Bus P3

Cambridge International AS & A Level
BUSINESS 9609/32
Paper 3 Business Decision-Making February/March 2023
INSERT 1 hour 45 minutes
INFORMATION
*2445765801-I*
● 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.
This document has 4 pages. Any blank pages are indicated.
DC (CE) 323084/2
© UCLES 2023 [Turn over
2
Free Wheeling Bean (FWB)
Makena Kisii set up FWB in country K in 2016. FWB owns 200 vans from which it sells organic
drinks, such as coffee, tea and freshly pressed seasonal fruit juice for customers to take away.
Customers can also purchase snacks such as cookies and muffins. Each three-wheeled van
has all the equipment necessary for producing hot and cold drinks and selling snacks.
The vans operate mainly in urban locations in country K and serve a variety of customers 5
including office workers, shoppers and people enjoying leisure activities. Each van operates
within a specific area. There are significant demographic and cultural differences in country K.
Levels of income and unemployment also vary across the country.
FWB is a private limited company. Makena is one of three shareholders, and she is the Managing
Director. Makena’s brothers are the other two shareholders and are also directors of FWB. 10
Delegate more responsibility?
FWB has a centralised organisational structure. Makena and the other directors control all key
decisions. Each van has a full-time manager and three other employees on zero-hour contracts.
Van managers report directly to FWB’s directors and do not make decisions regarding pricing,
promotion or products. All employees are given extensive training in health and safety and 15
food hygiene. Van managers have competitive salaries, but other employees are paid the
minimum wage. Van managers are responsible for ensuring company procedures are followed
by employees. They also order inventory from FWB’s warehouse and decide the work rotas, so
that vans can meet customer demand. Van managers and other employees drive the vans and
serve customers. 20
Coffee beans and other supplies are purchased centrally by FWB. Makena believes this ensures
a consistent brand image throughout country K. However, many van managers have requested
some control over local promotion, products and where to locate the vans. Makena is concerned
about the increasing labour turnover at FWB and the loss of some good van managers in 2022.
She is considering delegating more responsibility to van managers. 25
A new marketing mix
FWB uses the same marketing mix throughout country K. Prices and products are the same in
all locations. FWB’s objective for 2023 is to increase each van’s revenue by 15%. Using past
revenue data and market reports, the Marketing Director is considering how price changes and
increased promotion might impact units sold and revenue. He estimates that increasing the 30
price of coffee from $2.00 to $2.30 will decrease the demand for coffee from an average of 180
to 170 cups per day, per van. He also estimates that the promotional elasticity of demand is 0.8.
In 2022, FWB spent $200 000 on advertising and revenue was $40.5 m.
The Marketing Director will decide on a new marketing mix next month.
Government legal changes 35
A new government has just been elected in country K. The government has promised to protect
workers’ legal rights and increase incomes of the low-paid. The government also plans to
protect consumers by increasing regulation of business activities in the food and drink industry.
The government minister for the environment has also proposed legal controls to reduce waste
from plastic packaging and CO2 emissions from vehicles. FWB’s directors are considering how 40
to prepare for these proposed legal changes.
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Improving efficiency
Makena is reviewing operational efficiency at FWB. She is concerned with the amount of waste
products, including inventory that has deteriorated, that must be disposed of. However, there
have also been occasions when vans have had insufficient inventory to meet demand. FWB 45
has many suppliers and coordinating deliveries is difficult. Makena is considering investing in
enterprise resource planning (ERP). An ERP supplier has provided FWB with an estimate of
projected net cost savings for a system with an initial capital cost of $650 000. The supplier
advised Makena that the ERP system would have a residual capital value of $0 after five years.
Table 1.1 gives further details. 50
Table 1.1 ERP investment appraisal extract
Year Net cost savings ($000)

1 150
2 175
3 175 55
4 200
5 200
Financial performance and growth
Makena wants to focus FWB’s future growth on expansion to international markets. However,
she is unsure how best to progress this strategy, so she has asked the Finance Director to 60
prepare an analysis of FWB’s performance to help with decision-making. Selected ratios from
his analysis are shown in Table 1.2.
Table 1.2 Selected accounting ratio analysis for FWB
31 January 31 January
2023 2022 65
Current ratio 1.3:1 1.3:1
Gearing 45% 35%
Profit margin 5.3% 6.4%
Return on capital employed (ROCE) 4.2% 4.9%
Trade payables turnover (days) 35 30 70
Rate of inventory turnover 12 14
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* 2 4 4 5 7 6 5 8 0 1 *
BUSINESS 9609/32
1 hour 45 minutes
You must answer on the question paper.
You will need: Insert (enclosed)
INSTRUCTIONS
● Answer all questions.
● Use a black or dark blue pen.
● 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 an HB pencil for any diagrams, graphs or rough working.
INFORMATION
● The total mark for this paper is 60.
● The number of marks for each question or part question is shown in brackets [ ].
● The insert contains the case study.
DC (CE) 315428/1
2
Answer all questions.
1 Analyse how two legal changes planned by the new government will impact FWB.
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2 Analyse two benefits to FWB of delegating more decision-making to van managers.
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3 (a) Assume FWB increases spending on promotion by 20% and the promotional elasticity of
demand is 0.8. Calculate the percentage change in FWB’s revenue.
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(b) Refer to lines 30–32. Calculate the estimated price elasticity of demand if FWB increases the
price of coffee from $2.00 to $2.30.
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(c) Evaluate the usefulness of the concept of elasticity of demand to FWB when deciding on a
new marketing mix.
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4 (a) Refer to lines 47–49 and Table 1.1. Calculate the accounting rate of return (ARR).
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(b) Evaluate whether FWB should invest in enterprise resource planning (ERP).
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5 Evaluate the usefulness of FWB’s accounting ratio analysis to its directors when making business
decisions.
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© UCLES 2023 9609/32/F/M/23

BUSINESS 9609/32
MARK SCHEME
Maximum Mark: 60
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 International will not enter into discussions about these mark schemes.
Cambridge International is publishing the mark schemes for the February/March 2023 series for most
Cambridge IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level
components.
This document consists of 24 printed pages.

9609/32 Cambridge International AS & A Level – Mark Scheme February/March 2023
PUBLISHED
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.
© UCLES 2023 Page 2 of 24

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
Social Science-Specific Marking Principles
(for point-based marking)
1 Components using point-based marking:

• Point marking is often used to reward knowledge, understanding and application of skills. We give credit where the candidate’s answer
shows relevant knowledge, understanding and application of skills in answering the question. We do not give credit where the answer
shows confusion.
From this it follows that we:
a DO credit answers which are worded differently from the mark scheme if they clearly convey the same meaning (unless the mark
scheme requires a specific term)
b DO credit alternative answers/examples which are not written in the mark scheme if they are correct
c DO credit answers where candidates give more than one correct answer in one prompt/numbered/scaffolded space where extended
writing is required rather than list-type answers. For example, questions that require n reasons (e.g. State two reasons …).
d DO NOT credit answers simply for using a ‘key term’ unless that is all that is required. (Check for evidence it is understood and not used
wrongly.)
e DO NOT credit answers which are obviously self-contradicting or trying to cover all possibilities
f DO NOT give further credit for what is effectively repetition of a correct point already credited unless the language itself is being tested.
This applies equally to ‘mirror statements’ (i.e. polluted/not polluted).
g DO NOT require spellings to be correct, unless this is part of the test. However spellings of syllabus terms must allow for clear and
unambiguous separation from other syllabus terms with which they may be confused (e.g. Corrasion/Corrosion)
2 Presentation of mark scheme:

• Slashes (/) or the word ‘or’ separate alternative ways of making the same point.
• Semi colons (;) bullet points (•) or figures in brackets (1) separate different points.
• Content in the answer column in brackets is for examiner information/context to clarify the marking but is not required to earn the mark
(except Accounting syllabuses where they indicate negative numbers).

PUBLISHED
3 Calculation questions:
• The mark scheme will show the steps in the most likely correct method(s), the mark for each step, the correct answer(s) and the mark
for each answer
• If working/explanation is considered essential for full credit, this will be indicated in the question paper and in the mark scheme. In all
other instances, the correct answer to a calculation should be given full credit, even if no supporting working is shown.
• Where the candidate uses a valid method which is not covered by the mark scheme, award equivalent marks for reaching equivalent
stages.
• Where an answer makes use of a candidate’s own incorrect figure from previous working, the ‘own figure rule’ applies: full marks will be
given if a correct and complete method is used. Further guidance will be included in the mark scheme where necessary and any
exceptions to this general principle will be noted.
4 Annotation:
• For point marking, ticks can be used to indicate correct answers and crosses can be used to indicate wrong answers. There is no direct
relationship between ticks and marks. Ticks have no defined meaning for levels of response marking.
• For levels of response marking, the level awarded should be annotated on the script.
• Other annotations will be used by examiners as agreed during standardisation, and the meaning will be understood by all examiners
who marked that paper.

PUBLISHED
Guidance on using levels-based marking
Marking of work should be positive, rewarding achievement where possible, but clearly differentiating across the whole range of marks,
where appropriate.
The examiner should look at the work and then make a judgement about which level statement is the best fit. In practice, work does not always
match one level statement precisely so a judgement may need to be made between two or more level statements.
Once a best-fit level statement has been identified, use the following guidance to decide on a specific mark:
• If the candidate’s work convincingly meets the level statement, award the highest mark.
• If the candidate’s work adequately meets the level statement, award the most appropriate mark in the middle of the range.
• If the candidate’s work just meets the level statement, award the lowest mark.
• L1, L2 etc. must be clearly annotated on the response at the point where the level is achieved.
Assessment objectives
AO1 Knowledge and understanding

Demonstrate knowledge and understanding of business concepts, terms and theories.
AO2 Application
Apply knowledge and understanding of business concepts, terms and theories to problems and issues in a variety of familiar and unfamiliar
business situations and contexts.
AO3 Analysis
Analyse business problems, issues and situations by:
• using appropriate methods and techniques to make sense of qualitative and quantitative business information
• searching for causes, impact and consequences
• distinguishing between factual evidence and opinion or value judgement
• drawing valid inferences and making valid generalisations.
AO4 Evaluation
Evaluate evidence in order to make reasoned judgements, present substantiated conclusions and, where appropriate, make recommendations for
action and implementation.

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Question Answer Marks
1 Analyse how two legal changes planned by the new government will impact FWB. 8
Level AO1 Knowledge and AO2 Application AO3 Analysis

understanding 2 marks 4 marks
2 marks
2 3–4 marks
Developed analysis
• Developed analysis that identifies connections
between causes, impacts and/or consequences of
two points.
one point.
1 1–2 marks 1–2 marks 1–2 marks

• Knowledge of two • Application of two Limited analysis
relevant points is relevant points to a • Limited analysis that identifies connections
used to answer the business context. between causes, impacts and/or consequences of
question. • Application of one two points.
• Knowledge of one relevant point to a • Limited analysis that identifies connections
relevant point is business context. between causes, impacts and/or consequences of
used to answer the one point.
question.
0 0 marks 0 marks 0 marks

No creditable response. No creditable response. No creditable response.
Note:
• If more than two changes are referred to, reward the best two.
• Accept any legal change that relates to the case context.
All annotation ( ) should be in the left margin.

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1 Responses may include:

Definition of the legal environment (max K1) might include:
• The legal environment acts as both a constraint and an enabler for FWB’s activities.
• Legal environment is the set of rules set by government that regulates business activity.
Knowledge of impact of legal changes might include (max K2):

• Increased running costs
• Increased capital costs
• Greater difficulty in dismissing employees
• Restrictions on recruitment processes
• Changes to employment practices
• Changes to operations
• Controls on marketing
• Changes to product
• Changes to health and safety
AO2 Application
Limited application, applies knowledge to FWB once.
Developed application, + applies knowledge to FWB twice.
Max one for application for the first legal change and max one for application for the second legal change.
• Minimum wage paid is currently paid to employees. This could increase.

