.
Way 1: ..............................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [4]
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(d) Identify and explain three factors that Extracto should consider before deciding whether For
to begin mining in country X. Examiner’s
Use
Factor 1: ...........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Factor 2: ...........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Factor 3: ...........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [6]
(e) Governments often aim to attract multinational companies into their countries. Do you
think that they should do this? Justify your answer.
..........................................................................................................................................
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12
BLANK PAGE
© UCLES 2011 0450/12/M/J/11



0450/12 Paper 1 (Short Answer/Structured response),
examination.
syllabuses.

1 (a) What is meant by the term ‘niche market’? [2]
For 2 marks must have reference to idea of ‘small part of market’ and ‘specialised’.
Niche market is a specialised sub-part of a larger market with specific characteristics [2].
Some understanding [1] e.g. small part of a market [1].
Do not accept ‘small market’ [0].
(b) Identify two objectives that Ceri might have had for his business when he started it. [2]
Objectives might include growth/profitability/survival/breakeven/gaining reputation/added

value/ providing service/brand loyalty.
One mark per objective [2 × 1].
(c) Identify and explain two advantages to Ceri of converting the business to a private
limited company. [4]
Knowledge [2 × 1]:
• separate legal identity from owner
• limited liability
• increases ability to raise funds/sell shares (to friends and family).
Analysis [2 × 1]: explanation must show why the point creates an advantage to Ceri e.g.
limited liability [k] so owner only loses amount invested in company [an].
(d) Identify and explain three potential problems to Terfil Enterprises of continuing to
grow in the future. [6]
Knowledge [3 × 1]:
• business becomes more complex to manage/diseconomies of scale
• may lose focus on niche market/lose contact with customers
• growth limited by size of market
• lack of capital to finance growth
• new geographical market
• increase in expenditure/cost.
Do not accept more competition alone as knowledge point. It must be developed in reference
to a niche market.
Do not accept cash flow problem as it is a short-term issue.
Application/analysis [3 × 1]: explains how it might be a problem for the business e.g. Ceri
begins to find it much more difficult to manage the business [k], and starts to make
mistakes/poor decisions [an].

(e) How important are low prices in determining the long-term success of Terfil
Enterprises? Justify your answer. [6]
Knowledge of relevant factors that affect long-term success [2].

• low prices encourage demand
• product/promotion/place
• competition
• reputation
• availability of finance.
Analysis of factors [2]: explain how or why the factor might be an issue.
Evaluation [2]: justified decision related to long-term success based on points raised.
2 (a) What is meant by the term ‘fixed assets’? [2]
Assets that are owned by a business [1] and are held for a period of time (usually in excess
of a year) [2].
Some understanding [1] e.g. ‘things that are owned’.
Some understanding plus example e.g. buildings can gain 2 marks.
Do not credit example on its own.
(b) Identify two examples of Telefax’s current liabilities. [2]
Knowledge [2 × 1]:
• overdraft
• creditors/payables
• accruals
• outstanding tax
• short-term loans.
One mark per example [2 × 1].
Do not accept amounts owed e.g. electricity owed.
(c) Identify and explain two reasons why most businesses have debtors. [4]
Knowledge [2 × 1]:
• debtors can be used as a marketing device
• standard practice in the industry
• customers don't pay/can't pay.
Analysis [2 × 1]: explanation must show why the factors identified occur e.g. marketing
device [k] can encourage customers to buy more goods as they are able to pay later [an].

(d) Identify and explain three reasons why Telefax’s bank manager might want to see the
accounts of the business. [6]
Knowledge [3 × 1]:
• can be used to assess financial strength/assess risk
• profitability
• liquidity
• gearing.
Do not accept answers which refer to how the business would use the accounts.
Analysis [3 × 1]: explanation must focus on the reason why the information that can be
learned from the accounts actually would be of interest to the bank manager.
E.g. check cash flow before giving loan [k] to make sure business can pay back [an].
(e) Do you think that the financial position of Telefax has improved in 2010? Justify your
answer. [6]
Knowledge of significant changes shown by accounts [2].

• current ratio improve
• gearing ratio increased
• fixed assets increased
• current assets increased more than current liabilities
• long-term liabilities increased
• the rise in the value of net assets financed by an increase in long-term debt.
Analysis of changes [2] can be quantitative or qualitative.

• current ratio improves from 1:1 to 1.2:1/improved so can meet short-term liabilities more
easily
• gearing ratio from 33% to 45%
• fixed assets increased by $10 million
• current assets increased faster than current liabilities by $4 million
• long-term liabilities increased significantly from $10m to $20m
• the rise in the value of net assets financed largely by an increase in long-term debt.
Evaluation [2]: justified decision related to whether financial position has improved.

3 (a) What is meant by the term ‘organisational structure’? [2]
Clear understanding of term [2] e.g. refers to level of management and division of
responsibilities within an organisation/shows the roles of people in an organisation and the
relationship between them.
Some understanding [1] e.g. ‘how a business is organised’.
(b) What is meant by ‘communication in the business is poor’? [2]
Clear understanding [2]: communication refers to the process by which information is

exchanged between one group and another [1]. If it is poor this process is not functioning
effectively [+ 1].
A one-mark answer will refer only to communication or the concept of ‘poor’, e.g. message is
not getting through [1].
(c) Identify and explain two advantages of delegating tasks in an organisation. [4]
Knowledge [2 × 1]:
• work-load spread more evenly
• give responsibility to lower rank employees
• management can focus on more important matters
• motivational factor for employees
• improved efficiency.
Note: advantages can be for employee, manager or business.
Do not accept ‘faster’ and ‘effective’ alone as knowledge points. These can be used as part
of an explanation.
Analysis [2 × 1]: show how or why the point identified creates an advantage e.g. gives
responsibility to lower rank employees [k] which may increase motivation and job satisfaction
[an].
(d) Identify and explain three reasons why meetings between managers and workers can
benefit the business. [6]
Knowledge [3 × 1]:
Benefits might include:
• interchange of ideas
• better understanding of other people’s points of view/opinions
• improves communications
• increases sense of unity of purpose and motivation
• better decision-making
• problem-solving.
Analysis [3 × 1]: explains how or why it is a benefit to the business.

E.g. workers can put forward ideas [k] which help the business cut costs [an].

(e) How effective is money in motivating workers? Justify your answer. [6]
Knowledge of motivational factors [2]:

• money
• personal satisfaction
• social needs, etc.
Analysis of issues [2]: explain how money may or may not motivate workers.
Do not accept benefits for the business.
Evaluation [2]: justified decision as to effectiveness of money to motivate workers based on

points raised, e.g. motivation refers to the attitude that people have towards their work. [k]
Money clearly can help motivation by increasing the financial rewards [k] and hence making
work more attractive [an]. However money alone cannot motivate if other factors are lacking
[e].
4 (a) What is meant by the term ‘market leader’? [2]
Clear understanding [2] e.g. business with largest percentage of total sales revenue/share of
the market [in terms of sales, revenue or output] or biggest share of market.
Some understanding [1] e.g. largest business in market/big market share/business with a
monopoly.
(b) Calculate the value of Delwar’s sales in 2010. [2]
Accurate calculation or correct answer [2]. Method alone [1].

$ sign not needed
60% of $50m [1] = $30m [2] must have millions (m) for 2 marks.
Correct method i.e. 40% of $50m [1] but $20m alone [0].
(c) Identify and explain two possible reasons why the market for car tyres in country Z is
no longer growing. [4]
Knowledge [2 × 1]:
• recession
• market saturated/demand for cars static or falling
• increased use of public transport/environmental concerns
• increase in price of cars/fuel/tyres
• better quality product
Note: answers must refer to total market for tyres in country Z and not just Delwar.
Application/analysis [2 × 1]: explanation to show how or why the factor affects the market
for tyres, e.g. in a recession [k] people likely to have less money and buy fewer cars/tyres
[an].

(d) Identify and explain three methods Delwar could use to increase its market share in
country Z. [6]
Knowledge [3 × 1]:
• improved quality of products
• widened product range
• bought out rivals/takeover/merge
• promotion/advertising
• pricing
• improved customer service
• more sales outlets.
Do not allow exporting to/importing from other countries.
Analysis/application [3 × 1]: explains how method helps increase market share e.g. short-
term price promotion [k] to encourage more customers to buy more products as they are
cheaper [an].
(e) Do you think Delwar’s profits would increase if the business were to export its tyres?
Justify your answer. [6]
Knowledge [2]:
Points could include:
• advantages and disadvantages of exporting
• factors affecting profitability
• government influences
• exchange rates
• productive capacity
• access to new market/customers.
Analysis of factors [2]: show why or how that factor is an issue.
Evaluation [2]: justified decision related to Delwar's profit based on points raised, e.g.
exporting could increase sales [k] and assuming positive margins this should increase profits
[an]. The current domestic market is static and hence if no exports then sales might well fall
in future [an]. However exporting incurs costs [k]. If the process is unsuccessful then the
extra income may not cover these [an]. So potentially exporting should increase profits but
this is not inevitable [e].

5 (a) What is meant by a ‘financial benefit’? [2]
Clear understanding [2]: e.g. monetary benefit [1], internal to the business [+1], profit
business makes [2].
Some understanding [1]: e.g. a benefit received by a business [1] or money benefit e.g.
profit/money/cost saving, but no indication as to the recipient [1].
(b) Identify two examples of social costs that extraction of minerals might create. [2]
Knowledge [2 × 1]:
Environmental/visual pollution/destruction of an area/noise/depletion of resources.
One mark per example.
(c) Identify and explain two ways in which pressure groups could influence Extracto’s
decisions. [4]
Knowledge [2 × 1]:
• creating negative publicity/publish information
• demonstrations/protests/rally opposition against the company
• highlight the social costs of the activities/make complaints
• lobby politicians/company etc
• boycott products
• law suits.
Do not accept Trade Union activities/strikes/picketing.
Analysis [2]: explain how the action might influence the decisions of the business.
Arrange boycott [k] of products could mean lower sales thus lower sales revenue might
cause business to rethink [an].
(d) Identify and explain three factors that Extracto should consider before deciding
whether to begin mining in country X. [6]
Knowledge [3 × 1]:
• government rules/financial incentives/approval to proceed
• specific costs associated with given site
• infrastructure
• availability of suitable workforce
• external economies of scale
• financial viability.
Note: factors must be appropriate for a mining company.
Do not accept social costs and social benefits.

Do not allow power and water as separate points.
Do not accept location on its own as a knowledge point. Only accept it in relation to
accessibility, transport etc.
Analysis of importance [3 × 1]: explain how and why factor needs to be considered,
e.g. a transport network will be necessary [k] to get equipment into the site and products out
easily [an].

(e) Governments often aim to attract multinational companies into their countries. Do you
think that they should do this? Justify your answer. [6]
Knowledge of issues [2]:

• multinationals create jobs
• encourage inward investment
• help develop skills and expertise/train local work force
• generate spending power
• exploitation of workers/resources
• lack of respect for local customs and cultures
• lead to flow of profits out of a country
• competition for local businesses.
Analysis of issues [2]: explain how or why the issue affects government decisions.
Evaluation of issues [2]: justified decision related to whether government should try to attract
multinationals. E.g. multinationals help develop skills and expertise [k], by investing money in
training the local workforce [k]. This would increase employment opportunities and spending
power within the local economy [an]. However they can lead to exploitation and lack of
respect for local customs and cultures and lead to flow of profits out of a country. So issue is
not clear-cut [e].


INSERT
1 hour 45 minutes

DC (SM/DJ) 31366/3
2
Chocolate Delight
Chocolate Delight was set up in country X 15 years ago as a private limited company. The business
grew slowly as the owners used reinvested profits as the only source of finance for expansion.
The company has issued share capital of $6m. The shares are owned by six members of the Sharif
family.
Chocolate Delight has three main types of products which are:

• Plain chocolate bars mainly sold to adults
• Boxes of chocolates mainly sold to women
• Chocolate covered sweets mainly sold to children.
A big problem for the company is that it does not have the money to build an extra factory, which is
needed to expand production. The owners are thinking of selling more shares to raise the necessary
finance. $5m is required to build the factory and equip it with production machinery. The Managing
Director says: ‘We need to become a public limited company to raise the additional finance’. However,
the Finance Director says: ‘This is a very expensive and risky way to raise the finance. We should
continue to use retained profits to pay for an additional factory, even if we have to wait for 2 to 3 years
before we have enough retained profit’.
Chocolate Delight employs skilled workers in the Research and Development (R & D) department.
This department develops new products for the company.
Chocolate Delight buys ‘Fair Trade’ cocoa. This is where the cocoa farmer receives a higher price,
about 10% more than the usual selling price. In return the farmer must ensure that no children are
working on the farms and that farm employees are paid at least a set minimum wage. The farms need
to be inspected regularly to be allowed to say they are selling ‘Fair Trade’ products.
Appendix 1
The products of Chocolate Delight and stages of the Product Life Cycle
chocolate boxes plain

covered of chocolate
sweets chocolates bars
Sales
Revenue
Development Growth Saturation

Introduction Maturity Decline
© UCLES 2011 0450/21/INSERT/M/J/11

3
Appendix 2
Country X Economic Forecasts for 2012–2015
% 6
5
economic growth
4
inflation
3
2
unemployment
1
0
2012 2013 2014 2015
Time
Appendix 3
Information on two machines for producing chocolate bars
Machine A Machine B
Cost of machine $500 000 $800 000

Number of workers
required to run the
10 3
machinery at a daily wage
of $100 per worker
Output per day 10 000 chocolate bars 6 000 chocolate bars
© UCLES 2011 0450/21/INSERT/M/J/11

4
BLANK PAGE
© UCLES 2011 0450/21/INSERT/M/J/11

* 6 2 0 3 8 5 2 4 4 4 *

1 hour 45 minutes
Additional Materials: Insert

The business described in this question paper is entirely fictitious.
Total
DC (SM) 31365/3
2
1 (a) The Directors of Chocolate Delight think the business is successful. For
Identify and explain four ways they could use to measure the success of the business. Examiner’s
Use
Way 1: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Way 3: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Way 4: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
...................................................................................................................................... [8]
© UCLES 2011 0450/21/M/J/11

3
(b) The Directors of Chocolate Delight want to build a new factory and will need to raise For
$5m. Do you think the Managing Director is right in suggesting Chocolate Delight should Examiner’s
become a public limited company, or is the Finance Manager right in suggesting retained Use
profit should be used? Justify your answer using information in the case.
Becoming a public limited company: ................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Using retained profit: ........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]

4
2 (a) Appendix 1 shows plain chocolate bars are in the decline stage of the product life cycle. For
Identify and explain four ways in which the Directors of Chocolate Delight might respond Examiner’s
to this problem. Use
Way 1: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Way 3: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Way 4: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
...................................................................................................................................... [8]
© UCLES 2011 0450/21/M/J/11

5
(b) The Managing Director believes that the Sales Department is more important for the For
success of the company than the Production, Research and Development (R & D) and Examiner’s
Human Resources Departments. Do you agree with him? Justify your answer. Use
Sales Department: ...........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Production Department: ...................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
R & D Department: ..........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Human Resources Department: ......................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]

6
3 (a) Chocolate Delight has a website which gives customers information about the products For
it sells. Identify and explain two other ways that Chocolate Delight could use the Internet Examiner’s
for business purposes. Use
Way 1: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
© UCLES 2011 0450/21/M/J/11

7
(b) Appendix 3 gives information on two machines that the owners of Chocolate Delight For
could buy. Compare these two machines and recommend which machine they should Examiner’s
buy. Justify your answer using calculations of output per worker and labour costs per Use
chocolate bar.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]

8
4 (a) The Finance Director says that break-even charts are useful when analysing the For
different products that Chocolate Delight produce. Identify and explain two ways Examiner’s
break-even charts can be useful to the Finance Director of Chocolate Delight. Use
Way 1: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
© UCLES 2011 0450/21/M/J/11

9
(b) After buying the new machinery, Chocolate Delight will need to train workers how to use it. For
Do you think that on-the-job training will be better than off-the-job training for Chocolate Examiner’s
Delight? Justify your answer by considering both the business and the employees of Use
Chocolate Delight.
On-the-job training: ..........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Off-the-job training: ..........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]

10
5 (a) Identify and explain two possible reasons Chocolate Delight buys its cocoa from For
Fair Trade cocoa farmers. Examiner’s
Use
Reason 1: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 2: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
© UCLES 2011 0450/21/M/J/11

11
(b) Consider how the economic forecasts shown in Appendix 2 might affect the sales, costs For
and profits of Chocolate Delight over the next few years. Do you think these economic Examiner’s
trends will be good or bad for the company? Justify your answer. Use
Economic growth: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Inflation: ...........................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Unemployment: ................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Conclusion: ......................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]
© UCLES 2011 0450/21/M/J/11

12
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© UCLES 2011 0450/21/M/J/11



examination.
syllabuses.
1 (a) The Directors of Chocolate Delight think the business is successful. Identify and
explain four ways they could use to measure the success of the business. [8]
Content:
Profits; market share; expansion; sales; high share price; dividends paid; good reputation;
high quality products; worker satisfaction; efficiency; cash flow; financial ratios – net profit
margin, gross profit margin, ROCE, current ratio, acid test ratio.
Measures of size such as output, number of employees or capital should not be

credited.
The marks available for this question are as follows:

4 marks for knowledge; 4 marks for application.
1 mark for each way identified plus 1 explanation mark for how each way shows success.
1 knowledge mark + 1 explanation mark (2 marks x 4 ways).
Way: Market share. (1 knowledge mark)

Explanation: Increasing market share means that Chocolate Delight has increased its sales
of chocolate bars and is more popular. (1 explanation mark)
(b) The Directors of Chocolate Delight want to build a new factory and will need to raise
$5m. Do you think the Managing Director is right in suggesting Chocolate Delight
should become a public limited company, or is the Finance Manager right in
suggesting retained profit should be used? Justify your answer using information in
the case. [12]
Content:
Advantages of becoming a plc – raise large amounts of capital; no restriction on
buying/selling shares; high status.
Disadvantages of becoming a plc – legal formalities time-consuming and complicated; more

regulations and controls; difficult to control and manage; selling shares is expensive; may
lose control.
Advantages of retained profit – no interest paid; does not have to be repaid.
Disadvantages of retained profit – lower dividends to shareholders; takes time to build up.

Level 1 E.g. Becoming a plc will raise a lot of capital through the selling of shares. 1 mark
for each statement.
Level 2 E.g. Becoming a plc will raise a lot of capital through the selling of shares. A plc can
sell shares to the public and so a larger amount of money can be raised than just by
issuing shares as a private limited company, as they can only sell shares to family
and friends. However, the cost of becoming a plc is expensive as a plc has to
produce a prospectus.
5 marks for the first level 2 answer. Plus 1–2 marks for each additional level 2
answer. I.e. two level 2 answers = 6 marks; three level 2 answers = 7 marks; four
level 2 answers = 8 marks. However, if the level 2 answer is very well explained
then 6 marks can be awarded for the first level 2 answer. If the second level 2
answer is also very well explained then 8 marks in total can be awarded.
Level 3 Detailed discussion of at least two level 3 answers and then a conclusion at the end
which justifies which is the best way compared with the other way.
Possible application marks: expansion, private limited company, family business, set up for
15 years, limited finance/additional finance, share capital $6m, retained profit for two to
three years, six shareholders, production machinery, reference to product life cycle.

At least three x level 2 plus well-justified
recommendation as to the best way to raise
the finance compared with the other way.

Well applied to the case. Good discussion of sources of finance or
At least two examples of balanced argument.
reference to, or use of, the Some limited judgement shown about the best
case. way to raise the finance.

Limited application to the Outline of sources of finance.
case. At least one example
of reference to, or use of,
the case.

2 (a) Appendix 1 shows plain chocolate bars are in the decline stage of the product life
cycle. Identify and explain four ways in which the Directors of Chocolate Delight might
respond to this problem. [8]
Content:
Stop selling plain chocolate bars; increase advertising; methods of promotion; sell into new
markets; make small changes to the chocolate bar design; introduce a new version of the
chocolate bar; sell through different outlets; reduce price of plain chocolate bars.

4 marks for knowledge and 4 marks for explaining how these will cause sales to increase –
not explanation of the way.
1 knowledge mark + 1 explanation mark (2 marks x 4 ways)
Way: Launch a new advertising campaign. (1 knowledge mark)

Explanation: Launch a new advertising campaign so that there is renewed interest in the
product and sales are increased. (1 additional mark for explanation).
(b) The Managing Director believes that the Sales Department is more important for the
success of the company than the Production, Research and Development (R & D) and
Human Resources Departments. Do you agree with him? Justify your answer. [12]
Content:
Sales – sells the products to customer; deals with retail outlets.
Production – oversees the making of the product; quality control/assurance.
R & D – to develop new products; to produce a range of products; to diversify the range of
products produced.
HR – recruits and selects new employees; organises training; industrial relations; wages and
salaries; Health & Safety; redundancy.
Level 1 E.g. It carries out research and develops new products. 1 mark for each statement.
Level 2 E.g. It carries out research into new types of chocolate bars etc. so that as the plain
chocolate bars reach the decline stage of the product life cycle there are new
products to replace them. Without the Sales Department no chocolate bars would
be sold so this department is essential to the business and its success. 5 marks for
level 2 answer plus 1 application mark for mentioning chocolate bars.
level 2 answers = 8 marks.
However, if the level 2 answer is very well explained then 6 marks can be awarded
for the first level 2 answer. If the second level 2 answer is also very well explained
then 8 marks in total can be awarded.
Possible application marks: chocolate bars, boxes of chocolates, sweets, skilled workers,
production machinery, product life cycle.

Well applied to the case. At Explanation about Product Development,
least two examples of Sales, Production and/or HR departments.
reference to, or use of, the Judgement shown about why these are
case. important to the success of the business.
NB 9 marks only if good linkage shown
between departments.
10 marks if answer also justifies whether
Sales is the most important department.
Limited application to the Statements about Product Development,
case. At least one example Sales, Production and/or HR departments.
the case.
3 (a) Chocolate Delight has a website which gives customers information about the
products it sells. Identify and explain two other ways that Chocolate Delight could use
the Internet for business purposes. [8]
Content:
To compare competitors’ products and prices; to buy raw materials; to contact suppliers and
get quotations; to email customers; to use online banking; promotions; advertising.

2 marks for knowledge; 2 marks for application; 4 marks for explanation/analysis.
1 mark for each way identified (2 marks max). Up to 2 further marks are available for
explaining how the Internet will be useful.
2 application marks are also available.
Below is an example to illustrate the difference between a simple explanation worth 1

Possible application marks: chocolate bars, boxes of chocolates, sweets, cocoa,

production machinery, product life cycle, R & D Department.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each way (4 marks x
2 ways).
Simple explanation: The owners of Chocolate Delight can check on competitors’ products
and the prices they charge. (1 mark for knowledge)
Developed explanation: The owners of Chocolate Delight can check on competitors’ products
and the prices they charge (1). By knowing what competitors are charging, they can keep
their own prices competitive (2). This will mean that they retain their customers and do not
lose business and therefore do not lose sales of chocolate bars but may make less profit (3).
Application: The application mark could be achieved as the answer makes reference to sales
of chocolate bars. (1 application mark)

(b) Appendix 3 gives information on two machines that the owners of Chocolate Delight
could buy. Compare these two machines and recommend which machine they should
buy. Justify your answer using calculations of output per worker and labour costs per
chocolate bar. [12]
Content:
Machine A Machine B
Cost of machine $500 000 $800 000
Number of workers required

to run the machinery at a 10 3
daily wage $100 per worker
Output per day 10 000 chocolate bars 6000 chocolate bars
Machine A: output per worker = 10 000/10 = 1000 chocolate bars per worker (L2)
labour costs per chocolate bar = $100/1000 = 10c ($0.10) per chocolate bar (L2)
Machine B: output per worker = 6000/3 = 2000 chocolate bars per worker (L2)
labour costs per chocolate bar = $100/2000 = 5c ($0.05) per chocolate bar (L2)
E. g. Machine B costs more to buy than machine A (L1)

Labour costs per day for machine B are $300 (L1)
NB: $1000 labour costs is L1 but 1000 chocolate bars per worker is L2.
Level 1 E.g. Machine A is less expensive than machine B. 1 mark for each statement.
Level 2 E.g. Machine A output per worker is 1000 chocolate bars per worker.
5 marks for the first level 2 calculation. Two level 2 answers = 6 marks; three level 2
answers = 7 marks; four level 2 answers = 8 marks.
Level 3 Three or more level 2 calculations with comments made on these calculations.
Possible application marks: shares/shareholders, training, limited capital, retained profit,

extra factory.


Three or more level 2 plus well-justified
recommendation as to which machine to buy.

Well applied to the case. Calculated output per worker and labour costs
At least two examples of per chocolate bar for each of the two different
reference to, or use of, the machines or other appropriate calculations.
case. Appropriate comments on correct level 2
calculations (ORF applies).

Limited application to the Simple comparative statements about the two
case. At least one different machines.
example of reference to,
or use of, the case.
4 (a) The Finance Director says that break-even charts are useful when analysing the
different products that Chocolate Delight produce. Identify and explain two ways
break-even charts can be useful to the Finance Director of Chocolate Delight. [8]
Content:
To estimate how many sales need to be made to cover all the costs; to see what will happen
to the break-even point if costs or prices change; to calculate the margin of safety for the
different products.

1 knowledge mark + up to 2 explanation marks + 1 application mark for each way (4 marks x
2 ways).

Possible application marks: chocolate bars, boxes of chocolates, sweets, cocoa suppliers,
production machinery, factory, R & D Department.
Way: To estimate how many sales need to be made to cover all the costs. (1 knowledge
mark)
Simple explanation: To estimate how many sales need to be made to cover all the costs so
that the business will not lose money on its output and will make a profit. (1 additional mark
for simple explanation)
Developed explanation: To estimate how many sales need to be made to cover all the costs
(1) so that the business will not lose money on its output and will make a profit (1).

If they did not know what the break-even level of output was then the business might be
losing money and may not be aware of this until the end of the year when the profit and loss
account was calculated.
OR
Break-even analysis allows them to monitor the sales to be sure all the costs are being
covered and if not then they can take some action to cut the costs of cocoa or increase the
sales of chocolates.
(1 further explanation mark for a developed explanation)
Application: The application mark could be achieved as the answer refers to cocoa and sales
of chocolates. (1 application mark)
(b) After buying the new machinery, Chocolate Delight will need to train workers how to
use it. Do you think that on-the-job training will be better than off-the-job training for
Chocolate Delight? Justify your answer by considering both the business and the
employees of Chocolate Delight. [12]
Content:
Advantages of on-the-job training – individual tuition is given; trained in the workplace so
cheaper; some work carried out whilst worker training.
Disadvantages of on-the-job training – only suitable for unskilled or semi-skilled workers;

trainer will be less productive whilst showing the trainee what to do; trainer may have bad
habits they pass on.
Advantages of off-the-job training – broad range of skills can be taught; evening courses are
cheaper as trainee still does their job.
Disadvantages of off-the-job training – evening classes are tiring so employees may be less
productive next day; less control over what is taught.
Level 1 E.g. Evening courses are cheaper as no lost output. 1 mark for each statement.
Level 2 E.g. Evening courses are cheaper as trainee still does their job during the day. Only
course fees will need to be paid and there will be no lost output during the day.
However, the worker may get very tired working all day and then going to a course
in the evening and so might be less productive at work the next day.
5 marks for level 2 answer. 5 marks for the first level 2 answer, plus 1–2 marks for
each additional level 2 answer. I.e. two level 2 answers = 6 marks; three level 2
answers = 7 marks; four level 2 answers = 8 marks.
Level 3 Detailed discussion of at least two level 2 answers. There will be a conclusion at the
end which justifies which training method would be the most effective and why.
Possible application marks: chocolate bars, boxes of chocolates, sweets, private limited
company, limited finance, retained profit for two to three years, skilled workers, quality
chocolate.

Level 2 plus good judgement shown as to the
best method of training for production workers
– this may be either method of training.
Well applied to the case. Good discussion of the advantages or
At least two examples of disadvantages of the training methods.
reference to, or use of, Balanced argument.
the case. Some limited judgement shown about which
method should be used.
Limited application to the On-the-job and off-the-job training defined or
case. At least one simple statements made on the advantages or
example of reference to, disadvantages of each of the training methods.
5 (a) Identify and explain two possible reasons Chocolate Delight buys its cocoa from Fair
Trade cocoa farmers. [8]
Content:
To gain an ethical reputation with consumers; to support cocoa growers in developing
countries; to improve brand image.

1 mark for each reason identified (2 marks max). Up to 2 further marks are available for
explaining why it buys cocoa from Fair Trade cocoa farmers.

1 knowledge mark + up to 2 explanation marks + 1 application mark for each reason (4

marks x 2 reasons).
Possible application marks: chocolate bars, boxes of chocolates, Fair Trade cocoa, 10%
higher price, minimum wage, no children, regularly inspected.
Simple explanation: To support cocoa growers in developing countries. (1 mark for

knowledge)
Developed explanation: To support cocoa growers in developing countries (1). This means
that workers will be paid a fair wage and not below minimum wages (App) and this will give
the company a better reputation with its consumers (2). Sales may even increase because of
its ethical reputation (3).
Application: The application mark could be achieved as the answer makes reference to
workers being paid below minimum wage. (1 application mark)

(b) Consider how the economic forecasts shown in Appendix 2 might affect the sales,
costs and profits of Chocolate Delight over the next few years. Do you think these
economic trends will be good or bad for the company? Justify your answer. [12]
Content:
Going into a boom and therefore demand should increase – more chocolates sold so
revenue increases – increased profits; unemployment falling might make it more difficult to
recruit workers – wages might rise; inflation may start to increase leading to increases in raw
material costs – demands for wage increases – less competitive in overseas markets.
Level 1 E.g. Unemployment falling might make it more difficult to recruit workers. 1 mark for
each statement.
Level 2 E.g. Unemployment falling might make it more difficult to recruit workers. The
company might have to increase wages to attract enough job applicants for any
vacancies. This increase in wages will lead to either increased costs or possibly
increased prices for its chocolate bars. This may result in lower sales or, if the
prices stay the same, it could lead to lower profits for Chocolate Delight.
6 marks for level 2 answer plus 1 application mark for mentioning the price of
chocolate bars.
Level 3 Detailed discussion of at least two level 2 answers. There will be a conclusion at the
end which justifies whether the economic data will be good or bad for the company.
Possible application marks: chocolate bars, boxes of chocolates, sweets, limited

finance/additional finance of $5m, share capital $6m, retained profit for two to three years,
six shareholders, skilled workers, production machinery, product life cycle, R & D
Department, trends in economic growth, unemployment and inflation identified.
Application Knowledge/Analysis/ Evaluation

Level 2 plus good judgement shown as to
whether the economic forecasts will be good or
bad for the company.
Well applied to the case. Good discussion of the possible effects of
At least two examples of changes in the economic forecasts.
reference to, or use of, Some limited judgement shown about the
the case. possible benefits and drawbacks.
Limited application to the Outlined possible effects of changes in the
case. At least one economic forecasts.


INSERT
1 hour 45 minutes

DC (SM/DJ) 31364/3
2
TT Foods
TT Foods is a private limited company and has been in business for 20 years. It produces ready-made
meals for several international airlines. The business is located on the edge of the capital city in Country
X near to the international airport.
The ready-made meals the company produces are purchased by the airlines and served during
international flights. Passengers do not pay for the meals directly.
The business employs 100 production workers who prepare the meals. The workers are paid an hourly
rate and receive no fringe benefits. The workers can take home any leftover food but they have to pay
for it. A high number of production workers leave the company each year because of poor motivation.
The business is not located near any farms and so the food ingredients are purchased from a nearby
wholesaler.
The Directors of TT Foods want to expand the business and they have identified two options.
Expansion Option 1:
Diversify into selling ready-made meals to large food stores. Five new sales staff will need to be
employed to visit the stores to sell the meals. The additional fixed costs for this option are $1000 per
month and the variable cost is $4 per meal. The estimated break-even number of meals is 1000 per
month at a price of $5 per meal. Sales are estimated to be 1500 meals per month.
Expansion Option 2:
To sell ready-made meals to additional airline customers. To do this, TT Foods will need to become
more efficient and competitive. The estimated number of sales is 2000 per month at a price of $4 per
meal. The addition to fixed costs for this option is $1000 per month and the variable cost is $2 per
meal.
Appendix 1
Total sales of ready-made meals sold through large food stores
40 000
30 000
Total number of
ready-made meals 20 000
sold through large
food stores
10 000
0
2006 2007 2008 2009 2010
Year
© UCLES 2011 0450/22/INSERT/M/J/11

3
Appendix 2
Job Description for Production Manager
Job title: Production Manager

Department: Production
Responsible to: Managing Director
Responsible for: Team of production workers
Details of job: Responsible for the production of ready-made meals

Responsible for the production workers
Main duties: Allocate jobs to the production workers

Supervise production workers
Ensure quality products are produced
Discipline workers who are not working hard
Communicate company decisions to the production workers
Ensure ready-made meals are produced on time
Appendix 3
News Plus May 2011
Over the last year there has been economic growth of 4% and this has resulted in rising incomes
for many people. There has been an increasing trend for people to fly to other countries on holiday.
With increased incomes, people have been choosing more holidays to nearby countries as well as
going to countries further away.
The airline industry has been experiencing an increase in passengers. This has been welcomed by the
owners of the international airport, as they say this will bring additional revenue to the businesses at
the airport.
© UCLES 2011 0450/22/INSERT/M/J/11

4
BLANK PAGE
© UCLES 2011 0450/22/INSERT/M/J/11

* 3 1 9 2 3 4 3 1 2 6 *

1 hour 45 minutes
Additional Materials: Insert

Total
DC (SM) 31362/3
2
1 (a) The Directors of TT Foods are thinking of introducing machinery into the production and For
packing process. Identify and explain two reasons why the workers might be happy with Examiner’s
this decision. Use
Reason 1: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 2: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
© UCLES 2011 0450/22/M/J/11

3
(b) For the new machinery TT Foods will need to raise finance. The Directors are For
considering either taking out a bank loan, leasing the machinery or selling additional Examiner’s
shares to family and friends. Consider these three possibilities for raising finance and Use
recommend which one they should choose. Justify your choice.
Bank loan: ........................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Leasing machinery: ..........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Selling shares: .................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]

4
2 (a) Identify and explain two factors that will affect the pricing decisions of TT Foods when For
deciding what price to charge large stores for their ready-made meals. Examiner’s
Use
Factor 1: ...........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Factor 2: ...........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
© UCLES 2011 0450/22/M/J/11

5
(b) TT Foods want to reduce the costs of the food ingredients they buy. They are considering For
three possibilities: Examiner’s
Use
(i) Keep buying their food from a wholesaler but purchase the food less often in much
larger quantities or
(ii) Buy the food directly from farms or
(iii) Buy their own farms and grow the food themselves.
Consider the advantages and disadvantages of these three possibilities and recommend
which one the Directors should choose. Justify your choice.
(i): .....................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
(ii): ....................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
(iii): ...................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]
6
3 (a) Appendix 3 suggests that there is increasing demand for airline flights. Identify and For
explain two effects on TT Foods of this increase in the number of passengers. Examiner’s
Use
Effect 1: ............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Effect 2: ............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
© UCLES 2011 0450/22/M/J/11

7
(b) Consider the two options outlined in the case for expanding the business of TT Foods. For
Recommend which of the options the Directors should choose. Justify your choice using Examiner’s
appropriate calculations. Use
Expansion option 1: .........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Expansion option 2: .........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]

8
4 (a) Below is an outline for a job (person) specification for a Production Manager. Refer to For
Appendix 2. Explain why each requirement shown below should be included in the job Examiner’s
specification. Use
Requirements Example of Why each requirement should be included

requirement
Qualifications University Explanation: ..........................................................................

degree in
Management ...............................................................................................
...............................................................................................
...............................................................................................
...............................................................................................
Skills Able to lead Explanation: ..........................................................................

a team of
workers ...............................................................................................
...............................................................................................
...............................................................................................
...............................................................................................
Experience At least Explanation: ..........................................................................

5 years
experience ...............................................................................................
in food
processing ...............................................................................................
...............................................................................................
...............................................................................................
Personal Well Explanation: ..........................................................................

Characteristics organised
...............................................................................................
...............................................................................................
...............................................................................................
...............................................................................................
[8]
© UCLES 2011 0450/22/M/J/11
9
(b) When recruiting a new Production Manager the Directors of TT Foods could recruit For
internally or externally. Consider the advantages and disadvantages of these two Examiner’s
different methods of recruiting the Production Manager and recommend which method Use
the Directors should choose. Justify your answer.
Internal recruitment: .........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
External recruitment: ........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]

10
5 (a) TT Foods have to follow many consumer protection laws. Identify and explain four For
benefits to consumers of such laws. Examiner’s
Use
Benefit 1: ..........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Benefit 2: ..........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Benefit 3: ..........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Benefit 4: ..........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
© UCLES 2011 0450/22/M/J/11

11
(b) The case mentions that there are a high number of workers leaving the company each For
year because of poor motivation. Consider three different methods that TT Foods could Examiner’s
use to increase motivation of the production workers and recommend which method Use
you think will be the most effective. Justify your answer.
Method 1: .........................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Method 2: .........................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Method 3: .........................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]
© UCLES 2011 0450/22/M/J/11

12
BLANK PAGE
© UCLES 2011 0450/22/M/J/11



examination.
syllabuses.
1 (a) The Directors of TT Foods are thinking of introducing machinery into the production
and packing process. Identify and explain two reasons why the workers might be
happy with this decision. [8]
Content:
Makes their job easier; increases their productivity; may lead to increased wages; may be
promoted; training (if justified in explanation).
Answers must relate to workers and not the company and must refer to being happy
rather than unhappy.
The marks available for this question are as follows: 2 marks for knowledge; 2 marks for
application; 4 marks for explanation/analysis.
1 mark for each reason identified (2 marks max). Up to 2 further marks are available for
explaining why workers might be happy with this decision.

1 knowledge mark + up to 2 explanation marks + 1 application mark for each reason (4

marks x 2 reasons).
Possible application marks: ready-made meals; expansion; airlines or international flights;

airline industry; high labour turnover; manual work; paid hourly; no fringe benefits;
demotivated workers; sales staff; reference to figures in Option 1 or 2.
Simple explanation: It makes their job easier. (1 knowledge mark)
Developed explanation: It makes their job easier (1) and so the workers will make less effort
and will be less tired after making all the ready meals which will make them happier (1). This
might lead to fewer workers leaving each year and so the workers will feel more motivated as
they will be working with the same people all the time and they will get to know them well (1).
Application: The application mark could be achieved as the answer makes reference to ready
meals and the high number of workers leaving each year. (1 application mark)

(b) For the new machinery TT Foods will need to raise finance. The Directors are
considering either taking out a bank loan, leasing the machinery or selling additional
shares to family and friends. Consider these three possibilities for raising finance and
recommend which one they should choose. Justify your choice. [12]
Content:
Advantages of a bank loan – paid back in fixed instalments; fixed rate of interest so can
budget for it.
Disadvantages of a bank loan – high rate of interest paid.
Advantages of leasing – don’t have to find all the money straight away; monthly payments;
repairs made for them.
Disadvantages of leasing – never own the machinery; more expensive than buying outright.
Advantages of selling shares – raise additional capital; additional expertise in business.
Disadvantages of selling shares – pay out dividends; loss of some control.
Level 1 E.g. With leasing they don’t have to find all the money straight away. 1 mark for
each statement.
Level 2 E.g. With leasing they don’t have to find all the money straight away to buy the
machinery but they can pay for it in monthly instalments. This is much better for the
company as they want to expand and to produce more ready meals, which will
mean that they have to spend more money on raw materials to make the additional
output and this requires more working capital. To find a large sum of money for
equipment at this time will be difficult.
6 marks for a good level 2 answer plus 1 application mark for mentioning raw
materials for ready meals.
answer, i.e. two level 2 answers = 6 marks; three level 2 answers = 7 marks; four
Level 3 Detailed discussion of three level 2 answers and then a conclusion at the end which
justifies which is the best way to finance the purchase of the new machinery and
why the other ways are less suitable.
Possible application marks: private limited company; ready-made meals; expansion;

airlines or international flights; airline industry; rising incomes; increasing economic growth;
reference to figures in Option 1 or 2. Production and packaging machinery.


Three x level 2 plus well-justified
recommendation as to the best way to finance
the purchase of the new machinery compared
with the alternative ways.
Well applied to the Good discussion of advantages/disadvantages
case. At least two of each of the methods of finance OR balanced
examples of reference argument (even if listed).
to, or use of, the case. Some limited judgement shown about which
method to choose.
Limited application to Advantages/disadvantages of each of the
the case. At least one methods of finance listed.
example of reference
to, or use of, the case.
2 (a) Identify and explain two factors that will affect the pricing decisions of TT Foods when
deciding what price to charge large stores for their ready-made meals. [8]
Content:
Price of competitors’ products; cost of food ingredients; possible promotion; new market;
product life cycle; increasing incomes; quality; increasing market share; level of demand.
1 mark for each factor identified (2 marks max). Up to 2 further marks are available for
explaining how the pricing decision will be affected.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each factor (4 marks
x 2 factors).
Possible application marks: expansion; rising incomes; increasing economic growth; food
ingredients; farms; wholesaler; perishable ingredients; raw materials; reference to figures
in Option 1 or 2.
Simple explanation: Cost of food ingredients. (1 mark for knowledge)
Developed explanation: Cost of food ingredients (1) because the business will need to make
sure they cover all their costs and they do not make a loss (1). If they can keep their costs
down then the prices will also be kept down and TT Foods will be more competitive and
should therefore increase sales (1).
Application: The application mark could be achieved as the answer makes reference to food
ingredients. (1 application mark)

(b) TT Foods want to reduce the costs of the food ingredients they buy. They are
considering three possibilities:
(i) Keep buying their food from a wholesaler but purchase the food less often in
much larger quantities or
(ii) Buy the food directly from farms or
(iii) Buy their own farms and grow the food themselves
Consider the advantages and disadvantages of these three possibilities and

recommend which one the Directors should choose. Justify your choice. [12]
Content:
(i) Advantages – the price will be lower as buying in bulk; less administration as orders sent
less frequently.
Disadvantages – need to store food; may go off if kept too long; increased storage costs
if need to refrigerate food.
(ii) Advantages – support local economy; may be cheaper; quality may be higher (if
justified).
Disadvantages – higher transport costs; quality may be lower (if justified); may not have
full range of food products.
(iii) Advantages – can decide what to produce; absorb profit from farms; control over quality.
Disadvantages – large capital outlay to buy the farm; may not have expertise to run the
farm; need to employ additional staff with different skills.
Level 1 There will be a large capital outlay to buy the farm in the first place.
Level 2 E.g. There will be a large capital outlay to buy the farm. This may mean that the
company will have to borrow large sums of money and interest payments may be
high. They may not have the expertise to run the farm and it may not be as efficient.
Therefore there will be higher costs, which may mean that the food products are
more expensive than buying from more efficient producers and the price of ready
meals may have to increase.
6 marks for good level 2 answer plus 1 application mark for mentioning food
products and ready meals.
also then 8 marks in total can be awarded.
Level 3 Detailed discussion of three level 2 answers and then a conclusion at the end which
justifies which is the best way.
Possible application marks: private limited company; ready-made meals; expansion;

airlines or international flights; airline industry; increasing economic growth; perishable
foods; raw materials; crops; food stores; reference to figures in Option 1 or 2; harvest.


Three x level 2 plus well-justified
recommendation as to the best way to
purchase its food rather than the alternative
ways.

Well applied to the case. Good discussion of advantages/disadvantages
At least two examples of of each of the methods of purchasing food OR
reference to, or use of, the balanced argument (even if listed). Some
case. limited judgement shown about which method
to choose.

Limited application to the Advantages/disadvantages of each of the
case. At least one methods of purchasing food listed.
3 (a) Appendix 3 suggests that there is increasing demand for airline flights. Identify and
explain two effects on TT Foods of this increase in the number of passengers. [8]
Content:
Effects – increased sales; raised prices; expansion; increased profit; increased competition;
difficult to meet additional orders; increased employment.
1 mark for each effect identified (2 marks max). Up to 2 further marks are available for
explaining the effect. 2 application marks are also available.

Possible application marks: ready-made meals; food; machinery; expansion; airline

industry; holidays; rising incomes; increasing economic growth; food ingredients; farms;
wholesaler; perishable ingredients; raw materials; reference to figures in Option 1 or 2.
Simple explanation: Increase in the number of sales. (1 mark for knowledge)
Developed explanation: Increase in the number of sales (1). This should lead to increased
profit as TT Foods may be able to raise the price of the ready meals (1). The amount of
increased sales will depend on how competitive TT Foods is and whether the flights are long
haul flights which serve meals rather than short haul flights which often do not serve meals
(1).
Application: Reference to ready meals. (1 application mark)

(b) Consider the two options outlined in the case for expanding the business of TT Foods.
Recommend which of the options the Directors should choose. Justify your choice
using appropriate calculations. [12]
Content:
Option 1 – TR = $7500
TC = $7000
Profit = $500 (1 x L2 or 2 x L2 if TR and TC not shown)
GPM = 20% (1500/7500 x 100) = 1 additional L2
NPM = 6.7% (500/7500 x 100) = 1 additional L2
Option 2 – TR = $8000
TC = $5000
Profit = $3000 (1 x L2 or 2 x L2 if TR and TC not shown)
Break-even = 500 (2 x L2)
GPM = 50% (4000/8000 x 100) = 1 additional L2
NPM = 37.5% (3000/8000 x 100) = 1 additional L2
(If profit is not calculated, 1 x L2 awarded for TR or TC in each option)
Level 1 E.g. The variable cost of option 1 is twice as high as the variable cost of option 2.
Level 2 E.g. The net profit for option 1 is $500. 6 marks for correct L2 calculation of profit as
workings have not been shown.
Level 3 Calculations included at three x level 2 and then a conclusion at the end which
justifies which is the best option to choose.
Knowledge/Application/Analysis/Evaluation

Three x level 2 calculations. Well-justified recommendation as to which
option to choose.
Level 2 5–8 marks

Calculated net profit for option 1 and 2. Calculated break-even for
option 2 or other appropriate calculations.
Level 1 1–4 marks

Statements about each of the two options. Statements about the
figures given in the case.

4 (a) Below is an outline for a job (person) specification for a Production Manager. Refer to
Appendix 2. Explain why each requirement shown below should be included in the job
specification. [8]
Requirements Example of Why each requirement should be included

requirement
Qualifications University degree in Well-qualified person should mean they are

Management capable of doing the job well (1). No need for
extra training/will ensure that the job is carried
out effectively (1).
Skills Able to lead a team of So that the manager can motivate people by
workers communicating with them effectively (1) and
make them feel valued as employees so that the
business is more efficient (1).
Experience At least 5 years So that they know how to deal with problems
experience in food and how to do the job (1) without needing
processing further training which is expensive (1).
Personal Well organised The manager will be responsible for many jobs
characteristics that need to be completed (1). He/she will need
to be able to prioritise jobs to ensure that all the
important tasks get completed on time for an
efficiently-run business (1).
2 marks for each suitable explanation x 4.
(b) When recruiting a new Production Manager the Directors of TT Foods could recruit
internally or externally. Consider the advantages and disadvantages of these two
different methods of recruiting the Production Manager and recommend which
method the Directors should choose. Justify your answer. [12]
Content:
Advantages of internal recruitment – saves time and money; person already known to
business; person knows the way the organisation works; motivating.
Disadvantages of internal recruitment – no new ideas or experience; jealousy amongst the

workers.
Advantages of external recruitment – new ideas leads to improvements in the business;

wider experience of how other businesses/competitors operate; can lead to improvements in
the way the business is run.
Disadvantages of external recruitment – person not known to the business; may not fit in with
other employees; CV may have been misleading about ability; may bring bad habits with
them from previous business.

Level 1 E.g. The company recruits someone already known to the company if it recruits
internally. 1 mark for each statement.
Level 2 E.g. Internal recruitment means that the person recruited is already known to the
business. They already know about making ready meals and what different jobs are
involved in the production process. They will already know the existing employees
and therefore know which ones need encouraging and which ones need to be
watched because they are lazy and therefore they will make a more effective
manager quickly.
6 marks for a good level 2 answer plus 1 application mark for mentioning production
process for ready meals.
Level 3 Detailed discussion of at least three level 2 answers. There will be a conclusion at
the end which justifies which recruitment method would be the most effective.
Possible application marks: private limited company; expansion; airline industry; high
labour turnover; paid hourly; no fringe benefits; existing workers are demotivated;
increasing economic growth; reference to figures in Option 1 or 2.

Three x level 2 plus good judgement shown as to
the best method of recruitment to choose rather
than the alternative method – this may be either
method of recruitment.

Well applied to the case. Good discussion of the advantages and/or
At least two examples of disadvantages of internal and external recruitment
reference to, or use of, OR balanced argument (if only listed 1 x L2 ).
the case. Some limited judgement shown about which
method should be used.

Limited application to the Advantages or disadvantages listed.
case. At least one Internal and external recruitment defined.

5 (a) TT Foods have to follow many consumer protection laws. Identify and explain four
benefits to consumers of such laws. [8]
Content:
Protects against false claims; protects against inferior quality; protects against indecent
advertising; protects against misleading prices; price controls; protects against the sale of
harmful goods.
explanation/analysis.
1 mark for each benefit identified (4 marks max). Up to 1 further mark is available for
explaining the benefits of the consumer protection laws.
1 knowledge mark + 1 explanation mark (2 marks x 4 benefits).
E.g. Laws to protect consumers are necessary so that consumers are not misled (1).
Otherwise the company could make claims about having certain items in their ready meals
when they do not have any extras or particular contents (1).
(b) The case mentions that there are a high number of workers leaving the company each
year because of poor motivation. Consider three different methods that TT Foods
could use to increase motivation of the production workers and recommend which
method you think will be the most effective. Justify your answer. [12]
Content:
Increase wages; change to piece rate; give fringe benefits; job rotation; job enlargement; job
enrichment; (motivation theories can be rewarded if used to explain how the method
motivates workers but theories are not essential).
Level 1 E.g. Employees would be happy if they had free membership of a gym.
Level 2 E.g. Employees would be happy if they had free membership of a gym. This will
allow them to use the facilities and it saves them having to pay a membership fee.
Going to the gym would get them fitter and then they will be more efficient when
working in the factory and producing more ready meals.
5 marks for level 2 answer plus 1 application mark for mentioning the production of
ready meals.
level 2 answers = 8 marks. However, if the level 2 answer is very well explained
then 6 marks can be awarded for the first level 2 answer. If the second level 2
answer is also very well explained then 8 marks in total can be awarded.
Level 3 Detailed discussion of three x level 2 answers. There will be a conclusion at the end
which justifies which method of motivation would be the most effective and why it is
more effective than the other methods.
Possible application marks: private limited company; ready-made meals; left-over food;
airline flights; high labour turnover; production line; paid hourly; no fringe benefits; existing
workers are demotivated; reference to figures in Option 1 or 2.


Three x level 2 plus good judgement shown as to
the best method of motivation to choose and why
not the other methods.

Well applied to the case. Good discussion of how different methods would
At least two examples of be effective in motivation.
reference to, or use of, Some limited judgement shown about the best
the case. method to choose.

Limited application to the Methods of motivation stated.
case. At least one

* 9 8 4 7 2 0 2 0 3 3 *

1 hour 45 minutes

Total
DC (RCL (JDA)) 49142/3

2
1 IRKAM is a company that produces high quality doors for hotels and offices. The company For
currently uses job production. The Managing Director, Abdul, believes that quality control Examiner’s
is important. He is looking for ways to increase productivity. All workers receive on-the-job Use
training. Abdul is thinking of including off-the-job training as well.
(a) What is meant by ‘productivity’?
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..................................................................................................................................... [2]
(b) What is meant by ‘on-the-job training’?
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..................................................................................................................................... [2]
(c) Identify and explain one advantage and one disadvantage of off-the-job training for
IRKAM.
Advantage: .......................................................................................................................
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Explanation: .....................................................................................................................
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Disadvantage: ..................................................................................................................
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Explanation: .....................................................................................................................
..................................................................................................................................... [4]
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3
(d) Identify and explain two reasons why quality control might be important to IRKAM. For
Examiner’s
Reason 1: ........................................................................................................................ Use
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Explanation: .....................................................................................................................
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Reason 2: ........................................................................................................................
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Explanation: .....................................................................................................................
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(e) Over the past three years there has been a large increase in demand for IRKAM’s doors.
Do you think job production is still the best method of production for IRKAM? Justify
your answer.
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4
2 Sunil is a sole trader. He likes owning a small business. His shop sells low price raincoats. For
Sales vary throughout the year. The market for raincoats is competitive, but as Sunil makes Examiner’s
a profit he doesn’t think competition is a problem for his business. In order to protect Use
consumers, the Government of Sunil’s country has recently introduced new laws to protect
consumers.
(a) What is meant by ‘profit’?
..........................................................................................................................................
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..................................................................................................................................... [2]
(b) Identify two factors which could affect demand for Sunil’s products.
Factor 1: ...........................................................................................................................
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Factor 2: ...........................................................................................................................
..................................................................................................................................... [2]
(c) Identify and explain two reasons why profit is important to small businesses like Sunil’s.
Reason 1: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
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Reason 2: ........................................................................................................................
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Explanation: .....................................................................................................................
..................................................................................................................................... [4]
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5
(d) Identify and explain one way in which consumer protection laws might affect Sunil’s For
business and one way consumer protection laws might affect his customers. Examiner’s
Use
Way consumer laws affect Sunil’s business: ....................................................................
..........................................................................................................................................
Explanation: ......................................................................................................................
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Way consumer laws affect Sunil’s customers: .................................................................
..........................................................................................................................................
Explanation: ......................................................................................................................
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..................................................................................................................................... [6]
(e) Do you think the advantages of owning a small business are greater than the
disadvantages for Sunil? Justify your answer.
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6
3 The Government of country H is concerned about the effect of business activity on the For
environment. It wants to encourage sustainable development. To do this, it is planning to Examiner’s
introduce laws to encourage environmentally-friendly production methods. A number of Use
businesses will be affected by these new laws.
The Government of country H has collected the data shown in Table 1. Gross Domestic
Product (GDP) measures the value of the total output produced in a country in one year. The
GDP of country H has risen from $625m in 2000 to $825m in 2011.
Table 1: Percentage of GDP by different sectors
% of GDP
2000 2011
Primary sector 35 15
Secondary sector 40 25
Tertiary sector 25 60
(a) What is meant by ‘tertiary sector’?
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..................................................................................................................................... [2]
(b) What is meant by ‘sustainable development’?
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..................................................................................................................................... [2]
(c) Identify and explain two changes between 2000 and 2011 that are shown in Table 1.
Change 1: ........................................................................................................................
Explanation: .....................................................................................................................
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Change 2: ........................................................................................................................
Explanation: .....................................................................................................................
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..................................................................................................................................... [4]
© UCLES 2012 0450/11/M/J/12
7
(d) Identify and explain three ways a Government could encourage more businesses to set For
up in its country. Examiner’s
Use
Way 1: ..............................................................................................................................
Explanation: .....................................................................................................................
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Way 2: ..............................................................................................................................
Explanation: .....................................................................................................................
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Way 3: ..............................................................................................................................
Explanation: .....................................................................................................................
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(e) Do you think that all businesses will be affected by the introduction of the new laws to
encourage environmentally-friendly production methods? Justify your answer.
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8
4 Rapid Call is a private limited company. It manufactures a range of cell (mobile) phones. For
The demand for these is increasing. Its products have several special features that are Examiner’s
not available from other phone manufacturers. It sells its products directly to retail shops. Use
Rapid Call uses competitive pricing for all products. The Finance Director has been looking
at the accounts. A summary is shown in Table 2. In 2011 the gross profit margin was 40%.
Table 2: Profit/Loss Account for Rapid Call for year ending 30 April 2012 ($000s)
Sales 450
Cost of Sales 300
Gross Profit 150
Overheads 95
Net Profit 55
(a) What is meant by ‘private limited company’?
..........................................................................................................................................
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..................................................................................................................................... [2]
(b) Calculate the gross profit margin for the year ending 30 April 2012.
..........................................................................................................................................
..................................................................................................................................... [2]
(c) Identify and explain two ways in which Rapid Call’s Finance Director could use the
information in Table 2.
Way 1: ..............................................................................................................................
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Explanation: .....................................................................................................................
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Way 2: ..............................................................................................................................
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Explanation: .....................................................................................................................
..................................................................................................................................... [4]
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9
(d) The Marketing Director is thinking about changing the channel of distribution. Identify For
and explain three factors that Rapid Call should consider when choosing a suitable Examiner’s
channel of distribution. Use
Factor 1: ...........................................................................................................................
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Explanation: .....................................................................................................................
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Factor 2: ...........................................................................................................................
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Explanation: .....................................................................................................................
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Factor 3: ...........................................................................................................................
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Explanation: .....................................................................................................................
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(e) How important is increased competition in influencing the marketing strategy of

Rapid Call? Justify your answer.
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10
5 Favell is a woodworker. He is planning to set up his own woodworking business. He plans For
to use marketing to help his business become established in the local area. Favell thinks Examiner’s
cash flow will be a problem because his business will have a lot of cash outflows. A friend Use
has suggested he prepares a cash flow forecast.
(a) What is meant by ‘marketing’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(b) Identify two possible cash outflows for Favell’s business.
Cash outflow 1: .................................................................................................................
Cash outflow 2: ............................................................................................................ [2]
(c) Identify and explain two benefits for any business of preparing a cash flow forecast.
Benefit 1: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
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Benefit 2: ..........................................................................................................................
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Explanation: .....................................................................................................................
..................................................................................................................................... [4]
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11
(d) Favell is looking at various methods of promotion for his business. Identify and explain For
three suitable methods of promotion that Favell could use to attract customers. Examiner’s
Use
Method 1: .........................................................................................................................
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Explanation: .....................................................................................................................
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Method 2: .........................................................................................................................
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Explanation: .....................................................................................................................
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Method 3: .........................................................................................................................
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Explanation: .....................................................................................................................
..................................................................................................................................... [6]
(e) Favell needs $10 000 to buy a motor vehicle so that he can carry all his equipment. He is
planning to ask the bank for an overdraft. Do you think this is the most suitable source of
finance for him to choose? Justify your answer.
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BLANK PAGE
© UCLES 2012 0450/11/M/J/12



examination.
syllabuses.

1 (a) What is meant by ‘productivity’? [2]
Clear understanding [2] e.g. a measure of the output of a business in relation to its inputs [2]
or effective utilisation of resources/in a time period.
Some understanding [1] e.g. output per worker/measure of efficiency/rate at which they
produce goods.
(b) What is meant by ‘on-the-job training’? [2]
Clear understanding [2] e.g. Training which involves watching a more experienced worker
doing the job in the work place.
Some understanding [1] e.g. get training whilst still working/at the work place/learning from
another worker.
(c) Identify and explain one advantage and one disadvantage of off-the-job training for
IRKAM. [4]
Knowledge [2 × 1]: award 1 mark for the advantage and 1 mark for the disadvantage.
Application/analysis [2 × 1]: award 1 mark for each development of a relevant point.
Advantages include:
• experienced worker’s production is not affected as training happens away from work
place
• learner has access to trainers who are skilled in the task
• workers will not learn bad habits of on-the-job trainer
• quality of product maintained as all work completed by experienced workers
• less impact on output as current workers do not have to spend time training new people.
Disadvantages include:
• more expensive than on the job which increases costs for the business. For example
transport costs/paid trainer
• loss of first hand experience/not necessarily tailored to individual company
• no output produced by learner whilst training taking place.
Do not accept points that apply to both methods of training.
(d) Identify and explain two reasons why quality control might be important to IRKAM. [6]
Knowledge [2 × 1]: award 1 mark per relevant reason.
Analysis [2 × 1]: award 1 mark for each relevant explanation.
Application [2 × 1]: award 1 mark for explaining why it is important to IRKAM.
Reasons might include:

• reduce errors (k) so saves time and money (an)
• protect reputation (k) as makes high quality doors (ap)
• save money (k) on cost of remaking items (an)/reduce wastage (an)
• saves time (k) so could help increase production (an) therefore increasing productivity
(ap).

(e) Over the past three years there has been a large increase in demand for IRKAM’s
doors. Do you think job production is still the best method of production for IRKAM?
Knowledge [2]: outlines methods of production/identification of issues concerning job

production.
Analysis [2]: develop or explain point to show why it is an issue.
Evaluation [2]: reasoned judgement made as to whether ‘job’ is still best method for IRKAM
to use.
For two evaluation marks, the answer must be clearly in the context of this business.
Either viewpoint is possible depending on points discussed.

• nature of product – are doors standard or one off orders
• can he meet demand if continue to use job production?
• costs of changing process
• training required for workers
• possible financial costs of purchasing new equipment
• frequency of orders
• number of doors made
Context could include: high quality; quality control is important; looking for ways to
increase productivity.
2 (a) What is meant by ‘profit’? [2]
Clear understanding [2] e.g. profit is the amount of money that a business makes once costs
have been subtracted from the revenue [2]. Or total revenue minus total costs [2]. Formula is
acceptable for two marks.
Some understanding [1] e.g. money left after costs paid.
Answers such as money made by a business [0].
For both marks must have idea that there is both sales and cost element to profit.
(b) Identify two factors which could affect demand for Sunil’s products. [2]
Knowledge [2 × 1]: one mark per factor.

Factors include:
• seasonal – coats not worn in summer, or increase in demand if wet weather
• fashion
• availability or price of substitutes
• price of complementary goods
• increase in income
• price of coat
• competition
• increase in population
• advertising.

(c) Identify and explain two reasons why profit is important to small businesses like
Sunil’s. [4]
Knowledge [2 × 1]: award 1 mark per relevant reason.

Analysis/application [2 × 1]: award 1 mark for each relevant explanation (i.e. show why
important to small business).
Reasons include:
• reward for risk taking
• source of funds for expansion
• source of funds for emergency
• main reason for the existence of many small businesses/motivation
• necessary for survival
• difficult to obtain other sources of finance as Sunil is a sole trader.
Do not accept repayment of any costs/loan of a business.
(d) Identify and explain one way in which consumer protection laws might affect Sunil’s
business and one way consumer protection laws might affect his customers. [6]
Knowledge [2 × 1]: award 1 mark per relevant way.
Analysis [2 × 1]: award 1 mark for each relevant explanation.
Application [2 × 1]: award 1 mark for explaining why it is important to Sunil’s

business/customers.
Ways Laws affect Sunil:

• suppliers will have to spend more to meet new laws so likely to increase Sunil’s costs
• prices might rise to meet additional costs of compliance leading to lower demand for
Sunil’s coats
• stricter laws might force closure of supplier which could lead to Sunil unable to meet
orders
• could force Sunil to look for cheaper suppliers overseas.
Ways Laws affect Consumers:

• protect consumers against faulty goods
• ensure quality products e.g. coat is waterproof
• forced to pay higher prices as businesses have to spend more to meet new laws.

(e) Do you think the advantages of owning a small business are greater than the
disadvantages for Sunil? Justify your answer. [6]
Knowledge [2 × 1]: award 1 mark for identification of relevant advantages or disadvantages.
Analysis [2]: explain how or why it might be an issue.
Evaluation [2]: reasoned judgement made as to whether advantages are greater than
disadvantages for Sunil.
Points include:
• able to offer personal service
• own boss
• size of market
• need to be creative
• lack of finance
• threat of competition
• lack of skills if only Sunil
• lack of economies of scale
• unlimited liability.
Either viewpoint is possible depending on points discussed.
Context could include: sole trader; likes owning business; very competitive market; new laws;
makes a profit; low price raincoats.
3 (a) What is meant by ‘tertiary sector’? [2]
Clear understanding [2] e.g. industry which provides/sells services [1] to consumers and/or
other sectors of the economy.
Some understanding [1] e.g. provide services plus an example [+1].
Do not accept examples on their own e.g. delivery company, accountant, shop.
(b) What is meant by ‘sustainable development’? [2]
Clear understanding [2] e.g. being able to maintain levels of production for a good or service
over a long period of time OR ability to meet needs of present population without
compromising ability of future generations to meet their own needs.
Some understanding [1] e.g. able to maintain output for ages/no impact on surroundings/
production which does not damage (or pollute) the environment.

(c) Identify and explain two changes between 2000 and 2011 that are shown in Table 1. [4]
Knowledge [2 × 1]: award 1 mark for each change identified.
Analysis [2 × 1]: award 1 mark for each relevant explanation (i.e. why change occurred).
Changes shown:
• Fall in primary sector [1] – because of number of poor harvests/reduction in land
available for farming/people move to other sectors in search of higher wages/
environmental protection laws/more recycling leads to less demand for the primary sector
• Fall in secondary sector [1] – due to cheaper costs of manufacturing overseas/changes in
demand so less products sold by country H/environmental protection laws
• Rise in tertiary sector [1] – increased incomes so people are able to spend more on
services and leisure activities/skills base changed so more suited to service provision/
more developed country.
(d) Identify and explain three ways a Government could encourage more businesses to
set up in its country. [6]
Knowledge [3 × 1]: award 1 mark per way.
Analysis [3 × 1]: award 1 mark for each relevant explanation (i.e. explain how help
encourage businesses to set up).
Ways include:
• grants or subsidies
• low rent
• lower interest rates
• laws
• provision of training
• tax allowances
• advisory services
• development areas
• tariffs and quotas.

(e) Do you think that all businesses will be affected by the introduction of the new laws to
encourage environmentally-friendly production methods? Justify your answer. [6]
Knowledge [2 × 1]: identification of relevant issues.
Analysis [2]: explain how or why issue is important or not.
Evaluation [2]: reasoned judgement made as to effect of new environmental laws on ALL
businesses.
To gain 6 marks, reference must be made to all businesses
Disadvantages include:
• techniques/products might be banned so unable to make or sell products
• changes might lead to increased costs for business e.g. new machinery leads to
increased costs
• could place business at competitive disadvantage if laws do not apply to competitors from
other countries.
Advantages include:
• could improve image of business if seen as environmentally friendly leading to increased
reputation and sales
• new business opportunities as customers want ‘green’ products
• new techniques could help reduce waste or increase efficiency so lower costs in long run
• might already adopt environmentally friendly practices so no impact
• laws might help ensure that resources are better used so could continue to operate for
longer time.
4 (a) What is meant by ‘private limited company’? [2]
Clear understanding [2] e.g. a company whose shares cannot be sold to the general public.
Some understanding [1] e.g. outlines general features of limited companies e.g. have limited
liability/separate legal identity from owners/can sell shares.
Do not accept in private sector – generic statement which also applies to unlimited
businesses.
(b) Calculate the gross profit margin for the year ending 30 April 2012. [2]
Correct answer [2]: 150/450 = 33.3% or 33%.

Method [1] e.g. uses right formula i.e. gross profit/sales * 100 [1], 33 [1].
N.B. answer must include % sign to be awarded 2 marks.

(c) Identify and explain two ways in which Rapid Call’s Finance Director could use the
information in Table 2. [4]
Knowledge [2 × 1]: award 1 mark per relevant way.
Analysis/application [2]: award 1 mark for each relevant explanation (i.e. to explain how or
why help).
Ways include:
• gross profit margin can be calculated [k] which can be compared to previous years to see
if the GP has risen or fallen [an]/which can be compared to other companies [an]
• costs of goods sold might have risen [k] and so could try to find cheaper suppliers [an]
• might use the information to adjust marketing strategy [k]
• show value added [k].
For an answer that accurately calculates the Gross profit margin [33%] or the Net profit
margin [12.22%] award 2 marks [an].
(d) The Marketing Director is thinking about changing the channel of distribution. Identify
and explain three factors that Rapid Call should consider when choosing a suitable
channel of distribution. [6]
Knowledge [3 × 1]: award 1 mark per relevant factor.
Analysis/application [3 × 1]: award 1 mark for each relevant explanation (i.e. explain how
or why it is an issue for Rapid Call).
Factors include:
• where it is to be sold
• cost of transport
• type of product
• level of demand
• amount of control required by company
• size of company
• costs of storage [storage alone 0]
• speed
• location/profile of customers.
Do not award analysis/application marks for points which clearly cannot be applied to a
mobile phone manufacturer e.g. perishable.