• Extensive training in health and safety and food hygiene already provided – review to ensure meets new standards.
• Government plans regarding plastic waste – impact on food and drink packaging.
• Zero hours contracts used by FWB could be banned.

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1 AO3 Analysis
Limited analysis – candidate shows one link in the chain of analysis.
Developed analysis – candidate shows two or more links in the chain of analysis OR offers a two-sided analysis
• increased costs - an increase in the minimum wage increases labour costs may reduce profit margins resulting in
reduced profit
• greater difficulty in dismissing employees - legal rights of employees may constrain the decision making of managers
making it more difficult to remove unproductive employees thus reducing the efficiency of FWB and
increasing costs
• changes to product - reducing plastic waste may mean FWB need to change product that drinks are served in and
therefore an increase in costs which may require FWB to increase in food prices
• changes to operations - controls on CO2 emissions may increase costs as FWB may need to invest in new vans
• changes to employment practices - increased training will increase costs of FWB and reduce profit but could
increase employee motivation and increase productivity (two-sided analysis)
• changes to employment practices - further training can improve the quality of employees and make FWB more efficient
. Improves customer service and avoids complaints from customers resulting in increased sales .
Accept all valid responses.

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2 Analyse two benefits to FWB of delegating more decision-making to van managers. 8

2 marks
2 3–4 marks
Developed analysis
two points.
one point.

relevant points is relevant points to a • Limited analysis that identifies connections
used to answer the business context. between causes, impacts and/or consequences of
relevant point is business context. between causes, impacts and/or consequences of
used to answer the one point.
question.

Note:
• Only reward benefits to FWB.
• If more than two benefits are referred to, reward the best two.

PUBLISHED

Definition of delegation (max K1) might include:
• Delegation is passing down of authority to perform tasks/take decisions.
Knowledge of benefits might include (max K2):

• Delegation can improve motivation of managers.
• Decision making may be more responsive to local needs.
• Lower labour turnover.
• Reduce recruitment costs.
• Better marketing decisions.
• Quicker local decision making.
AO2 Application
Max one for application to the first benefit of delegation and max one for application to the second benefit of
delegation.
• Good managers have left FWB.

• Distinct demographic and cultural differences in regions.
• Different economic conditions in regions.
• Managers have no decision-making power over marketing.
AO3 Analysis
Developed analysis – candidate shows two or more links in the chain of analysis.
• Delegation may motivate employees and result in an increase in productivity or work effort reducing unit costs
and therefore increase profit.
• Motivated employees may provide improved customer service which will increase sales and therefore profit.

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2 • Decision making at a local level may make FWB more responsive to local customer needs thus increasing customer
satisfaction and increasing sales
• Fulfilling manager demands will help retain managers and therefore reduce recruitment costs .
• Replacing experienced managers who leave due to dissatisfaction may be difficult .
3(a) Assume FWB increases spending on promotion by 20% and the promotional elasticity of demand is 0.8. Calculate 1
the percentage change in FWB’s revenue.
Indicative content
0.8  20 = 16% (1)
Award one mark for 16
3(b) Refer to lines 30-32. Calculate the estimated price elasticity of demand if FWB increases the price of coffee from 3
$2.00 to $2.30.
Responses may include:
PED = Percentage change in Qd / Percentage change in price (1 if no relevant calculation)

Percentage change in Qd = -10 / 180  100 = -5.56% (1)
Percentage change in price = 0.3 / 2.00  100 = 15% (1)
PED = -5.56 / 15 = -0.37 OR -0.4 (3) -
Award 2 marks for 0.37 OR 0.4
OFR

PUBLISHED
3(c) Evaluate the usefulness of the concept of elasticity of demand to FWB when deciding on a new marketing mix. 12
Level AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation

and understanding 2 marks 2 marks 6 marks
2 marks
3 5–6 marks
Developed evaluation in context
• A developed judgement/conclusion
is made in the business context.
• Developed evaluative comments
which balance some key
arguments in the business context.
2 2 marks 2 marks 2 marks 3–4 marks

Developed Developed Developed Developed evaluation
knowledge of application of analysis • A developed judgement/conclusion
relevant key term(s) relevant point(s) to that identifies is made.
and/or factor(s) is the business connections • Developed evaluative comments
used to answer the context. between causes, which balance some key
question. impacts and/or arguments.
consequences.
1 1 mark 1 mark 1 mark 1–2 marks

Limited knowledge Limited application Limited analysis Limited evaluation
of relevant key of relevant point(s) that identifies • A judgement/conclusion is made
term(s) and/or to the business connections with limited supporting
factor(s) is used to context. between causes, comment/evidence.
answer the question. impacts and/or • An attempt is made to balance the
consequences. arguments.
0 0 marks 0 marks 0 marks 0 marks

No creditable No creditable No creditable No creditable response.
response. response. response.

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3(c) Responses may include:

Limited knowledge will be demonstrated through knowledge of the concept of elasticity of demand or knowledge of the
marketing mix.
Developed knowledge + will be demonstrated through knowledge of the concept of elasticity of demand and
knowledge of the marketing mix.
Knowledge of elasticity of demand

• Understanding of different elasticity concepts:
– promotional elasticity measures responsiveness of demand to changes in promotional spending
– price elasticity measures responsiveness of demand to a change in price
– cross price elasticity measures the responsiveness of demand to a change in price of another product
– income elasticity measures the responsiveness of demand to a change in income.
• Understanding of inelastic – not responsive and elastic – responsive to change in price / promotion / income.
Knowledge of marketing mix

• Marketing mix is part of marketing strategy to achieve marketing objectives within a budget.
• Marketing mix consists of price, place, promotion and product
AO2 Application
• Estimated PED is –0.37. This is price inelastic. 15% increase in price will result in 5.6% decrease in Qd
• OFR. For example if –2.7 then price elastic.
• Daily revenue from coffee sales per van would change from $360 (180  2) to $391 (170  2.3). An increase of 8.6%.
• Estimated promotional elasticity of demand is 0.8. Demand is promotion inelastic i.e. not responsive.
• 20% increase in spending (an extra $40 000) would in theory result in increase in revenue of 16% (0.16  40.5m =
$6.48m).
• Objective to increase revenue by 15%
• Levels of income and unemployment vary. This will impact elasticity measures.
• Variety of customers.

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3(c) AO3 Analysis

• Knowledge of PED is useful to FWB making decisions about pricing. For example, low PED would indicate that an
increase in price would increase revenue and therefore increase profit .
• Increasing price will reduce quantity of coffee demanded and therefore may reduce sales of complementary products
such as snacks therefore decreasing revenue overall .
• Increase in price of coffee may result in customers purchasing drinks elsewhere which will reduce FWB’s market share
AO4 Evaluation
Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment.
Developed evaluation – supported judgement and/or reasonable evaluative comment.
Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in
context.
• In marketing plan, FWB will also consider other factors e.g. changing snacks, improvements to quality of food. These
changes to the marketing mix can increase sales and impact profit.
• A judgement about the usefulness of elasticity to marketing mix decisions.
• A judgement about the most important factor influencing marketing mix decisions.
• A judgement about the limitations of elasticity calculations.
– Measurement of elasticity is difficult and likely to be inaccurate due to large range of factors that will affect
outcomes, particularly competitor decisions. Other things don’t remain equal in markets.
• Factors that the judgement could depend on including:
– The degree of competitive rivalry in the market
– Other elements of marketing plan are important e.g. integrated marketing mix to ensure consistency in message
communicated to potential customers and therefore attract sales.

PUBLISHED
4(a) Refer to lines 47-49 and Table 1.1. Calculate the accounting rate of return (ARR). 4
Notes Answer Mark
Correct answer 50 000 / 325 000  100 = 15.38% OR 15.4% OR 4

15%
Calculation of average profit and average $50 000 and $325 000 3
investment
Divided average profit by capital cost 50 000 / 650 000  100 = 7.69%
Capital cost not subtracted 180 000 / 325 000  100 = 55.38%
Divided profit by average investment 250 000 / 325 000  100 = 76.92%
Calculation of average profit 250 000 / 5 = $50 000 2

Calculation of profit and average investment $250 000 and $325 000
Annual cost savings / capital cost 180 000 / 650 000  100 = 27.7%
Profit / capital cost 250 000 / 650 000  100 = 38.46%
Calculation of profit 900 000 – 650 000 = $250 000 1

OR OR
Calculation of average investment 650 000 / 2 = $325 000
OR OR
Equation for ARR ARR = Annual profit / Average investment  100
Notes:
Award four marks for 15.38 OR 15.4 OR 15
$ sign not needed in answers.
000s not needed (as header in table is 000s)

PUBLISHED
4(b) Evaluate whether FWB should invest in enterprise resource planning (ERP). 12

2 marks
3 5–6 marks

consequences.



PUBLISHED
4(b) Responses may include:

Limited knowledge will be demonstrated through knowledge of a factor in investment decision or knowledge of ERP /
ERP impacts.
Developed knowledge + + will be demonstrated through knowledge of a factor in the investment decision and
knowledge of ERP / ERP impacts or knowledge of ERP and ERP impacts.
Knowledge of ERP and its impacts:

Definition of ERP: the use of a computer application to plan the purchase and use of resources in an organisation to
improve efficiency. Part of supply chain management.
• Helps with inventory control.
• Reduces costs of operations.
• Links information between departments.
• Choosing best suppliers and most cost-effective suppliers and supporting JIT manufacturing.
• Allocating jobs to appropriate production employees.
Knowledge of other factors in decision

• Cost.
• Availability of finance.
• Impact on employees.
• ARR and Payback results.
AO2 Application
• Payback of 3 years and 9 months – within 5 years before replacement.

• Return of $250 000 over 5-year period.
• ARR of 15.38% above ROCE for the business (4.2%).
• Profit of $2.1465m last year (40.5m  5.3%)
• Gearing is 45% – quite high.
• Cost of ERP $650 000

PUBLISHED
4(b) • Data is supplied by the ERP company.

• Coordination of multiple suppliers.
• Reducing waste of discarded food and coffee beans.
• FWB has had problem of stock-outs.
• Coffee beans are perishable
AO3 Analysis
• ERP is costly and the relatively high gearing of FWB increases risk of further borrowing causing cash flow
problems for FWB if increased net cost savings take time to be realised.
• Employee training to deal with computer systems will result in increased cost (but should be included in the net
cost savings data).
• ERP provides more effective sharing of information between departments which can lead to a more integrated
approach which may increase efficiency and therefore increase profits .
• Introducing ERP may cause disruption to operations in the short-term reducing output whilst it is installed
• ERP will help FWB fulfil customer orders more quickly resulting in customer satisfaction and therefore an increase
in sales
• ERP may result in a reduction in the number of employees engaged in stock control which will reduce operating costs
but this will also result in redundancy payments being made
AO4 Evaluation
Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment
Developed evaluation – supported judgement and/or reasonable evaluative comment
context.
• A judgement about whether to invest in ERP.
• Elements that the evaluation/judgement might depend on:
– Cost savings are estimates made by the ERP specialist. Can these figures be trusted as specialist will wish to sell
to FWB?
– If ERP is used to reduce inventory holding costs, then success greatly depends on the reliability of suppliers of
coffee beans to deliver on time.

PUBLISHED
4(b) • Other factors to consider e.g.