(e) How important is increased competition in influencing the marketing strategy of Rapid
Call? Justify your answer. [6]
Knowledge [2]: Identification of relevant issues or factors influencing the marketing strategy.
Analysis [2]: explain how or why issue/factors need to be considered.
Evaluation [2]: reasoned judgement made as to HOW important competition is in influencing

marketing strategy of Rapid call.
Issues include:
• competitive pricing – prices are in line with those of competitors to maintain level of sales.
Too high or too low could affect level of demand or sales revenue.
• special features could suggest that competition is forcing RC to change what they sell in
order to compete
• product – special features could mean that competition is not important as rivals do not
have features
• promotions will need to attract as well as inform potential customers in order to ensure
sales
• if business does not respond to competition they could lose sales/market share
• need to ensure that products are available at right time otherwise could lose sales to
rivals.
5 (a) What is meant by ‘marketing’? [2]
Clear understanding [2] e.g. identifying and anticipating customer wants and then providing
it.
Some understanding [1] e.g. selling the product or 1 core element of marketing identified,
such as promotion or pricing or market research.
(b) Identify two possible cash outflows for Favell’s business. [2]
Knowledge [2 × 1]: award 1 mark per cash out flow.

Cash outflows include: rent, materials such as wood, nails; advertising costs, machines or
equipment, transport costs, insurance, and wages.
Accept any reasonable example.
(c) Identify and explain two benefits for any business of preparing a cash flow forecast. [4]
Benefits:
• able to arrange finance to avoid cash flow problems
• help planning
• see (predict) when money goes in or out of business
• support loan applications
• businesses more likely to have cash flow problems in early years.
Knowledge [2 × 1]: award 1 mark per relevant benefit.
Analysis [2 × 1]: award 1 mark for each relevant explanation (i.e. show how it will help a
business).

(d) Favell is looking at various methods of promotion for his business. Identify and
explain three suitable methods of promotion that Favell could use to attract
customers. [6]
Knowledge [3 × 1]: award 1 mark per relevant method.
Analysis/application [3 × 1]: award 1 mark for each relevant explanation (i.e. shows how or
why it is a suitable method for Favell to use).
Methods include:
• leaflets
• posters
• adverts in the local paper or local radio or internet
• advertising on side of vehicle that he wishes to buy
• discount/promotional pricing
• sponsorship
• warranty or after sale services
• competitions
• demonstrations
• public relations
• BOGOFF
• free sample/gifts.
Do not award analysis/application marks for points which clearly cannot be applied to a
woodworking business.
(e) Favell needs $10 000 to buy a motor vehicle so that he can carry all his equipment. He
is planning to ask the bank for an overdraft. Do you think this is the most suitable
source of finance for him to choose? Justify your answer. [6]
Knowledge [2 × 1]: Identification of points for and against overdrafts or for and against
alternative sources of finance.
Analysis [2]: explains how or why issue needs to be considered.
Evaluation [2]: reasoned judgement as to whether a overdraft is the best method to use or
not.
For two evaluation marks, the answer must be clearly in the context of this business
Content may include:
Overdraft:
• only interest payable on amount overdrawn
• quick and easy to arrange
• no security but repayable on demand so more appropriate for short term finance such as
cash flow problems. So is it suitable for fixed assets such as a vehicle?
• can be expensive as interest rates tend to high.

Loan:
• have a set period of time to repay
• fixed interest rate
• relatively quick to arrange
• appropriate for a vehicle as it is a long term asset
• but can be expensive as interest payable
• security usually required for loan.
Other methods might include: leasing, hire purchase as it is a vehicle.
Context could include: The business has cash flow issues; Wants to do marketing;
$10 000 needed for vehicle; is a small business.


INSERT
1 hour 45 minutes

DC (RCL (JDA)) 49278/3

2
Kickwell Sports Shoes (KSS)
KSS was set up ten years ago as a private limited company. The business manufactures sports
shoes. It has grown slowly because the market is very competitive. It has been difficult to increase
the company’s small market share. The company has share capital of $1m. The shares are owned by
Emmanuel and his father.
KSS has three main types of products: men’s trainer sports shoes, women’s trainer sports shoes and
children’s trainer sports shoes.
Emmanuel wants to increase the company’s market share. To do this, Emmanuel has designed a new
football boot which has many features that are better than competitors’ football boots. The new boot
helps footballers to kick the ball much more accurately. The company has a patent on the new football
boot. A patent stops other companies copying the design.
Emmanuel has considered Option 1 and Option 2 below. He has chosen Option 1.
Option 1:
Borrow $10m to enable KSS to produce, promote and distribute the new football boot worldwide. The
company would need to expand production and employ new workers and managers. The company
would only be able to sell the new football boot in a few countries to start with. This is because KSS
does not have links with agents or retail businesses in many countries.
Option 2:
Sell the patent to a multinational sports company. KSS would be paid 10% of all sales revenue from
the football boots each year. The multinational company would find it easy to manufacture, advertise
and sell the football boot all over the world. Advertising the new football boot would be expensive. The
multinational company has established links with retail businesses in many different countries.
Appendix 1
Memorandum
To: Emmanuel
From: Production Manager
Date: 15th April 2012
You asked me to compare labour-intensive production methods with capital-intensive methods for
manufacturing the new boot. Here are the forecasts.
The factory usually operates 8 hours a day for 5 days a week.
Labour-intensive Capital-intensive
methods methods
Output per week 2 500 5 000

Number of workers 100 3
Wages per hour ($) 5 20
Costs for leasing new machinery per week ($) 0 25 000
There are other factors to consider such as illness, repair costs and the number of hours the new
machinery can operate.
© UCLES 2012 0450/21/INSERT/M/J/12

3
Appendix 2
Main News April 2012
Miracle Football Boots!
A new football boot has been designed by local company KSS. Professional footballers are telephoning
the company trying to order these new boots. The new football boot improves accuracy when kicking
the ball, making the new boot a ‘must have’ for all serious football players. The company has not yet
launched the football boot on the market and the price has not been announced.
Appendix 3
Estimated cost figures for the new football boot prepared by KSS production department
Direct costs $15 per boot

Indirect costs per week $20 000
These costs are estimated on maximum production of 5000 football boots per week.
Competitors’ football boots cost between $40 and $50 per pair.
© UCLES 2012 0450/21/INSERT/M/J/12

4
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© UCLES 2012 0450/21/INSERT/M/J/12

* 5 4 0 0 7 0 8 6 8 3 *

1 hour 45 minutes

Total
DC (RCL (JDA)) 49276/2

2
1 (a) The new football boot is being developed. Identify and explain four stages of the future For
product life cycle of the new football boot. Examiner’s
Use
Stage: ..............................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Stage: ..............................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Stage: ..............................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Stage: ..............................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [8]
© UCLES 2012 0450/21/M/J/12

3
(b) Consider why each of the following departments will be important to the success of the For
new football boots. Justify your answer using information in the case. Examiner’s
Use
Production: .......................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Marketing: ........................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Human Resources: ..........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Finance: ...........................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
................................................................................................................................... [12]

4
2 (a) KSS production workers are highly skilled in doing just one task on the production line. For
Identify and explain two advantages and two disadvantages of workers being skilled in Examiner’s
just one task. Use
Advantage 1: ....................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Advantage 2: ....................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Disadvantage 1: ...............................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Disadvantage 2: ...............................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..................................................................................................................................... [8]
© UCLES 2012 0450/21/M/J/12

5
(b) The Production manager believes that labour-intensive methods are better than capital- For
intensive methods of production for the new football boots. Do you agree with him? Examiner’s
Justify your answer using appropriate calculations from the information provided in Use
Appendix 1.
Labour-intensive: .............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Capital-intensive: .............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Conclusion: ......................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
................................................................................................................................... [12]

6
3 (a) Good communication is important to Emmanuel. He has the following information to For
communicate. Examiner’s
Use
• All employees are to receive a wage increase.
• There has been an error with a delivery of some supplies.
Identify a suitable method of communication for each situation. Explain why each
method is suitable.
Method for ‘all employees are to receive a wage increase’: .............................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Method for ‘there has been an error with a delivery of some supplies’: ...........................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [8]
© UCLES 2012 0450/21/M/J/12

7
(b) Labour costs are much lower in other countries. Many sports shoe manufacturers For
produce in those countries. Consider the advantages and the disadvantages to KSS Examiner’s
of manufacturing its football boots in another country. Do you think KSS should move Use
manufacturing to another country? Justify your answer.
Advantages: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Disadvantages: ................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Conclusion: .......................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
................................................................................................................................... [12]

8
4 (a) Identify and explain two benefits to KSS of creating a brand image for its new football For
boot. Examiner’s
Use
Benefit 1: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Benefit 2: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [8]
© UCLES 2012 0450/21/M/J/12

9
(b) Emmanuel needs to decide a pricing strategy for the new football boot. Consider For
price skimming, cost-plus pricing and competitive pricing. Which do you think is the Examiner’s
best pricing strategy for Emmanuel to use? Justify your answer using information in Use
Appendix 3.
Price skimming: ...............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Cost-plus pricing: .............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Competitive pricing: .........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
................................................................................................................................... [12]

10
5 (a) The new football boot will be exported to many different countries. Identify and explain For
four possible problems KSS may have when exporting the new football boot. Examiner’s
Use
Problem 1: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Problem 2: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Problem 3: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Problem 4: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..................................................................................................................................... [8]
© UCLES 2012 0450/21/M/J/12

11
(b) Emmanuel has already chosen Option 1. Was it the right decision to choose For
Option 1 rather than Option 2? Justify your answer by considering the advantages Examiner’s
and disadvantages of each option. Use
Option 1: ..........................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Option 2: ..........................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Conclusion: ......................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
................................................................................................................................... [12]
© UCLES 2012 0450/21/M/J/12

12
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© UCLES 2012 0450/21/M/J/12



examination.
syllabuses.
the merits of the answer and the senior examiners should be consulted if further guidance is
required.
1 (a) The new football boot is being developed. Identify and explain four stages of the
future product life cycle of the new football boot. [8]
Content:
• Introduction/Launch
• Growth
• Maturity
• Saturation
• Decline.
NB The order of the stages is not important for this question.
Explanation marks are likely to be for reference to one or more of the following:
sales; competition; profit; demand; pricing/pricing strategy; advertising.
explanation.
1 mark for each stage identified plus 1 explanation mark for each stage.
1 knowledge mark + 1 explanation mark (2 marks × 4 stages)
For example:
The introduction stage (1 knowledge mark) is when the new product is launched onto the
market and the sales start to grow quickly. (1 explanation mark)

(b) Consider why each of the following departments will be important to the success of
the new football boots. Justify your answer using information in the case. [12]
Content:
Production e.g. important to produce the football boots efficiently and to a high quality.
Marketing e.g. the new boots need to be launched onto the market and consumers need to
be persuaded to buy them.
Human resources e.g. new employees need to be employed with the correct skills or arrange
training.
Finance e.g. to ensure cash flow is kept under control.
Level 1 e.g. production department has to ensure the football boots are produced without
faults. 1 mark for each statement.
Level 2 e.g. production department has to ensure the football boots are produced without
faults otherwise customers will think they are not getting a high quality football boot
and will not be willing to pay a high price for the football boot. They need to be
produced efficiently because costs need to be kept down so that profits will be high.

football boots/boots; worldwide sales; already manufacturing sports shoes; high quality;
competitive market; small market share; helps footballers to kick the ball more accurately;
patent; expand production; employ new workers and managers; no links with agents or retail
businesses abroad; labour intensive/capital intensive; football players; $1m share capital;
reference to figures in Appendix 1 or 3.

Well applied to case. At least two Good discussion of the role of each
examples of reference to, or use department.
of, the case.
Judgement shown about the
importance of each department to the
success of the new product.

Limited application to the case. At Outline of the role of each department.
least one example of reference to,

2 (a) KSS production workers are highly skilled in doing just one task on the production
line. Identify and explain two advantages and two disadvantages of workers being
skilled in just one task. [8]
Content:
Advantage
• increased production/output
• increased efficiency/productivity
• less training required
• skilled workers have higher pay
• quality improved.
Disadvantage
• monotonous for workers
• less variation of products
• workers cannot do other jobs as specialised in one task
• absence disrupts production
• quality could be worse if workers are bored.
Do not reward the reverse argument unless explained e.g. advantage – quality improves and
disadvantage – quality deteriorates = 1 mark only as no further explanation of why quality
might change.
1 knowledge mark + 1 explanation mark. (2 marks × 2 advantages/2 disadvantages)
Advantage: Less training will be required. (1 knowledge mark)
Explanation: Less training will be required as the worker only has to learn one task and they
can do this quickly. (1 additional mark for explanation)

(b) The Production manager believes that labour-intensive methods are better than
capital-intensive methods of production for the new football boots. Do you agree with
him? Justify your answer using appropriate calculations from the information
provided in Appendix 1. [12]
Content:
• Employs more workers (L1)
• Lower wages for labour-intensive methods (L1)
• More shoes produced per worker (L1)
• 200%/50% difference in output (L1)
• Calculations of total wages per day (L1).
Labour intensive Capital intensive
100 people × $5 × 8 hours × 5 days (L1) 3 people × $20 × 8 hours × 5 days (L1)
100 × 5 = 500 (L1), 500 × 8 = 4000 (L1) 3 × 20 = 60 (L1), 60 × 8 = 480 (L1)
$4000 × 5 = $ 20 000 (L2) $480 × 5 = $2400 per week (L2)

(or $27 400)
(2500 shoes per week) (5000 shoes per week)
= $8 per shoe (L2) = $0.48 labour costs per shoe (L2)
Lease $25 000/5000 = $5 per shoe (L1)
Total cost = $5.48 per shoe (L2 × 2)
Level 1 e.g. capital-intensive uses machines to replace workers.

Level 2 e.g. capital-intensive uses machines to replace workers. This means they can
achieve output with significantly fewer workers and lower total wage costs but at the
expense of leasing machinery. 5 marks for level 2 answer.
the end which justifies which production method would be the most effective and
why.


Three x Level 2 calculations + Good judgement shown as to the best
production method and why not the other method (comparison made).
Level 2 5–8 marks

Explanation about each of the production methods/ L2 calculations
undertaken.
Limited judgement shown in conclusion using 2 calculations (can be L1

calculations) about which method is most suitable.
Level 1 1–4 marks

Definition of labour-intensive/capital-intensive = L1 each.
Statements about product methods/simple L1 calculations made.
3 (a) Good communication is important to Emmanuel. He has the following information to

communicate.
• All employees are to receive a wage increase.

• There has been an error with a delivery of some supplies.
Identify a suitable method of communication for each situation. Explain why each
method is suitable. [8]
Content:
• All employees are to receive a wage increase – notice board, letter, meeting, email,
intranet (not internet)
• An error with a delivery of supplies – telephone, email, fax.
NB Do not reward generic methods of communication.
1 mark for each suitable method identified (2 marks max). Three further marks are available
for explaining why the method will be effective.
1 knowledge mark + up to 3 explanation marks (4 marks × 2 methods).
For example:
(i) He could use a letter (1 mark for knowledge) to inform the workers that they are to be
given a wage increase. This would be suitable because all employees will receive the
letter at home (1). This will ensure that all the employees will be informed personally (1)
and so there should be no misunderstanding or employees missing the message as they
are on holiday or ill (1).

(b) Labour costs are much lower in other countries. Many sports shoe manufacturers
produce in those countries. Consider the advantages and the disadvantages to KSS of
manufacturing its football boots in another country. Do you think KSS should move
manufacturing to another country? Justify your answer. [12]
Content:
Advantage Disadvantage
low wages communication more difficult
leads to lower costs more difficult to control
lower prices difficult to stop other business copying the

design
fewer legal restrictions workers might not be so well trained
lower taxes poor availability of materials/resources
reduced transport costs of finished product language barriers
Level 1 e.g. if they move to a country where labour costs are much lower then costs of
production of the football boots will be lowered. 1 mark for each statement.
Level 2 e.g. if they move to a country where labour costs are much lower then costs of
production of the football boots will be lowered. The labour costs may be lower but
the workers may be less well trained and so may be less efficient when producing
the football boot (L2). This will either increase the cost of training the production
workers or the quality of the boot may be lower and this will lead to a poor reputation
(L2). 6 marks for a good level 2 answer.
the end which justifies whether or not they should move manufacturing and why.

Football boots/boots; set up 10 years ago; competitive market; patent; expand production;
employ new workers and managers; no links with agents or retail businesses abroad; sell
all over the world; labour intensive/capital intensive; football players.


Three × Level 2 + Good judgement shown
as to whether or not to move.

Well applied to case. At Advantages and/or disadvantages
least two examples of discussed.
case. Limited judgement shown in the conclusion
about which method is most suitable.

Limited application to the Advantages and/or disadvantages listed.
case. At least one
4 (a) Identify and explain two benefits to KSS of creating a brand image for its new football
boot. [8]
Content:
• To make the product well known
• To differentiate the product from its competitors
• To encourage brand loyalty
• Can charge a higher price
• Increase sales.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each reason

(4 marks × 2 benefits).
For example:
To make the football boots well known. (1 knowledge mark) The football boots will be easily
recognised by other people and this will make them want to buy the boot (1) if famous
football players wear the boot then sales will increase and so will profits. (1)
Application: The application mark could be achieved as the answer refers to famous football
players. (1 application mark)

Football boots/boots; grew slowly; competitive market; small market share; helps
footballers to kick the ball more accurately; expand production; sell all over the world;
football players; reference to figures in Appendix 1 or 3.

(b) Emmanuel needs to decide a pricing strategy for the new football boot. Consider price
skimming, cost-plus pricing and competitive pricing. Which do you think is the best
pricing strategy for Emmanuel to use? Justify your answer using information in
Appendix 3. [12]
Content:
Price skimming
• set a high price
• higher than $50
• establishes high quality product
• may put off some customers.
Cost-plus pricing
• average cost calculated and then a percentage is added on for profit
• $15 direct costs plus $4 indirect costs = $19 per boot plus profit
• easy to apply this method
• competitors’ price may be lower.
Competitive pricing
• set pricing around the same price as competitors’ prices
• competitors charge $40-$50 per pair and so Emmanuel should charge about $45
per pair of boots
• sales possibly higher, research costs to check on competitors’ process.
Level 1 e.g. Cost-plus pricing is where the cost is calculated and then a profit is added to
determine the price to charge customers.
Level 2 e.g. Cost-plus pricing is where the cost is calculated and then a profit is added to
determine the price to charge customers. If they calculate the cost per boot at $19
and so a profit can be added (L2). This is a simple way to work out the price of the
boot but it may not result in higher profits being earned if it doesn’t look at
competitors prices (L2). 6 marks for level 2 answer.
the end which justifies which pricing strategy would be the most effective and why.

$50; $19; $40–50; Football boots/boots; manufacturing sports shoes; competitive market;
small market share; patent; multinational sports company; expand production; sell all over
the world; football players.


Must have three × Level 2 + reference to
figures in Appendix 3 - Good judgement
shown as to the best pricing strategy to
use and why not the other strategies
(comparison made).

Well applied to case. At least two Good discussion of the advantages or
examples of reference to, or use disadvantages of pricing strategies OR
of, the case. balanced argument (even if listed).
Price suggested and justified using the

information in Appendix 3.
Some limited judgement in

recommendation shown about which
method should be used (may not have
made reference to figures in appendix 3).

Limited application to the case. At Definition of pricing strategy.
least one example of reference to, Simple statements made on the
or use of, the case. advantage or disadvantage of each
pricing strategy. Suitable prices
suggested but not justified.

5 (a) The new football boot will be exported to many different countries. Identify and explain
four possible problems KSS may have when exporting the new football boot. [8]
Content:
• Exchange rate changes
• Import restrictions
• Increased risk of non-payment
• Customs different
• Increased transport costs
• Language barriers
• Marketing costs.
1 mark for each problem identified (4 marks max). Plus 1 further mark available for
explaining why each is a problem.
1 knowledge mark + 1 explanation mark (2 marks × 4 problems).
For example:
There might be import restrictions (1 knowledge mark) and this will add to the price the
product sells for and may lead to lower demand for the product. (1 explanation mark)
(b) Emmanuel has already chosen Option 1. Was it the right decision to choose Option 1
rather than Option 2? Justify your answer by considering the advantages and
disadvantages of each option. [12]
Content:
Option 1 Disadvantages Option 2 Disadvantages

Advantages Advantages
Gain all the profits Large capital outlay Don’t have Doesn’t gain all the
advertising expenses profits
Control over Large advertising Percentage of profits Loses control of the

production expenses received product
No existing links No large capital

with retail outlets outlay
Level 1 e.g. Option 2 does not require a large capital outlay. 1 mark for each statement.
Level 2 e.g. Option 2 does not require a large capital outlay. This means the owners do not
have to raise $10m which is a large sum as they only have $1m invested at the
present time. They would not need to sell more shares which could mean they
would lose control of the business. 5 marks for level 2 answer plus 1 application
mark for mentioning $1m share capital.
the end which justifies which option to choose and why.

Possible application marks: Football boots/boots; set up 10 years ago; manufacturing sports
shoes; grew slowly; competitive market; small market share; helps footballers to kick the ball
more accurately; patent; multinational sports company; expand production; employ new
workers and managers; no links with agents or retail businesses abroad; 10% of sales
revenue; sell all over the world; labour intensive/capital intensive; football players; $1m
share capital; reference to figures in Appendix 1 or 3 and also Option 1 and 2.

Three × Level 2 + Good judgement
shown as to which option to choose and
why not other options (comparison
made).

Well applied to case. At least two Good discussion of the advantages
examples of reference to, or use and/or disadvantages of each option OR
of, the case. balanced argument.
Some limited judgement shown about
which option to choose.

Limited application to the case. At Advantages or disadvantages of each
least one example of reference to, option stated.

* 8 2 2 9 2 4 6 9 8 0 *

1 hour 45 minutes

Total
DC (RCL (JDA)) 49286/1

2
1 Durban Dragons is a big football club. Recently fewer people have been watching its matches For
and ticket revenue is falling. Some people say that ticket prices for matches are too high Examiner’s
and should be reduced. The club has high fixed costs and needs to improve its cash flow. Use
The club directors have been trying to gain sponsorship and a number of businesses are
very interested.
(a) What is meant by ‘cash flow’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(b) Give two examples of fixed costs that a business like a football club would incur.
Example 1: .......................................................................................................................
Example 2: .................................................................................................................. [2]
(c) Identify and explain two ways the cash flow of Durban Dragons could be improved.
Way 1: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..................................................................................................................................... [4]
© UCLES 2012 0450/11/O/N/12

3
(d) Identify and explain two reasons why businesses might want to sponsor football clubs For
like Durban Dragons. Examiner’s
Use
Reason 1: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 2: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]
(e) Do you think if Durban Dragons reduce ticket prices for matches this will increase
revenue? Justify your answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]

4
2 Gresham Textiles manufactures high quality clothing. Production is labour intensive. For
Managers are paid more than production line workers in the factory. The business is investing Examiner’s
in automated machinery. The management also wants to introduce lean production methods. Use
(a) What is meant by ‘labour intensive’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(b) Identify two suitable sources of finance that Gresham Textiles could use to finance the
investment in automated machinery.
Source 1: .........................................................................................................................
Source 2: .................................................................................................................... [2]
(c) Identify and explain two reasons why factory managers are paid more than production
line workers at Gresham Textiles.
Reason 1: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Reason 2: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..................................................................................................................................... [4]
© UCLES 2012 0450/11/O/N/12

5
(d) Identify and explain two ways lean production methods could reduce costs in the factory. For
Examiner’s
Way 1: .............................................................................................................................. Use
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]
(e) Do you think that a change to automated methods of production would benefit
customers of Gresham Textiles? Justify your answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]

6
3 Table 1 shows the Balance Sheet for company D at the end of 2010 and 2011. For
Examiner’s
Table 1: Company D Balance Sheet [$m] Use
2010 2011
Fixed Assets 500 600
Net Assets 650 700
Long-term Liabilities 350 350

The accounts also showed that the net profit of company D was $80m in 2010 and $120m
in 2011.
(a) What is meant by ‘capital employed’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(b) Calculate company D’s current ratio in 2011.
..........................................................................................................................................
..................................................................................................................................... [2]
(c) The directors are planning further expansion of the company. Identify and explain two
benefits to company D of raising finance by selling more shares.
Benefit 1: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Benefit 2: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..................................................................................................................................... [4]
© UCLES 2012 0450/11/O/N/12

7
(d) Identify and explain a reason why the following stakeholders would be interested in For
using company D’s accounts. Examiner’s
Use
Creditors’ reason: .............................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Employees’ reason: ..........................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Shareholders’ reason: ......................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..................................................................................................................................... [6]
(e) Do you think the performance of company D in 2011 has improved? Justify your
conclusion using the data provided.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]

8
4 Jergen Cosmetics makes a range of beauty products for women in country A. ‘We are a For
market orientated company’ said Klaus, the Managing Director. ‘One of our business Examiner’s
objectives is to increase sales turnover. We have just set up our own website and increased Use
our marketing budget. Our country’s economic growth is forecast to be 4% next year and this
will guarantee our company’s profitability.’
(a) What is meant by ‘market orientated company’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(b) What is meant by ‘Managing Director’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(c) Identify and explain two benefits to Jergen Cosmetics of setting business objectives.
Benefit 1: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Benefit 2: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..................................................................................................................................... [4]
© UCLES 2012 0450/11/O/N/12

9
(d) Identify and explain two benefits to Jergen Cosmetics of having its own website. For
Examiner’s
Benefit 1: .......................................................................................................................... Use
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Benefit 2: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]
(e) Do you think that economic growth in country A will lead to increased profitability for
Jergen Cosmetics? Justify your answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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10
5 Greenfield manufactures furniture. The company imports wood and other raw materials For
from several countries. Marcos is the Managing Director of Greenfield. Marcos said that his Examiner’s
company was affected by import quotas and changes in exchange rates. He said: ‘Greenfield Use
has to buy its raw materials from other countries as there are no timber (wood) resources in
our own country.’
(a) What is meant by ‘import quota’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [2]
(b) Identify two ways that Greenfield’s business might harm the environment.
Way 1: ..............................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
..................................................................................................................................... [2]
(c) Identify and explain two ways in which changes in exchange rates could cause problems
for Greenfield.
Way 1: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..................................................................................................................................... [4]
© UCLES 2012 0450/11/O/N/12

11
(d) The Government in Greenfield’s country is introducing consumer protection laws. For
Identify and explain three ways in which Greenfield’s business could be affected by Examiner’s
these new laws. Use
Way 1: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Way 3: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..................................................................................................................................... [6]
(e) Greenfield’s management is thinking of expanding the business by taking over another
furniture manufacturer. Do you think this is a good idea for Greenfield? Justify your
answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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..................................................................................................................................... [6]
© UCLES 2012 0450/11/O/N/12

12
BLANK PAGE
© UCLES 2012 0450/11/O/N/12

CAMBRIDGE INTERNATIONAL EXAMINATIONS
MARK SCHEME for the October/November 2012 series

Mark schemes should be read in conjunction with the question paper and the Principal Examiner
Report for Teachers.
Cambridge will not enter into discussions about these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2012 series for most IGCSE,
GCE Advanced Level and Advanced Subsidiary Level components and some Ordinary Level
components.
Page 2 Mark Scheme Syllabus Paper
required.
1 (a) What is meant by ‘cash flow’? [2]
Clear understanding [2] Some understanding [1]

Term refers to the timing and amounts of cash moving in and out of a business [2].
To gain full marks it is sufficient to only refer to “cash in and cash out”. Just cash in OR cash
out will gain 1 mark.
(b) Give two examples of fixed costs that a business like a football club would incur. [2]
Application [2 × 1] – award 1 mark per example
Fixed costs refers to any cost incurred by the business as a result of its existence [unaffected
by the volume of work undertaken]. Thus costs might include – insurance/rates/rent/salaries
etc. Allow any reasonable suggestion. Do NOT allow wages or purchase of football
equipment such as balls or shirts.
(c) Identify and explain two ways the cash flow of Durban Dragons could be improved. [4]
Knowledge [2 × 1] – award 1 mark for each way

Application/analysis [2 × 1] – award 1 mark for each relevant explanation of how it
impacts on cash flow
Cash flow can be improved by any method that alters the amounts and timing of the flows
into and out of the business. Methods might include:
• Selling season tickets [way] would improve cash flow because cash would be received
earlier
• Gaining sponsorship would improve cash flow by attracting in more cash earlier
• Delaying payment to creditors would also improve cash flow by postponing cash
outflows until later
• Delaying payment of wages as this would postpone cash outflows
• Arranging an overdraft facility (or short term loan) would give access to cash immediately
and would therefore allow a business to meet its short term financial obligations
• Disposal of unwanted fixed assets would turn assets into cash
Methods could be in context of a football club but this is not required.
Do NOT allow answers such as cutting costs unless explained. For example, an answer that
says selling a number of players would only be credited if they explained that the wage bill
would be reduced and so therefore would the cash outflow.
© Cambridge International Examinations 2012

(d) Identify and explain two reasons why businesses might want to sponsor football clubs
like Durban Dragons. [6]
Knowledge [2 × 1] – award 1 mark per reason

Application [2 × 1]
Analysis [2 × 1]
Companies sponsor football clubs for a variety of reasons:

• Means of advertising and increasing exposure
• Improve own brand image
• Supporting the local community
• Ego trip for Chairman
• Link name of company to well known brand [football club]
Explanation will show how sponsorship helps achieve these factors. Answer must be in
context for full marks.
(e) Do you think if Durban Dragons reduce ticket prices for matches this will increase
revenue? Justify your answer. [6]
Knowledge [2] – identification of relevant factors

Application/analysis [2]
Evaluation [2]
Content: A reduction in ticket prices means that the ‘product’ is cheaper and hence more
affordable (k). This should increase the demand for tickets. Thus revenue should increase
(an). However this depends on the price elasticity of demand for tickets (an) (use of technical
language not required). If people are not attending the matches because of reasons like the
team is always losing/playing unattractive football (k) then the price fall might not have much
of an impact (an). Thus price is NOT the reason for the falling demand (ev). Indeed the
revenue could be reduced if prices are reduced (ev). Total revenue is the outcome of volume
sales times unit price (k).
The analysis does NOT need to be in context to be rewarded. Thus answer could refer to
things like product and price rather than simply applied to a football context.
2 (a) What is meant by ‘labour intensive’? [2]

Labour intensive implies that labour resource input is the key resource used in the business.
[Some comparison with say other resources such as capital will gain full marks.] It also
implies that labour costs are the dominant cost of the business.
Simple understanding shown by answers like – the business uses a lot of labour [1].

(b) Identify two suitable sources of finance that Gresham Textiles could use to finance the
investment in automated machinery. [2]
Application [2 × 1] – award 1 mark per source.
Suitable sources might include:

• Long term loan
• Retained profit
• Equity issue
• Leasing arrangement
• Sale of unwanted assets [internally generated source]
1 mark per example. Key feature is that capital must be available long term.
Do NOT accept a source that is clearly short term such as an overdraft.
“Bank loan” not accepted. Must be long term. Do NOT accept hire purchase.
(c) Identify and explain two reasons why factory managers are paid more than production
line workers at Gresham Textiles. [4]
Knowledge [2 × 1] – award 1 mark per reason

Application/analysis [2 × 1] – explanation mark for showing how the factor explains the wage
differential
Factors to include:
• State of labour market
• Skills greater
• Shortage of manager [scarcity value]
• Ready supply of production line workers
• Greater responsibility
• Age and experience might differ
• Value to the company differs
• More demanding/important job
(d) Identify and explain two ways lean production methods could reduce costs in the
factory. [6]
Knowledge [2 × 1] – award 1 mark for each way

Application/analysis [2 × 2] – for showing how these factors result in lower costs
Lean methods would:

• Reduce waste
• Minimise stocks [JIT]
• Matches production to demand. [No finished goods stock]
• Reduce time
So for example holding less inventory stock would reduce costs because less capital would
be tied up and hence overdraft levels would be lower. Holding less stock would also save
money [reduce costs] because less storage space would be needed and hence areas
released can be put to more productive use. Holding less stock might also reduce insurance
premiums and this too would reduce costs of the business.
Stock related points can be accepted twice if focus is clearly different e.g. space saving and
insurance reduced.
Points MUST be linked to lean production methods to be rewarded. So for example saying
cheaper or more efficient can be credited only if the explanation shows how.

(e) Do you think that a change to automated methods of production would benefit
customers of Gresham Textiles? Justify your answer. [6]
Knowledge [2]
Evaluation [2]
Knowledge points could include:

• Methods should result in lower costs and hence lower prices
• Uniform standard of products
• Quality standards should be constant
• Improved availability
Alternatively a candidate might refer to:
• High quality clothing is often individually made and unique so may no longer meet the
needs of customers
• Production costs might rise in the short term which may result in higher prices
Explanation to show how the customer is affected by the change to automated production.
E.g. they might benefit due to the products being potentially cheaper to manufacture.
Evaluation: The answer needs to show some judgement on the impact of the change on the
customer. Thus lower costs do NOT automatically lead to lower prices so the company might
benefit but not the customer.
Note 1. The focus of the answer MUST be on the customer not the company.
Note 2. It is NOT necessary to cover both the pros and the cons for the customer for full
marks.
3 (a) What is meant by ‘capital employed’? [2]
Capital employed refers to the money invested in the business on a long term basis [2]. It
measures the value of the assets at the disposal of the management. [2] It is often measured
in terms of long term loans plus shareholders funds [2]. Also accept for full marks a formulae
type answer such as TA – CL or FA + CA – CL
Some understanding would be an answer that said it is the money [capital] used in the
business [1].
(b) Calculate company D’s current ratio in 2011. [2]
Correct answer [2] Method [1]

Current assets / current liabilities = 650/550 = 1.18 [2]
Accept answer 1.2 for full marks
A ratio answer i.e. 1.2:1 will also gain full marks

(c) The directors are planning further expansion of the company. Identify and explain two
benefits to company D of raising finance by selling more shares. [4]
Knowledge [2 × 1] – award 1 mark for each benefit

Application/analysis [2 × 1]
The benefits of share issue are:

• Capital does not have to be repaid
• Does not carry interest charges
• Generally seen as a cheaper way of raising capital
• Business risk reduced
The explanation marks are for showing how the above benefit the company and/or how
those benefits are achieved. For example because there are no interest charges on share
capital this will mean that the overhead costs of the business are lower and this is beneficial
because it means that profits will be higher.
Do NOT accept an easy/quick way of raising capital as a benefit.
(d) Identify and explain a reason why the following stakeholders would be interested in
using Company D’s accounts. [6]
Knowledge [3 × 1] – identify what the accounts might show the stakeholder

Analysis [3 × 1] – showing why the information might be useful to the stakeholder
Creditors owed money so keen to see size of other debts of business and what security
exists – assess risk of default.
Employees might show them how profitable the business is and therefore how secure their
employment is/potential for higher wages in the future.
Shareholders would assess the profitability of the business and use it to assess the use of
their funds.
NB Other reasons for each stakeholder’s interest could be made which are also valid. Future
creditors also acceptable as an interpretation of the question i.e. looking ahead to assess
credit worthiness.

(e) Do you think that the performance of company D in 2011 has improved? Justify your
conclusion using the data provided. [6]
Knowledge of performance measures [2]

Data interpretation could be descriptive or analytical, and so knowledge can be
demonstrated in different ways.
Knowledge could be shown by:
• identifying suitable ratios (2 marks max.) Analytical ratios that could be used are ROCE/
gearing/liquidity [last two ratios not really performance ratios but will be credited]
and/or
• by identifying changes in the data. The maximum knowledge mark for simply describing
changes between the two years is 1 mark.
Application/analysis of data [2]

Ratio analysis shows
ROCE 2010 12.3% 2011 17.14% Improvement
Current ratio 2010 1.33 2011 1.18 Marginal worsening
Gearing ratio 2010 53% 2011 50% Improvement
Any manipulation of figures gains analysis marks e.g. calculation of ratios or calculation of %
rate of increase. Calculation of same ratio for one or both years gains 1 mark.
If an answer just looks at net profit and says $80m in 2010 and $120m in 2011 and/or fixed
assets have risen from $500m to $600m and net assets have increased from $650m to
$700m so the performance is better because it is more profitable. This answer just looks at
the figures and draws simple conclusions. It will gain 2 marks [1 for K and 1 for Ev but NO
application/analysis mark]
Conclusions based on knowledge/analysis [2]

Evaluation is for forming a judgement on the analysis or perhaps from drawing on wider
context such as difficult to assess whether performance is really improved because no data
for previous years or other competitors’ results.
For full marks the conclusion has to refer to ROCE as this is the key performance ratio. E.g.
the performance of the business has improved because the ROCE has significantly
increased. The only minor worry is the deterioration in liquidity.
4 (a) What is meant by ‘market orientated company’? [2]

A business that focuses on the needs and requirements of its customers through analysis of
market research data. Alternatively one that does market research before manufacturing or
supplying a product/service [2].
A business that produces what customers want [1] or one that does market research [1].
(b) What is meant by ‘Managing Director’?

[2]
Managing director is the overall senior director with general responsibility for the business as
a whole. [2] A two mark answer might also be one that makes a number of valid points e.g. in
overall charge and directs other managers/directors
Simple answer might be the director who makes the major decisions [1] or controls the
company [1]. So one simple statement gains 1 mark.

(c) Identify and explain two benefits to Jergen Cosmetics of setting business objectives.
[4]
Knowledge [2]
Benefits of objectives are:

• Gives sense of purpose and direction
• Goal to be achieved
• Measure of success
• Helps decision making and planning
Explanation shows why the above would be of benefit to the business. So setting an
objective of increasing turnover by say 5% next year is of benefit to the company because it
sets a target [1] which motivates staff to perform better [explanation as to why it is a benefit].
(d) Identify and explain two benefits to Jergen Cosmetics of having its own website. [6]
Knowledge [2]
Website would:
• Increase public awareness
• Enhance reputation
• Boost sales
• Improve image
• Allow customers to view their product range
• Lower advertising costs
• Allow online sales
So an answer might say that a website would mean that potential customer could see a full
range of beauty products that they make. This would allow them to be more aware of the full
range and might encourage them to buy, boosting sales for Jergen. Second benefit might be
that the website might enhance the profile of the company. It will seem ‘more important’ and
fashionable and hence might attract new customers to the business. This too will boost sales
and profits.
Analysis/application for showing how the points actually represent a benefit and how a
website helps achieve them.
(e) Do you think that economic growth in country A will lead to increased profitability for
Jergen Cosmetics? Justify your answer. [6]
Knowledge [2]
Evaluation [2]
The growth in an economy should mean greater prosperity, lower unemployment and higher
consumer spending in general. However this does not mean that all sectors will benefit to the
same degree. It certainly does not mean that all businesses will gain either. A successful
business has products that are in demand and that they can be supplied at a price that is
acceptable to the consumer and high enough to generate a profit to the business. The state
of the economy has little impact on these factors. However in so far as higher sales may lead
to higher profits then economic growth should help Jergen.

5 (a) What is meant by ‘import quota’? [2]

Quota refers to a limit on the flow of goods that are allowed into a country [2].
Simple answer might say something that affects the imports into a country [1]. Although this
does not properly differentiate it from a tariff it can still be accepted. Do not reward an answer
that says it affects the price [cost] of imports.
(b) Identify two ways that Greenfield’s business might harm the environment. [2]
Application [2 × 1]
Their resources are mainly wood which is imported and therefore carbon footprint/pollution is
high. The business may encourage the depletion of forests by increasing the demand for
wood. The business also adds to pollution in terms of global warming and destruction of
natural habitats. 1 mark per way. Answer must be in context.
(c) Identify and explain two ways in which changes in exchange rates could cause
problems for Greenfield. [4]
Knowledge [2 × 1]
Problems might be:

• Difficulty in setting selling prices
• Fluctuating costs makes financial planning particularly difficult.
Explanation of how this might cause problems for Greenfield. Answer might say that the
business imports raw materials and so a depreciation in their country’s currency means that
the cost of their furniture will rise. This causes a problem for Greenfield because profit
margins will be reduced. Reference to BOTH appreciation and depreciation can be credited
as separate points.
(d) The Government in Greenfield’s country is introducing consumer protection laws.

Identify and explain three ways in which Greenfield’s business could be affected by
these new laws. [6]
Knowledge [3 × 1]

• Minimum safety standards have to be met
• Advertising claims might have to be altered
• Minimum quality standards required
• Labelling of products might need adjustments
• Consumer rights if unhappy with products need to be considered
• Price controls
Candidates should explain these points to show how business might be affected. So if the
candidate said that certain standards would have to be met then this will mean that
Greenfields might have to alter their specifications to meet these new requirements.

(e) Greenfield’s management is thinking of expanding the business by taking over

another furniture manufacturer. Do you think that this is a good idea for Greenfield?
Knowledge [2]
Evaluation [2]
Advantages might include:

• Economies of scale
• Larger market share
• Wider product range
• Larger customer base
Disadvantages might be:
• Organisational problems
• Diseconomies of scale
• Finance issues
The evaluation could be something like: ‘I think it would be a good idea to do this because it
should allow the business to increase its sales and market share making it more profitable
and more secure’.
It is not necessary to cover both the advantages and the disadvantages for Greenfield for full
marks.


INSERT
1 hour 45 minutes

DC (NF/SW) 49273/1
2
K’s Garage
Kolo has worked as a mechanic repairing motor cars for over 10 years. He now wants to start his own
business selling and repairing cars. He wants to set up as a sole trader business and call his business
K’s Garage. He hopes to have both business customers and private customers.
Kolo thinks he will need to employ two other trained mechanics, as well as two experienced sales staff
for selling cars. Kolo will do the accounts and administration for the garage and also deal with customer
enquiries.
There are three possible sites where he could locate his garage.
Site A:
Site A is on a busy road close to the city centre. The rent on the property is $20 000 per year for a small
workshop and car showroom (where cars for sale are displayed). It is near other garages which sell
new cars. The site is located in a business area and there are no houses nearby.
Site B:
Site B is on a road on the edge of a housing estate. There are many people living in the area who own
cars. The rent for this site is $15 000 per year. The site has a large car showroom and workshop. There
are no other garages in the area and only a few shops nearby which sell food. Not many people use the
road.
Site C:
Site C is in an area outside the city with no housing or businesses nearby. The site is for sale for
$10 000. It is a large area of land with a big garage on the site, but the buildings need repairing. There
is a busy road nearby which leads into the city. The city is 10 kilometres away.
Kolo’s friend, Leslie, owns a garage in another city. Leslie has given Kolo the following information from
his company accounts. This is shown in Appendix 1.
Appendix 1
Financial information for Leslie’s garage ($)
2010 2011
Capital employed 50 000 50 000

Sales revenue from car sales 40 000 80 000
Sales revenue from car repairs 60 000 70 000
Cost of sales (cars and car parts) 20 000 40 000
Expenses 70 000 90 000
© UCLES 2012 0450/21/INSERT/O/N/12

3
Appendix 2
To: Kolo@gotmail.com
From: Leslie@gotmail.com
Hello Kolo
If you are thinking of importing cars for your business you need to consider a few things.
Changes in the exchange rate may affect the price you are paying for the imported cars. Also you need
to check if there are any tariffs or quotas on imported cars. However, the prices are often 20% less than
buying cars in this country and there are more types and models of cars available from other countries.
Remember transport costs may be higher and delivery dates may be less reliable.
Good luck!
Leslie
Appendix 3
Economic data
Unemployment Economic growth
8 6
7 5
6
4
% 5 %
4 3
3 2
2
1 1
0 0
2009 2010 2011 2012 2009 2010 2011 2012
(forecast) (forecast)
© UCLES 2012 0450/21/INSERT/O/N/12

4
BLANK PAGE
© UCLES 2012 0450/21/INSERT/O/N/12

* 6 3 0 4 2 4 2 4 1 6 *

1 hour 45 minutes

Total
This document consists of 11 printed pages, 1 blank page and 1 insert.
DC (NF) 49271/2
2
1 (a) Identify and explain four reasons why Kolo might want to set up his own business rather For
than work for an employer. Examiner’s
Use
Reason 1: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 2: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 3: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Reason 4: ........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [8]
© UCLES 2012 0450/21/O/N/12

3
(b) Kolo will need money to finance the stock of parts used in car repairs. Consider the For
advantages and disadvantages of the following options for raising finance. Recommend Examiner’s
which option he should choose. Justify your choice. Use
Trade credit: .....................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
Owner’s savings: ..............................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
Bank overdraft: .................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
Recommendation: ............................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
..........................................................................................................................................
................................................................................................................................... [12]

4
2 (a) Kolo wants to get information about his competitors. Identify and explain four ways Kolo For
could research this information. Examiner’s
Use
Way 1: ..............................................................................................................................
Explanation: .....................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
Way 2: ..............................................................................................................................
Explanation: .....................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
Way 3: ..............................................................................................................................
Explanation: .....................................................................................................................
…………… ........................................................................................................................
…………… ........................................................................................................................
Way 4: ..............................................................................................................................
Explanation: .....................................................................................................................
…………… ........................................................................................................................
…………… ................................................................................................................... [8]
© UCLES 2012 0450/21/O/N/12

5
(b) Kolo plans to promote his new business. Consider the advantages and disadvantages For
of the following methods of promotion. Recommend which method he should choose. Examiner’s
Justify your choice. Use
Advertising in local newspapers: ......................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Free car repairs for a year with every car purchase: ........................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Offering price reductions to the first 100 customers: .......................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
................................................................................................................................... [12]

6
3 (a) Kolo needs to buy parts to repair cars. He plans to buy these parts directly from large For
manufacturers. Identify and explain one advantage and one disadvantage for a small Examiner’s
business of buying from large companies. Use
Advantage: .......................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Disadvantage: ..................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [8]
© UCLES 2012 0450/21/O/N/12

7
(b) There are three possible sites for the new garage. Consider the advantages and For
disadvantages of each site. Recommend which site Kolo should choose. Justify your Examiner’s
choice. Use
Site A: ..............................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Site B: ..............................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Site C: ..............................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
................................................................................................................................... [12]

8
4 (a) Explain how the economic data from Appendix 3 could affect the success of Kolo’s new For
garage. Examiner’s
Use
Unemployment: ................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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Economic growth: ............................................................................................................
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(b) Do you think Leslie should be satisfied with the financial position of his business? Justify For
your answer using profitability ratios calculated from the information in Appendix 1. Examiner’s
Use
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Conclusion: ......................................................................................................................
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10
5 (a) Kolo plans to use different methods of payment for mechanics (car repair workers) For
and sales staff. Identify and explain a suitable method of payment for mechanics and a Examiner’s
suitable method of payment for sales staff. Use
Payment method for mechanics: ......................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
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Payment method for sales staff: .......................................................................................
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Explanation: .....................................................................................................................
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11
(b) Kolo is considering importing some of the cars he wants to sell. Consider three For
problems Kolo could have if he imports cars. Recommend whether Kolo should import Examiner’s
cars. Justify your answer. Use
Problem 1: ........................................................................................................................
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Problem 2: ........................................................................................................................
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Problem 3: ........................................................................................................................
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Recommendation: ............................................................................................................
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components.
required.

1 (a) Identify and explain four reasons why Kolo might want to set up his own business
rather than work for an employer. [8]
Content:
Candidates may focus either on reasons for leaving current employment or the benefits of
running his own business.
• own boss
• keep all the profit
• choose who to work with
• choose own holidays
• choose own working hours
• making all the decisions
• being in control
• no risk of disagreements
• unhappy with current employment
• potential to earn higher income
• not worried about being fired.
1 knowledge mark + 1 explanation marks (2 marks × 4 reasons)
Reason: Kolo can keep all the profits for himself (1 knowledge mark)
Explanation: Kolo can keep all the profits for himself (1) he will not be just paid the same
wage if he works hard but he will get to keep extra money for himself. (1 additional mark for
simple explanation)

(b) Kolo will need money to finance the stock of parts used in car repairs. Consider the
advantages and disadvantages of the following options for raising finance.
Recommend which option he should choose. Justify your choice. [12]
Content:
Trade credit is interest free borrowing but may be difficult to obtain.
Owner’s savings do not require any interest payment and accessible straight away but
limited funds.
Bank overdraft is quite easy to arrange but has interest payments and is repayable on
demand.
Level 1 Trade credit is interest free. 1 mark for each statement.
Level 2 E.g. Trade credit is interest free as suppliers provide the car parts and then receive
payment at a later date. This means the business can obtain the parts, fit these
parts on customers’ cars and receive customer payment before they have to pay for
the parts and so cash flow can be improved.
5 marks for a level 2 answer plus 1 application mark for mentioning customers’ cars.
answer, i.e. two level two answers = 6 marks, 3 level 2 answers = 7 marks, 4 level 2
marks can be awarded for the first level 2 answer. If the second level 2 answer was
also well very explained then 8 marks in total can be awarded.
Level 3 Detailed discussion of at least two level 2 answers plus consideration of which
option to choose and justification in comparison to the other two alternatives.
cars; car repairs; stock of car parts; mechanic; car servicing; sole trader; unlimited liability;
new business; garage; workshops; reference to figures in the case or Appendix 1 or 3.


judgement shown as to which source of finance to
choose and why it is better than the other two
sources (comparison made).

Well applied to case. At Good discussion of the advantage/disadvantage of
least two examples of, any of the sources of finance listed OR balanced
references to, or uses of, argument (even if listed).
the case. Some limited judgement shown about which one
they should choose.

Limited application to the Description of type of finance. Advantage or
case. At least one disadvantage of any of the sources of finance
example of, reference to, listed.

2 (a) Kolo wants to get information about his competitors. Identify and explain four ways
Kolo could research this information. [8]
Content:
• questionnaires of competitors’ customers
• interviews of competitors’ customers
• company report
• internet/business website
• observation
• trade journals
• newspapers.
NB Primary or secondary research can be rewarded but NOT in addition to examples

of primary or secondary methods.
application/explanation
1 knowledge mark + 1 application/explanation mark for each way (2 marks × 4 ways)
Way: They could carry out a questionnaire of the customers’ opinions of its
competitors.
(1 knowledge mark)
Explanation: They could carry out a questionnaire of the customers’ opinions of its
competitors (1) this would be to find out if they are happy with the car
repairs and if the repairs are carried out quickly. (1 additional mark for
explanation)

(b) Kolo plans to promote his new business. Consider the advantages and disadvantages
of the following methods of promotion. Recommend which method he should choose.
Justify your choice. [12]
Content:
Advertising in local newspapers – low cost, reaches target market; may not be read by
everyone.
Free car repairs for a year with every car purchase – costs money for free repairs; attracts
new customers to try the service.
Offering price reductions to the first 100 customers – attracts new customers to try garage
services; costs money to offer price reductions.
Level 1 E.g. Offering price reductions to the first 100 customers – attracts new customers to
try garage services. 1 mark for each statement.
Level 2 E.g. Offering price reductions to the first 100 customers – attracts new customers to
try garage services as they want to get the service at a low price. If they like the car
service then they may become regular customers of the garage and may even
improve the reputation of the garage by telling their friends. 5 marks for a level 2
answer plus 1 application mark for mentioning car servicing and regular customers
of the garage.
Level 3 Detailed discussion of at least two level 2 answers plus consideration of which
option to choose and justification of why it is better than the other two methods.
car; car repairs; mechanic; car servicing; sole trader; new business; business customers
and private customers; garage; near city centre; workshop; car showroom; reference to
figures in the case or Appendix 1 or 3.


judgement shown as to which promotion to
choose and why it is better than the other two
promotions (comparison made).

Well applied to case. At least Good discussion of the
two examples of, references advantage/disadvantage of the promotional
to, or uses of, the case. method OR balanced argument (even if listed).
Some limited judgement shown about which
one they should choose.

Limited application to the Advantage/disadvantage of the promotional
case. At least one example of, method listed.
case.

3 (a) Kolo needs to buy parts to repair cars. He plans to buy these parts directly from large
manufacturers. Identify and explain one advantage and one disadvantage for a small
business of buying from large companies. [8]
Content:
Advantages buy direct from manufacturer so cheaper/wholesaler not necessary; get
advice; technical support; range of products; free delivery; large supplier
benefits from economies of scale so lower prices.
Disadvantages dictated to by large manufacturer; bottom of priority list for deliveries;

difficult to complain as no alternative; have to buy a large amount; storage
required for bulk purchase; monopoly supplier charges high prices.
The marks available for this question are as follows: 2 marks for advantage/disadvantage; 2
marks for application and 4 marks for explanation/analysis.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each advantage/

disadvantage (4 marks × 1 advantage + 4 marks × 1 disadvantage)
car; car repairs; car parts; mechanic; car servicing; sole trader; business customers and
private customers; garage; workshop; car showroom; importing cars; reference to figures in
the case or Appendix 1 or 3.
Disadvantage: Dictated to by large manufacturer. (1 knowledge mark).
Simple explanation: Dictated to by large manufacturer (1) as the repair business only
buys a small amount of parts and so it is not that important to the
large manufacturer. (1 additional mark for simple explanation)
Developed explanation: Dictated to by large manufacturer (1) as the repair business only
buys a small amount of parts and so it is not that important to the
large manufacturer (1). The large parts manufacturer will not need
to keep the customer happy as Kolo does not have an alternative
of where to buy the car parts from. (1 further explanation mark for
a developed explanation)
Application: The application mark could be achieved as the answer refers to

repair business. (1 application mark)

(b) There are three possible sites for the new garage. Consider the advantages and
disadvantages of each site. Recommend which site Kolo should choose. Justify your
choice. [12]
Content:
Site A: passing traffic; easily seen; high rent; small workshop so not much room;
competition in area; no private customers nearby but there are business customers.
Site B: not much passing traffic; many private consumers in area but no business
customers; no competition nearby; lower rent; large showroom so plenty of space.
Site C: no private or business customers nearby; land is for purchase and not rent so no
future rent and is cheap to buy; costly repairs required; plenty of space; on main
road into the city.
NB Direct copying from the insert should not be rewarded for level marks – the
advantages or disadvantages should be made clear and could be a rewording of the
information. But Application marks can be awarded for direct use of figures from the
case.
Level 1 E.g. Site A has a lot of passing traffic. 1 mark for each statement.
Level 2 E.g. Site A has a lot of passing traffic means that many people will see the garage
and might stop and use it. It will mean that car drivers will see the garage and this
will reduce the need to advertise car servicing and therefore reduce costs. 5 marks
for level 2 answer plus an application mark for mentioning car servicing.
answers = 8 marks.
Level 3 Detailed discussion of at least two level 2 answers plus consideration of which site
to choose and justification of why it is better than the other two sites.
cars; car repairs; mechanic; car servicing; sole trader; business customers and private
customers; garage; near city centre; workshop; car showroom; no houses nearby; buildings
need repair; two experienced sales staff; importing cars; reference to figures in the case or
Appendix 1 or 3.


At least 2 sites explained at Level 2 + good
judgement shown as to which site to choose and
why it is better than the other two sites
(comparison made).

Well applied to case. At Good discussion of advantages and disadvantages
least two examples of, of each site OR balanced argument (even if listed)
references to, or uses of,
the case.

Limited application to the Advantage/disadvantage of each site listed.
case. At least one
example of, reference to,

4 (a) Explain how the economic data from Appendix 3 could affect the success of Kolo’s
new garage. [8]
Content:
Unemployment increasing – less income and so less sales; lower wages as more
unemployed; easier to recruit/more choice of applicants.
Economic growth – falling growth and so sales might fall; more sales of used cars as fewer
new cars sold; more repairs as fewer new cars sold and keep old car for longer. (Do not
reward bankruptcy or recession.)
1 knowledge mark + up to 2 explanation marks + 1 application mark for each economic factor
(4 marks × 2 economic factors)
unemployment increasing; economic growth at lower levels; car; car repairs; mechanic; car
servicing; sole trader; new business; business customers and private customers; garage;
importing cars; reference to figures in the case or Appendix 1 or 3.
Economic factor: Unemployment increasing and so sales may be lower. (1

knowledge mark)
Simple explanation: Unemployment increasing and so sales may be lower (1) due to
consumers having less income as the may have lost their job. (1
additional mark for simple explanation)
Developed explanation: Unemployment increasing and so sales may be lower (1) due to
consumers having less income as they may have lost their job (1).
So they spend less money buying new cars or they may spend
more money getting their old car repaired and so revenue from car
repairs might go up. (1 further explanation mark for a developed
explanation)

new cars and car repairs. (1 application mark)

(b) Do you think Leslie should be satisfied with the financial position of his business?
Justify your answer using profitability ratios calculated from the information in
Appendix 1. [12]
Content:
Level 1 Sales revenue has increased; expenses have increased; cost of sales has
increased; capital employed has stayed the same.
Level 2 2010 gross profit = $80 000 (L2)

net profit = $10 000 (L2)
2011 gross profit = $110 000 (L2)

net profit = $20 000 (L2)
2010 gross profit margin = 80% (L2)

net profit margin = 10% (L2)
ROCE = 20% (L2)
2011 gross profit margin = 73.33% (L2)

net profit margin = 13.33% (L2)
ROCE = 40% (L2)
Level 1 E.g. The expenses in 2011 have increased by $20 000.

1 mark for each statement up to a max of 4 marks.
Level 2 E.g. The net profit margin in 2010 is expected to be 10%.
answer, i.e. two level 2 answers = 6 marks, 3 level 2 answers = 7 marks, 4 level 2
answers = 8 marks.
Level 3 This will include at least two different ratios with comparison on the figures and
judgement explained as to whether the business is in a strong financial position or
not.

Level 2 + comparison of at least 2 different ratios. Decision made and justified
as to whether or not the financial position of the business is good.

Financial information calculated and/or ratios calculated.
Level 1 1–4 marks

Basic statements about financial situations/limited judgement shown.

5 (a) Kolo plans to use different methods of payment for mechanics (car repair workers)
and sales staff. Identify and explain a suitable method of payment for mechanics and a
suitable method of payment for sales staff. [8]
Content:
Mechanic: wage/time rate/piece rate
Sales staff: commission/bonus/salary/profit sharing
1 knowledge mark + up to 2 explanation marks + 1 application mark for each method of

payment (4 marks × 2 methods of payment)
car; car repairs; car servicing; mechanics; car sales staff; sole trader; garage; workshop; car
showroom; reference to figures in the case or Appendix 1 or 3.
Mechanic: Pay the mechanic a wage. (1 knowledge mark)
Simple explanation: Pay the mechanic a wage (1) as this can be calculated by how
much per hour he gets paid times how many hours he works. (1
additional mark for simple explanation)
Developed explanation: Pay the mechanic a wage (1) as this can be calculated by how
much per hour he gets paid times how many hours he works (1).
This is a simple way of paying the mechanic as it is difficult to
measure his productivity and therefore pay him by how many cars
he repairs. (1 further explanation mark for a developed
explanation)

how many cars he repairs (1 application mark)

(b) Kolo is considering importing some of the cars he wants to sell. Consider three
problems Kolo could have if he imports cars. Recommend whether Kolo should import
cars. Justify your answer. [12]
Content:
Exchange rate changes: make costs difficult to calculate
Tariffs: increase the cost of imported cars
Quotas: restricted number of cars
Higher transport costs: as it is further to transport the cars
Longer delivery time: further to transport
Increased risk of non-payment: as the business is not known to the buyer
Language difficulties: communication problems with supplier
Level 1 E.g. The exchange rate might change. 1 mark for each statement.
Level 2 E.g. The exchange rate might change and if it goes down then imported cars will be
more expensive to import making it harder for Kolo to sell cars to customers. 5
marks for level 2 answer.
Level 3 This will include at least two problems at level 2 and judgement explained as to
whether the business should import used cars or not.
cars; car repairs; 20% decrease in price; car servicing; business customers and private
customers; garage; car showroom; importing cars; reference to Appendix 2.

At least 2 problems explained at Level 2 + good
judgement shown as to whether to import used
cars or not.

Well applied to case. At least Explanation of the problems with importing
two examples of, references goods.
to, or uses of, the case.

Limited application to the Problems with importing goods stated.
case. At least one example
of, reference to, or use of,
the case.

* 5 0 6 6 3 5 4 9 6 8 *

1 hour 45 minutes

DC (NF) 63413/2
2
1 Earnshaw is a company that buys raw materials and components in bulk. It uses them to For
manufacture furniture using flow production methods. Productivity in the factory is high. Examiner’s
Currently Earnshaw has high costs of holding stock. The Managing Director wants to Use
introduce lean production methods.
(a) What is meant by ‘productivity’?
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..................................................................................................................................... [2]
(b) Identify two advantages to Earnshaw of buying raw materials in bulk.
Advantage 1: ....................................................................................................................
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Advantage 2: ....................................................................................................................
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(c) Identify and explain two features of flow production.
Feature 1:..........................................................................................................................
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Explanation: .....................................................................................................................
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Feature 2: .........................................................................................................................
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Explanation: .....................................................................................................................
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3
(d) Identify and explain three benefits to Earnshaw of using lean production methods. For
Examiner’s
Benefit 1: .......................................................................................................................... Use
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Explanation: .....................................................................................................................
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Benefit 2: ..........................................................................................................................
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Explanation: .....................................................................................................................
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Benefit 3: ..........................................................................................................................
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Explanation: .....................................................................................................................
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(e) ‘If Earnshaw is to grow in the future then its unit production costs must fall’.
Do you agree? Justify your answer.
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4
2 Muammar sells boxes of spices to markets. Workers in Muammar’s business are paid on a For
piece rate basis. Table 1 gives financial details of the business in 2012. Examiner’s
Use
Table 1
Fixed costs per month $10 000

Employee wages $2 per box
Raw materials $3 per box
Marketing costs $1 per box
Selling price $8 per box
Sales per month [average] 9000 boxes
(a) Identify two examples of fixed costs for Muammar’s business.
Example 1: .......................................................................................................................
Example 2: .................................................................................................................. [2]
(b) Identify two reasons why sales may vary from month to month.
Reason 1: ........................................................................................................................
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Reason 2: ........................................................................................................................
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(c) Calculate the annual profit that Muammar made in 2012.
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5
(d) Identify and explain one advantage and one disadvantage to Muammar of using piece For
rate to pay his workers. Examiner’s
Use
Advantage: .......................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
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Disadvantage: ..................................................................................................................
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Explanation: .....................................................................................................................
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(e) Muammar is planning to change the selling price of the boxes to $7 each. Do you think
this change would benefit the business? Justify your answer.
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6
3 Yura is the Managing Director of a company that sells holidays. The company organises For
hotels, air flights and car hire for customers. For the first time, the company is going to do Examiner’s
some market research. Secondary sources will be used and a sample of customers will be Use
selected for primary research.
(a) What is meant by ‘market research’?
..........................................................................................................................................
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(b) Identify two advantages of using secondary sources.
Advantage 1: ....................................................................................................................
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Advantage 2: ....................................................................................................................
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(c) Identify and explain two methods of sampling that the company could use.
Method 1: .........................................................................................................................
Explanation: .....................................................................................................................
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Method 2: .........................................................................................................................
Explanation: .....................................................................................................................
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7
(d) Identify and explain two ways of segmenting the market for holidays that the company For
could use. Examiner’s
Use
Way 1: ..............................................................................................................................
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Explanation: .....................................................................................................................
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Way 2: ..............................................................................................................................
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Explanation: .....................................................................................................................
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(e) Yura believes that the price is the most important part of the marketing mix for holidays.
Do you think that he is correct? Justify your answer.
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8
4 Table 2 gives data about the economy of country C. For

Examiner’s
Use
Table 2
National income
Year per person ($) Inflation (%) Unemployment (%)
2010 650 5 10
2011 640 3 12
2012 600 1.5 18
The economy of country C is in recession. The Government wants to create more jobs by
encouraging more businesses to start up. However some pressure groups are against this
because they think that more businesses will cause more external (social) costs.
(a) What is meant by ‘recession’?
..........................................................................................................................................
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..................................................................................................................................... [2]
(b) Identify two possible reasons why national income per person has fallen between 2010
and 2012.
Reason 1: ........................................................................................................................
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Reason 2: ........................................................................................................................
..................................................................................................................................... [2]
(c) Identify and explain two ways that a Government could help new businesses to start up.
Way 1: ..............................................................................................................................
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Explanation: .....................................................................................................................
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Way 2: ..............................................................................................................................
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Explanation: .....................................................................................................................
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9
(d) Identify and explain three external (social) costs that might be caused by an increase in For
the number of businesses in country C. Examiner’s
Use
Cost 1: .............................................................................................................................
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Explanation: .....................................................................................................................
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Cost 2: .............................................................................................................................
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Explanation: .....................................................................................................................
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Cost 3: .............................................................................................................................
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Explanation: .....................................................................................................................
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(e) Do you think that new start-up businesses can be successful in country C? Justify your
answer.
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10
5 Dmit is a partner in a small retail clothing business. The business has been successful, but it For
is finding it difficult to compete against larger retailers. The partners are thinking of converting Examiner’s
the partnership into a private limited company. Use
(a) Identify two features of a partnership.
Feature 1: .........................................................................................................................
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Feature 2: .........................................................................................................................
..................................................................................................................................... [2]
(b) Identify two ways of measuring the success of a business.
Way 1: ..............................................................................................................................
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Way 2: ..............................................................................................................................
..................................................................................................................................... [2]
(c) Identify and explain two reasons why the business might be finding it difficult to compete
against larger retailers.
Reason 1: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
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Reason 2: ........................................................................................................................
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Explanation: .....................................................................................................................
..................................................................................................................................... [4]
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11
(d) Identify and explain three methods of promotion that the partnership could use to For
increase sales. Examiner’s
Use
Method 1: .........................................................................................................................
Explanation: .....................................................................................................................
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Method 2: .........................................................................................................................
Explanation: .....................................................................................................................
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Method 3: .........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..................................................................................................................................... [6]
(e) Consider the advantages and disadvantages of converting the partnership into a private
limited company. Recommend whether the partners should do this. Justify your answer.
Advantages: .....................................................................................................................
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Disadvantages: ................................................................................................................
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Recommendation: ............................................................................................................
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..................................................................................................................................... [6]
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© UCLES 2013 0450/11/O/N/13


components.
1 (a) What is meant by ‘productivity’? [2]
Clear understanding [2] e.g. Productivity measures the amount of output that can be
produced from a given amount of resource inputs
Some understanding [1] Speed at which items produced
Answers that state that this shows efficiency – max 1 mark.
Do not credit an answer that simply focuses on output alone e.g. shows the output of a
business in a year.
(b) Identify two advantages to Earnshaw of buying raw materials in bulk. [2]
Knowledge [2 × 1] award one mark per advantage.
Points may include:

• Purchasing economies of scale [resources will be cheaper]
• Materials always available when needed [no delays]
• Little chance of stock outs [running out of stock]
• Requirement to order less often
• Saves on delivery costs
(c) Identify and explain two features of flow production. [4]
Knowledge [2 × 1] – award 1 mark per feature [max 2]
Analysis [2 × 1] – award 1 mark for each relevant explanation
Points may include:

• Associated with large volumes of output [k] so economies of scale possible [an]
• Similar or identical products produced [k] because all products go through the same
processes [an]
• Allows division of labour [k] so more efficient [an]
• Continuous movement of goods along a production line [k] so output is faster [an]
• Capital intensive [k] so high fixed costs [an]
• Fast method of production [k]
Note – Do not accept motivation as an identified feature of flow production. This may be
explained as a consequence of one of the identified features.

(d) Identify and explain three benefits to Earnshaw of using lean production methods.
[6]
Knowledge/application [3 × 1] – award 1 mark per benefit
Analysis [3 × 1] – award 1 mark for each relevant explanation i.e. why the points identified
generate benefits to the company
• Reduced defects/better quality [k] so better reputation [an]

• Reduced stock holding [k] so less capital is tied up in stock [an]
• Fewer resource inputs [k] so lower unit costs [an]
• Reduced waste [k] so less space required for storing [an]
• Time saved [k] so greater output possible [an]
Note – Accept lower unit costs only once as an explanation.
(e) ‘If Earnshaw is to grow in the future then its unit production costs must fall’. Do you
agree? Justify your answer. [6]
Knowledge/application [2 × 1] – identification of relevant issues
Analysis [2] – award up to 2 marks for relevant development
Evaluation [2] – reasoned judgment made as to whether unit costs must fall as business
grows in future.

• Lower unit cost leads to potential higher mark-up [k] therefore higher profit [an]
• Lower prices can be charged [k] which might increase the number of sales [an]
• Economies of scale [k]
• Risk of diseconomies of scale [k]
Developed answer:
As a business grows it should benefit from economies of scale [k]. This, therefore would
mean the business can lower prices [k] which may encourage greater sales [an].Therefore
falling unit costs allow a business to grow. [ev] However, even if unit costs fall the business
may not be able to grow because the marketing for the business may be poor or there may
be increased competition [an] and this may restrict growth. [ev]
2 (a) Identify two examples of fixed costs for Muammar’s business. [2]
Application [2 × 1] award one mark per example.
Points include: rent/rates/insurance/interest charges/heating/utilities/salaries
Do not accept wages, table 1 specifies wages as $2 per box

Do not accept machinery unless the answer specifies the cost of machinery.

(b) Identify two reasons why sales may vary from month to month. [2]
Knowledge [2 × 1]: award one mark per reason.
Points include:
• nature of product
• seasonal reasons
• increased competition
• consumer tastes/fashion changes
• changes to marketing
• prices may have varied
Note – Do not accept ‘demand varies’ as a reason on its own because this is implicit in the
question. Answers need to give a reason as to why demand varies.
(c) Calculate the annual profit that Muammar made in 2012. [4]
Note: If the correct figure of 96 000 is not given, up to a maximum of 3 marks may be
awarded.
Calculations Monthly Annual Marks ($ not

required)
Sales $8 x 9 000 boxes 72 000 864 000 1 for either

Revenue 72 000 or
864 000
Variable cost ($2 + $3 + $1) x 54 000 648 000 1 for either

9 000 boxes 54 000 or
648 000
Fixed cost 10 000 120 000 0
Total cost Fixed costs + 64 000 768 000 2 for either

variable costs 64 000 or
768 000
Monthly Revenue – total 8 000 3 for 8 000

profit costs
Annual profit 96 000 4 for 96 000
• A candidate who gives the figure 9 600 has clearly calculated correctly but made one
error and should therefore be awarded 3 marks.
• Calculation of variable costs plus calculation of total costs gains only 2 marks
• Credit calculation using contribution method as follows: contribution is $2 [1] total
monthly contribution $18 000 [+1] monthly profit $8 000 [+1]
• Own figure rule (OFR) applies up to a maximum of 3 marks if only one error carried
forward.
If NO acceptable calculations allow 1 mark for understanding of profit [k] e.g. total revenue
– total cost [1]

(d) Identify and explain one advantage and one disadvantage to Muammar of using piece
rate to pay his workers. [6]
Knowledge [2 × 1] – award 1 mark for the advantage and 1 mark for the disadvantage
Analysis [2 × 2] – award 1 mark for analysis of impact [1] plus a further mark for showing
how it might be a benefit or not to the business

• Encourages high output [k] so productivity would increase [an] and increased output
means that extra goods can be sold [an]
• Motivating to the workforce [k] therefore less absenteeism [an]
• Saving on labour costs [k] as absent workers are not paid [an]
• Paid for what is produced [k] so costs directly controlled [an] therefore higher profits [an]
Disadvantages might include:

• Encourages speed [k] which may mean more mistakes [an] therefore more wastage [an]
• Lower quality goods [k] leading to a poor reputation [an] therefore loss of customers [an]
• Maybe discouraging for slower workers [k] increasing labour turnover [an] therefore
higher recruitment costs [an]
• The business may struggle to attract workers [k]
Note: points must relate to business benefit/costs not employees.
(e) Muammar is planning to change the selling price of the boxes to $7 each. Do you think
this change would benefit the business? Justify your answer. [6]
Knowledge/application [2] – identification of relevant issues
Analysis [2] – award up to 2 marks for explanations which explain how or why it might be an
issue. Accept calculation of relevant figures as analysis but this is not essential.
Evaluation [2] – reasoned judgement made as to whether the change in price will benefit
this business.

• Reduce profit margin per sale [k] which would increase break-even output [an] by 5 000
per month [an]
• Potential loss [k] of £1 000 profit per month [an] if sales do not rise[an]
• Lower price should increase volume of sales [k] as better able to compete with other
products [an]
• If product is price elastic [k] there should be a greater increase in sales [an]
• Cheaper price might suggest inferior quality [k] therefore less sales [an]
• May lead to a price war [k] as competitors may respond by cutting their prices [an]
Note – 1 knowledge point that is very well developed could gain 3 marks [1 k + 2 an]
Developed answer:
The price cut should increase volume of sales [k]. However the reduction would reduce the
profit margin per unit [k]. The impact on break-even would be to raise it from 5 000 units per
month to 10 000[an]. At present sales volume is 9 000 per month, which would be below the
new break-even point [an]. Whether it would benefit the business would depend on how
much the firm could increase production [ev] and how much sales rise [ev].

3 (a) What is meant by ‘market research’? [2]
Clear understanding [2]: e.g. process of finding out what consumers want or need before a
product is made. Or process of collecting, analysing and interpreting of information about the
market.
Some understanding [1]: e.g. find out what customers want.
Do NOT accept examples of primary or secondary research alone, these are only acceptable
as a development point.
(b) Identify two advantages of using secondary sources. [2]
Knowledge [2 × 1] one mark per advantage
Advantages may include:

• Cheaper than other sources
• Already available [time]
• May be on a larger scale than own research
(c) Identify and explain two methods of sampling that the company could use. [4]
Knowledge [2 × 1] – award 1 mark per method [max 2]
Application/analysis [2 × 1] – award 1 mark for each relevant explanation i.e. showing what
each method involves or how it is carried out.

• Random [k] every potential customer has an equal chance of being selected [an]
• Stratified [k] it might be useful for holiday companies to collect information about
customers from different social backgrounds [app]
• Quota [k] information collected from a set number of people representing different
groups [an]
• Systematic [k] people are selected from set criteria [an]
• Cluster [k] is targeting a particular population in a small area [an]

(d) Identify and explain two ways of segmenting the market for holidays that the company
could use. [6]
Knowledge [2 × 1] – award 1 mark for each way identified
Application [2 × 1] – award 1 mark if relevant reference made to this business
Analysis [2 × 1] – award 1 mark for relevant explanation i.e. shows how this grouping would
operate

• Age [k] population might be broken down into groups such as 18–30/65+ [an] different
age groups may prefer different types of holidays [app]
• Socioeconomic/income groups [k] people with high income will spend more [an] on
different types of holidays [app]
• Tastes/interests [k]
• Geographic [k]
• Culture/religious background [k]
(e) Yura believes that the price is the most important part of the marketing mix for
holidays. Do you think he is correct? Justify your answer. [6]
Analysis [2] – Explanation as to why the factor is important
Evaluation [2] – reasoned judgement made as to whether price is the most important part of
the marketing mix for holidays. This might involve considering whether one element is more
important than another.
For six marks there must be some reference to whether price is the most important factor.
• Price can help attract consumer [k]
• Price is only one element of the marketing mix [k]
• If the holiday does not appeal to customers [k] no-one would buy the holiday [an]
• Identification of other elements of the marketing mix [k]
Developed answer:
Price helps to attract consumers [k]. If the price is too high customers may go to a competitor
[an]. However, even if a holiday is cheap if the destination is unappealing [k] it will not sell
[an]. So price is an important element but not the only factor [ev]. The most important factor
depends upon the personal situation of the customer [ev].

4 (a) What is meant by ‘recession’? [2]
Clear understanding [2] – a sustained (over a period of time) reduction in national income/
output.
Some understanding [1] – ‘fall in output’ or ‘fall in national income’ or identifying the effects
of recession alone e.g. high unemployment.
Note: without some reference to ‘sustained’ or ‘over time’, reduction in national income as the
answer would only gain 1 mark. An answer which identifies only the effects of a recession
even with a sustained time period gains only 1 mark.
(b) Identify two possible reasons why national income per person has fallen between 2010
and 2012. [2]
Application [2 × 1] one mark per reason

• GDP fell
• Population rose
• GDP rose by less than population growth
• Unemployment rose
• Government wage restraints
Note: Do not accept wages by individual businesses as the question relates to national
income.
(c) Identify and explain two ways that a Government could help new businesses to start
up. [4]
Knowledge [2 × 1] – award 1 mark per way [max 2]
Analysis [2 × 1] – award 1 mark for each relevant explanation (i.e. show how the methods
would help encourage a start-up).

• Financial assistance in form of low interest loans/subsidy [k] so provide them with capital
that they need [an]
• Tax incentives [k] therefore potentially improved profitability/lower costs [an]
• Offer free advice and assistance [k] to improve chances of survival [an]
• Relaxed regulations [k] makes it simpler to set up [an]
• Training courses [k] providing the expertise to start up a business [an]
• Low rent from government [k]

(d) Identify and explain three external (social) costs that might be caused by an increase
in the number of businesses in country C. [6]
Knowledge [3 × 1] – award 1 mark for each cost identified
Application/analysis [3 × 1] – award 1 mark for each relevant explanation (i.e. show how
the cost is created by an increase in the number of businesses

• Pollution [k] may lead to a destruction of wildlife [an]
• Health issues [k] because of pollution [an]
• Congestion issues [k] caused by an increase in traffic [an]
• Resource depletion [k] because more raw materials are used [an]
• Loss of farm land/green areas [k] thus reducing the visual beauty of an area [an]
• Strain on existing infrastructure [k] communities get less power [an]
Note – Different types of pollution can only be awarded only once. [k]
(e) Do you think that new start-up businesses can be successful in country C? Justify
your answer. [6]
Analysis [2] – award up to 2 marks for relevant explanation e.g. developing the issues or
interpreting their meaning
Evaluation [2] – reasoned judgement made as to whether new start-up businesses can be
successful in country C

• They must provide goods and services which people want [k] which might be difficult in a
recession because people do not have the income to buy goods [an]
• They must understand the target market [k] for example some groups may have very
specific tastes and will only buy goods of a certain type [an]
• They must have the right marketing mix [k] because national income per person is falling
[an]
• Need right skills and experience to manage business [k] because new businesses are
more likely to fail [an]
• Sufficient financial support [k] to cover initial and ongoing costs [an]
• Depends on existing competition [k] because brand loyalty may be strong [an]
Developed answer:
New businesses will be successful if they can provide goods and services that are needed by
consumers [k]. Since the economy is facing falling GDP per head customers may not buy
new products [an]. Unemployment is rising [k] so it will be more difficult to set a price that
people can afford [an]. Whether new businesses can be successful depends on a range of
factors, not all of which a business can control [ev]. This is a particular problem in a country
that is going through a recession [ev].

5 (a) Identify two features of a partnership. [2]
Knowledge [2 × 1] one mark per feature

• Legal agreement between 2 or more people
• Owned and financed by partners
• Profits shared
• Unlimited liability [usually]
• Unincorporated
• Share risk of failure
(b) Identify two ways of measuring the success of a business. [2]
Knowledge [2 × 1] one mark per way
Points might include

• Objectives of owners met
• Acceptably high ROCE/profit margin
• Survival
• Market share
• Sales value or volume
• Level of profit earned
• Market leader
• A good reputation
• Growth
• High share price
(c) Identify and explain two reasons why the business might be finding it difficult to
compete against larger retailers. [4]
Knowledge [2 × 1] – award 1 mark per way [max 2]
Application [2 × 1] – award 1 mark for each relevant explanation (i.e. show why these points
make it difficult to compete against larger businesses)

• Lack of economies of scale [k] so prices charged by small businesses are higher [an]
• Lack of capital [k] to be able to market/advertise effectively [an]
• Less stock held [k] and therefore less consumer choice [an]
• Sales volume is low [k] therefore they need higher profit margins [an]
• Vulnerable to price wars [k] because of lower retained profit [an]

(d) Identify and explain three methods of promotion that the partnership could use to
increase sales. [6]
Knowledge [3 × 1] – award 1 mark for each method identified
Application/analysis [3 × 1] – award 1 mark for each relevant explanation (i.e. show how
the methods identified help increase sales.

• Advertising more widely [k] would increase consumer awareness [an]
• Sponsorship [k] improves the image of the business [an]
• Merchandising [k] increases the attractiveness of the product/service [an]
• Trade shows/events [k] reaching a wider target market [an]
• Public relations [k] improving the image [an]
• Promotional pricing (must indicate short term price cuts) [k] to encourage customers to
try your product/service [an]
• BOGOF/special offers [k] attract the customers to buy [an] as they feel they are gaining
more [an]
• Gifts [k] increases the value of the product to the customer [an]
• Competitions [k] encourages to buy more frequently [an] to have a chance of winning
[an]
Note – Accept examples of each bullet point once only.
(e) Consider the advantages and disadvantages of converting the partnership into a
private limited company. Recommend whether the partners should do this. Justify
your answer. [6]
Analysis [2] – award up to 2 marks for relevant explanations (e.g. discussion of points
considering their implication for the partnership)
Evaluation [2] – reasoned judgement made as to whether partners should convert the
business into a private limited company

• Access to more capital [k] as they are able to sell shares [an] or this will allow them to
expand [an]
• Lenders more likely to agree loans for private limited companies [k] as seen as lower risk
[an]
• Limited liability for owners [k] therefore private assets are secure [an]
• Continuity of existence [k] owners can retire knowing that the business will continue [an]
Disadvantages might include:

• Extra costs [k] as more legal requirements [an]
• Financial results are available [k] so competitors can see how well you are doing [an]
• Potential decrease in control of existing partners [k] as ownership may be shared
between more people [an]
Note: A one-sided answer, which considers only advantages or disadvantages, can gain a
maximum of three marks, if there is a reasoned decision.


INSERT
1 hour 45 minutes

DC (AC/JG) 63416/1
2
Yum Yum Food
Three years ago Shahila started a food stall called Yum Yum Food. She is a sole trader. The stall sells
hot food and is located in the centre of the capital city. This area has a lot of customers from local
workers and shoppers, as well as tourists. The business has many competitors in the area, but Shahila
has still made a good profit each year.
Shahila works many hours each day. She has three employees to help her serve customers and
prepare food. Shahila only buys high quality food ingredients, which are currently purchased from a
nearby wholesaler.
She wants to expand the business and has the following two options.
Option 1
Start up another food stall near the main football stadium. There is one football match each week when
many thousands of supporters come to the stadium. Forecasted customers are 500 per week and each
is forecast to spend an average of $2.
Option 2
Open a café (restaurant) in the city centre. Forecasted customers per week are 800 and each is
forecast to spend an average of $5.
Appendix 1
Forecast cost information per week ($)
Option 1 Option 2
Rent 50 1500
Wage costs 100 500
Food ingredient costs 300 1000
Local tax/licence 100 250
Appendix 2
Yum Yum food
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3
Appendix 3
Daily News October 2013
The football stadium in the capital city is to be used for other events. The football club has agreed to
rent out the stadium to be used for concerts and other sporting events. This should make better use of
the stadium which is currently only used for one football match each week.
It is predicted that the stadium will be used for an extra two or three events each week, even when the
football season has finished.
© UCLES 2013 0450/21/INSERT/O/N/13

4
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* 4 5 3 9 5 0 0 5 9 9 *

1 hour 45 minutes

DC (AC) 63415/3
2
1 (a) Identify and explain two possible reasons why Shahila wants to expand her business. For
Examiner’s
Reason 1: ........................................................................................................................ Use
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Explanation: .....................................................................................................................
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Reason 2: ........................................................................................................................
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Explanation: .....................................................................................................................
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...................................................................................................................................... [8]
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3
(b) If the business expands, Shahila will need to buy more food ingredients. Consider the For
advantages and disadvantages of buying from a wholesaler or buying directly from local Examiner’s
farmers. Recommend which option she should choose. Justify your answer. Use
Wholesaler: ......................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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Local farmers: ..................................................................................................................
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Recommendation: ............................................................................................................
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4
2 (a) Identify and explain two reasons why Shahila wants good quality food products to be For
served from her stall. Examiner’s
Use
Reason 1: ........................................................................................................................
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Explanation: .....................................................................................................................
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Reason 2: ........................................................................................................................
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Explanation: .....................................................................................................................
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© UCLES 2013 0450/21/O/N/13

5
(b) Shahila plans to promote her food stall. Consider the advantages and disadvantages of For
the following three methods of promotion. Recommend which one she should choose. Examiner’s
Justify your choice. Use
Competitions with prizes for customers: ..........................................................................
..........................................................................................................................................
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Giving out discount vouchers: ..........................................................................................
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Posters in local hotels: .....................................................................................................
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Recommendation: ............................................................................................................
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.................................................................................................................................... [12]

6
3 (a) Identify and explain two reasons why Shahila will have to pay a higher rent for a café in For
the centre of the city. Examiner’s
Use
Reason 1: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
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Reason 2: ........................................................................................................................
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Explanation: .....................................................................................................................
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© UCLES 2013 0450/21/O/N/13

7
(b) Consider the two options for expanding the business. Recommend which option Shahila For
should choose. Justify your choice by calculating the net profit per week for each option. Examiner’s
Use
Option 1 (food stall near football stadium): ......................................................................
..........................................................................................................................................
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Option 2 (café in centre of city): .......................................................................................
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Recommendation: ............................................................................................................
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8
4 (a) If Shahila chooses Option 2, then she will have to decide on the café opening hours. For
Identify and explain four factors which will affect the opening hours she chooses. Examiner’s
Use
Factor 1: ...........................................................................................................................
Explanation: .....................................................................................................................
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Factor 2: ...........................................................................................................................
Explanation: .....................................................................................................................
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Factor 3: ...........................................................................................................................
Explanation: .....................................................................................................................
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Factor 4: ...........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
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9
(b) Shahila will need to employ more workers if the business expands. Consider the For
advantages and disadvantages of the following methods of payment. Recommend Examiner’s
which method she should choose. Justify your answer. Use
Wage per hour: ................................................................................................................
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Sharing profits with the employees: .................................................................................
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Payment for each customer served: ................................................................................
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Recommendation: ............................................................................................................
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10
5 (a) Identify and explain two benefits to Shahila of keeping a short chain of command as the For
business expands. Examiner’s
Use
Benefit 1: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
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Benefit 2: ..........................................................................................................................
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Explanation: .....................................................................................................................
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...................................................................................................................................... [8]
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11
(b) The following three factors affect the success of Yum Yum Food. For each of the factors For
explain how sales are affected. Which factor do you think is likely to affect sales the Examiner’s
most? Justify your answer. Use
Unemployment increasing in the capital city: ...................................................................
..........................................................................................................................................
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Meat prices increasing: ....................................................................................................
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Government increases taxes: ..........................................................................................
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Factor affecting sales the most: .......................................................................................
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.................................................................................................................................... [12]
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© UCLES 2013 0450/21/O/N/13


components.
required.

1 (a) Identify and explain two possible reasons why Shahila wants to expand her business.
[8]
Content:
• increase profit
• increase sales
• to increase market share
• brand loyalty/reputation
• spread risks
• diversification
• economies of scale
1 mark for each reason identified (2 marks max). Up to two further marks are available for
explaining the reason. 2 application marks are also available.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each reason.

(4 marks × 2 reasons)
Possible application marks: food stall; café; meals; sole trader; hot food; shoppers/tourists;
high quality food ingredients; vegetables; wholesaler; football stadium; concerts/other
sporting events; financial information from Appendix 1.
Simple explanation: To gain more profit (1 mark for knowledge).
Developed explanation: To gain more profit (1) by selling more food either through another
food stall or by opening a café to increase sales revenue (1). As the
business is larger the costs may not increase in the same proportion
as sales revenue and therefore profit will increase (1).
Application: The application mark could be achieved as the answer makes

reference to food stall and café (1 application mark).

(b) If the business expands, Shahila will need to buy more food ingredients. Consider the
advantages and disadvantages of buying from a wholesaler or buying directly from
local farmers. Recommend which option she should choose. Justify your answer. [12]
Content:
Wholesaler • buy in small quantities • higher costs

• wider variety of goods • food more perishable as long
available chain of distribution
• advice given
• delivery available
• credit
Local farmers • support local economy • quality may be variable

• may be cheaper • may not have full range of food
• cut out wholesaler profit products
• fresh food • quantity available may be
seasonal
Level 1 – 1 mark for each statement

E.g. Shahila can buy the food ingredients in small quantities (1 mark)
Level 2 – 5 marks for the first level 2 answer and then one extra mark for each additional
level 2 answer up to maximum of 8 marks.
E.g. Shahila can buy the food ingredients in small quantities from the wholesaler
and will not need to store a lot of fresh vegetables which could go bad and be a
waste of money. 5 marks for level 2 answer plus 1 application mark for mentioning
fresh vegetables.
Level 3 – Detailed discussion of two × level 2 answers and then a recommendation at the
end which justifies which is the best option to choose and why the other option is
less suitable.
Possible application marks: wholesaler is nearby; food stall; café; meals; sole trader; fresh
food; vegetables; financial information from Appendix 1.


Two × Level 2 + well justified
recommendation as to the best option to
choose compared to the other option.

Well applied to the case. At least Good discussion of advantages/
two examples of references to, or disadvantages of each option OR
uses of, the case. balanced argument (even if listed).
Limited judgement in recommendation
about which option to choose.
NB do not reward mirror image
answers

Limited application to the case. At Advantages/disadvantages of each option
least one example of reference to, listed.

2 (a) Identify and explain two reasons why Shahila wants good quality food products to be
served from her stall. [8]
Content:
• good reputation
• repeat sales
• not be prosecuted
• more competitive
• charge a higher price
explaining each reason. 2 application marks are also available.

Possible application marks: many competitors in the area; food stall; café; meals; sole
trader; hot food; shoppers/tourists; high quality food ingredients; vegetables; football
stadium; concerts/other sporting events.
Simple explanation: To gain repeat food sales (1 mark for knowledge).
Developed explanation: To gain repeat food sales (1) as customers will be happy with good
quality food and be willing to keep coming back to buy food from the
stall (1). They may tell friends and these may also come to the stall
and this will increase sales and also profits (1).

reference to food sales (1 application mark).

(b) Shahila plans to promote her food stall. Consider the advantages and disadvantages
of the following three methods of promotion. Recommend which one she should
Content:
Competitions • encourages customers to buy • cost of the prize

with prizes for their food
customers • may attract customers from
competitors
• keep returning to the food stall
to keep entering the
competition
Giving out • encourages customers to come • sales revenue lost from the free
discount with a friend meal
vouchers • come back to use the voucher • cost of producing the meal
• image of poor quality food
Posters in • seen by some of the target • may not be seen by the rest of
local hotels market the target population
• may attract new people who • cost of printing and displaying
haven’t heard about the stall the poster
• the poster may be disfigured

E.g. Competitions encourage customers to try their food (1 mark).
E.g. Competitions encourage customers to try their food so that they will be
entered into the competition. However, Shahila will need to pay for a prize and this
will need to be an expensive prize or it will not encourage customers to buy meals
and it raises the business costs. 5 marks for level 2 answer plus 1 application mark
for mentioning meals.
end which justifies which is the best method of promotion to choose and why the
other ways are less suitable.
Possible application marks: food; meals; sole trader; hot food; shoppers/tourists; high
quality food ingredients; vegetables; concerts.


recommendation as to the best
method of promotion to use compared
to the other alternative ways.

Well applied to the case. At least two Good discussion of advantages/
examples of references to, or uses of, disadvantages of each promotional
the case. method OR balanced argument (even
if listed).
about which method to choose.

Limited application to the case. At Advantages/disadvantages of each
least one example of reference to, or method of promotion listed.
use of, the case.

3 (a) Identify and explain two reasons why Shahila will have to pay a higher rent for a café
in the centre of the city. [8]
Content:
• high demand for premises
• higher cost of purchasing the building by the landlord
• café premises more expensive than a food stall
• higher footfall (more customers in the area)
• more competitors in the area therefore more customers
explaining each reason. 2 application marks are also available.

Possible application marks: food stall; meals; sole trader; hot food; shoppers/tourists; high
quality food ingredients; local tax/licence.
Simple explanation: High demand for rental properties in city centres (1 mark for
knowledge).
Developed explanation: Demand for rental properties (1) is higher for city centre sites as the
areas have a lot of passing trade and therefore the cafes are likely
to have more customers (1). With so many customers food sales will
be high and therefore the owners of cafés will make a good profit
(1).

reference to food sales (1 application mark).

(b) Consider the two options for expanding the business. Recommend which option
Shahila should choose. Justify your choice by calculating the net profit per week for
each option. [12]
Content: Option 1 – Revenue per week = $1000 (L1)

Cost per week = $550 (L2)
Net profit per week = $450 (L2)
Option 2 – Revenue per week = $4000 (L1)

Cost per week = $3250 (L2)
Net profit per week = $750 (L2)

E.g. Revenue for option 1 per week is $1000 per week (1 mark)
E.g. The net profit for option 1 is $450 per week. 5 marks for each level 2 answer
calculating net profit for each option.
Level 3 – Detailed discussion of at least three level 2 answers and then a recommendation
at the end which justifies which option to choose and why not the other option.

Three × Level 2 + well justified recommendation as to which option to choose and
why not the alternative option. Used net profit calculations and included other
information from the case to support the decision, such as NPM Option 1 – 45%
and NPM Option 2 – 18.75% to support the recommendation.
Level 2 5–8 marks

Calculated net profits for each option.
Limited judgement in recommendation about which option to choose.
Level 1 1–4 marks

Calculated revenue for the options.
Basic statements made about the two options.

4 (a) If Shahila chooses Option 2, then she will have to decide on the café opening hours.
Identify and explain four factors which will affect the opening hours she chooses. [8]
Content:
• law
• competitors’ opening hours
• shoppers
• work patterns
• availability of employees
• cost of opening hours
1 mark for each factor identified (4 marks max). Up to one further mark is available for
explaining/applying the factor.
1 application mark + 1 explanation mark (2 marks × 4 factors)
E.g. The law (1) as the government has set laws which state when businesses can open a
café and how many hours it can remain open. (1)

(b) Shahila will need to employ more workers if the business expands. Consider the
advantages and disadvantages of the following methods of payment. Recommend
which method she should choose. Justify your answer. [12]
Content:
Wage per hour • easy to calculate • not related to effort

• staff know exactly how much • provides little additional
they will receive motivation for high
• gives some financial security performance as it is based on
to the workers just attending work
• may be seen as unfair by
hard working employees
Sharing profits • motivates employees • Shahila will get less of the

with the • may encourage the profit
employees employees to think about • less of a return on investment
how to make the business • does not provide income
more profitable security for staff
• does not add to costs of • difficult to work out the share
running the business – staff that should be allocated to
incomes paid out of profits staff and in what proportion
Payment for each • related to effort • may lead to poor quality

customer served • motivating service
• may be hard to work out each
week
• may encourage too much
competition between staff to
serve customers and not do
other work in the café

E.g. If workers are paid for each customer served then they will try to serve a lot of
customers (1 mark).
E.g. If workers are paid for each customer served then they will try to serve a lot of
customers. If the employees give good customer service then this might increase
the number of customers, increase sales revenue from meals sold and also
increase profit. 5 marks for level 2 answer plus 1 application mark for mentioning
meals.
end which justifies which is the best method of payment to use and why the other
methods are less suitable.

football stadium; concerts/other sporting events; financial information from Appendix 1.

recommendation as to the best method
of payment to use compared to the
other methods.

Well applied to the case. At least two Good discussion of advantages and
examples of references to, or uses of, disadvantages of each method of
the case. payment OR balanced argument (even
if listed).
about which is the best method of
payment to use.

Limited application to the case. At least Advantages/disadvantages of each
one example of reference to, or use of, method of payment listed.
the case.

5 (a) Identify and explain two benefits to Shahila of keeping a short chain of command as
the business expands. [8]
Content:
• communication is quicker
• manager is less remote
• span of control will be wider therefore more delegation
• more direct control of employees
1 mark for each benefit identified (2 marks max). Up to two further marks are available for
explaining the benefit to Shahila. 2 application marks are also available.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each benefit.

(4 marks × 2 benefits)
Possible application marks: food stall; café; meals; sole trader.
Simple explanation: Span of control will be wider therefore more delegation (1 mark for
knowledge).
Developed explanation: Span of control will be wider therefore more delegation (1).
Employees will have more varied jobs to do and therefore they will
be more motivated (1) and less likely to leave their job making food
at the food stall (1).

reference to food stall (1 application mark).

(b) The following three factors affect the success of Yum Yum Food. For each of the
factors explain how sales are affected. Which factor do you think is likely to affect
sales the most? Justify your answer. [12]
Content:
Unemployment increasing in easier to recruit employees – less pressure on wage

the capital city demands – keep prices down – less income so less
demand
Meat prices increasing increased costs – prices rise – less demand
Government increases taxes less disposable income – decreased sales

increased prices on food products – decreased demand

E.g. If unemployment increases then it will be easier to recruit new staff (1 mark).
E.g. If unemployment increases then it will be easier to recruit new staff. It also
means that there will be less pressure on wage increases and so Yum Yum may
be able to pay lower wages to new staff and hence reduce their costs of meals
thus increasing sales. 5 marks for level 2 answer plus 1 application mark for
mentioning meals.
Level 3 – Detailed discussion of two × level 2 answers and then a conclusion at the end
which justifies which affects sales the most and why the other factors are less
important.
high quality food ingredients; vegetables; football stadium; concerts/other sporting events;
financial information from Appendix 1.


conclusion as to what affects sales the
most compared to the other factors.

Well applied to the case. At least two Good discussion of how the factors
examples of references to, or uses of, affect sales.
the case. Limited judgement in conclusion as to
which factor affects sales the most.

Limited application to the case. At Relevant factors which affect sales are
least one example of reference to, or listed.
use of, the case.

* 7 2 7 7 6 8 0 9 4 4 *

1 hour 45 minutes

DC (AC) 63116/2
2
1 Kew Construction is a public limited company. It specialises in building large houses. Each For
house costs $30 000 to build and the company adds 40% to total cost to calculate the selling Examiner’s
price. Last year sales fell by $90m and dividends were reduced. The Human Resources Use
Director is worried: ‘If sales do not improve, I will need to make some workers redundant.
How can I decide which workers to make redundant?’
(a) What is meant by ‘dividends’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [2]
(b) Calculate the selling price of one house.
..........................................................................................................................................
...................................................................................................................................... [2]
(c) Identify and explain two disadvantages to a business of being a public limited company.
Disadvantage 1: ...............................................................................................................
..........................................................................................................................................
Explanation: ......................................................................................................................
..........................................................................................................................................
Disadvantage 2: ...............................................................................................................
..........................................................................................................................................
Explanation: ......................................................................................................................
...................................................................................................................................... [4]
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3
(d) Identify and explain three methods that Kew Construction could use to improve its level For
of sales. Examiner’s
Use
Method 1: .........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Method 2: .........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Method 3: .........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
...................................................................................................................................... [6]
(e) What do you think are the most important factors for the Human Resources Director to
consider when selecting which workers to make redundant? Justify your answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [6]

4
2 Gayle’s Soaps is a business which manufactures health and beauty products. Its market For
share has remained constant at 15% despite new businesses entering this market. The Examiner’s
business uses market segmentation. Most of its customers are women. The Marketing Use
manager believes the company could increase its profits if it increases the price of each of its
most popular products.
(a) What is meant by ‘market share’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [2]
(b) Identify two ways (other than gender) that Gayle’s Soaps could segment its market.
Way 1: ..............................................................................................................................
Way 2: ........................................................................................................................... [2]
(c) Identify and explain two advantages of market segmentation for Gayle’s Soaps.
Advantage 1: ....................................................................................................................
..........................................................................................................................................
Explanation: ......................................................................................................................
..........................................................................................................................................
Advantage 2: ....................................................................................................................
..........................................................................................................................................
Explanation: ......................................................................................................................
...................................................................................................................................... [4]
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5
(d) Identify and explain three problems that a business might have when trying to enter a For
new market. Examiner’s
Use
Problem 1: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Problem 2: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Problem 3: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
...................................................................................................................................... [6]
(e) Do you think that if Gayle’s Soaps decides to increase prices then this will lead to higher
profits? Justify your answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [6]

6
3 Sharma Machine manufactures motorcycles. The company is product orientated. Sharma For
Machine holds a lot of stock. The owner, Ishant, wants to increase productivity. Also the Examiner’s
company plans to open an additional factory to satisfy increased demand. ‘Expansion should Use
mean economies of scale’ said Ishant. ‘The right location for the new factory is going to be
important if the business is to remain competitive.’
(a) What is meant by ‘product orientated’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [2]
(b) Identify two possible economies of scale the business might benefit from if it expands.
Economy of scale 1: .........................................................................................................
Economy of scale 2: ..................................................................................................... [2]
(c) Identify and explain two possible problems for Sharma Machine of holding a lot of stock.
Problem 1: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Problem 2: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
...................................................................................................................................... [4]
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7
(d) Identify and explain three methods that Ishant could use to increase productivity. For
Examiner’s
Method 1: ......................................................................................................................... Use
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Method 2: .........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Method 3: .........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
...................................................................................................................................... [6]
(e) How important is the right location for the new factory in helping Sharma Machine to
remain competitive? Justify your answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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..........................................................................................................................................
...................................................................................................................................... [6]

8
4 Luxury Destinations owns three hotels in country X. The business spends a lot of money For
on staff training. The Finance Director is pleased with the financial position of the business. Examiner’s
‘However, the appreciation of our country’s currency and the Government’s plan to increase Use
taxes might cause problems to our business in the future’ he said.
Table 1: Luxury Destinations financial information ($000s)
2011 2012
Net profit 30 60
Fixed assets 300 350

Current assets 60 50
Current liabilities 60 75
(a) What is meant by ‘appreciation of our country’s currency’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [2]
(b) Calculate the current ratio in 2012.
..........................................................................................................................................
...................................................................................................................................... [2]
(c) Identify and explain two problems that an increase in taxes could cause for Luxury
Destinations.
Problem 1: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Problem 2: ........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
...................................................................................................................................... [4]
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9
(d) Identify and explain three benefits for Luxury Destinations of training its employees. For
Examiner’s
Benefit 1: .......................................................................................................................... Use
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Benefit 2: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Benefit 3: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
...................................................................................................................................... [6]
(e) Do you think the Finance Director is right to be pleased with the financial position of the
business? Justify your answer.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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..........................................................................................................................................
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...................................................................................................................................... [6]

10
5 AM Designs is a private sector business. It makes dresses. It is a successful business For

because it adds value. Amira is directly responsible for a team of 12 people. ‘I want to keep a Examiner’s
short chain of command but I do need a manager to help me. I must find someone with the Use
right qualities. All of my team are highly motivated and someone with the wrong management
style might cause problems.’
(a) What is meant by the ‘private sector’?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [2]
(b) Identify two ways that a business could increase added value.
Way 1: ...............................................................................................................................
..........................................................................................................................................
Way 2: ...............................................................................................................................
...................................................................................................................................... [2]
(c) Identify and explain two advantages of a short chain of command for Amira.
Advantage 1: ....................................................................................................................
..........................................................................................................................................
Explanation: ......................................................................................................................
..........................................................................................................................................
Advantage 2: ....................................................................................................................
..........................................................................................................................................
Explanation: ......................................................................................................................
...................................................................................................................................... [4]
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11
(d) Identify and explain three qualities that Amira might look for in a manager. For
Examiner’s
Quality 1: .......................................................................................................................... Use
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Quality 2: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
Quality 3: ..........................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
...................................................................................................................................... [6]
(e) Do you think that the management style of the new manager might cause problems?
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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...................................................................................................................................... [6]
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12
BLANK PAGE
© UCLES 2013 0450/11/M/J/13

MARK SCHEME for the May/June 2013 series

Cambridge is publishing the mark schemes for the May/June 2013 series for most IGCSE, GCE
Advanced Level and Advanced Subsidiary Level components and some Ordinary Level components.
This mark scheme includes a summary of appropriate content for answering each question. It should
be emphasised, however, that this material is for illustrative purposes and is not intended to provide a
definitive guide to acceptable answers. It is quite possible that among the scripts there will be some
candidate answers that are not covered directly by the content of this mark scheme. In such cases,
professional judgement should be exercised in assessing the merits of the answer.
Examples of possible answers are also included in this mark scheme. Again, it should be emphasised
that this is for illustrative purposes and the examples chosen represent only some of the many
possible responses that would merit reward.
1 (a) What is meant by ‘dividends’? [2]
Good knowledge [2] e.g. Payment to shareholders [1] from profits of a company [+1] Return
to shareholders for investing in the company [2]
Some knowledge [1] e.g. Payment to shareholders
(b) Calculate the selling price of one house. [2]
Correct answer [2] Method [1]
Price = cost + mark up [1] ($30 000 × 40%) + 30 000 [1] = $42 000 [2]
Note: $ not required
Do not credit $12 000 (the calculation of mark up) as it does not answer the question set
(c) Identify and explain two disadvantages to a business of being a public limited
company. [4]
Knowledge [2 × 1] – identification of disadvantage [1 mark per disadvantage]
Analysis [2 × 1] – explain how it is a disadvantage to a business
Disadvantages could include:

• have to disclose accounts [k] so less able to keep financial details secret from rivals
[an]
• many legal requirements/regulations [k] which is expensive and time consuming [an]
• selling shares expensive [k] because shares need to be listed on the stock market
• shares are freely traded [k] so there is a greater risk of takeover/danger that original
owners might lose control [an]

(d) Identify and explain three methods that Kew Construction could use to improve its
level of sales. [6]
Knowledge/ application [3 × 1] – identification of relevant method
Analysis [3 × 1] – explain how method might work to improve sales
Methods could include:

• lower price [k] so more people can afford to buy [an]
• enter new markets [k] to attract new customers [an]
• improve quality of product, e.g. train workers [k] to encourage interest [an]
• widen range of sizes [k] offer smaller structures to attract different customers [an]
• promotions, e.g. free carpets/curtains [k] therefore more people would be willing to buy
• advertise [k] to raise awareness [an]
• demonstrations at trade fairs [k] so potential customers can see the products and able
to ask questions [an]
• choose locations where demand is high [k]
Note: Do not accept any answer that could not be related to construction, e.g. packaging
(e) What do you think are the most important factors for the Human Resources Director to
consider when selecting which workers to make redundant? Justify your answer. [6]
Knowledge [2 × 1] – identification of factor(s)
Analysis/application [2] – explain why the factor should be considered
Evaluation [2] – justified decision made as to which are the most important factors
Factors could include:

• what is the job
• level of experience
• workers’ capabilities and skills
• disciplinary record
• length of service
• cost/salary
• amount of redundancy payments required
• productivity of workers
Look at what jobs are not needed anymore [k] and could be replaced by more efficient
machinery [an]. They need to see which workers are most productive [k] so that jobs can be
reduced without lowering productivity [an]. The main thing therefore has to be the overall cost
[ev] as they do not want to lose the most profitable workers [ev].

2 (a) What is meant by ‘market share’? [2]
Clear understanding [2] Percentage of the total market sales [1] held by one brand or
business [+1]
Some understanding [1] e.g. share of all sales made
(b) Identify two ways (other than gender) that Gayle’s Soaps could segment its market. [2]
Application [2 x 1]: 1 mark per way
Answers might include: age, lifestyle, geographical, income/social class, use – health or beauty
(c) Identify and explain two advantages of market segmentation for Gayle’s Soaps. [4]
Knowledge/application [2 × 1] – identification of relevant advantage
Analysis [2 × 1] – award one mark for each relevant explanation (i.e. showing how or why it
might be an advantage for GS)

• able to tailor any of the 4 Ps to specific needs of customer group [k] which should help
sales [an]
• identify gaps in the market [k]– so able to meet needs of new potential customers [an]
• use segmentation to sell more products [k] by targeting different brands to different
segments [an]
• research is made simpler [k] because you know who you need to ask [an]
(d) Identify and explain three problems that a business might have when trying to enter a
new market. [6]
Knowledge [3 × 1] – identification of problem
Analysis [3 × 1] – explain how or why it might cause problems for the business

• lack of knowledge of the market [k] so produce a product that is not wanted [an]
• issues of entering a foreign market e.g. language barriers/exchange rates [k]
• competitors’ reaction [k] could lead to price war [an]
• government laws [k] might restrict what they can sell [an]
• customer loyalty [k] might not switch to a new company’s products [an]
• cost of developing new products [k] leading to high price needing to be charged [an]/
cash flow issues [an]
• lack of suppliers [k] so unable to find enough materials [an]
• identification of suitable places to sell from [k] different products might sold in different
places [an]

(e) Do you think that if Gayle’s Soaps decides to increase prices then this will lead to
higher profits? Justify your answer. [6]
Knowledge [2] – knowledge of price/identification of issues
Application/analysis [2] – for development of points to explain how or why the profits are
affected
Evaluation [2] – justified decision made as to whether increased prices will lead to higher
profits

• demand might fall [k] because of price elasticity [an]
• brand loyalty [k] may mean people willing to pay [an] customers seem relatively loyal as
market share constant [ap]
• depends on the amount of price rise [k]
• level of competition [k] higher prices could see customers switch to lower priced rivals
[an]
• impact depends upon their monopoly power/market share
If the soap was of high quality [k] and the target customers were high income women [k] then
increasing the price would attract them [an] and make them think the soap is of high quality
[an]. So in this case increasing the price will increase the profits [ev] because the higher price
will match the image [ev]
Do not credit answers which discuss factors affecting profits in general with no link to prices

3 (a) What is meant by ‘product orientated’? [2]
Clear understanding [2] Business that focuses on making the product right [1] and then tries
to find customers to buy it [+1]
Some understanding [1] e.g. no market research done [1]
Firm concentrates upon quality or design of the product [1]
(b) Identify two possible economies of scale the business might benefit from if it expands.
[2]
1 mark per economy
Examples include: purchasing, financial, technical, risk bearing, marketing, managerial
Note: accept practical examples such as buying in bulk.
(c) Identify and explain two possible problems for Sharma Machine of holding a lot of
stock. [4]
Knowledge [2 × 1] – identification of problem [1 mark per problem]
Application/analysis [2 × 1] – explain how or why it might be a problem for SM

• cash flow/liquidity problems [k] as money held as stock [an]
• additional storage costs [k] as need more space [an]
• additional security costs [k] as valuable parts [ap]
• risk of obsolescence/wastage [k] because of new versions [an]
• risk of damage [k] as need to be stored which could increase costs [an]
Note: Do not accept any answer that could not be related to this type of business, e.g. sell
by dates
(d) Identify and explain three methods that Ishant could use to increase productivity. [6]
Knowledge [3 × 1]: identification of method [1 mark per method]
Application/analysis [3 × 1]: explanation of how method could help improve productivity

• replace workers with machines [k] – no need to rest/no drop in quality due to
tiredness [an]
• introduce more up to date technology [k] as less likely to break down [an]
• improve stock control/JIT [k] order only materials required so less time wasted [an]
• improve quality control [k] so less rework required/workers take more care [an]
• improve employee motivation (accept a practical example such as increased pay) [k]
so workers work faster to increase number produced [an]
• train staff [k] to be more efficient – so less mistakes/wasted resources [an]
• use TQM [k] so workers are more responsible for work [an]
• changing the way work is organised e.g. Kaizen, lean production, cell production

(e) How important is the right location for the new factory in helping Sharma Machine to
remain competitive? Justify your answer. [6]
Knowledge [2] – identification of points
Analysis/application [2] – explain how it would help Sharma be competitive
Evaluation [2] – justified decision as to how important the right location is help SM remain
competitive

• close to suppliers [k] – so less costs of transport [an]
• close to market [k] – so able to deliver goods more quickly [an]
• access to suitably qualified workers [k] – to ensure have best possible workers [an]
• where are rival companies [k] – external economies [an]
• laws [k]– can they set up [an]
• cost of site/access to utilities [k] – rent is fixed cost/need to install power etc. will add to
costs – all could lead to lower margin or need to set higher price [an]
Candidates may discuss a range of factors affecting competitiveness. This is creditable only
if linked to why location is not important.
They should locate in a place which has low rent [k] and easy access to transport links [k].
This will keep costs of production low [an] therefore SM will be able to keep its prices low [an]
and attract more sales. However, location by itself does not mean the business will always
be competitive [ev]. Buying from cheap suppliers may be a better way of keeping costs low
[ev].

4 (a) What is meant by ‘appreciation of our country’s currency’? [2]
Good knowledge/understanding [2]: Rise of exchange rate [2] or the value of the currency
rises/ [1] so it buys more of another currency than before [1]
Some understanding [1] e.g. currency buys more imports
Do not accept a definition of exchange rate as this is not answering the question
(b) Calculate the current ratio in 2012. [2]
Application [2] e.g. correct answer – 0.666 [2] Also accept 0.66, 0.67, 2:3 or 1:1.5 [2]
Correct method – Current assets / current liabilities or 50/75 [1]
(c) Identify and explain two problems that an increase in taxes could cause for Luxury
Destinations. [4]
Knowledge [2 × 1] – identification of problem [1 mark per problem]
Application/analysis [2 × 1] – explanation to show how problem might affect LD

• demand/sales may fall [k]
• suppliers may increase their prices [k] and therefore costs for the company could rise
[an]
• company may have to pay more tax [k] and therefore may decide to put their prices
up [an]
• consumers have less money to spend [k] therefore demand for holidays fall [an]
• lower profits [k] meaning lower returns for owners/less money to invest [an]
(d) Identify and explain three benefits for Luxury Destinations of training its employees. [6]
Knowledge [3 × 1] – identification of benefit [1 mark per benefit]
Application/analysis [3 × 1] – explanation to show how it might help LD

• better skills [k] – so more efficient workers
• workers know what they are doing [k] so likely to make fewer mistakes [an]
• more flexible [k] so business able to cover absence of other workers [an]
• able to offer better customer service [k] – so attract more customers [an]
• workers feel more valued [k] so improve the customer service offered [an]
• improved public image of the company [k] so likely to attract more workers/customers
[an]

(e) Do you think the Finance Director is right to be pleased with the financial position of
the business? Justify your answer. [6]
Knowledge [2] – identification of performance/issues [2 max]
Application/Analysis [2] – explanation to show how or why this is an issue for LD.
Interpretation of relevant ratio or manipulation of figures/data to explain what it shows
Evaluation [2] – justified decision made as whether LD should be pleased about the
financial position

• expenses have decreased [k] by $5000 [an]
• working capital has decreased [k] by $25 000 [an]
• net profit increased [k] therefore expenses must have fallen [an]
• gross profit increased [k]
• liquidity has fallen [k] by 0.33% [an]
• increase in fixed assets [k] which might increase output [an]
• current ratio for 2011: 60/60, for 2012: 50/75 [k] therefore they may struggle to pay their
short term debts [an]
The current ratio has decreased [k]. This means they are more at risk of bankruptcy [an].
However, their net profit has doubled [k] which means the company has improved by cutting
their overheads [an]. Although the current ratio is bad they have plenty of fixed assets to
cover their debts [ev] and efficiency has increased therefore the finance director should be
pleased [ev].

5 (a) What is meant by the ‘private sector’? [2]
Good knowledge [2]: When business activities are owned by individuals [2]
Some knowledge [1] e.g. run by individuals OR not controlled directly by government OR aim
to make a profit OR controlled by person/group of people
(b) Identify two ways that a business could increase added value. [2]
Knowledge [2 x 1] 1 mark per way
Ways could include: turning raw materials into finished goods/branding/packaging/adding

extra features to products/USP/improved design
(c) Identify and explain two advantages of a short chain of command for Amira. [4]
Knowledge [2 × 1] – identification of advantage [1 mark per advantage]
Application [2 × 1] – explanation to show why it might be an advantage for Amira

• communication is quicker [k] – so less chance of messages being distorted or lost as
messages have fewer levels to pass through [an]
• decision making is quicker [k] therefore efficiency is improved
• wider span of control [k] – so more choice of who to delegate to [an]
• worker’s motivation could increase [k] so productivity/commitment rises [an]
(d) Identify and explain three qualities that Amira might look for in a manager. [6]
Knowledge [3 × 1] – identification of quality [1 mark per quality]
Application/analysis [3 × 1] – explain why it is a necessary quality for someone in Amira’s

business
Qualities might include:

• effective communication skills [k] – they will have to manage 12 people [app]
• approachable [k] – as need to deal with a small team of workers [app]
• experienced [k] – so will need to respond to workers’ specific questions [app]
• knowledgeable/patience [k]
• well organised [k]

(e) Do you think that the management style of the new manager might cause problems?
Knowledge [2] – identification of points
Application/analysis [2] – explanation to show how or why this is an issue
Evaluation [2] – justified decision made as whether management style used might cause
problems

• autocratic [k] by being controlling the manager might demotivate staff [an]
• laissez-faire [k] workers might not have the guidance they need [an]
• workers might dislike the management style [k] therefore could leave the company [an]
• manager may have a different style to Amira’s [k] which could create conflict within the
business [an]
An autocratic leadership style [k] would definitely not suit them [ev] as employees may feel
demotivated [an]. However as employees are highly motivated [k] they could adapt to any
leadership style [an] and therefore the management style is not important [ev].


INSERT
1 hour 45 minutes

DC (SJF) 63096/3
2
Ted’s Tools (TT)
TT is a chain of shops which sell tools such as hammers, screwdrivers, electric drills and saws. The
business was started 20 years ago as a partnership between 2 friends, Ted and Mustafa.
TT has 10 shops. There are 2 shops in each main city in country A. The business has grown by
reinvesting profits and opening a new shop every 2 years. Each shop employs a shop manager and 5
shop assistants. The shops open 10 hours a day for 6 days a week.
Most of TT’s customers are people who are building or repairing their own houses. The tools and
equipment TT sells are cheap but low quality. As a result of this, few building firms and construction
companies buy from TT. Most building firms only buy high quality tools and equipment that will last a
long time.
Appendix 1
Competitor’s Advertisement – Ed’s Equipment
Tools and equipment for home and business use – we sell or rent!
Tired of buying tools that you only use a few times? Tired of buying tools which
break after using them a few times? Then here is the answer…. For all your
needs when building or repairing your house come to Ed’s Equipment.
• Rent the tools you need for half the cost of buying them.
• All high quality tools as used by construction companies.
• Tools are reliable and high quality.
• Trade credit is available to business customers.
• Large range of tools in our big shop.
Visit us at our shop on Main Road, New City, 3210997. Telephone: 377228665.
© UCLES 2013 0450/21/INSERT/M/J/13

3
Appendix 2
Cash flow forecast for TT ($000s) for the second half of 2013
July August September October November December

Opening bank balance 1000 1100 1650 1550 1350 y
Cash inflows:
Cash sales 1000 1100 400 300 300 500
Credit sales 100 100 100 100 100 100
Total cash inflows 1100 1200 500 400 400 600
Cash outflows:
Stock 600 250 200 200 300 500
Wages 100 100 100 100 100 100
Overheads 300 300 300 300 300 300
Total cash outflows 1000 650 600 600 700 900
Net cash flow 100 550 x (200) (300) (300)
Closing bank balance w 1650 1550 1350 1050 z
Figures in brackets are negative.
Appendix 3
Daily News May 2013
The recent bad weather has caused much damage to buildings in all of the main cities in country A.
Strong winds are unusual at this time of year.
The Government estimates that the repairs will cost several million dollars. Many construction
companies will welcome the increased number of customers, as the economy has been going through
a recession and this has affected the building industry. Several new businesses might set up in the
industry.
© UCLES 2013 0450/21/INSERT/M/J/13

4
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© UCLES 2013 0450/21/INSERT/M/J/13

* 4 9 8 8 6 3 8 5 3 1 *

1 hour 45 minutes

DC (SJF) 63095/2
2
1 (a) Country A is a market economy where there is little Government regulation. Identify and For
explain one advantage and one disadvantage to TT of trading in this type of economy. Examiner’s
Use
Advantage: .......................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Disadvantage: ..................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
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3
(b) TT has 10 small shops. Consider the advantages and disadvantages of operating For
several small shops rather than 1 large shop. Do you think Ted was right to open Examiner’s
10 small shops rather than 1 large shop? Justify your answer. Use
Several small shops: ........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
One large shop: ...............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]

4
2 (a) TT buys stock from manufacturers in other countries. Identify and explain two possible For
advantages to TT of importing its stock. Examiner’s
Use
Advantage 1: ....................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Advantage 2: ....................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
© UCLES 2013 0450/21/M/J/13

5
(b) Ted and Mustafa want to increase the sales revenue from TT shops. There are three For
options listed below. Consider the advantages and disadvantages of each of these Examiner’s
options and recommend which option you think Ted and Mustafa should choose. Justify Use
your answer.
Rent tools to customers instead of selling the tools: ........................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Sell high quality tools to construction businesses: ...........................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Start to also sell paint and decorating equipment in the shops: ......................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]

6
3 (a) Ted and Mustafa want to open another shop. Identify and explain four factors they For
should consider when choosing a location for the new shop. Examiner’s
Use
Factor 1: ...........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Factor 2: ...........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Factor 3: ...........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Factor 4: ...........................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
© UCLES 2013 0450/21/M/J/13

7
(b) Refer to the cash flow forecast in Appendix 2. For

Examiner’s
(i) Calculate the values of w, x, y and z and write your answers below. Use
w: ..............................................................................................................................
x: ..............................................................................................................................
y: ..............................................................................................................................
z: ........................................................................................................................... [4]
(ii) Comment on two ways the cash flow position could be improved. Recommend the
best way for Ted and Mustafa to improve the cash flow over the next 6 months.
Way 1: .......................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
Way 2: .......................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
Recommendation: ....................................................................................................
..................................................................................................................................
..................................................................................................................................
.............................................................................................................................. [8]

8
4 (a) Governments can pass laws to protect employees. Identify and explain two ways For
employment laws might benefit employees in TT’s shops. Examiner’s
Use
Way 1: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Way 2: ..............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
© UCLES 2013 0450/21/M/J/13

9
(b) The job of shop manager for a new shop will be advertised either in the national For
newspaper, on posters in TT shops or on TT’s website. Consider the advantages and Examiner’s
disadvantages of each of these options to advertise the job. Recommend which option Use
you think will be the best. Justify your answer.
National newspaper: ........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Posters in TT shops: ........................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
TT's website: ....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]

10
5 (a) Refer to Appendix 3. Identify and explain two possible effects on TT’s business of the For
recent bad weather. Examiner’s
Use
Effect 1: ............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Effect 2: ............................................................................................................................
..........................................................................................................................................
Explanation: .....................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................... [8]
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11
(b) Mustafa wants to leave the partnership next year. Ted is considering three options For
listed below. Consider the advantages and disadvantages of each of these options. Examiner’s
Recommend which option you think Ted should choose. Justify your answer. Use
Start a new partnership with another partner: .................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Become a sole trader: ......................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Form a private limited company: ......................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
Recommendation: ............................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
.................................................................................................................................... [12]
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12
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© UCLES 2013 0450/21/M/J/13


required.

1 (a) Country A is a market economy where there is little Government regulation. Identify
and explain one advantage and one disadvantage to TT of trading in this type of
economy. [8]
Content:
Advantage to TT
freedom to set prices; few laws to restrict business activity; few restrictions,
Disadvantage to TT
highly competitive market; no control over anti-competitive prices; no control over
monopolies; no government grants.
1 mark for each advantage/disadvantage identified (2 marks max). Up to two further marks
are available for explaining the advantage/disadvantage. 2 application marks are also
available.
1 knowledge mark + up to 2 explanation marks + 1 mark for advantage/disadvantage

(4 marks × 1 advantage and 4 marks × 1 disadvantage).
Possible application marks: tools; equipment; retail establishment; partnership; small/large

shops; shop assistants; 10 shops; reinvested profits; build or repair own houses;
construction companies; bad weather; damage to buildings; recession.
Simple explanation: There is no government control over the activities of large

dominant competitors. (1 mark for knowledge)
Developed explanation: There is no government control over the activities of large

dominant competitors (1). These companies might undercut TT
prices to drive them out of business (1). TT will not be able to
compete with the large shops and this will decrease both sales and
profit (1).

reference to large shops. (1 application mark)

(b) TT has 10 small shops. Consider the advantages and disadvantages of operating
several small shops rather than 1 large shop. Do you think Ted was right to open 10
small shops rather than 1 large shop? Justify your answer. [12]
Content:
10 small shops advantage

can meet local needs; convenient for local customers; covers a wider area; better customer
satisfaction than large shops;
Disadvantage
higher fixed costs; higher distribution costs; increased number of employees;
Large store advantage

economies of scale; staff savings; lower transport costs;
Disadvantage
further for customers to travel; greater loss if shop has to close;

E.g. The manager of a small shop can respond to the needs of local people.
(1 mark)
level 2 answer up to a maximum of 8 marks.
E.g. The manager of a small shop can respond to the needs of local people by
buying tools and equipment which are required by these customers. These
customers can expect to always find what they want at the shop and therefore
become loyal customers and so sales revenue will increase. 5 marks for level
2 answer plus 1 application mark for mentioning tools and equipment.
Level 3 – Detailed discussion of two × level 2 answers and then a recommendation at

the end which justifies which is the best option and why the other way is less
suitable.
Possible application marks: tools; equipment; retail establishment; partnership; reinvested

profits; build or repair own houses; construction companies; bad weather; damage to
buildings; recession; reference to staff numbers; located in capital/main city.


Two × Level 2 + Well justified recommendation
as to the best option compared to the other
option.

Well applied to case. At least Good discussion of advantages/disadvantages
two examples of reference to, of each of the options OR balanced argument
or use of, the case. (even if listed).
Limited judgement in the recommendation as
to the best option.

Limited application to the Advantage/disadvantage of each option stated.
case. At least one example of
reference to, or use of, case.

2 (a) TT buys stock from manufacturers in other countries. Identify and explain two
possible advantages to TT of importing its stock. [8]
Content:
• lower prices
• higher quality
• wider range
• branded products
• favourable exchange rate
• ethical considerations
1 mark for each advantage identified (2 marks max). Up to two further marks are available
for explaining the advantage. 2 application marks are also available.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each advantage.

(4 marks × 2 advantages)
Possible application marks: tools; equipment; retail establishment; small/large shops;

reinvested profits; build or repair own houses; construction companies; Country A.
Simple explanation: The price of imported stock is cheaper. (1 mark for knowledge)
Developed explanation: The price of imported stock is cheaper (1) and this means TT can
sell their tools and equipment at a cheaper price (1). TT will be
more competitive than other shops and this will increase both
sales and profit (1).

reference to tools and equipment. (1 application mark)

(b) Ted and Mustafa want to increase the sales revenue from TT shops. There are three
options listed below. Consider the advantages and disadvantages of each of these
options and recommend which option you think Ted and Mustafa should choose.
Content:
Rent tools to customers instead of selling the tools

Adv – cheaper for customer; leads to increased sales; increased revenue from stock.
Disadv – high set up costs; repair damaged tools; non-return of tools; may lead to lower
sales of tools.
Sell high quality tools to construction businesses

Adv – attract a different market; increased sales.
Disadv – very competitive market; less expertise; higher cost to purchase of tools.
Start to also sell paint and decorating equipment in the shops

Adv – sell more products to new customers; encourage increasing sales of existing stock.
Disadv – limited expertise; possibly lower profit margin.

E.g. Renting drills is cheaper for the customers which means sales could
increase. (1 mark)
E.g. Renting drills is cheaper for the customers which means rentals could
increase. Because there are more rentals it will lead to higher revenue from
each drill and so sales revenue will increase leading to higher profits. 5 marks
for level 2 answer plus 1 application mark for mentioning drills.

the end which justifies which is the best option and why the other way is less
suitable.
Possible application marks: retail establishment; partnership; small/large shops; reinvested

profits; build or repair own houses; building firms; bad weather; damage to buildings;
recession.


as to the best way to increase sales revenue
compared to the alternative ways.

two examples of reference to, of each way to increase sales revenue OR
or use of, the case. balanced argument (even if listed).
Limited judgement in the recommendation as
to the best way to increase sales revenue.

Limited application to the Advantage/disadvantage of each way to
case. At least one example of increase sales revenue stated.

3 (a) Ted and Mustafa want to open another shop. Identify and explain four factors they
should consider when choosing a location for the new shop. [8]
Content:
competition; rent; size; complementary business; labour/workers; power supply; security;
customer parking; customer access; delivery access; government/planning restrictions; tax
incentive/subsidy; environmental/external costs
explanation/analysis. 1 mark for each factor identified (4 marks max). Up to one further mark
is available for explaining how the factor affects the location decision.
1 knowledge mark + 1 explanation mark (2 marks × 4 factors)
E.g. The rent for the property available (1) as a high rent might mean costs might be too high
as these would have to be passed on in the form of higher prices. (1)
(b) Refer to the cash flow forecast in Appendix 2.
(i) Calculate the values for w, x, y and z and write your answers below. [4]
Content:
w = $1 100 000 – 1 mark
x = $–(100 000) – 1 mark
y = $1 050 000 – 1 mark
z = $750 000 – 1 mark deduct 1 mark max if 000s are omitted.
E.g. if two right answers with 000s missing then 1 mark max.
(ii) Comment on two ways the cash flow position could be improved. Recommend
the best way for Ted and Mustafa to improve the cash flow over the next six
months. Justify your answer. [8]
Content:
Increase the cash inflows (1) – e.g. increase cash sales (1)
Reduce the cash outflows (1) – e.g. reduce overheads; obtain trade credit (1)
The answer should not refer to profit or loss – the focus is purely cash flow.
Solutions should be realistic for a sixth month period i.e. not long term solutions.


E.g. Increase cash sales (1 mark)
E.g. The amount of cash flow at the end of each month is decreasing as the
outflows are greater than the inflows in September through to December and
so the business needs to find ways to increase the cash sales in these months
to increase the inflows (L2). However, if it increases advertising to try to
encourage more sales then it may increase the outflows from advertising
expenditure as well as stock purchases and so inflows will need to be greater
than outflows for the cash flow to improve (L2).
6 marks for good level 2 answer.
Level 2 5–8 marks

Discussion of how the cash flow forecast position can be improved.
Judgement about the best way to improve the cash flow position. Max 7 marks
if no justified recommendation.
Level 1 1–4 marks


4 (a) Governments can pass laws to protect employees. Identify and explain two ways
employment laws might benefit employees in TT’s shops. [8]
Content:
minimum wage; health & safety; unfair dismissal; discrimination; working conditions;
hours/breaks; holidays;
1 mark for each way identified (2 marks max). Up to two further marks are available for
explaining each way. 2 application marks are also available.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each way.

(4 marks × 2 ways)
Possible application marks: tools; equipment; retail establishment; 10 hours and 6 days’
work; tool hire; 10 shops; Country A.
Simple explanation: The government protects employees against unfair dismissal.

(1 mark for knowledge)
Developed explanation: The government protects employees against unfair dismissal (1)
so sales staff should not be dismissed without good reason (1) or
they can take TT to court to get compensation or reinstatement (1).

reference to sales staff. (1 application mark)

(b) The job of shop manager for a new shop will be advertised either in the national
newspaper, on posters in TT shops or on TT’s website. Consider the advantages and
disadvantages of each of these options to advertise the job. Recommend which
option you think will be the best. Justify your answer. [12]
Content:
National newspaper – Adv – seen by a large number of people across the country
Disad – expensive
Poster in TT shops – Adv – cheap; colourful; attracts attention

– Disad – only seen by local people
Internet – Adv – quickly updated; applications online

Disad – not necessarily seen by suitable people; not everyone can
access the internet

E.g. National newspapers will be seen by many people across the country.
(1 mark)
E.g. National newspapers will be seen by many people across the country.
Potential applicants will see the advert and so a greater number of suitable
people who know how to manage a retail establishment will apply for the job of
shop manager and hence they are more likely to recruit a suitable manager.
5 marks for level 2 answer plus 1 application mark for mentioning retail
establishment.

the end which justifies which is the best place to advertise and why the other
places are less suitable.


construction companies; recession.

Two × Level 2 + Well justified recommendation as to
the best place to advertise the job compared to the
other alternative ways.

Well applied to case. Good discussion of advantages/disadvantages of
At least two each place to advertise the job OR balanced
examples of argument (even if listed).
reference to, or use Limited judgement in the recommendation as to the
of, the case. best place to advertise the job.

Limited application Advantages/disadvantages of each place to
to the case. At least advertise the job stated.
one example of
reference to, or use
of, case.

5 (a) Refer to Appendix 3. Identify and explain two possible effects on TT’s business of the
recent bad weather. [8]
Content:
increased demand for construction work; more sales; more profits; imports delayed; more
businesses set up in competition; damage to TT shops.
1 mark for each effect identified (2 marks max). Up to two further marks are available for
explaining each effect. 2 application marks are also available.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each effect.

(4 marks × 2 effects)
Possible application marks: new businesses setting up/competition increased; tools;

equipment; retail establishment; partnership; small/large shops; reinvested profits; build or
repair own houses; construction companies; damage to buildings; recession.
Simple explanation: There is an increased demand for the construction of new houses.
(1 mark for knowledge)
Developed explanation: There is an increased demand for the construction of new houses
(1) and this will lead to an increased demand for tools and
equipment by the construction businesses (1). If TT is competitive
then sales revenue should increase and so should their profits (1).

reference to houses, tools and equipment. (1 application mark)

(b) Mustafa wants to leave the partnership next year. Ted is considering three options
listed below. Consider the advantages and disadvantages of each of these options.
Recommend which option you think Ted should choose. Justify your answer. [12]
Start a new partnership with another partner

Become a sole trader
Form a private limited company
Content:
Partnership
Adv – additional capital; additional skills; shared workload
Disad – still unlimited liability; liable for partner’s actions; no continuity
Sole trader
Adv – own boss; keep all profits
Disad – limited capital; makes all the decisions; may not have all the necessary
skills
Limited company
Adv – limited liability; increased capital
Disad – legal requirements; less privacy with accounts; only sell shares to family
and friends

E.g. If Ted stays as a partnership then he will have additional capital from the
new partner. (1 mark)
E.g. If Ted stays as a partnership then he will have additional capital from the
new partner. The new partner can also help to run the shops and may have
previous retail experience. They can therefore help to improve the business
and means that Ted isn’t on his own. 5 marks for level 2 answer plus 1
application mark for mentioning retail experience.

the end which justifies which is the best option to choose and why the other
options are less suitable.

reinvested profits; build or repair own houses; construction companies.


as to the best option to choose compared to the
other alternative options.

two examples of reference to, of each option OR balanced argument (even if
or use of, the case. listed).
Limited judgement in the recommendation as to
the best option to choose.

Limited application to the Advantages/disadvantages of each option
case. At least one example of stated.
case.

Cambridge International Examinations
Cambridge International General Certificate of Secondary Education
* 4 2 9 6 9 9 8 0 6 8 *

1 hour 45 minutes
Do not use staples, paper clips, glue or correction fluid.