– NPV as this considers time value of money.
– Depends on availability of finance linked to relatively high gearing and interest rate.
– How long will it take to implement the ERP system?
– Will specialist IT employees be required and how expensive is that?
– Opportunity cost of this project. Legal changes planned by the government may require significant capital
investment if FWB has to replace its vans.
• Weighing up of the factors and their relative influence on FWB’s decision whether to invest in ERP

PUBLISHED
5 Evaluate the usefulness of FWB’s accounting ratio analysis to its directors when making business decisions. 12

2 marks
3 5–6 marks

consequences.



PUBLISHED

Limited knowledge will be demonstrated through knowledge of accounting ratio analysis.
Developed knowledge + + will be demonstrated through knowledge of accounting ratio analysis and knowledge of
link to decisions.
Knowledge of ratio analysis and what different ratios show:

• Ratios used to assess business performance / efficiency /liquidity / shareholder.
• Gearing – dependence on debt finance.
• Inventory turnover – measure of financial efficiency. Higher the number the more efficient the business.
• Liquidity ratios – ability to meet short term debt.
• Profitability ratios – ability to generate profit from sales/assets.
Knowledge of links to decision making

• Help with decisions regarding budgets/shareholder dividends/ borrowing.
• Gearing – dependence on debt finance and decisions about source of long-term finance
• Inventory turnover – measure of financial efficiency and decisions about stock.
• Liquidity ratios – ability to meet short term debt and decisions about short term finance.
• Profitability ratios – ability to generate profit from sales/assets and decisions about pricing and controlling costs.
AO2 Application
• Need for finance for investment in ERP will impact gearing.

• Gearing is not high though it is close to 50%.
• Gearing has increased by 10% points in past year.
• ROCE has decreased by 0.7% points.
• Trade payables turnover has increased by 5 days.
• Expansion to international markets will require finance.
• Appropriate interpretation of ratios in Table 2
– current ratio shows FWB has sufficient short-term assets to cover short term debt
– profit margin of 5.3%. $5 profit for every $100 of revenue. Suggests FWB made $2.1465m profit last year
– inventory turnover of 12 indicates that FWB holds inventory for 30.4 days. Could link to ERP investment.
– trade payables turnover in days of 34.2 good for cashflow as likely to be much higher than trade receivables.
PUBLISHED
5 AO3 Analysis
• Gearing helps make decisions about finance. High gearing indicates increased level of risk to FWB of being unable to
service debt interest and therefore influencing decision of whether to take on debt finance or equity finance for
expansion.
• Gearing will impact decisions about how to finance investment, such as in ERP, and can be used to support
application for finance as FWB has gearing below 50% so managers may consider further borrowing to be relatively
low risk .
• Inventory turnover has decreased. This is useful to managers as it indicate that there is a risk of a deterioration in
FWB’s product quality. Therefore, managers might introduce JIT stock control to rectify the problem and improve
customer satisfaction.
• Profitability ratios can highlight where managers need to act; as profitability is decreasing, managers may focus on
decisions to control costs in order to increase returns and therefore improve business performance and satisfy
shareholders .
• Quantitative nature of ratio analysis will make decisions more objective and increase the quality of decision making
which will help improve FWB’s performance .
• Data may make managers more cautious about undertaking future investment given the relatively high gearing.
AO4 Evaluation
Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment
Developed evaluation – supported judgement and/or reasonable evaluative comment
context.
• The data in Table 1.2 suggests a decline in performance on most ratio measures and therefore provides warning sign
to managers that they need to find out what is behind the trends and therefore what decisions need to be made for
2024 and beyond.
• One ratio by itself is not very useful – current ratio not sufficient by itself, managers need to see acid test.
• Which ratio is most significant and therefore which is most important to improve.

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5 • Inter-firm comparisons may be necessary to make judgements about performance of FWB.

• Only a quantitative technique. Managers increasingly consider qualitative factors when making decisions.
• Ratios alone do not necessarily indicate the true cause of business problems.
• Decisions also depend on other factors e.g. external environment – forecast increase interest rates will impact decision
to increase borrowing.
• Ratio analysis may not be useful as there may be disagreement about interpretation of ratios / competition for
resources/ bias in departmental perspective / window dressing.
• Too much emphasis may be placed on ratios at expense of more qualitative factors.

BUSINESS 9609/31
Paper 3 Business Decision‑Making October/November 2023
INFORMATION
*5341825338-I*

insert.
DC (EF/CT) 312530/1
2
ColorPaints (CP)
ColorPaints is a public limited company set up in 2001 in country Q to manufacture paint. The
paint is only sold using CP’s brand name. Since 2013, CP has extended its product portfolio and
now has paints for internal use, paints for external use and specialist products for the aircraft
industry. CP has three factories, a research and development (R&D) centre and its head office,
all located in country Q. 5
Organisational structure
CP is organised into functional departments: Marketing, Finance, Operations, Human Resources,

and Administration. Centralised decision‑making and communication difficulties between
departments have led to rising costs and customer dissatisfaction. Production techniques,
product development and marketing strategies are very different for each of the three product 10
ranges. Competition is increasing as competitors develop new products and distribution channels
which are increasingly innovative. The directors are considering changing to a product‑based
organisational structure.
Technological change
CP’s R&D centre is using new technologies to develop two new paints with brighter colours and 15
a longer life. These are a plastic‑based paint and a paint that uses nanotechnology (very small
chemical particles). The particles enable the paint to be scratch‑resistant and less likely to fade.
Initially, producing and marketing the new paints will involve high costs. CP is currently a leader
in these technologies, but universities are also researching them. Competitors are therefore likely
to be using these technologies soon. 20
A new production line
The factory that produces paint for external use is being updated with a new production line.
CP has chosen a contractor to supply and install the production line based on the lowest price
quoted. One of CP’s objectives is to minimise interruption to production to enable continuous
supply to retailers. The contractor produced a network diagram to help CP achieve its objective. 25
The contract to install the new production line has been agreed on the basis that the information
in Table 1.1 and Fig. 1.1 is accurate and reliable.
Table 1.1 Information for new production line
Activity Description Duration

(weeks) 30
A Design new production line components 4
B Remove old production line 1
C Manufacture components 5
D Prepare installation diagrams 1
E Deliver components 1 35
F Install new production line 2
G Test new production line 1
© UCLES 2023 9609/31/INSERT/O/N/23

3
B
1
A C E F G
1 2 3 4 5 6
4 5 1 2 1
D
1
Fig. 1.1 Network diagram for new production line
Financial position
The CEO’s statement in CP’s annual report for the year ending 30 September 2023 is very 40
optimistic. It includes:
• a detailed analysis of CP’s markets
• the positive impact of planned activities on CP’s finance and employees
• technological advances in products and production equipment.
Some major shareholders doubt the CEO’s optimism. They are considering selling shares as they 45
are concerned that continuing to hold CP shares may not meet their objectives. For example,
many shareholders are focusing on CP’s latest accounts which appear in the annual report.
Table 1.2 shows extracts from CP’s latest accounts which include forecast financial data for the
year ending September 2024.
Table 1.2: Extract of accounting data from CP’s 2023 annual report 50
Forecast Year ended

year ended 30 September 2023
30 September 2024
Revenue $92m $90m
Profit from operations $0.24m $0.42m 55
Profit for the year $0.2m $1.0m
Earnings per share $0.15 $0.35
Return on capital employed (ROCE) 0.43% 1%
Gearing ratio 53.7% 33.3%
Annual dividend $0.05m $0.2m 60
Entering an international market
Asif, the Marketing Director, is considering whether CP should enter the market in country D.
CP’s products are currently promoted as good quality and value for money. CP has a strong
brand image and its paints are priced higher than the industry average. Asif thinks that CP can
sell its products in country D using its existing marketing strategy, despite the different culture 65
and market conditions. Asif has identified two methods CP could use to enter the market in
country D: exporting directly to country D’s retailers or setting up a joint venture with a wholesaler
in country D. CP has limited financial resources and would not choose a high‑risk entry strategy.
© UCLES 2023 9609/31/INSERT/O/N/23

4
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To avoid the issue of disclosure of answer‑related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
© UCLES 2023 9609/31/INSERT/O/N/23

* 5 3 4 1 8 2 5 3 3 8 *
BUSINESS 9609/31
Paper 3 Business Decision‑Making October/November 2023
1 hour 45 minutes
INSTRUCTIONS
INFORMATION
DC (EF) 312529/1
2
Answer all questions
1 Analyse two advantages to CP of changing to a product‑based organisational structure.
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2 Analyse two ways technological change might impact on CP’s decision to develop nanopaints.
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3 Refer to Table 1.1 and Fig. 1.1.
(a) Calculate the minimum project duration.
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(b) Calculate the total float for activity D.
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(c) Evaluate whether critical path analysis (CPA) will ensure CP achieves its objective of
minimising interruption to production.
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4 (a) Using the data in Table 1.2, calculate the forecast dividend cover ratio for 2024.
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(b) Evaluate the usefulness of the annual report to CP’s shareholders in deciding whether to sell
their shares.
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5 Evaluate which method CP should use to enter the market in country D.
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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
To avoid the issue of disclosure of answer‑related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
© UCLES 2023 9609/31/O/N/23

BUSINESS 9609/31
Paper 3 Case Study October/November 2023
MARK SCHEME
Maximum Mark: 100
Published
Teachers.
Cambridge International is publishing the mark schemes for the October/November 2023 series for most
Cambridge IGCSE, Cambridge International A and AS Level components, and some Cambridge O Level
components.

9609/31 Cambridge International AS & A Level – Mark Scheme October/November 2023
PUBLISHED
marking principles.
• 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
descriptors.

PUBLISHED

PUBLISHED

shows confusion.
wrongly.)


PUBLISHED
for each answer
stages.
4 Annotation:

PUBLISHED
Marking of work should be positive, rewarding achievement where possible, but clearly differentiating across the whole range of marks, where
appropriate.

AO2 Application
AO3 Analysis
AO4 Evaluation

PUBLISHED
Important
Please read the generic marking guidance and the subject specific marking guidance before marking.
1 Analyse two advantages to CP of changing to a product–based organisational structure. 8
Level AO1 Knowledge and understanding AO2 Application AO3 Analysis

2 marks 2 marks 4 marks
2 3–4 marks
Developed analysis
• Developed analysis that identifies
connections between causes,
impacts and/or consequences of
two points.
one point.

• Knowledge of two relevant points • Application of two relevant points Limited analysis
is used to answer the question. to a business context. • Limited analysis that identifies
• Knowledge of one relevant point • Application of one relevant point connections between causes,
is used to answer the question. to a business context. impacts and/or consequences of
two points
• Limited analysis that identifies
one point.


PUBLISHED
1 Note:
• Only reward advantages
• If more than two advantages are referred to, reward the best two.
Indicative content

Limited knowledge will be demonstrated through knowledge of the concept of a product-based organisational structure or a
functionally based organisational structure or knowledge of possible impacts of changing to a product-based organisational
structure.
Developed knowledge + will be demonstrated through knowledge of the concept of a product-based organisational structure
and knowledge of possible impacts of changing to a product-based organisational structure.
• Definition or explanation of product-based organisational structure – one where people in the company are divided according
to which product line they work on.
• Definition or explanation of functionally based organisational structure – one where people in the company are divided
according to their job role, such as marketing or finance.
Possible advantages include:

• Employees in each product area are specialised in that product.
• Increased focus on each product and the market it sells in.
• Costs and revenues can be allocated more accurately to each product.
• Communication between departments will be more direct.
• Coordination between functions for each product is easier and quicker.
• Focus will be on products and their marketing.
• Competition for resources between functions will be less. Efficiency increases.
• Quicker reaction time to market changes.
• Quicker decision making as focus on particular product, rather than having to wait for input from other departments.