The syllabus is approved for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate.
DC (CW/SW) 79706/2
2
1 Anouk is a sole trader. She designs and makes jewellery at home, using hired (rented) equipment.
Anouk enjoys selling the jewellery at local markets. Last year her sales revenue increased by $500
to $3000. She plans to use $50 for a marketing budget. Anouk would like to do some primary
market research when she has time. Anouk thinks she should have a business partner.
(a) What is meant by a ‘marketing budget’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(b) Identify two methods of primary market research that Anouk could use.
Method 1: ..................................................................................................................................
Method 2: ..............................................................................................................................[2]
(c) Identify and explain two possible advantages for Anouk of hiring equipment.
Advantage 1: .............................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Advantage 2: .............................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...............................................................................................................................................[4]
© UCLES 2014 0450/11/M/J/14

3
(d) Identify and explain two disadvantages to Anouk of having a business partner.
Disadvantage 1: ........................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Disadvantage 2: ........................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Anouk could use either leaflets or local newspaper advertising as methods of promoting her
jewellery. Recommend which method you think Anouk should use. Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]

4
2 Keypeople is a recruitment agency which only operates in one small town in country Z. Its owner,
Rachel, and her two employees know that good customer service is important. Rachel would like to
expand her business. Keypeople offers a variety of human resource services to other businesses,
such as recruiting employees and preparing employment contracts. Rachel has been asked by a
local manufacturing business to recruit a senior manager.
(a) Identify two examples of tertiary sector business activity in your country, other than a
recruitment agency.
Example 1: ................................................................................................................................
Example 2: ............................................................................................................................[2]
(b) Identify two reasons why good customer service is important for Keypeople.
Reason 1: .................................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
...............................................................................................................................................[2]
(c) Identify and explain two reasons why employment contracts are used by businesses.
Reason 1: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Reason 2: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...............................................................................................................................................[4]
© UCLES 2014 0450/11/M/J/14

5
(d) Identify and explain two stages in the recruitment process of the manager’s job for the
manufacturing business.
Stage 1: ....................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Stage 2: ....................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Do you think Rachel should expand Keypeople? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]

6
3 HPT makes frozen food products. The Finance Director wants to improve HPT’s cash flow position.
Table 1 is an incomplete cash flow forecast for the next 3 months. The Finance Director thinks HPT
should not use expensive packaging. He is also worried that new Government health & safety laws
will not benefit the company and will only add to its costs.
Table 1: Cash flow forecast ($000’s)
Month 1 Month 2 Month 3

Opening balance (50 000) (30 000) (40 000)
Cash inflows 200 000 180 000 200 000
Cash outflows:
Wages 60 000 60 000 60 000
Packaging 20 000 20 000 20 000
Raw materials 45 000 55 000 45 000
Fixed costs 55 000 55 000 55 000
Total cash X 190 000 180 000
outflows
Net cash flow 20 000 Y 20 000
Closing balance (30 000) (40 000) (20 000)
Note: numbers in brackets are negative.
(a) Identify two fixed costs that HPT might have.
Fixed cost 1: ..............................................................................................................................
Fixed cost 2: ..........................................................................................................................[2]
(b) Calculate the following.
Month 1 total cash outflows (X): ................................................................................................
...................................................................................................................................................
Month 2 net cash flow (Y): ........................................................................................................
...............................................................................................................................................[2]
(c) Identify and explain two benefits to HPT of having a cash flow forecast. You should refer to
Table 1 in your answer.
Benefit 1: ...................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Benefit 2: ...................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...............................................................................................................................................[4]
© UCLES 2014 0450/11/M/J/14
7
(d) Identity and explain two reasons why packaging might be important for HPT.
Reason 1: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) The Finance Director is worried that new Government health & safety laws will not benefit the
company and will only add to its costs. Do you agree? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]

8
4 The economy of country U is in recession. The Government has cut interest rates to attract
businesses to set up in country U. JWR is a large multinational energy company. JWR may decide
to open a power station in country U. The Government thinks that opening a new power station will
create many external benefits. Some pressure groups do not want companies like JWR operating
in their country.
(a) Identify two features of a recession.
Feature 1: ..................................................................................................................................
...................................................................................................................................................
Feature 2: ..................................................................................................................................
...............................................................................................................................................[2]
(b) Identify two effects of a cut in interest rates on businesses like JWR.
Effect 1: .....................................................................................................................................
...................................................................................................................................................
Effect 2: .....................................................................................................................................
...............................................................................................................................................[2]
(c) Identify and explain two actions that pressure groups could use to influence JWR’s decision.
Action 1: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Action 2: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...............................................................................................................................................[4]
© UCLES 2014 0450/11/M/J/14

9
(d) Identify and explain two external benefits as a result of opening a new power station in
country U.
External benefit 1: .....................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Do you think that the Government of country U should try to attract multinational businesses?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]

10
5 Callow is a large retail business based in country X. ‘Our employees are an important stakeholder’,
said the Managing Director. ‘To make sure we stay profitable we need to motivate them.’ Callow
trains all of its shop employees by using off the job training.
Fig. 1: Callow Organisation Structure
Managing Director
HR Director Finance Director Operations Director Marketing Director
West Region South Region North Region East Region

Manager Manager Manager Manager
Shop Managers × 6
Department Managers × 4
Supervisors × 2
Sales Assistants × 8
(a) Identify two stakeholder groups, other than employees.
Stakeholder group 1: .................................................................................................................
Stakeholder group 2: .............................................................................................................[2]
(b) Identify two functions of management that each shop manager will have to perform.
Function 1: ................................................................................................................................
Function 2: ............................................................................................................................[2]
(c) Identify and explain two features of Callow’s organisational structure.
Feature 1: ..................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Feature 2: ..................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[4]
© UCLES 2014 0450/11/M/J/14
11
(d) Identify and explain two possible methods that Callow could use to improve the motivation of
its employees.
Method 1: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Method 2: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Do you think it is a good idea for Callow to use off the job training for all its shop employees?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
© UCLES 2014 0450/11/M/J/14

12
BLANK PAGE
Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local
Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.
© UCLES 2014 0450/11/M/J/14


1 (a) What is meant by a ‘marketing budget’? [2]

Good knowledge: [2] e.g. a financial plan or forecast for the marketing of a product for a
specified period of time
Some knowledge: [1] e.g. a financial plan or sum of money put aside for marketing
(b) Identify two methods of primary market research that Anouk could use. [2]
Application [2 × 1] 1 mark per method
Methods could include: Questionnaires/survey, interviews, observations, focus group
Do not accept marketing agency or field research as these are not appropriate for a small
business.
(c) Identify and explain two possible advantages for Anouk of hiring equipment. [4]
Knowledge [2 × 1] – award 1 mark for each relevant advantage
Application [2 × 1] – award 1 mark for each relevant different explanation

• No need to spend a lot of money to buy equipment [k] might be too expensive for a sole
trader [app]
• Easier to update or change equipment as required [k] if she designs a new piece of
jewellery she does not have to buy more equipment [app]
• Able to afford the best equipment [k] to help her to make her jewellery more
efficiently[app]
• If the machine is broken Anouk does not have to pay owner cost of repair [k] as a small
business owner she does not have much money [app]
• Machinery is only rented when needed [k] so saving space at home [app].
Note: Do not accept cheaper or saves costs as these are too vague.
(d) Identify and explain two disadvantages to Anouk to having a business partner. [6]
Knowledge [2 × 1] – award 1 mark for each disadvantage identified
Application [2 × 1] – award 1 mark if relevant reference made to Anouk
Note: For each reason maximum 3 marks [1k + 1app + 1an].

• Have to share profits [k] so she might earn less [an] than if she were a sole trader [app]
• Share workload: [k] Anouk enjoys doing both designing and selling [app] sharing could
lead to conflict [an]
• Unlimited liability [k] just like a sole trader [app] Anouk’s personal assets are still at risk
[an]
• Slower decision making [k] as she has to discuss decisions such the marketing budget
[app] which could mean she misses sales[an]
• They might have different objectives [k] the partner might not want to just sell at markets
[app] this could lead to disagreements[an]
• Partnership agreements cost time and money [k].
2
(e) Anouk could use either leaflets or local newspaper advertising as methods of
promoting her jewellery. Recommend which method you think Anouk should use.
Knowledge [2] – award up to 2 marks for identification of relevant points (e.g. advantages or
disadvantages of either method)
Application [1] – award 1 mark if relevant reference made to Anouk’s business
Analysis [1] – award 1 mark for relevant development of point(s)
Evaluation [2] – justified decision made as to which of the two methods would be most
appropriate for Anouk to use.
Points include:
Advertising in local papers:
• Low cost [k] so she will be able to afford this [an] in her $50 budget [app]
• Would widen her target audience [k] as many people read newspapers [an]
• Not everyone reads newspapers [k] so her target audience might not be aware of her
business [an]
• Repeat adverts can be expensive [k]. Using up the marketing budget [app].
Leaflets:
• Easy to distribute to lots of people [k] could widen her possible audience [an] to help
increase her sales revenue above $3000 [app]
• Can be kept for reference [k] for when people want to buy rings or bracelets as presents
[app]
• Can be colourful [k] which will attract people’s attention [an]
• People might see them as junk [k] so throw them away [an].
Note: For 6 marks there must be a justified decision as to why it is the best option.
2 (a) Identify two examples of tertiary sector business activity in your country, other than a
recruitment agency. [2]
Knowledge [2 × 1] 1 mark per example
Examples might include: Hairdressers, transport or distribution company; banking, retailers,
doctors. Accept any reasonable answer but only one example of a retailer.
Do not accept names of businesses on their own or answers such as selling
(b) Identify two reasons why good customer service is important for Keypeople. [2]
Application [2 × 1] - award 1 mark per reason
Reasons might include: customer feels valued / good public relations / creates higher level of
customer satisfaction / leads to repeat business (brand loyalty) / can lead to word of mouth
recommendations/ motivation of workers/brand image.
(c) Identify and explain two reasons why employment contracts are used by businesses.
[4]
Knowledge [2 × 1] – award 1 mark for each relevant reason
3

• It’s a legal requirement [k] so failure to use them could lead to fines / legal action [an]
• Avoids misunderstanding if there is a dispute [k] business can check what workers are
expected to do [an]
• Employers and employees know the terms and conditions of the employment [k].
Note: Details of content within a contract can be awarded only once as knowledge (e.g.
wages/hours/holidays).
(d) Identify and explain two stages in the recruitment process of the manager’s job for the
manufacturing business. [6]
Knowledge [2 × 1] – award 1 mark for each stage identified
Application [2 × 1] – award 1 mark if relevant reference made to Key people
For each reason maximum 3 marks [1k + 1app + 1an].

Stages are: job analysis; job description; person (job) specification; advertising the vacancy;
shortlisting; interviewing, induction (training).
Possible examples include:

• Job description [k] will outline the tasks and responsibilities of the job [an]
• Person specification [k] will list the qualities and experiences for a senior manager [app]
to attract the right people [an]
• Right place to advertise [k] specialist magazines/newspaper[app] to reach a wide range
of people [an].
Note: Do not accept training alone – too vague.
(e) Do you think Rachel should expand Keypeople? Justify your answer. [6]
Knowledge [2] – award up to 2 marks for identification of relevant points
Application [1] – award 1 mark if relevant reference made to key people
Evaluation [2] – justified decision made as to whether Rachel should expand key people

• Access to finance [k] as it is only a small business [app] so banks might not be willing to
lend [an]
• Size of market [k] there might not be enough businesses who want to use the services
[an] of a recruitment agency [app]
• Negative effect on business reputation [k] as customer service might worsen [app] as
employees might not be able to cope with the increased workload [an]
• Need to hire additional employees [k] which would increase the business costs [an] as
currently only have 2 employees [app]
• Expansion will reach more people [k] as it may move into new towns[app] and
potentially increase sales [an].
3 (a) Identify two fixed costs that HPT might have. [2]
Application [2 × 1] 1 mark per fixed cost
Fixed costs could include: rent, rates, interest payments, electricity, gas, water, salaries.
Allow practical examples such as freezers.
4
Note: Do not accept wages and packaging as fixed costs are identified in the data.
(b) Calculate the following. [2]

Application [2 × 1] award 1 mark for each correct value. $ symbol not required but Y must be
shown as a negative value
X = $180 000; Y= (10 000)
Note: Answers should be in millions but accept 180 000 and (10 000) due to question layout.
(c) Identify and explain two benefits to HPT of having a cash flow forecast. You should
refer to Table 1 in your answer. [4]
Knowledge [2 × 1] – award 1 mark for each relevant benefit identified
Application [2 × 1] – award 1 mark for each relevant explanation in context

• Arrange a short term loan [k] or arrange an overdraft [k] as in each month the closing
balance is negative [app]
• Can identify possible causes of cash flow problems [k] e.g. as in month 2, sales are
$20 000 lower than the other two months [app]
• Help manage cash flow better [k] as could try to reduce amount spent on packaging to
less than $20 000 per month [app]
• Supports a loan application [k] as shows that the cash flow is improving slowly [app]
• Shows how much is spent each month [k].
Note: Do not reward a definition of cash flow forecast as the question asks for the benefits
(d) Identity and explain two reasons why packaging might be important for HPT. [6]
Knowledge [2 × 1] – award 1 mark for each relevant reason
Application [2 × 1] – award 1 mark for each relevant reference to HPT

• Protection [k] as (frozen) food could be easily damaged / perish [app]
• Inform [k] could include nutritional information on labels or how to cook the food [app]
• Promotion [k] attractive wrappings could encourage people to buy the food to taste [app]
• Style or colour of packaging could help boost brand image [k] as it could help products
stand out on the shelves [app]
• Easier to store [k].
Note: Do not accept HPT/Frozen food alone as application.
(e) The Finance Director is worried that new Government health & safety laws will not
benefit the company and will only add to its costs. Do you agree? Justify your answer.
[6]
Knowledge [2] – award up to 2 marks for identification of relevant issue(s)
Application [1] – award 1 mark if relevant reference made to aspects of HPT’s business
Evaluation [2] – justified decision made as to whether the costs of meeting the H&S laws will
be greater than the benefits for HPT. Either viewpoint is acceptable.
5
Points / additional costs could include:

• Cost of training, new equipment, wastage of food [k]
• Costs increase expenditure[an] and add to the cash flow problems of HPT [app] / or
costs negatively affect the profitability [an]
• Worker motivation might increase [k] if workers feel safe [an] they may work harder and
output / quality might improve [app].
• All businesses will be affected by the new laws [k] so even if costs rise, they can still
remain competitive [an]
• Following health and safety laws will mean people will have trust in the food [k] because
the food will be hygienic [app] this will lead to an increase in sales [an].
4 (a) Identify two features of a recession. [2]

Knowledge [2 × 1] one mark per feature
Features could include: falling demand, fall in business output, rising unemployment,
business losses or lower profit or closure, less money circulating, less growth
(b) Identify two effects of a cut in interest rates on businesses like JWR. [2]
Application [2 × 1] – award 1 mark per effect
Points could include: Lower cost of borrowing money, existing loans could become cheaper,
encourage businesses to expand, increased demand.
(c) Identify and explain two actions that pressure groups could use to influence JWR’s
decision. [4]
Knowledge [2 × 1] – award 1 mark for each relevant action
Application [2 × 1] – award 1 mark for each relevant explanation of how it would affect the
decision to set up a new power station
Actions include:
• Lobbying government [k] to try to stop JWR from locating the power station in certain
locations [app]
• Organise a boycott [k] so customers do not buy electricity from JWR [app]
• Write letters to newspapers [k]
• Hold public meetings [k]
• Arrange a meeting with JWR [k]
• Protest / demonstration [k]
• Petitions [k]
• Direct action [k].
(d) Identify and explain two external benefits as a result of opening a new power station in
country U. [6]
Knowledge [2 × 1] – award 1 mark for each relevant benefit identified
Application [2 × 1] – award 1 mark if relevant context

• Job creation [k] as JWR will need to employ local workers at the power station [app] so
provide a wage / income for many local employees [an]
• Increased orders for suppliers [k] as JWR will need to purchase materials [app] so
increasing their sales [an]
6
• Provide essential resources for community [k] as people will have access to energy [app]
so improving their standard of living [an]
• Improved road infrastructure [k] as JWR will need to ensure there is good access to the
power station [app] which could help reduce congestion for local people [an]
• Tax revenue [k].
(e) Do you think that the government of country U should try to attract multinational
businesses? Justify your answer. [6]
Knowledge [2] – award up to 2 marks for identification of relevant issue(s).
Evaluation [2] – justified decision made as to whether the government of country U should try
to attract businesses like JWR. Either viewpoint is acceptable.

• Increased employment [k] which can help improve living standards [an]
• Improved international reputation[k] could encourage other businesses to set up in
country [an] helping economic growth [an]
• Depletion of local resources or damage environment [k] could increase pollution levels
[an]
• Can switch profits between countries to avoid taxes [k] so country might not receive
much additional tax revenue [an]
• MNCs are given incentives [k] money which could have been spent supporting local
business [an]
• Can force local businesses to close [k] as they cannot compete with such large and
powerful businesses [an].
5 (a) Identify two stakeholder groups, other than employees. [2]

Knowledge [2 × 1] – award one mark per stakeholder
Stakeholders could include: customers, suppliers, Government, owners or shareholders,

lenders, community.
Note: Do not accept competitors, managers, directors.
(b) Identify two functions of management that each shop manager will have to perform. [2]
Application [2 × 1] award one mark per function
Functions could include: planning rotas, organise or delegate tasks to various employees,
coordinating sections, giving commands to department managers, controlling shop budgets
or monitoring targets.
Note: Do not accept functions of management which can only be applied to production.
Leadership is too vague.
(c) Identify and explain two features of Callow’s organisational structure. [4]
Knowledge [2 × 1] – award 1 mark for each relevant feature
Application [2 × 1] – award 1 mark for each relevant explanation
7
Features might include:

• Tall hierarchy [k] / long chain of command [k] as there are seven levels in the
organisation [app]
• Functional departments [k] but also a regional division of responsibility for operations [k]
as split into north south east and west [app]
• Comment on various spans of control e.g. managing director has a short span [k] of 4
employees / supervisors have a wide span of 8 sales assistants [app].
Note: Do not award wide/narrow span of control alone as this does not apply to the whole
chart, an employee must be specified.
(d) Identify and explain two possible methods that Callow could use to improve the
motivation of its employees. [6]
Knowledge [2 × 1] – award 1 mark for each relevant method identified
Application [2 × 1] – award 1 mark if relevant reference made to Callow’s business
Methods might include:

• Bonuses / commission [k] for sales assistants [app] as this would encourage them to sell
more to earn extra money [an]
• Fringe benefits[k] e.g. the regional directors / managers could receive a company
car[app] they will feel important / position recognised [an]
• Payment methods e.g. increase wage rate or salary (only allow once)
• Job rotation [k] sales assistants could move to different departments [app] so they are
not bored [an]
• Training/CPD[k].
(e) Do you think it is a good idea for Callow to use off the job training for all its shop
employees? Justify your answer. [6]
Knowledge [2] – award up to 2 marks for identification of relevant issue(s)
Application [1] – award 1 mark if relevant reference made to Callow’s business
Analysis [1] – award 1 marks for relevant development of point(s)
Evaluation [2] – justified decision made as to whether it is a good idea for Callow to use off
the job training for all its shop employees. Either viewpoint is acceptable.

• Training costs will increase [k] as they will need to pay for employees training[k] as well
as people to cover them in the department [app] this could negatively impact on profits
[an]
• Might not have the right people to do training [k] as a good department manager does
not necessarily make a good trainer [app] so could teach assistants the wrong skills [an]
• Could gain new ideas or skills [k] which could mean that the Callow can become more
competitive [an] against other retailers. [app]
• On the job could distract good employees from their work [k] so sales could be lost [an]
as they might not be able to give their full attention to customers [app].
Note: Do not accept development or evaluation which focuses on whether training is a good
idea for workers.
8

General Marking Guidance
• Marking should be positive: marks should not be subtracted for errors or inaccuracies.
• When examiners are in doubt regarding the application of the mark scheme to a candidate’s
response, the team leader must be consulted.
• Crossed out work should be marked UNLESS the candidate has replaced it with an alternative
response.
• Errors that are carried forward (e.g. when an incorrect numerical answer to one part of a question
is used as the starting point for a calculation in the next part of the question) should not be
compounded - use the ‘own figure rule’.
• Poor spelling, handwriting or grammar should not be penalised as long as the answer makes
sense.
• Answers that are not written on the answer lines should be marked.
• Scoris annotations to be used for part (b) questions are – ‘L1’, ‘L2’ and ‘L3’ should be used to
indicate the level being awarded to a response. ‘App' should be used to indicate where the
application marks are being awarded. Annotations for part (a) questions should be green ticks to
indicate where credit is being given and ‘App’ to indicate application marks.
• A blank space, dash, question mark and a response that bears no relation to the question
constitutes a ‘no response’.
required.

1 (a) Identify and explain two advantages and two disadvantages to Fabian of working for
himself rather than being an employee of another business. [8]
Content:
Advantages:
• Make own decisions
• Choose own work hours
• Keep any profits made
• Taking more responsibility
• More power
• Less worried about being unemployed
• High level of motivation
Disadvantages:
• Not a regular wage
• May not be able to take holidays
• No one to help him
• Limited capital
• More worry about business failure
• More risk of losing personal possessions
• No experience of management/flower business
• More administration to carry out
application.
1 mark for each advantage/disadvantage identified plus 1 explanation mark for each
advantage/disadvantage. (2 marks × 2 advantages + 2 marks × 2 disadvantages)
Advantage: Can work the hours Fabian chooses (1 knowledge mark).

Explanation: Can work the hours Fabian chooses as he works for himself and he could
work early in the morning if he chooses and take time off later in the day
(1 explanation mark).

(b) Refer to Appendix 1. Consider the advantages and disadvantages of each person who
wants to form a partnership with Fabian. Recommend which one Fabian should
Content: Gowri – experience of running her own business/quite young/large amount of

money to invest/young family/no experience in flower arranging.
Miranda – experience of shop work/well qualified/no family commitments/little
money to invest.
Pamela – enthusiastic about learning the requirements for the job/has some
skills in flower arranging/large amount of capital to invest/no family
commitments/older person so more experience with people/no formal
qualifications in flower arranging.

E.g. Miranda has experience of working in a shop and so she would know how to
serve customers in the flower shop (1 mark).
E.g. Miranda has experience of working in a shop and so she would know how to
serve customers in the flower shop. She could also have experience of how to run
a shop but she would not know how to do the accounts or ordering of flowers and
so she could not help Fabian with this.
5 marks for level 2 answer plus one application mark for mentioning ordering of
flowers.
Level 3 – Detailed discussion of at least two level 2 answers and then a conclusion at the
end which justifies who is the best person to choose compared to the other people.
Possible application marks: anything from Appendix 1; flowers; flower shop; part-time
employees; hotels and restaurants; flower arrangements; new business.

At least 2 × Level 2 + Well justified recommendation
as to the best person to choose compared to at
least one other person.

Well applied to case. At Good discussion of advantages/disadvantages of
least two examples of each person. OR balanced argument.
reference to, or use of, the Some limited judgement shown in recommendation
case. about the best person to choose.

Limited application to the Outline of advantages/disadvantages of each
case. At least one example person.
case.

2 (a) Identify and explain two possible business objectives Fabian and his new partner
could set for their business. [8]
Content:
• Survival/break-even
• To make a profit
• Growth/expansion
• Customer satisfaction/quality of service
• Creating a good brand image/reputation
1 mark for each objective identified (2 marks maximum). Up to two further marks are
available for explaining how the objective will be relevant to the new business.
Possible application marks: flowers; flower shop; partnership; hotels and restaurants; flower
arrangements; weddings/Valentine’s Day/birthdays; imported supplies of flowers.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each objective

(4 marks × 2 objectives)
Objective: Survival (1 mark for knowledge)
Developed explanation: Survival (1) as the business is new and small the partners may not
have much experience in the flower market (2). So they want the
business to start to get customers and get established in the first
year as many businesses fail in their first year (3).

reference to flower market (1 application mark).

(b) Consider the advantages and disadvantages of Option A and Option B. Recommend
which is the best option for Fabian to choose. Justify your answer using profitability
ratios. [12]
Content: Option A – demand all year round; regular orders each week; regular work for
employees; reduced price for bulk orders; business customers pay after payment
for stock of flowers – possible cash flow problems;
gross profit = $160,000(L1);
net profit = $40,000 (L2);
NPM = 20% (L2);
GPM = 80% (L2)
Option B – large potential sales for special occasions; higher prices; cash paid so
no delay in payment; low sales at certain times of the year; varying demand for
labour;
gross profit = $90,000(L1);
net profit = $30,000 (L2);
NPM = 25% (L2);
GPM = 75% (L2)
Level 1 – 1 mark for each statement.

E.g. Option A – Payments for the flower arrangements are made after payment for
stock of flowers have been ordered and paid for (1 mark).
E.g. Option A – Payments for the flower arrangements are made after payment for
stock of flowers have been ordered and paid for. Therefore it is possible this will
cause cash flow problems for Fabian leading to increased costs from interest
payments on an overdraft. 5 marks for level 2 answer.
Level 3 – Detailed discussion of at least two level 2 answers and then a recommendation at
the end which justifies which is the best option to choose compared to the other
option.
Knowledge/Analysis/ Evaluation

At least 2 × Level 2 + Well justified recommendation as to the best option to
choose compared to the other option. The answer must include some
comparison of profitability ratios.
Level 2 5–8 marks

Good discussion of advantages/disadvantages of each option. OR balanced
argument. Or calculation of profitability ratios.
Level 1 1–4 marks

Outline of advantages/disadvantages of each option.

3 (a) Refer to Appendix 2. Identify and explain four factors Fabian should consider when
deciding which sources of finance to use for his new business. [8]
Content:
• amount needed (amount of savings available or redundancy payment)
• how long it takes to pay it back
• how quickly the finance is needed
• whether it needs to be paid back (family investment/grant)
• interest rate
• type of business organisation
• credit rating
• terms and conditions of source of finance
application.
1 mark for each factor identified plus 1 explanation mark for each factor.
1 knowledge mark + 1 explanation mark (2 marks × 4 factors)
Factor: Interest rate (1 knowledge mark).

Explanation: Interest rate as if it is too high then Fabian might decide the source of finance
is too expensive to use as the revenue from the shop to begin with will be
limited (1 explanation mark).

(b) Explain to Fabian why each of the following documents will be important to managing
his new business. Choose which is likely to be the most useful. Justify your choice.
[12]
Content: Profit/Loss account – show if the business is covering its costs – if not then the
business will not be making a return on their investment.
Cash flow forecast – shows how they are managing the cash inflows and outflows
of the business – this will help Fabian to manage working
capital so the business doesn’t become insolvent. Prediction.
N.B. do not accept profit.
Break–even chart – allows Fabian to know how many sales he needs in order to
cover all his costs – this allows him to monitor sales to make
sure he is not going to make a loss – if sales are too low
then he can do something to increase them. Prediction/target.

E.g. Break –even chart allows Fabian to know how many sales he needs in order
to cover all his costs (1 mark).
E.g. Break–even chart allows Fabian to know how many sales he needs in order to
cover all his costs. This allows him to monitor sales to make sure he is not going to
make a loss (L2). If sales are too low then he can do something to increase them
such as have a promotion of ‘buy one flower arrangement and get a second one at
a discount’. This will increase income as long as the discount is not more than the
cost of buying the flowers. (L2)
6 marks for level 2 answer plus one application mark for mentioning flower
arrangements.
Level 3 – Detailed discussion of at least two level 2 answers and then a conclusion at the
end which justifies which is the most useful compared to the other documents.
arrangements; trade credit; weddings/Valentine’s Day/birthdays; imported supplies of flowers;

At least 2 × Level 2 + Well justified conclusion
as to the most useful document compared to
the others.

Well applied to case. At least Good discussion of each financial document.
two examples of reference to, Judgement shown as to why each financial
or use of, the case. document is important to the running of the
business.

Limited application to the case. Definition.
At least one example of Outline of each financial document.

4 (a) Fabian will use job production when completing each order for flowers. Identify and
explain two benefits of using job production for Fabian Flowers. [8]
Content:
• Meets individual needs of customers
• Unique product
• High quality
• Can charge a higher price
• Job satisfaction
• Fewer unsold products
1 mark for each benefit identified (2 marks maximum). Up to two further marks are available
for explaining how the benefit is applicable to Fabian. 2 application marks are also available.
Possible application marks: flower shop; partnership; part-time employees; hotels and
restaurants; flower arrangements; weddings/Valentine’s Day/birthdays; imported supplies of
flowers.
1 knowledge mark + up to 2 explanation marks + 1 application mark for each benefit

(4 marks × 2 benefits)
Benefit: Can meet the individual needs of consumers (1 mark for

knowledge).
Developed Explanation: Can meet the individual needs of consumers (1) as the flower
arrangement can be to the exact design of the customer (2). This
makes each product unique to that customer and so they will be
happier with the order and may tell their friends to go to the shop
(3).

reference to flower arrangements (1 application mark).

(b) Assume Fabian chooses Option B (retail customers). He must decide on a pricing
strategy to use. Consider the advantages and disadvantages of the following three
pricing strategies. Recommend which one he should choose. Justify your answer.
[12]
Cost-plus pricing • average cost calculated and then a percentage is added on for
profit
• easy to apply this method
• competitors’ price may be lower
Competitive pricing • set pricing around the same price as competitors’ prices
• sales possibly higher
• research costs to check on competitors’ prices
Penetration pricing • set pricing below competitors’ prices

• attract customers to make purchases
• may be below costs/reduce profits

E.g. Cost-plus pricing is where the cost is calculated and then a profit is added to
determine the price to charge customers.
E.g. Cost-plus pricing is where the cost of buying the flowers is calculated and then
a percentage of the cost is added for profit to determine the price to charge
customers. This is a simple way to work out the price of a flower arrangement but it
may not result in higher profits being earned if he does not look at competitors’
prices. (L2)
5 marks for level 2 answer plus 1 application mark for making reference to flowers
and flower arrangements.
Level 3 – Detailed discussion of at least two level 2 answers. There will be a

recommendation at the end which justifies which pricing strategy would be the best
one to use compared to the alternative strategies.
Possible application marks: flowers; flower shop; hotels and restaurants; flower
arrangements; weddings/Valentine’s Day/birthdays; imported supplies of flowers; quality of
supplies; new business.


Must have two × Level 2 + good judgement shown as to
the best pricing strategy to use and why not the other
strategies (comparison made).

Well applied to case. Good discussion of the advantages or disadvantages of
At least two pricing strategies OR balanced argument.
examples of Some judgement shown in recommendation about which
reference to, or use method should be used.
of, the case.

Limited application Definition of pricing strategy.
to the case. At least Simple statements made on the advantage or
one example of disadvantage of each pricing strategy.
reference to, or use
of, case.

5 (a) Identify and explain one advantage and one disadvantage to Fabian Flowers of having
a website for the shop. [8]
Content: Advantages Disadvantages

increased market higher distribution costs
lower marketing costs high competition
method of advertising increased set up costs/maintenance costs
easier for online sales security issues
24/7 access ideas used by competition
1 mark for each advantage/disadvantage identified (2 marks maximum). Up to two further

marks are available for explaining why it is an advantage/disadvantage to the business.
arrangements; weddings/Valentine’s Day/birthdays.
1 knowledge mark + up to 2 explanation marks + 1 application mark for

advantage/disadvantage (4 marks for advantage + 4 marks for disadvantage).
Disadvantage: Higher distribution costs (1 mark for knowledge).
Developed Explanation: Higher distribution costs are a disadvantage (1) because each
flower arrangement will need to be delivered to the customer
instead of the customer collecting the flower arrangement from the
flower shop (2). This will increase the costs for Fabian and his
partner which may reduce the profits for the business unless he
can pass these costs on to the customer (3).

reference to the flower shop (1 application mark).

(b) Fabian needs to decide where to buy supplies of flowers for the shop. Consider the
advantages and disadvantages each of the three alternative sources of supply
outlined in Appendix 3. Recommend which supplier Fabian should choose to buy his
flowers from. Justify your answer. [12]
Content: Import flowers from country X – laws on ethical production; no child labour; high
quality; high costs; limited range of flowers.
Purchase flowers from a flower wholesaler - uses unsustainable methods; low cost
flowers; low quality; wide range of flowers.
Buy from local flower growers – transport costs low; low cost flowers when bought
in bulk; wide range of flowers not available all year round; mixed quality.

E.g. In country X there are no children employed to pick flowers (1 mark).
E.g. In country X there are no children employed to pick flowers. Although costs
may be higher it does mean that children will not be working producing flowers.
This may be something Fabian feels strongly about and he can use it in his
advertising which may attract customers who feel the same as him.
5 marks for level 2 answer plus one application mark for mentioning picking the
flowers.
Level 3 – Detailed discussion of at least two level 2 answers and then a recommendation at
the end which justifies which is the best supplier to choose compared to the other
suppliers.
Possible application marks: anything from Appendix 3; new business; flower shop; hotels and
restaurants; flower arrangements; trade credit; weddings/Valentine’s Day/birthdays.

At least 2 × Level 2 + Well justified
recommendation as to the best supplier to
choose compared to at least one other
supplier.

Well applied to case. At least two Good discussion of
examples of reference to, or use advantages/disadvantages of each supplier.
of, the case. OR balanced argument.
Some limited judgement shown in
recommendation about the best supplier to
choose.

Limited application to the case. Outline of advantages/disadvantages of each
At least one example of supplier.

* 3 7 0 3 1 2 0 3 4 9 *

1 hour 45 minutes

DC HB (EL/CGW) 79716/1
2
1 Lu is a sole trader. He manages a bakery shop making and selling bread and cakes. He employs
4 workers all of whom are paid on time rate. Lu wants to expand the business by buying a new
shop and using it as a café (restaurant). He also wants to make a wider range of cakes, such as
wedding and birthday cakes, for which he thinks there is a demand. At present the business sells
all of the bread and cakes it makes.
(a) What is meant by a ‘sole trader’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(b) Identify two methods Lu could use for paying employees (other than time rate).
Method 1: ..................................................................................................................................
Method 2: ..............................................................................................................................[2]
(c) Identify and explain two suitable sources of finance Lu could use to buy a new shop.
Source 1: ..................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Source 2: ..................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[4]
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3
(d) Identify and explain two methods of promotion that Lu could use for the new range of cakes.
Method 1: ..................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Method 2: ..................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Do you think that Lu’s business will be more profitable if he expands it by opening a café in a
new shop? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]

4
2 Rakesh manages a car repair business in country Y. He buys cars that are damaged or have parts
missing. Rakesh adds value by repairing these cars until they look like new ones. He employs
5 workers to do the repairs. The business holds a large stock of car parts and Rakesh always pays
cash for these. However Rakesh’s sales are usually on credit.
Table 1: Some information for a typical trading week
Cars bought by Rakesh 6

Average cost of each car $2000
Average cost of parts used per car $500
Weekly wages per employee $1000
Weekly fixed costs $4000
Average price per car sold $5000
Number of cars sold 6
(a) What is meant by ‘fixed costs’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(b) What is meant by ‘Rakesh adds value’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(c) Calculate the weekly net profit of the business.
...................................................................................................................................................
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...............................................................................................................................................[4]
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5
(d) Identify and explain two reasons why the weekly net profit may not be the same as the weekly
net cash flow for Rakesh’s business.
Reason 1: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Country Y’s economy is in a recession. Do you think that this will make Rakesh’s business
less successful? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...............................................................................................................................................[6]

6
3 Natural Care is a company that makes soap. The business always acts in an ethical way. It follows
fair trade principles by paying fair prices to its suppliers. It uses a cost plus pricing method when
selling its products. Table 2 gives data about the company’s sales of soap and its share of the
national market for soap.
Table 2
Natural Care Market share of
Year sales ($m) Natural Care (%)
2012 40 10
2014 44 7
The Marketing Director of Natural Care wants to introduce a new competitive pricing strategy to
help regain market share. She also wants the Board of Directors to think about changing its ethical
policy.
(a) Calculate the total market sales of soap in 2012.
...................................................................................................................................................
...............................................................................................................................................[2]
(b) Identify two possible reasons why Natural Care’s market share fell in 2014.
Reason 1: ..................................................................................................................................
...................................................................................................................................................
Reason 2: ..................................................................................................................................
...............................................................................................................................................[2]
(c) Identify and explain two advantages to Natural Care of acting in an ethical way by paying fair
prices to its suppliers.
Advantage 1: .............................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Advantage 2: .............................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...............................................................................................................................................[4]
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(d) Identify and explain two ways in which Natural Care might be affected by changing to a
competitive pricing strategy.
Way 1: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Way 2: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Do you think that customers of products such as soap always benefit from an increase in
competition? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...............................................................................................................................................[6]

8
4 Genel manufactures clothes. The company uses an autocratic style of management. It employs a
large number of workers and pays low wages. Many employees leave the company each year but
they are easily replaced. Working conditions in the factories are poor. Health and safety is ignored
and long hours are worked. Employee motivation is low and employee productivity is falling.
(a) What is meant by an ‘autocratic style of management’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(b) Identify two possible reasons why Genel ignores health and safety in its factory.
Reason 1: .................................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
...............................................................................................................................................[2]
(c) Identify and explain two ways in which Genel would benefit from a more motivated workforce.
Way 1: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Way 2: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...............................................................................................................................................[4]
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(d) Identify and explain two ways that Genel could use to improve employee productivity in its
factories.
Way 1: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Way 2: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Do you think Governments should introduce laws to protect employees’ interests in businesses
such as Genel? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
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...............................................................................................................................................[6]

10
5 Zalpha is a multinational company. It manufactures agricultural machinery and employs a large

number of people. Figure 1 shows a simplified organisation chart for the business. The business
decision making is centralised and some employees complain of poor communications within the
company.
Figure 1
Board of Directors
Managing Director Managing Director Managing Director

Asia Division Europe Division Africa Division
Factory A manager Factory B manager
Quality Warehouse Stock control

manager manager manager
(a) What is meant by a ‘multinational company’?
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(b) Using only the information in Figure 1:
(i) Identify the span of control of the Managing Director of the Asia division.
.......................................................................................................................................[1]
(ii) How many levels are there in the chain of command?
.......................................................................................................................................[1]
(c) Identify and explain two possible reasons why Zalpha has poor internal communications.
Reason 1: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Reason 2: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...............................................................................................................................................[4]
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11
(d) Identify and explain two advantages to Zalpha of using centralised decision making.
Advantage 1: .............................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Advantage 2: .............................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Do you think that multinational companies such as Zalpha benefit the countries in which they
operate? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...............................................................................................................................................[6]
© UCLES 2014 0450/11/O/N/14

12
BLANK PAGE
© UCLES 2014 0450/11/O/N/14


0450/11 Paper 11 (Short answer/Structured Response),
Cambridge is publishing the mark schemes for the October/November 2014 series for
most Cambridge IGCSE®, Cambridge International A and AS Level components and some
Cambridge O Level components.
® IGCSE is the registered trademark of Cambridge International Examinations.

Cambridge IGCSE – October/November 2014 0450 11
1 (a) What is meant by a ‘sole trader’? [2]
Clear understanding [2] e.g. a business owned and controlled by one person OR ownership
lies in the hand of an individual.
Some understanding [1] e.g. a business where one person works/runs on their own.
Some understanding plus a relevant feature can gain [2] e.g. keeps all profits / unlimited
liability.
Note – Features alone – max [1]
(b) Identify two methods Lu could use for paying employees (other than time rate). [2]
Application [2 × 1] one mark per method.

Points might include: piece rates, salary, performance related pay, bonuses/commission,
profit sharing.
Note – Do not accept wage as this implies time rate
(c) Identify and explain two suitable sources of finance Lu could use to buy a new
shop. [4]
Knowledge [2 × 1] – award 1 mark for each relevant source.

Analysis [2 × 1] – award 1 mark for each relevant explanation.

• Long term loan [k] (bank loan alone not acceptable) which he can pay back over a long
period of time [an]
• Retained profits [k] because he will not have to repay the money back [an]
• Mortgage [k]
• Existing owners capital [k]
• Additional owners capital [k]
• Venture capitalist [k].

(d) Identify and explain two methods of promotion that Lu could use for the new range of
cakes. [6]
Knowledge [2 × 1] – award 1 mark for each method identified.

Application [2 × 1] – award 1 mark if relevant reference made to Lu’s business,
Analysis [2 × 1] – award 1 mark for each relevant explanation (e.g. how it would help
increase sales),

• advertising (allow only once) e.g. leaflets/posters [k] showing pictures of their food [app]
which raise awareness of business [an]
• Point of sales displays [k] as attracts attention of customers [an]
• Samples [k] as people are able to taste the products [app] and if liked more willing to buy
[an]
• money off incentives (allow only once) e.g. promotional pricing or buy one get one free
[k] which will encourage them to come into the shop [app] and buy the product [an]
• Attending fairs [k] such as wedding events [app] which will gain Lu new customers
• publicity / sponsorship [k] loyalty card [k] personal selling [k]
• Competitions [k] people will buy a wedding cake from Lu [app] to have a better chance of
winning the prizes [an].
Note – Reference to cakes alone is not sufficient for application as this is in the question
stem.
Specific examples of promotion are required so do not accept above and below the line
promotion or forms of media alone e.g. newspapers, as these are not specific methods.
Two distinct examples of application required for the 2 app marks.
(e) Do you think that Lu’s business will be more profitable if he expands it by opening a
café in a new shop? Justify your answer. [6]
Knowledge [2 × 1] award 1 mark for each relevant issue identified.

Application [1] – award 1 mark if relevant reference made to Lu’s business.
Analysis [1] – award 1 mark for relevant development of point(s).
Evaluation [2] – justified decision made as to whether Lu’s business will be more profitable if
he expands it by opening a new café.

• Sales revenue of the business should increase [k] if more/new customers are attracted
[an] who might buy cakes [app]
• Extra costs [k] such as additional rent [app] he may need more than 4 workers [app]
which will increase Lu’s expenses [an]
• Reaction of competition [k]
• Is there sufficient demand [k] Lu only thinks there is a demand [app].
Developed example:
Sales revenue of the business should increase [k] but expansion creates extra costs [k] such
as the additional rent [app] so profits may not increase [an]. Everything depends upon the
success of the venture in generating new customers [eval].

2 (a) What is meant by ‘fixed costs?’ [2]
Clear understanding [2] e.g. costs that do not change [1] as the level of activity changes [+1]
Some understanding [1]: e.g. costs that stay the same.
Note – Must link answer to level of activity/output to gain full marks. Do not accept examples.
(b) What is meant by ‘Rakesh adds value’? [2]
Clear understanding [2] e.g. the difference between the price of the product and the cost of
the resources needed to produce it OR an improvement to the product [1] that makes it worth
more [1].
Some understanding [1]: e.g. makes product more valuable.
Note – increased value is a repetition of the question and should not be credited.
(c) Calculate the weekly net profit of the business. [4]
Correct answer [4]: 6000 ($ not required. No further calculations are required)
Some understanding [can gain up to 3 marks]:
Breakdown of marks as follows:
Revenue per week (5000 × 6) =$30 000 [1]
Costs per week:
[2000 × 6] + [500 × 6] + [1000 × 5] + $4000 = $24 000 [2] 1 mark for 3 of these 4 correct costs
OR (ii) 30 000 [1] – 17 500 = 12 500 [+1]
Profit per week $6000 [1]
NOTE – OFR (own figure rule) can apply e.g. (i) 30 000 [1] – 7500 = 22 500 [+1]
(d) Identify and explain two reasons why the weekly net profit may not be the same as the
weekly net cash flow for Rakesh’s business. [6]
Knowledge [2 × 1] – award 1 mark for each reason identified.

Application [2 × 1] – award 1 mark if relevant reference made to data/Rakesh’s business.
Analysis [2 × 1] – award 1 mark for each relevant explanation (show why they create cash
flow problems).

• Sales are on credit [k] although he is making a profit from the cars [app] money will not
be received until later [an]
• Purchase of stock is by cash [k] as he holds a large stock of parts [app] profit is not
earned until it is sold [an]
• Some costs may not be paid every week e.g. insurance or rent
• Buys the cars for cash [k] takes time to repair them [app] and so only makes profit when
they are sold.
Explanation will focus on the fact that timing of flows creates an imbalance between cash in
and out.

(e) Country Y’s economy is in a recession. Do you think that this will make Rakesh’s
business less successful? Justify your answer. [6]

Application [1] – award 1 mark if relevant reference made to this type of business.
Evaluation [2] – justified decision made as to whether Rakesh’s business is likely to be less
successful.

• Recession could mean a fall in disposable income [k]
• Higher unemployment [k] so fall in people’s living standards [an] so might not be able to
buy a new car [app]
• Depends on what is meant by successful [k]
Developed answer:
Recessions usually mean a fall in disposable income [k] and an increase in
unemployment [k]. Both of these usually mean a fall in consumer demand [an] especially for
non-essential products such as cars [app]. This is not good news for Rakesh’s business
[eval]. However, it is possible that there will be a switch in demand towards cheaper cars [an]
and this might help his sales so he could still be successful [eval].
3 (a) Calculate the total market sales of soap in 2012. [2]
Correct answer [2]: 400 000 000 OR 400 m ($ not required)

Some understanding [1] e.g. method OR 40 ÷ 0.1
(b) Identify two possible reasons why Natural Care’s market share fell in 2014. [2]
Application [2 × 1] – award 1 mark per relevant reason.

• Demand for rival products increased faster than NC sales / market growth higher than
10%
• Increase competition in the market
• Higher price than competitors
• Lack of suitable marketing / promotion
• Decline in quality in the product.

(c) Identify and explain two advantages to Natural Care of acting in an ethical way by
paying fair prices to its suppliers. [4]
Knowledge [2 × 1] – award 1 mark for each relevant advantage.

Analysis [2 × 1] – award 1 mark for each relevant explanation showing how the factor creates
an advantage.

• Good public image / reputation [k] so customers are more willing to pay higher prices
[an]
• Management and owners feel ‘happy’ with the way the business operates [k]
• Business more attractive to potential employees [k] as they will want to be associated
with an ethical company [an]
• Keeps suppliers happy / trusted [K] therefore less likely to lose their suppliers [an].
Note – do not reward discounts as the question is asking about fair pricing
(d) Identify and explain two ways in which Natural Care might be affected by changing to
a competitive pricing strategy. [6]
Knowledge [2 × 1] – award 1 mark for each way identified.

Application [2 × 1] – award 1 mark if relevant reference made to this business/manufacturer.

• Reduce profit margins [k] as prices might fall below cost plus price [app] so need to sell
more to make same level of profit [an]
• Possible increase in sales [k] because prices could be lower[an] help increase its market
share [app]
• Impact on image [k] as might need to change from ethical suppliers [app] as need to
lower costs to maintain competitive [an]
• May loose suppliers [k] because they can no longer afford a fair price [app]
• More competitive [k] as price is no longer a reason not to buy their soaps [app]
• Need to find other way (other than price) to attract customers [k].
(e) Do you think that customers of products such as soap always benefit from an
increase in competition? Justify your answer. [6]
Knowledge [2 × 1] award 1 mark for each issue identified

Application [1] – award 1 mark if relevant reference made to this type of business
Evaluation [2] – justified decision made as to whether customers always benefit from an
increase in competition.
Points to include:
• Competition increase choice [k] therefore they may gain a product that better suits their
needs [an]
• Leads to lower prices [k] which means more consumers can afford to buy [an]
• Products become more consumer orientated [k] for examples they can buy soap for
sensitive skin [app]
• Lead to hidden quality cuts [k] as manufacturer looks to cut costs [an] to remain price
competitive [app]

• Too much choice can be confusing [k]

• Firms will need to spend on promotion [k] therefore prices might rise for customers to
cover the costs [an]
• Lower prices [k] but firms may reduce the size of the product reducing value for
money [an]
• Firms reduce the size of the product [k] which means customers get less for their money
• Could reduce choice [k] as smaller firms are forced out of the market [an].
Developed answer:
Competition generally lowers prices [k] as firms try to remain price competitive [app]
customers they may gain a product that better suits their needs [an] customers may not
benefit if firms reduce quality. [k] The extent to which they benefit depends on how firms
compete [ev] and what customers value in the product [ev].
4 (a) What is meant by an ‘autocratic style of management’? [2]
Clear understanding [2] e.g. an autocratic style implies that all decisions are made by the
management [1] without consultation and discussion [+1] OR workers have no say in
decision making [2].
Some understanding [1] e.g. a manager who tells others what todo.
(b) Identify two possible reasons why Genel ignores health and safety in its factory. [2]
Application [2 × 1] award 1 mark per reason.

• Legislation incurs costs / they don’t have to spend money
• Management doesn’t care about employee welfare
• Laws not enforced
• Cheaper to pay fines
• To increase production
• Workers can be easily replaced
Some countries do not have laws for health and safety.
(c) Identify and explain two ways in which Genel would benefit from a more motivated
work force. [4]
Knowledge [2 × 1] – award 1 mark for each relevant way.

Application [2 × 1] – award 1 mark for each relevant explanation in context (show why these
points matter to this type of business).

• More output [k] so able to meet demand for its clothes [app]
• Workers work harder [k] which leads to an increase in productivity [app]
• Lower wage costs [k] as might not need to employ as many workers [app]
• More flexible [k] as workers will be able to respond to changing tastes [app]
• Lower levels of absenteeism [k]
• Lower training / recruitment costs [k] because of lower levels of staff turnover[app]
• Loyal staff [k] which will reduce staff turnover
• Less mistakes [k] so better quality clothes made [app]
• Improved image / better reputation [k].

(d) Identify and explain two ways that Genel could use to improve employee productivity
in its factories. [6]
Knowledge [2 × 1] – award 1 mark for each reason identified.

Analysis [2 × 1] – award 1 mark for each relevant explanation (show how it will help increase
output per employee).

• Switch to piece rate [k] rather than pay low wages [app] as workers might produce more
in order to gain more money [an]
• Increase pay [k] which improves motivation [app] so workers produce more per hour [an]
• Better working conditions to improve morale [k] as they are currently poor [app]
• New and better machinery
• Training [k] improves motivation [app]
• Reduce working hours
• Implement health and safety laws [k] which are currently ignored [app]
• Change management style [k] to democratic rather than autocratic [app] so that workers
feel involved and more willing to work [an].
(e) Do you think Governments should introduce laws to protect employees’ interests in
businesses such as Genel? Justify your answer. [6]

Evaluation [2] – justified decision made as to whether the Government should introduce laws
to protect employees’ interests.
Points to include:
• Laws are needed to ensure safety [k] which the company does not follow employee
protection [app] so there is no guarantee that Genel would abide by the laws [eval]
• Discourage businesses from setting up in a country [k] because it would increase
costs [an]
• Higher business costs [k] could see workers lose their jobs [an]
• Could help retain workers leading to lower recruitment costs?
Note – the candidate may address the question from the viewpoint of either the employee,
business or the Government.
Developed answer:
Laws are needed to ensure safety [k] and a fair wage for workers[k] which this company
does not follow[app] because it increases their costs[an] therefore introducing laws may have
no effect [ev] unless they are monitored [ev].

5 (a) What is meant by a ‘multinational company’? [2]
Clear Understanding [2] – a business with factories, production or service operations in more
than one country OR a business with production or service in another country outside its
normal area of operation.
Some Understanding [1] – e.g. has businesses everywhere / works in more than one
country / operates in more than one country.
Note – do not accept examples.
(b) (i) Identify the span of control of the Managing Director of the Asia division. [1]
Application [1]: 2 (factory managers) OR factory A manager and factory B manager.
(ii) How many levels are there in the chain of command? [1]
Application [1]: 4 (levels).
(c) Identify and explain two possible reasons why Zalpha has poor internal
communications. [4]
Knowledge [2 × 1] – award 1 mark for each relevant reason.

Application [2 × 1] – award 1 mark for each relevant explanation in context (show why they
might create poor communication for Zalpha).

• Tall hierarchy / long chain of command/ distance from top to bottom of organisation [k]
as there are at least 4 levels [app]
• Choosing the wrong method of communication [k] for a business is split across 3
continents [app] / for such a large number of people [app]
• Barriers to effective communication exist e.g. language issues [k] for different
countries / multinational [app].
(d) Identify and explain two advantages to Zalpha of using centralised

decision making. [6]
Knowledge [2 × 1] – award 1 mark for each advantage identified.

Analysis [2 × 1] – award 1 mark for each relevant explanation (showing how the point create
an advantage).

• Speed of decision making increased [k] because not many people are involved [an]
• Save money/lower cost [k]
• Decrease level of conflict [k]
• Power retained by senior management / control maintained [k] between the board and 3
directors [app]
• Easier to ensure consistency / reduce inconsistency [k] across all divisions [app]
• Economies of scale more achievable [k] as head office are able to order parts [app] in
bulk to get larger discounts [an]

• Easier to co-ordinate and control budgets [k]

• Greater use of specialisation possible [k].
(e) Do you think that multinational companies such as Zalpha benefit the countries in
which they operate? Justify your answer. [6]

Evaluation [2] – justified decision made as to whether Multinationals benefit the countries in
which they operate.

• Create jobs / provides income [k] because Zalpha employs a large number of people
[app] so improving living standards [an]
• Technical knowhow increased [k] Zalpha makes agricultural machinery [app] and
improves production [an]
• Possible orders for local suppliers [k] to provide parts for machines [app] therefore
increasing local incomes [an]
• Competition [k] for local businesses [k] who manufacturer goods [app] leading to lower
prices [an]
• Improve international reputation of country [k]
• Inward investment / infrastructure development [k]
• More goods available [k]
• Companies pay taxes [k] therefore increasing income for the government [an]
• Profits are often repatriated [k] limiting the countries growth [an]
• Resources are depleted [k] so there is less available for other businesses [an]
manufacturing in the country needs raw materials [app]
• Local businesses close [k] due to increased competition [app]
• Exploitation can occur [k].


INSERT
1 hour 45 minutes
*6330984575-I*

DC (SLM/CGW) 79754/2
2
PB Bank
PB Bank is a public limited company. The bank has been trading successfully for 20 years. The Board
of Directors wants to see the number of customers increasing; however, over the last 2 years the
number of customers has remained the same. Should PB Bank try to expand by taking over another
bank or should it try to attract more customers from its competitors? DOTT Bank is a smaller bank than
PB Bank and could become a takeover target.
PB Bank is a large bank with 15 000 employees. The organisational structure is shown in Appendix 1.
The Human Resources (HR) Director is responsible for internal communication. Some employees have
complained that they often do not get told about important decisions. Some information is posted on
the company website but some of this information is difficult to find.
PB Bank already offers online (Internet) banking and the Marketing Director thinks that mobile (cell)
phone banking will become popular with customers. They used a questionnaire to find out the opinions
of their customers (see Appendix 3).
An increasing number of PB customers are now only using online banking. PB needs to close either
branch X or branch Y.
Branch X
Located in a small town; used mainly by customers of the bank to deposit and withdraw money; no
other banks nearby; the branch always has long queues of customers.
Branch Y
Located in the city centre; used mainly by tourists to change foreign currency; not many PB customers
live nearby; near to several other bank’s branches; the branch is busy only in the mornings.
Appendix 1
Extract from organisational structure of PB Bank
Board of Directors
Managing Director
Area 1 Area 2 Area 3 Area 4 HR and

manager manager manager manager administration
Area 1 Area 2 Area 3 Area 4

deputy deputy deputy deputy
manager manager manager manager
.......... .......... ..........
Branch Branch Branch Branch Branch

manager manager manager manager manager
.......... .......... .......... .......... ..........
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3
Appendix 2
Information about PB Bank and DOTT Bank in 2013

PB Bank DOTT Bank
Fixed assets $790m $320m

Current assets $120m $80m
Current liabilities $80m $100m
Capital employed $830m $300m
Net profit $83m $45m
Number of customers 3 000 000 1 000 000

Number of branches 1000 250
Appendix 3
Results from a questionnaire used on Monday 5 May 2014 in the main street of the
city centre in the afternoon
People who completed the questionnaire:

Age Number
10–20 100
21–30 400
31–40 300
41–50 100
50 + 100
Do you have a bank account?

Yes 800
No 200
Do you have a mobile phone?

Yes 700
No 300
Would you like to be able to access your bank account details

and carry out transactions using your mobile phone?
Yes 500
No 500
© UCLES 2014 0450/21/INSERT/O/N/14

4
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© UCLES 2014 0450/21/INSERT/O/N/14

* 6 3 3 0 9 8 4 5 7 5 *

1 hour 45 minutes

DC (SLM) 79753/3
2
1 (a) Identify and explain two disadvantages to PB Bank of being a public limited company.
Disadvantage 1: ........................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Disadvantage 2: ........................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
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3
(b) Employees complain they never know important information about the bank. Consider
three ways the HR Director could use to improve the internal communication in the bank.
Recommend which will be the best way to use. Justify your answer.
Way 1: .......................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Way 2: .......................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
Way 3: .......................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
.............................................................................................................................................[12]

4
2 (a) Banking is a tertiary sector business. Identify four other types of tertiary sector businesses
that PB Bank might use and explain what services they offer to PB Bank.
Type of tertiary sector business: ...............................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
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(b) Refer to the organisational chart in Appendix 1. The directors are thinking of removing the
middle management level (deputy managers). Consider the advantages and disadvantages of
widening the span of control for the remaining managers. Recommend whether the directors
should remove this level of management. Justify your answer.
Advantages: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Disadvantages: .........................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
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Recommendation: .....................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
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.............................................................................................................................................[12]

6
3 (a) Identify and explain two appropriate ways in which the results from the question ‘do you have
a bank account? ’ in Appendix 3 could be presented.
Way 1:
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Way 2:
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
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(b) PB needs to close some of its branches as more customers use online banking. Consider
the advantages and disadvantages of branch X and branch Y. Recommend which branch PB
should close. Justify your answer.
Branch X: ..................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Branch Y: ...................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
.............................................................................................................................................[12]

8
4 (a) Identify and explain four reasons why the information in Appendix 3 may not be an accurate
record of the views of all bank customers.
Reason 1: .................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Reason 3: .................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Reason 4: .................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
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(b) The Marketing Director of PB Bank wants to promote mobile (cell) phone banking to its
existing customers. Consider the advantages and disadvantages of each of the following
three ways of promoting mobile phone banking. Recommend which option the Marketing
Director should choose. Justify your answer.
Advertising on television: ..........................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Sending leaflets to customers: ..................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Putting information on the website of PB Bank: ........................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

10
5 (a) Identify and explain two possible effects on DOTT Bank employees if DOTT Bank was taken
over by PB Bank.
Effect 1: .....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Effect 2: .....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
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(b) Consider the advantages and disadvantages to PB Bank of taking over DOTT Bank.
Recommend whether PB should take over DOTT Bank. Justify your answer by using
appropriate calculations based on the data in Appendix 2.
Advantages: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Disadvantages: .........................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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.............................................................................................................................................[12]
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Cambridge is publishing the mark schemes for the October/November 2014 series for
most Cambridge IGCSE®, Cambridge International A and AS Level components and some

required.

1 (a) Identify and explain two disadvantages to PB Bank of being a public limited company.
[8]
Content:
• Cannot control who buys the shares/Easier to be taken over
• Expect dividends to be paid
• Accounts published
• Legal formalities need to be followed
• Divorce between ownership and control
• More difficult for effective communication
• May experience diseconomies of scale/management problems.
analysis and 2 marks for application.
Possible application marks: bank; 15 000 employees; lack of good communication;

takeover another bank; bank accounts; reference to Appendix 1; 20 years in existence;
marketing director; 1000 branches; branch X and branch Y; board of directors.
1 mark for each disadvantage identified plus 2 explanation marks for each disadvantage plus
1 application mark. (4 marks × 2 disadvantages)
Disadvantage: Accounts published (1 knowledge mark)
Explanation: Accounts published (1) as this is a legal requirement and the accounts
need to be published each year. Anyone can see the accounts and so
this means competitors can look at the accounting details of the bank.
(2) A rival bank might want to take over the bank and finding out about
its accounts could help it decide to take it over. (3) (Plus 1 application
mark for answering in the context of banks).

(b) Employees complain they never know important information about the bank. Consider
three ways the HR Director could use to improve the internal communication in the
bank. Recommend which will be the best way to use. Justify your answer. [12]
Content:
• Email
• Telephone
• Text/SMS
• Meetings
• Memorandum
• Company newsletter
• Noticeboards/posters
• Letters
• Put information on the website
• Improve managers’ communication skills
Level 1 1 mark for each suitable way/statement e.g. the HR Director could use email
to inform employees about any new changes to the bank. (1 mark)
Level 2 5 marks for the first level 2 answer and then one extra mark for each
additional level 2 answer up to maximum of 8 marks.
e.g. The HR Director could use email to inform employees about any new
changes to the bank. Email is quick and cheap to use and can be sent out as
a global email which means it goes to everyone on the email contact list.
However, not all 15 000 employees may have a bank email address, so the
message may not get through to all employees and it will be difficult to know if
the message has been read.
5 marks for level 2 answer plus one application mark for including reference to
15 000 employees at the bank.
Level 3 Detailed discussion of at least two level 2 answers and then a

recommendation at the end which justifies which is the best form of
communication to choose compared to the other forms of communication.

Possible application marks: public limited company; 15 000 employees; lack of good
communication; branches; area manager; branch manager; company website;
information difficult to find.

At least 2 × Level 2 + Well justified
recommendation as to the best form of
communication to choose compared to the other
forms of communication.

Well applied to case. At Good discussion of advantages/disadvantages
least two examples of of each form of communication Or explained
reference to, or use of, balanced argument.
the case. Some limited judgement shown in the
recommendation about the best form of
communication to choose.

Limited application to the Suitable way/Outline of advantage/disadvantage
case. At least one of each form of communication.
or use of, case.

2 (a) Banking is a tertiary sector business. Identify four other types of tertiary sector
businesses that PB Bank might use and explain what services they offer to PB Bank.[8]
Content:
• Insurance
• Telephone communication
• Internet provider
• Advertising agency
• Training provider
• Recruitment agency
• Security
• Communication
• Accountants.
N.B. the service must be used by the bank directly.
1 mark for each example of a tertiary sector service identified (4 marks max). One further
mark is available for explaining how the service will be helpful to the bank. (2)
1 knowledge mark plus 1 explanation mark (2 marks × 4 services)
Service: Insurance (1 mark for knowledge)
Explanation: Insurance (1) provides businesses with protection against risks such as theft
or damage to branch premises.

(b) Refer to the organisation chart in Appendix 1. The directors are thinking of removing
the middle management level (deputy managers). Consider the advantages and
disadvantages of widening the span of control for the remaining managers.
Recommend whether the directors should remove this level of management.
Content:
• Increased contact with senior • Less control by managers

managers • Junior managers may make mistakes
• Increased delegation • Less supervision of employees
• Increased motivation • Greater workload/stress/extra hours
• Improved communication • More people to manage
• Reduced wage costs. • Fewer opportunities for promotion.
Level 1 1 mark for each statement e.g. the removal of a layer of management is likely
to lead to increased delegation. (1 mark)
additional level 2 answer up to maximum of 8 marks. e.g. the removal of a
layer of management is likely to lead to increased delegation. This will mean
that employees will have a wider range of jobs to do and also be given more
responsibility to carry out tasks such as granting customer loans. This could
be very motivating for the employees as they will feel trusted. 5 marks for level
2 answer plus 1 application mark for including reference to customer loans in
the answer.
Level 3 Detailed discussion of at least two level 2 answers and then a conclusion at
the end which justifies whether or not delayering should be carried out.
Possible application marks: bank; 15 000 employees; lack of good communication;

branches; takeover another bank, branch manager, area manager, managing director.


At least 2 × Level 2 plus well justified
recommendation as to whether or not
delayering should be carried out.

Well applied to case. At Good discussion of advantages/disadvantages
least two examples of of delayering Or balanced argument.
reference to, or use of, the Some limited judgement shown in
case. recommendation about whether to delayer the
management structure.

Limited application to the Outline of advantages/disadvantages of
case. At least one delayering.
or use of, case.
3 (a) Identify and explain two appropriate ways in which the results from the question ‘do
you have a bank account’ in Appendix 3 could be presented. [8]
Content:
Bar chart (1) Sketch of bar chart (1) – is easy to see total numbers (1) – easy to see which
are the highest/lowest totals (1).
Pie chart (1) Sketch of pie chart (1) – is easy to see the proportions (1) – easy to see which
is the largest/smallest proportion of the figures (1).
Also accept – Pictogram/Table
1 mark for each way identified (2 marks max). 1 mark is available for presenting the results
for ‘do you have a bank account’ (2 marks max).
Up to two further marks are available for explaining the way (4 mark max).

(b) PB needs to close some of its branches as more customers use online banking.
Consider the advantages and disadvantages of branch X and branch Y. Recommend
which branch PB should close. Justify your answer. [12]
Content: Advantages Disadvantages
Branch X • Branch manager will have a • Small town so few potential

personal knowledge of the new customers
existing customers • Long queues may put off new
• Has many regular customers customers
• No competition nearby. • Not easy to accommodate new
customers.
Branch Y • Located in busy area • Not many local customers

• Used by many tourists • Lots of competitors nearby
• Not busy for most of the day • High rent/cost of city centre
so easy to serve new location.
customers.
Level 1 1 mark for each advantage/disadvantage e.g. There are not many banks
nearby to branch X and therefore this means there is little competition. (1 mark
plus 1 Application mark for ‘not many banks nearby’)
additional level 2 answer up to maximum of 8 marks e.g. There are not many
banks nearby to branch X and therefore this means there is little competition.
Yet as a small town it means the number of customers is limited.
5 marks for level 2 answer plus one application mark for making reference to
‘not many banks nearby’ in the answer.
Level 3 Detailed discussion of at least two level 2 answers, then a recommendation at

the end which justifies which branch to close and which should be kept open.
Possible application marks: bank; takeover another bank; bank accounts; telephone
banking; cell (mobile) phone banking; tourists; long queues; no other competition locally;
deposit and withdraw money; busy in the mornings; not many customers live nearby;
locate in city centre.


recommendation as to which branch to close and
which branch to remain open.
Level 2 2 marks well applied to 5–8 marks

case. At least two Good discussion of advantages/disadvantage of
examples of reference each branch Or explained balanced argument.
to, or use of, the case. Some limited judgement shown in
recommendation about which branch to close.

Limited application to Outline of advantages/disadvantage of each
the case. At least one branch.
example of reference
to, or use of, case.
4 (a) Identify and explain four reasons why the information in Appendix 3 may not be an
accurate record of the views of all bank customers. [8]
Content:
• Poor questions/questions not understood
• Restricted sample surveyed
• Biased time of survey
• Unrepresentative age group surveyed/not a random sample
• Only asked in the city centre
• Respondents may not answer honestly.
1 mark for each reason identified (4 marks max). Up to one further mark is available for
explaining how the reason leads to inaccurate results.
1 knowledge mark plus 1 explanation mark (2 marks × 4 reasons)
Reason: Unrepresentative age group surveyed (1 mark for knowledge)
Explanation: Unrepresentative age group surveyed (1) which does not represent the
proportion of people in the population who have bank accounts (2).

(b) The Marketing Director of PB Bank wants to promote mobile (cell) phone banking to
its existing customers. Consider the advantages and disadvantages of each of the
following three ways of promoting mobile phone banking. Recommend which option
the Marketing Director should choose. Justify your answer. [12]
Content:
• Advertising on TV – seen by a wide audience; expensive
• Leaflets to customers – direct to potential customers; may be discarded and not read
• Information on website – cheap to advertise; only seen by people who visit the website
Level 1 1 mark for each statement e.g. Leaflets to customers are direct to potential
customers (1 mark).
additional level 2 answer up to maximum of 8 marks. e.g. leaflets to customers
are direct to the people who might use mobile banking. The leaflet will reach
the target population and are easy to send and can outline the benefits of
checking accounts on the phone. However, the leaflets may be thrown away
and may not be read.
5 marks for level 2 answer plus 1 application mark for answering in the context
of mobile banking.
Level 3 Detailed discussion of at least two level 2 answers and then a

recommendation at the end which justifies which is the best way to promote
the new service to choose compared to the other ways.
Possible application marks: bank; bank branches; public limited company; bank
accounts; telephone banking; online banking; financial information from Appendix 2;
questionnaire results from Appendix 3.

recommendation as to the best promotion to
choose compared to the other promotions.

Well applied to case. At Good discussion of advantages/disadvantages of
least two examples of each method of promotion or balanced argument.
reference to, or use of,
the case. Some limited judgement shown in
recommendation about the best promotion to
choose.

Limited application to the Outline of advantages/disadvantages of each
case. At least one promotion.
or use of, case.

5 (a) Identify and explain two possible effects on DOTT Bank employees if DOTT Bank was
taken over by PB Bank. [8]
Content:
• Some employees may lose their jobs
• There may be opportunities for promotion/demotion
• Jobs may be changed with different responsibilities added
• Demotivated
• Change in working conditions/pay
• Training implications for employees
• Relocation/move area/move branch.
analysis and 2 marks for application.
Possible application marks: bank; 15 000 employees; lack of good communication; 1000
PB branches; 250 DOTT branches; 1250 combined branches; branches; area manager;
deputy branch manager; branch manager.
1 mark for each effect identified plus 2 explanation marks for each effect plus 1 application
mark. (4 marks × 2 effects)
Effect: Some employees may lose their jobs (1 knowledge mark).
Explanation: Some employees may lose their jobs (1) because there may be other
employees at PB Bank who can do their job. (2) PB will want to make cost
savings and there may be, for example, counter staff at the bank who are no
longer needed as branches may be merged. (3) (Plus 1 application mark for
answering in the context of branch banks).

(b) Consider the advantages and disadvantages to PB Bank of taking over DOTT Bank.
Recommend whether PB should take over DOTT Bank. Justify your answer by using
appropriate calculations based on the data in Appendix 2. [12]
Content:
Takeover – Have existing customers of DOTT Bank; quick method of expansion;
Expensive;
Internal growth – low cost; slower process; more control over growth.
DOTT bank ROCE 15% (L2) whilst PB 10% (L2);

Current ratio PB 1.5 (L2) whilst DOTT 0.8 (L2); Accept fractions
If method is correct but final answer is wrong (L1)
3000 customer per branch on average for PB (L2) whilst DOTT 4000
customers per branch (L2).
Level 1 1 mark for each statement e.g. to takeover of DOTT Bank would be a quick
method of expansion for the bank (1 mark)
additional level 2 answer up to maximum of 8 marks e.g. the current ratio for
DOTT Bank is 4/5 whereas the current ratio for PB Bank is 1.5. 6 marks for
two level 2 calculations.
Level 3 Detailed discussion of at least three level 2 calculations and then a

recommendation at the end which justifies which is the best option to choose
compared to the other option.

At least 3 × Level 2 calculations plus well justified recommendation
as to the best option to choose compared to the other option.
Level 2 5–8 marks

Ratios calculated followed by some limited judgement shown in
recommendation about the best option to choose.
Level 1 1–4 marks

Outline of advantages/disadvantages of each option.
Statements made about the data.

* 6 6 3 3 9 1 5 9 5 6 *

1 hour 30 minutes
Write your Centre number, candidate number and name in the spaces at the top of this page.
You may use an HB pencil for any diagrams, graphs or rough working.

The total number of marks for this paper is 80.
This document consists of 9 printed pages and 3 blank pages.
DC (RCL (KM)) 97979/3

2
1 TWH makes a range of toys using batch production. TWH’s Managing Director, Dylan, plans to
invest in new technology to reduce average costs. ‘It’s the only way to increase efficiency as I do
not know how we can improve employees’ motivation’ he said. Dylan cannot decide on whether it
would be better to use retained profits or a long term loan as the source of finance.
Table 1: Data for 2014
Number of toys made per week 260 000

Number of employees 500
Average wage per hour paid by TWH $6
Average wage per hour paid by similar businesses $6.50
(a) What is meant by ‘average cost’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(b) Calculate the output per employee per week in 2014.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(c) Identify and explain two possible advantages to TWH of using batch production.
Advantage 1: .............................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...................................................................................................................................................
Advantage 2: .............................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...............................................................................................................................................[4]
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3
(d) Identify and explain two ways that TWH could improve the motivation of its employees.
Way 1: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Way 2: .......................................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) TWH can either use retained profit or a long term loan to finance the purchase of new
technology. Which option do you recommend TWH should use? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...............................................................................................................................................[6]

4
2 Ramford is a private limited company. It has four factories which make a wide range of food
products including breakfast cereal and ice cream. The Finance Director is worried about the
company’s financial performance. She has read that many businesses failed in the last year. ‘I
think we are suffering from diseconomies of scale’ she said. Ramford’s directors have decided to
cut the number of different products it makes from 80 to 10.
Table 2: Extract from accounts
2013 2014
Revenue (sales) ($m) 200 150
(Net) profit ($m) 70 60
Capital employed ($m) 280 300
(Net) profit margin 35% ?
Return on Capital Employed 25% ?
(a) What is meant by a ‘private limited company’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(b) Identify two causes of business failure.
Cause 1: ....................................................................................................................................
...................................................................................................................................................
Cause 2: ....................................................................................................................................
...............................................................................................................................................[2]
(c) Identify and explain two diseconomies of scale that Ramford might be experiencing.
Diseconomy 1: ...........................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...................................................................................................................................................
Diseconomy 2: ...........................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...............................................................................................................................................[4]
© UCLES 2015 0450/11/O/N/15

5
(d) Identify and explain two factors that Ramford should consider when deciding which products
to remove from its product range.
Factor 1: ....................................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Factor 2: ....................................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Do you think the Finance Director is right to be worried about the financial performance of
Ramford in 2014? Justify your answer using the data in Table 2 and appropriate ratios.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]

6
3 Grimshaw manufactures mobile (cell) phones for the mass market. Last year its market share
increased by 3%. The Managing Director is planning to set up a new factory in country T to supply
the mobile phone market in that country for the first time. Grimshaw plans to sell a new model of
mobile phone. The Managing Director has asked for market research to be done. He said: ‘As a
multinational, we can set up a new factory anywhere; I want to know whether the Government of
country T will offer us any help to build our factory there.’
(a) What is meant by ‘mass market’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(b) What is meant by ‘market share’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(c) Identify and explain two advantages of market research to Grimshaw.
Advantage 1: .............................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...................................................................................................................................................
Advantage 2: .............................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...............................................................................................................................................[4]
© UCLES 2015 0450/11/O/N/15

7
(d) Identify and explain two advantages to Grimshaw of developing new products.
Advantage 1: .............................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Advantage 2: .............................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Do you think the Government of country T should help businesses such as Grimshaw set up
in its country? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]

8
4 Tebo has recently been made redundant from his job as a car mechanic. He is thinking of setting
up his own business. Even though he has no management experience, he knows that managing
cash flow will be important to the success of the business. Tebo is considering whether to apply for
a FIXIT franchise. This franchise would cost $15 000, which would use all of his savings. FIXIT is a
car repair franchise, with 36 franchisees.
(a) What is meant by ‘made redundant’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(b) Identify two functions of management that Tebo might have to perform.
Function 1: .................................................................................................................................
...................................................................................................................................................
Function 2: .................................................................................................................................
...............................................................................................................................................[2]
(c) Explain why managing cash flow will be important for Tebo’s business.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[4]
© UCLES 2015 0450/11/O/N/15

9
(d) Identify and explain two factors Tebo should consider when deciding where to locate his
business.
Factor 1: ....................................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Factor 2: ....................................................................................................................................
...................................................................................................................................................
Explanation: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
(e) Do you think that buying a FIXIT franchise is the best way for Tebo to start his business?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[6]
© UCLES 2015 0450/11/O/N/15

10
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© UCLES 2015 0450/11/O/N/15

11
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© UCLES 2015 0450/11/O/N/15

12
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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 International
Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after
the live examination series.
© UCLES 2015 0450/11/O/N/15


maximum raw mark 80
Cambridge is publishing the mark schemes for the October/November 2015 series for most
Cambridge IGCSE®, Cambridge International A and AS Level components and some

1 (a) What is meant by ‘average cost’? [2]
Clear understanding [2] e.g. Total cost divided by the total number of units produced
Some understanding [1] e.g. cost to make one product/cost per unit
(b) Calculate the output per employee per week in 2014. [2]
Good application [2] e.g. 520

Some application [1] e.g. total output/number of employees or 260 000/500
Note: ignore $ sign
(c) Identify and explain two possible advantages to TWH of using batch production. [4]
Knowledge [2 × 1] – award 1 mark for each relevant advantage [max 2]

Application [2 × 1] – award 1 mark for each relevant explanation in context of TWH

• some variety in workers’ jobs [k] leading to better motivation [app]
• allows more variety of products to be made [k] so can respond to changes in demand for
different toys [app]
• if machinery breaks down other work can continue [k] so could improve efficiency [app]
• flexible way of working [k]
• economies of scale/bulk buying [k] so lower average costs [app]
• More output than job production [k]
Application marks may be awarded for appropriate use of the following: relevant use of
numbers, toys, motivation, average cost, efficiency, new technology
Do not accept cheaper, faster, more output (if just this is stated)

(d) Identify and explain two ways that TWH could improve the motivation of its
employees. [6]
Knowledge [2 × 1] – identification of relevant way [max 2]

Application [2 × 1] – award 1 mark for each way if relevant reference made to TWH

• Job rotation [k] swapping between making different toys [app] they are not bored doing
the same thing [an]
• training [k] on the new technology [app] so employees feel valued [an]
• better communication with management [k] so workers feel that they are important to the
business [an] so efficiency improves [app]
• improve pay [k] they pay $6 [app] as pay $.50 less per hour [an] OR bonuses/piece rate
[k] so make more toys [app] to get paid above their usual wage [an]
• improved working conditions/environment [k]
Note: other options acceptable e.g. fringe benefits (allow only once), job enrichment,
promotion
Do not accept work harder alone as analysis because a reason for this must be given
numbers, toys, average costs, efficiency, new technology.
(e) TWH can either use retained profit or a long term loan to finance the purchase of new
technology. Which option do you recommend TWH should use? Justify your answer.
[6]
Knowledge [1] – award 1 mark for identification of relevant point(s) [max 1]

Application [1] – award 1 mark if relevant reference made to TWH’s business
Analysis [2] – award up to 2 marks for relevant development of point(s)
Evaluation [2] – justified decision as to which source of finance is best option to use
For 6 marks must explain why chosen source is the better option for this business

Retained profits–
• no need to repay/readily available [k] which can help keep average costs low [app] so no
time wasted in trying to secure the finance [an]
• may not have sufficient funds available [k] so might still need a bank loan [an]
• no funds available for other uses [k]
Long term loan –

• can plan repayments over time/know repayments [k]
• interest costs to pay [k] which would increase average costs [app] which has to be repaid
whether they make a profit or not [an]
• have retained profits available in case of need [k]
Note: Candidate’s final decision can be for either option.
numbers, toys, lower average costs.

2 (a) What is meant by a ‘private limited company’? [2]
Clear understanding [2] e.g. a business whose shares cannot be sold to the general public
[2] Or shares only sold to family and friends [2]
Some understanding [1] e.g. outlines general features of limited companies e.g. have limited
liability/separate legal identity from owners/can sell shares/incorporated
Do not accept in private sector/no Government involvement as generic statement also

applies to unlimited businesses.
(b) Identify two causes of business failure. [2]
Knowledge [2 × 1] 1 mark per cause

• lack of management skills
• actions of competition
• change in government laws
• poor product range/outdated products
• lack of demand/recession
• lack of/poor market research
• lack of finance/cash flow problems
• diseconomies of scale/over expansion
Note: points could refer to either new or established business. Accept any reasonable
answer.
(c) Identify and explain two diseconomies of scale that Ramford might experience. [4]
Knowledge [2 × 1] – award 1 mark for each relevant diseconomy [max 2]

Application [2 × 1] – award 1 mark for each relevant explanation in context of Ramford

• Poor communication [k] as messages need to be sent/received from 4 factories [app]
• Low morale/motivation [k] as worried products they make might be cut [app]
• Slow decision making [k] as 80 products to consider [app]
• Lack of control [k]
Application marks may be awarded for appropriate use of the following: calculations/use of
numbers, factories, 80 products, reduced profit, financial performance, wide range, private
limited company.

(d) Identify and explain two factors that Ramford should consider in deciding which
products to remove from its product range. [6]
Knowledge [2 × 1] – identification of relevant factor [max 2]

Application [2 × 1] – award 1 mark for each way if relevant reference made to this business

• Stage in product life cycle [k] if some foods are in decline [app] few people are likely to
be buying them anyway [an]
• Availability of substitutes/competition [k] if many breakfast cereals [app] so might not be
cost effective to keep making it [an]
• Cost of producing each product [k] as worried about financial performance [app] might
want to stop making expensive items [an]
• Current level of sales/popularity/demand [k] as profits falling [app] need to remove the
least popular lines [an]
• Not suit current season [k]
Application marks may be awarded for appropriate use of the following: calculations/use of
numbers, food, cereal, ice cream, factories, 80 to 10 products, reduce profit, financial
performance.
(e) Do you think the Finance Director is right to be worried about the financial
performance of Ramford in 2014? Justify your answer using the data in Table 2 and
appropriate ratios. [6]

Application [1] – award 1 mark if relevant reference made to this business
Evaluation [2] – justified decision as to whether Ramford should be worried about its
performance
Points include:
• Sales down [k] which is a 25% fall [app + an]
• (net) profit down [k] by $10m [app]
• Profit margin increased [k] to 40% [app+ an] showing better control of fixed costs [an]
• ROCE has fallen [k] to 20% [app + an] showing a lower return on each $ invested [an]
• Financial Director is aware of the problem [k] as they are cutting the number of products
to 10 [app]
Note: using percentage calculation or ratio award application and analysis. Max 1 for
application.
Application marks may be awarded for appropriate use of the following: appropriate
calculations/use of numbers, diseconomies of scale, four factories, 80 to 10 products

3 (a) What is meant by ‘mass market’? [2]
Clear understanding [2] where there are a large number of (potential) customers willing to
buy product(s). Allow: a large number of sales of a product
Some understanding [1] lots of customers/sales/buyers/people, shown by comparison to
niche
(b) What is meant by ‘market share’? [2]
Clear understanding [2] e.g. percentage of the total market sales [1] held by one brand or
business [+1] OR business sales/total market sales × 100
Some understanding [1] e.g. share of all sales made/percentage of customers a business
has
(c) Identify and explain two advantages of market research to Grimshaw. [4]
Knowledge [2 × 1] – award 1 mark per advantage.

Application [2 × 1] – award 1 mark for each relevant explanation (i.e. show how it is an
advantage to Grimshaw)
Advantages could include:

• greater awareness of consumer needs [k] so can adapt its phone/features to match what
customers want [app]
• able to forecast likely future trends [k] so can improve focus of new product development
[app]
• appreciate the strength of competitors [k] so can change marketing strategy to compete
• knowledge of consumers’ views of company products/image [k] as first time entering
country T [app]
• reduces risks/products launched with more confidence [k] as know what features
customers want [app]
• help gain competitive advantage [k] as can set effective pricing/promotion strategy to suit
country T’s customers [app]
• produce the correct amount of product [k] to avoid wastage of expensive parts [app]
• helps set price [k]
Note: knowledge points must relate to purpose of market research.
Application marks may be awarded for appropriate use of the following: mobile phones,
market share increased (by 3%), mass market, factory, new model, multinational,
technology, country T

(d) Identify and explain two advantages to Grimshaw of developing new products. [6]
Knowledge [2 × 1] – identification of relevant point [max 2]

Application [2 × 1] – award 1 mark for each way if relevant reference made to Grimshaw’s
business

• gain competitive advantage [k] to target other phone users [app] so increasing their
sales [an]
• Keep customers [k] in a competitive market [an]
• spread risk [k] so if demand for one model falls [app] they have new ones to rely on [an]
• expanding into new markets/market segments [k] so able to increase market share [app]
as targeting more customers [an]
• can charge a higher price [k]
Note: economies of scale alone is too vague unless it is appropriately explained

Application marks may be awarded for appropriate use of the following: mobile phones,
market share, mass market, factory, new model, multinational, technology.
(e) Do you think the Government of country T should help businesses such as Grimshaw
set up in its country? Justify your answer. [6]

Application [1] – award 1 mark if relevant reference made to the benefit of the country
Evaluation [2] – justified decision as to whether the Government of country T should help
businesses such as Grimshaw to set up in its country

• jobs created [k] as build factory there [app] so reduces unemployment [an]
• investment in infrastructure [k] to transport parts to/from factory [app] so locals benefit
from new roads [an]
• new ideas [k] which could improve local business practices [an]
• taxes paid [k] which Government could use to pay for public services [an]
• more choice for consumers [k] as will have access to new model [app]
• more competition [k] so consumers could benefit from lower prices/force local
businesses to close [an]
• exploitation of resources [k]
• lack of respect for local customs and cultures [k]
• flow of profits out of a country [k]
Application marks may be awarded for appropriate use of the following: mobile phones, mass
market, factory, new model, can build anywhere, multinational.
Note: Candidate’s final decision can be either for or against the statement.

4 (a) What is meant by ‘made redundant’? [2]
Clear understanding [2] e.g. The worker is no longer required through no fault of their own [2]
Some understanding [1] e.g. means that his job role has gone [1]
Note: If the answer includes dismissed, fired or sacked plus any relevant point maximum 1
mark
(b) Identify two functions of management that Tebo might have to perform. [2]
Application: [2 × 1] 1 mark per function

Points might include: organise/co-ordination, planning, control, decision making or practical
examples e.g. motivation, recruitment, delegation, strategic tasks
Do not accept any task which can be completed by any employee e.g. pay bills, training
(c) Explain why managing his cash flow will be important for Tebo’s business. [4]
Knowledge [2] award up to 2 marks for identification of points/knowledge of cash flow

Application [2] award up to 2 marks for relevant explanation in context of Tebo’s business

• Cash flow needed to pay its day to day expenses [k]
• Business could fail due to lack of cash [k] if used all his savings to buy franchise [app]
• Help reduce need for finance [k] for a new business [app]
• Able to predict/plan for cash flow problems [k]
• Help a business get a loan [k]
Application marks may be awarded for appropriate use of the following: car repair, no
management experience, $15 000/all his savings, new business, FIXIT franchise.

(d) Identify and explain two factors Tebo should consider when deciding where to locate
his business. [6]
Knowledge [2 × 1] – identification of relevant factor [max 2]

Application [2 × 1] – award 1 mark for each way if relevant reference made to Tebo’s
business

• Demand/customers [k] – he needs to be convenient so that he can get sales [an];
• personal preference [k] – he might want to locate near his home [an],
• cost of property/rent [k] if too high he might not be able to afford it [an] especially if used
all his savings for the franchise [app];
• suitable/size of space [k] as will need access for cars [app]
• legal controls [k] as garage is likely to be noisy [app] there might be rules which restrict
where he can go [an]
• competition [k]
• franchisor’s views [k] if he becomes a franchise [app]
• transport links/access [k]
• availability of suitable employees [k] as need mechanics [app]
• near to supplier [k] because the car repair equipment might be heavy [app]
Note: accept franchisor as the supplier if it is made clear that they supply
materials/equipment.
Application marks may be awarded for appropriate use of the following: franchisees, car
repair, $15 000/all his savings, new business, redundant, FIXIT franchise, cash flow
important, workshop.

(e) Do you think that buy a FIXIT franchise is the best way for Tebo to start his business?
Knowledge [1] – award 1 mark for identification of relevant point (s) [max 1]
Application [1] – award 1 mark if relevant reference made to Tebo/FIXIT business
Evaluation [2] – justified decision as to whether buying a FIXIT franchise is the best way for
Tebo to start his business

• Less chance of business failure [k] if he set up his own business, it would take time to
build a reputation [an]
• Training provided [k] as he has no management experience [app]
• Lower advertising/training costs [k] as he has used all his savings to buy the franchise
[app] so he may not be able to afford advertising/training [an]
• Supplies from central source [k] so less suppliers to deal with [an] so has more time to
do repairs [app]
• Banks more likely to lend to franchisee [k] the $15000 needed [app] as seen as lower
risk [an]
• Recognition [k] FIXIT already has 36 franchisees [app]
• Lack of control [k] as FIXIT will have a say in many decisions [an]
• Problem at one franchise affects all others [k] of the 36 [app] might lower his revenue
[an]
• Less profits as only received a percentage [k] so if successful, it will not maximise profits
[an]
• Does Tebo want the responsibility? [k]
Application marks may be awarded for appropriate use of the following: 36 (franchisees), car
repair, no management experience, $15 000/all his savings, cash flow important.
Note: Candidate’s final decision can be either for or against the statement.


INSERT
1 hour 30 minutes
*7777360338-I*

DC (LK/AR) 97973/3
2
Camper Companions (CC)
Camper Companions (CC) is a large public limited company set up 20 years ago in country X. It
manufactures a wide range of camping equipment. Most of its customers own a tent or caravan.
Originally the company had one factory but now it has expanded to three factories. The directors want
the company to continue to expand. Recently the directors of CC have considered merging with a
competitor in country Z which manufactures a similar range of camping equipment.
Each of CC’s three factories employs 100 skilled workers. Most of these workers are part-time and they
are paid lower wage rates than workers in other similar businesses. The factories use many machines
in the production of CC’s products. The directors have not allowed workers to be members of a trade
union but they are thinking of changing this decision.
CC only sells its camping equipment in country X but the directors plan to start manufacturing and
selling the equipment in several countries including country Z. Government grants are available for
building new factories in country Z.
Appendix 1
awning
camping chairs
water carrier
camping lights
camping cooker
camp table
We beat our competitors on price on all our camping range.

Products sold through all good camping shops.
© UCLES 2015 0450/21/INSERT/O/N/15

3
Appendix 2
Break-even chart of CC’s bestselling product – a camping cooker
total revenue
$
total cost
20 000 fixed cost
0 1000 2000 output / year
Price = $40 per cooker

Variable cost = $20 per cooker
Appendix 3
To: Finance Director

From: Managing Director
Date: 10 October 2015
Re: Continued expansion of CC
We have a large number of loyal customers who buy our camping equipment in country X. However,
we need to maintain our competitiveness and start to sell in other countries.
As a public limited company we have to maintain profitability. If CC’s share price falls we could be at
risk of a takeover.
© UCLES 2015 0450/21/INSERT/O/N/15

4
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© UCLES 2015 0450/21/INSERT/O/N/15

* 7 7 7 7 3 6 0 3 3 8 *

1 hour 30 minutes

This document consists of 10 printed pages, 2 blank pages and 1 Insert.
DC (LK/AR) 97972/4
2
1 (a) Identify and explain one advantage and one disadvantage to CC of being a public limited
company.
Advantage: ................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Disadvantage: ...........................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
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3
(b) CC needs to communicate a new health and safety regulation to its factory workers. Consider
the advantages and disadvantages of each of the following three ways CC could use.
Recommend the most effective way to use. Justify your answer.
Posters on factory noticeboards: ..............................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
CC website: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Text (mobile phone message) to factory workers: .....................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

4
2 (a) CC’s Marketing manager wants to carry out market research. Identify and explain two factors
which could influence the accuracy of the market research data.
Factor 1: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Factor 2: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
© UCLES 2015 0450/21/O/N/15

5
(b) CC’s bestselling product is a good quality camping cooker which is similar to those produced
by competitors. Explain how each of the following three elements of the marketing mix could
be used to market CC’s camping cooker. Justify why each element is important to the success
of this product.
Price: .........................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Promotion: ................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Place: ........................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

6
3 (a) Identify and explain two benefits to CC workers of joining a trade union.
Benefit 1: ...................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Benefit 2: ...................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
© UCLES 2015 0450/21/O/N/15

7
BLANK PAGE

8
Option 1 – Increase the price of the cooker to $60
total revenue
$
total cost
20 000 fixed cost
Option 2 – Decrease the variable cost of the cooker to $10
total revenue
$
total cost
20 000 fixed cost
© UCLES 2015 0450/21/O/N/15

9
(b) The charts on the opposite page show the break-even point using a price of $40 per cooker
and variable cost of $20 per cooker.
Show what happens to the break-even point for each of the following options by drawing on
each chart on the opposite page:
• Option 1 – Increase the price of the cooker to $60
• Option 2 – Decrease the variable cost of the cooker to $10
Consider these two options for increasing the profitability of the cooker. Recommend which
option the directors should choose. Justify your answer.
Option 1: ...................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Option 2: ...................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

10
4 (a) Identify and explain one advantage and one disadvantage to CC of employing skilled workers
in the factories.
Advantage: ................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Disadvantage: ...........................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
© UCLES 2015 0450/21/O/N/15

11
(b) CC wants to expand into country Z and has the choice of merging with a competitor in country
Z or setting up its own factory in country Z. Consider these two options and recommend which
one CC should choose. Justify your answer.
Merging with a competitor in country Z: ....................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Setting up its own factory in country Z: .....................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]
© UCLES 2015 0450/21/O/N/15

12
BLANK PAGE
© UCLES 2015 0450/21/O/N/15



1 (a) Identify and explain one advantage and one disadvantage to CC of being a public
limited company. [8]
Knowledge (2× 1) – award one mark for each advantage/disadvantage identified

Analysis (2 × 1) – award one mark for an explanation of each advantage/disadvantage
Application (2 × 2) – award two application marks for each advantage/disadvantage
Award one mark for each advantage/disadvantage (maximum of two), such as:
Advantages:
• Raise large amounts of capital through share issue
• No limit to the number of shares sold
• Shares can be sold to the public
• Shares can be sold on the stock exchange
• Limited liability
• Company has separate legal identify for shareholders
• Continuity of company if shareholder dies
Disadvantages:
• Accounts are published
• Risk of takeover
• Divorce between ownership and control
• Loss of control as increased number of shareholders
Award a maximum of three additional marks for each advantage/disadvantage – 2 of which

must be applied to this context.
Indicative response:
Shares can be sold on the stock exchange (k) and this means that CC can raise large
amounts of capital to finance the building of new factories in other countries (ap). CC will not
have to pay interest on this source of finance and so costs of producing camping equipment
are lower (ap) as only dividends may be paid when profits are gained (an).
Possible application marks: recognition that the plc is large; business wants to expand;
manufactures camping equipment; customers have tents or caravans; merging with a
competitor; three factories; capital intensive method of production; camping cooker; prices
just below competitors prices; CC share price; takeover; equipment listed from Appendix 1.

(b) CC needs to communicate a new health and safety regulation to its factory workers.
Consider the advantages and disadvantages of each of the following three ways CC
could use. Recommend the most effective way to use. Justify your answer. [12]
Posters on Easily seen by factory workers Not seen by other employees

factory Cheap to produce May not be noticed
noticeboards Placed in relevant position Easily removed/damaged
Remains visible for long period Not know whether or not poster has been
of time read
CC website Seen by a large number of Only seen if employee accesses the

people – all employees website
Visual images enhances the May not have access to Internet
message
Cost to set up (can be argued
as a disadvantage)
Text (mobile Directly reaches worker May not be noticed

phone) Send it to multiple people at Phone switched off
message to once May not own a phone
factory Can be expensive to send out text
workers messages
Too easily deleted
Communication delays/network errors
Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-based mark scheme

below.
Level 3 At least 2 × Level 2 +

9–10 marks for well justified recommendation as to the most effective method
of communication to use.
7–8 marks for some limited judgement shown in recommendation as to the
most effective method of communication to use.
Level 2 4–6 marks

Detailed discussion of advantages and/or disadvantages of each
communication method.
Level 1 1–3 marks

Outline of advantages and/or disadvantages of each communication method.

Level 1 1 mark for each L1 statement (max of 3 marks) e.g. Posters seen by target
workers as they will be in the factory and pass by the noticeboard.
Level 2 one L2 explanation can gain 4 marks and a further mark can be awarded for
each additional L2 explanation (max 6 marks) e.g. Posters seen by target
workers as they will be in the factory and pass by the noticeboard. This is a cost
effective method to use as the posters will be cheap to produce. However, it will
only be seen by factory workers who pass by those particular noticeboards and
there may be many workers who are not working near or walk past these
noticeboards and will not see the poster. (4 marks for L2 answer).
Level 3 for L3 to be awarded there needs to be at least two L2 marks awarded and then
a recommendation which justifies the most effective method to use.
Award up to 2 additional marks for relevant application.
Possible application marks: in country X; manufactures camping equipment; three factories;

100 skilled workers in each factory; many machines in factory; not allowed trade union
membership; public limited company; equipment listed from Appendix 1.

2 (a) CC’s Marketing manager wants to carry out market research. Identify and explain two
factors which could influence the accuracy of the market research data. [8]
Knowledge [2 × 1] – award one mark for each relevant factor

Analysis [2 × 1] – award one mark for a relevant explanation for each factor
Application [2 × 2] – award two application marks for each factor
Award one mark for each relevant factor (maximum of two), such as:
• Ensuring the information is up-to-date

• Ensuring a suitable size of sample is selected
• Ensuring a suitable sample method is used/aimed at target market
• Ensure the questions on a questionnaire are well phrased
• Check who carried out the research
• Check where the research was carried out
• Check if there was any bias/dishonesty
• Method of market research used
Award a maximum of three additional marks for each explanation – 2 of which must be
applied to this context – of how it can be ensured that the information is accurate.
To ensure the information is up-to-date [k] because if the market research had been carried
out a few years earlier then customer camping habits may have changed [an]. The Marketing
manager needs to ensure that the information has been carried out recently so it reflects
current camping habits (ap) and then CC will know whether the current customers are happy
with its camping equipment (ap).
Possible application marks: in country X; manufactures camping equipment; customers

have tents or caravans; country Z; camping shops; camping cooker; prices just below
competitors prices; equipment listed from Appendix 1; Appendix 2 information such as price
of cooker = $40 or variable cost per cooker = £20.

(b) CC’s bestselling product is a good quality camping cooker which is similar to those
produced by competitors. Explain how each of the following three elements of the
marketing mix could be used to market CC’s camping cooker. Justify why each
element is important to the success of this product. [12]
Price Competitive pricing as they have several competitors

Need to make sure costs are covered – cost plus pricing
Psychological pricing – e.g. $39.99
Penetration pricing – to enter new market
Promotion Posters on campsite noticeboards

Discount vouchers in specialist camping magazines
Advertise on holiday company websites
Examples of promotional offers e.g. buy camping cooker and get
another item free
Place CC equipment is sold through camping shops

Could be sold direct to customers through the website
Sell through other outlets as well as camping shops
Open new stores near camping sites/activity centres

below.
Detailed discussion of each of the elements of the marketing mix.
Developed reasoning for the course of action suggested
Justification of why the description of the element of the marketing mix will lead
to successful sales of the camping cooker.
Level 1 1–3 marks

Outline the elements of the marketing mix.

Level 1 1 mark for each L1 statement (max of 3 marks) e.g. Competitive pricing
each additional L2 explanation (max 10 marks) e.g. Competitive pricing needs
to be used with the marketing of the camping cooker as there are many
competitors and so CC cannot have very different prices to the other cookers.
(4 marks for L2 answer).
NB – do not reward Cooker as an application mark as it is mentioned in the question.
Possible application marks: in country X; loyal customers, need to maintain our

competitiveness; manufactures camping equipment; customers have tents or caravans;
selling into country Z; camping shops; prices just below competitors prices; equipment listed
from Appendix 1; Appendix 2 information such as price of cooker = $40 or variable cost per
cooker = £20.

3 (a) Identify and explain two benefits to CC workers of joining a trade union. [8]
Knowledge [2 × 1] – award one mark for each relevant benefit

Analysis [2 × 1] – award one mark for a relevant explanation for each benefit
Application [2 × 2] – award two application marks for each benefit
Award one mark for each relevant benefit (maximum of two), such as:
• Gives strength in numbers/collective bargaining so more likely to achieve demands

• Provides services such as insurance
• Improved pay
• Improved working conditions/health and safety
• Representation in grievances
• Represents the views of the workers
• Advice can be given if the worker has problems
• Legal support if the worker has problems
• Access to training/education
• Social activities/clubs
• Unions membership benefits e.g. discounts
Award a maximum of three additional marks for each explanation of the benefits – 2 of
which must be applied to this context.
Being a member of a trade union gives strength in numbers so workers are more likely to
achieve their demands [k] rather than if one worker tries to achieve the demands on their
own (an). At the moment CC does not allow a worker to be a member of a trade union (ap).
Production workers are only paid low wages and they may want to be members of a trade
union in order to gain a pay rise (ap).
Possible application marks: paid lower wages than wages paid to workers in similar
businesses; part-time workers; use machinery in the factory; in country X; manufactures
camping equipment; merging with a competitor; three factories; 100 skilled workers in each
factory; capital intensive method of production; not allowed trade union membership;
country Z; camping cooker; public limited company; takeover; equipment listed from
Appendix 1.

(b) Show what happens to the break-even point for each of the following options by
drawing on each chart. Consider these two options for increasing the profitability of
the camping cooker. Recommend which option the directors should choose. Justify
your answer. [12]
Option 1 – Increase the price of the camping cooker to $60
B/E = $20 000/($60–$20) (L1) = 500 (L2)
Revenue increases to $120 000 – difference of $40 000 (L1)
B/E at a lower output – increase profit – But – will sales be maintained with higher price?
Total revenue
$
Total cost
20 000 Fixed cost
500 1 000 2 000 Output/year
Option 2 – Decrease the variable cost of the camping cooker to $10
B/E = $20 000/($40–$10) (L1) = 667 (accept 666) (L2)
Variable cost decreases to $20 000 – difference of $20 000 (L1)
B/E at a lower output – takes longer to gain higher profit – But – cheaper materials may
reduce quality
$ Total revenue
Total cost
20 000
Fixed cost
667 1 000 2 000 Output/year


below.
Level 3 Correct break-even calculations of output for both options +
9–10 marks for well justified recommendation as to the best option to choose.
best option to choose.
Level 2 4–6 marks

Break-even level of output correctly calculated.
Comments on what happens to the break-even output/profitability.
Recommendation but no correct break-even output calculated.
Level 1 1–3 marks

States about the options and what will happen to the break-even
output/profitability.
Level 1 1 mark for each L1 statement – increased price may lead to increased profit.
(max of 3 marks)
each additional L2 explanation. (max 6 marks) Break-even output of option 1 is
500. (L2)
Level 3 For L3 to be awarded there needs to be both break-even outputs correctly

calculated and then a recommendation which justifies which is the best option
to choose.
Award up to 2 marks for application – one mark for each correct line on the graphs
(label not required)

4 (a) Identify and explain one advantage and one disadvantage to CC of employing skilled
workers in the factories. [8]
Knowledge [2 × 1] – award one mark for each relevant advantage/disadvantage

Analysis [2 × 1] – award one mark for a relevant explanation for each
advantage/disadvantage
Application [2 × 2] – award two application marks for each advantage/disadvantage
Award one mark for each relevant advantage/disadvantage (maximum of two), such as:
Advantage Increased productivity/More efficient

Less training required/Reduced training costs
Reduces supervision
Can train other workers
High quality products
Fewer errors/Less waste
Disadvantage Higher wages paid

Increased wage costs
May be more difficult to recruit
Skilled workers may be specialised in just one area/less flexible
Award a maximum of three additional marks for each advantage/disadvantage – 2 of which

must be applied to this context.
Employing skilled workers will increase labour productivity (k) and this means there will be a
greater number of camping cookers produced (ap) and at a lower unit cost (an). This may
lead to higher profits and higher dividends paid to shareholders (ap).
Possible application marks: loyal customers, need to maintain competitiveness; other

businesses may pay higher wages to attract these workers; business wants to expand;
many machines used in factory; part-time workers; in country X; manufactures camping
equipment; three factories; 100 skilled workers in each factory; capital-intensive method of
production; not allowed trade union membership; country Z; prices just below competitors
prices; public limited company; takeover; equipment listed from Appendix 1.

(b) CC wants to expand into country Z and has the choice of merging with a competitor in
country Z or setting up its own factory in country Z. Consider these two options and
recommend which one CC should choose. Justify your answer. [12]
Merging with a Already established in the Less control over other company
competitor in market May be disagreements between staff
country Z Know target market well in the two firms
Existing workforce of May incur redundancy costs
competitor has necessary
skills
No need to build own factory
May be cheaper
Setting up its own Choose location etc. Little knowledge of new market
factory in country Z New equipment will be up to May be different culture
date Costs of setting up may be more
Choose own staff expensive
Government support Need to recruit new staff

below.

9–10 marks for well justified recommendation as to the best way to increase
sales compared to the other way.

best way to increase sales.
Level 2 4–6 marks

Detailed discussion of advantages and/or disadvantages of each option.
Level 1 1–3 marks

Outline of advantages and/or disadvantages of each option.

Level 1 1 mark for each L1 statement (max of 3 marks) e.g. The company is already
established in the market.
each additional L2 explanation (max 6 marks) e.g. The company is already
established in the market therefore it will be familiar with the culture and trends
in the camping market in country Z. This will save CC time and money in
carrying out market research as it will not need to do this. (4 marks for L2
answer + 1 application mark for mentioning trends in the camping market in
country Z).
Level 3 For L3 to be awarded there needs to be at least two L2 marks awarded and
then a recommendation which justifies which option CC should choose.
Possible application marks: existing business is already large; set up 20 years ago; in
country X; manufactures camping equipment; three factories; 100 skilled workers in each
factory; capital intensive method of production; not allowed trade union membership; public
limited company; equipment listed from Appendix 1; Government grants available; similar
range of camping equipment.

* 4 6 8 8 3 8 7 5 2 5 *

1 hour 30 minutes

DC (NF/AR) 97916/2
2
1 Gomez is the manager of a small computer repair business. Table 1 shows some costs and prices
for his business. As it is a competitive market, Gomez knows it is important to maintain customer
loyalty and revenue. Gomez knows that a lower break-even point would help improve profits. He
thinks the best way to lower the break-even point is to raise prices.
Table 1: Cost and price information
Price per customer $30

Variable cost per customer $20
Average number of customers per month 140
Monthly fixed costs $1000
(a) What is meant by ‘revenue’?
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [2]
(b) What is meant by ‘variable cost’?
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [2]
(c) Using the information in Table 1, draw a break-even chart for Gomez’s business. [4]
5000
4500
4000
3500
3000
costs and revenue
($ per month) 2500
2000
1500
1000
500
0
0 25 50 75 100 125 150
number of customers per month
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3
(d) Identify and explain two methods that Gomez could use to maintain customer loyalty.
Method 1: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Method 2: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]
(e) Gomez thinks the best way to lower the break-even point is to raise prices. Do you agree?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]

4
2 Country S is enjoying an economic boom. During this time, businesses have increased their profits
and unemployment has fallen. The only problem is inflation. All Active is a private limited company.
It owns 20 sport and fitness clubs in country S. The Managing Director said: ‘This is a good time
to expand by opening 5 more clubs. Finding the right locations is important. We will need to recruit
more employees.’ He cannot decide whether it would be an advantage for All Active to become a
public limited company.
(a) Identify two stages of the recruitment process.
Stage 1: ....................................................................................................................................
Stage 2: ............................................................................................................................... [2]
(b) What is meant by an ‘economic boom’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [2]
(c) Explain how falling unemployment might affect All Active.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [4]
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5
(d) Identify and explain two factors that All Active should consider when deciding on the location
of the new clubs.
Factor 1: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Factor 2: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]
(e) Consider the advantages and disadvantages for All Active of being converted to a public
limited company. Do you think All Active should become a public limited company? Justify
your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]

6
3 Si and Ramon are friends. They want to set up a photography business. They would take pictures
at weddings, birthdays and other special events. The business will be a partnership. Based on their
primary market research, Si believes there is enough demand. Ramon has produced a business
plan which shows they need $8000 for a shop and $4000 for equipment. They plan to spend $500
on promotion, but cannot agree on the best method to use.
(a) What is meant by a ‘partnership’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [2]
(b) Identify two methods of primary market research that Si and Ramon might have used.
Method 1: ..................................................................................................................................
Method 2: ............................................................................................................................. [2]
(c) Identify and explain two possible sources of finance that they could use to obtain the
equipment.
Source 1: ..................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Source 2: ..................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [4]
© UCLES 2015 0450/11/M/J/15

7
(d) Identify and explain two advantages to Si and Ramon of having a business plan.
Advantage 1: .............................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Advantage 2: .............................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]
(e) Consider two methods of promotion that would be suitable for Si and Ramon to use. Which of
these two methods would be the most appropriate? Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]

8
4 Javid is a company that manufactures a range of luxury chocolates using batch production. Over
the past year, profit has fallen due to increased competition. In order to cut costs, the Finance
Director has suggested the company introduces new technology into the production process. The
Human Resources Director is not sure that workers would benefit from the introduction of new
technology.
(a) What is meant by ‘batch production’?
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [2]
(b) Identify two advantages (other than cutting costs) to the company of using new technology.
Advantage 1: .............................................................................................................................
...................................................................................................................................................
Advantage 2: ............................................................................................................................
.............................................................................................................................................. [2]
(c) Identify and explain two reasons why the quality of chocolates might be important to this
company.
Reason 1: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
.............................................................................................................................................. [4]
© UCLES 2015 0450/11/M/J/15

9
(d) Identify and explain two problems that a fall in profit might cause for the company.
Problem 1: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Problem 2: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]
(e) Do you think that the introduction of new technology would benefit Javid’s workers? Justify
your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................. [6]
© UCLES 2015 0450/11/M/J/15

10
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© UCLES 2015 0450/11/M/J/15

11
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© UCLES 2015 0450/11/M/J/15

12
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© UCLES 2015 0450/11/M/J/15


maximum raw mark 80
Cambridge is publishing the mark schemes for the May/June 2015 series for most

Cambridge IGCSE – May/June 2015 0450 11
1 (a) What is meant by ‘revenue’? [2]
Clear understanding [2] Income/money made by the business [1] from the sale of goods or
services [1] OR Quantity sold × price per unit [2]
Some understanding [1] e.g. Income/money made by the business [1]
(b) What is meant by a ‘variable cost’? [2]
Clear understanding [2] costs that change [1] with the level of output produced/sales made
[1]
Some understanding [1] e.g. costs that change [1] or costs that vary with sales/output [1]
Do not accept examples of variable costs
Do not accept the phrase ‘costs that vary’ as this is re-wording the question
(c) Using the information in Table 1, draw a break even chart for Gomez’s business. [4]
• Accurately plotted TR line [1]: start at 0, at 100 units is $3000

• Accurately plotted TC line [2] in total: start at $1000 [1] $3000 at 100 units [1]
• Labelling: TR and TC [1] only if layout is correct. TR must start at zero and lines must
cross
• Notes:
• Accurately drawn unlabelled break-even chart [3].
• For 4 marks TR [revenue] and TC must be clearly labelled.
• Max 1 mark for inaccurately plotted break-even chart with TR and TC correctly labelled.

(d) Identify and explain two methods that Gomez could use to maintain customer loyalty.
[6]
Knowledge [2 × 1] – award one mark for each method identified [max 2]
Application [2 × 1] – award 1 mark if relevant reference made to Gomez’s business

• Communicate with customers e.g. newsletters, social media [k] so that they remember
your business [an] when they next need computer repaired [app]
• Offer good quality service [k] so that customers want to return [an] rather than go to one
of its many rivals [app]
• Extra services [k] e.g. delivery/credit facilities/after sales/training
• Offer rewards [discounts] to existing customers/loyalty card [k] such as free software
[app] so consumers have an incentive to return [an]
• Train staff [k] so they are able to offer a good quality service [an]
• Ask for feedback e.g. surveys [k] to provide the repairs/service [app] that customers
require [an]
• Resolve complaints quickly [k] so that customers don’t go to rivals [an] to repair their
computer [app]
• Application marks may be awarded for appropriate use of the following: competitive
market/many rivals, computer repairs, software, small business.
Each application to be awarded only once.
(e) Gomez thinks the best way to lower the break-even point is to raise prices. Do you
agree? Justify your answer. [6]
Knowledge [1] – award 1 mark for identification of relevant issue(s) [max 1]

Application [1] – award 1 mark if relevant reference made to Gomez’s business
Evaluation [2] – justified decision made as to whether raising prices is the best way lowering
the break-even point. Candidate’s final decision can be either for or against the statement.

• raise in price will increase revenue [k] so need to do less repairs [app]
• effect of elasticity [k] if demand price elastic, increasing prices will see a greater fall in
demand [an]
• depends on actions of competitors [k] as it is a competitive market [app]
• is the business able to lower costs [k]
• lower costs [k] might mean quality of work is reduced [an] so lose customer loyalty [app]
Application marks may be awarded for appropriate use of the following: use of break-even
information, competitive market, small computer shop, customer loyalty.
2 (a) Identify two stages of the recruitment process. [2]
Knowledge [2 × 1] award one mark per stage identified

Points might include: Job analysis, job description, person specification, advertising,
shortlisting, interview, selection.
Note: Answer must be from the business viewpoint not the applicant.

(b) What is meant by an ‘economic boom’? [2]
Clear Understanding [2] – strong rise in level of economic activity OR Period of time when
GDP rising rapidly
Some Understanding [1] – e.g. economy doing well [high GDP] or rise in level of economic
activity or GDP rising
Do not credit characteristics of economic boom as these are stated in the stem
(c) Explain how falling unemployment might affect All Active. [4]
Knowledge [2] award up to 2 marks for identification of points/knowledge of unemployment

Application [2] award up to 2 marks for relevant explanation in context of All Active

• customers have more income [k] so can spend money on luxuries such as leisure
activities [app]
• problem recruiting workers [k] as need more for each club [app]
• higher wages may be needed [k] for the new staff [app]
• more people in work [k] less time to spend at sports club [app]
Application could include: Leisure/sports clubs, new workers/expansion/more clubs, gym

membership, fitness is an elastic product
(d) Identify and explain two factors that All Active should consider when deciding on the
location of the new clubs. [6]
Knowledge [2 × 1] – identification of relevant sources [max 2]

Application [2 × 1] – award 1 mark for each way if relevant reference made to their business

• customers/level of demand[k] need to be in places where people are interested in fitness
[app] as they will get more customers [an];
• availability of suitable land [k] as likely to need a large space [an] to build a sports club
[app];
• government regulations [k] which could stop them from building in some locations [an];
• competitors [k] customers might be loyal to a rival gym [app] so difficult to gain
customers [an]
• suppliers [k] training equipment is heavy [app] so costs of transport will be high [an]
• Infrastructure/transport links/utilities [k]
• access to employees [k] as they will need trainers [app] to help/advise customers [an]
• cost of land/rent [k]
Application marks may be awarded for appropriate use of the following: equipment,
sport/fitness, gym, trainers

(e) Consider the advantages and disadvantages for All Active of being converted to a
public limited company? Do you think All Active should become a public limited
company? Justify your answer. [6]
Knowledge [1] – award 1 mark for identification of relevant issue(s). Positive or negative
points allowed [max 1]
Application [1] – award 1 mark if relevant reference made to All Active’s business
Evaluation [2] – justified decision made as to whether All Active should become a public
limited company. Candidate’s final decision can be either for or against the statement.

Advantages:
• Access to greater sources of finance [k] so help fund expansion [an] of 5 more clubs
[app]
• Greater prestige/status [k] so might be able to attract better managers/employees [an]
Disadvantages:
• More legal requirements to meet [k]
• Already have limited liability [k] as private limited company [app] so is there much benefit
[eval]
• business is already successful [k] as profits have increased [app] so might have funds
for expansion already [an]
• Greater Risk of takeover [k]
Application marks may be awarded for appropriate use of the following: 5 more clubs, private
limited company, fitness, 20 clubs, increasing profits
3 (a) What is meant by a ‘partnership’? [2]
Clear understanding [2] – 2 [or more] people who agree to own and run a business together
[2]
Some understanding [1] – e.g. 2 or more people run a business
Do not accept features
(b) Identify two methods of primary market research that Si and Ramon might have used.
[2]
Application [2 × 1] – award 1 mark for each relevant method
Points could include: questionnaire/survey, interview, consumer panel, observation, focus
group
Note: Do not accept field research/internet – too vague

(c) Identify and explain two possible sources of finance that they could use to obtain the
equipment. [4]
Knowledge [2 × 1] – identification of relevant sources [max 2]


• Bank loan [k] so can spread cost of cameras over a period of time [app]
• Savings [k] so no need to pay interest on the $4000 [app]
• Borrow from family and friends [k]
• Leasing [k] as there may not be enough demand [app]
• Hire purchase [k] so their new business does not have to pay a large one off cost [app]
• Government grant [k]
• Additional partner [k]
Do not accept retained profits or overdraft as this is a new business
Application marks may be awarded for appropriate use of the following: new business,
$4000, partnership, cameras or examples of relevant equipment [not equipment on its own],
business plan
(d) Identify and explain two advantages to Si and Ramon of having a business plan. [6]
Knowledge [2 × 1] – award 1 mark for each relevant advantage [max 2]

Application [2 × 1] – award 1 mark if relevant reference to Si and Ramon’s business

• Support loan applications [k] as bank/lenders will want to know that the $12 500 [app]
can be repaid [an]
• Clear aims/guidance for business [k] so they know what they have to do to get there [an]
• help decision making [k] as Si believe there is customer demand for service before start
[app] so will not waste time and money targeting the wrong people [an]
• helps understand the possible risks [k] as they might not have run a business before
[app]
• provides an estimate of costs [k] for the photography business [app] so they will know
how much they need [an]
• provides a checklist [k] as they set up [app] so that they don’t forget any important task
[an]
Application marks may be awarded for appropriate use of the following:

$12 500/$8000/$4000, $500 photography business, new business, set up

(e) Consider two methods of promotion that would be suitable for Si and Ramon to use.
Which of these two methods would be most appropriate? Justify your answer. [6]
Knowledge [1] – award 1 mark for identification of relevant method(s) [max 1]

Application [1] – award 1 mark if relevant reference made to Si and Ramon’s business
Evaluation [2] – justified decision as to which method of promotion is best option to use
NOTE: For 6 marks must explain why chosen method is better than the other option
Relevant methods might include: advertising [can include leaflets, posters, radio, television,
newspapers, direct mail, social media, websites], sponsorship, promotional pricing (short-
term discounts), special offers, branding, competitions, PR.
Note: do not accept internet – too vague
Application marks may be awarded for appropriate use of the following: – photography,
pictures, new business, $500, partnership, weddings, birthdays, special events
4 (a) What is meant by ‘batch production’? [2]
Clear understanding [2]: e.g. products are made in groups/blocks [1] followed by another
block/group [1]
Some understanding [1]: identifies one distinct feature of batch e.g. made in (small) groups
or sets
Do not accept ‘batch’ as part of answer as stated in question.
(b) Identify two advantages (other than cutting costs) to the company of using new
technology. [2]
Application [2 × 1] award 1 mark per advantage
Points include:
• less errors/wastage/consistent quality
• less risk of injury
• higher output
• able to make new products
• speed of production/efficiency
• 24/7 operation
Note: do not accept less wages or less employees as these are examples of cutting costs

(c) Identify and explain two reasons why the quality of chocolates might be important to
this company. [4]
Knowledge [2 × 1] – identification of relevant reason [max 2]

Application [2 × 1] – award 1 mark for each relevant explanation in context

• helps establishes brand image/loyalty [k] as they make a luxury product [app]
• ensure sales [k] as if they don’t taste right, people won’t buy [app]
• maintain reputation [k] which is important as it is a competitive market [app]
• maintain standards [k]
• no need to replace faulty products [k] which will help reduce costs [app]
• Charge/maintain high prices [k]
• Add value [k]
• Must meet legal requirements [k] for food products [app]
Application marks may be awarded for appropriate use of the following: competitive market,
luxury product, food products, taste.
(d) Identify and explain two problems that a fall in profits might cause for the company.
[6]
Knowledge [2 × 1] – identification of relevant problem [max 2]
Application [2 × 1] – award 1 mark for each relevant reference made to the business

• Lack of finance [k] to introduce new technology [app] because of less retained profits
[an]
• Lenders/investors unwilling to give money [k] as seen as higher risk [an]
• Workers insecure [k] which results in poor motivation [an] as they fear job losses as the
company try to cut costs [app]
• Damaged reputation [k] suppliers/customers might think the business is struggling [an]
so look for alternative chocolate makers [app].
• Shareholders may sell shares [k] because the company can’t pay dividends [an]
Accept points which refer to either gross profit or profit
Application marks may be awarded for appropriate use of the following: new technology,
chocolate, cutting costs, increased competition.
Profit is not used to pay costs therefore do not accept answers which suggest they can no
longer afford items.
Do not accept solutions e.g. Making workers redundant.

(e) Do you think that the introduction of new technology would benefit Javid’s workers?
Knowledge [1] – award 1 mark for identification of relevant issue(s). Positive or negative
points allowed [max 1]
Application [1] – award 1 mark if relevant reference made to Javid’s business
Evaluation [2] – justified decision made as to whether new technology would benefit Javid’s
workers. Candidate’s final decision can be either for or against the statement.

• need for re-training [k] which could create opportunities for promotion [an]
• impact on motivation (either positive or negative) [k]
• fear of change [k] as production process likely to change how they do things [an]
• fear of redundancy/job losses as machines replace jobs [k] could decrease motivation
[an]
• less skills needed [k] so could mean lower wages [an] leading to lower living standards
[an]
• opportunities to learn new skills [k] because they make new types of chocolate [app]
• chances for promotion [k] as new job roles created [an]
• safer conditions [k] in the manufacturing process [app] so less risk of injury [an]
• company survives [k] because they remain competitive [app] so workers keep their jobs
[an]
Note: Do not accept points such as ‘more efficient’ unless clearly link issue to employees.
Application marks may be awarded for appropriate use of the following: chocolates, sales
falling, need to cut costs, increased competition
Note: Answer must focus on the benefit or not to the workers


INSERT
1 hour 30 minutes
*4276995441-I*

DC (ST/AR) 97965/1
2
Delicious Delights (DD)
David is a successful entrepreneur. He set up Delicious Delights (DD) as a private limited company
10 years ago in country X. David invested all of his own savings when he set up DD and he is still
the major shareholder. David is the Managing Director and works 7 days a week. The company has
increased profits every year as David develops a new range of cakes each year. David has appointed
managers to control each department (see Appendix 1) and the company employs 125 people.
DD employs many employees for the production of cakes. Large ovens are used to bake the cakes.
David wants to increase production efficiency. He is considering the following two options.
Option A
Provide more training for the existing production employees. This would involve on-the-job training
provided by the most experienced employees. David estimates efficiency would increase by 10%.
Option B
Change the production process to an automated production line. This would require an investment
of $8m and only 10 employees would be required to operate the machinery. The other production
employees would be made redundant. Off-the-job training would be required for the remaining
10 employees.
Appendix 1
Organisational structure of DD
David (Managing Director)
Operations Finance Marketing Human Resources

manager manager manager manager
100 cake production 10 finance 8 marketing 3 human resources

employees employees employees employees
© UCLES 2015 0450/21/INSERT/M/J/15

3
Appendix 2
Financial information from DD Balance Sheet ($ 000)
2013 2014
Non-current (fixed) assets 100 000 100 000

Current assets 1000 1000
Inventories (stock) 500 300
Current liabilities 500 600
Current ratio 2 ?
Acid test ratio 1 ?
Appendix 3
To: Marketing Manager

From: David
Date: 10 May 2014
Re: Increasing cake sales
Hi
I have been looking at our sales figures for cakes and I am constantly thinking of new ways of selling to
customers. Customers usually buy our cakes from large supermarkets and small food shops, but I think
we could start to sell our cakes directly to customers using e-commerce. There are many cost savings
to be made from using e-commerce but would this be a suitable method for our cakes?
We have a large number of loyal customers in country X. However, our competitors are starting to sell
cakes in large quantities to supermarkets in other countries. Would this be a better way of increasing
sales than using e-commerce?
Let me know what you think.
© UCLES 2015 0450/21/INSERT/M/J/15

4
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© UCLES 2015 0450/21/INSERT/M/J/15

* 4 2 7 6 9 9 5 4 4 1 *

1 hour 30 minutes
Additional Materials: Insert.

DC (ST) 97967/1
2
1 (a) Identify and explain two characteristics David needs to be a successful entrepreneur.
Characteristic 1: ........................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Characteristic 2: ........................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
© UCLES 2015 0450/21/M/J/15

3
(b) David has appointed a manager to control each department as shown in Appendix 1.
Identify and explain three management functions of the Operations manager. Which do you
think is the most important management function? Justify your answer.
Function 1: ................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Function 2: ................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Function 3: ................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Most important function for Operations manager: ....................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

4
2 (a) Identify and explain two ways in which marketing is important for DD.
Way 1: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Way 2: .......................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
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5
(b) Consider the advantages of using e-commerce and the advantages of selling to supermarkets
in other countries. Recommend which way DD should use to increase sales. Justify your
answer.
E-commerce: ............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Selling to supermarkets in other countries: ...............................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

6
3 (a) The company Balance Sheet helps David assess the performance of the business.
(i) Calculate the current ratio and acid test ratio for 2014.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
.......................................................................................................................................[4]
(ii) Compare your two ratio results with those of 2013 (see Appendix 2).
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
.......................................................................................................................................[4]
© UCLES 2015 0450/21/M/J/15

7
(b) David wants to increase efficiency in his factory. Consider Option A and Option B and then
recommend which one he should choose. Justify your answer.
Option A: ...................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Option B: ...................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

8
4 (a) Identify and explain four factors DD should consider when packaging cakes if they are
exported.
Factor 1: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Factor 2: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Factor 3: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Factor 4: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...............................................................................................................................................[8]
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9
(b) External factors can affect the profitability of a company. For each of the following changes
consider how it might affect DD’s profit. Which change is likely to have the greatest effect on
DD’s profit? Justify your answer.
Increasing GDP in country X: ...................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Reduced supply of the raw materials used to make cakes: ......................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Television programme highlighting the effects on health of eating too many cakes: .................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Conclusion: ................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]
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Cambridge is publishing the mark schemes for the May/June 2015 series for most

1 (a) Identify and explain two characteristics David needs to be a successful entrepreneur.
[8]
Knowledge (2 × 1) – award one mark for each relevant characteristic identified

Analysis (2 × 1) – award one mark for a relevant explanation of each characteristic
Application (2 × 2) – award two application marks for each relevant characteristic
Relevant characteristics might include:
Award one mark for each relevant characteristic (maximum of two), such as:
• Hard working
• Risk taker
• Creative
• Optimistic
• Self-confident
• Innovative
• Independent
• Effective communicator
• Forward thinker
• Determined
applied to this context – of why these characteristics are needed to be a successful
entrepreneur.
Hard working (k) as the business has only been established for 10 years and has non-current
assets worth $100m (ap). David worked long hours 7 days a week to find customers so the
business has grown (ap). He has had to work hard to manage the business effectively so
that it is successful (an).
Possible application marks: cake manufacturing; food; shareholder; private limited

company; started 10 years ago in country x; invested all his savings; profits have been
constantly increasing every year; constantly develops a new range of cakes; works 7 days a
week; has four managers for each department; e-commerce; Figures from Appendix 2; new
markets abroad.

(b) David has appointed a manager to control each department as shown in Appendix 1.
Identify and explain three management functions of the Operations manager. Which
do you think is the most important management function? Justify your answer. [12]
• Planning – sets aims/targets; plan for necessary resources

• Organising – delegate tasks; people and resources; ensure everyone working
effectively/no duplicated tasks
• Coordinating – ensure departments working together; aims/tasks linked together; chair
regular meeting between departments
• Commanding – guiding employees; leading/supervising employees; ensure employees
keep to targets/tasks
• Controlling – measure/evaluate work of employees; identify poor performance/identify
problems

below.

9–10 marks for well justified recommendation as to the most important
management function of the Operations Manager compared to the other
functions

most important management function of the Operations Manager.
Level 2 4–6 marks

Detailed discussion of each management function of the Operations Manager.
Level 1 1–3 marks

Name management function and/or identifies key tasks Operations manager
will carry out.
Level 1
1 mark for each L1 statement (max of 3 marks), e.g. the Operations Manager needs to
control the department.
Level 2
One L2 explanation can gain 4 marks and a further mark can be awarded for each additional
L2 explanation (max 6 marks), e.g. the Operations Manager needs to control the department.
This will involve ordering the ingredients to ensure that the planned production of cakes can
be made otherwise bakers may not be able to bake the batches of cakes ordered. (4 marks
for L2 answer + 1 application mark for mentioning bakers and making cakes.)

Level 3
For L3 to be awarded there needs to be at least two L2 marks awarded and then a
recommendation which justifies the most important management function, e.g. planning will
be the most important management function because if the Operations Manager does not
plan efficiently then workers may not work effectively. They could be waiting for ingredients
to arrive and not be able to work. This is more important than commanding the workers to do
their work as if they do not have ingredients then commanding them to work will not be
effective.
Possible application marks: cake manufacturing; constantly develops a new range of cakes;
e-commerce; Figures from Appendix 2; new markets abroad; large supermarkets; small
food shops; 125 workers; may need to make some workers redundant; automated
production line; efficiency increases by 10% for option A; investment of $8m; 10 production
employees for option B.

2 (a) Identify and explain two ways in which marketing is important for DD. [8]
Knowledge [2 × 1] – award one mark for each relevant way

Analysis [2 × 1] – award one mark for a relevant explanation for each way
Application [2 × 2] – award two application marks for each way
Award one mark for each relevant way (maximum of two), such as:
• to identify customer needs

• to satisfy customer needs
• to maintain customer loyalty
• to gain information about customers/conduct market research/collecting data
• to anticipate changes in customer needs
• to raise awareness of new products
• to advertise/promote the new products
• to create a brand image
• to persuade people to buy products
• to increase sales
• to attract new customers
• reference to importance of the four P’s
• to help the business become more competitive
applied to this context – of the ways marketing is important.
To identify customer needs [k] because David needs to know what types of cakes to bake
[ap]. By producing the types of cakes which customers most want to buy will lead to higher
sales [an]. Therefore the company is more likely to be successful and return a good dividend
to David and his shareholders [ap].
Possible application marks: cake manufacturing; food; shareholders; started 10 years ago in
country x; constantly develops a new range of cakes; e-commerce; Figures from Appendix
2; new markets abroad; large supermarkets; small food shops.

(b) Consider the advantages of using e-commerce and the advantages of selling to
supermarkets in other countries. Recommend which way DD should use to increase
sales. Justify your answer. [12]
Advantages of using e-commerce Advantages of selling to supermarkets in

other countries
• Can sell to a wider market • Large/regular orders placed

• Can be used for advertising • Administration savings on fewer but
• Customers can order any time larger order/economies of scale
• New markets reached • Feedback from supermarkets on which
• Direct customer contact products sell well
• Display in supermarket promotes the
cakes

below.

9–10 marks for well justified recommendation as to the best way to increase
sales compared to the other way.

best way to increase sales.
Level 2 4–6 marks

Detailed discussion of advantages of e-commerce and advantages of selling to
supermarkets in other countries.
N.B. do not reward disadvantages
Level 1 1–3 marks

Outline the advantages of e-commerce and advantages of selling to
supermarkets in other countries.
Level 1
1 mark for each L1 statement (max of 3 marks), e.g. David can sell to a wider market.
Level 2
L2 explanation (max 6 marks), e.g. David can sell to a wider market. This will allow the
company to increase production and expand the business. If the cost of cake ingredients fall
as output increases then this will help David to increase profits further. (4 marks for L2
answer + 1 application mark for mentioning cake ingredients.)

Level 3
recommendation which justifies which is the best way. Overall there will be higher costs
involved in expanding the business by selling cakes online especially as the company sell
food items. It will be difficult to maintain the quality of the cakes when they are posted out to
customers. (L3) So although they can sell to a wider market they should take this option
because of the difficulties of maintaining the quality of the cakes. (L3) It is much easier to
deliver large quantities of cakes to supermarkets abroad as delivery will be in specialised
containers to keep the cakes fresh (L3) and administration costs will be kept low by fewer but
larger orders to process. (L3)
Possible application marks: cake manufacturing; perishable products; food; constantly

develops a new range of cakes; Figures from Appendix 2; new markets abroad; small food
shops; automated production line; efficiency increases by 10% for option A; investment of
$8m; 10 production employees for option B.
3 (a) The company Balance Sheet helps David assess the performance of the business.
(i) Calculate the current ratio and acid test ratio for 2014. [4]
(ii) Compare your two ratio results with those of 2013 (see Appendix 2) [4]
Knowledge [2 × 1] – award one mark for each correct ratio

Analysis [2 × 1] – award one mark for each correct calculation
(i) Current ratio 1000/600 = 1.66/ 1.67 (1K + 1Ap)

Accept 1300/600 = 2.16/ 2.17 if working shown
Acid test ratio 700/600 = 1.16/ 1.17 (1K + 1Ap)

Accept 1000/600 = 1.6/ 1.67 if working shown
2 marks for each correct answer; 1 mark if correct method/formula but incorrect answer
(ii) Application + Analysis [2 × 2] – award one application mark for the comparison between
the figures and one analysis mark for each explanation of the calculation result from (i)
The current ratio is lower [ap] because the current liabilities have increased [an].
The acid test ratio is higher (ap) because the amount of inventories has fallen so less
working capital is being tied up in inventories [an].
NB do not reward ‘better’ or ‘worse’ for the comparison of the figures but an explanation
of why the figure is better or worse can be credited.

(b) David wants to increase efficiency in his factory. Consider Option A and Option B and
then recommend which one he should choose. Justify your answer. [12]
Option A • Cheaper • Increase in efficiency only by 10%

(training • No redundancies • Large wage costs
existing • Increased output meets • Loss of output from experienced
production increased sales workers when carrying out training
employees) • Workers feel valued/increased • Large number of workers to retrain
job satisfaction
Option B • Labour efficiency will increase • High capital cost

(automated • Low wage costs • Off-the-job training required
production • New markets • Cost of redundancy payments
line) • Worker morale/motivation issues

below.

9–10 marks for well justified recommendation as to the best option to choose
to increase efficiency compared to the other option.

best option to choose to increase efficiency.
Level 2 4–6 marks

Detailed discussion of advantage/disadvantage of Option A and/or B.
NB do not reward mirror image arguments
Level 1 1–3 marks

Outline of advantage/disadvantage of Option A and/or B.
NB do not reward mirror image arguments
Level 1
1 mark for each L1 statement (max of 3 marks), e.g. only needs to train existing workers and
so it is cheaper.
Level 2
one L2 explanation can gain 4 marks and a further mark can be awarded for each additional
L2 explanation (max 6 marks), e.g. only needs to train existing workers and so it is cheaper.
Also by using on-the-job training methods then training costs will not be high. However,
output only increases by 10% and so not much additional output of cakes will be gained. (4
marks for L2 answer + 1 application mark for mentioning output of cakes.)

Level 3
recommendation which justifies which is the best option to choose.
Possible application marks: cake manufacturing; food; off-the-job training; on-the-job

training; perishable products; constantly develops a new range of cakes; e-commerce;
Figures from Appendix 2; new markets abroad; large supermarkets; small food shops; 100
production workers/10 remaining production workers; 90 redundancies; may need to make
some workers redundant; automated production line; efficiency increases by 10% for option
A; investment of $8m.
4 (a) Identify and explain four factors DD should consider when packaging cakes if they are
exported. [8]
Analysis [4 × 1] – award one mark for each factor (maximum of 4)

Application [4 × 1] – award one mark for an explanation in context of each factor
(maximum of 4)
Award one mark for each relevant factor (maximum of four), such as:
• protect the product

• easy to transport the product
• contains correct information about the product for that country
• promotes the brand image for the product
• is culturally sensitive
• appropriate language
• recyclable packaging
• cost of packaging
Award a maximum of one additional mark for each explanation of the factor in context.
Contains the correct information about the cakes for that country it is being exported to [ap]
because without the correct information the company could be charged with misleading
information. [an]
Possible application marks: transporting over long distances; constantly develops a new
range of cakes; food; labelling; ingredients; contamination; sell-by date; easily
damaged/fragile; perishable; e-commerce; Figures from Appendix 2; new markets abroad;
large supermarkets; small food shops.

(b) External factors can affect the profitability of a company. For each of the following
changes consider how it might affect DD’s profit. Which change is likely to have the
greatest effect on DD’s profit? Justify your answer. [12]
Increasing GDP in • higher incomes – increased demand

country x • higher sales of luxury products – increased demand
• may eat other products to cakes – so demand falls
Reduced supply of the raw • less ingredients available – increased costs

materials used to make • higher prices – decreased demand
cakes • Prices same but lower profits
Television programme • Negative publicity – lower demand

highlighting the effects on • Not many see the programme – little effect on sales
health of eating too many • Consumers loyal and ignore the advice
cakes

below.

9–10 marks for well justified conclusion as which change has the greatest
effect on profit compared to the other changes.
NB must be explicit reference to the effect on profit.
7–8 marks for some limited judgement shown in conclusion as to which

change has the greatest effect on profit.
Level 2 4–6 marks

Detailed discussion of the changes and how they affect profits.
Level 1 1–3 marks

Outline of the changes and how they affect profits.
Level 1
1 mark for each L1 statement (max of 3 marks), e.g. Increasing GDP means more people
have jobs and incomes are higher.
Level 2
L2 explanation (max 6 marks), e.g. increasing GDP means more people have jobs and
incomes are higher. Higher incomes means more luxury products are bought and therefore
people may buy more cakes to treat their family leading to increased demand for DD’s cakes.
(4 marks for L2 answer + 1 application mark for mentioning more cakes being bought.)