PUBLISHED
1 AO2 Application
Limited application, applies knowledge to CP once.
Developed application, + applies knowledge to CP twice.
Max one for application for the first advantage of a product-based organisational structure and max one for application for
the second advantage of a product-based organisational structure.
• CP produces paint for three markets – internal and external paints, aircraft industry.
• Production, development and marketing for each of these are different.
• Increasing competition and innovative distribution channels in the markets.
• Currently organised by function: five departments.
• Research centre for R&D into improving qualities of paints such as durability.
• Rising costs, customer dissatisfaction because of centralisation and poor communication.
AO3 Analysis
Developed analysis – candidate shows two or more links in the chain of analysis OR offers a two-sided analysis.
• Development of knowledge and application points, in terms of the likely advantages to CP, such as improved focus on
customer needs in each of the paint markets, leading to increased sales revenue, and potentially profit due to increased
efficiency.
• Easier and less costly to implement and focus marketing strategies for each paint product, leading to more effective strategies.
• Specialisation and focus on product mean closer to market so quicker to react to changes , potentially leading to first mover
advantage and higher market share.
• Accurate allocation of costs and revenues means loss makers and profitable paints can be identified clearly and quickly,
leading to more efficient portfolio management and lower costs as weak performing products may be discontinued
• Research centre projects can be more closely linked to the different market requirements, leading to meeting customer needs
, higher sales and increased revenue and profit.
• Functions integrated with products so more efficient production and marketing – lower costs.

PUBLISHED
2 Analyse two ways technological change might impact on CP’s decision to develop nanopaints. 8
Level AO1 Knowledge and understanding AO2 Application AO3 Analysis

2 3–4 marks
Developed analysis
two points.
one point.

• Knowledge of two relevant points • Application of two relevant points Limited analysis
is used to answer the question. to a business context. • Limited analysis that identifies
• Knowledge of one relevant point • Application of one relevant point connections between causes,
is used to answer the question. to a business context. impacts and/or consequences of
two points.
• Limited analysis that identifies
one point.


PUBLISHED
2 Note:
• Impacts can be positive or negative.
• If more than two impacts are referred to, reward the best two.
Indicative content

Limited knowledge will be demonstrated through knowledge of the concept of technological change or knowledge of possible
impacts of technological change.
Developed knowledge + will be demonstrated through knowledge of the concept of technological change and knowledge of
possible impacts of technological change.
Definition or explanation of technological change – in product design, production techniques or marketing, such as data collection,
use of IT/AI.
Possible impacts include:

• New product designs lead to company being known as an innovator.
• New processes may lead to greater efficiency in all areas of production and operations, including methods of distribution.
• Innovative marketing methods may lead to more effective customer relationship marketing (CRM).
• R&D into innovation and introduction of new technology is expensive.
• Firms who do not innovate are in danger of being forced out of the market.
AO2 Application
Max one for application for the first impact of technological change and max one for application for the second impact of
technological change.
• CP has a research and development centre.

• Recent history of new technology-based products – external paint, specialist paints, plastic/nanopaints.
• Production of new paints will be costly, due to innovative materials and processes.
• CP a leader in nanopaints and plastic paints.
• Competitors currently not producing these new paints but will do in future.
• Technology gives the new paints a USP.
• CP creates technological change by research – the nanopaint is a technological change.

PUBLISHED
2 AO3 Analysis
Developed analysis – candidate shows two or more links in the chain of analysis OR offers a two–sided analysis.
• Development of knowledge and application points explaining the potential influences of technological change on CP.
• Paint industry has a history of new technological based products so important to keep producing these, to maintain market
position.
• Keeping up with technological change will lead to innovative products, which will lead to higher sales and be an important
factor in market success . However, may lead to more competition if competitors develop innovative products first,
decreasing sales and market share.
• Research centre has produced new ideas so important to maintain confidence in research, in order to move the business
forward and expand the paint range, leading to increased sales, market share and profit.
• Universities engage in research so market requires change and new products to avoid a company being left behind, but
cost of new production line technology may make it uneconomic to go ahead even if the paint technology is good.
• The USP is likely to bring first mover advantage and commercial success.

PUBLISHED
3(a) Refer to Table 1.1 and Fig. 1.1. Calculate the minimum project duration. 1
CP = 13 (weeks) (1)
3(b) Refer to Table 1.1 and Fig. 1.1. Calculate the total float for activity D. 3
Total float activity is time an activity can be delayed without delaying overall project duration.
LFT – duration – EST (1)
10 – 1 – 4 (2)
Total Float = 5 (weeks) (3)

PUBLISHED
3(c) Evaluate whether critical path analysis (CPA) will ensure CP achieves its objective of minimising interruption to 12
production.
Level AO1 Knowledge and AO2 Application AO3 Analysis AO4 Evaluation
understanding 2 marks 2 marks 6 marks
2 marks
3 5–6 marks
which balance some key arguments
in the business context.

Developed knowledge Developed application Developed analysis Developed evaluation
of relevant key term(s) of relevant point(s) to that identifies • A developed judgement/conclusion
and/or factor(s) is used the business context. connections between is made.
to answer the question. causes, impacts and/or • Developed evaluative comments
consequences. which balance some key arguments.

of relevant key term(s) of relevant point(s) to that identifies • A judgement/conclusion is made
and/or factor(s) is used the business context. connections between with limited supporting
to answer the question. causes, impacts and/or comment/evidence.
consequences. • An attempt is made to balance the
arguments.

No creditable response. No creditable response. No creditable response. No creditable response.

PUBLISHED
3(c) Indicative content


Limited knowledge will be demonstrated through knowledge of critical path analysis (CPA) or benefits of CPA
Developed knowledge + + will be demonstrated through knowledge of critical path analysis (CPA) and benefits/limitations of
CPA
• Understanding of CPA – network diagram, critical path, floats, minimum duration.

• Benefits of CPA: knowing minimum project time, start times for activities, progress monitoring, assessing significance of delays
and if necessary, corrective actions.
• Limitations of CPA: analysis only as good as input data, planning costs, does not ensure effective management.
AO2 Application
• Importance of continuous supply to retailers.

• Contractor produced CPA.
• Contract based on accuracy and reliability of CPA.

PUBLISHED
3(c) AO3 Analysis

• Development of knowledge and application points about usefulness of CPA to CP.

• CPA is quantitative as it allocates timings to activities, so can help with planning and monitoring to ensure project does not
over-run.
• Contractor may have produced CPA and contract terms in order to get the contract. This may mean contract takes longer ,
which will lead to delays and dissatisfied customers.
• CPA enables CP to determine non-production time and prepare, by building up inventory, before work starts. This will enable
sales to proceed as normal and avoid potential of unmet orders and decreased sales and profit.
• Enables monitoring critical activities, such as E (delivery of components) and allows CP to take action if a delay is threatened
to ensure project is completed on time , minimising production interruptions.
AO4 Evaluation
Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context.
• Either conclusion is valid, as long as it is justified.

• CP has contract provision that CPA for the external use paint production line is accurate and reliable so more likely that it is, as
the contractor will not want to pay penalty fees.
• CP experienced in paint production, rather than production line installation, so not likely to know accuracy of CPA.
• An accurate CPA will be very important for enabling continuous supply of external paints, so customers are not disappointed.
• CPA only as good as data and the skills of the person who prepared it. Some question about its accuracy so CP wise not to
rely solely on its results, especially as the price is low and the contractor produced it.
• Other information is also important, such as staff training. The CPA does not allow for this.
• Work progress has to match the CPA plan, so CP would be wise to maintain constant check on progress before and after work
starts.

PUBLISHED
4(a) Using the data in Table 1.2, calculate the forecast dividend cover ratio for 2024. 4
Answer Note Marks
DC = 4 (times) Correct answer 4
DC = 5 (times) DC for 2023 3

DC = $4 or 4% Incorrect units
DC = 0.24 / 0.05 = 4.8 Incorrect figure for
profit used
0.2 / 0.05 Knowledge of correct 2

equation & correct
numbers
Profit for the year / Knowledge of correct 1

Annual dividend equation

PUBLISHED
4(b) Evaluate the usefulness of the annual report to CP’s shareholders in deciding whether to sell their shares. 12
2 marks
3 5–6 marks


arguments.


PUBLISHED
4(b) Indicative content


Limited knowledge will be demonstrated through knowledge of the role of shareholders or annual reports or why shareholders
may sell or keep shares.
Developed knowledge + + will be demonstrated through knowledge of the role of shareholders and why shareholders may
sell or keep shares.
• Explanation of contents and purpose of annual report – legal requirement, sets out company objectives, policies, plans,
contains annual accounts and details regarding directors.
• Content of income statement.
• Content of statement of financial position.
• Possible meaning and implications of these two statements.
• Understanding of shareholders’ role and possible purposes of holding shares – capital gain or dividend income.
AO2 Application
Max one for application for the first usefulness of the annual report to shareholders and max one for application for the
second usefulness of the annual report to shareholders.
• CP is a paint manufacturing plc.

• Nanopaints and finance needed, new production line and its cost.
• Static market share and increasing competition in country Q.
• Possible international marketing.
• Use made of information in Table 1.2 including any calculations undertaken.
Calculations might include for 2024 and 2023:
• Operating profit margins: 0.47% in 2023 and 0.26% forecast for 2024
• ROCE is forecast to decrease by 0.57% points
• Forecast decrease in operating profit of $0.18m
• Forecast decrease in profit for the year of $0.8m (80%)
• Forecast decrease in dividends payable of $0.15m (75%)
• Increase in gearing ratio

PUBLISHED
4(b) AO3 Analysis

• Development of knowledge and application points in terms of the impact of the annual report on shareholders decision to keep
or sell shares.
• Optimistic written section of annual report will encourage shareholders to keep shares, hoping for higher returns in the future to
make their investment worthwhile.
• CP seems a company with a good future, investing in new products, new production line, considering expansion
internationally, so this should lead to higher future sales revenue and profits, leading to higher dividends.
• Forecasted financial information is not optimistic, which may encourage ‘short termist’ shareholders to sell shares, due to low
expected returns. This could drive down the market value of CP.
• Analysis of accounting data for two years linked to shareholder decision and if impact on shareholders is developed.
AO4 Evaluation
• Shareholders hold shares for different reasons: capital gain, income, interest in the company, commitment as owners. Reason
will be a factor in decision.
• More information needed to finalise a decision including share price (difficult to forecast), and previous years information to
see any trends.
• Objectives of shareholders vital component in decision to sell or not – short-term income seekers more likely to sell, capital
seekers less likely as costs in the next year are likely to generate future revenues, committed owners, maybe founders, less
likely to sell unless want to realise financial gain.
• Very important factor is timescale – short term sees a deteriorating financial position due to investment that will generate
longer term improved figures.
• Key factor is how shareholders perceive the accuracy of the forecast information.
• Longer term forecasts would be extremely useful in making the decision.
• Are shareholders capable of interpreting the report information accurately?

PUBLISHED
5 Evaluate which method CP should use to enter the market in country D. 12
2 marks
3 5–6 marks


arguments.


PUBLISHED
5 Indicative content

Limited knowledge will be demonstrated through knowledge of international expansion methods, such as joint ventures or direct
investment or advantages and disadvantages of methods.
Developed knowledge + + will be demonstrated through knowledge of international expansion methods, such as joint
ventures or direct investment and advantages and disadvantages of methods.
• Understanding of methods of entry.

• Exporting directly to retailers – promoting and distributing products to retailers who take responsibility for the marketing.
• Joint venture – alliance with another business, two companies agree to act as one for a particular project.
Direct exporting advantages:

• Quick to set up and discontinue.
• Little investment needed.
• Low initial cost, retailer bears risk.
• Retailer uses local knowledge of markets and promotion methods.
• CP retains control over marketing.
Direct exporting disadvantages:
• May face trade barriers.
• Transport costs.
• CP relies on retailer to implement desired marketing strategy.
• Retailers may prioritise sale of other companies’ products.
• CP may have cash flow and credit risks.
• CP unlikely to gain market information.
Joint venture advantages:
• Shared risk.
• Shared cost of investment.
• Access to local market knowledge, distribution arrangements.
• More control over marketing.

PUBLISHED
5 Joint venture disadvantages:

• Higher costs, especially management and communication, and slower, more expensive to set up.
• Possible conflicts over contractual arrangements and possibility that partner may become a competitor.
• Loss of control as shared venture.
• Reliance on another business.
AO2 Application
• Nature of CP’s paint products – good quality, value for money, strong brand name, priced above similar brands.
• Not supplied for own brand products.
• Identified market gap is for CP’s existing products.
• Joint venture with wholesaler versus direct exporting to retailers.
• Different countries may have different cultures in terms of domestic use of paints inside and outside of homes, maybe due to
style of houses or weather.
AO3 Analysis
Developed analysis – candidate shows two or more links in the chain of analysis or offers a two–sided analysis
• Development of knowledge and application points in terms of the advantages and disadvantages of the two stated methods.
• Direct exporting may be less costly and more flexible as it can be set up quickly and the retailer takes the risk. However,
there is no guarantee that retailers will give CP paints a high profile, so sales may not increase very fast.
• A joint venture allows CP to share the risk and gain expertise of a local company, this could increase sales. However, there
may be some loss of control to the joint venture partner and if the company is a competitor, sales may not increase as fast as
expected.

PUBLISHED
5 AO4 Evaluation
• Other options exist and could be researched: use of an agent, direct investment in a paints factory, etc. Is CP sure that the two
put forward are the only realistic options?
• These options rely on accurate and reliable choice of paint retailer or wholesaler.
• Direct exporting may be suitable for CP as there are cost advantages for home paint production, assuming low trade barriers.
• Joint ventures may be suitable if the partner has good local knowledge and contacts. In the case of CP this may be very
important in the specialist paints for the aircraft industry.
• Difficult to decide on these factors alone.
• Time scale and finance are important factors. Direct exporting is much quicker and cheaper to set up than a joint venture. CP
have limited finance, so direct exporting may be the only possible option.
• Important to clarify objectives before deciding.
• More information needed regarding market in country D – e.g. the market research carried out, quantitative data on forecast
costs of the options, revenues and finding suitable partners.
• Need to know the policy of the government in country D on foreign firms and any relevant laws or regulations covering trade,
international marketing or paint products.
• A justified conclusion and/or recommendation e.g. recommendation of one option, or that both options are suitable, final choice
depends on other factors above.

BUSINESS 9609/32
MARK SCHEME
Maximum Mark: 100
Published
Teachers.
components.

PUBLISHED
marking principles.
descriptors.

PUBLISHED

PUBLISHED

shows confusion.
wrongly.)


PUBLISHED
for each answer
stages.
4 Annotation:

PUBLISHED
Marking of work should be positive, rewarding achievement where possible, but clearly differentiating across the whole range of marks, where
appropriate.

AO2 Application
AO3 Analysis
AO4 Evaluation

PUBLISHED
1 Refer to lines 69–70. Analyse how the two changes in the economic environment will impact CQ. 8
AO1 Knowledge and

AO2 Application AO3 Analysis
Level understanding
2 marks 4 marks
2 marks
2 3–4 marks
Developed analysis
two points.
one point.

relevant points is used relevant points to a • Limited analysis that identifies connections
to answer the business context. between causes, impacts and/or consequences of
relevant point is used business context. between causes, impacts and/or consequences of
to answer the one point.
question.

Note:
• If more than two impacts are referred to, reward the best two.

PUBLISHED

Definition of relevant terms from lines 69–70 (max K1 mark):
• Depreciation of exchange rate – a fall in the value of one currency in terms of another.
• Inflation – an increase in the general price level.
• Taxation includes income and corporation tax and indirect taxes such as VAT. Changing levels of taxation is an
element of fiscal policy.
Knowledge of impact of changes in the economic environment on CQ:

• Decreased demand for goods (increase in taxation).
• Higher costs (inflation and/or depreciation of exchange rate).
• Increased export earnings (depreciation of the exchange rate).
AO2 Application
Max one for application for the first element and max one for application for the second element.
• Linking ER depreciation to imports of bamboo from the US or exports of shoes to the US.
• CQ objective is to increase sales to US.
• Linking taxation to demand for shoes and/or CQ’s premium prices.
• Linking inflation to wage demands of workers at factory in country P.
• Linking taxation to CQ’s proposed investment in sustainability.
AO3 Analysis
• Depreciation will make imports of bamboo from the US more expensive therefore increasing CQ costs and
increasing price or reducing gross profit margin.
• Depreciation will reduce price of CQ shoes to US importers and therefore result in an increase in sales volume (and
value) helping to meet CQ objective of growth.

PUBLISHED
1 • Inflation may result in an increase in wage demands from workers at the factory in country P increasing costs of CQ
and therefore reducing profit margins.
• An increase in income tax will reduce consumers’ disposable income leading to a decrease in demand for goods and
therefore a decrease in sales revenue resulting in a decrease in profits.
• Unique nature of CQ’s product may mean that changes in price and income may have only a limited impact on sales
and profit.
• Increase in corporation tax will reduce retained profit and could therefore result in delay in CQ’s plans such as the
investment in sustainability limiting future profit of the company.

PUBLISHED
2 Analyse how two qualities of leadership demonstrated by Frederico have contributed to CQ’s success. 8
AO1 Knowledge and

Level understanding
2 marks 4 marks
2 marks
2 3–4 marks
Developed analysis
two points.
one point.

relevant points is used relevant points to a • Limited analysis that identifies connections
to answer the business context. between causes, impacts and/or consequences of
relevant point is used business context. between causes, impacts and/or consequences of
to answer the one point.
question.

Note:
• If more than two leadership qualities are referred to, reward the best two.

PUBLISHED

Definition of relevant terms (max K1 mark):
• Leadership is the art of motivating people towards achieving a common goal.
• Theories of leadership include trait, behavioural and contingency theory.
Knowledge of leadership qualities (max K2 marks):

• Leadership qualities include:
– Desire to succeed
– Risk taker
– Confidence, self-belief
– Innovative, creative
– Decisive – decision making skills
– Being inspirational
– Honesty and integrity
– Being a good communicator
– Empathy and emotional intelligence
– Leadership styles, such as democratic
– Ability to delegate
AO2 Application
• Qualities illustrated in the case:

– Drive and determination, self-belief – Frederico mortgaged his house to start the business and gave up his role as
an executive.
– He communicates effectively and shows charisma – persuaded a venture capital company to invest in his idea and
persuaded unions to accepts changes in the factory including the loss of jobs.
– Innovative/creative. – it was Frederico’s idea to produce sustainable shoes from bamboo. He spotted a gap in the
market.

PUBLISHED
2 AO3 Analysis
• Frederico demonstrates self-belief, being willing to give up his executive role and mortgage his house to set up the
business. This has enabled the business to finance the investment in product development to bring Frederico’s idea to
market.
• Creativity and innovation have given the business a competitive edge by developing a product that is unique and
meets customer demands for a shoe that is lightweight and comfortable to wear in a hot climate. This increases sales.
• Frederico spotted a gap in the market which enables CQ to face less direct competition and gain control over price
to charge a premium price and make more profit.
• Frederico’s communication skills have encouraged the unions and workers to accept change which will result in job
losses. His vision for the business may inspire loyalty. This negotiation will help CQ solve its operational problems and
reduce costs resulting in a higher profit margin.
3(a) Refer to line 35. Calculate CQ’s capacity utilisation 1
CU = 120 000 / 160 000 X 100 = 75% (1)

Accept answer without % sign, 75 (1)

PUBLISHED
3(b) Refer to Appendix 1. Calculate CQ’s rate of inventory turnover. 3
Inventory turnover = cost of sales / average inventory and/or

Cost of sales = revenue – gross profit (1 mark if no relevant calculation)
Cost of sales = 1.2 – 0.8 = $0.4m (1)
Inventory turnover = 0.4 / 0.13 (2)
Inventory turnover = 3.077 OR 3.08 OR 3.1 OR 3 times (3)
Incorrect unit for final answer e.g. $3.077 OR 3.077% OR 3.077 days (2)
If expressed in days then:

Inventory turnover = average inventory / cost of sales X 365 (1 mark if no relevant calculation)
Inventory turnover = 0.13 / 0.4 X 365 (2)
= 118.6 days OR 119 days (3)
If correct equation stated but then calculation shows 1.2 / 0.13 = 9.23 (2)

PUBLISHED
3(c) Evaluate whether introducing lean production techniques will be sufficient to achieve CQ’s operational objectives. 12
AO1 Knowledge
AO2 Application AO3 Analysis AO4 Evaluation
Level and understanding
2 marks
3 5–6 marks

Developed Developed Developed analysis Developed evaluation
knowledge of application of that identifies • A developed judgement/conclusion
relevant key term(s) relevant point(s) to connections is made.
and/or factor(s) is the business between causes, • Developed evaluative comments
used to answer the context. impacts and/or which balance some key arguments.
question. consequences.



PUBLISHED


Limited knowledge will be demonstrated through knowledge of lean production or knowledge of impact on operational
objectives.
Developed knowledge + will be demonstrated through knowledge of lean production and knowledge of impact on
operational objectives.
• Definition of lean production: reducing all forms of waste.

• Lean production techniques:
– TQM
– Quality circles
– Cell production
– JIT
– Kaizen
– Simultaneous engineering.
• Need for capital investment such as ERP or flexible machinery.
• Knowledge of relevant ratios such as inventory turnover.
AO2 Application
Limited application, applies knowledge to CQ once.
Developed application, + applies knowledge to CQ twice.
• Inventory turnover of 3.08 means that inventory is currently kept for 119 days on average. Objective is to increase
inventory turnover to 5 times.
• Need to hold bamboo material for production and finished shoes to meet fluctuations in demand.
• 5% of output is defective – in six months = 6000 units. Objective is to cut this by 50%.
• CQ has only just taken over the factory. Objective to increase production to full capacity within eight months and
reduce workforce size.
• The shoe manufacturer had been unprofitable when CQ took it over.
• Unions have agreed to changes in working practices.

PUBLISHED
3(c) AO3 Analysis

• By reducing all forms of waste CQ will be more efficient, and this will reduce unit cost of production making CQ
more competitive.
• Lean production includes TQM and quality circles. Giving workers responsibility for quality may increase motivation
resulting in a reduction in defective output, improve quality and productivity, making CQ more competitive.
• Lean production includes JIT manufacturing. Aim to hold zero inventory which will increase inventory turnover
resulting in less inventory holding costs.
• Training of employees will be required thus increasing costs of CQ but this could increase motivation of employees
resulting in higher productivity.
• Lean production aims to use less of everything and therefore may enable production to be maintained whilst reducing
the size of the labour force and therefore reduce unit costs.
• Lean production by building relationship with suppliers could eliminate the supply chain failures thus reducing the
high levels of inventory previously needed.
• Use of JIT may result in CQ running out of inventory and therefore lead to a loss of sales.
AO4 Evaluation
context.
• Elements that the evaluation/judgement might depend on:

– Effectiveness will depend on supplier relationships and reliability of receiving supplies when needed. Supply chain
with bamboo coming from the US may make JIT production difficult to implement due to long lead times.
– Can CQ predict demand accurately? JIT risks lost customers if demand is underestimated.
– Is inventory turnover high or low compared to competitors?
– Was part of the problem that workers are unfamiliar with the production methods for the bamboo shoes after the
takeover?
– Cost of the investment and current financial situation of CQ such as its high gearing.