Level 3
recommendation which justifies which change has the greatest effect on profits e.g. higher
GDP will probably have the greatest effect on profits as it will lead to higher demand for the
cakes.(L3) The television programme may have little effect as it depends on how many
people watched it and how many people believed what they were being told. (L3) The rising
cost of ingredients could be passed on to the customer and therefore there will be little effect
on profits. (L3) It depends on how bad the harvest is and how big an increase there is in the
costs of the ingredients. So overall increasing GDP is likely to have the greatest effect on
profits. (L3)
Possible application marks: constantly develops a new range of cakes; ingredients; food;
increased production workers; $8m investment; perishable products; luxury products;
e-commerce; Figures from Appendix 2; new markets abroad; large supermarkets; small
food shops.


*6739072195*

1 hour 30 minutes


06_0450_11_2016_1.24
2
1 EDGE makes mobile (cell) phones. It operates in a competitive market. The Marketing manager
believes that because EDGE is good at maintaining customer loyalty demand for its phones is price
inelastic. Its best selling product, Z, is near the end of its product life cycle. The Marketing manager
has to decide whether to spend money on developing new products or use extension strategies
for product Z.
T
X
15%
20%
Z Y
40% 25%
Total quantity sold: 800 000
Fig. 1: EDGE – quantity sold by product type in 2015
(a) What is meant by ‘customer loyalty’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Calculate the quantity of product Z sold in 2015.
...........................................................................................................................................
........................................................................................................................................... [2]
(c) Explain the possible effect on EDGE if the prices of its products are reduced.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [4]
© UCLES 2016 06_0450_11_2016_1.24

3
(d) Identify and explain two advantages to EDGE of developing new products.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Explain two extension strategies that EDGE could use for product Z. Recommend which one
of the two strategies it should choose. Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2016 06_0450_11_2016_1.24 [Turn over

4
2 Bushall is a farm. This primary sector business grows award-winning fruits such as pineapples and
bananas. Bushall has 10 full-time and 50 part-time employees. All part-time job vacancies are
advertised on its website. The Government has introduced legal controls for employment including
a minimum wage of $8.50 per hour and a limit on the number of hours an employee can work each
week. The farm manager has said to Bushall’s owners: ‘Taylor’s theory of motivation might not
work. Our team of employees enjoy what they do. These laws are not good for our employees or
our business!’
(a) Identify two examples (other than farming) of business activity in the primary sector.
Example 1: ........................................................................................................................
Example 2: ........................................................................................................................ [2]
(b) Identify two ways (other than its website) that Bushall could use to advertise job vacancies.
Way 1: ...............................................................................................................................
Way 2: ............................................................................................................................... [2]
(c) Identify and explain two possible reasons why ‘Taylor’s theory of motivation might not work’
at Bushall.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2016 06_0450_11_2016_1.24

5
(d) Identify and explain two advantages to Bushall of having part-time employees.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think that the new legal controls for employment will benefit Bushall’s employees?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2016 06_0450_11_2016_1.24 [Turn over

6
3 Rafiq is the Operations manager at a small factory. The business makes a range of soft drinks
using batch production. Last year Rafiq successfully introduced just-in-time inventory control, based
on an idea from one of the 40 employees. As the business is planning to expand, Rafiq thinks it
would be a good idea to change to flow production.
Table 1: Income statement for 2015 ($000)
Revenue X
Cost of sales 360
Gross profit 240
Expenses Y
Profit 120
Retained profit 100
(a) What is meant by ‘cost of sales’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Refer to Table 1. Calculate:
X ........................................................................................................................................
Y ........................................................................................................................................ [2]
(c) Identify and explain two possible reasons why profit is important for this business.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2016 06_0450_11_2016_1.24

7
(d) Identify and explain two advantages to this business of using just-in-time inventory control.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think this business should change to flow production? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2016 06_0450_11_2016_1.24 [Turn over

8
4 Nuwan is a sole trader. He has a specialist sports shop selling a wide range of cricket and tennis
products. His 3 employees are trained to provide good customer service. Nuwan is pleased the
economy is growing but he is worried that interest rates might be increased. He believes his small
business has advantages compared to large retailers. Nuwan would like to improve profit margins
and thinks the best way to do this is to reduce costs.
(a) What is meant by a ‘sole trader’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two possible features which show that the economy is growing.
Feature 1: .........................................................................................................................
Feature 2: ......................................................................................................................... [2]
(c) Identify and explain two ways in which an increase in interest rates might affect Nuwan’s
business.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2016 06_0450_11_2016_1.24

9
(d) Identify and explain two advantages that Nuwan’s business might have compared to large
retailers.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think that the best way for Nuwan to improve profit margins is to reduce costs? Justify
your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
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Paper 1 Short Answer/Structured Response May/June 2016
MARK SCHEME
Maximum Mark: 80
Published
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the
examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the
details of the discussions that took place at an Examiners’ meeting before marking began, which would have
considered the acceptability of alternative answers.
Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for
Teachers.
Cambridge is publishing the mark schemes for the May/June 2016 series for most Cambridge IGCSE®,
Cambridge International A and AS Level components and some Cambridge O Level components.
This syllabus is approved for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate.
This document consists of 11 printed pages.

Question Guidelines Marks Additional Guidance
1(a) What is meant by ‘customer loyalty’? 2

Clear understanding [2] Brand loyalty alone [0]
e.g. A customer who returns and buys multiple times.
Customer keeps buying the same brand no matter what the price.
Some understanding [1]
e.g. Buy from you rather than the competitors, customer returns, customer keeps buying.
1(b) Calculate the quantity of product Z sold in 2015. 2
Good application [2] 320 000
Some application [1] method e.g. 800 000 * 40%
1(c) Explain the possible effect on EDGE if the prices of its products are reduced. 4
Knowledge [2] – identification of relevant points. Note: Candidates can
Application [2] – award up to 2 marks for relevant explanation in context of EDGE. identify and develop 2
Relevant points might include: points or offer an
• Lower revenue [k] as demand is price inelastic [app] the additional revenue will not extended development of
make up for the reduction in price of phones [app] one point.
• Could attract more customers [k] increasing sales beyond 800 000 [app] Application marks may be
• Damage their image [k] leading to a reduction in customer loyalty [app] awarded for appropriate
• Profit margin will fall [k]. use of the following: use of
numbers, phones, price
inelastic, customer/brand
loyalty, competitive
market, extension of
product Z, product life
cycle.

1(d) Identify and explain two advantages to EDGE of developing new products. 6
Knowledge [2 × 1] – award 1 mark for each relevant point identified [max 2]. Application marks may be
Application [2 × 1] – award 1 mark if relevant reference made to EDGE’s business. awarded for appropriate
Analysis [2 × 1] – award 1 mark for each relevant explanation. Relevant points might use of the following:
include: relevant numbers, phones
• Boost sales [k] as existing customers would buy a new phone [an] [app] (features of a phone] price
• Increase market share [k] by attracting customers away from competitor [an] as this is inelastic, customer loyalty,
a competitive market [app] competitive market,
• Able to increase prices [k] as new technical features [app] can lead to greater product X, Y, Z or T,
customer interest [an] technology.
• Create additional consumer interest [k] as better range/more up-to-date products
available [an] Note: Advantages must
clearly be to the business,
• Improve E’s standing/profile in market [k] as seen as able to respond to market
not the consumer.
change [an] which can help maintain consumer loyalty [app]
• Spreading the risk [k] so if product Z doesn’t sell [app] others can help make up the
shortfall in sales [an]
• Need to replace old products [k] as Z is at end of product life cycle [app] this could
help business survival [an]
• Keep up to date with competitors [k].

1(e) Explain two extension strategies that EDGE could use for product Z. Recommend 6
which of the two strategies it should choose. Justify your answer.
Knowledge [1] – award 1 mark for identification of relevant strategy/point(s). Do not accept general
Application [1] – award 1 mark if relevant reference made to EDGE’s business. marketing methods such
Analysis [2] – award up to 2 marks for relevant development of point(s). as lower prices, more
Evaluation [2] – justified decision made as to which option it should choose. Relevant advertising on own.
points might include: Application marks may be
• Introduce new features/new versions [k] awarded for appropriate
• Look for new target markets [k] use of the following: use of
• Rebrand [k] to appeal to new market segments [an] numbers, phones,
• Re-packaging [k] customer loyalty,
• Create new uses [k]. competitive market,
technology.
Evaluation marks cannot
be rewarded if only one
extension strategy
identified.
[Total: 20]

2(a) Identify two examples (other than farming) of business activity in the primary sector. 2
Knowledge [2 × 1] – award 1 mark per example. Points might include: mining, fishing, For 2 marks must be two
forestry, oil extraction, logging. distinct categories.
2(b) Identify two ways (other than its website) that Bushall could use to advertise job 2
vacancies.
Application [2 × 1] – award 1 mark per way. Must be an appropriate
Points might include: local newspaper, local radio, local TV, word-of-mouth, notices on method for a local farm.
farm gate, Job Centre/government agency, specialist magazine, social media/facebook,
recruitment agency, contacting previous employees. Note: Leaflets, flyers e-
mail alone = too vague as
must be contextualised.
2(c) Identify and explain two possible reasons why 'Taylor’s theory of motivation might 4
not work' at Bushall.
Knowledge [2 × 1] – award 1 mark for each relevant reason. Application marks may be
Application [2 × 1] – award 1 mark for each relevant explanation. Relevant points might awarded for appropriate
include: use of the following: team,
• Financial rewards might not motivate workers [k] because they enjoy what they do awards, number of
[app] employees, farm (and / or
• Taylor assumes workers are lazy [k] these workers want to win more awards [app] associated references
• It assumes you can measure output [k] but only have output at harvest time [app] such as bananas,
• Non-financial factors might be more important [k] e.g. Being able to work part-time pineapples, harvest),
[app]. workers enjoy the job.
Part-time, full-time.
Note: $8.50 not allowed.

2(d) Identify and explain two advantages to Bushall of having part-time employees. 6
Knowledge [2 × 1] – identification of relevant advantage [max 2]. Application marks may be
Application [2 × 1] – award 1 mark for each way if relevant reference made to Bushall. awarded for appropriate
Analysis [2 × 1] – award 1 mark for each relevant explanation. Relevant points might use of the following: team,
include: awards, use of numbers,
• More flexible/easier to ask employees to work at busy times [k] such as the picking farm (and / or associated
season [app] when some additional help is needed [an] references such as
• Help to attract new employees [k] because it fits around their other commitments [an], bananas, pineapples,
those who may not want to work full-time [app] harvest) full-time.
• Lower labour costs [k] outside of harvest time [app] as there is less work [an]
• Provide a wide range of skills/knowledge [k]
• May be more motivated [k] and therefore have greater productivity [an]
• Easier to find workers [k].
2(e) Do you think that the new legal controls for employment will benefit Bushall’s 6
employees? Justify your answer.
Knowledge [1] – award 1 mark for identification of relevant issues. Positive or negative Note: candidates must link
points allowed. points to employees, not
Application [1] – award 1 mark if relevant reference made to Bushall’s business. the business.
Analysis [2] – award up to 2 marks for relevant development of point(s). Application marks may be
Evaluation [2] – justified decision made as to whether the new legal controls will benefit awarded for appropriate
Bushall’s employees. Either viewpoint acceptable. Relevant points might include: use of the following: enjoy
• Safer conditions [k] as might require guards on farm machinery [app] so less likely to what they do, team,
have accidents [an] awards, use of numbers -
• Higher pay [k] as minimum wage increased to $8.50 per hour [app] so better able to 10, 50, minimum wage,
satisfy basic needs [an] $8.50, farm, harvest,
• Fewer jobs [k] so less than 10 full-time jobs [app] therefore they become unemployed picking fruit, full/part-time.
[an]
• Less pay [k] as restriction on hours [app] might mean cannot work as long as want
[an].
[Total: 20]

3(a) What is meant by ‘cost of sales’? 2

Clear understanding [2] e.g. Money spent on producing or buying in the goods sold by the Variable cost on its own is
business, too vague.
OR variable cost of making the goods sold,
OR cost per unit × number of output, The cost per unit - max. 1
OR money spent on making the products plus an example of those costs. mark as it shows lack of
Some understanding [1] e.g. Money spent on materials. understanding of cost of
sales.
3(b) Refer to Table 1. Calculate: X and Y 2
Application [2 × 1] – award 1 mark per calculation.
X = 600 [600 000]
Y = 120 [120 000]
3(c) Identify and explain two possible reasons why profit is important for this business. 4
Knowledge [2 × 1] – award 1 mark for each relevant reason [max 2]. Application marks may be
Application [2 × 1] – award 1 mark for each relevant explanation. Relevant points might awarded for appropriate
include: use of the following: flow,
• Retained profit [k] which could be used to finance the change to flow production [app] expansion, use of
• Measure of performance [k] to see if the $120 000 profit is higher than last year [app] numbers, factory, soft
• Source of finance [k] drinks.
• To attract/keep investors [k] as the business plans to expand [app].
Note: do not accept
Survival as this is covering
costs.

3(d) Identify and explain two advantages to this business of using just-in-time inventory 6
control.
Knowledge [2 × 1] – identification of relevant advantage [max 2]. Application marks may be
Application [2 × 1] – award 1 mark for each way if relevant reference made to this awarded for appropriate
business. use of the following: flow
Analysis [2 × 1] – award 1 mark for each relevant explanation. Relevant points might production, expansion,
include: use of numbers, reduce
• Less inventory held [k] so less chance of wastage [an] as drinks could go out of date expenses, drinks, small
[app] factory, ingredients.
• Lower costs [k] as don’t have to spend as much on insurance [an] which will help
reduce expenses [app]
• Less warehouse space [k] so have more space available [an] so have room to
introduce flow production process [app]
• Improve working capital [k] as less money tied up in inventory [an] which can help
improve gross profit [app]
• Improve cash flow [k]
• Increased motivation [k] as the idea came from one of the employees [app] and
therefore productivity could improve [an]
• Improved quality [k] as ingredients are fresher [app] so increase in sales [an].

3(e) Do you think this business should change to flow production? Justify your answer. 6
Knowledge [1] – award 1 mark for identification of relevant points about batch or flow Application marks may be
production. Positive or negative points allowed. awarded for appropriate
Application [1] – award 1 mark if relevant reference made to this business. use of the following: small
Analysis [2] – award up to 2 marks for relevant development of point(s). factory, soft drinks, just-in-
Evaluation [2] – justified decision made as to whether the business should change to flow time, 40 employees, use
production. Either viewpoint is acceptable. of numbers, batch.
• Depends on level of demand/size of market [k] Note: Do not credit ‘work
• Economies of scale [k] 24/7’ as this could apply to
• Workers might become demotivated [k] as work is more repetitive than batch [app] so any mechanised process.
they become less productive [an]
• Cost of investment [k] as only a small business [app] do they have the necessary
finance [an]?
• Inflexible [k] as make a range of flavours [app] so might not be able to easily switch to
meet demand [an]
• Workers may fear redundancy [k] as machines replace them [an] so less than 40
employees needed [app].
[Total: 20]

4(a) What is meant by a ‘sole trader’? 2

Clear understanding [2] e.g. ownership of business in the hands of one individual/person. Do not accept ‘features’.
Some understanding [1] e.g. run/operated by one person.
4(b) Identify two possible features which show that the economy is growing. 2
Knowledge [2 × 1] – award 1 mark per feature.
Points might include: rise in GDP, falling unemployment, shortage of skilled workers,
higher living standards, business profits rising/business growing, increased
spending/demand, rising investment.
4(c) Identify and explain two ways in which an increase in interest rates might affect 4
Nuwan’s business.
Knowledge [2] [2 × 1] – award 1 mark per relevant point. Application marks may be
Application [2] [2 × 1] – award 1 mark per explanation in context. Relevant points might awarded for appropriate
include: use of the following:
• Increases cost of borrowing [k] so harder to improve profit margins [app] training, profit margins,
• Increasing expenses [k] so might have to reduce amount he has available to spend on sports goods such as
training [app] tennis and cricket,
• Less spending by customers [k] so lower sales especially as sports goods not specialist, small, sole
necessities [app] trader.
• Employees want pay rise [k] so not able to reduce his costs [app]
• Business less likely to expand [k]
• May have to increase prices [k].

4(d) Identify and explain two advantages that Nuwan’s business might have compared to 6
large retailers.
Knowledge [2 × 1] – award 1 mark for each relevant advantage identified [max 2]. Application marks may be
Application [2 × 1] – award 1 mark if relevant reference made to Nuwan's business. awarded for appropriate
Analysis [2 × 1] – award 1 mark for each relevant explanation. Reasons might include: use of the following:
• Better service [k] – all employees are trained [app] so able to maintain customer training, profit margins,
loyalty [an] sports goods such as
• Flexible [k] – able to react quickly to changes in customer requirements [an] if tennis and cricket,
customers want a different cricket product [app] specialist sports shop,
• Leaner management [k]. Nuwan only has his 3 employees to inform/ask [app] so able small, 3 employees, sole
to make decisions quicker [an] trader.
• More control [k] as he owns the business [app]
• Better communication [k]
• Specialised knowledge [k] as a sports shop [app] so will attract more customers [an].
4(e) Do you think that the best way for Nuwan to improve profit margins is to reduce 6
costs? Justify your answer.
Knowledge [1] – award 1 mark for identification of relevant knowledge [max 1]. Application marks may be
Application [1] – award 1 mark if relevant reference made to Nuwan’s business. awarded for appropriate
Analysis [2] – award up to 2 marks for relevant development of point. use of the following: wide
Evaluation [2] – justified decision made as to whether the best way to improve profit range, small business,
margins is to reduce costs. Relevant points might include: specialist shop, 3
• Lower costs could mean poorer quality goods [k] so customers might look elsewhere employees, good service,
for sports goods [app] training, sports goods
• Higher prices [k] could make them less competitive [an] so customers buy tennis such as tennis and cricket.
goods elsewhere [app] leading to fewer products sold [an] so overall profit margin
would rise but overall total profit might be lower [eval] Candidates can be
• Higher prices could help image of high quality [k] customers might be willing to pay awarded 3 marks max. [k,
more for specialist goods / good customer service [app] app, and an] for relevant
• Lower costs could mean a reduced wide range [app] of inventory [k]. explanations of profit,
rather than profit margin.
[Total: 20]


INSERT
1 hour 30 minutes
*9103886236-I*

DC (NH/SW) 115436/1
2
Diaz Dentist Clinic (DDC)
Rosa and Eduardo are well qualified dentists. They set up DDC 10 years ago in country X. Rosa and
Eduardo invested $50 000 each from their own savings when they formed the business partnership.
Since then the business has expanded and it is now one of the largest dentist clinics in the country.
It employs 8 dentists, 10 assistants, 3 receptionists and a general manager for the clinic. However,
in future they will only require 2 receptionists as they are purchasing a new computer system for the
administration of the clinic. This computer system could be paid for by DDC taking out a bank loan.
DDC is in the private sector and only has patients (customers) who pay for their treatment. It has a
good reputation for high quality treatment and patients pay high prices. Patients are given up to three
months to pay for their treatment. There are also some dentist clinics in country X which are operated
by the Government and provide free treatment for poor families.
DDC’s premises are now too small. Each treatment room is very small and the dentists complain that
there is not enough space to work properly. Rosa and Eduardo are planning to move the clinic to larger
premises.
Advertisement
Where to find us:

,,+
Treatments (services) available:

DDC
s Teeth whitening
s Repair to tooth decay
s Teeth extraction
s Teeth cleaning
Note: There is no parking near DDC.
Note: The dots show the locations of competitor businesses.
Appendix 1
Main City News 1 May 2016
The Government is increasing the number of dentist clinics which will offer free treatment for poor
families. Only people on low wages will be able to use these clinics. The Government hopes this will
reduce the number of days people are not at work because of problems with their teeth.
The increase in the number of dentist clinics paid for by the Government is increasing the job vacancies
for dentists and assistants. The Government is also improving hospital care for poor families. The
Government says all of these changes are helping to reduce unemployment.
© UCLES 2016 0450/21/INSERT/M/J/16

3
Appendix 2
Summary of the three receptionists employed at DDC
Time employed
Qualifications and experience Other interests
at DDC
Receptionist 1 10 years Receptionist qualifications Charity work
(age 50)
Receptionist 2 1 year No qualifications but lots of Plays football
(age 30) experience as a receptionist
for other dentists
Receptionist 3 4 years No qualifications and only Repairs computers at
(age 25) experience as a receptionist home
for DDC
Appendix 3
Cash flow forecast for DDC for the second half of 2016 ($000)
July August September October November December

Cash inflows:
Payments from patients 400 1 000 2 000 800 200 200
Cash outflows:
Payments to suppliers 40 100 200 80 20 200
Wages 100 100 100 100 100 100
Rent 500 500 500 500 500 500
Other fixed costs 200 200 200 200 200 200
Total cash outflows 840 900 1 000 880 820 1 000
Net cash flow (440) 100 X (80) (620) (800)
Opening bank balance 1 000 560 660 1 660 1 580 Y
Closing bank balance W 660 1 660 1 580 960 Z
Note: Figures in brackets are negative.
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4
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* 9 1 0 3 8 8 6 2 3 6 *

1 hour 30 minutes

DC (NH) 115435/2
2
1 (a) Identify and explain one advantage and one disadvantage to Rosa and Eduardo of forming a
business partnership.
Advantage: ................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Disadvantage: ...........................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
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3
(b) Consider an objective of each of the following three stakeholder groups of DDC. Do you think
there will be conflict between the objectives of each of these stakeholder groups? Justify your
answer.
Objective of owners: .................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Objective of patients (customers): ............................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Objective of employees: ............................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Will there be conflict between their objectives? ........................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

4
2 (a) Identify and explain two methods of training employees to use the new computer system.
Method 1: ..................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Method 2: ..................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
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5
(b) Consider the information about each of the three receptionists outlined in Appendix 2.
Recommend which receptionist should be made redundant. Justify your answer.
Receptionist 1: ..........................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Receptionist 2: ..........................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Receptionist 3: ..........................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

6
3 (a) The Government is expanding the public sector provision of health care including dentist
clinics (see Appendix 1). Identify and explain two external benefits to the rest of society of this
increased provision of health care for poor families.
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
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7
(i) Calculate values for:
W: ......................................................................................................................................
X: .......................................................................................................................................
Y: .......................................................................................................................................
Z: ...................................................................................................................................[4]
(ii) Consider two ways the cash flow could be improved. Recommend the best way for Rosa
and Eduardo to improve the cash flow in the second half of 2016. Justify your answer.
Way 1: ................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: .............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
.......................................................................................................................................[8]

8
4 (a) Identify and explain four factors Rosa and Eduardo should consider when choosing larger
premises.
Factor 1: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Factor 2: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Factor 3: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Factor 4: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...............................................................................................................................................[8]
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9
(b) When DDC has moved to new premises, Rosa and Eduardo plan to use promotional methods
to attract more patients. Consider each of the following promotional methods. Recommend
which one you think they should choose. Justify your answer.
Advertising on a website: ..........................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
National newspaper: .................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Money-off coupons: ..................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]
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11
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Paper 2 Case Study May/June 2016
MARK SCHEME
Maximum Mark: 80
Published
Teachers.
Cambridge is publishing the mark schemes for the May/June 2016 series for most Cambridge IGCSE®,
Cambridge International A and AS Level components and some Cambridge O Level components.

1 (a) Identify and explain one advantage and one disadvantage to Rosa and Eduardo of
forming a business partnership. [8]
Knowledge [2 × 1] award one mark for each relevant advantage/disadvantage

Analysis [2 × 1] award one mark for a relevant explanation of each
Application [2 × 2] award two application marks for each advantage/disadvantage
Award one mark for each relevant advantage/disadvantage (maximum of two), such as:
• Increased capital
• Additional partners to work in the business/help with decisions/holidays/responsibility
shared
• Additional specialisms/skills of partners
• More ideas.
• Unlimited liability
• No continuity
• Responsible for actions of other partners
• Disagreements may cause problems/arguments
• Slower decision making
• Profit will have to be shared.
applied to this context – of the advantage/disadvantage.
Increased capital to put into the business [k] because Rosa and Eduardo will each invest
$50 000 each [ap]. This will reduce the need to borrow money, saving interest payments, [an]
when the business expands and moves to larger premises [ap].
Possible application marks: qualified dentists; business set-up 10 years ago in country X;
$50 000 each partner; largest dentist clinics in the country; 1 general manager for the clinic;
bank loan to pay for new computer system; reputation for high quality treatments; private
patients; 3 months to pay for treatment; move to larger premises; offer teeth whitening; job
vacancies for dentists and assistants; information from Appendix 1 and 2.
(b) Consider an objective of each of the following three stakeholder groups of DDC. Do
you think there will be conflict between the objectives of each of these stakeholder
groups? Justify your answer. [12]
• Owner – invested own savings; make profit; expand to gain economies of scale; provide
a high quality service
• Patients – good treatment; affordable prices
• Employees – high wages; secure job; good working conditions.

Knowledge/Analysis/Evaluation – award up to ten marks using the levels-based mark

scheme below.

7–10 marks
Well justified conclusion as to whether there will be conflict between
the different stakeholder groups.
Level 2 4–6 marks

Detailed discussion of the objective of each stakeholder group.
Level 1 1–3 marks

Stakeholder group objective outlined.
Level 1 One mark for each L1 statement (max of three marks) e.g. Employees want their
jobs to be secure.
Level 2 One L2 explanation can gain four marks and a further mark can be awarded for
each additional L2 explanation (max six marks) e.g. Employees will want their jobs
to be secure so they will keep receiving a wage for working in the dentist clinic. If the
business is successful then they are likely to keep their jobs but if not then they will
be made redundant and will receive no wage at all. (Four marks for L2 answer + one
application mark for answering in the context of the dental clinic.)
Level 3 For L3 to be awarded there needs to be at least two L2 marks awarded and then a
conclusion which justifies whether conflict between the different stakeholder groups
is likely to occur.
Award up to two additional marks for relevant application.
$50 000 each partner; largest dentist clinics in the country; pay high prices; employs 8
dentists, 10 assistants, 3 receptionists, 1 general manager for the clinic; new computer
system requires fewer receptionists; reputation for high quality treatments; private patients; 3
months to pay for treatment; move to larger premises; offer teeth whitening; increasing
number of Government-owned dentist clinics; job vacancies for dentists and assistants;
information from Appendix 1 and 2.

2 (a) Identify and explain two methods of training employees to use the new computer
system. [8]
Knowledge [2 × 1] award one mark for each relevant method

Analysis [2 × 1] award one mark for a relevant explanation for each method
Application [2 × 2] award two application marks for each method
Award one mark for each relevant method (maximum of two):
• On-the-job
• Off-the-job
• Examples could be used e.g. training course.
Award a maximum of three additional marks for each explanation or development – two of
which must be applied to this context – of the methods.
Off-the-job training [k] because Rosa and Eduardo will want the receptionists to be trained to
a high standard in how to use the new computer system in the dental clinic [ap]. This will
mean they are trained by experts in using the new system and so they should be better
trained and be more efficient [an]. However, they will be away from the clinic and it may
mean that they cannot book-in patients to see the dentist and this might cause annoyance
with the patients leading them to go elsewhere to get their teeth treated [ap].
Possible application marks: qualified dentists; $50 000 each partner; largest dentist clinics in
the country; reception; receptionists; 1 general manager for the clinic; bank loan to pay for
new computer system; reputation for high quality treatments; private patients; move to larger
premises; job vacancies for dentists and assistants; information from Appendix 1 and 2.
(b) Consider the information about each of the three receptionists outlined in Appendix 2.
Recommend which receptionist should be made redundant. Justify your answer. [12]
Receptionist 1 (age 50) Experienced in the ways of DDC – knows what to do

Relevant qualifications
Been there from the start
Works well with clients
Receptionist 2 (age 30) Not worked at DDC for long

Not qualified
Experienced as a dental receptionist
Receptionist 3 (age 25) Some experience of working practices at DDC

Knows about computers
Not qualified
Limited experience


scheme below.

9–10 marks for well justified recommendation as to which
receptionist to make redundant rather than the other receptionists.
7–8 marks for some limited judgement shown in recommendation as

to which receptionist to make redundant.
Level 2 4–6 marks

receptionist.
Level 1 1–3 marks

Outline the advantage and/or disadvantage of each receptionist.
Level 1 One mark for each L1 statement (max of three marks) e.g. Receptionist 1 has
worked for DDC for a long time and will be used to their working practices.
Level 2 Four marks for the first L2 answer and then one extra mark for each additional L2
answer up to maximum of six marks. E.g. Receptionist 1 has worked for DDC for a
long time and will be used to their working practices which will mean that they will
know how the dental clinic works and the dentist will be able to delegate tasks to
them more easily. (Four marks for L2 answer + one application mark for answering
using reference to patients and dental clinics.)
recommendation which justifies which receptionist to make redundant.
Possible application marks: information from Appendix 2….

age 50, age 30, age 25, 10 years at DCC, 1 year at DCC, 4 years at DCC,
receptionist qualifications, no qualifications, lots of experience as a receptionist for
other dentists, only experience as a receptionist for DDC, charity work, plays
football, repairs computers at home.

3 (a) The Government is expanding the public sector provision of health care including
dentist clinics (see Appendix 1). Identify and explain two external benefits to the rest
of society of this increased provision of health care for poor families. [8]
Knowledge [2 × 1] award one mark for each relevant third party external benefit
Analysis [2 × 1] award one mark for a relevant explanation of third party external
benefit
Application [2 × 2] award two application marks for each external benefit
Award one mark for each relevant external benefit (maximum of two), such as:
• Jobs will be created/reduced unemployment

• Businesses will lose fewer days off from employees/increased productivity
• Children will have better dental health and therefore cost their parents less money in
dental treatment, thereby increasing spending on other products.
Third party groups who are most likely to benefit from the increase in public sector dental
clinics:
• High income families/private patients

• Others businesses – employers
• Other businesses – dental suppliers
• Households – tax revenue increases so more public spending.
Do not reward poor families or government free dental clinics as third party groups.
applied to this context – of the benefits.
Jobs will be created [k] because more dentists will need to be employed at the clinics [ap].
Government-owned dental clinics will lead to lower levels of unemployment and this will
increase spending for other businesses [an].This will also be true for receptionists as well as
practice managers and dental assistants who will also find it easier to get a job [ap].
Possible application marks: less illness; qualified dentists; private patients; Government-
owned dentist clinics; free treatment in Government dentist clinics for poor families;
increasing number of Government-owned dentist clinics; job vacancies for dentists and
assistants; country x.
(i) Calculate values for: [4]
W $ 560 000
X $1 000 000
Y $ 960 000
Z $ 160 000
(Format of the forecast boxes means that 000 or $ are not essential.)

(ii) Consider two ways the cash flow could be improved. Recommend the best way for
Rosa and Eduardo to improve the cash flow in the second half of 2016. Justify
your answer. [8]
Example to increase the cash inflows (1) – e.g. increase number of patients; increase
sales revenue; reduce time for payment by patients; bank loan would provide a cash
injection.
Example to reduce the cash outflows (1) – e.g. reduce overheads; obtain trade
credit/delay payment to creditors; reduce rent; reduce wages/lay-off workers.
The answer should not refer to profit or loss – the focus is purely cash flow.
Solutions should be realistic for a six-month period i.e. not long-term solutions.
Level 1 One mark for each statement e.g. Increase sales revenue (one mark).
Level 2 Four marks for the first L2 answer and then one extra mark for each additional
L2 answer up to a maximum of six marks.
E.g. The amount of cash flow at the end of each month after.
September is decreasing because the sales revenue is decreasing and so the

business needs to find ways to increase the sales revenue in these months
(L2). However, if it increases advertising to try to encourage more patients to go
to the clinic then it may increase the cash outflows from advertising expenditure
as well as inventory and so inflows will need to be greater than outflows for the
cash flow to improve (L2).
Five marks for good L2 answer.
Level 3 For L3 to be awarded there needs to be at least two L2 marks awarded and
then a recommendation which justifies which is the best way to choose.
Knowledge/Analysis/Evaluation – award up to eight marks using the levels-

based mark scheme below.
Level 3 7–8 marks
Well justified recommendation as which is the best way to choose.
Level 2 4–6 marks
Detailed discussion of advantage/disadvantage of each suitable way
to improve the cash flow.
Level 1 1–3 marks
Outline of advantage/disadvantage of each suitable way to improve
the cash flow.

4 (a) Identify and explain four factors Rosa and Eduardo should consider when choosing
larger premises [8]
Application [4 × 1] award one application mark for each factor (maximum of 4)

Analysis [4 × 1] award one mark for an explanation of each factor (maximum of 4)
Award one mark for each relevant factor (maximum of four), such as:
• Size of premises available

• Cost of premises
• Condition of the buildings
• Car parking available for patients
• Security of the area
• Access by public transport
• Easy access by roads
• Close to existing patients
• Retention of existing dentists/employees
• Other dental clinics in the area
• Nature of the surrounding businesses.
Do not reward good access for suppliers and wage levels of workers in the area.
Award a maximum of one additional mark for each explanation – 2 of which must be applied
to this context – of the factor.
Parking available for patients [ap] because if there is not sufficient parking available for
patients to use then they may prefer to go to alternative dental clinics for treatment and DDC
may lose these patients [an].
Possible application marks: largest dentist clinics in the country; employs 8 dentists, 10
assistants, 3 receptionists, 1 general manager for the clinic; reputation for high quality
treatments; private patients; Government-owned dentist clinics; job vacancies for dentists
and assistants; information from Appendix 1 and 2.

(b) When DDC has moved to new premises, Rosa and Eduardo plan to use promotional
methods to attract more patients. Consider each of the following promotional
methods. Recommend which one you think they should choose.
Advertising on a website • Cheap form of advertising

• May/may not be seen by many people
National newspaper • Expensive
• Target population may not read newspapers
• Reaches a large number of people
Money-off coupons • Negative publicity – if associated with poor quality
treatment
• Encourages people to try the dental clinic

scheme below.
9–10 marks for well justified recommendation as to the best method
of promotion to use rather than the alternatives.

to the best method of promotion to use.
Level 2 4–6 marks
Detailed discussion of the advantages and/or disadvantages of each
method.
Level 1 1–3 marks
Outline of the advantages and/or disadvantages of each method.
Level 1 One mark for each L1 statement (max of 3 marks) e.g. Advertising on a website is a
relatively cheap form of advertising.
Level 2 Four marks for the first L2 answer and then one extra mark for each additional L2
answer up to maximum of six marks. E.g. Advertising on a website is a relatively
cheap form of advertising but it may be expensive to set-up in the first place if Rosa
or Eduardo do not know how to do this. Also maintenance will be required to keep
the website up-to-date. The website can show examples of dental treatment which
shows white perfect teeth. This will encourage people to become patients at the
clinic so they can benefit from the treatments shown on the website. (Four marks for
L2 answer + 1 application mark for including reference to teeth whitening and dental
treatment.)
recommendation which justifies which is the best method to choose.

largest dentist clinics in the country; employs 8 dentists; reputation for high quality
treatments; private patients; 3 months to pay for treatment; offer teeth whitening; increasing
number of Government-owned dentist clinics; information from Appendix 1 and 2.


*8893390752*

1 hour 30 minutes


11_0450_11_2016_1.12
2
1 C&C has a good reputation for making high quality, hand-made shoes. It has 120 full-time skilled
employees. C&C needs to recruit another 20 production employees to meet increased demand.
The Managing Director said: ‘I don't know why people worry about globalisation. Two years ago
we did not export, now exports are 10% of our output and increasing.’ C&C has orders for 100 000
pairs of shoes in 2017. The Managing Director cannot decide whether to introduce new technology
into the production process.
(a) What is meant by ‘globalisation’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two possible threats to C&C from globalisation.
Threat 1:............................................................................................................................
...........................................................................................................................................
Threat 2:............................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two suitable ways in which C&C might advertise the job vacancies.
Way 1:................................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
Way 2:................................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2016 11_0450_11_2016_1.12

3
(d) Identify and explain two benefits to C&C of having full-time employees.
Benefit 1:...........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Benefit 2:...........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think C&C should introduce new technology into the production process? Justify your
answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2016 11_0450_11_2016_1.12 [Turn over

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2 Dowson is a large business which owns a number of shops. It sells a range of electrical goods such
as computers and televisions. The Finance Director has been looking at some recent financial data,
as shown in Table 1. He is pleased with Dowson's liquidity but knows he must reduce its high level
of debt including an overdraft of $6m. He said: 'The economy is in recession. Many small retailers
have failed. Size is an advantage!’
Table 1: Extract of financial data for Dowson
2015 2016
Revenue $280m $300m
Profit $175m $180m
Current ratio 1.2:1 1.5:1
Acid test ratio 0.8:1 0.5:1
Return on capital employed 10% 10%
(a) What is meant by ‘Return on capital employed’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) What is meant by a ‘recession’?
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two ways in which the size of the business may benefit Dowson.
Way 1:................................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
Way 2:................................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2016 11_0450_11_2016_1.12

5
(d) Identify and explain two problems for Dowson of having a high level of debt.
Problem 1:.........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Problem 2:.........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think the Finance Director is right to be pleased with the liquidity of the business?
Justify your answer using the ratio results in Table 1.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2016 11_0450_11_2016_1.12 [Turn over

6
3 YOGO is a new business which Amelia has just set up using Government support. YOGO makes
a range of sweets (candy) targeted at adults. It is a niche market. Amelia has been looking at the
marketing part of her business plan. She has to decide which pricing method to use. Amelia is
spending a lot of money on packaging. She did not do any primary market research as she thinks
she can use secondary data to make decisions. She believes that all adults like sweets.
(a) Identify two reasons why a Government might support business start-ups.
Reason 1:..........................................................................................................................
...........................................................................................................................................
Reason 2:..........................................................................................................................
........................................................................................................................................... [2]
(b) Identify two parts (other than marketing) of a business plan.
Part 1:................................................................................................................................
...........................................................................................................................................
Part 2:................................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two possible pricing methods that Amelia might use.
Method 1: ..........................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Method 2:...........................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [4]
© UCLES 2016 11_0450_11_2016_1.12

7
(d) Identify and explain two reasons why packaging is important for YOGO’s products.
Reason 1:..........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 2:..........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think Amelia’s business would benefit from primary market research? Justify your
answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2016 11_0450_11_2016_1.12 [Turn over

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4 DCP makes a range of high quality industrial paints. It sells direct to 6 large business customers
which are located in different countries. DCP charges a price of $0.35 per litre. It operates in a
competitive market. The Operations manager has been looking at DCP's costs as shown in Table 2.
He wants to increase profit but he does not want to buy cheaper materials.
Table 2: Output and cost information for DCP per week
Output (litres) 1 500 000

Total fixed costs ($) 350 000
Total material costs ($) 60 000
Total labour costs ($) 40 000
(a) Identify two functions of management.
Function 1:.........................................................................................................................
...........................................................................................................................................
Function 2:.........................................................................................................................
........................................................................................................................................... [2]
(b) Calculate DCP's average cost per litre.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two ways in which DCP might communicate with its customers.
Way 1:................................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
Way 2:................................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2016 11_0450_11_2016_1.12

9
(d) Identify and explain two possible reasons why quality is important to DCP.
Reason 1:..........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 2:..........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think that charging a higher price is the best way for DCP to increase profit? Justify
your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2016 11_0450_11_2016_1.12

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© UCLES 2016 11_0450_11_2016_1.12


Paper 1 Short Answer/Structured Response October/November 2016
MARK SCHEME
Maximum Mark: 80
Published
Teachers.
Cambridge IGCSE®, Cambridge International A and AS Level components and some Cambridge O Level
components.

Question Answer Marks Guidance
1(a) What is meant by ‘globalisation’? 2 Note: Do not accept answers that clearly
relate to a business / businesses
Clear understanding [2]: e.g. – the growth in worldwide trade [2]
Freer movement of people and capital between countries [2]
The process of countries becoming more interconnected [2]
Some understanding [1] or identification of one of these features:

trade around the world
rise of multinationals
movement of capital around the world
1(b) Identify two possible threats to C&C from globalisation. 2 Note: Do not accept selling abroad
Application [2 × 1] award one mark per way

• increased competition / increasing imports,
• exchange rates,
• skilled workers leave for jobs elsewhere
• loss of individualised products
• wages increased to match multinational wage rates
• increasing investment from multinationals setting up in home market
• unable to meet demand
© UCLES 2016
1(c) Identify and explain two suitable ways in which C&C might advertise the 4 Application: skilled, high quality,
job vacancies. demand, factory, shoes or associated
words as leather, sewing, global,
Knowledge [2 × 1] – award 1 mark for each relevant way production, good reputation
Relevant points might include: Do not accept: ‘in the street’,
• Job centre [k] as local shoemakers would look here for jobs [app] internal / external, Internet or posters on its
• advertising in newspaper [k] as skilled it is labour [app] own.
• specialist (trade magazines) [k] as looking for people to hand make
shoes [app] Award relevant examples of either two
• recruitment agency [k] so C&C can focus on meeting the extra external or one example of each
demand [app]
• jobs website / own website / social media [k]
• internal newsletter [k]
• Radio / television [k]
• Word of mouth [k]
1(d) Identify and explain two benefits to C&C of having full-time employees. 6 Application: skilled, high quality, demand,
factory, shoes or associated words such
Knowledge [2 × 1] – award 1 mark for each advantage identified as leather, sewing, global, 120 (workers)
Application [2 × 1] – award 1 mark if relevant reference made to C&C 100 000 (shoes), 20 production
Analysis [2 × 1] – award 1 mark for each relevant explanation employees)
• Easy to communicate / update [k] on new styles [app] as employees Note: must link advantage to C&C to be
always there [an] rewarded. E.g. ‘Feel more secure’ alone is
• Motivated / More committed to the business [k] so likely to produce too vague as this is about the employee
enough shoes [an] to help meet the growing demand [app] and not the business.
• Fewer workers needed [k] therefore less administration needed [an]
• No need to train regularly [k] as these are skilled workers [app] so Do not accept: fast / quicker production,
able to maintain quality / output [an] higher output / quality, increased efficiency
or work harder as K points. Candidate
• internal pool of candidates for promotion [k] which can help keep
must explain ‘why’ these occur.
recruitment costs low [an]
© UCLES 2016
1(e) Do you think C&C should introduce new technology into the production 6 Application: 20 production employees,
process? Justify your answer. 120 staff, 100 000 pairs of shoes, exports
10% of output, skilled, high quality,
Knowledge [1] – award 1 mark for identification of relevant issue(s). Positive demand, factory, shoes or associated
or negative points allowed [max 1] words such as leather, sewing.
Application [1] – award 1 mark if relevant reference made to C&C’s business
Analysis [2] – award up to 2 marks for relevant development of point(s) Note: points can relate to employees or
Evaluation [2] – justified decision made as to whether C&C should introduce the business
technology into the production process
Relevant points might include: Accept: ‘Faster / quicker / saves time,’ as
• Increased production [k] as need to produce 100 000 each year [app] correct knowledge, given that current
so able to work all the time [an] production is hand-made.
• Consistent quality [k] as machinery likely to make fewer errors [an]
which can help retain / enhance reputation [app] For evaluation either viewpoint is
• Risk to reputation [k] as known for its hand-made shoes [app] so acceptable.
fewer people may demand its products [an]
• Impact on employee motivation [k] as work could become less
interesting [an] so quality of shoes falls [app]
• Risk of job insecurity [k] as it replaces some / all the skilled workers
[app] which could lower efficiency [an]
• Cost of investment / retraining [k]
© UCLES 2016
2(a) What is meant by ‘Return on capital employed’? 2 Note: Must show the awareness of the
relationship between profit and capital
Clear understanding [2]: ROCE means the profit of the business expressed employed for 2 marks
as % of capital invested in the business or correct formula.
(Profit / Capital employed × 100)
Some understanding [1] – e.g. profit from capital invested or money made on
investment
2(b) What is meant by a ‘recession’? 2 Note: Do not accept features, such as

‘high unemployment’
Clear understanding [2] – a sustained (over a period of time) reduction in
GDP / national income / output
Some understanding [1] – ‘fall in output’ or ‘fall in GDP’
2(c) Identify and explain two ways in which the size of the business may 4
benefit Dowson. Application: recession, overdraft $6 m,
large / big, electrical goods, shops, larger
Knowledge [2 × 1] – award 1 mark for each relevant advantage range of goods. Use of figures from table
Application [2 × 1] – award 1 mark for each relevant explanation in context of 1.
Dowson
Relevant points might include: Accept: Economies of scale [K] if no
• Able to attract better employees [k] so have the expertise to survive specific examples given.
the recession [app]
• Access to finance [k] as seen as lower risk of failing [app]
• Discounts for bulk buying [k] so able to charge lower prices for
electrical goods [app]
• Marketing economies or bigger marketing budget [k] as able to justify
national advertising [app]
• Spread risk [k] as can afford to stock a wide range of products [app]
• Able to dominate the market / large market share [k] so difficult for
small retailers to compete [app]
© UCLES 2016
2(d) Identify and explain two problems for Dowson of having a high level of 6 Application: recession, overdraft $6m,
debt. large / big, electrical goods, shops,
liquidity, use of numbers from table 1.
Knowledge [2 × 1] – award 1 mark for each advantage identified
Application [2 × 1] – award 1 mark if relevant reference made to Dowson Note: Do not accept bankruptcy / closure
Analysis [2 × 1] – award 1 mark for each relevant explanation of business as knowledge
• High financial risk [k] so banks / suppliers might be reluctant to lend
to them [an] so not able to stock a wide range of electrical products
[app]
• Higher expenses [k] which will reduce level of profit [an]
• Problems if interest rates rise [k] as might not be able to meet
repayments [an] increasing risk Dowson also fails [app]
• Difficult to raise additional finance [k] if lenders fear Dowson not able
to repay further loans [an]
• Cash flow implications / liquidity [k] as acid test ratio is only 0.5: [app]
could lead to insolvency [an]
© UCLES 2016
2(e) Do you think the Finance Director is right to be pleased with the 6 Application: marks may be awarded for
liquidity of the business? Justify your answer using the ratio results in appropriate use of the following: current
Table 1. ratio 1.2:1, 1.5:1, or change by 0.3, acid
test ratio 0.8:1, 0.5:1, Acid test fallen by
Knowledge [1] – award 1 mark for identification of relevant points 37.5%, Current ratio increased by 25%,
Application [1] – award 1 mark if relevant reference made to Dowson’s stockholding has risen, recession,
business overdraft $6m, large / big, electrical goods
Evaluation [2] – justified decision made as to whether the Finance Director is
right to be pleased about liquidity
• Current ratio increased [k] by 0.3 [app][an] so more liquid [an]
• Acid test lower [k] from 0.8 to 0.5 [app] so not able to pay short-term
debts [an] possibly due to high value of its inventory [an]
• Expenses are high [k] as have a high level of debts, which includes
$6 m overdraft [app]
• Risk that demand might fall [k] due to recession [app] therefore he
would be left with excess stock [an]
• High level of inventory [k] 66% of current assets [app] [ an]
• High level of trade receivables [k] danger that customers might not
pay [an] due to recession [app] so business will lack the cash it
needs [an]
• Current ratio shows the business is able to pay its short-term debts
[k]
© UCLES 2016
3(a) Identify two reasons why a government might support business start- 2 Note: Do not allow ‘improving the
ups. economy’ or ‘to receive tax’ or ‘increasing
the economy’.
Knowledge [2 ×1] award one mark per reason
Points might include: reduce unemployment, increase competition, increase
output, benefit society, small businesses can grow
3(b) Identify two parts (other than marketing) of a business plan. 2 Note: Accept any piece of information that
would be included in a business plan that
Knowledge [2 ×1] award one mark per part is NOT marketing.
Points might include: cash flow forecast, location, human resources plan,
production details, business aims
3(c) Identify and explain two possible pricing methods that Amelia might 4 Application: sweets / candy, new
use. business, business plan, money spent on
packaging, secondary data, people like
Knowledge [2] – award 1 mark for each role identified sweets, niche market, adult.
Application [2] – award 1 mark for each relevant reference to this business
• penetration pricing [k] as need to get people to try her sweets [app]
• price skimming [k] as it’s a niche market [app]
• cost plus pricing [k] as likely to have large set up costs [app]
• promotional pricing [k]
• competitive pricing [k]
• psychological pricing [k]
© UCLES 2016
3(d) Identify and explain two reasons why packaging is important for 6 Application:
YOGO’s products. Sweets / candy, new business, business
plan, secondary data, people like sweets,
Knowledge [2 × 1] – award 1 mark for each relevant role niche market, adult, food product. taste
Application [2 × 1] – award 1 mark if relevant reference made to this business
• List ingredients [k] as it’s a food product [app] must state what it
contains to avoid legal action [an]
• Promotion / to attract customers [k] to buy[an] from the new business
[app]
• Inform [k] customers about its flavours [app] so people know what is
in its products [an]
• Protection / keep item fresh [k] so the sweets are not damaged [app]
otherwise products might be wasted [an]
• Boost brand image / impression of high quality [k] as it is a niche
market [app] which can help increase sales / revenue [an]
• Easier to store / transport [k]
© UCLES 2016
3(e) Do you think Amelia’s business would benefit from primary market 6 Application:
research? Justify your answer. sweets / candy, new business, business
plan, secondary data, people like sweets,
Knowledge [1] – award 1 mark for identification of relevant point(s) niche market, adult, food product, money
Application [1] – award 1 mark if relevant reference made to Amelia’s spent on packaging
business
Analysis [2] – award up to 2 marks for relevant development of point (s) Note: Do not reward identification of
Evaluation [2] – justified decision made as to whether Amelia would have methods of primary research alone as the
benefited from carrying out primary market research question is asking for the benefits
• It is expensive [k] spends a lot on packaging [app] therefore may not For evaluation either viewpoint is
be able to afford it [an] acceptable
• It is time consuming [k] she has already done secondary research
[app] so how much more can she find out [an]
• Collect precise information[k] on sweets [app] so that she can
produce the most appropriate products[an]
• Secondary data may be outdated [k] [app]Needs might have
changed [an]
• Help better target promotion / in pricing decisions [k] especially as
new business [app]
© UCLES 2016
4(a) Identify two functions of management. 2
Knowledge [2 ×1] award one mark per function

Points might include: planning, organising, co-ordinate, command, control,
motivate / supervise, decision making, problem solving, recruit
4(b) Calculate DCP’s average cost per litre. 2
Good application [2] 30 c or 0.3 (per litre )

Some application [1] e.g. total cost divided by output OR 450 000 / 1 500 000
4(c) Identify and explain two ways in which DCP might communicate with its 4 Application: paint or use of associated
customers. words such as walls, litres, colour, 6 large,
business customers, competitive market,
Knowledge [2 × 1] – award 1 mark for each relevant reason high quality, different countries, operations
Application [2 × 1] – award 1 mark for each relevant explanation manager
• Email / website / social networks [k] as customers are in different Methods identified must be appropriate for
countries [app] a large business customer
• Meetings [k] as only have 6 customers [app]
• Phone / text [k] as able to quickly check information about paint Do not accept:
orders [app] internal communication e.g. memos,
• Letter [k] noticeboard, categories such as written or
• faxes [k] verbal on their own, primary methods of
research
© UCLES 2016
4(d) Identify and explain two possible reasons why quality is important to 6 Application: paint, litres, colour, 6
DCP. business customers, competitive market,
high quality, industrial, different countries,
Knowledge [2 × 1] – award 1 mark for each reason use of numbers
Application [2 × 1] – award 1 mark if relevant reference made to DCP
Analysis [2 × 1] – award 1 mark for each relevant explanation Candidates may consider why reducing
Relevant points might include: quality is a problem
• Good reputation / brand image [k] so customers trust the paint [app]
which could help increase sales [an]
• Attract new customers [k] as products might be better than rivals
[app]
• Meet legal controls [k] as contains chemicals [app] must be safe to
avoid being prosecuted / sued [an]
• More competitive [k] as paint is very similar [app] this could give
them a competitive advantage over its rivals [an]
• Create brand / customer loyalty [k] so business [app] customers
keep returning [an]
• Can charge a higher price [k] than 35 c per litre [app] to increase
revenue [an]
• sales might fall [k] if quality is lowered [an] because it is a
competitive market [app]
© UCLES 2016
4(e) Do you think charging a higher price is the best way for DCP to increase 6 Application: paint or use of associated
profit? Justify your answer. words such as walls, litres, colour,
cheaper materials, 6 business customers,
Knowledge [1] – award 1 mark for identification of relevant points competitive market, high quality, industrial,
Application [1] – award 1 mark if relevant reference made to DCP’s business different countries, use of numbers
Analysis [2] – award up to 2 marks for relevant development of point
Evaluation [2] – justified decision made as to whether charging a higher price Note: The answer should focus on price or
is the best way to increase profits cost changes
• Revenue could increase[k] and if quantity and costs of the paint
[app] remain the same profit could increase [an] Note: Do not award candidates who only
• Demand may fall [k] as customers might choose rival products [an] in discuss alternative ways to increase profit,
this competitive market [app] for example, advertising.
• if demand is price inelastic [k] higher price will see a lower fall in
demand [an] therefore revenue will rise [an] For evaluation either viewpoint is
• business may be able to lower costs [k] therefore increasing profit acceptable
with current prices [an]
• It would reinforce the image [k] of high quality [app] customers might
be happy to pay it [an]
• depends on actions of competitors [k]
© UCLES 2016
* 5 4 6 1 7 7 9 3 0 5 *

1 hour 30 minutes

DC (KN/SG) 125828/2
2
1 (a) P & P needs to be efficient. Identify and explain four methods P & P could use to motivate
production workers.
Method 1: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Method 2: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Method 3: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
Method 4: ..................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...............................................................................................................................................[8]
© UCLES 2016 0450/21/O/N/16

3
(b) P & P has developed a new type of paint. Consider the following three factors that will affect
the channel of distribution the company will use. Which factor will be the most important when
deciding the best channel of distribution? Justify your answer.
Where customers are located: ..................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
How often the product is purchased: ........................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Where competitors sell their products: ......................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Conclusion: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

4
2 (a) Identify and explain two reasons why P & P might respond to the pressure group and change
what the company is doing.
Reason 1: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
© UCLES 2016 0450/21/O/N/16

5
(b) P & P production results in external costs as outlined in Appendix 3. Consider the external
costs and external benefits of the production of paint by P & P. Recommend whether the
Government should take any action. Justify your answer.
External costs: ..........................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
External benefits: ......................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

6
3 (a) P & P has decided to use batch production to produce the new paint. Identify and explain two
factors which may have influenced this decision.
Factor 1: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Factor 2: ....................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
© UCLES 2016 0450/21/O/N/16

7
(b) Consider the two options outlined in Appendix 2 for increasing the output of paint. Recommend
which option the directors should choose. Use the cost data in Appendix 2 to help justify your
answer.
Option A: ...................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Option B: ...................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Recommendation: .....................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]

8
4 (a) Identify and explain two reasons why added value is important to P & P.
Reason 1: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Reason 2: .................................................................................................................................
...................................................................................................................................................
Explanation: ..............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[8]
© UCLES 2016 0450/21/O/N/16

9
(b) P & P is planning to start selling its products in other countries by 2018. Consider each of the
three following changes the company could make. Which one of these changes will be most
helpful in selling products to other countries? Justify your answer.
Take over a retail business in one of the other countries: .........................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Change to a public limited company to raise additional capital: ...............................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Form joint ventures in the other countries: ................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Conclusion: ...............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................[12]
© UCLES 2016 0450/21/O/N/16

10
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© UCLES 2016 0450/21/O/N/16

11
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© UCLES 2016 0450/21/O/N/16

12
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© UCLES 2016 0450/21/O/N/16


Paper 2 Case Study October/November 2016
MARK SCHEME
Maximum Mark: 80
Published
Teachers.
Cambridge IGCSE®, Cambridge International A and AS Level components and some Cambridge O Level
components.

1 (a) P & P needs to be efficient. Identify and explain four methods P & P could use to
motivate production workers. [8]
Application [4 × 1] – award one mark for each relevant method for production workers
Analysis [4 × 1] – award one mark for explanation of how each method increases motivation
Award one mark for each relevant method (maximum of four), such as:
• increase wages
• training
• profit sharing
• praise
• piece rate
• employee of the month
• bonus
• change in leadership style
• fringe benefits
• better working conditions
• job rotation
• job enlargement
• setting targets
• promotion
Introduce piece-rate [ap] because if the production workers produce more paint they will be
paid more and so they will be motivated to work harder [an].
© UCLES 2016
(b) P & P has developed a new type of paint. Consider the following three factors that will
affect the channel of distribution the company will use. Which factor will be the most
important when deciding the best channel of distribution? Justify you answer. [12]
Where customers are • do they deliver paint or do customers purchase from the shops
located • are they close to the factory – may use direct selling – lower
transport costs
• may require selling agents is exporting
How often the product • purchased regularly – may need to be sold in shops near to
is purchased customers/less often then customers may be willing to travel to
large shops to purchase paint
• may use wholesaler/middleman if bought less frequently
Where competitors • may need to sell paint in same retail outlets to competitors –
sell their products outlet already attracts many customers
• don’t sell at the same outlets as competitors – may need to
reduces price/sales

below.

9–10 marks for well justified conclusion as to which factor will be the most
important when choosing a channel of distribution and why not the alternative
channels.
7–8 marks for some limited judgement shown in conclusion as to which factor
will be the most important when choosing a channel of distribution.
Level 2 4–6 marks

Detailed discussion of the factors affecting the choice of channel of distribution
for the new type of paint.
Level 1 1–3 marks

Outline the factors affecting the choice of channel of distribution.
Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Where do competitors sell their
paint.
© UCLES 2016
Level 2 – one L2 explanation can gain 4 marks and a further mark can be awarded for each
additional L2 explanation (max 6 marks) e.g. Where do competitors sell their paint. They may
want to sell paint in large shops where many brands of paint are sold so that when
customers are looking for paint they will see their brand of paint as well and be more likely to
buy it than if they sell the paint in shops where no other paint is sold. 4 marks for L2 answer).
Level 3 – For L3 to be awarded there need to be at least two L2 marks awarded and then a
recommendation which justifies which factor is the most important when selecting the
channel of distribution to use.
Possible application marks: paint manufacturer; factory; large limited company; imports raw
materials; capital city; country X; sells to large retailers; uses batch production; new
waterproof paint; target market professional painters; new paint for outside of houses; start
exporting paint in 2018.
© UCLES 2016
2 (a) Identify and explain two reasons why P & P might respond to the pressure group and
change what the company is doing. [8]
Knowledge [2 × 1] – award one mark for each reason

Analysis [2 × 1] – award one mark for a relevant explanation for each reason
Application [2 × 2] – award two application marks for each reason
Award one mark for each reason (maximum of two), such as:
• Want to keep a good reputation for being environmentally friendly

• Wants to keep customers from switching to competitors
• Does not want to upset local residents
• Wants to avoid fines or legal action
• Wants to keep a favourable reputation for being a good employer
applied to this context – of why the business might respond to the pressure group and
change what the company is doing.
To not lose customers who may buy from competitors if they are against businesses polluting
the environment (k). The pollution affects a lot of people such as fishermen (ap) and may
mean there are a greater number of people lobbying the government for the company to
reduce pollution put into the river (ap). The more people affected then the more effective the
pressure group and the more likely they are to change to another company if P & P do not
change the way they produce paint (an).
Possible application marks: the Government of country X; paint manufacturer; large

limited company; large factory next to a river; pollution; waste; dumping in the river;
makes tins (cans) of paint; sells to large retailers; 150 production workers; employees
live near to the factory; details of two options outlined in Appendix 2; details of pollution
caused by paint production outlined in Appendix 3.
© UCLES 2016
(b) P & P production results in external costs as outlined in Appendix 3. Consider the
external costs and external benefits of the production of paint by P & P. Recommend
whether the Government should take any action. Justify your answer. (12)
External costs Pollution – waste put into river makes children ill, kills fish,
people can no longer catch their own fish, have to buy fish
now – no clean water
External benefits Provides jobs; increased sales for fish sellers; taxes paid to
government

below.

9–10 marks for well justified recommendation as to whether or not
the government should take any action.

to whether or not the government should take any action.
Level 2 4–6 mark

Detailed discussion of external costs and benefits on third parties.
Level 1 1–3 marks

Outline of external costs and benefits.
Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. The company puts waste
products into the river,
Level 2 – one L2 explanation can gain 4 marks and a further mark can be awarded for each
additional L2 explanation (max 6 marks) e.g. The company puts waste products into the river
and this kills the fish leading to local people have to increase their spending on food which
leaves them less to spend on other products. (4 marks for L2 answer plus one application
mark for mentioning catching fish from the river).
recommendation whether the government should introduce regulations on the activities of
this company.
© UCLES 2016
Possible application marks: paint manufacturer; large limited company; imports raw
materials; large factory next to a river; makes tins (cans) of paint; pressure groups; sells
to large retailers; uses batch production; 150 production workers; employees live near to
the factory; details of two options outlined in Appendix 2; details of pollution caused by
paint production outlined in Appendix 3. No credit for paint but ok for pollution.
3 (a) P & P has decided to use batch production to produce the new paint. Identify and
explain two factors which may have influenced this decision. (8)
Knowledge [2 × 1] – award one mark for each relevant factor

Analysis [2 × 1] – award one mark for a relevant explanation for each factor
Application [2 × 2] – award two application marks for each factor
Award one mark for each relevant factor (maximum of two), such as:
• Size of the output/ level of demand

• Various styles of product made
• Easier/quicker to respond to changes in demand
• Not enough capital to use capital-intensive methods
applied to this context – of the factor which may have influenced the decision to use batch
production.
Size of the output [k] as if a large output is not required then flow production will not be used
as too many products will be produced (an). Paint has many colours and types and so only a
certain quantity of one type will be needed (ap). P & P will produce a certain amount of, for
example bathroom paint and then a certain amount of kitchen paint because the demand will
not be high for all types of paint (ap).
Possible application marks: different colours of paint; paint manufacturer; paint tins; large
limited company; sells to large retailers; 150 production workers; employees live near to
the factory; paid using time-rate and no fringe benefits; new waterproof paint; new
machinery/equipment to make the paint; details of two options outlined in Appendix 2.
© UCLES 2016
(b) Consider the two options outlined in Appendix 2 for increasing the output of paint.
Recommend which option the directors should choose. Use the cost data in Appendix
2 to help justify your answer. (12)
Option A – $150 000 × 10% = cost of $15 000 interest per year.
Option B – $75 000 × 10% = cost of $7 500 interest / yr plus $10 000 = $17 500 / year.
Option A land cost + factory + machinery = $150 000 (L1)
Option B land cost + lease = $85 000 (L1)
Option B will be $72 500 cheaper in the first year (L2)
Option A Option B
Output 200 000 (appendix 2) 102 500 (appendix 2)
Cost $100 000 (appendix 2) $75 000 (appendix 2)
Factory + machinery $50 000 (appendix 2)
Lease $10 000 (appendix 2)
Interest paid $15 000 (L2) $7 500 (L2)
Total cost in the first year $165 000 (L2) $92 500 (L2)
Cost per tin $0.83 (L2) $0.90 (L2)

below.

9–10 marks for well justified recommendation as to the best option to
choose compared to the alternative option.
7–8 marks for some limited judgement shown in recommendation as to

the best option to choose.
Level 2 4–6 marks

Option A and B discussed including calculation of costs.
Level 1 1–3 marks

Option A and B outlined including comparison of costs/use of cost
information.
Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Option A is more expensive
than Option B
© UCLES 2016
Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each
additional L2 explanation (Max 6 marks). Option A is more expensive than Option B but
when calculating the costs per tin then Option A is cheaper at $0.83 per tin compared to
Option B of $0.90 per tin. (5 marks)
recommendation which justifies which is the best option to choose.
materials; large factory next to a river; uses batch production; 150 production workers; start
exporting paint in 2018; details of option 1 – 200 000 tins of paint, $100 000 land cost,
$50 000 factory and machinery, interest rate of 10% ; details of option 2 – 102 500 tins of
paint, $75 000 extension cost, $10 000 lease, interest rate of 10%
4 (a) Identify and explain two reasons why added value is important to P & P. (8)
Knowledge [2 × 1] – award one mark for each relevant reason

Analysis [2 × 1] – award one mark for a relevant explanation for each reason
Application [2 × 2] – award two application marks for each reason
Award one mark for each reason (maximum of two), such as:
• Allows costs to be paid

• Ensures a profit is made
• Prices could be increased
applied to this context – of the reason why added value is important.
Allows costs to be paid (k) as wages and other factory costs are paid out of the revenue from
sales of paint (ap) and the price of paint is higher than the total costs of producing it (ap).
This means that P & P will make a profit (an).
materials; makes tins (cans) of paint; sells to large retailers; uses batch production; 150
production workers; new waterproof paint; target market professional painters; new paint for
outside of houses; start exporting paint in 2018; increase in imports of paint.
© UCLES 2016
(b) P & P is planning to start selling its products in other countries by 2018. Consider
each of the three following changes the company could make. Which one of these
changes will be most helpful in selling products to other countries? Justify your
answer. (12)
Take over a retail Will own many outlets to Expensive to buy shares
business in one of the sell their paint in the other business
other countries
Change to a public limited So they can sell shares to Accounts are public and
company to raise the public may be able to be taken
additional capital Pay additional costs of over
exporting/expanding
Form joint ventures in the Local knowledge of the Have to share information
other countries overseas market. and profit.

below.

9–10 marks for well justified conclusion as to which change will be most
helpful when selling products abroad.
7–8 marks for some limited judgement shown in conclusion as to which

change will be most helpful when selling products abroad.
Level 2 4–6 marks

possible change.
Level 1 1–3 marks

Outline of advantages and/or disadvantages of each possible change.
Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Remaining a private limited
company means the business will keep its accounts private.
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. Changing to a public limited company means
the business will not keep its accounts private and so it will be easier for competitors to
obtain information about the company. However, it will be able to obtain capital from selling
shares as it can now sell shares to more than family and friends and this will enable it to
cover the increase in costs from starting to export. (4 marks for L2 answer).
© UCLES 2016
Level 3 – for L3 to be awarded there need to be at least two L2 marks awarded and then a
justified conclusion as to which change will be most helpful when selling products abroad.
Possible application marks: paint; country X; paint manufacturer; large limited company;
imports raw materials; makes tins (cans) of paint; sells to large retailers; new waterproof
paint; new paint for outside of houses; start exporting paint in 2018; wants to increase
output; increase in imports of paint.
© UCLES 2016
*6225071318*

1 hour 30 minutes

11_0450_11_2018_1.12
2
1 SOLS makes 5 styles of luxury shoes for men, using job production. SOLS operates in a niche
market. Quality assurance is important. All materials, including leather, are imported. SOLS uses
cost plus pricing. The shoes are sold directly to customers through its website. The Managing
Director said: ‘We can sell our shoes for $100 less a pair than our competitors because we have
no shops.’ Demand is increasing and the Managing Director has to decide whether to change to
batch production.
(a) What is meant by ‘niche market’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two advantages to SOLS (other than lower prices) of using a website to sell its products.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
........................................................................................................................................... [2]
(c) Explain, with reference to SOLS, the difference between quality assurance and quality control.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [4]
© UCLES 2018 11_0450_11_2018_1.12

3
(d) Identify and explain one advantage and one disadvantage to SOLS of using cost plus pricing.
Advantage: .......................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Disadvantage: ...................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think SOLS should change its method of production? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2018 11_0450_11_2018_1.12 [Turn over

4
2 AllPlay is a toyshop, set up by Vince in 2012. Each year Vince has met his business objectives
including making a profit in 2017. AllPlay imports all of its products. Vince wants to expand by
opening a second shop so he can sell a wider range of products. The cost of buying the shop is
$20 000. One option for finance is a bank loan. Vince’s bank manager will want to see AllPlay’s
Income statement, and other financial documents.
Table 1: Extract from AllPlay’s Income Statement for the year ending 30 September 2018
$ 000s
Revenue X
Less cost of sales 63
Gross profit 52
Expenses (including rent and marketing) Y
Profit 12
(a) What is meant by ‘business objectives’?
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Calculate X and Y.
X: ......................................................................................................................................
Y: ...................................................................................................................................... [2]
(c) Identify and explain one advantage and one disadvantage to AllPlay of importing its products.
Advantage: .......................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Disadvantage: ...................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2018 11_0450_11_2018_1.12

5
(d) Identify and explain two ways in which the bank might use AllPlay’s financial documents.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think a bank loan is the best source of finance for Vince to choose? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2018 11_0450_11_2018_1.12 [Turn over

6
3 Filltum is the brand name for a chain of vegetarian restaurants. It has 28 restaurants, 16 of which
are operated by franchisees. The Managing Director is pleased with its fast rate of growth at a time
when many businesses are failing. She said: ‘Having a well-motivated workforce is important to
our success. All new employees are given on-the-job training.’ Filltum plans to have 10 more
restaurants in the next year. The Managing Director has to decide whether to sell additional
franchises or open its own restaurants.
(a) What is meant by ‘brand name’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two reasons why a business might fail.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two ways in which having a well-motivated workforce can help Filltum
achieve success.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2018 11_0450_11_2018_1.12

7
(d) Identify and explain two advantages to Filltum of using on-the-job training.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think selling more franchises is the best way for Filltum to expand? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2018 11_0450_11_2018_1.12 [Turn over

8
4 AHP is a multinational company. It makes mobile (cell) phones in Europe in country X. 80% of its
sales are in Europe. Some people are concerned about AHP’s impact on the environment. The
Operations Director said: ‘AHP always tries to ensure it meets all legal controls. Globalisation has
created many opportunities for AHP and its stakeholders. The Operations Director is planning to
relocate its factories to a low-cost country in Asia. Raw materials would need to be transported an
extra 4000kms. Interest rates are likely to increase across Europe.
(a) What is meant by ‘multinational company’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two advantages to AHP of being a multinational company.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two ways in which AHP might have an impact on the environment.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2018 11_0450_11_2018_1.12

9
(d) Identify and explain two ways in which an increase in interest rates might affect AHP.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think AHP should relocate its factories to a low-cost country in Asia? Justify your
answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2018 11_0450_11_2018_1.12

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© UCLES 2018 11_0450_11_2018_1.12

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© UCLES 2018 11_0450_11_2018_1.12

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© UCLES 2018 11_0450_11_2018_1.12


MARK SCHEME
Maximum Mark: 80
Published
Teachers.
Cambridge International will not enter into discussions about these mark schemes.
Cambridge International is publishing the mark schemes for the October/November 2018 series for most
Cambridge IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level
components.