PUBLISHED
3(c) • Significance of other factors that may also impact success of LP:
– Existing factory, workers may have an ingrained culture to overcome.
• Evaluation of alternative approaches to achieving objectives such as investment in capital equipment or increased
marketing expenditure to increase sales and inventory turnover.
• Supported overall judgement about introduction of LP.
• Accept all valid responses.

PUBLISHED
4(a) Refer to lines 48–49 and Table 1.1. Calculate the net present value (NPV). 4
Net savings Discount Discounted

($) factor @ 6% cash flow
Year 1 150 000 0.94 141 000
Year 2 230 000 0.89 204 700
Year 3 230 000 0.84 193 200
Year 4 210 000 0.79 165 900
Year 5 200 000 0.75 150 000
854 800
NPV = total discounted cash flows – capital cost (1 mark if no correct calculations)
At least one correct discounted cashflow identified for Years 1–5 (1)
Correct calculation of all discounted cash flows for years 1–5
and/or cumulative discounted cash flow of $854 800 for years 1–5 (2)
NPV = 0.8548 – 1 (3)
NPV = ($145 200) OR (145 200) (4)
If answer not shown as negative i.e. $145 200 (3)
Allow rounding of discounted cash flows. Cumulative discounted cash flows 855 000 (2) and NPV of (145 000) (4)

PUBLISHED
4(b) Evaluate whether CQ should invest in measures to improve sustainability. 12
AO1 Knowledge
2 marks
3 5–6 marks




PUBLISHED

OFR from 4(a)

Limited knowledge will be demonstrated through knowledge of sustainability or knowledge of factors in the decision.
Developed knowledge + will be demonstrated through knowledge of sustainability and knowledge of factors in the
decision.
• Understanding of sustainability – business operations that can be maintained in the long term, for example, by
protecting the environment and not damaging the quality of life for future generations.
• Understanding of investment appraisal techniques NPV, ARR and Payback.
• Other factors in the decision:
– Cost
– Availability of finance
– Impact on workers/consumers
– Preferences of owners
AO2 Application
• NPV is negative. Discounted cash flows do not cover the capital cost.
• Payback is 4 years 10.8 months.
• Link between investment and mission statement regarding carbon neutrality.
• Investment will support CQ’s desire to reduce carbon emissions.
• Gearing of CQ is high – 3 / 4.2 X 100 = 71.4%.
• Preference of Frederico as owner.
• $1m required.

PUBLISHED
4(b) AO3 Analysis

• NPV is negative suggesting that the investment is not worth considering as will be loss making in real terms over a five-
year period.
• Investment would boost CQ’s environmental image which could result in higher sales which would increase market
share.
• Improved environmental image would support maintenance of premium prices resulting in higher profits.
• Investment would reduce CQ’s reliance on external supplier of energy reducing the volatility of energy costs and
therefore make planning easier.
• High gearing may make raising finance more difficult from banking sector. This is a significant cost and could
impact liquidity of CQ negatively placing a strain on its finances.
AO4 Evaluation
context.
• Supported judgement as to decision.

• Weighing of factors.
• Most important factor in decision.
• Cost savings are estimates made by the Finance Manager. Can these figures be trusted?
• The data is only on cost savings and may not account for any positive impact of the investment on sales and protection
of premium price.
• Is profit more important to CQ than fulfilling its mission statement?
• The data is only for five years. It is likely that the data is incomplete as solar panels and insulation should bring benefits
over a much longer time period.
• Quantitative vs qualitative factors – NPV suggests that the investment is unprofitable but consistency with mission
statement may be more important in long term.

PUBLISHED
5 Evaluate the importance to CQ’s future success of new product development. 12
AO1 Knowledge
2 marks
3 5–6 marks




PUBLISHED

Limited knowledge will be demonstrated through knowledge of NPD or knowledge of importance.
Developed knowledge + will be demonstrated through knowledge of NPD and knowledge of importance.
• New product development is the design, creation and marketing of new goods and services.
• Research and development is the scientific research and technical development of new products and processes.
• Benefits of new product development:
– Attract repeat purchase by offering a product that is new and better
– Meet customer needs more effectively
– Attract new customers
– Gain a competitive advantage over competition
– Product differentiation
– Control over pricing
– Refresh the brand
– Spreading risk
• Disadvantages of NPD:
– Cost of product development
– Need for market research
– Risk of failure
– Timescale
AO2 Application
• Development of sustainable footwear which is comfortable.

• Development of a product suitable for hot weather.
• Link to mission statement.
• Development of running shoe to challenge leading brands.
• Improvements being made to products each year.
• Reference to celebrity endorsement.
• Process innovation involved in unique construction of the shoes.

PUBLISHED
5 AO3 Analysis
• Improvements in product will maintain consumer interest in CQ’s shoes and prevent the product becoming outdated.
This will result in higher sales and potentially increased profit.
• Celebrity endorsement attracted by the sustainability of the shoe helped build sales initially.
• New product development can be expensive and is not guaranteed to be successful and therefore may constrain
profits and result in solvency issues.
• Product development may contribute to CQ’s image of high-quality and therefore support premium prices and give
higher profit margins.
AO4 Evaluation
context.
• Without product development CQ will lose its competitive edge in the market. Products need to be continually
improving to maintain consumer interest.
• Fashions may change quickly in this industry and so it is important to constantly update products to satisfy consumers.
• Product development was essential to initial success of CQ by producing a product that was different to that of the
competition.
• To challenge leading brands in the running shoe market may require significant product differentiation due to strength
of brand image of existing firms.
• Product development vs market development strategy for success.
• Significance of current economic climate to the decision:
– Higher taxation may constrain finance available.
– NPD could develop cheaper range to counteract the economic constraints faced (higher taxation and inflation).
• Other factors in success:
– Celebrity endorsement might be most important as marketing depended on social media initially. However, was
this a direct result of CQ’s successful product development?

* 9 8 2 1 3 7 0 5 3 9 *
BUSINESS 9609/32
Paper 3 Business Decision-Making October/November 2023
1 hour 45 minutes
INSTRUCTIONS
INFORMATION
DC (CJ) 316909/1
2
Answer all questions.
1 Refer to lines 69–70. Analyse how the two changes in the economic environment will impact CQ.
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2 Analyse how two qualities of leadership demonstrated by Frederico have contributed to CQ’s
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3 (a) Refer to line 35. Calculate CQ’s capacity utilisation.
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(b) Refer to Appendix 1. Calculate CQ’s rate of inventory turnover.
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(c) Evaluate whether introducing lean production will be sufficient to achieve CQ’s operational
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4 (a) Refer to lines 48–49 and Table 1.1. Calculate the net present value (NPV).
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(b) Evaluate whether CQ should invest in measures to improve sustainability.
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8
5 Evaluate the importance to CQ’s future success of new product development.
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BUSINESS 9609/32
INFORMATION
*9821370539-I*

insert.
This document has 4 pages.
DC (CJ) 316910/1
2
Calzado Quila (CQ)
Frederico Lorca set up CQ in 2018 in country P. He had identified a gap in the market for
comfortable, fashionable, sustainable footwear made from bamboo and recycled materials. He
gave up a senior leadership role with a multinational shoe manufacturer to start CQ. Frederico is
very keen to use his previous leadership expertise to lead CQ to success.
To help finance CQ, Frederico used his house as security for a loan. He also persuaded a venture 5
capitalist to take a 49% share of CQ. This finance was used to fund CQ’s innovative product
development. Frederico worked very hard to identify ethical suppliers of suitable materials and
found a shoe manufacturer with high ethical standards in country S. After Frederico had recruited
an experienced management team, CQ was able to launch its innovative new shoe range in 2019.
Frederico was determined to inspire CQ’s employees and other stakeholders with an effective 10
mission statement. He decided that it should be ‘to bring comfort to feet everywhere while working
towards carbon-neutral production and distribution.’
Product development
Bamboo is a material that is light, flexible and hard wearing, with a low environmental impact.
Bamboo used in CQ’s shoes is sourced from the US. CQ’s shoes have a high-quality image and 15
are ideal to wear in hot weather. The unique construction of the shoes requires minimal cutting
and less energy to produce than traditional shoes. CQ continues to invest in product development
and makes changes to its product ranges each year, including improvements in materials and
construction. CQ is currently developing a range of running shoes to challenge leading brands in
the market. 20
Marketing
When CQ launched its shoes in 2019, marketing relied on social media and CQ’s website.
Sales increased rapidly after a film star endorsed the shoes for their comfort and environmental
sustainability. Distribution is mainly direct-to-the-consumer with some use of exclusive retailers.
Prices are lower than major competitors. 25
During the pandemic of 2020–21, CQ benefited from increased online purchasing. CQ increased
advertising promotion in 2022 and the marketing budget is now 10% of revenue. In 2024 most of
the marketing budget will support CQ’s main marketing objective to increase sales to the US.
Moving operations
Until 2023, CQ shoes were manufactured by a business in country S. However, because 30

of changing economic conditions and the challenges of outsourcing production to a foreign
country, Frederico decided to move production to country P. He identified an unprofitable shoe
manufacturer as a target for takeover. The takeover was completed in 2023. During the first six
months of production after the takeover the following operational problems were identified:
• output was 120 000 units, 20 000 units below target and below capacity of 160 000 units 35
• supply chain failures resulted in high levels of inventory being held (see Appendix 1)
• quality control identified 5% of output had defects.
Frederico met with trade unions to discuss these problems. Unions agreed to consider changes in
working practices. However, they agreed to the implementation of lean production if supported by
investment in workforce training. 40
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3
Frederico set three operational objectives:
• to increase production to full capacity within eight months while reducing the size of the
workforce
• to reduce defective output by 50%
• to increase inventory turnover to five times per year. 45
Improving sustainability
Frederico remains committed to CQ’s original mission. The Sustainability Manager recently
completed an environmental audit of CQ operations. Following the audit, he has recommended
that CQ should invest $1m to reduce the carbon emissions of CQ. The investment will include the
following measures: 50
• solar panels to produce 70% of CQ’s energy supply for its factory
• filtration equipment to recycle water used in production
• insulation to reduce energy consumption.
The investment is supported by Frederico. However, the Finance Manager has produced
investment appraisal data (see Table 1.1) and is concerned that the investment will damage CQ’s 55
financial stability. Frederico believes that the data does not show the full impact of the investment
on CQ.
Table 1.1 Investment appraisal data
Net savings Discount factor
($) 6% 60
Year 1 150 000 0.94
Year 2 230 000 0.89
Year 3 230 000 0.84
Year 4 210 000 0.79
Year 5 200 000 0.75 65
Economic challenges ahead
Frederico is concerned that the economic environment will impact CQ’s growth. Economists have
forecast the following changes in the economic environment:
• depreciation of country P’s currency against the US dollar

• an increase in taxation to control the rising inflation rate. 70
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Appendix 1 Extracts of CQ’s financial information 2023 ($m)
At 31 August 2023: Year ending 31 August 2023:

Inventory (average for the year) 0.13 Revenue 1.2
Non-current liabilities 3.0 Gross profit 0.8
Capital employed 4.2 Operating profit 0.2 75
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BUSINESS 9609/33
INFORMATION
*3696368941-I*

insert.
DC (LK) 315930/2
2
Happy Pets (HP)
HP is a public limited company. It is a retailer of pet products such as food and accessories. HP
operates 30 large stores situated on the outskirts of towns and cities in Australasia. Most stores
are located in retail parks that have parking facilities for customers. Each HP store also has a
pet hospital and pet care facility. Evana, HP’s CEO, tells the other directors how important HP’s
mission statement is when making decisions – ‘the first choice one-stop shop for pet products’. 5
HP sells a wide range of pet care products for dogs, cats, and other small animals. Most products
are popular brands, but HP is starting to build a portfolio of its own-brand products. HP also
offers a click and collect service, where customers order products on HP’s website and pick them
up from collection points.
The external environment 10
There has been an increase in pet ownership in Australasia over the last two years, which is
mostly the result of more people working from home. This has led to an increase in demand for pet
products which has encouraged the entry of multinational competitors into the market. Economic
conditions have been favourable, with strong GDP growth and low rates of unemployment.
However, the rate of inflation is increasing and central banks have stated that interest rates will 15
rise in the near future.
Organisational structure and human resource management (HRM)
HP has a decentralised structure with many decisions (such as those on inventory, displays
and recruitment) delegated to store managers. The performance of stores is monitored by four
regional directors who are each responsible for one geographical area. They make regular visits 20
to discuss the performance of each store against budgets and other targets.
HP expects its sales assistants to be ‘passionate about pets’ and ‘willing to learn’. These
statements are included on HP’s person specifications. HP provides an extensive programme
of employee training which is carried out both on-the-job and off-the-job at local colleges. Once
trained, HP’s sales assistants are very knowledgeable about pet care. There are good career 25
opportunities, as HP usually promotes internally. However, increasing competition for experienced
well-trained sales assistants has led to an increase in labour turnover.
HP encourages employees to show enterprise. Recently, a suggestion was made that stores
should have a ‘coffee corner’ with coffee and snack vending machines so that customers can sit
and wait for pet hospital appointments or pet care to be completed. The coffee corner was test 30
marketed at one store and was very popular with customers. The plan is to introduce a coffee
corner to all stores in the near future.
Customer relationships
As an element of its coordinated marketing strategy, HP has a customer loyalty scheme. This
is based on its ‘Happy Pets Club’. Pet owners who join the club receive a loyalty card, monthly 35
online newsletter and personalised special offers. Club members receive points with every
purchase. They can be converted into vouchers to spend at any HP store.
Developing own-brand products
Evana and the other directors have started to develop HP’s portfolio of own-brand products. HP
has taken over Organic Pet Foods, a medium-sized business that manufactures organic pet food 40
products. The factory uses labour-intensive batch production methods. These methods have
contributed to high inventory levels. The products have been rebranded as ‘HP Organic’.
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Evana thinks that this vertical integration will give HP the ability to control the quality of its
own-brand products, which supports its coordinated marketing strategy.
Plans for automated production 45
Evana and the Operations Director have decided to modernise the factory and replace all the
batch production equipment with automated machinery costing $15 million. The trade union
representative in the factory is threatening to resist any changes that lead to job losses.
Evana forecasts that modernisation will increase the production capacity by 20% in 2024. HP’s
marketing department has undertaken market research into the demand for organic petfood. 50
HP’s capacity and output data are shown in Table 1.1.
Table 1.1 HP’s capacity and output data
Actual Forecast
2023 2024
Maximum capacity (units) 15 million 55
Output (units) 14 million 16 million
The market research has allowed HP to estimate the income elasticity of demand for organic pet
food as +2.
Table 1.2 shows financial data for HP.
Table 1.2 Financial data for HP, 2023 60
$
Revenue 95 m
Profit for the year 12 m
Non-current liabilities 100 m
Shareholders’ equity 65
110 m
(issued shares + reserves)
Total dividend paid 7m
Dividend per share 2.50
Share price 8.00
Evana must decide how to finance the investment in factory modernisation. She would like to 70
extend HP’s bank borrowing but some of the other directors favour a new share issue.
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* 3 6 9 6 3 6 8 9 4 1 *
BUSINESS 9609/33
1 hour 45 minutes
INSTRUCTIONS
INFORMATION
DC (LK) 315929/2
2
1 Analyse two constraints on HP of changes in its external environment.
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2 Analyse two benefits to HP of its coordinated marketing strategy.
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3 (a) Refer to Table 1.1 and lines 49 to 51. Calculate the forecast capacity utilisation in 2024.
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(b) Refer to lines 57 to 58 and assume no other changes. Calculate the forecast percentage
change in sales for 2025 if average incomes increase by 1.5%.
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(c) Evaluate whether the factory modernisation will be sufficient to improve efficiency.
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4 (a) Refer to Table 1.2. Calculate the gearing ratio for 2023.
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(b) Evaluate whether the financial data provided will enable HP to decide how to finance the
factory modernisation.
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5 Evaluate the importance to the future success of HP of its HRM strategy.
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BUSINESS 9609/33
MARK SCHEME
Maximum Mark: 100
Published
Teachers.
components.

PUBLISHED
marking principles.
descriptors.

PUBLISHED

PUBLISHED
1. Components using point-based marking:

shows confusion.
a. DO credit answers which are worded differently from the mark scheme if they clearly convey the same meaning (unless the mark
b. DO credit alternative answers/examples which are not written in the mark scheme if they are correct
c. DO credit answers where candidates give more than one correct answer in one prompt/numbered/scaffolded space where extended
d. DO NOT credit answers simply for using a ‘key term’ unless that is all that is required. (Check for evidence it is understood and not used
wrongly.)
e. DO NOT credit answers which are obviously self-contradicting or trying to cover all possibilities
f. DO NOT give further credit for what is effectively repetition of a correct point already credited unless the language itself is being tested.
g. DO NOT require spellings to be correct, unless this is part of the test. However spellings of syllabus terms must allow for clear and
2. Presentation of mark scheme:


PUBLISHED
3. Calculation questions:
for each answer
stages.
4. Annotation:

PUBLISHED
1 Analyse two constraints on HP of changes in its external environment. 8
AO1 Knowledge and

Level understanding
2 marks 4 marks
2 marks
2 3–4 marks
Developed analysis
two points.
one point.

relevant points is relevant points to a • Limited analysis that identifies connections between
used to answer the business context. causes, impacts and/or consequences of two points.
question. • Application of one • Limited analysis that identifies connections between
• Knowledge of one relevant point to a causes, impacts and/or consequences of one point.
relevant point is business context.
used to answer the
question.

Note:
• Only reward constraints.
• If more than two constraints are referred to, reward the best two.
• All annotation ( ) should be in the left margin.

PUBLISHED

• Definition of external environment: those factors outside the control of a business.
• Constraints: those external factors that might hold the business back or put limitations on its activities.
• Meaning of external factors such as economic and political factors and competition.
• Impact of external factors such as:
– laws limiting business activity
– cost (inflation)
– limiting HP’s growth
– limiting demand for HP’s products.
AO2 Application
Max one for application for the first constraint and max one for application for the second constraint.
• HP is facing more competition from multi-national companies who have entered the market in response to increased
demand for pet products, this is likely to continue (link to labour turnover).
• Many pet care products, especially organic pet food may be regarded as ‘luxury’ items, the same may be said of pet
ownership to some extent (link to demand if real incomes decrease due to inflation).
• Increasing inflation (link to costs of organic inputs for HP).
• Central bank decision to increase interest rates in the near future (link to demand for pet food or plans to borrow for
factory modernisation).
• Plans to automate production (link to employment law).
• Competition law and takeovers such as Organic Pet Foods.

PUBLISHED
1 AO3 Analysis
• The entry of multi-national companies into the market for pet-care products may well offer lower prices due to their
economies of scale , leading to lower sales and profits for HP.
• Inflation and higher interest rates will reduce HP’s growth because consumer disposable incomes and confidence will
decrease, leading to lower demand, especially for highly income elastic products such as organic pet food.
• Higher interest rates may make expansion plans more expensive therefore delaying factory modernisation and
resulting in lower growth for HP.
• Increasing competition from multinational competitors will impact labour costs as labour turnover increases and this
may force HP to increase wages to retain employees.

PUBLISHED
2 Analyse two benefits to HP of its coordinated marketing strategy. 8

2 marks
2 3–4 marks
Developed analysis
two points.
one point.

relevant points is relevant points to a • Limited analysis that identifies connections between
used to answer the business context. causes, impacts and/or consequences of two points.
question. • Application of one • Limited analysis that identifies connections between
• Knowledge of one relevant point to a causes, impacts and/or consequences of one point.
relevant point is business context.
used to answer the
question.

Note:
• If more than two benefits are referred to, reward the best two.

PUBLISHED

Definition of relevant terms (max K1 mark)
• Meaning of coordinated marketing strategy – different elements of marketing strategy working in tandem to achieve
marketing objectives.
• Meaning of customer relationship marketing – using marketing activities to build and establish good customer
relationships.
Benefits of a coordinated marketing strategy (max K2 marks):

• 4Ps aligned with each other to avoid an inconsistent message to customers.
• Promotion tactics will be coordinated with the promotion budget.
• Marketing mix will be coordinated with marketing budget.
AO2 Application
• The coordinated marketing strategy includes a wide range of pet related products, knowledgeable sales assistants the
‘Happy Pet Club’ and buy in store or online and click and collect.
• Different products in mix, including ‘premium’ organic pet food.
• The Happy Pet Club is a good way to keep record of customers and their pet care spending patterns.
• Link coordinated marketing mix with HP’s ‘one stop shop for pet products’ mission.
• The benefits to customers such as advice, special offers and vouchers will keep pet owners returning to HP.
• It will be easy to promote ‘new’ products or services to pet owners, as the target market is already identified.
• The Happy Pet Club card can be used for in-store sales and ‘click and collect’.

PUBLISHED
2 AO3 Analysis
• Knowledgeable sales assistants will increase customer’s confidence and trust in HP resulting in higher sales and
therefore profit may increase.
• Happy Pet Club loyalty card records can be used to personalise marketing communications, for example sending cat
owners special offers for cat food, which should lead to more customers using their vouchers and increased sales.
• Tracking loyalty card sales will be a useful way of spotting demand trends, such as increasing sales of organic
products. This means that HP can react to these trends quickly, gaining ‘first mover advantage’ and increased
sales.
• Coordinated marketing strategy will ensure that different elements of the marketing mix support each other which will
lead to a more efficient use of resources such as budget resulting in more sales for each dollar spent.

PUBLISHED
3(a) Refer to Table 1.1 and lines 49 to 51. Calculate the forecast capacity utilisation in 2024. 3
Table 1.1 HP’s capacity and output data

Actual Forecast
2023 2024
Maximum capacity (units) 15 million
Output (units) 14 million 16 million
(Forecast) capacity utilisation = (Forecast) output / maximum output  100 (1 mark if no relevant calculation)
The maximum capacity in 2024 is 15 million + 20% = 18 million (1)
Forecast output is 16 million so 16million / 18 million  100 (2)
= 88.89% or 88.9% or 89% (3)
Alternative answers:
14/15  100 = 93.3% (2)
16/15  100 = 106.7% (2)
Note: % not needed for full marks.
3(b) Refer to lines 57 to 58 and assume no other changes. Calculate the forecast percentage change in sales for 2025 if 1
average incomes increase by 1.5%.
The market research has allowed HP to estimate the income elasticity of demand for organic pet food as +2.
If average incomes go up by 1.5%, then demand will increase by 1.5  2 = 3% (1)
Note: % not needed for full marks.