0450/11 Cambridge IGCSE – Mark Scheme October/November 2018
PUBLISHED
These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the
specific content of the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these
marking principles.
• the specific skills defined in the mark scheme or in the generic level descriptors for the question
• the standard of response required by a candidate as exemplified by the standardisation scripts.
• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the
scope of the syllabus and mark scheme, referring to your Team Leader as appropriate
• answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the
question as indicated by the mark scheme. The meaning, however, should be unambiguous.
Rules must be applied consistently e.g. in situations where candidates have not followed instructions or in the application of generic level
descriptors.

PUBLISHED
Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may
be limited according to the quality of the candidate responses seen).
Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or
grade descriptors in mind.

PUBLISHED
Question Answer Marks Notes
1(a) What is meant by ‘niche market’? 2 For 2 marks must have both elements
Clear understanding [2] – e.g. highly specialised [1] sub part of a large
market [1]
Some understanding [1] – e.g. small part of a market OR specialist market
OR part of the market with specific needs and characteristics
1(b) Identify two advantages to SOLS (other than lower prices) of using a 2 The advantage must relate specifically to
website to sell its products. the business (SOLS) not to the customer.
Application [2 × 1] award 1 mark per point Relevant points might include:
• Wider target market / more people to sell to / accessible worldwide

• Lower fixed cost
• 24 hour access
• Reinforce image
• Provide information
• Way to obtain / ask for feedback
1(c) Explain, with reference to SOLS, the difference between quality 4 Application marks may be awarded for
assurance and quality control. appropriate use of the following:
Knowledge [2 × 1] – award 1 mark for each relevant method [max 2] • shoes or related words such as leather
Application [2 × 1] – award 1 mark for each explanation in context OR pairs OR luxury
• 5 styles
Relevant points might include: • sold directly to customers OR website
OR no shops
• Quality assurance involves checking throughout the process [k] such as • $100 less (per pair)
making sure leather used is suitable [app] • niche market
• Quality control happens at end [k] after shoes have been made [app] • job production
• Quality assurance means everyone is involved in checking [k] such as • batch production
each worker producing different styles [app] • men
• Quality assurance is process orientated [k] whereas quality control is
product orientated [k]

PUBLISHED
1(d) Identify and explain one advantage and one disadvantage to SOLS of 6 Application marks may be awarded for
using cost plus pricing.. appropriate use of the following:
Knowledge [2 × 1] – award 1 mark for each relevant advantage / • shoes or related words such as pairs
disadvantage OR leather OR luxury
Application [2 × 1] – award 1 mark for each relevant reference made to this • 5 styles
business • sold directly to customers OR website
Analysis [2 × 1] – award 1 mark for each relevant explanation OR no shops
Relevant points might include: • $100 less (per pair)
• quality assurance
Advantage: • job production
• Know that the costs will be covered [k] and they can make a profit per • batch production
item [an] even though they can sell items for less than competitors [app] • niche market
• Simple / easy to calculate [k] so saves time when setting prices [an] for • competitors / competitive market
shoes [app]
• Know their profit margin / profit per item [k] Profit can only be credited if it is clear that
• Different mark ups could be added [k] for the 5 styles [app] this is profit per item / margin.
Disadvantage: Do not reward alone as [k] prices are too
• Does not consider what competitors do [k] so price set might be high, as this is not specific to cost-plus
uncompetitive [an] for each style [app] pricing.
• Does not take account of changes in demand OR spending patterns [k]
so could lead to fewer sales being made [an]
• Little incentive to control costs [k]
• Prices could be higher than competitors [k]

PUBLISHED
1(e) Do you think SOLS should change its method of production? Justify 6 Application marks maybe awarded for
your answer. appropriate use of the following:
Knowledge [1] – award 1 mark for identification of relevant issue(s) [max 1] • Shoes or related words such as pair or
Application [1] – award 1 mark for a relevant reference made to this leather or luxury
business • 5 styles
Analysis [2] – award up to 2 marks for relevant development of point(s) • Sold directly to customers/ website/no
Evaluation [2] – justified decision made as to whether SOLS should change its shops
method of production • $100 less per pair
• Job or batch production
Relevant points might include: • Niche market
Job production:
• Meet exact customer demands / unique / higher quality [k] so able to
charge higher price [an] in a niche market [app]
• More varied work leads to higher motivation [k] leading to few workers
leaving / less absenteeism [an]
• Change could damage reputation [k] for its luxury product [app] which
could lower its sales [an]
Batch production:
• Flexible or easy to switch production [k] between the 5 styles [app] so
able to react quickly to changes in customer demand [an]
• Some economies of scale [k] leading to lower average costs [an]
• Can be demotivating for employees (as work likely to be more repetitive)
[k] so may not pay as much attention to quality assurance [app]
increasing amount or cost of wastage [an]
• Able to produce more [k] which is important as demand has increased
[app] so maybe able to meet additional demand [an]
• Cost of new equipment OR training [k]

PUBLISHED
2(a) What is meant by ‘business objectives’? 2 Do not award examples as this does not
explain the term
Clear understanding [2] e.g. a statement of a specific target that a business
works towards
Some understanding [1] e.g. target or goal
2(b) Calculate X and Y. 2
Application [2 × 1] award 1 mark per answer
X = 115 000 or 115

Y = 40 000 or 40
2(c) Identify and explain one advantage and one disadvantage to AllPlay of 4 Application marks may be awarded for
importing its products. appropriate use of the following:
• toys or related words
Knowledge [2 × 1] – award 1 mark for a relevant advantage and disadvantage • correct use of data from table 1
Application [2 × 1] – award 1 mark for each explanation in context • widen his product range
Relevant points might include: • shop
• all inventory imported
Advantages: • met his objectives
• Access to a wider range of products [k] which he needs for the new shop • expand
[app]
• Lower priced products [k] so might be able to increase his revenue [app]
Disadvantages:
• Import quotas [k] reducing the number of toys [app]
• Exchange rate movements [k] might mean cost of sales rises above
$63 000 [app]
• Tariffs / Import Tax [k] increasing the costs of sales [app]
• Different legal OR quality standards [k]
• Can’t be sure of quality [k]
• Transport may take longer [k]

PUBLISHED
2(d) Identify and explain two ways in which the bank might use AllPlay’s 6 Application marks may be awarded for
financial documents. appropriate use of the following:
Knowledge [2 × 1] – award 1 mark for each relevant way • toys or related words,
Application [2 × 1] – award 1 mark for each relevant reference made to this • correct use of data from table 1
business • $20 000
Analysis [2 × 1] – award 1 mark for each relevant explanation • widen his product range
• shop
Relevant points might include: • all inventory imported
• met his objectives
• To decide whether to give the loan [k] of $20 000 [app] because they • made profit in 2017 and 2018
can see if they can repay it [an] • income statement
• To identify assets for security [k] such as the existing shop [app] to • loan
reduce the risk of non-payment [an]
• Calculate liquidity / cash flow [k] so they know the business can pay its
short-term debts [an] of $63 000 [app]
• To offer advice [k] on whether a bank loan [app] is the best source of
finance [an]
• To compare financial documents over time [k] such as their income
statement [app] to help them to improve [an]

PUBLISHED
2(e) Do you think a bank loan is the best source of finance for Vince to 6 Application marks may be awarded for
choose? Justify your answer. appropriate use of the following:
Knowledge [1] – award 1 mark for identification of relevant issue(s) • toys or related words
Application [1] – award 1 mark for a relevant reference made to this • correct use of data from table 1
business • $20 000
Analysis [2] – award up to 2 marks for relevant development of point(s) • widen his product range
Evaluation [2] – justified decision made as to whether a bank loan is the best • shop
source of capital for Vince. Either viewpoint is acceptable. • all inventory imported
• met his objectives
• made profit in 2017 and 2018
• income statement
Loan:
• Can repay over a long period [k]
Loan cannot be awarded as application as
• Interest payable [k] on the $20 000 [app] so will add to costs [an]
this is in the question
• Time to convince bank [k] as need to produce financial documents [app]
Other options could include

• Retained profits [k] – no need to repay [an] which reduces its
expenses [an]
• Lease [k] – but will not be an asset it can sell [an]
• Obtain funds from a partner [k]
3(a) What is meant by ‘brand name’? 2
Clear understanding [2]: unique name of a product / business [1] that

distinguishes it from other businesses or products [1].
Some understanding [1]: e.g. makes a product ‘stand out’

PUBLISHED
3(b) Identify two reasons why a business might fail. 2
Knowledge [2 × 1] award 1 mark per reason
• Lack of demand / recession

• Poor management skills / poor planning
• Change in tastes
• Financial problems e.g. lack of cashflow
• Change in legal controls
• Action of competitor
• Change in economic situation e.g. rise in interest rates, taxes
3(c) Identify and explain two ways in which having a well-motivated 4 Application marks may be awarded for
workforce can help Filltum achieve success. appropriate use of the following:
Knowledge [2 × 1] – award 1 mark for each relevant way [max 2] • restaurant or related words such as
Application [2 × 1] – award 1 mark for each explanation in context vegetables, menu, chef
• 10, 28, 16
Relevant points might include: • 12 of their own restaurants
• expansion plans
• Workers are willing to offer good service [k] in the restaurant [app] • franchise
• Workers willing to share ideas [k] to help the expansion plans [app] • on the job training
• Less likely to leave [k] the franchise [app] • brand name
• Less absenteeism [k] of chefs [app]
• Improved reputation [k] in the 28 locations [app]
• Increase productivity / efficiency / fewer errors [k]

PUBLISHED
3(d) Identify and explain two advantages to Filltum of using on-the-job 6 Application marks may be awarded for
training. appropriate use of the following:
Knowledge [2 × 1] – award 1 mark for each relevant advantage [max 2] • restaurant or related words such as
Application [2 × 1] – award 1 mark for each relevant reference made to this vegetables, menu, chef
business • 10, 28, 16
Analysis [2 × 1] – award 1 mark for each relevant explanation • 12 of their own restaurants
• expansion plans
Relevant points might include: • franchise
• Specific to the business needs [k] in the 28 outlets [app] so service

standards are easier to maintain [an]
• Managers can control the skills taught [k]
• Lower cost than off the job [k] lowering expenses [an] at a time when
business is looking to open 10 more restaurants [app]
• Employees still working while training [k] so able to serve more food
[app] and output does not stop [an]
• Workers are learning on the equipment that they actually use [k]
• Managers can assess workers abilities [k]

PUBLISHED
3(e) Do you think selling more franchises is the best way for Filltum to 6 Application marks may be awarded for
expand? Justify your answer. appropriate use of the following:
Knowledge [1] – award 1 mark for identification of relevant issue(s) [max 1] • restaurant or related words such as
Application [1] – award 1 mark for a relevant reference made to this vegetables, menu, chef
business • 10, 28, 16
Analysis [2] – award up to 2 marks for relevant development of point(s) • 12 of their own restaurants
Evaluation [2] – justified decision made as to whether selling more • expansion plans
franchises in the best way for Filltum to expand • fast rate of growth
• brand name
Relevant points might include: • when many businesses are failing
Franchises:
• Do not need to raise as much capital to expand [k] as franchisee will pay
a fee to buy the franchise [an]
• Will receive a share of each franchise’s profits [k] providing an extra
source of revenue [an]
• Faster way to expand [k] so able to maintain its fast rate of growth [app]
• Mistakes by one franchisee may create a bad image for whole business
[k] damaging reputation [an] and reducing sales revenue [an]
• Will be expected to offer support and advice [k] to these and other 16
franchises [app] which can increase costs [an]
• Can share risks with franchisee [k] when many businesses are
failing [app]
• Brand / Customer awareness increases [k]
Expand themselves:
• Able to keep control [k]
• Keep all the profits made [k]

PUBLISHED
4(a) What is meant by ‘multinational company’? 2 Do not award answers such as sells in
many countries as this could also apply to
Clear understanding [2]: those with factories, production or service an exporter
operations in more than one country
OR a business with production or service operation in another country
outside its normal area of operation
Some understanding [1] e.g. has businesses everywhere OR worldwide
4(b) Identify two advantages to AHP of being a multinational company. 2
Application [2 × 1]: award 1 mark per advantage Relevant points might

include:
• Access to raw materials

• Obtain cheaper raw materials
• Lower labour costs
• Reduce transport costs
• Spread risk
• Remain competitive
• Avoid barrier to trade
• Access to more markets / more sales opportunities
• Access government grants / support
• Lower taxes in some countries
• Improve brand image

PUBLISHED
4(c) Identify and explain two ways in which AHP might have an impact on 4 Application marks may be awarded for
the environment. appropriate use of the following:
• mobile phones
Knowledge [2 × 1] – award 1 mark for each relevant way [max 2] • 80% sales (in Europe)
Application [2 × 1] – award 1 mark for each explanation in context • comply with legal controls
• relocate its factories
Reasons might include: • multinational company
• country X
• Pollution [k] caused by disposal of mobile phones [app] • transporting extra 4000 km
• Loss of green spaces [k] from relocating its factory [app] • raw materials
• Traffic congestion [k] caused by transporting materials an extra
4000 km [app]
• Depletion of natural resources [k]
4(d) Identify and explain two ways in which an increase in interest rates 6 Application marks may be awarded for
might affect AHP appropriate use of the following:
Knowledge [2 × 1] – award 1 mark for each relevant way • mobile phones

Application [2 × 1] – award 1 mark for each relevant reference made to this • 80% sales (in Europe)
business • environmental concerns
Analysis [2 × 1] – award 1 mark for each relevant explanation • (relocate its) factories
Relevant points might include: • multinational
• country X
• Cost of borrowing increases [k] so less incentive to buy building land • transporting extra 4000 km
[an] for new factory [app] • raw materials
• Consumers reduce spending [k] as cannot afford luxury/non-essential
items [an] such as phones [app]
• Increased cost (of current loan/overdraft) [k] so profits do not
increase [an]
• Higher interest rates attract more savings [k]
• May have to increase prices [k]

PUBLISHED
4(e) Do you think AHP should relocate its factories to a low-cost country in 6 Application marks may be awarded for
Asia? Justify your answer. appropriate use of the following:
Knowledge [1] – award 1 mark for identification of relevant issue(s) • mobile phones
Application [1] – award 1 mark for a relevant reference made to this • 80% sales (in Europe)
business • environmental concerns
Analysis [2] – award up to 2 marks for relevant development of point(s) • (relocate its) factories
Evaluation [2] – justified decision made as to whether AHP should relocate to • comply with legal controls
a low cost country in Asia • interest rates set to rise
• multinational
• country X
• transporting raw materials extra 4000 km
• Further to reach its market [k] as 80% of sales in Europe [app] so may
not be able to react quickly to changes in demand [an] • raw materials
• Availability of suitable land [k] as will need a large area which will
increase the cost [an] Factories cannot be awarded as application
• Availability of suitable labour [k] to make the phones [app] in this question.
• Distance to raw materials [k] which is an extra 4000 km [app] which could
lead to delays in production [an]
• Negative reaction of local community [k] as there are environmental
concerns [app]
• Legal controls may restrict or encourage where it can locate [k]


INSERT
1 hour 30 minutes

*1910087841-I*

11_0450_21_2018_1.16
2
Guardian Toys (GT)
GT is a public limited company. It was set up 50 years ago in country Y. Shareholders were the
main source of capital when the business expanded but bank loans have also been used. The
company has recently allowed its employees to join a trade union which will have an effect on GT
and its employees.
The company manufactures a range of toys for babies and young children below school age. These
toys are sold to large toy shops throughout country Y and in other countries. However, the Marketing
manager wants to develop online sales. He thinks GT’s toys should only be sold using e-commerce,
not through retailers. This will help prevent any communication barriers.
The Operations manager thinks that GT needs to reduce average costs to remain competitive in
the global market. GT uses batch production to manufacture all the many designs of toys it sells.
The Operations manager also thinks that the development of new toys should be changed for the
different markets in other countries. Each market needs something different to make the toys a
success.
GT buys from suppliers in country Y that it has dealt with for many years. GT uses just-in-time
inventory control. The design of the toys has not been changed for a number of years. Sales have
fallen over the past 12 months. Prices were increased last year to maintain profit margins.
The Human Resources (HR) manager is worried about low levels of worker motivation and the time
taken to negotiate a new wage agreement for the production workers.
Appendix 1
Advertisement for GT
GT - your specialist quality toys. The greatest care goes into the design of each and every one of
our many toys. The education and safety of your child are our main priorities. Our toys are available
from all good toy shops at competitive prices.
© UCLES 2018 11_0450_21_2018_1.16

3
Appendix 2
Email
To: Marketing manager
From: Operations manager
Date: 1 September 2018
Re: Need to cut costs
As discussed at our last meeting, we need to cut the average cost of making each toy. We could
choose cheaper suppliers but this may mean we have to buy from suppliers in other countries. We
could change the design of the toys so that we use fewer components (parts) when making the
toys.
We have tried to do this with our toy car. We can reduce the number of components from 50 to 40
if we make the main car body out of one piece of plastic rather than several pieces. We could look
at many of our other products to see if this is possible. We must be careful that it does not make
the toys less attractive to customers.
Appendix 3
Financial and other information for GT and a main competitor
GT Main competitor
Annual revenue for latest financial
$20m $25m
year
Increase in sales from previous

2% 5%
year
Cost of sales for latest financial

$5m $3m
year
Profit margin 10% 20%
Change in profit margin from

Lower Higher
previous year
Current ratio 1.5 2.5
Acid test ratio 1 2
Number of different designs of

200 100
toys
© UCLES 2018 11_0450_21_2018_1.16

4
BLANK PAGE
© UCLES 2018 11_0450_21_2018_1.16

*1910087841*

1 hour 30 minutes


11_0450_21_2018_1.16
2
1 (a) Identify and explain two advantages and two disadvantages of GT being a public limited
company.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Disadvantage 1: ................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Disadvantage 2: ................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [8]
© UCLES 2018 11_0450_21_2018_1.16

3
(b) Consider the advantages and disadvantages of the following two options for distributing GT
products. Recommend the option GT should choose. Justify your answer.
Continue selling to large shops: .......................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Only sell its products using e-commerce: .........................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
© UCLES 2018 11_0450_21_2018_1.16 [Turn over

4
2 (a) Identify and explain two roles of the Operations manager at GT.
Role 1: ..............................................................................................................................
...........................................................................................................................................
Explanation 1: ...................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Role 2: ..............................................................................................................................
...........................................................................................................................................
Explanation 2: ...................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
© UCLES 2018 11_0450_21_2018_1.16

5
(b) Consider the following three ways GT can reduce the average cost of products. Recommend
the best way to choose. Justify your answer.
Change to a cheaper supplier of raw materials: ...............................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Change the design of products so that they need fewer components: ............................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Change from batch production to flow production: ...........................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
© UCLES 2018 11_0450_21_2018_1.16 [Turn over

6
3 (a) Identify and explain two factors GT should consider when developing products for markets in
different countries.
Factor 1: ...........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Factor 2: ...........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
© UCLES 2018 11_0450_21_2018_1.16

7
(b) Consider how the following three communication issues affect GT. Which one of these issues
is likely to cause the biggest problem for GT? Justify your answer.
Different languages are spoken in GT’s markets in other countries: ................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
GT is starting to use several new suppliers: .....................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
GT’s main communication method with its production workers is a weekly meeting: ......
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Conclusion: .......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
© UCLES 2018 11_0450_21_2018_1.16 [Turn over

8
4 (a) Identify and explain one effect on GT and one effect on GT’s employees of workers being
members of a trade union.
Effect on GT: .....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Effect on GT’s employees: ...............................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
© UCLES 2018 11_0450_21_2018_1.16

9
(b) Refer to Appendix 3. Consider how the information in Appendix 3 will help the following three
users of accounts. Which user will find the information most helpful when taking decisions?
Shareholders of GT: ..........................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Managers of GT: ...............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Competitors of GT: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Conclusion: .......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
© UCLES 2018 11_0450_21_2018_1.16

10
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© UCLES 2018 11_0450_21_2018_1.16

11
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© UCLES 2018 11_0450_21_2018_1.16


MARK SCHEME
Maximum Mark: 80
Published
Teachers.
components.

0450/21 Cambridge IGCSE – Mark Scheme October/November
PUBLISHED 2018
• answers should only be judged on the quality of spelling, punctuation and grammar when these
features are specifically assessed by the question as indicated by the mark scheme. The
Marks should be awarded using the full range of marks defined in the mark scheme for the question
(however; the use of the full mark range may be limited according to the quality of the candidate
responses seen).

PUBLISHED 2018
1(a) Identify and explain two advantages and two disadvantages of GT 8

being a public limited company.
Award 1 mark for each relevant advantage/disadvantage (maximum of 4),

such as:
Advantages:
• Limited liability
• Incorporated business with separate legal identify
• Shares can be issued to the general public
• Opportunity to raise very large sums of capital
• No restrictions on buying, transferring or selling of shares
• High status and easier to attract suppliers
Disadvantages:
• Quite complicated legal formalities
• Many regulations and controls including publication of
accounts/accounts can be seen by competitors
• Selling shares to the public is expensive
• Danger the owners may lose control if too many shares are issued/risk
of takeover
Award a maximum of 1 additional mark for each explanation.

Indicative response: Limited liability [1] means the shareholders can only
lose the capital they invested in the company and not their personal
possessions. [1].

PUBLISHED 2018
1(b) Consider the advantages and disadvantages of the following two 12

options for distributing GT products. Recommend the option GT
should choose. Justify your answer.
Continue selling • Already established • Harder to expand

to large shops channel of sales if using the
distribution and same channels
links with retailers and not new ones
• Easier to use in • May sell many
store promotions as competing goods
already has in shops alongside
relationship with GT toys
retailer
• Lower delivery
costs compared to
online
Only sell its • Sell to a wider • May lose existing

products online range of customers customers if they
• Customers can want to see and
access all the range handle toys before
of products buying
• Lower price as no • May not have a
retail profit margin cost-effective
• Possibly allows delivery network
prices to be available
reduced to make
the toys more
competitive
Level 1 (1–3 marks)

1 mark for each L1 statement (max of 3 marks)
E.g. Lower price as no retail profit included.

Detailed discussion of the advantages and disadvantages of each option.
1 × L2 explanation can gain 4 marks and a further mark can be awarded for
each additional L2 explanation (max 6 marks)
E.g. Lower price as no retail profit included so this may attract more
customers leading to higher sales of toys and profit for GT. However, GT
may lose existing customers if they prefer to feel and see the toys to check
they are suitable for their children before buying. This may reduce the sales
of toys to existing customers and result in a lowering of toy sales for GT. (4
marks for L2 answer plus 1 application mark for referring to the purchase of
toys for their children).

PUBLISHED 2018
1(b) Level 3 (7–10 marks)

For L3 to be awarded there need to be at least 2 L2 marks awarded and
then a recommendation which justifies which channel of distribution to
choose.
7–8 marks for some limited judgement shown in recommendation as to
which channel of distribution should be chosen and/or why not the
alternative channel chosen.
9–10 marks for well justified recommendation as to which option will be the
best channel of distribution to choose and why not the alternative channel.

Possible application marks: manufacturer of toys; toys sold to large toy
shops throughout country Y; 200 different designs; teddy bears; toy cars;
building blocks; suitable for babies/young children; toys also exported;
Marketing manager wants to only sell toys online; toys manufactured using
batch production; design and packaging of toys need to be adapted for
each different export market; sells well designed toys of high quality;
education and safety of children are GT’s main priorities; recent price
increases have resulted in falling sales, selling online will help prevent any
communication barriers.
There may be other examples in context, which have not been included
here.

PUBLISHED 2018
2(a) Identify and explain two roles of the Operations manager at GT. 8
Knowledge [2 × 1] – award 1 mark for each role.

Analysis [2 × 1] – award 1 mark for a relevant explanation for each role.
Application [2 × 2] – award 2 application marks for each role.
Award 1 mark for each role (maximum of 2), such as:

• Planning the production such as setting a target of an increase of 10%
in output of toy production
• Organising the tasks done by the production line workers such as
deciding which worker will fit heads onto the figures and which ones will
package the dolls
• Coordinating different departments with the production department
ensuring that for example the purchasing department orders the right
quantity of components for the toy cars ready for their assembly
• Commanding the supervisors on the production lines to ensure they all
know what they should be doing to keep to their targets and meet
deadlines
• Controlling the employees on the production line to make sure they
are all meeting their targets and producing toys efficiently.
Award a maximum of 3 additional marks for each explanation of role of the

Operations manager at GT – 2 of which must be applied to this context.
Indicative response: Planning (k) the production of toys in the GT factory.

(ap) This gives a sense of direction and purpose to the operations
department, as they will all have a common purpose to work towards. (an)
The output of toys should therefore go more smoothly as the correct
components to make the toy cars should arrive on time to be ready for
assembly on the production line. (ap).

shops throughout country Y; toys also exported; Marketing manager wants
to sell toys online; toys manufactured using batch production; design and
packaging of toys need to be adapted for each different export market; sells
well designed toys of high quality; safety of the child is very important;
components are imported and uses JIT; need to purchase cheaper
components to reduce costs; currently low levels of worker motivation;
recent price increases have resulted in falling sales.
here.

PUBLISHED 2018
2(b) Consider the following three ways GT can reduce the average cost of 12
products. Recommend the best way to choose. Justify your answer.
Advantage Disadvantage
Change to a • Lower costs of • May be inferior

cheaper supplier of purchasing raw quality
raw materials: materials • May be an
• New supplier may overseas supplier
be keen to keep with higher
GT happy so transport costs
supply at better • Takes time to find
price new suppliers
• Takes time to build
up new relationship
with supplier
Change the design • Quicker to • May affect the

of products so that assemble each performance of the
they need fewer toy toy if it moves
components • Speeds up the • Toy may lose some
production of its quality
process
• Possibly fewer
workers needed if
fewer parts to fit
Change from batch • Much larger • High cost of

production to flow output produced installing machinery
production • Unit costs should • Less able to
fall respond to changes
• Expand into new in styles of toys
markets with • May not be able to
increased output sell the much larger
• Lower unit costs quantity of each
allows lower style of toy
prices and more
competitive

1 mark for each outline of the advantages and disadvantages of each way.
(max of 3 marks)
E.g. Lower cost of purchasing raw materials.

PUBLISHED 2018

Detailed discussion of the advantages and disadvantages of each way.
E.g. Lower cost of purchasing raw materials, which should allow GT to
lower the prices of their toys. This should make their toys more competitive
in other countries and should lead to higher sales. (4 marks for L2 answer +
1 application mark for mentioning toys sales).

then a recommendation of the best way to reduce cost.
7–8 marks for some limited judgement shown in recommendation of the
way to reduce average cost and/or why not the other ways.
9–10 marks for well justified recommendation of the way to reduce average
cost compared to alternatives.

shops throughout country Y; suitable for babies/young children; toys also
exported; Marketing manager wants to sell toys online; toys manufactured
using batch production; design and packaging of toys need to be adapted
for each different export market; 200 different designs; plan to reduce
components from 50 to 40; body of toy car can be made out of one piece of
plastic; sells well designed toys of high quality; safety of the child is very
important; components are imported and uses JIT; already low levels of
worker motivation; recent price increases have resulted in falling sales.
here.

PUBLISHED 2018
3(a) Identify and explain two factors GT should consider when developing 8
products for markets in different countries.
Knowledge [2 × 1] – award 1 mark for each factor.

Analysis [2 × 1] – award 1 mark for a relevant explanation for each factor.
Application [2 × 2] – award 2 application marks for each factor.
Award 1 mark for each relevant factor (maximum of 2), such as:
• Size/nature of the market – e.g. product may need adapting to meet
different trends in the toy market
• Legal requirements – e.g. product design must meet safety
requirements
• Language – e.g. talking dolls may need adapting to speak different
languages
• Competition – e.g. needs to develop a product with a USP that is
different to competitor’s product
• GDP/income levels – e.g. may need to adapt product to be lower cost
which is affordable to low-income countries
• Cultural differences – e.g. dolls’ clothing may need to be different style
or colour.
Award a maximum of 3 additional marks for each explanation of the factor

which may have influenced how to adapt or develop the product for
different countries – 2 of which must be applied to this context.
Indicative response: The culture (k) in other countries may be different so
GT toys(ap) will require adaptation to suit their cultural sensitivities (an) If
the toys such as cars or dolls are not changed to suit the customers in other
countries then they may not sell very well. (ap)

shops throughout country Y; toys also exported; Marketing manager wants
to sell toys online; toy cars,dolls,building blocks; toys manufactured using
batch production; 200 different designs; sells well designed toys of high
quality; safety of the child is very important; suitable for babies and children;
components are imported and uses JIT; recent price increases have
resulted in falling sales.
here.

PUBLISHED 2018
3(b) Consider how the following three communication issues affect GT. 12
Which one of these issues is likely to cause the biggest problem for
GT? Justify your answer.
Different • Harder to understand what is being said or

languages are questions asked
spoken in GT’s • Recruit managers with language skills
markets in other • May increase costs of employing an
countries: interpreter
• Customers may have difficulty reading
labels/instructions
GT is starting to • No relationship established
use several new • May not know who to contact if there are
suppliers: queries
• Different suppliers to communicate with
which takes time to know who to contact and
some errors may be made
• Culture may be different if suppliers are in
other countries meaning communication may
be misunderstood
GT’s main • No written record so message may be
communication forgotten
method with its • Meeting only once a week and there may be
production issues arising before the next meeting that
workers is a needs attention
weekly meeting: • Workers may be absent and miss the
meeting and therefore not receive the
information

1 mark for each limited discussion of communication issues/problem(s) not
identified. (max of 3 marks)
E.g. No relationship has been established yet.

Detailed discussion of communication issues/problem(s) identified.1 × L2
explanation can gain 4 marks and a further mark can be awarded for each
additional L2 explanation (Max 6 marks).
E.g. No relationship has been established yet, as the suppliers are new, so
GT may not know who to contact is there is a problem. It is important for
orders to be received and sent out quickly as GT uses JIT and this requires
the components to be delivered just when required or production of
particular toys may stop. (4 marks for L2 answer plus 1 application mark for
answering in the context of the business using JIT for the production of
toys)

PUBLISHED 2018

then a conclusion of which is the biggest communication issue.
7–8 marks for some limited judgement shown in conclusion of which is the
biggest communication issue and/or why the other communication issues
were less of a problem.
9–10 marks for well justified conclusion of which is the biggest
communication issue and why the other issues are less of a problem.

Possible application marks: plc set up 50 years ago; manufacturer of toys;
toys sold to large toy shops throughout country Y; toys also exported;
Marketing manager wants to sell toys online not through retailers; toys
manufactured using batch production; design and packaging of toys need to
be adapted for each different export market; sells well designed toys of high
quality; safety of the child is very important; components are imported and
uses JIT.
here.

PUBLISHED 2018
4(a) Identify and explain one effect on GT and one effect on GT’s 8
employees of workers being members of a trade union.
Knowledge [2 × 1] – award 1 mark for each effect.

Analysis [2 × 1] – award 1 mark for a relevant explanation for each effect.
Application [2 × 2] – award 2 application marks for each effect.
Award 1 mark for an effect on GT and one mark for an effect on GT’s
employees (maximum of 2), such as:
Effect on GT
• Easier to negotiate with just one organisation representing all
employees at GT
• May have to face increased wage costs if union successfully negotiates
a pay rise
• Improve communication between managers and workers
• Improve relations between managers and workers
• May be affected by industrial action
Effect on GT’s employees

• May be able to negotiate a wage increase
• May be able to improve working conditions
• Collective bargaining (strength in numbers) increases likelihood of
success for worker demands
• Worker views are put forward to management
• Can seek advice about issues of pay, dismissal, workers’ rights
• More aware of employee rights.
Award a maximum of 3 additional marks for each explanation of the effect

for GT and GT employees – 2 of which must be applied to this context.
Indicative response: Easier to negotiate, (k) as there is only one

organisation representing employees, instead of needing to negotiate with
each employee separately. (an) GT has a large factory with many
employees (ap) so using the operations manager to negotiate with the trade
union will be quicker and easier for the company. (ap)
Possible application marks: plc set up 50 years ago; manufacturer of

toys; sells well designed toys of high quality; employees only recently
allowed to join a trade union; low levels of worker motivation; currently
negotiating a new wage agreement for production workers.
here.

PUBLISHED 2018
4(b) Refer to Appendix 3. Consider how the information in Appendix 3 will 12

help the following three users of accounts. Which user will find the
information most helpful when taking decisions? Justify your answer.
Benefits
Shareholders • To decide whether to reinvest profit

of GT: • To judge the success of the business/judge
how much dividend they might receive
• Whether they should buy or sell shares
Managers of • To judge their performance

GT: • To justify asking for a bonus/pay rise
• Take decisions on how to improve profit for the
future as profit margin lower than competitors
• How to improve liquidity as their liquidity is
lower than competitors or feel secure as their
liquidity is better than competitors if consider
acid test of 1 as suitable
Competitors of • To judge if GT is more successful than them

GT: • To decide whether to take over GT

1 mark for each outline of how the financial information is useful to a user.
(max of 3 marks)
E.g. The shareholders of GT might use the information to decide whether to
sell their shares

Detailed discussion of how the financial information is useful to a user.
E.g. The shareholders of GT might use the information to decide whether to
sell their shares as the profit margin is 10% lower than the profit margin of
competitors. This might mean the actual profit is lower and therefore the
dividends paid to shareholders will be lower. If this happens then the share
price might also fall therefore reducing the value of their shareholding. (4
marks for L2 answer plus 1 mark for application for use of the information
from Appendix 3).
Relevant financial calculations using data from App 3 can be rewarded with
L2 marks
GT – gross profit = $15m(L2) net profit = $2m(L2) gross profit margin =
75%(L2)
Main competitor – gross profit = $22m(L2) net profit = $5m(L2) gross profit
margin = 88% (L2)

PUBLISHED 2018

then a justified conclusion as to which user will find the information most
useful when making decisions.
7–8 marks for some limited judgement shown in conclusion as to which user
will find the information useful when making decisions and/or why the other
information will be less useful.
9–10 marks for well justified conclusion as to which user will find the
information useful and why the other two will find it less useful when making
decisions.

Possible application marks: plc set up 50 years ago; manufacturer of toys;
toys sold to large toy shops throughout country Y; toys also exported;
Marketing manager wants to only sell toys online; toys manufactured using
batch production; need to purchase cheaper components to reduce costs;
recent price increases have resulted in falling sales.
Any relevant reference to the data in Appendix 3.
here.

*5344954158*

1 hour 30 minutes

06_0450_11_2018_1.17
2
1 GKA is a food retailer. It has 300 shops located in areas where average consumer incomes are
low. GKA sells a limited range of own-label products including breakfast cereal and toothpaste.
GKA does no promotion or market research. The Managing Director said: ‘Last year our market
share increased to 5%. Profit increased by 40%. Keeping costs low means GKA can offer customers
quality products at low prices.’ GKA is planning to open 100 shops in areas with high average
consumer incomes.The Managing Director must decide whether GKA should change its pricing
strategy (method) as the business expands.
(a) What is meant by ‘market share’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two aims of promotion.
Aim 1:................................................................................................................................
...........................................................................................................................................
Aim 2:................................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two methods of market research that GKA could use.
Method 1:...........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
Method 2:...........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2018 06_0450_11_2018_1.17

3
(d) Identify and explain two ways in which GKA could keep costs low.
Way 1:................................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2:................................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think GKA should change its pricing strategy as the business expands? Justify your
answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2018 06_0450_11_2018_1.17 [Turn over

4
2 SJD is in the private sector. It makes steel for construction businesses. SJD plans to make 3500
of its 9000 employees redundant. The Operations Director said: ‘Cheap steel imports and high
business tax rates are affecting our business. There are also ethical issues that we must respond
to. The Government should do more to help steel producers. Some of our competitors plan to close
their factories and relocate to other countries. SJD may have to do the same.’
(a) Identify two situations in which downsizing the workforce might be necessary.
Situation 1:.........................................................................................................................
...........................................................................................................................................
Situation 2:.........................................................................................................................
........................................................................................................................................... [2]
(b) Identify two possible ethical issues that SJD might have to respond to.
Issue 1:..............................................................................................................................
...........................................................................................................................................
Issue 2:..............................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two possible problems for SJD if it decides to relocate its business.
Problem 1:.........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
Problem 2:.........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2018 06_0450_11_2018_1.17

5
(d) Explain how each of the following factors might affect SJD’s business.
High business tax rates:....................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Cheap imports:..................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think the Government should help businesses like SJD? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2018 06_0450_11_2018_1.17 [Turn over

6
3 IBH is a family-owned private limited company. It makes a range of shoes for children, using batch
production. It is a competitive market. Like many businesses, IBH needs finance for a number of
reasons. The Finance Director has been looking at some financial data. An extract is shown in
Table 1. Some of the directors would like to expand into the women’s shoe market and want to
know whether IBH’s performance is improving.
Table 1: Extract from financial data for IBH ($000)
2016 2017
Revenue 400 480
Profit 120 120
Non-current liabilities 100 200
(a) What is meant by ‘non-current liabilities’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two reasons why a business might need finance.
Reason 1:..........................................................................................................................
Reason 2:.......................................................................................................................... [2]
© UCLES 2018 06_0450_11_2018_1.17

7
(c) Identify and explain two possible advantages to IBH of being a private limited company.
Advantage 1:.....................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
Advantage 2:.....................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
........................................................................................................................................... [4]
(d) Identify and explain two advantages to IBH of using batch production.
Advantage 1:.....................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Advantage 2:.....................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2018 06_0450_11_2018_1.17 [Turn over

8
(e) Do you think IBH’s performance has improved in 2017? Justify your answer using profit margins.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2018 06_0450_11_2018_1.17

9
4 Ben owns a small gardening business, which he started 15 years ago. Ben believes providing a
quality service is important to his success. Ben’s business has a number of stakeholder groups
including 2 full-time and 4 part-time workers who have all been employed by him for a number of
years. Each worker is expected to do any job that Ben orders them to do. All workers are paid an
hourly wage rate. They also receive a bonus if customers recommend the business to other people.
Ben is always thinking about other ways to improve the motivation of his workers.
(a) What is meant by ‘stakeholder group’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two possible reasons why Ben’s business has remained small.
Reason 1:..........................................................................................................................
...........................................................................................................................................
Reason 2:..........................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two reasons why quality might be important for Ben’s business.
Reason 1:..........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
Reason 2:..........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2018 06_0450_11_2018_1.17 [Turn over

10
(d) Identify and explain two advantages to Ben’s business of having part-time workers.
Advantage 1:.....................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Advantage 2:.....................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2018 06_0450_11_2018_1.17

11
(e) Explain two ways Ben could improve employee motivation. Recommend which way Ben should
choose. Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2018 06_0450_11_2018_1.17

12
BLANK PAGE
© UCLES 2018 06_0450_11_2018_1.17


Paper 1 Short Answer / Structured Response May/June 2018
MARK SCHEME
Maximum Mark: 80
Published
Teachers.
Cambridge International is publishing the mark schemes for the May/June 2018 series for most
Cambridge IGCSE™, Cambridge International A and AS Level and Cambridge Pre-U components, and
some Cambridge O Level components.
IGCSE™ is a registered trademark.

0450/11 Cambridge IGCSE – Mark Scheme May/June 2018
PUBLISHED
marking principles.
descriptors.

PUBLISHED

PUBLISHED
1(a) What is meant by ‘market share’? 2
Clear understanding: e.g. percentage or proportion of the total market sales

[1] held by one brand or business [+1]
OR business sales/total market sales × 100
Some understanding [1] e.g. share of sales made / percentage of customers

a business has
1(b) Identify two aims of promotion. 2 Question must relate to Marketing Mix.
Do not award answers related to staff
Award 1 mark per aim. promotion.

• inform / raise awareness / introduce new products
• create brand image / improve image
• compete with competitors
• persuade / increase sales / attract customers
• customer loyalty

PUBLISHED
1(c) Identify and explain two methods of market research that GKA could 4 Application marks may be awarded for
use. appropriate use of the following:
• use of numbers such as 300 or 100
Award 1 mark for each method identified (shops)
Award 1 mark for each explanation in context • food retailer
• food / breakfast cereal
Points might include: • toothpaste
• observation / visiting competition [k] other food retailers [app] • high income / low income areas
• questionnaires [k] about the low prices [app] • change its pricing strategy
• surveys [k] about the own-label products [app] • low prices
• interviews [k] about the new shops [app] • quality products
• experiments / free samples / test marketing [k] the cereal [app] • limited range (of products)
• access government statistics [k] • no promotion
• focus groups / consumer panels [k] • own-label products
• use market research agencies [k]
• loyalty card data [k] (TV) Internet / online on own
• articles / newspapers / magazines[k] (NAQ) Primary / Secondary / Field / Desk

PUBLISHED
1(d) Identify and explain two ways in which GKA could keep costs low. 6 Application marks may be awarded for
appropriate use of the following:
Award 1 mark for each relevant way • use of numbers such as 300 or 100
Award 1 mark for each relevant reference made to this business (shops)
Award 1 mark for each relevant explanation • food retailer
• food / breakfast cereal
Relevant points might include: • toothpaste
• choose low cost locations [k] for all 100 sites [app] leading to lower • high income / low income areas
fixed costs [an] • limited range (of products)
• pay minimum wage [k] to shop workers [app] keep variable costs • no promotion
low [an] • low prices
• economies of scale [k] (only once) for its limited range of products • quality products
[app] leading to lower average costs [an] • own-label
• set lower marketing budget [k] as no money spent on market • market share increased 5%
research [app]
• profit increased by 40%
• replace workers with machinery / automation / reduce workforce [k]
• cheaper supplier [k] Do not award analysis for answers that
• close some locations [k] which would reduce electricity cost [an] clearly refer to manufacturing such as Lean
• set up online [k] production.
• reduce waste [k]
• Buy direct from manufacturer [k] so lower cost than buying from
wholesaler [an]

PUBLISHED
1(e) Do you think GKA should change its pricing strategy as the business 6 Application marks may be awarded for
expands? Justify your answer. appropriate use of the following:
• use of numbers such as 300 or 100
Award 1 mark for identification of relevant point (s) (shops)
Award 1 mark for a relevant reference made to this business • food retailer
Award up to 2 marks for relevant development of point(s) • food / breakfast cereal
Award up to 2 marks for a justified decision made as to whether GKA should • toothpaste
change its pricing strategy as the business expands. • high income or low income areas
• limited range (of products)
Relevant points might include: • no promotion
• identification of a pricing strategy [k] • quality products
• actions of competitors [k] • low prices
• cost of new locations [k] in high income areas [app] may make it • try to keep costs low
hard to control costs [an]
• market share increased 5%
• diseconomies of scale [k] from extra 100 shops [app] leading to a
• profit increased by 40%
rise in average costs [an]
• economies of scale[k] may allow them to charge lower prices[an] Note: question should focus on whether
• current prices give the image of poor quality [k] because they are business should change its pricing strategy
low prices [app] so may not attract new customers [an] not just increase or decrease price.
• they would lose their USP if they change price [k] leading to a loss
of the current customer base [an] in areas where average incomes
are low [app]

PUBLISHED
2(a) Identify two situations in which downsizing the workforce might be 2 Do not award answers discussing who
necessary. should be removed from the workforce e.g.
poor attendance
Award one mark per situation

• introduction of automation / new technology
• redesign work space / layout
• demand factors e.g. falling demand, changing tastes, end of
product life cycle, recession / economic slump, more competition,
less revenue
• factory closure
• relocation to another country
• business taken over / merger
• excess workforce / unnecessary workers
• financial problems e.g. lack of income, increase in costs, cash flow
issues, cannot afford the workers,
• changes in law
• delayering / restructuring
2(b) Identify two possible ethical issues that SJD might have to respond to. 2 Ethical issues raised must relate to SJD
Do not reward aspects covered by law
Award 1 mark per ethical issue.

• protecting the environment
• fair wages to workers / pay above minimum wage
• pay fair prices to suppliers
• charge fair prices to consumers
• not employing child labour.

PUBLISHED
2(c) Identify and explain two possible problems for SJD if it decides to 4 Application marks may be awarded for
relocate its business. appropriate use of the following:
• cheap imports
Award 1 mark for each problem identified • steel
Award 1 mark for each explanation in context • iron
• high tax rates
Points might include: • ethical issues
• access to / cost of available space [k] for steel production [app] • 3500 or 9000
• legal controls / level of government support [k] in other countries • competitors plan to close factories
[app] • construction businesses
• access to suitable / cost of workers [k] for private sector business • (other) countries
[app] • private sector
• availability / cost of raw materials [k] such as iron [app] • factory
• access to / cost of infrastructure e.g. transport and energy [k]
• level of competition [k]
• exchange rates / currency issues [k]
• cultural issues e.g. different working hours [k]
• language / communication difficulties [k]
• trade restrictions / obtaining permits [k]

PUBLISHED
2(d) Explain how each of the following factors might affect SJD’s business. 6 Application marks may be awarded for
Award 1 mark for each relevant point • steel
Award 1 mark for each relevant reference made to this business • iron
Award 1 mark for each relevant explanation • ethical issues
• 3500 or 9000
Relevant points might include: • competitors plan to close factories
• construction businesses
High business tax rates: • private sector
• reduces profit [k] so may need to make more workers redundant • producer
[app]
• (other) countries
• increase prices [k] so may lead to lower demand [an] from
• government support
construction businesses [app]
• employees redundant
• increases costs [k] leading to less profit [an] for this private sector
• relocation
business [app]
Do not award reference to cheap imports /
Cheap imports:
high business tax rates, as application. This
• reduced demand [k] for steel [app] as its customers are able to buy
is in the question.
from rivals [an]
• may reduce prices [k] so revenue is reduced [an]
• lower costs of production [k] as this is a producer [app] as raw
materials may be cheaper [an]
• reduce market share [k]

PUBLISHED
2(e) Do you think the Government should help businesses like SJD? 6 Application marks may be awarded for
Justify your answer. appropriate use of the following:
• cheap imports
Award 1 mark for identification of relevant point (s) [max 1] • steel
Award 1 mark for a relevant reference made to this business • iron
Award up to 2 marks for relevant development of point(s) • high tax rates
Award up to 2 marks for a justified decision made as to whether the • ethical issues
Government should help businesses like SJD • 3500 or 9000
• competitors plan to close factories
Points for might include:
• construction
• protect jobs [k] as they plan to make 3500 redundant [app] which
• private sector
would increase unemployment [an] and the cost of paying
• producer
unemployment benefits [an]
• (other) countries
• protect the vital industry [k] of steel [app] to ensure supply in their
own country [an] • relocate
• impact on other businesses [k] who need the material for
Do not award government support as
construction [app]
application as referred to in the question.
• government could lose tax revenue if they fail [k]
Do not award answers which focus on how
Points against might include:
governments will help businesses
• there is an opportunity cost / helping businesses would require
money from the government [k] money spent on helping SJD will
reduce the money available for other projects [an]
• can obtain materials from other countries [k] as have access to
cheap imports [app]
• environmental impact of business [k] as industry creates pollution
[an]
• it is not the role of government [k] to help private sector business
[app]
• disincentive for businesses to be successful [k] this could lead to
them being inefficient [an]

PUBLISHED
3(a) What is meant by ‘non-current liabilities’? 2 Do not award ‘long term liabilities’ as this is
the alternative name for the term
Clear understanding [2]: debts / loans repayable in more than 12 months [2]
Or Money owed for more than a year [2] Do not credit ‘liability’ as stated in question
Some understanding [1]: e.g. debts or money owed [1] Some understanding plus a relevant
Or repayable in more than 12 months [1] example can gain 2 marks. i.e. money owed
for example bank loan
3(b) Identify two reasons why a business might need finance. 2
Award 1 mark per reason.

• start-up / start a business venture
• cash flow problems / survive (BOD)
• pay creditors
• offer credit to customers
• fund expansion
• replace machinery / investment
• working capital/ day-to-day
• pay for advertising (promotion)

PUBLISHED
3(c) Identify and explain two possible advantages to IBH of being a private 4 Application marks may be awarded for
limited company. appropriate use of the following:
• family (owned)
Award 1 mark for each advantage identified • want to expand
Award 1 mark for each explanation in context • shoes or related words such as
leather, children, women
Points might include: • competitive market
• can control who buys shares [k] so can keep control in this • needs finance
competitive market [app] • directors
• easier to raise finance / able to sell shares [k] as they want to
expand [app] Do not award private limited company as
• seen as more creditworthy to suppliers [k] so could be more willing application, as this is stated in the question.
to supply leather [app]
• limited liability [k] this keeps personal assets of family safe [app]
• incorporation / separate legal identity [k]
• no need to publish accounts [k]
• continuity [k]

PUBLISHED
3(d) Identify and explain two advantages to IBH of using batch production 6 Application marks may be awarded for
Award 1 mark for each relevant advantage • want to expand
Award 1 mark for each relevant reference made to this business • shoes or related words such as
Award 1 mark for each relevant explanation leather, children, women
• competitive market
Points might include: • correct references to data in
• economies of scale [k] to reduce average costs [an] to increase the Table 1
profit above $120 000 [app] • needs finance
• allows variety of products [k] so easier to meet demand for different • directors
styles [an] of shoes [app] • private limited company
• flexibility / easy to switch production [k]
• limited quantity [k] so if children's tastes change [app] so not left The advantage needs to clearly relate to the
with unwanted stock [an] business not the worker
• variety of tasks for workers [k] which increase worker motivation
and output [an]
• production may not be affected if machinery breaks down [k]
• spread risk [k] as they are not reliant on one product for all sales
[an]

PUBLISHED
3(e) Do you think IBH’s performance has improved in 2017? Justify your 6 Application marks may be awarded for
answer using profit margins. appropriate use of the following:
• want to expand
Award 1 mark for identification of relevant point • shoes or related words
Award 1 mark for relevant reference made to this business • correct use of data from Table 1
Award up to 2 marks for relevant development of point(s) • (use of $000 not required)
Award up to 2 marks for a justified decision made as to whether IBH’s • competitive market
performance has improved or not • directors
• private limited company
• revenue increased [k] by 80 000 [app] To gain analysis mark at least one profit
• non-current liabilities have increased [k] by 100 000 [app] margin must be calculated. % sign is not
• gross profit increased [k] by 80 000 [app] required.
• profit has remained the same [k]
• gross profit margin increased [k] from 60% [app + an] to 67% [an] Accept 66% or 67% for gross profit margin.
• gross profit margin increased [k] by 6–7% [app + an + an]
• (net) profit margin has fallen [k] from 30% [app + an] 25% [an]
• (net) profit margin fallen [k] by 5% [app + an + an]

PUBLISHED
4(a) What is meant by ‘stakeholder group’? 2 Do not award examples as this does not
answer the question.
Clear understanding [2]: any group or person with a (direct) interest in the
performance / activities of a business Do not award affects/influences the
decisions
Some understanding [1]: someone affected by a business [1] or anybody
inside or outside the business who cares about its operations [1]
4(b) Identify two possible reasons why Ben’s business has remained small. 2 (TV) State of economy
Award 1 mark per possible reason

• personal wishes / owners objectives
• size of market / niche
• lack of finance
• avoid diseconomies of scale / communication issues / co-ordination
issues
4(c) Identify and explain two reasons why quality might be important for 4 Application marks may be awarded for
Ben’s business. appropriate use of the following:
• small (business)
Award 1 mark for each reason identified • gardening or related words such as
Award 1 mark for each explanation in context cutting grass
• (business) success
Points might include: • bonus
• help establish loyalty [k] which can help improve his business • recommendation
success [app] • 15 years ago
• increase sales / revenue / attract new customers [k] through more
recommendations [app]
• improve reputation / brand image [k] for his gardening business
[app]
• no need for rework [k]
• able to charge high prices [k]
• maybe his USP[k]

PUBLISHED
4(d) Identify and explain two advantages to Ben’s business of having part- 6 Application marks may be awarded for
time workers. appropriate use of the following:
Award 1 mark for each relevant advantage • gardening or gardening related
Award 1 mark for each relevant reference made to this business words allowed once
Award 1 mark for each relevant explanation • (business) success
• bonus
Points might include: • hourly wage rate
• more flexible / help meet demand during busy times [k] can cover • recommendation
when full-time workers not available [app] so work is completed on • 15 years ago
time [an] • 4 (part-time), 2 (full-time)
• help retain experienced employees [k] who have worked there for a
number of years [app] so reducing his recruitment costs [an] Do not award answers which clearly
• can add more skills / experience to business [k] to increase confuse part-time with seasonal workers.
demand [an]
• help attract / easier to find workers [k] Do not award answers that suggest that
• do not have to pay holiday / sick pay [k] part-time are easier to dismiss
• may be more motivated [k] so productivity would rise [an]
• part-time workers don’t work as many hours [k] Ben pays an hourly Do not award answers such as cheaper
wage rate [app] therefore the total wage bill would be lower [an] unless explained as all paid an hourly wage
rate.

PUBLISHED
4(e) Explain two ways Ben could improve employee motivation. 6 Application marks may be awarded for
Recommend which way Ben should choose. Justify your answer. appropriate use of the following:
Award 1 mark for identification of relevant point (s) • gardening or related words such as
Award 1 mark for relevant reference made to this business cutting grass
Award up to 2 marks for relevant development of point(s) • (business) success
Award up to 2 marks for a justified decision made as to which way Ben • service
should use to improve employee motivation. • customer recommendation
• seasonal (as gardening may not be
Points might include: needed all year)
• change method of payment / increased rate of pay [k] • ordered to do jobs
• training [k] so feel more valued [an] • 15 years ago
• involve workers in decision making [k] so workers feel more • 4 (part-time), 2 (full-time)
important [an] to the gardening business [app] • hourly wage rate
• change leadership style [k] Ben orders workers to do jobs [app] • employed for a number of years
• chance for promotion / become full time [k]
• job rotation [k] for the 6 employees [app] so employees are not Do not award bonus as knowledge
bored doing the same thing [an] (currently does offer this)
• job enlargement [k]
• job enrichment [k] For evaluation marks to be awarded two
• employee of the month [k] therefore workers feel like their hard relevant ways must have been explained
work is being recognised [an]
• praise [k] meeting employees esteem needs [an]
• team working / communication [k]
• fringe benefits [k]


INSERT
1 hour 30 minutes

*2730532716-I*

06_0450_21_2018_1.15
2
Value Gym (VG)
Peter is a qualified fitness instructor. He used to work at a luxury gym in country X. Customers of
this luxury gym pay a high monthly membership fee no matter how many times they visit. There
are no additional fees.
Peter enjoys helping people get fit and lose weight and he enjoys teaching exercise classes. Peter
wanted to help more people to get fit or build up their muscles so he decided to set up his own
gym. Peter thought there was a demand for low priced gyms that allowed people to pay each time
they used it rather than pay a high monthly fee. So he left his job and set up his own gym in a low
income part of the city. Peter named his business Value Gym (VG) and opened it three months
ago. Peter needed a large bank loan to help him set up his gym as he only had $5 000 of his own
money. He is a sole trader. He prepared a business plan to show the bank manager.
VG has been very successful and Peter is expecting to make a profit by the end of his first year as
an entrepreneur. However, he still wants to attract more customers to the gym. He knows that
marketing will be very important if his business is to expand.
Peter has estimated that VG will soon need 4 personal trainers to work in the gym. Peter has not
decided whether to employ these personal trainers or to allow personal trainers who work for
themselves to use VG's facilities for a fee. The gym is open from 0600 until 2200, 7 days a week.
Customers pay for each day they use the gym. In addition customers can pay for a personal trainer
if they want individual tuition.
Appendix 1
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Appendix 2
Break-even chart for VG
500
400
Total Costs
300
$
200
100 Fixed Costs
0
0 10 20 30 40 50
customers per day
Variable costs per customer = $5
Price per day to use the gym = $10
Maximum capacity of the gym = 50 customers per day
Appendix 3
City News April 2018
Demand for gyms is expected to increase
The government of country X is worried about the increasing health problems of the population. It
wants more people to lose weight and get fit. This could make employees more productive and
increase output for the businesses where they work.
A government grant is being given to anyone who owns a gym and has more than 20 customers
a day. It is planned that the grants will be used to encourage more people to use a gym and get
fit.
There is expected to be an increase in demand for personal trainers, especially to work in the
evening. They will need to have qualifications in personal training to meet the health and safety
regulations for working in a gym. Most personal trainers are paid the minimum wage. However it
is expected that their wages will have to increase, as there will be a shortage of personal trainers
until more people can gain qualifications in personal training.
© UCLES 2018 06_0450_21_2018_1.15

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© UCLES 2018 06_0450_21_2018_1.15

*2730532716*

1 hour 30 minutes


06_0450_21_2018_1.15
2
1 (a) Identify and explain two ways a business plan could have helped Peter when setting up Value
Gym.
Way 1:................................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2:................................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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(b) Consider the following three roles of marketing in Peter’s business. Which one of these is the
most important role? Justify your answer.
Identify customer needs:...................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Satisfy customer needs:....................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Build customer relationships:.............................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Conclusion:........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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2 (a) Identify and explain four reasons why making a profit is important to Peter.
Reason 1:..........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
Reason 2:..........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
Reason 3:..........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
Reason 4:..........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
........................................................................................................................................... [8]
© UCLES 2018 06_0450_21_2018_1.15

5
(b) Peter is considering the following two options. Recommend which option he should choose.
Employ his own personal trainers:.................................................................................................

...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
Charge a fixed fee to personal trainers who work for themselves to use VG’s facilities
with their clients:
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
Recommendation:................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
...........................................................................................................................................................................
[12]
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3 (a) Identify and explain two legal controls that could affect Peter when recruiting and employing
workers.
Legal control 1:..................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Legal control 2:..................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
© UCLES 2018 06_0450_21_2018_1.15

7
(b) (i) Refer to Appendix 2. Complete the break-even chart below by drawing the Total Revenue
line.
500
400
Total Costs
300
$
200
100 Fixed Costs
0
0 10 20 30 40 50
customers per day
[1]
(ii) Identify the break-even number of customers per day.
................................................................................................................................ [1]
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8
(iii) Consider the following two ways Peter could use to try to increase profit. Recommend
which way he should choose. Justify your answer.
Increase prices:......................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
Reduce variable costs:...........................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
Recommendation:..................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................ [10]
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4 (a) Identify and explain one advantage and one disadvantage of leasing all the equipment used
in the business.
Advantage:........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Disadvantage:....................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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10
(b) Consider how the following three changes will affect VG. Which one will have the biggest
effect on the business? Justify your answer.
A multinational chain of luxury gyms recently set up in country X:....................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
There is an increased proportion of elderly people in the population:...............................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Interest rates have increased:...........................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Conclusion:........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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© UCLES 2018 06_0450_21_2018_1.15


MARK SCHEME
Maximum Mark: 80
Published
Teachers.
IGCSE™ is a registered trademark.

PUBLISHED
responses seen).

PUBLISHED
1(a) Identify and explain two ways a business plan could have helped Peter 8
when setting up Value Gym.
Award one mark for each way (maximum of two), such as:
• To help gain finance from a bank/other investors/government grants

• To set objectives/goals/targets
• To encourage careful planning that will reduce risks of financial failure
• To be clear how the business is going to operate and to identify the human
and physical requirements of the business
• To identify the target market from market research/identify the level of
demand for the gym
Award a maximum of three additional marks for each explanation of the way –
2 of which must be applied to this context.
Peter will have written the business plan to help him gain finance. (1) Peter will
have taken it to show the bank manager to help persuade him to give VG the
loan needed to start the gym. (ap) The business plan will show financial
forecasts to show that the business will be able to repay the loan. (1) Therefore
after the bank has given Peter the loan he will have the capital he needs to set
up the gym and start signing up members. (ap)

Fitness instructor; membership fee for many gyms is monthly; payment each
visit to the gym; demand for low-priced gyms; a bank loan was used to finance
the opening of the gym; as a sole trader; $5,000 was put into the business;
expects a good profit at the end of a successful first year; needs to employ 4
personal trainers; 2 receptionists; gym is open 7 days a week; Information from
Appendix 1 listing gym equipment; information from Appendix 3 such as
government grants are available to encourage the provision of gym facilities.
There may be other examples in context that have not been included here.

PUBLISHED
1(b) Consider the following three roles of marketing in Peter's business. 12

Which one of these is the most important role? Justify your answer.
Identify • Carrying out market research to be sure the business

customer delivers the service that customers want
needs • So that they would know what types of equipment
customers would wish to use
The answer • So they would know what exercise classes customers
should be would wish to attend
focused on • So they would know what price customers were willing
how market to pay
research can • So they would know what hours/days the customers
find out what would want to use the gym
the customer • However, it can be expensive to carry out the market
wants research necessary to identify these needs accurately
Satisfy • So the gym equipment works correctly to make the
customer customers happy
needs • So the exercise classes are run well to make the
customers happy
The answer • The customers are content with the prices that are
should be charged
focused on • So the opening hours of the gym are convenient for
how well the customers’ lifestyle
services are • However, Peter may need to buy more gym
delivered equipment and/or recruit more personal trainers to
work in the gym
• However, it can be expensive to maintain the
equipment
Build customer • Peter needs VG to retain a good reputation with
relationships customers
• VG needs to maintain customer loyalty
The answer • Customers need to feel like their opinions matter
should focus • Customers need to feel valued
on how • However, if customers are dissatisfied they may go to
loyalty and a competitor
good • However, it may be difficult to satisfy all customers
reputation of and therefore some may still give the business a bad
the business reputation if unhappy
are
developed
Level 1 [1–3 marks]

1 mark for each outline of the advantages and/or disadvantages of each of the
roles of marketing. (Max of 3 marks)
E.g. Carry out market research to find out what gym equipment customers
want

PUBLISHED
1(b) Level 2 [4–6 marks]

Detailed discussion of the advantages and/or disadvantages of each of the
roles of marketing. 1 × L2 explanation can gain 4 marks and a further mark can
be awarded for each additional L2 explanation (max 6 marks)
E.g. Carry out market research to find out what gym equipment customers
want. The right equipment, such as a cross trainer, needs to be purchased so
that customer needs are met. However, it can be time consuming and
expensive to carry out the market research required to ensure this happens.
(Level 2 plus one application mark for answering in the context of the gym and
its equipment)

For L3 to be awarded there needs to be at least two L2 marks awarded and
then a conclusion of the most important role of marketing.
7–8 marks for limited conclusion of the most important role of marketing OR
why the other roles are less important.
9–10 marks for well justified conclusion of the most important role of marketing
AND why the other roles are less important.

Fitness instructor; helps people lose weight and get fit; membership fee for
many gyms is monthly; payment each visit to the gym; demand for low-priced
gyms; needs to attract more customers to continue to expand the gym; needs
to employ 4 personal trainers; 2 receptionists; gym is open 7 days a week;
Information from Appendix 1 listing gym equipment.

PUBLISHED
2(a) Identify and explain four reasons why making a profit is important to 8
Peter.
Award one mark for each reason (maximum of four), such as:
• Source of finance/retained profit/Peter could use the profit for reinvestment
– expand the gym by buying new equipment
• To ensure survival of the business/avoid closure
• Reward for enterprise – reward for Peter’s hard work/good ideas to start
the business
• Reward for risk taking – Peter risked losing his investment of $5,000
• Indicator of success – the more profit Peter makes the more his success
will be recognised by customers/employees
Note: Do not reward payment of day-to-day expenses
Award a maximum of one additional mark for each explanation suitable for this
context.
It is a reward for risk taking (1) as Peter has risked $5,000 of his own money in
the business and could have gained interest on this money if he had put it in
the bank.(1)
2(b) Peter is considering the following two options. Recommend which option 12
he should choose. Justify your answer.
• Full control over • Pay trainers whether or
Employ his trainers not they have clients
own personal • Higher profit • More expensive when
trainers especially when not busy
busy with many
clients
Charge a fixed • Fixed amount paid • Additional revenue/profit
fee to personal to VG lost to gym
trainers who • Risk of low • Cannot control the
work for demand taken by quality of the training
themselves to the trainer provided for clients
use VG facilities • Less expenses as • Maybe unreliable and
with their clients no wages to pay this could affect
each month reputation of VG

Outline of advantages and/or disadvantages of each option. (max of 3 marks)
E.g. Peter has full control over his own trainers if he employs them.

Discussion of advantages and/or disadvantages of each option.1 × L2
additional L2 explanation (max 6 marks)

PUBLISHED

then a recommendation of which option to choose.
7–8 marks for limited recommendation on which option to choose OR why not
the other option.
9–10 marks for well justified recommendation of which option to choose AND
why not the other option.

Fitness instructor; membership fee for many gyms is monthly; payment each
visit to the gym; demand for low-priced gyms; needs to attract more customers
to continue to expand the gym; gym is open 7 days a week; information from
Appendix 3; qualifications to meet health and safety requirements.

PUBLISHED
3(a) Identify and explain two legal controls that could affect Peter when 8
recruiting and employing workers.
Award one mark for each legal control (maximum of two), such as:
• Pay minimum wage
• Employer liability insurance required
• Legal citizenship/work permit/licence required
• Ensure a safe working environment/Health and Safety laws observed
• No discrimination when recruiting workers
• Not employing children
• No unfair dismissal
• Number of hours worked may have a maximum limit
Award a maximum of three additional marks for each explanation of the legal
control – 2 of which must be applied to this context.
It is important to pay at least the minimum wage (1) set by the government or
the owner will be prosecuted. (1) This may mean that Peter has to pay higher
wages than he wants to pay and the wage costs of the gym might be high. (ap)
It might mean that Peter cannot afford to employ as many trainers as he wants
at the gym due to the high cost. (ap)

Fitness instructor; needs to employ 4 personal trainers; 2 receptionists; gym is
open 7 days a week; Information from Appendix 1 listing gym equipment;
information from Appendix 3; health and safety regulations must be met;
shortage of personal trainers; need to have qualifications in personal training;
most personal trainers are paid the minimum wage.

PUBLISHED
3(b) Refer to Appendix 2. Complete the break-even chart below by drawing the 12
Total Revenue line.
3(b)(i) 1 mark for correct TR line – starts at 0 and goes up to $500
Identify the break-even number of customers per day.
3(b)(ii) 1 mark for break-even number of customers = 20

PUBLISHED
3(b)(iii) Consider the following two ways Peter could use to try to increase profit.
Recommend which way he should choose. Justify your answer.
Increase • Increase in revenue if • Possible decreased
prices same number of gym demand – as situated in low
members remain income area – so overall
• Increase inflows of effect may not be to
cash increase revenue and
• Reduces break-even inflows
number of customers • Expect higher quality
facilities so may need to
invest in more equipment
Reduce • Less outflows • Lower quality provision
variable • Increased profit • Deter customers as
costs • Reduces break-even perceived as reduced
number of customers service

Outline of advantages and disadvantages of each option. (max of 3 marks)
E.g. Increasing prices will increase inflows from increased revenue.

Detailed discussion of advantages and disadvantages of each option. 1 × L2

E.g. Increasing prices will increase inflows from increased revenue which will
help to increase the profit at the gym. However, if prices are much higher than
similar competing gyms then VG will lose customers and cash inflows will fall.

then a recommendation that justifies which option to choose.
7–8 marks for limited judgement shown in recommendation as to which option
to use OR why the alternative option is not chosen.
9–10 marks for well justified recommendation as to which option to use AND
why the alternative option is not chosen.
Note: Do not award application marks in (iii)

PUBLISHED
4(a) Identify and explain one advantage and one disadvantage of leasing all 8
the equipment used in the business.
Award one mark for each relevant advantage/disadvantage (maximum of one

each), such as:
Advantage
• The business does not have to find a large sum of cash to purchase
the equipment
• Care and maintenance is carried out by the leasing company
• When the lease expires the latest equipment could be obtained
Disadvantage
• Total cost of leasing higher than to purchase the equipment outright
• The equipment is not owned by VG
• Cannot sell the equipment if not needed any more
Award a maximum of three additional marks for each explanation of the

advantage/disadvantage – 2 of which must be applied to this context.
The business does not have to find a large sum of cash in one go (1) as the
equipment can be leased even if VG does not have the cash to buy it outright.
(ap) This means VG can have better quality equipment such as treadmills for
the gym at the start (ap) which will allow Peter to get the gym set up quicker
and with better equipment than if he had to find all the cash at the start. (1)

Fitness instructor; a bank loan was used to finance the opening of the gym; as
a sole trader; $5,000 was put into the business; a business plan was written to
support the bank loan application; expects a good profit at the end of a
successful first year; Information from Appendix 1 listing gym equipment.

PUBLISHED
4(b) Consider how the following three changes will affect VG. Which one will 12
have the biggest effect on the business? Justify your answer.
A multinational • Encourages • Increased competition so
chain of luxury increased gym may lose some existing
gyms recently membership for all gym members
set up in gyms as it becomes • May lose some staff such
country X more fashionable to as personal trainers to the
go to a gym new gyms so will need to
• May have no effect be replaced
as aimed at different • May need to increase
market segment wages to retain staff
• Little effect as low
income workers
cannot afford luxury
gym membership
There is an • Increased demand • May change the image of
increased for exercise classes the gym and puts off
proportion of for the elderly potential younger
elderly people because they have customers
in the more leisure time • Increased costs of
population • More potential providing trainers
elderly customers specialised in providing
leads to increased classes or tuition for
revenue elderly members
• Elderly people more • Revenue may fall if the
likely to lead a elderly do not go to the
healthier lifestyle – gym
encouraged by
government
campaign
Interest rates • Higher costs of • Increased costs of
have borrowing means borrowing if VG needs to
increased pressure on family take loans to purchase
income – less more gym equipment for
demand for high expansion or replacement
priced luxury gyms – of equipment
increased demand • Less discretionary income
VG by members reduces less
important spending
Outline of the advantages and disadvantages of each change. (max of 3

marks)
E.g. Lower demand for gyms as less income left over after essential bills paid.

PUBLISHED

Discussion of the advantages and disadvantages of each change. 1 × L2
E.g. Lower demand for gyms as less income left over after essential bills paid.
Therefore the number of members and therefore revenue might fall for VG.
However, as VG is a low cost gym it might attract members from luxury gyms
and so membership might increase. (Level 2 plus one application mark for
answering in the context of the gym membership)

then a conclusion as to which change will have the greatest effect on profit.
7–8 marks for limited judgement shown in the conclusion as to which change
will have the greatest effect on VG AND why the alternatives will have less
effect on VG.
9–10 marks for well justified conclusion as to which change will have the
greatest effect on VG OR why the alternatives will have less effect on VG.

Fitness instructor; helps people lose weight and get fit; membership fee for
many gyms is monthly; payment each visit to the gym; demand for low-priced
gyms; a bank loan was used to finance the opening of the gym; as a sole
trader; needs to attract more customers to continue to expand the gym; needs
to employ 4 personal trainers; 2 receptionists; gym is open 7 days a week;
Information from Appendix 1 listing gym equipment; information from Appendix
3; government worried about increasing health problems of the population.

*4392321930*

1 hour 30 minutes

Write your centre number, candidate number and name in the spaces at the top of this page.

This syllabus is regulated for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate.
06_0450_11_2019_1.9
2
1 Y2M is a bus operating company in the public sector. One of its objectives is to break even on
every bus route. Most of its competitors are in the private sector. Y2M wants to increase the number
of customers using its buses. The Finance Director has been looking at some cost data shown in
Table1. This is because Y2M plans to review its pricing methods. She is worried other businesses
pay workers a higher wage rate and some of its drivers may leave. She said: ‘To pay the same
wage rate would increase variable cost to $2.20 per passenger per journey.’
Table 1: Cost and price data for one Y2M route
Number of passengers per day 90
Price per passenger per journey $2.50
Fixed costs per week $300
Variable cost per passenger per journey $2
(a) What is meant by ‘break-even’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Calculate the revenue per day.
...........................................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two objectives Y2M might have if it was in the private sector.
Objective 1: .......................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Objective 2: .......................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2019 06_0450_11_2019_1.9

3
(d) Identify and explain two pricing methods Y2M could use.
Pricing method 1: ..............................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Pricing method 2: ..............................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think Y2M should pay its workers the same wage rate as its competitors? Justify your
answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2019 06_0450_11_2019_1.9 [Turn over

4
2 Kate is an entrepreneur. Two years ago she left her job as a fashion designer at a multinational
company. She started up BBB, a women’s sportswear clothing business. BBB targets a market
segment of high income consumers. BBB’s products are sold in 3 retail shops and also through its
website. Kate said: ‘I saw a gap in the market and took the risk. Obtaining the finance I needed
from the bank was not easy. I enjoy making decisions such as using leaflets to promote the clothes.’
BBB’s revenue target for next year is $500 000.
(a) What is meant by ‘entrepreneur’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two reasons why obtaining finance may not be easy for a new business.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two possible reasons why Kate decided to start up her own business.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2019 06_0450_11_2019_1.9

5
(d) Identify and explain two reasons why segmenting the market might help BBB.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think that using leaflets is the best way for Kate to promote her products? Justify your
answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2019 06_0450_11_2019_1.9 [Turn over

6
3 BVC makes a range of paints. It exports 60% of its products. The Managing Director has been
looking at BVC’s cash-flow forecast shown in Table 2. He said: ‘Success is not just about our return
on capital employed.’ The Managing Director is worried about the introduction of new legal controls
to protect the environment. This will mean BVC will have to reduce the number of chemicals that
are used to make paint. He thinks these new legal controls will be bad for business.
Table 2: Extract of cash flow forecast for the period July–September 2019 ($000)
July August September

Cash inflow 600 560 620
Cash outflow 560 540 580
Net cash flow 40 20 Y
Opening balance X 60 80
Closing balance 60 80 120
(a) What is meant by ‘return on capital employed’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Calculate the following values:
X: ......................................................................................................................................
Y: ...................................................................................................................................... [2]
(c) Identify and explain two reasons why a cash flow forecast might be important for BVC.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2019 06_0450_11_2019_1.9

7
(d) Identify and explain two possible problems for BVC when exporting its products.
Problem 1: ........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Problem 2: ........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) The Managing Director thinks the new legal controls to protect the environment will be bad for
business. Do you agree? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2019 06_0450_11_2019_1.9 [Turn over

8
4 FGH is a private limited company. FGH has a tall hierarchical organisational structure. It is a book
retailer which plans to take over one of its competitors for $800m. If the takeover happens, FGH
would have 6 500 bookshops across 20 countries. FGH’s Managing Director said: ‘We expect to
reduce total costs by $300m each year after the takeover. We will stop all off-the-job training of
employees.’ The Managing Director thinks FGH would benefit from becoming a public limited
company but some of the other directors cannot decide if this is a good idea.
(a) What is meant by ‘off-the-job training’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) What is meant by ‘total cost’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two advantages of FGH having a tall hierarchical organisational structure.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2019 06_0450_11_2019_1.9

9
(d) Identify and explain one advantage and one disadvantage to FGH of becoming a public limited
company.
Advantage: .......................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Disadvantage: ...................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think FGH should take over the other business? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2019 06_0450_11_2019_1.9

10
BLANK PAGE
© UCLES 2019 06_0450_11_2019_1.9

11
BLANK PAGE
© UCLES 2019 06_0450_11_2019_1.9

12
BLANK PAGE
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
© UCLES 2019 06_0450_11_2019_1.9


Paper 1 Short Answer / Structured Response May/June 2019
MARK SCHEME
Maximum Mark: 80
Published
Teachers.

PUBLISHED
marking principles.
descriptors.

PUBLISHED

PUBLISHED
1(a) What is meant by ‘break-even’? 2 Accept the formula Fixed costs / contribution [2]
Clear understanding [2]: Where total costs equal total revenue
Where business makes neither profit or loss
Some understanding [1]: Revenue same as costs
1(b) Calculate the revenue per day. 2 $ not required for [2]
Good application: 90 × $2.50 = $225
Some application: Correct method but incorrect answer
1(c) Identify and explain two objectives Y2M might have if it was in 4 Application marks may be awarded for appropriate use
the private sector. of the following:
Knowledge [2] award 1 mark for each objective identified • bus or related words e.g. tickets drivers,
passengers, trips, routes, journey
Application [2] award 1 mark for each explanation in context • appropriate use of numbers from Table 1
• public sector
Relevant point might include: • increased number of customers
• profit [k] so prices for journeys could be set higher [app] • competitors
• reduce costs [k] as it is more concerned about profit than • pricing methods
providing bus services [app]
• higher / same wage rate
• increased returns to shareholders [k]
• break-even
• survival [k]
• growth / increase sales [k] Do not accept – Break even on all bus routes as this is
• increased market share [k] their current public sector objective.
• improved service [k]

PUBLISHED
1(d) Identify and explain two pricing methods Y2M could use. 6 Application marks may be awarded for appropriate use
of the following:
Knowledge [2 × 1] – award 1 mark for each relevant method
• bus or related words e.g. tickets drivers,
Application [2 × 1] – award 1 mark for each relevant reference to passengers, trips, routes, journey
this business • appropriate use of numbers from Table 1
• public sector
Analysis [2 × 1] – award 1 mark for each relevant explanation • private sector
• increased number of customers
Points might include: • competitors
• competitive pricing [k] charging similar prices will retain existing • higher/ same wage rate
[an] passengers [app]
• variable costs
• cost plus pricing [k] as Y2M aims to break even [app] so price
• break even
must cover costs [an]
• promotional pricing [k] lower prices encourages more people to
Accept dynamic pricing and psychological pricing as
use [an] its bus services [app]
these are appropriate pricing methods for transport
• penetration [k]
• skimming [k]

PUBLISHED
1(e) Do you think Y2M should pay its workers the same wage rate 6 Application marks may be awarded for appropriate use
as its competitors? Justify your answer of the following:
Knowledge [1] – award 1 mark for identification of relevant issue(s) • bus or related words e.g. tickets, drivers,
passengers, trips, routes, journey
Application [1] – award 1 mark for a relevant reference made to this • appropriate use of numbers from Table 1
business • public sector
• private sector
Analysis [2] – award up to 2 marks for relevant development of • increased number of customers
point(s)
• variable costs
• break even
Evaluation [2] – justified decision made as to whether Y2M should
• $2.20
pay its workers the same wage rate as its competitors

• Help retain employees [k] so fewer drivers leave [app] saving
on recruitment costs [an]
• Increase labour costs [k] leading to a higher break-even point
[an] so need to attract more passengers [app] to be able to
cover its costs [an]
• Total costs may rise [k] which may lead to higher prices [an]
which could reduce demand [an] for its buses [app]
• Employees may be happy with their current pay [k] in the
public sector [app] because they receive other benefits [an]
• Higher pay may lead to reduced services [k]
• Increasing pay may motivate workers [k]

PUBLISHED
2(a) What is meant by ‘entrepreneur’? 2
Clear understanding [2]: A person who organises/ operates/ takes

the risk for a new business venture.
A person who combines all factors of production to make a product

or service
Some understanding [1] : e.g. Someone who starts a business
2(b) Identify two reasons why obtaining finance may not be easy 2 Do not accept ‘not well known ‘as it is unclear how this
for a new business. relates to finance.
Knowledge [2 × 1] award 1 mark per reason

• Asking for too much money OR seen as too high a risk OR not
certain able to repay
• does not have an accurate/ has an inaccurate business plan
• no security/collateral
• lack of experience/ relatively new to the market
• unproven product/ lack of credit history/ no documents

PUBLISHED
2(c) Identify and explain two possible reasons why Kate decided to 4 Application marks may be awarded for appropriate use
start up her own business of the following:
Knowledge [2 × 1] – award 1 mark for each relevant reason • Fashion / sports clothing or related words
• 3 retail shops
Application [2 × 1] – award 1 mark for each relevant reference to • 2 years
this business • website
• leaflets
Points may include: • multinational
• To be her own boss [k] instead of working for a multinational • market segmentation / high income/ women
business [app] • entrepreneur
• To make her own decisions [k] e.g. how to promote clothes • spotted a gap in the market
[app]
• obtaining finance
• She believes the business could be successful / make profit [k]
• $500 000
as she spotted a gap in the market [app]
• To work on something she enjoys [k]

PUBLISHED
2(d) Identify and explain two reasons why segmenting the market 6 Application marks may be awarded for appropriate use
might help BBB. of the following:
Knowledge [2 × 1] – award 1 mark for a relevant reason • Fashion / sports clothing or related words
• 3 retail shops
Application [2 × 1] – award 1 mark for each explanation in context • 2 years
• website
Analysis [2 × 1] - award 1 mark for each relevant explanation • leaflets
• multinational
Relevant points might include: • high income/ women
• Able to tailor goods to specific needs OR know what to • entrepreneur
produce [k] • spotted a gap in the market
e.g. clothes for high income women [app] so that costs / • obtaining finance
materials are not wasted producing wrong products [an] • $500 000
• To help decide best place to sell [k] as sportswear [app] needs
a specialist shop to increase sales[an] Identify gaps in the market [k or app]
• Research is simpler/help identify customer needs [k] as know
which women to ask [app] so products better meet customer
needs [an]
• Help target advertising [k] such as where to use leaflets [app]
to ensure maximum number of people see them [an]
• Help set prices [k]
• Identify gaps in the market [k]

PUBLISHED
2(e) Do you think that using leaflets is the best way for Kate to 6 Application marks may be awarded for appropriate use
promote her products? Justify your answer of the following:
Knowledge [1] – award 1 mark for identification of relevant issue(s) • Fashion / sports clothing or related words
• 3 retail shops
Application [1] – award 1 mark for a relevant reference made to this • 2 years
business • website
• multinational
Analysis [2] – award up to 2 marks for relevant development of • market segmentation / high income / women
point(s) • entrepreneur
• spotted a gap in the market
Evaluation [2] – justified decision made as to whether using leaflets
• obtaining finance
is the best way for Kate to promote her products
• $500 000
• Leaflets can contain lots of information about her products [k] Can accept discussion of other appropriate methods of
these can be handed out outside gyms [app] to attract promotion e.g. sales promotions e.g. sponsorship,
appropriate target market which could lead to increased sales competitions.
[an]
• Leaflets can be handed out in the local area [k] around the 3 For evaluation, answers must have considered the
retail shops [app] which is cost effective [an] suitability of leaflets.
• People may throw leaflets away or see leaflets as litter [k]
• Cheaper than television or radio [k]
Award 1 knowledge mark for any other appropriate methods of
promotion

PUBLISHED
3(a) What is meant by ‘return on capital employed’? 2
Clear understanding [2]: measures the amount of profit made for

each dollar invested.
Profit of a business expressed as a percentage of capital invested
Formula : Profit / Capital employed × 100
Some understanding [1]: e.g. profit / money made on investment
3(b) Calculate the following values: X and Y 2
Application [2 × 1] award 1 mark for each correct answer.
X 20 (20 000)
Y 40 (40 000)

PUBLISHED
3(c) Identify and explain two reasons why a cash flow forecast 4 Application marks may be awarded for appropriate use
might be important for BVC. of the following:
Knowledge [2 × 1] – award 1 mark for each relevant reason • paint

• correct use of data from Table 2
Application [2 × 1] – award 1 mark for each explanation in context • exports OR 60%
• chemicals
Relevant points might include: • new legal controls
• Can identify possible causes of cash flow problems [k] e.g. as
in August, cash-in is 40 000 lower than July [app]
• Help manage cash flow better OR help avoid cash flow
problems [k]
• Supports a loan application / attract investors [k] as opening
balance should improve from $20 000 to $80 000 over the 3
months [app]
• Show how much is spent each month [k]

PUBLISHED
3(d) Identify and explain two possible problems for BVC when 6 Application marks may be awarded for appropriate use
exporting its products. of the following:
Knowledge [2 × 1] – award 1 mark for each relevant problem • paint

• correct use of data from Table 2
Application [2 × 1] – award 1 mark for each relevant reference • 60%
made to this business • chemicals
• new legal controls
Analysis [2 × 1] – award 1 mark for each relevant explanation • return on capital employed
• cash-flow forecast
• Different tastes [k] e.g. different countries might prefer different
paint colours [app] adding to production costs [an]
• Different standards/legislation [k] so may not be able to use
certain chemicals [app] stopping possible sales [an]
• Effect of exchange rates [k] as an appreciation in own currency
would mean its products are more expensive [an] so not able
to export as much as 60% [app]
• Knowledge of market OR competition [k]
• Tariffs [k]
• Quotas [k] will restrict numbers of products that can be sold
[an]
• Increased costs of transport/ increased risk of delay [k]
• Increased competition [k]

PUBLISHED
3(e) The Managing Director thinks the new legal controls to protect 6 Application marks may be awarded for appropriate use
the environment will be bad for business. Do you agree? of the following:
• paint
Knowledge [1] – award 1 mark for identification of relevant issue(s) • correct use of data from Table 2
• exported OR 60%
Application [1] – award 1 mark for a relevant reference made to this • chemicals
business • return on capital employed
• cash-flow forecast
Analysis [2] – award up to 2 marks for relevant development of
point(s)
Evaluation [2] – justified decision made as to whether the new legal

controls to protect the environment will be bad for business.

• Increased costs [k] from new paint production methods [app]
which could lead to higher prices [an] and therefore less
demand [an]
• Reduces quality [k] by removing some of the chemicals [app]
leading to customer complaints [an]
• Competitors also affected by new laws [k] so BVC could still
remain competitive [an]
• New rules may not apply in some of their markets [k] as 60%
are exported [app]
• Customers may be willing to pay more for environmentally
friendly products [k] so the business could increase their profit
margin [an]

PUBLISHED
4(a) What is meant by ‘off-the-job training’? 2
Clear understanding [2]: Trained away from the work place by

specialist trainers
Some understanding [1] : Trained away from the work place
4(b) What is meant by ‘total cost’? 2
Clear understanding [2]: Sum of (total) fixed cost plus (total)

variable costs
Sum of (total) direct and (total) indirect costs
Some understanding [1]: All the costs of the business.
4(c) Identify and explain two advantages of FGH having a tall 4 Application marks may be awarded for appropriate use
hierarchical organisational structure of the following:
Knowledge [2 × 1] – award 1 mark for each advantage identified • book retailer

• 6500 shops
Application [2 × 1] – award 1 mark for each explanation in context • 20 countries
• $300m
Points might include: • off the job training
Many opportunities for promotion [k] in the 20 countries [app] • $800m
Managers have narrower span of control OR fewer people to • competitors
supervise [k] so have more time to focus on the takeover [app] • take over one its competitors
Clear chain of command/ know their manager [k] in the book store
[app]
Clear line of communication [k]

PUBLISHED
4(d) Identify and explain one advantage and one disadvantage to 6 Application marks may be awarded for appropriate use
FGH of becoming a public limited company of the following:
Knowledge [2 × 1] – award 1 mark for each relevant advantage / • book retailer

disadvantage • 6500 shops
• 20 countries
Application [2 × 1] – award 1 mark for each relevant reference • $300m
made to this business • on the job training
• $800m
Analysis [2 × 1] – award 1 mark for each relevant explanation • take over one its competitors
Relevant points might include: Do not award limited liability or separate legal identity
as already has this as a private limited company.
Advantages
• Better access to capital [k] i.e. raising share capital from
existing and new investors [an] to pay for the takeover [app]
• Can give a company a more prestigious profile OR status [k]
so more likely to be offered credit OR better interest rates as
seen as lower risk [an] to raise capital to open more bookshops
[app]
• Shares tradeable on the stock exchange [k]
Disadvantages:
• Cannot control who buys the shares [k] so easier to be taken
over [an] by other book retailers [app]
• Shareholder may expect dividends to be paid [k]
• Accounts published [k] allowing competitors to be able to see
all their results [an] so the business FGH wants to take over
might reject its offer [app]
• Legal formalities need to be followed [k]
• Divorce of ownership and control [k]

PUBLISHED
4(e) Do you think FGH should take over the other business? 6 Application marks may be awarded for appropriate use
Justify your answer of the following:
Knowledge [1] – award 1 mark for identification of relevant issue(s) • book retailer
• 6500 shops
Application [1] – award 1 mark for a relevant reference made to this • 20 countries
business • $300m
• on the job training
Analysis [2] – award up to 2 marks for relevant development of • $800m
point(s) • competitor
Evaluation [2] – justified decision made as to whether FGH should
Note: Cost of takeover $800m, saving $300m therefore
take over the other business
payback will be by 2 years 8 months. (2.66 years)
Note: accept examples of appropriate economies of
• Does not spread risk [k] as still in book retailing [app] so falling
scale [k]
demand for books will reduce FGH’s sales [an]
• Benefit from economies of scale [k] as would have 6500 shops
[app] helping to reduce average costs [an]
• Increase its market share [k] by removing a competitor [app]
• Can they afford to pay the cost of purchase [k] of $800m [app]
• Reduced total costs [k] means repayment of $800m [app]
within 2.66 years OR 2 years 8 months [an]
• Risk of diseconomies of scale [k] as communication errors may
arise [an] across 20 countries [app]
• Different management styles [k] may reduce productivity [an]
across all the shops [app]
• Cost savings may not happen [k]


MARK SCHEME
Maximum Mark: 80
Published
Teachers.

PUBLISHED
responses seen).

PUBLISHED
1(a) Identify and explain one advantage and one disadvantage to SA of 8

starting to sell new products in a niche market
Knowledge [2 × 1] Award one mark for each relevant

Analysis [2 × 1] Award one mark for a relevant explanation for each
Application [2 × 2] Award two application marks for each
Answers are likely to include:
Advantage • Higher price charged

• Less competition
• Meet specific needs of customers
• Increase sales/market share
• Spreads risk/diversification
• Attracts new/different customers
Disadvantage • More expensive to produce the product – uses

batch rather than flow production
• Increased costs e.g. product development, new
marketing strategy needed
• Limited size of market/limited potential sales
• Smaller market segment
• Higher price does not match existing brand image
for low priced soap
SA can sell specialist products that meets these specific customer needs (k)
and SA wants to sell soap aimed at people with older skin. (ap) This means
that there are likely to be few competitors in this market as it is smaller and
less attractive for larger businesses making it easier to have a higher market
share and higher profits. (an). As incomes are increasing in country Z, older
people will be able to afford this soap. (ap)

Produces soap; existing soap sold in a mass market; bars or liquid soap;
new factory/equipment will cost $15m; 50 workers in the new factory;
country Z is a growing economy; older skin; luxury soap; baby soap;
medicated soap; low priced soap.

PUBLISHED
1(b) Consider the following three roles of packaging for SA’s new products. 12
Which is the most important role for the successful launch of these
new products? Justify your answer.
Protection • So the soap does not get damaged in transit –

however this might increase the costs of packaging
• Easier to pack and store the soap in warehouses
before sale– however this may take up more storage
space
Brand image • Makes the soap stand out from other products on the
shelves
• Differentiates products from competitors’ products
• Images on package reinforces brand
Information • Legal requirement – government protection for

about the consumer
product • Customers need to know what is in the soap – may
have a physical reaction e.g. allergies or ethical
reaction e.g. animal testing
Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-


9–10 marks for well justified conclusion as which is the most
important role of packaging to choose to successfully launch
new products compared to the other roles.
7–8 marks for some limited judgement shown in conclusion
as to which is the most important role of packaging to
successfully launch new products.
Level 2 4–6 marks

Detailed discussion of the benefits and/or drawbacks of each
role of packaging.
Level 1 1–3 marks

Outline of the benefits and/or drawbacks of each role of
packaging.

PUBLISHED
1(b) Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Information
about the ingredients of the soap is necessary as some people might be
allergic to the soap.
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. Information
about the ingredients of the soap is necessary as some people might be
allergic to the soap. This might result in a poor reputation for the soap if
customers put bad comments on social media about the soap giving them
problems. If full information is provided then this should be avoided and only
good comments about the soap should be posted. (L2 plus application for
making reference to soap in the explanation)
Level 3 – For L3 to be awarded there needs to be at least two L2 marks

awarded and then a conclusion which is the most important role of
packaging to successfully launch new products.

produces soap; sold in a mass market; soap sold as bars or liquid soap;
bottles; niche market soaps; allergies/allergic reaction; medicated soap;
baby soap; soap for older skin; luxury soap; retailers; wholesalers.

PUBLISHED
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
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).

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.

PUBLISHED
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.
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-


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

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).

awarded and then a conclusion which justifies which is the most important
benefit.

PUBLISHED
2(b) Award up to 2 additional marks for relevant application.

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.

PUBLISHED
3(a) Identify and explain two ways SA could use lean production in its 8
factory.
Knowledge [2 × 1] Award one mark for each relevant way

Analysis [2 × 1] Award one mark for an explanation for each way
Application [2 × 2] Award two application marks for each way
• Just-in-time/JIT – inventory arrives at production line when wanted/ no

warehousing of inventory
• Kaizen – continuous improvement/eliminates waste/ better layout of
factory improves flow of production
• Cell production – small team working/responsible for complete unit of
work
• Kanban – inventory arrives at production line only when inventory has
been used/reduces the holding of inventory
Just-in-time (k) means that inventory is reduced to no or very low levels held
in storage. (an) This reduces the need for having warehouse space to hold
the ingredients to make soap. (ap) SA will need to have good relationships
with its suppliers to ensure that the flow production line is not interrupted by
inventory running out. (ap)

Produces soap; sold in a mass market; wants to start selling niche market
soaps; employs 100 production workers; flow production; batch production.

PUBLISHED
3(b) Consider three leadership styles the Operations manager could use in 12
the new factory. Recommend which leadership style should be used to
improve decision-making. Justify your answer

Autocratic • Clear instructions given • Does not allow worker

by manager/quick involvement/one way
decision making communication
• Less likely to make • May be demotivating for
mistakes if clear what to some employees as feel
do less involved in the
• Some employees like business
having no responsibility
to make any decisions
Democratic • Motivating as workers • More time consuming to

feel they can contribute make decisions as time
to the decision making taken consulting the
• Feel they are being employees before
listened to and views decisions made
respected/two way
communication
• May have some good
ideas for how to
improve the work flow
as they are the ones
working on the
production line
Laissez- • Motivating as workers • Some workers will not

faire feel in control like this responsibility

PUBLISHED
3(b) Knowledge/Analysis/Evaluation – award up to 10 marks using the level

levels-based mark scheme on the next page

9–10 marks for well justified recommendation as to which
leadership style will be most effective in improving decision
making and why the other leadership styles will be less
effective.
7–8 marks for some limited judgement shown in the

recommendation as to which leadership style will be most
effective in improving decision making.
Level 2 4–6 marks

Detailed discussion of the benefits and/or drawbacks of
each leadership style.
Level 1 1–3 marks

Identifies style of leadership and/or identifies features of
leadership style
Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Autocratic

leadership style (L1) – will lead to clear instructions being given by the
manager for workers to follow (L1).
Level 2 – 1 x L2 explanation can gain 4 marks and a further mark can be

awarded for each additional L2 explanation (max 6 marks) e.g. Autocratic
leadership style will lead to clear instructions being given by the manager.
This means production workers will always know what to do and know what
is expected of them. However, they will not feel they can contribute or make
any comments if they feel something could be improved. (L2)

awarded and then a recommendation which leadership style should be used
to ensure there is an improvement in decision making.

Produces soap; selling niche market soaps; employs 100 production
workers in the current factory; 50 workers in the new factory; 150 combined
workforce; directors of SA disagree about leadership style; some managers
not involved in important decisions; well-motivated employees are
important.

PUBLISHED
4(a) Identify and explain two opportunities and two threats for businesses 8
in country Z from globalisation.
Award one mark for each opportunity/threat (max 4) plus one additional
mark for an explanation of each opportunity/threat
Opportunities
• New markets – increased revenue
• Increased brand awareness
• Increased sales –higher profit
• Saturated home markets – new markets to develop
• Spread risks – over more markets/products
• New products developed – for new markets with different tastes
• Higher incomes in growing economies – increased disposable income
leading to higher sales
• Free trade agreements – may allow domestic companies easier access
to overseas market/Easier to export
• Access to cheaper supplies/cheaper labour – lowers costs
Threats
• Increased competition in the home market – lose market share – may
need to reduce prices
• Free trade agreements – may allow foreign companies easier access to
domestic market
• Jobs lost in industries that cannot compete with cheaper foreign
competition
• Workers may choose to work for MNC which pays better wages – losing
workers
• Pressure to increase wage rates due to match MNC pay
• Easier for exploitation by MNCs e.g. labour/natural resources
• May be more vulnerable to external shocks e.g. recession in main
export markets
Country Z has signed a trade agreement (1) which provides opportunities
for businesses in country Z to sell in new markets abroad and increase
revenue (1).

PUBLISHED
4(b) Using Appendix 3 and other information, consider SA’s financial 12

position, using liquidity ratios. Recommend whether the bank manager
should give a loan to SA for the new factory. Justify your answer.
L2 Liquidity ratios/L2 points • Current ratio = 3:1 (3) in 2018

• Acid test ratio = 1:1 (1) in 2018
• Acid test ratio has stayed the
same
• Explanation that shows
understanding of the
meaning/significance of the ratio
figures in 2017 and/or 2018
L1 Basic statements • Inventory has increased by $5m

between 2017–18
• Bank loan has increased by
$10m between 2017–18
• Liquidity formulas
• Non-current assets has
remained the same
• Simple calculations e.g. current
assets in 2018 = $15m
• Revenue in 2018 for low priced
soap is $60m
Award up to ten marks using the levels-based mark scheme below.
Level At least 2 × Level 2 +

3 9–10 marks for well justified recommendation whether or not
the bank manager should give a loan to SA for the new factory
7–8 marks for some limited judgement shown in
recommendation as to whether the bank manager should give
a loan to SA for the new factory
Level 4–6 marks

2 Liquidity ratios correctly calculated.
Explanation of meaning and significance of liquidity ratios.
Level 1–3 marks

1 Outline of financial position without liquidity ratios calculated.
Identifies the change in the figures from Appendix 3
Formula for liquidity ratios
Makes financial calculation from figures in Appendix 1

PUBLISHED
4(b) Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. The inventory
has increased by $5m (L1) as the inventory was $5m in 2017 and $10m in
2018 (1 × Ap).
Level 2 – 1 x L2 explanation can gain 4 marks and a further mark can be

awarded for each additional L2 explanation (max 6 marks) e.g. The acid test
ratio in 2018 is 1:1. (L2)
Level 3 – For L3 to be awarded there needs to be at least two correct L2

liquidity calculations and then a recommendation as to whether or not the
bank manager should give a loan to SA for the new factory.

2017 current ratio was 2:1; 2017 acid test ratio was 1:1; any other relevant
use of financial data from Appendix 3 e.g. bank loan is now $20m; produces
soap; new factory and equipment that will cost $15m; 50 workers in the new
factory; country Z is a growing economy.

*5052446396*

1 hour 30 minutes


11_0450_11_2019_1.14
2
1 BFF makes a range of computer screens that it sells to other manufacturers. The Managing Director
has been looking at BFF’s income statement. She is worried about the effects of an increase in the
cost of materials. She said: ‘Changes in technology have improved our production methods. BFF
needs to remain competitive as imports of computer screens are increasing.’ The Managing Director
has to decide whether BFF should increase its prices.
(a) What is meant by ‘income statement’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify the effect of an increase in the cost of materials on each of the following:
Cost of sales: ....................................................................................................................
...........................................................................................................................................
Gross profit: ......................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two ways in which BFF’s managers could use information contained in
the income statement.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2019 11_0450_11_2019_1.14

3
(d) Identify and explain two ways changes in technology used in production could help BFF to
remain competitive.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think BFF should increase its prices? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2019 11_0450_11_2019_1.14 [Turn over

4
2 WKN sells household goods such as plates and brushes. Last year sales in WKN’s 200 shops
increased but profit fell by 80% to $5m. WKN’s Human Resources Director said: ‘All retailers are
finding this stage of the business cycle challenging. WKN has to reorganise the business. This will
mean redundancy for 1800 shop workers. WKN plans to create 100 new jobs in the marketing
department at head office to help maintain customer loyalty. The company is working with trade
unions to carry out these changes.’ WKN has to decide whether to select the candidates for the
new jobs from the workers being made redundant.
(a) Identify two stages of the business cycle.
Stage 1: ............................................................................................................................
...........................................................................................................................................
Stage 2: ............................................................................................................................
........................................................................................................................................... [2]
(b) What is meant by ‘redundancy’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two ways a trade union could help WKN’s employees.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2019 11_0450_11_2019_1.14

5
(d) Identify and explain two advantages to WKN of maintaining customer loyalty.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think WKN should select all the workers for the new jobs from those about to be made
redundant? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2019 11_0450_11_2019_1.14 [Turn over

6
3 Keila owns a successful small bakery shop. Keila would like to expand her business. She could
open a café selling cakes and drinks in a popular tourist location. Keila plans to give out free samples
as her main method of promotion. She has prepared some customer and cost information as shown
in Table 1. Keila used primary market research to find out some of the information.
Table 1: Forecast customer and cost information for the new café
Average amount spent per customer $4
Average number of customers per week 325
Variable costs per customer $2
Fixed costs per week $500
(a) What is meant by ‘fixed costs’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Calculate the forecast revenue per week for the new café.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two advantages to Keila’s business of using free samples as a method
of promotion.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
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7
(d) Identify and explain one advantage and one disadvantage to Keila’s business of using primary
market research.
Advantage: .......................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Disadvantage: ...................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think Keila should open the new café? Justify your answer using the information in
Table 1.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2019 11_0450_11_2019_1.14 [Turn over

8
4 VXH produces a range of soft drinks made from fruit using batch production. VXH uses specialisation
in its factory. The business has grown quickly over the last two years. VXH has increased the
number of production workers from 40 to 80. This has increased the span of control for each
manager. It has been difficult for VXH to keep workers motivated. The Human Resources Manager
has to decide whether it is better to use job rotation or financial bonuses to improve employee
motivation.
(a) What is meant by ‘span of control’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) What is meant by ‘uses specialisation’?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(c) Identify and explain two possible reasons why VXH has grown quickly.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
........................................................................................................................................... [4]
© UCLES 2019 11_0450_11_2019_1.14

9
(d) Identify and explain two possible reasons why VXH uses batch production.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think VXH should use job rotation or financial bonuses to increase employee motivation?
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2019 11_0450_11_2019_1.14

10
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© UCLES 2019 11_0450_11_2019_1.14

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© UCLES 2019 11_0450_11_2019_1.14

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© UCLES 2019 11_0450_11_2019_1.14


MARK SCHEME
Maximum Mark: 80
Published
Teachers.
components.

PUBLISHED
marking principles.
descriptors.

PUBLISHED

PUBLISHED
1(a) What is meant by ‘income statement’? 2 Do not award ‘shows income’ on own as this is
repetition.
Clear understanding [2]: A financial document that records the
revenue, costs and profit for a given period of time. For 2 marks must have time element as well.
Some understanding [1]: Shows revenue and costs / shows profit
1(b) Identify the effect of an increase in the cost of materials on 2

each of the following:
Cost of sales: increase costs
Gross profit: decrease gross profit
Award 1 mark per effect identified.

PUBLISHED
1(c) Identify and explain two ways in which BFF’s managers could 4 Application marks may be awarded for appropriate use of
use information contained in the income statement. the following:
Knowledge [2 × 1] – award 1 mark for each way. • screens

• increase in material costs
Application [2 × 1] – award 1 mark for each explanation in context. • computers
• imports increased
Points might include: • need to remain competitive
• technology
• Able to calculate the profitability ratios [k] to see the effect of the • increase prices
increase in material costs [app] • manufacturers
• Helps assess efficiency [k] to see benefit from advances in

technology [app]
• Able to compare performance with similar businesses [k]
• Able to compare performance between different time periods [k]
• Show shareholders / owners how business performed [k]
• It is used to measure business success / decide if the business

should continue trading [k]
• Used to support an application for a loan [k]

PUBLISHED
1(d) Identify and explain two ways changes in technology used in 6 Application marks may be awarded for appropriate use of
production could help BFF to remain competitive. the following:
Knowledge [2 × 1] – award 1 mark for each relevant way. • screens

• increase in material costs
• computers
Application [2 × 1] – award 1 mark if relevant reference made to this • imports increased
business. • increase prices
• manufacturers

• Machines replace labour [k] helping improve its income
statement [app] so less wages need to be paid [an]
• Wider range of products [k] such as screens [app] to appeal to

more customers or markets [an]
• Able to produce more / improved productivity / more efficient [k] Accept Machines work 24/7 as either [k] or [an] of
so able to lower prices [an] and compete with imports [app] why output rises.
• Technology improves flexibility [k] so the business can react to

changes in demand [an] for computers [app]
• Reduces waste / less errors / consistent quality [k]

PUBLISHED
1(e) Do you think BFF should increase its prices? Justify your 6 Application marks may be awarded for appropriate use of
answer. the following:
Knowledge [1] – award 1 mark for identification of relevant point(s) • screens

• advances in technology
Application [1] – award 1 mark for a relevant reference made to this • increase in material costs
business • computers
• imports increased
Analysis [2] – award up to 2 marks for relevant development of • need to remain competitive
point(s) • manufacturers
Evaluation [2] – justified decision made as to whether BFF should
increase its prices.

• Could increase revenue [k] so more money available to cover
costs [an] such as increase in material costs [app]
• Could lead to fewer customers [k] as higher price could

encourage customers to switch to competitors [an] so difficult
to remain competitive [app]
• They need to increase prices to cover cost [k] because of the

increase in material costs [app]
• Gives an impression of quality [k]
• Keeping prices low may increase market share [k] because it is

a competitive market [app] as lower price attracts customers
[an]

PUBLISHED
2(a) Identify two stages of the business cycle. 2
Award 1 mark for each stage identified.
Stages: Growth, boom, recession, slump.
2(b) What is meant by ‘redundancy’? 2 For 2 marks must clearly understand idea that it is the
role that no longer exists
Clear understanding [2]: e.g. job position has gone and so the
employee is no longer required Do not award reasons why the job may no longer exist
Termination of employment because the job is no longer needed
Some understanding [1] e.g. loses job (through no fault of their

own) [1] or job role has gone [1]

PUBLISHED
2(c) Identify and explain two ways a trade union could help WKN’s 4 Application marks may be awarded for appropriate use of
employees. the following:
Knowledge [2 × 1] – award 1 mark for each way identified • retailer

• household goods OR plates OR brushes
Application [2 × 1] – award 1 mark for each explanation in context • challenging stage of business cycle
• marketing department OR head office
Points might include: • 1800 OR redundancy
• Negotiate or help improve pay [k] for shop employees [app] • 200 OR shops
• profit fell 80% OR $5m
• Improved working conditions or health and safety [k] in head • 100 new jobs
office [app]
• Gives strength in numbers/collective bargaining so more likely

to achieve demands [k] when dealing with head office [app]
• Take action (strikes/protests) [k] to prevent redundancy [app]
• Provides services such as insurance / training / social activities

/ discounts [k]
• Resolve conflict between employer and employees [k]
• Advice / legal support [k]

PUBLISHED
2(d) Identify and explain two advantages to WKN of maintaining 6 Application marks may be awarded for appropriate use of
customer loyalty. the following:
Knowledge [2 × 1] –award 1 mark for each relevant advantage • retailer

• sells household goods OR plates OR brushes
Application [2 × 1] – award 1 mark for each relevant reference • challenging stage of business cycle
made to this business • marketing department OR head office
• 1800 OR redundancy
• 200 OR shops
Relevant points might include: • profit fell 80% OR $5m
• Increase sales [k] of its household goods [app] • 100 new jobs
• trade union
• Easier to match products to existing customer needs [k] so know
what to stock in its shops [app] reducing wastage [an]
• Maintain competitiveness [k] Do not award ways to increase customer loyalty
• Current customers recommend products [k] so less promotion

needed [an]
• Cheaper than trying to attract new customers [k]
• Reputation / brand image improves [k]
• May be able to increase prices and keep customers [k]
• Provides a sense of security for owners [k]

PUBLISHED
2(e) Do you think WKN should select all the workers for the new 6 Application marks may be awarded for appropriate use
jobs from those about to be made redundant? Justify your of the following:
answer.
• retailer
Knowledge [1] – award 1 mark for identification of relevant point (s) • household goods OR plates OR brushes
• challenging stage of business cycle
Application [1] – award 1 mark if relevant reference made to this
business
• marketing department OR head office
• 1800
Analysis [2] – award up to 2 marks for relevant development of • 200 OR shops
point(s) • profit fell 80% OR $5m
• 100 new jobs
Evaluation [2] – justified decision made as to whether WKN should • trade union
select the workers for the new jobs from those facing redundancy • customer loyalty
• Do not need to advertise jobs externally [k] so lower
(recruitment) costs [an]
• Know abilities and skills of employees [k] The analysis must relate to the impact upon the
business rather than the employee
• Existing employees have good knowledge of customer
requirements [k] as have experience of working in its shops Do not award answers which discuss how the
[app] candidates are selected for redundancy
• Workers might not have skills [k] which could lead to poor work
[an] reducing customer loyalty [app]
• May not want or be able to move locations [k] to head office

[app] so few employees will want to apply [an]
• Recruitment of new workers will bring fresh ideas [k]

PUBLISHED
3(a) What is meant by ‘fixed costs’? 2 Do not award examples as this does not explain the
term.
Clear understanding [2] e.g. costs that do not change [1] as the
level of activity / output / sales changes [1]
Costs which have to be paid whether the business produces any

products or not
Some understanding [1]: e.g. costs that stay the same
3(b) Calculate the forecast revenue per week for the new café. 2 $ sign not needed to award full marks
Good application [2]: $1300
Some application [1]: 325 × 4 OR number of customers × average

spend (price)

PUBLISHED
3(c) Identify and explain two advantages to Keila’s business of 4 Application marks may be awarded for appropriate use of
using free samples as a method of promotion. the following:
Knowledge [2 × 1] – award 1 mark for each advantage identified • successful bakery

• small shop
Application [2 × 1] – award 1 mark for each explanation in context • cakes / drinks OR related words e.g. taste
• popular tourist location
Points might include: • correct use of numbers and information from Table
• Increases awareness of her products [k] with tourists [app] 1 e.g. 325
• $1300
• Encourages customers to try her products [k] and visit the café • café
[app] • (primary market) research
• Tempt customer to buy more [k] helping her remain successful

[app]
• Way to get feedback [k] so she improves her cakes [app]
• Can test out new product ideas [k] identified from research
[app]
• Customers understand the quality of the product [k]

PUBLISHED
3(d) Identify and explain one advantage and one disadvantage to 6 Application marks may be awarded for appropriate use
Keila’s business of using primary market research. of the following:
Knowledge [2 × 1] – award 1 mark for a relevant advantage / • cakes / drinks OR related words e.g. taste
disadvantage • small shop
• successful bakery
Application [2 × 1] – award 1 mark for each relevant reference • popular tourist location
made to this business
• correct use of numbers and information from Table
1 e.g. 325
• $1300
Relevant points might include: • free samples
• café
Advantages: • expansion
• Up-to-date [k] so able to make more accurate decisions [an]
such as whether to open the café [app]
• Specific to her purpose [k]
• Information is not available to other competitors [k] so may

provide a competitive advantage [an] for this small shop [app]
Disadvantages:
• High cost [k] to find out views on her bakery [app] which will
increase her expenses [an]
• Takes long time to collect [k]
• Can be bias in questions or how questions are asked [k]

leading her to make the wrong decisions [an]

PUBLISHED
3(e) Do you think Keila should open the new café? Justify your 6 Application marks may be awarded for appropriate use of
answer using the information in Table 1. the following:
Knowledge [1] – award 1 mark for identification of relevant point(s) • successful bakery
Application [1] – award 1 mark for a relevant reference made to this • small shop
business • cakes / drinks
Analysis [2] – award up to 2 marks for relevant development of • popular tourist location
point(s) • free samples
Evaluation [2] – justified decision made as to whether Keila should • primary market research
open the new café • correct use of numbers and information from table 1
e.g. 325
• $1300
• She expects to attract enough customers to cover her fixed
costs [k] as she predicts 325 [app]
Application and analysis can be awarded for calculation
• TR – TC [k] $1300 [app] – $1150 [an] leaving a profit of £150 of:
[an]
• total variable costs $650 [app + an]
• TVC = VC x Output [k] $2 × 325 [app] = $650 [an + an]
• total costs $1150 [app + an + an]
• TC = TFC + TVC [k] $500 + $650 [app + an] = $1150 [an + an] • gross profit $650 [app + an + an]
• profit $150 [app + an + an]
• Has relevant business experience [k] as runs a successful • break-even output 250 [app + an + an]
bakery [app] • 75 more customers [app + an + an]
• Spreads risk [k]

OFR applies if candidate uses incorrect total revenue
• Cost of shop and labour to run the café [k] figure calculated in 3b to do subsequent calculations
• How reliable is the data gathered [k] from her primary research
[app]
• Does she have time / finance to run both businesses [k]

PUBLISHED
4(a) What is meant by ‘span of control’? 2
Clear understanding [2]: Number of subordinates working directly

under an individual OR manager
Number of subordinates reporting to each supervisor / manager
Some understanding [1]: E.g. number of subordinates working

under an individual OR manager
Who you are responsible for
4(b) What is meant by ‘uses specialisation’? 2
Clear understanding [2]: E.g. way in which work is divided so each

worker concentrates on a specific task so become expert at it
When people or business concentrate on what they are best at
Some understanding [1]: E.g. workers only do one job

PUBLISHED
4(c) Identify and explain two possible reasons why VXH has grown 4 Application marks may be awarded for appropriate use of
quickly. the following:
Knowledge [2 × 1] – award 1 mark for each reason identified • fruit or related words e.g. flavours
• soft drinks
Application [2 × 1] – award 1 mark for each explanation in context • batch production
• specialisation
Points might include: • factory
• Closure / takeover of competitor [k] so fewer businesses • 40 OR 80 (workers)/motivation problems
making soft drinks [app] • job rotation or financial bonus
• 2 years
• Changes in customer tastes / fashion [k] • Span of control (increased)
• Spotted a new opportunity in the market [k]
• Change in legal controls / rules [k]
• Introduction of new technology [k] so able to take advantage of

specialisation [app]
• Increase in productivity [k]

PUBLISHED
4(d) Identify and explain two possible reasons why VXH uses batch 6 Application marks may be awarded for appropriate use of
production. the following:
Knowledge [2 × 1] – award 1 mark for each relevant reason • fruit or related words e.g. flavours
• soft drinks
Application [2 × 1] – award 1 mark for each relevant reference • specialisation
made to this business • factory
• 40 OR 80 (workers) / motivation problems
• job rotation or financial bonus
Relevant points might include: • 2 years
• Allows variety of products to be made [k] • Span of control (increased)
• Flexible [k] as able to change product easily to meet changes in

customer demand [an] for different flavours [app]
• Provides some variety of jobs to workers [k] helping improve

employee motivation [app] so fewer employees might leave [an]
• Allows use of specialist skills [k] so able to take advantage of

specialisation [app] to increase output [an]
• Level of demand does not justify the use of flow production [k]
• Since larger numbers are made [k] lower unit costs [an]
• Production not affected if machinery breaks down [k]
• Buying in bulk [k]

PUBLISHED
4(e) Do you think VXH should use job rotation or financial bonuses 6 Application marks may be awarded for appropriate use of
to increase employee motivation? Justify your answer. the following:
Knowledge [1] – award 1 mark for identification of relevant point(s) • fruit or related words e.g. flavours
• soft drinks
Application [1] – award 1 mark for a relevant reference made to this • batch production
business
• specialisation
Analysis [2] – award up to 2 marks for relevant development of • factory
point(s) • 40 OR 80 (workers) motivation problems
• 2 years
Evaluation [2] – justified decision made as to whether VXH should • Span of control (increased)
use job rotation or financial bonuses to increase employee
motivation

Job rotation:
• Prevents workers becoming bored doing the same task

repeatedly [k] which could increase output [an]
• Need to provide training [k] to the 80 employees [app] which

increases cost [an]
• Helps improve flexibility [k] as workers can switch if someone is

absent [an]
• Workers may not be good at the new task [k] so productivity

decreases [an]

PUBLISHED
4(e) Financial Bonus:
• Increases costs to the business [k]
• Some employees may not be motivated by money [k]
• Can lead to conflict / demotivation if some workers don’t get

this [k]


INSERT
1 hour 30 minutes

*8796071917-I*

11_0450_21_2019_1.13
2
Main Foods (MF)
MF is a public limited company. It was set up 30 years ago in country X and produces a large variety
of food products. The objectives of MF are to increase profits and increase market share. Most of
MF’s competitors are small partnership businesses. MF is the largest food producer in country X.
The Operations Director is planning to produce a new ice cream that does not contain sugar.
Production of the new product will require a new automated production line. It will require new
equipment to be purchased. Additional skilled workers will need to be recruited by the Human
Resources department and existing workers will need to be retrained. To manufacture ice cream
that does not contain sugar, MF will have to use ingredients that are extracted from plants in the
rainforests in country X. This will cause environmental damage when the plants are cut down.
MF’s Operations Director is worried about the high cost of this raw material and the cost of removing
all the waste from the production of this new ice cream. The cheapest way to get rid of the waste
is to take it to local landfill sites, which are nearly full. The Government is responsible for the costs
of managing landfill sites. Farmers lose their land when new landfill sites are created.
The new ice cream will be targeted at people who want to lose weight or who, for medical reasons,
are not allowed to eat products that contain a lot of sugar. Statistics show that 10% of the adult
population should not be eating sugary foods and a further 40% are thought to be overweight.
Country X has several new TV programmes aimed at people who are health conscious and new
gyms are being set up. Several other food businesses in country X are planning the introduction
of new food products that are low in sugar but they are not yet ready to launch them. MF and its
competitors sell food products through wholesalers and to large supermarkets.
Appendix 1
Summary of MF’s financial statements for 2018 and 2019
2018 2019
Revenue $100m $120m
Gross profit margin 75% 80%
Profit margin 12% 10%
Return on Capital Employed (ROCE) 15% 15%
Current ratio 2 3
Acid test ratio 1 1.5
Bank loans $10m $20m
© UCLES 2019 11_0450_21_2019_1.13

3
Appendix 2
Daily News article
Country X is experiencing increasing numbers of overweight people and this is causing serious
health problems. Food products which contain a lot of sugar are being blamed for this crisis. Treating
people who are overweight increases costs to public sector organisations such as health care
services. Businesses in country X also complain that when employees are ill they do not work
efficiently or they need time off work to get better.
Appendix 3
MF plans to set a price of $5 per carton of ice cream and plans for a variable cost (VC) of $2.50
per carton.
Break-even chart to show the effect of charging a higher price of $7.50 per carton
40 000
35 000
Costs and Revenue ($)
30 000
key
25 000
Fixed Cost
20 000 Total Cost
Total Revenue at $7.50
15 000
Total Revenue at $5
10 000
5000
0
0 1000 2000 3000 4000 5000
output per week
Break-even chart to show the effect of reducing the variable cost (VC) to $2.00 per carton
30 000
Costs and Revenue ($)
25 000
key
20 000
Fixed Cost
15 000 Total Cost when VC at $2.00
Total Revenue at $5
10 000
Total Cost when VC at $2.50
5000
0
0 1000 2000 3000 4000 5000
output per week
© UCLES 2019 11_0450_21_2019_1.13

4
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© UCLES 2019 11_0450_21_2019_1.13

*8796071917*

1 hour 30 minutes


11_0450_21_2019_1.13
2
1 (a) Identify and explain one benefit and one cost to MF of developing the new product.
Benefit: .............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Cost: .................................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
© UCLES 2019 11_0450_21_2019_1.13

3
(b) Consider how the following three elements of the marketing mix could help to make the new
product successful. Which do you think is the most important element for the success of the
new product? Justify your answer.
Price: ................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Place: ................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Promotion: ........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Conclusion: .......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
© UCLES 2019 11_0450_21_2019_1.13 [Turn over

4
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]
© UCLES 2019 11_0450_21_2019_1.13

5
(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]
© UCLES 2019 11_0450_21_2019_1.13 [Turn over

6
3 (a) Identify and explain how the following four departments of MF are likely to be affected by the
development of its new product.
Marketing: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Human Resources (HR): ..................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Operations: .......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Finance: ............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
© UCLES 2019 11_0450_21_2019_1.13

7
(b) Using the information provided in Appendix 3, consider the following two options for MF’s new
product. Recommend which option MF should choose to ensure the highest profit for the new
product. Justify your answer.
Option 1 - raise the price per carton from $5 to $7.50: .....................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Option 2 - reduce the variable cost per carton from $2.50 to $2.00: ................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
© UCLES 2019 11_0450_21_2019_1.13 [Turn over

8
4 (a) Identify and explain two differences between:
(i) MF and unincorporated businesses:
Difference 1: ..........................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
Difference 2: ..........................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................ [4]
(ii) MF and public sector organisations:
Difference 1: ..........................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
Difference 2: ..........................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................ [4]
© UCLES 2019 11_0450_21_2019_1.13

9
(b) Consider the possible external costs and external benefits resulting from MF’s new product.
Recommend whether the Government should encourage MF to produce this new product.
External costs: ..................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
External benefits: ..............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
© UCLES 2019 11_0450_21_2019_1.13

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11
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12
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© UCLES 2019 11_0450_21_2019_1.13


MARK SCHEME
Maximum Mark: 80
Published
Teachers.
components.

PUBLISHED 2019
responses seen).

PUBLISHED 2019
1(a) Identify and explain one benefit and one cost to MF of developing the 8
new product.
Knowledge [2 × 1] – award one mark for each relevant benefit/cost

Analysis [2 × 1] – award one mark for a relevant explanation for each
benefit/cost
Application [2 × 2] – award two application marks for each benefit/cost

Benefit:
• Provides a USP
• Allows diversification/spreads risk
• Allows the business to expand into new markets/attracts new
customers/accommodates changing customer needs
• Allows the business to expand into existing markets/increases market
share/improved competitive advantage
• Increase revenue/increased sales
Cost:
• Costs of carrying out market research/product trials
• Increased production costs – new equipment/training/recruitment
costs/high cost of raw materials/high cost of waste removal
• Increased marketing costs – to build customer awareness
• If target market wrong, the company reputation may be damaged
Provides a USP (1) if there are no other sugar-free ice creams in the market
(ap). This will allow MF to increase sales revenue of the ice cream (1). This is
a new market and MF is taking advantage of the trends for healthier foods
(ap).

Sugar free ice-cream; MF has a large market share of the food markets;
large variety of food products; objectives are growth and increased market
share; new automated production line required; new skilled workers need
recruiting; existing workers need to be retrained.

PUBLISHED 2019
1(b) Consider how the following three elements of the marketing mix could 12
help to make the new product successful. Which do you think is the
most important element for the success of the new product? Justify your
answer.
• Price • Penetration pricing into existing dessert market

• Cost-plus pricing as need to recoup development costs
• Place • Distribute through wholesalers or large supermarkets

to reach a mass market
• Distribute through gyms or health food outlets to reach
health conscious market
• Promotion • Advertise in health and fitness magazines for the

health conscious consumers
• TV advertising as aimed at large market
• Free samples to ensure potential consumers try the
new dessert
Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-based

mark scheme below.

9–10 mark for well justified conclusion of which element of the
marketing mix will contribute the most to the success of the new
product and why the other elements will contribute less.
7–8 mark for some limited judgement shown in conclusion of
which element of the marketing mix will contribute the most to
the success of the new product
Level 2 4–6 marks

Detailed discussion of how each element of the marketing mix
can contribute to the success of the new product.
A clear strategy needs to be explained, e.g. pricing method
named and explained as to why it would be effective
Level 1 1–3 marks

Outline of how each element of the marketing mix can contribute
to the success of the new product.
Simple statement made, e.g. reduce the price to gain more
customers

PUBLISHED 2019
1(b) Level 1 – 1 mark for each L1 statement (max of 3 marks), e.g. place can be
through wholesalers and supermarkets as they can sell a lot of the products to
this large market.

awarded for each additional L2 explanation (max 6 marks), e.g. Place can be
through wholesalers and supermarkets as they can sell a lot of the products to
this large market. These outlets are where the most customers will buy
desserts and so it will increase the chance of the new ice-cream being seen
on the shelves and then purchased (L2 + application for referring to ice-cream
in the answer).

awarded and then a justified conclusion of which element of the marketing
mix will contribute most to the success of the new product.

objectives are growth and increased market share; 10% of adults should not
be eating sugary foods; 40% of adults are overweight; other food businesses
are planning the introduction of low sugar food products; health conscious
consumers.

PUBLISHED 2019
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
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
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).

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.

PUBLISHED 2019
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.
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

PUBLISHED 2019
2(b) Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-


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.

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).

awarded and then a conclusion as to which user of the accounts will find the
information most helpful.

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.

PUBLISHED 2019
3(a) Identify and explain how the following four departments of MF are likely 8
to be affected by the development of its new product.
Award one mark for an explanation of a likely way each department will be
affected (max 4)
Award one mark for applying an explanation in context of how each

department will be affected (max 4)
• Marketing department will have increased workload from carrying out

market research/promoting the new product
• HR will need to recruit additional workers/training requirements
• Operations will need new automated equipment – to produce the new ice-
cream
• Finance will need to raise the funds necessary for the investment in the
new equipment – and working capital for the purchase of new
ingredients/produce financial statements, e.g. income statement
The Marketing department will have an increased workload from carrying out
market research (1). This is because the sugar-free ice cream is new and MF
will not know if consumers are interested in buying it (1).

production line required; new skilled workers need recruiting; waste
produced causes pollution if thrown into local landfill; increasing trends of
people being overweight in country X.

PUBLISHED 2019
3(b) Using the information provided in Appendix 3, consider the following 12

two options for MF’s new product. Recommend which option MF should
choose to ensure the highest profit for the new product. Justify your
answer.
Level 1 Level 2
Option 1 –raise price May put off potential B/E identified at 4000
from $5.00 to $7.50 customers/demand and now fallen to 2000
may fall Profit is $15 000 at
Revenue at $5 for 5000 maximum capacity (or
units = $25 000 profit at alternative
Fixed costs = $10 000 output)
Total cost at 2000 units Margin of safety
of output = $15 000 increases by 2000
Higher price will give Increased price leads
impression of higher to increased gross
quality product profit per unit however,
May increase profit revenue might not
increase if sales fall
Option 2 – lower VC May be lower quality B/E identified at 4000

fall from $2.50 to $2.00 product and now 3334 (accept
Found cheaper raw 3200 up to 3500)
materials/found Profit is $5000 at
cheaper ways to maximum capacity (or
dispose of waste profit at alternative
Total cost will be lower output)
Fixed costs remain at Margin of safety
$10 000 increases by 666
Total cost at 3334 units (accept OFR)
of output = $16 668 (or
$16 500)

PUBLISHED 2019
3(b) Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-based

mark scheme below.
Level 3 Only given if 2 × L2 correct break-even or profit figures

9–10 marks for well justified recommendation as to the best way
to increase profit compared to other option.
recommendation as to the best way to increase profit.
Level 2 4–6 marks

Explanation of the effects of higher price and/or lower variable
cost as a way to increase profit.
Calculations of break-even or profit at relevant levels of output
Level 1 1–3 marks

Outline of the effects of higher price and/or lower variable cost
as a way to increase profit.
Basic statements related to revenue or costs figures
Level 1 – 1 mark for each L1 statement (max of 3 marks), e.g. increasing the
price will lead to higher profit.

awarded for each additional L2 explanation (max 6 marks), e.g. the new
break-even output is 2000 whereas the original break-even output was 4000
(L2).
Level 3 – For level 3 to be awarded there must have been 2 × L2 correct

break-even or profit figures, then a well justified recommendation as to the
best way to increase profit to choose compared to other option.
Award up to 2 additional marks for relevant application

production line required; new skilled workers need recruiting; increasing
trends of people being overweight in country X.

PUBLISHED 2019
4(a)(i) Identify and explain two differences between MF and unincorporated 4

businesses:
Award one mark for each difference (2 max) plus one additional mark for
explaining why it is a difference in context.
• MF has limited liability

• There is continuity with MF
• MF has a separate legal identity
• MF is able to sell shares
Note: Do not accept MF is an incorporated business
MF has limited liability whereas an unincorporated business has unlimited
liability (1). This protects the shareholders of MF (1).
Context is from recognising that MF is an incorporated business –

shareholders; MF is a public limited company; MF is not a sole trader or
partnership; MF competitors are partnership businesses
4(a)(ii) Identify and explain two differences between MF and public sector 4
organisations:
Award one mark for each difference (2 max) plus one additional mark for
explaining why it is a difference in context.
• MF is not owned by the government

• Different objectives such as private sector aim to make profits whereas
public sector aim to provide a service to the public/different pricing
strategies
• Investment from the shareholders whereas public sector investment by
the government
Note: Do not accept MF is an incorporated business
MF has profit and increased market share as objectives whereas public sector
organisations will have different objectives such as public provision of a
service (1)
Context is from recognising that MF is a private sector business – MF

objective is to increase profit; MF objective is to increase market share; MF is
in the private sector; MF may fund investment by selling shares

PUBLISHED 2019
4(b) Consider the possible external costs and external benefits resulting 4
from MF’s new product. Recommend whether the Government should
encourage MF to produce this new product. Justify your answer.
External • Waste thrown into the landfill causes pollution for local
costs people – farmers lose some of their land – reduces locally
produced food – increased spending on buying food
• High cost to the government to clean up the waste – raise
taxes or reduce spending elsewhere
• Environmental damage when rainforest is cut down
External • Healthier population – employees have less time off work –

benefits more efficient – increased output in the economy
• Government spending on health provision falls – can spend
money elsewhere
• Recruitment of new workers will reduce unemployment in
the local area
Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-based

mark scheme below.

9–10 marks for well justified recommendation as to whether or
not the government should encourage the production of this
new product.

recommendation as to whether or not the government should
encourage the production of this new product.
Level 2 4–6 marks

Detailed discussion of external costs and/or benefits.
Level 1 1–3 marks

Outline of external costs and/or benefits.

PUBLISHED 2019
4(b) Level 1 – 1 mark for each L1 statement (max of 3 marks), e.g. waste thrown
into the landfill causes pollution.

awarded for each additional L2 explanation (max 6 marks), e.g. waste thrown
into the landfill causes pollution and the farmers will lose their land meaning
less food will be produced locally. Local people will have to pay more for food
and this will leave them with less income to spend on other goods and
services, therefore lowering their standard of living (L2).

awarded and then a recommendation as to whether or not the government
should encourage the production of this new product.

Sugar free ice-cream; waste produced causes pollution if thrown into the
local landfill; farmers may lose their land; sugary foods cause health
problems; increasing trends of people being overweight in country x;
increased government costs to treat overweight people.

Business Studies Redspot 2011-2019

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Syllabus

‘We think the Cambridge curriculum is superb preparation for university.’

1 Why choose this syllabus? ..................................................................................................... 2

2 Syllabus overview .................................................................................................................... 5

3 Subject content .......................................................................................................................10

4 Details of the assessment ....................................................................................................22

5 What else you need to know .............................................................................................. 24

Changes to this syllabus

1 Why choose this syllabus?

They will also gain lifelong skills, including:

Our approach encourages learners to be:

2 www.cambridgeinternational.org/igcse Back to contents page

Recognition and progression

Learn more at www.cambridgeinternational.org/recognition

Back to contents page www.cambridgeinternational.org/igcse 3

Teaching resources Exam preparation resources

4 www.cambridgeinternational.org/igcse Back to contents page

The aims are to enable students to:

Support for Cambridge IGCSE Business Studies

Back to contents page www.cambridgeinternational.org/igcse 5

2 People in business

5 Financial information and decisions

6 External influences on business activity

6 www.cambridgeinternational.org/igcse Back to contents page

All candidates take: and:

Paper 1 1 hour 30 minutes Paper 2 1 hour 30 minutes

Back to contents page www.cambridgeinternational.org/igcse 7

AO1 Knowledge and understanding

•• distinguish between evidence and opinion in a business context

8 www.cambridgeinternational.org/igcse Back to contents page

Weighting for assessment objectives

Assessment objectives as a percentage of the qualification

Assessment objective Weighting in IGCSE %

AO1 Knowledge and understanding 40

Assessment objectives as a percentage of each component

Assessment objective Weighting in components %

AO1 Knowledge and understanding 50 30

Back to contents page www.cambridgeinternational.org/igcse 9

1 Understanding business activity

1.2 Classification of businesses

1.2.2 Classify business enterprises between private

1.3 Enterprise, business growth and size

10 www.cambridgeinternational.org/igcse Back to contents page

1.4 Types of business organisation

1.5 Business objectives and stakeholder objectives

1.5.3 Differences in the objectives of private sector

Back to contents page www.cambridgeinternational.org/igcse 11

2.1.2 Methods of motivation: •• Financial rewards, e.g. wage, salary, bonus,

2.2 Organisation and management

2.2.2 The role of management: •• Functions of management, e.g. planning,

2.2.3 Leadership styles: •• Features of the main leadership styles,

2.2.4 Trade unions: •• What a trade union is and the effects of

12 www.cambridgeinternational.org/igcse Back to contents page

2.3 Recruitment, selection and training of employees

2.4 Internal and external communication

2.4.2 Demonstrate an awareness of communication •• How communication barriers arise and

Back to contents page www.cambridgeinternational.org/igcse 13

3.1.2 Market changes: •• Why customer/consumer spending patterns may

3.2 Market research

14 www.cambridgeinternational.org/igcse Back to contents page

3.3 Marketing mix

3.3.2 Price: •• Pricing methods (benefits and limitations of

3.3.3 Place – distribution channels: •• Advantages and disadvantages of different

1.2.2 Classify business enterprises between private

1.5.3 Differences in the objectives of private sector

2.1.2 Methods of motivation: •• Financial rewards, e.g. wage, salary, bonus,

2.2.2 The role of management: •• Functions of management, e.g. planning,

2.2.3 Leadership styles: •• Features of the main leadership styles,

2.2.4 Trade unions: •• What a trade union is and the effects of

2.4.2 Demonstrate an awareness of communication •• How communication barriers arise and

3.1.2 Market changes: •• Why customer/consumer spending patterns may

3.3.2 Price: •• Pricing methods (benefits and limitations of

3.3.3 Place – distribution channels: •• Advantages and disadvantages of different

3.3.4 Promotion: •• The aims of promotion

4.1.3 How technology has changed production

4.2.3 Break-even analysis: •• The concept of break-even

5.2.2 Working capital: •• The concept and importance of working capital

5.3.2 Income statements: •• Main features of an income statement,

5.4.2 Interpret a simple statement of financial

5.5.2 Liquidity: •• The concept and importance of liquidity

5.5.3 How to interpret the financial performance •• Gross profit margin