PUBLISHED
3(c) Evaluate whether the factory modernisation will be sufficient to improve efficiency. 12

2 marks
3 5–6 marks

consequences.



PUBLISHED


• Efficiency: maximum output from available inputs.
• Knowledge of automated production systems such as (CAM) use of computer software to control machine tools and
equipment in manufacturing products.
• Impacts of automated machinery:
– less labour
– increased maximum output
– lower unit costs
– more consistent standards of output.
AO2 Application
Limited application, applies knowledge to HP once.
Developed application, + applies knowledge to HP twice.
• Automation will lead to capital intensive manufacturing, a change from the current labour intensive batch production.
• The high ($15m) initial cost will require finance.
• There will be less need for production workers in the factory, the trade union representative is threatening to resist job
losses.
• The trend of rising demand suggests the need for greater capacity at the pet food factory.
• Modernisation will increase the forecast capacity in 2024 to 18 million units.
• The forecast for capacity utilisation in 2024 is high (89%).

PUBLISHED
3(c) AO3 Analysis

• Automation can lead to precise manufacturing which will reduce quality problems and therefore making more
efficient use of inputs.
• Machinery can replace labour and therefore reduce the labour force whilst maintaining or increasing output. .
Therefore, there is an increase in labour productivity.
• Automated machinery can enable more flexible production which allows a quicker changeover from one product to
another thus reducing downtime and increasing productivity.
• The high forecast capacity utilisation in 2024 means there is little, if any spare capacity, so modernisation may enable
an increase in output and sales and therefore an increase in market share.
• Favourable current economic conditions mean the market for this luxury pet food product is growing, potential for
higher sales and market share if capacity is available.
• The change from batch production could result in lower levels of inventory and therefore increase efficiency.
However:
• Introducing the new machinery may be resisted by trade unions resulting in disruption to production causing a
decrease production and efficiency.
• Economic conditions may not continue to be favourable, which could lead to pet owners switching to lower priced
products and sales not increasing so fast, this would lead to excess capacity in future.
• The change to capital intensive will lead to job losses and redundancy payments increasing costs in the short term
and possibly resulting in negative publicity impacting sales.

PUBLISHED
3(c) AO4 Evaluation

context.
• Factors that increasing efficiency might depend on:

– How accurate might sales forecasts turn out to be?
o If sales don’t increase then efficiency will decrease as there will be an increase in excess capacity.
o Possible impact of external factors, such as changes in economic conditions.
– Reliability of machinery. Hardware failure and breakdowns can be complex and time-consuming to fix.
– Response of trade union to modernisation.
– Need for employee training following modernisation.
– Quality assurance is still needed. Errors in programs can produce faults that have to be identified and corrected.
• Evaluation of alternative approaches to increasing efficiency/output, such as out sourcing.

PUBLISHED
4(a) Refer to Table 1.2. Calculate the gearing ratio for 2023. 4
Table 1.2 Financial data for HP, 2023

$
Revenue 95m
Profit for the year 12m
Non-current liabilities 100m
Shareholders’ equity (issued shares + reserves) 110m
Total dividend paid 7m
Dividend per share 2.50
Share price 8.00
Answer given Notes Mark

47.62% OR 47.6% OR 48% Correct answer 4
% not required for full marks
Gearing = 100m / 210m  100 Correct method and values for NCL 3
& CE but no correct final answer
Gearing = NCL / CE  100 Correct equation AND correct 2
AND calculation of CE
CE = $110m
Gearing = NCL / CE  100 Correct formula for gearing 1
OR OR
CE = $210m Correct calculation of CE
AND/OR AND/OR
CE = Shareholders’ Equity + NCL Correct formula for CE
No Creditable Content 0

PUBLISHED
4(b) Evaluate whether the financial data provided will enable HP to decide how to finance the factory modernisation. 12

2 marks
3 5–6 marks

consequences.



PUBLISHED


Limited knowledge will be demonstrated through knowledge of financial data or knowledge of sources of finance.
Developed knowledge + will be demonstrated through knowledge of financial data and knowledge of sources of
finance.
• Understanding of gearing ratio.

• Understanding of new share issue as a source of finance.
• Understanding of bank borrowing as a source of finance.
• Meaning of dividend yield ratio.
AO2 Application
• Investment needed is $15m will increase forecast gearing from 47.62% to 51.11% which would be considered high.
• NCL is $100m.
• Current dividend yield is 31.25%, a good return for investors.
• The dividend cover ratio is 1.71, HP well able to afford dividends.
• Interest rates are likely to be increasing, this will mean bank borrowing is more expensive.
• Profit for the year is $12m and dividend paid is $7m so retained profit is $5m.
• Profit for the year margin is 12/95  100 = 12.63%.
• The modernisation will lead to higher output of organic pet food in the future and higher sales revenue and profit.

PUBLISHED
4(b) AO3 Analysis

• The current dividend yield is relatively high which would support decision to issue shares as it would encourage
investors to buy shares thus raising the finance and making the share issue a success.
• Dividend cover ratio indicates that HP can afford current level of dividends and suggest good dividends in future,
may encourage investors.
• Bank borrowing will mean paying interest, so cost is potentially greater than a share issue but gearing is below 50%
so banks may be willing to lend to HP not seen as high risk.
• Analysis of factors influencing decision other than financial data.
• A new share issue will take more time to arrange than bank borrowing, potentially delaying the modernisation project.
AO4 Evaluation
context.
Supported judgement as to whether the financial data will/will not enable decision to be made about source of finance:
• Retained profit appears insufficient as profit for the year is $12m and dividends paid is $7m so $5m of retained profit
might be available but this could have been used already. Seems highly unlikely that there is insufficient retained profit
for the investment.
• Gearing is only just below 50% suggesting a degree of risk in further borrowing of $15m. This may favour a new share
issue to keep gearing below 50%.
• Attitude of directors to risk will be significant.
• Whether to issue new shares may depend on whether this might make HP a takeover possibility.
• Likely increase in interest rates important as it will increase cost of borrowing making a bank loan less attractive.
However, HP may be able to negotiate a loan before this change in monetary policy.
• Evana’s influence as CEO.

PUBLISHED
5 Evaluate the importance to the future success of HP of its HRM strategy. 12

2 marks
3 5–6 marks
• A developed
judgement /conclusion is made in
the business context.

consequences.



PUBLISHED

Limited knowledge will be demonstrated through knowledge of HRM strategy or knowledge of impact of HRM strategy.
Developed knowledge + will be demonstrated through knowledge of HRM strategy and knowledge of impact of HRM
strategy.
• Meaning of HRM strategy – approaches to the management of employees of a business.

• Knowledge of the difference between soft and hard HRM.
• Knowledge of other relevant HRM strategies such as management by objectives (MBO).
• Knowledge of decentralised structure and implications for HRM.
• Knowledge of impacts including:
– motivation of employees
– labour turnover
– productivity
– decision making
– customer satisfaction
– sales.
AO2 Application
• HP seems to have more of a soft HRM approach, including delegation to store managers, employee training and
involvement of employees in decision making.
• HP welcomes ‘intrepreneurship’ new ideas from employees, such as the coffee corner.
• Training is important as employees need to be knowledgeable about pet care.
• There are opportunities for promotion, such as to HP store supervisors or managers for those trainees who are
ambitious.
• Stores have performance targets, which may also suggest an MBO approach.

PUBLISHED
5 AO3 Analysis
• Soft HRM approaches, such as training, delegation and accepting employee ideas, are likely to lead to greater
employee loyalty resulting in lower labour turnover which will reduce costs of recruitment and training leading to
higher profit.
• Well trained employees will be a USP for the business resulting in higher levels of customer satisfaction which may
increase long term sales through repeat purchase.
• Target setting for each store linked with an MBO approach will make it easier to identify stores and individuals who are
under and over performing, so that rewards can be given or changes made.
• Delegation of decision making to store managers will make HP more responsive to changing local needs thus
increasing customer satisfaction and sales.
• Empowering employees will encourage innovation such as the coffee corner which increases revenue .
• Delegation of decisions to store managers could result in poor decision making if managers lack experience leading to
a less consistent corporate/brand image in the stores.
• Employee training programmes may be expensive, especially off-the-job training reducing profit and there is a risk
that employees could be poached by competitors, especially in view of new multi-nationals entering the market. This
would lead to a waste of the money spent on training.
AO4 Evaluation
context.
• Supported judgement as to whether HP’s HRM strategy(s) is likely to lead to future success.
• Success of any strategy will depend on the extent to which HP employees meet the needs of customers.
• Success of any strategy will depend on effective leadership from Evana. As HP diversifies and grows, will this become
more challenging?
• What might success mean in this context? Is it more than profit? Reference to ‘one stop shop for pet products' mission.

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Cambridge International AS & A Level

INSERT 1 hour 45 minutes

● This insert contains the case study.

This document has 4 pages. Any blank pages are indicated.

Free Wheeling Bean (FWB)

Delegate more responsibility?

A new marketing mix

Government legal changes 35

© UCLES 2023 9609/32/INSERT/F/M/23

Table 1.1 ERP investment appraisal extract

Year Net cost savings ($000)

Financial performance and growth

Table 1.2 Selected accounting ratio analysis for FWB

© UCLES 2023 9609/32/INSERT/F/M/23

You must answer on the question paper.

You will need: Insert (enclosed)

This document has 12 pages. Any blank pages are indicated.

Answer all questions.

© UCLES 2023 9609/32/F/M/23

2 Analyse two benefits to FWB of delegating more decision-making to van managers.

© UCLES 2023 9609/32/F/M/23 [Turn over

© UCLES 2023 9609/32/F/M/23 [Turn over

© UCLES 2023 9609/32/F/M/23

© UCLES 2023 9609/32/F/M/23 [Turn over

© UCLES 2023 9609/32/F/M/23

© UCLES 2023 9609/32/F/M/23

© UCLES 2023 9609/32/F/M/23

© UCLES 2023 9609/32/F/M/23

This document consists of 24 printed pages.

© UCLES 2023 [Turn over

GENERIC MARKING PRINCIPLE 1:

Marks must be awarded in line with:

GENERIC MARKING PRINCIPLE 2:

GENERIC MARKING PRINCIPLE 3:

Marks must be awarded positively:

GENERIC MARKING PRINCIPLE 4:

© UCLES 2023 Page 2 of 24

GENERIC MARKING PRINCIPLE 6:

© UCLES 2023 Page 3 of 24

1 Components using point-based marking:

From this it follows that we:

2 Presentation of mark scheme:

© UCLES 2023 Page 4 of 24

© UCLES 2023 Page 5 of 24

AO1 Knowledge and understanding

© UCLES 2023 Page 6 of 24

Level AO1 Knowledge and AO2 Application AO3 Analysis

1 1–2 marks 1–2 marks 1–2 marks

0 0 marks 0 marks 0 marks

All annotation ( ) should be in the left margin.

© UCLES 2023 Page 7 of 24

1 Responses may include:

AO1 Knowledge and understanding

Knowledge of impact of legal changes might include (max K2):

• Minimum wage paid is currently paid to employees. This could increase.

© UCLES 2023 Page 8 of 24

Accept all valid responses.

© UCLES 2023 Page 9 of 24

2 Analyse two benefits to FWB of delegating more decision-making to van managers. 8

Level AO1 Knowledge and AO2 Application AO3 Analysis

1 1–2 marks 1–2 marks 1–2 marks

0 0 marks 0 marks 0 marks

© UCLES 2023 Page 10 of 24

2 Responses may include: